First Look

November 14, 2007

How much is your business constrained by laws developed decades ago that no longer fit the competitive landscape? The ties between law and finance are big topics in the study of business history. As HBS professor Aldo Musacchio details in a forthcoming issue of the Journal of Economic History, Brazil offers a good illustration of the complicated relationship between legal origin and the development of bond markets. What he found: the adoption of laws does not necessarily hamper future financial development, since the bond market in particular varies substantially over time. This week also sees cases that look at everything from Unilever's Real Beauty campaign, a controversial repositioning of Dove soap; family business compensation in Kohl Industries; dilemmas facing French non-governmental organization PlaNet Finance, which provides technical support and training services to microfinance institutions; and the evolution of French multinational Thomson.
— Martha Lagace

Working Papers

None Available This Week


Cases & Course Materials

Assessing and Enhancing Individual Power in the Family Business System

Harvard Business School Note 808-026

Describes how to asses and enhance an individual's bases, sources, and levels of power in a family business system. Relies on Franch and Raven's framework that identifies five bases of social power (reward, coercive, legitimate, referent, and expert), describing how these bases change depending on the circumstances of a relationship. Also describes how an individual's roles, resources, and relationships in and out of a family business system provide the sources of these bases of power. Discusses the connection between power and dependency in a relationship. Finally, discusses how to enhance individual power in a relationship.

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'Doer's Profile' Nelson Mandela (1918- )

Harvard Business School Case 808-040

Profile of Nelson Mandela designed to facilitate a discussion of the nature of enduring success. Includes both biographical data and excerpts from autobiographical records.

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Dove: Evolution of a Brand

Harvard Business School Case 508-047

Examines the evolution of Dove from functional brand to a brand with a point of view after Unilever designated it as a masterbrand and expanded its portfolio to cover entries into a number of sectors beyond the original bath soap category. The development causes the brand team to take a fresh look at the clichés of the beauty industry. The result is the controversial Real Beauty campaign. As the campaign unfolds, Unilever learns to use the Internet, and particularly social network media like YouTube, to manage controversy.

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HCA, Inc. (B)

Harvard Business School Supplement 208-070

Supplements the (A) case.

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iPhone vs. Cell Phone

Harvard Business School Case 708-451

The launch of Apple's iPhone marked a pivotal new chapter in the story of mobile music (the uniting of digital music players with mobile phones). The iPhone combined an iPod music player, a cell phone, and a mobile Internet device, along with a camera and other features. By September 2007, just 74 days after the June launch of the iPhone, Apple and its mobile carrier partner AT&T Mobility had sold one million units. When Apple CEO Steve Jobs introduced the product in January 2007, he said that the goal behind it was to "reinvent the phone." Yet both the device and the mobile service provided by AT&T involved limitations that could hinder the long-term prospects for the iPhone. At the same time, handset makers and other mobile carriers had brought, or would soon bring, various "iPhone killers" to the market.

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Kohl Industries

Harvard Business School Case 808-078

Describes a compensation dilemma with a father and his three children, who work in different businesses under the family holding companies. The father, James Cole, must set compensation that meets the needs of the family and the business.

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Managing in the Information Age Module Note for Students: Enterprise IT

Harvard Business School Module Note 608-075

Introduces students to the concepts covered in the Managing in the Information Age module on Enterprise IT.

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Managing in the Information Age Module Note for Students: Function IT

Harvard Business School Module Note 608-077

Introduces students to the concepts covered in the Managing in the Information Age module on Function IT.

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Managing in the Information Age Module Note for Students: Network IT

Harvard Business School Module Note 608-076

Introduces students to the concepts covered in the Managing in the Information Age module on Network IT.

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Nestle Milk Districts: China (Abridged)

Harvard Business School Supplement 907-402

Supplements the case "Nestle's Milk District Model: Economic Development for a Value-Added Food Chain and Improved Nutrition."

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A Note on Private Equity in Developing Countries

Harvard Business School Note 208-037

Provides the background and high-level situation of private equity in emerging markets as of the end of 2006.

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PlaNet Finance: Broad Scope in Microfinance

Harvard Business School Case 708-441

PlaNet Finance was a French NGO providing technical support and training services to microfinance institutions (i.e., institutions providing financial services to the poor) and other microfinance actors, rating of microfinance institutions and management, and advisory services to microfinance investors and investment funds. Furthermore, it was creating a network of microfinance banks through a microfinance holding company. However, in a context of rapid change and explosive growth of the microfinance sector, Jacques Attali, the founder and president, wondered whether PlaNet Finance's scope was sufficiently broad to fulfill its mission or, on the contrary, whether it needed to be narrowed in order to eliminate organizational challenges and external perceptions of conflicts of interest.

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Real Options Exercises

Harvard Business School Exercise 208-045

Introduces students to simple forms and solution techniques for real options found in corporate settings. Revised versions of problems appearing in an older problem set (293-095). The basic differences are that the new set is shorter, but also a bit more demanding.

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'Shad' Process Flow Design Exercise

Harvard Business School Exercise 608-072

Provides detailed instructions to prepare for factory demonstration day. A rewritten version of an earlier exercise.

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Structuring Real Estate Deals: An Investor's Perspective

Harvard Business School Note 208-066

Addresses the following questions: What are the portfolio-level implications? What are the asset-level characteristics? How do I invest? With whom do I invest? What do I get for my investment? What protections do I have? When and how do I get out?/p>

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TA Associates—MetroPCS (A)

Harvard Business School Case 208-042

Hythem El-Nazer, a young investment professional at TA Associates, believes he has found an attractive investment opportunity for the firm, MetroPCS, a wireless telecomm service provider. However, two months earlier, TA had invested considerable resources on this company, before the company decided it could not raise equity capital, due, in part, to some accounting problems. Should El-Nazer bring this deal opportunity to the attention of TA's CEO, or should he do precisely what the CEO had told him two months earlier, "stop wasting his time on this company"?

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TA Associates—MetroPCS (B)

Harvard Business School Supplement 208-058

Supplements the (A) case.

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Technical Note on Financial Leverage in Real Estate

Harvard Business School Note 208-041

Demonstrates the accelerating impact of leverage on returns under differing scenarios of property performance. The performance scenarios represent two points in time: the inception of the investment and the liquidation.

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Teradyne: The Aurora Project

Harvard Business School Case 397-114

Three cases deal with the introduction of a new product to Teradyne's line of semiconductor test equipment. Teradyne: Managing Strategic Change provides historic and administrative background for the other two cases. This case deals with the problems facing the head of a start-up division responsible for developing and bringing to market a new product based on technology deemed very important to the future but unattractive to present customers and, therefore, the operating divisions. This revision is shorter and provides a simpler description of the technology involved. "Teradyne: Managing Disruptive Change" deals with the same set of problems from the perspective of corporate management—in particular why the skunk works approach was necessary and what new problems this approach creates even if the project is successful.

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The Transformation of Thomson

Harvard Business School Case 708-428

Thomson, a French multinational, went through a decade of dramatic change in the early years of the 21st century. From a state-owned enterprise earning 97% of its revenue from television sets and other analog consumer electronics, Thomson had become a publicly traded company providing digital video services and equipment to major movie studios, broadcast networks, and retailers, as well as satellite, cable, and telecom operators. The Group had just met its financial targets for 2006 and had achieved organic growth of 6% in the first half of 2007. Yet even as he reflected on these successes, CEO Frank Dangeard knew that much remained to be done to secure the company's leadership position against aggressive competition in a rapidly shifting and uncertain technological environment. Traces the evolution and transformation of the company and highlights the difficult choices Thomson faces in an ever-evolving high-tech industry.

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Will RacingThePlanet Ltd. Reach the Finish Line?

Harvard Business School Case 807-148

Mary Gadams, founder and CEO of RacingThePlanet is facing one of the many logistical crises that her young Hong Kong-based venture faces as it stages its popular 4Deserts™ adventure marathon series in Atacama, Chile; Gobi Desert, Mongolia; Sahara Desert, Egypt; and Antarctica. How can a small company in Hong Kong continue to effectively coordinate such a far-flung, complex, global operation?

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Strategies of Innovation and Imitation of Product Languages


Nowadays, design is recognized as a strategic resource. Customers are increasingly paying attention to the aesthetic, symbolic, and emotional value of products, a value that is conveyed by the design language—that is, the combination of signs (e.g., form, colors, materials) that gives meaning to a product. As a consequence firms are devoting increasing efforts to define a proper strategy for the design language of their products. An empirical analysis was conducted on the product language strategies in the Italian furniture industry; in particular, the present article explores the relationship between innovation and variety of product languages. Companies are usually faced by two major strategic decisions. The first one concerns the innovation of product languages: To what extent should a firm proactively propose new design languages or, rather, should adopt a reactive strategy by rapidly adopting new languages as they emerge in the market? The second decision concerns the variety and heterogeneity of languages in their product range. Should a firm propose a single product language to communicate a precise identity, or should it explore different product languages? Of course, the two strategic decisions—innovativeness and variety of product languages—are closely connected. Analyzing more than 2,000 products launched by 210 firms, the present article explores how the variety of product languages is approached in the strategy of innovators and imitators.

The Country Effect: Leveraging the Origin of a Brand for the Global Markets (El efecto país: cuándo capitalizar el origen de una marca en los mercados globales)

Abstract (in Spanish)

Entre los consumidores más jóvenes, la procedencia de una marca no hace tanta diferencia. De hecho, un estudio reciente de Samsung descubrió que la imagen país no exhibe ningún impacto significativo en la imagen de marca ni en la intención de compra, al menos cuando se trata de una marca establecida. ¿Pero qué pasa cuando la marca es nueva o relativamente desconocida en el mercado? El profesor de Harvard Business School Rohit Deshpandé responde que en esos casos el efecto país puede tener un impacto primario en la evaluación de la marca mientras se vuelve parte integrante de la imagen de marca. Por ello es que existen casos (como los que usa como ejemplo: Lan Airlines, Corona, Café Colombia, SIA, entre otros) en los que una empresa puede ganar acceso a los mercados globales si escoge la forma adecuada de lidiar con su origen: ya sea matizándolo, ocultándolo o realzándolo para crear la imagen con la que desea llegar a los consumidores del mundo. Para afrontar adecuadamente esta decisión, el autor hace cuatro recomendaciones:

  • La mejor estrategia de ingreso no es necesariamente la mejor estrategia para el desarrollo de mercado.
  • El desarrollo económico de un país no siempre se correlaciona con la etapa de desarrollo del mercado para los productos.
  • Conocimiento del marketing (relacionado con el producto) y conocimiento del mercado (relacionado con el territorio) son dos cosas distintas.
  • Pocos clientes se benefician del marketing globalizado, pero las empresas de marketing sí lo hacen.
  • Si, como muchas empresas latinoamericanas, su empresa quiere dejar de vender productos de bajo costo y saltar a los productos premium en el mercado global, debe poner atención al afecto país.

Dependence Asymmetry and Joint Dependence in Interorganizational Relationships: Effects of Embeddedness on a Manufacturer's Performance in Procurement Relationships


This study of the procurement relationships of two major U.S. auto manufacturers examines the effects of two dimensions of organizational interdependence on the performance of those relationships for the manufacturer: dependence asymmetry; the difference in actors' dependencies on each other in a dyadic exchange relationship; and joint dependence, the sum of dependence between actors in the relationship. Rather than focusing solely on dependence advantage and the concomitant logic of power, we focus on joint dependence, which operates through a logic of embeddedness. We examine how the effect of joint dependence on performance is mediated by specific elements of embeddedness: joint action, trust, and the quality and scope of information exchange. Results show that joint dependence enhances the performance of procurement relationships for manufacturers and that this effect is partially mediated by the level of joint action and the quality of information exchange between the partners. Decomposing dependence asymmetry into the conditions of a manufacturer's and a supplier's dependence advantage, we also find that while the manufacturer's dependence advantage diminishes its performance, the supplier's dependence advantage has a null effect. We discuss the implications of these findings for studies of interorganizational interdependence.

The Influence of Financial Statement Recognition and Analyst Coverage on the Market's Valuation of R&D Capital


Statement of Financial Accounting Standards 141 (SFAS No. 141)'s requirement that an acquirer in a business combination estimate the fair value of the target's separately identifiable assets and liabilities (including research and development capital) provides a rare occasion where estimated fair values of U.S. firms' research and development (R&D) capital based on private information about their R&D activities are publicly disclosed. The degree to which equity values impound the estimated fair values of R&D depends upon the extent to which the private information implicit in the R&D estimates is reflected in investor expectations. Financial statement recognition of R&D capital and analyst activities have been cited as alternative mechanisms by which private information about firms' R&D activities can be revealed to investors. I investigate the degree to which both mechanisms lead to the public revelation of the private information implicit in the R&D fair value estimates by examining whether financial statement recognition of R&D assets by the target prior to the merger announcement and/or analyst coverage of a target prior to the merger announcement influence the degree to which the target's pre-merger announcement equity value reflects the acquirer's subsequently disclosed estimate of the fair value of the target's R&D capital. I find that the degree to which a target's pre-merger announcement equity value reflects the estimated fair value of its R&D capital is increasing in the amount of R&D-related intangibles captured in the target's pre-merger announcement balance sheets and in the number of analysts covering the target prior to the merger announcement. This evidence is consistent with the notion that both financial statement recognition and analysts' private information search activities lead to the revelation of private information about the value of R&D assets that investors incorporate into equity values. I further find that the positive relation between analyst following and the market's valuation of R&D capital is strongest for the portion of the estimated fair value of R&D capital that is unrecognized by the target prior to the merger announcement. This finding is consistent with analysts filling in the information gap left by the lack of financial statement recognition. The results of this study confirm the theorized roles of financial statement recognition and analyst activities in aiding the market's valuation of intangible assets.

Can Civil Law Countries Get Good Institutions? Lessons from the History of Creditor Rights and Bond Markets in Brazil


Does a legal tradition adopted in the distant past constrain a country's ability to provide the protection that investors need for financial markets to develop? This paper contributes to the literature that studies the connection between law and finance by looking at the relationship between legal origin and the development of bond markets. The paper shows that there is too much variation over time in terms of bond market size, creditor protections, and court enforcement of bond contracts to assume that the adoption of a legal system can constrain future financial development. The paper examines in detail the evolution of bond markets in Brazil, a French civil law country, and provides preliminary results of similar variation for a small cross-section of countries.