First Look

October 24, 2006

Why is it so difficult for companies to estimate with some degree of accuracy their sales and operations needs more than a year out? One reason: Corporate forecasters have built-in biases that cloud their judgment. A new working paper by Harvard Business School's Noel Watson and Texas A&M's Rogelio Oliva tackles the subject of supply chain forecasting and looks at the success one consumer electronics firm had in employing a consensus forecasting process that smoothed out political conflict as well as individual and group biases. Also noted below are a new book chapter on the intricacies of customer management by HBS's Das Narayandas and coauthor Douglas Bowman, case studies on Brazil cosmetic maker Natura's globalization efforts, and Mount Auburn Hospital's implementation of a digital order entry system for physicians.
— Sean Silverthorne

Working Papers

Managing Functional Biases in Organizational Forecasts: A Case Study of Consensus Forecasting in Supply Chain Planning


To date, little research has been done on managing the organizational and political dimensions of generating and improving forecasts in corporate settings. We examine the implementation of a supply chain planning process at a consumer electronics company, concentrating on the consensus forecasting approach around which the process revolves. Our analysis reveals how the implemented forecasting process manages the political conflict and individual and group biases occasioned by organizational differentiation. We categorize the sources of functional bias into intentional, driven by misalignment of incentives, and unintentional resulting from informational and procedural blind spots. We find consensus forecasting, despite a number of characteristics that make it a challenge to fit to a dynamic supply chain environment, to be effective in that context. We further show that the forecasting process, together with the supporting mechanisms of information exchange and elicitation of assumptions, is capable of managing the political conflict and the informational and procedural shortcomings that accrue to organizational differentiation. Finally, we show that the creation of an independent group responsible for managing not forecasts directly, but rather the forecasting process, can stabilize the political dimension sufficiently to enable process improvement to be steered. We argue that these insights are generalizable and can be fruitfully extended to other settings that require such cross-functional coordination.

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Male Circumcision and AIDS: The Macroeconomic Impact of a Health Crisis


Theories abound on the potential macroeconomic impact of AIDS in Africa, yet there have been surprisingly few empirical studies to test the mixed theoretical predictions. In this paper, we examine the impact of the AIDS epidemic on African nations through 2002 using the male circumcision rate to identify plausibly exogenous variation in HIV prevalence. Medical researchers have found significant evidence that male circumcision can reduce the risk of contracting HIV. We find that national male circumcision rates for African countries are both a strong predictor of HIV/AIDS prevalence and uncorrelated with other determinants of economic outcomes. Two-stage least squares regressions do not support the hypotheses that AIDS has had any measurable impact on economic growth, savings, or fertility behavior in African nations. However we do find weak evidence that AIDS has lead to a slow-down in education gains, as measured by youth literacy, and a rise in poverty, as measured by malnutrition.

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Cases & Course Materials

Cellular Service

Harvard Business School Case 707-424

Background on cellular service technology and "friends and family" plans as foundation for discussing network effects.

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Medco Energi Internasional

Harvard Business School Case 207-021

In late 2004, Hilmi Panigoro, CEO of the publicly traded Indonesian oil company Medco Energi Internasional, is striving to regain majority control of the company his brother Arifin founded in 1980. The Asian financial crisis of 1999 led to a major restructuring that left the Panigoros with a 34.1 percent equity stake in Medco. Two other large shareholders are now looking to sell their combined stake of 50.9 percent, and have selected Temasek, the Singapore government's investment arm, as their preferred bidder. The Panigoros have a right of first refusal, but only a four-month window to raise the capital needed to head off Temasek's bid. Hilmi and Arifin Panigoro are considering a two-stage plan: a Leveraged Buy-Out (LBO) to be followed by a secondary equity offering at a share price high enough to enable them to repay the loan and maintain majority control of their company. As attractive as the plan seems, they worry about the high cost of the loan and the risk that the offering might fail. In January 2005, with no time left to consider alternative financing plans, the Panigoro brothers have to decide whether to go ahead with the plan or lose control of Medco to Temasek.

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Mount Auburn Hospital: Physician Order Entry

Harvard Business School Case 603-060

Mount Auburn Hospital is preparing to introduce a physician order entry (POE) system throughout the hospital, starting with the labor and delivery ward. POE systems replace paper-based and oral medication ordering processes with an information system; the physician uses the system to enter medication orders, which are then transferred to the hospital's pharmacy. This is Mount Auburn's first experience with POE systems, and the implementation team must determine how best to introduce the technology to the physicians and other personnel who will use it.

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Natura: Global Beauty Made in Brazil

Harvard Business School Case 807-029

Explores the globalization strategies of Natura, Brazil's largest cosmetics company. Founded in 1969, Natura grew using a direct selling model. Led by its three founders, the firm made distinctive use of Brazil's diversity and became characterized by high ethical and environmental standards. Natura began to seek international markets in 1982, but experienced many setbacks until surviving the economic crisis in Argentina in 2001. The company opened operations in France and Mexico in 2005, and the three founders are now exploring opportunities in Moscow. To pursue further globalization, Natura must now decide whether to continue to rely primarily on the direct sales model or to experiment with other models—and whether to make acquisitions or become part of a larger group.

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SUN Brewing

Harvard Business School Case 207-022

The Khemka family of India, founders, managers, and majority owners of Russia-based SUN Brewing, faces a difficult decision in 1998. Following the rouble's massive devaluation in August 1998, the stock price of SUN Brewing, which is publicly listed on the Luxemburg exchange, has declined by over 90 percent. Only two months earlier they had been planning a $200 million to $400 million equity and debt offering on the New York Stock Exchange, to finance major investments in the face of increased competition from international beer companies in the Russian market. However, the rouble devaluation and the deep financial crisis that has ensued has led to the cancellation of the proposed NYSE listings, and to a $40 million bridge loan that now needs to be repaid. The family is debating the merits of two main alternatives: Should they bring in a major global beer company as a strategic partner at this difficult time? Or should they stay on as controlling owners, inject millions of dollars into the company from other parts of the family business group, and weather the storm until better terms can be expected from any outside capital provider??

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Linking Customer Management Efforts to Growth and Profitability


To remain successful, companies must respond to the challenge of achieving continual internal or core growth. In this book chapter, we suggest that vendors that attempt to manage individual customers for profit should not fail to focus on a variety of situation-specific (or customer account-specific) factors. We also urge vendors to go beyond just a descriptive tact focusing on the means of these variables, and to study their impact on response coefficients that reflect customer behavior sensitivity to instruments under managerial control. Only then will vendors make appropriate short- and long-term investment decisions in their customer management effort that will not only lead to more effective individual account management but also to improved customer profitability.