First Look

October 7, 2008

Ever try to dodge a difficult question by answering the question you wish you had been asked? You're not alone, nor are you necessarily a candidate for political office. By the same token, however, do you honestly recognize when someone is giving you the slip? Todd Rogers and HBS professor Michael I. Norton, who conducted two experiments into the behavior of listeners subjected to this kind of dodge, found that oftentimes "listeners' conversational blindness allows speakers to avoid the negative interpersonal costs of answering questions they would rather not answer, while being perceived as having answered the questions they were asked. Thus conversational blindness allows politicians-and likely people in everyday discourse-to seamlessly dodge questions without detection, and without penalty." TV networks do viewers a favor, then, when during debates the question asked appears on the screen all while it is being "answered." A working paper describing the research may be downloaded [PDF]. Also new this week, a study of industry trends in the U.S. advertising and marketing services industry, and three cases on Gazprom, the world's largest natural gas producer.
— Martha Lagace

Working Papers

Spanning the Institutional Abyss: The Intergovernmental Network and the Governance of Foreign Direct Investment


Global economic transactions such as foreign direct investment must extend over an institutional abyss between the jurisdiction, and therefore protection, of the states involved. Intergovernmental organizations (IGOs), whose members are states, represent an important attempt to span this abyss. IGOs are mandated variously to smooth economic transactions, facilitate global cooperation, and promote cultural contact and awareness. We use a network approach to demonstrate that the connections between two countries through joint-membership in the same IGOs are associated with a large positive influence on the foreign direct investment that flows between them. Moreover, we show that this effect occurs not only in the case of IGOs that focus on economic issues, but also on those with social and cultural mandates. This demonstrates that relational governance is important and feasible in the global context and for the most risky transactions. Finally we examine the interdependence between the IGO network and the domestic institutions of states. The interdependence between these global and domestic institutional forms is complex, with target-country democracy being a substitute for economic IGOs but a complement for social and cultural IGOs.

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Phenomenological Assumptions and Knowledge Dissemination within Organizational Studies


Phenomenological assumptions-assumptions about the fundamental qualities of the phenomenon being studied-affect the dissemination of knowledge from subfields to the broader field of study. Microprocess research in organizational studies reveals implicit phenomenological assumptions that vary in the extent to which microprocesses are treated as parts of larger systems. We suggest that phenomenological assumptions of recursive interactions between the phenomenon and the environment will make the relevance of microprocess research findings to broader organizational questions easier to discern and therefore more likely to disseminate to the larger field of organizational research. We empirically assess this assertion by analyzing studies of negotiation published in top peer-reviewed management, psychology, sociology, and industrial relations journals from 1990 to 2005. Our findings illuminate a continuum of open systems to closed systems phenomenological assumptions revealed in this microprocess research. Analysis of the citation rates of the articles in our data set by non-negotiation organizational research reveals that more open systems assumptions increase the likelihood that a negotiation article will be cited in organizational studies, after controlling for other, previously identified effects on citation rates. Our findings suggest that subfields can increase the impact they have on the broader intellectual discourse of their field by situating their phenomena in rich contexts that illuminate the connections between their findings and questions of interest to the broader field.

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Media versus Special Interests


We argue that profit-maximizing media helps overcome the problem of "rational ignorance" highlighted by Downs (1957) and in so doing makes elected representatives more sensitive to the interests of general voters. By collecting news and combining it with entertainment, media are able to inform passive voters on politically relevant issues. To show the impact this information has on legislative outcomes, we document the effect "muckraking" magazines had on the voting patterns of U.S. representatives and senators in the early part of the 20th century. We also show under what conditions profit-maximizing media will cater to general (less affluent) voters in their coverage, providing a counterbalance to special interests.

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Stable Many-to-Many Matchings with Contracts


We consider several notions of setwise stability for many-to-many matching markets with contracts and provide an analysis of the relations between the resulting sets of stable allocations for general, substitutable, and strongly substitutable preferences. Apart from obtaining "set inclusion results" on all three domains, we introduce weak setwise stability as a new stability concept and prove that for substitutable preferences the set of pairwise stable matchings is nonempty and coincides with the set of weakly setwise stable matchings. For strongly substitutable preferences the set of pairwise stable matchings coincides with the set of setwise stable matchings.

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I'll Have the Ice Cream Soon and the Vegetables Later: A Study of Online Grocery Purchases and Order Lead Time (revised)


How do decisions made for tomorrow or two days in the future differ from decisions made for several days in the future? We use data from an online grocer to address this question. In general, we find that as the delay between order completion and delivery increases, grocery customers spend less, order a higher percentage of "should" items (e.g., vegetables), and order a lower percentage of "want" items (e.g., ice cream), controlling for customer fixed effects. These findings are all consistent with theories suggesting that people's should selves exert more influence over their choices the further in the future outcomes will be experienced. However, orders placed for delivery tomorrow versus two days in the future do not show this want/should pattern, and we discuss a potential explanation.

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Conversational Blindness: Answering the Wrong Question the Right Way


What happens when people try to "dodge" a question they would rather not answer by answering a different question? Two experiments demonstrated conversational blindness—listeners' surprising failure to notice such dodges—and explored the interpersonal consequences of this phenomenon. Listeners viewed successful question-dodgers as positively as speakers who actually answered the question they are asked but were not blind to all efforts to dodge: They both noticed—and punished—particularly egregious attempts (Study 1). More troublingly, listeners preferred speakers who answered the wrong question well over those who answered the right question poorly (Study 2).

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Concentration Levels in the U.S. Advertising and Marketing Services Industry: Myth vs. Reality


This paper analyzes changes in concentration levels in the U.S. Advertising and Marketing Services (A&MS) industry using publicly released data that have been largely ignored in past discussions of the industrial organization of this industry, namely those available from the U.S. Census Bureau's quinquennial Economic Census and the Service Annual Survey. We define the A&MS industry in terms of nine sectors, each of which is represented by a separate 5-digit NAICS category. In so doing, we have sought to redress some of the measurement problems surrounding estimates found in the existing literature. Our main findings are threefold.

First, in the case of the core and largest sector, Advertising Agencies, firm-level concentration as measured by Herfindahl-Hirschman Index (HHI) increased slightly but remained relatively low from 1977-2002. All of the HHI estimates readily satisfied the standard widely used to characterize an industry as "unconcentrated." We find mixed support for the hypotheses that the ranks of mid-sized agencies were depleted by ongoing waves of mergers and acquisitions and resulted in a polarized size structure. The size distributions of agency revenue have become more polarized in the sense that over time they appear more skewed, more dispersed, and exhibit greater inequality. The share of total receipts realized by small agencies fell while that of large agencies rose. However, the position of mid-sized agencies appears to have changed little over the period 1977-2002, as measured by the shares of agencies and receipts they represent.

Second, concentration levels in 1997 and 2002 varied across the nine sectors comprising the A&MS industry, but all were within the range generally considered as indicative of a competitive industry.

Third, we developed concentration ratios at the level of holding companies (HCs) and find that the four largest HCs captured between a fifth and a quarter of total revenue from the A&MS industry, a share that remained quite stable over the period 2002-2006. These estimates are lower by an order of magnitude than estimates often cited in the trade press. Reasons for the discrepancy are discussed.

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Taste Heterogeneity, IIA, and the Similarity Critique


The purpose of this paper is to show that allowing for taste heterogeneity does not address the similarity critique of discrete-choice models. Although IIA may technically be broken in aggregate, the mixed logit model allows neither a given individual nor the population as a whole to behave with perfect substitution when facing perfect substitutes. Thus, the mixed logit model implies that individuals behave inconsistently across choice sets. Estimating the mixed logit on data in which individuals do behave consistently can result in biased parameter estimates, with the individuals' tastes for desirable attributes being systemically undervalued.

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Cases & Course Materials

Absolute Return for Kids

Harvard Business School Case 309-036

Absolute Return for Kids [ARK] is a charity with strong financial support—what are the constraints on its growth and impact? ARK seeks to transform the lives of children who are victims of abuse, disability, illness, and poverty. As one of the 50 largest fundraising charities in the United Kingdom, the organization's trustees wrestle with how to meet the needs of this vast and most vulnerable population through program expansion and delivery in Eastern Europe, South Africa, and the United Kingdom. How can the organization replicate its existing successful programs faster, both within and existing new countries? How can it best identify new areas into which ARK should expand over the near term and further down the road—and recognize the ones that would overstretch ARK's organizational capacity and risk failing to maintain the highest quality of delivery?

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Allston: Brand vs. Architecture

Harvard Business School Case 208-079

Harvard President Lawrence Summers had presided over the final interviews of world-renowned architects being considered for the science complex planned for Harvard's expanded campus in Allston. The selection process had absorbed nine months in 2005 and amplified the long-standing debate about Harvard architecture. How will the proposed new complex be received be faculty, students, alumni, neighbors, and the public?

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Crossing Borders: Notes on a Middle Eastern Journey through Africa

Harvard Business School Case 708-477

This is the story of MTC, a Kuwaiti telecom company that has grown from a sleepy, state monopoly to become one of the fastest growing telecom companies in the world, with the largest regional footprint across the Middle East and Africa. The CEO of the company, Dr. Saad Al Barrak, had been successful in executing an aggressive growth plan that found its crown jewel in the acquisition of Celtel, one of the largest telecom companies in sub-Saharan Africa. However, this acquisition threw MTC into a dynamic new context and marked the beginning of a very different phase. If Dr. Saad was going to lead MTC into the topmost ranks of global telecom, his team would have to successfully grapple with all the growing pains of managing across borders, brand names, and cultures. All against the backdrop of an unpredictable African market with huge growth potential and rapidly increasing competition.t

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Databank in Africa

Harvard Business School Case 708-478

This case tackles issues of regional strategy and strategic institutional arbitrage. Databank is a financial services firm designing its regional strategy for Africa and seeking to benefit from institutional arbitrage.

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Gazprom (A): Energy and Strategy in Russian History

Harvard Business School Case 709-008

Critics have accused Gazprom, the world's largest natural gas producer, of eschewing market principles in favor of the foreign policy priorities of the Russian government, ever since the energy giant cut off the supply to Ukraine in January of 2006. The purported motive for the decision, however, seems to indicate the opposite: the company claimed that it had no other choice because the sides failed to conclude a contract on the terms of future trade. The case takes a look back in history for clues that may resolve this paradox. It highlights how politics shaped the economics of natural gas trade in the former Soviet Union and Europe since the late 1960s until the end of the 1990s; sketches the story of the creation of Gazprom by the first post-Soviet government of Russia; and describes how the erection of new sovereign borders in the wake of the dissolution of the Soviet Union, coupled with political and economic transition, created major problems in the gas trade between the former Soviet republics, emerging with the greatest intensity in the Russian-Ukrainian relations.

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Gazprom (B): Energy and Strategy in a New Era

Harvard Business School Case Supplement 709-009

President Putin publicly stated that Gazprom, the largest natural gas producer in the world, was a powerful political lever of the Russian state in the world and a keystone in the foundation of the country's energy security. Thus the top leadership of Russia has charted the course of the company's future away from the seemingly imminent dismemberment, privatization, and, by implication, de-monopolization toward a challenging combination of strengthened state control, professional, transparent management, and a major expansion. The case explores how in 2000-2008 Gazprom's management has pursued the strategy defined by the politicians. Gazprom's impressive expansion strategy envisioned diversification of markets, products, transportation routes, and modes of delivery. The challenges were equally formidable: massive investment needs, a possibility of a production shortfall, and a chronic problem with the transit state of Ukraine, to name a few. In fact, Gazprom's ambitiousness fully reflected the ambitiousness of Russia as a whole, characteristic of the Putin era.

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Gazprom (C): The Ukrainian Crisis and Its Aftermath

Harvard Business School Supplement 709-010

The case describes the resolution to the January 2006 gas crisis, precipitated by the decision of Gazprom, the largest natural gas producer in the world, to cut off gas supply to Ukraine because of disagreement on the terms of future trade. The case also narrates the events that have followed: the adoption by Gazprom of a comprehensive policy to renegotiate prices with the rest of the former Soviet states; the erratic relationship with Ukraine, dependent on the internal political configuration in the latter at any given time; and a persistence of Gazprom's negative image in the world.

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Harvard Business School Case 509-013

Describes the launch and initial results of the (PRODUCT) RED campaign, a social marketing initiative conceived by U2's Bono and Bobby Shriver to combat AIDS in sub-Saharan Africa. The company licensed the (RED) brand to partner companies, which initially included Gap, Apple, Motorola, Armani, and American Express. The business model was structured to benefit partner companies by increasing consumer purchases—of (RED)-branded products such as red iPods and phones—while also resulting in increased donations to the Global Fund.

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Harvard Business School Supplement 509-014

Updates the (PRODUCT) RED (A) case through early 2008, including announcements of new partner relationships (with Hallmark, Microsoft, and Dell) as well as new communications initiatives.

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Harvard Business School Case 707-016

Supergrid is a mammoth wind-power development scheme for Europe, recently proposed by Airtricity. This firm, founded in 1997, is a fast-growing power-development company focused on wind. Already having built about 600 megawatts of wind turbines in Scotland and Ireland, Airtricity has now expanded to the United States. But its "Supergrid" proposal, to build offshore wind turbines with capacity of 30,000 megawatts of power, would change the face of European energy networks, use new technology, and help several European countries meet their Kyoto targets for reducing CO2. The issues are whether a small company like Airtricity has the human and capital resources to pull this off, and whether the U.K., Germany, the Netherlands, and the EU can be made to cooperate on such a project.

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System on a Chip 2008: Ardentec Corporation

Harvard Business School Case 609-026

Ardentec Corporation is a specialist in "wafer probing," a highly specialized niche sandwiched between the "front-end" and the "back-end" of semiconductor manufacturing. Because the semiconductor industry uses modular processes and has standard containers for the interchange of work-in-progress, it has evolved to a highly horizontal structure where specialists like Ardentec can carve out unique market opportunities that are less attractive to integrated manufacturers. The company has grown rapidly, but as it starts to occupy a significant percentage of the total available market, its founders are faced with the challenge of how to maintain growth. Do they vertically integrate more into the back-end, or should they try to do acquisitions in adjacent markets? The case is intended to be used in conjunction with the Technical Note, "Horizontal Specialization and Modularity in the Semiconductor Industry" (608-001).

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Thoma Bravo—Citect Corporation Take-Private

Harvard Business School Case 209-022

In 2006, Citect Corporation, a publicly traded Australian software company, was the target of a takeover battle between a financial sponsor and a strategic buyer. Thoma Bravo, the U.S.-based private equity firm, had to decide on its acquisition strategy in the face of competition from Schneider Electric, a large French multinational. The case allows for a thorough analysis of buyer types (financial vs. strategic), deal strategy, and valuation. Among other topics covered in the case are the importance of due diligence, the potential for value creation by private equity firms through operational improvements, the use of footholds in deal strategy, and the challenges of cross-border acquisitions.

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Ujjivan: A Microfinance Institution at a Crossroads (A)

Harvard Business School Case 108-057

Samit Ghosh, the CEO and founder of Ujjivan, a major microfinance provider in Bangalore, wants to grow his business rapidly and become financially sustainable, but he's struggling with staff fraud, high costs, and how to stay true to Ujjivan's mission of poverty alleviation, while simultaneously reaching out to higher-income customers. The case explores how Ujjivan can grow, looking at such issues as new technology, diversifying product offerings, and how to hire the best staff.

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Ujjivan: A Microfinance Institution at a Crossroads (B)

Harvard Business School Supplement 108-083

Case (B) of "Ujjivan: A Microfinance Institution at a Crossroads" addresses some of the actions Ujjivan, a microfinance provider in Bangalore, has taken with regard to issues raised in the (A) case, particularly regarding fraud and establishing financial sustainability. For example, the CEO of Ujjivan, Samit Ghosh, decides to strengthen the Audit Team and implements new loan products.

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Where Does It Go? Spending by the Financially Constrained


In this paper, we analyze the spending decisions of over 1.5 million Americans who vary in their degree of revealed credit constraints. Specifically, we analyze how these Americans spend their income tax refunds, using transaction-level data from a stored-value card product. Cardholders may choose among several tax settlement and loan options, effectively receiving cash as much as 90 days earlier than would have been possible without a settlement product. Those selecting earlier settlement options pay higher fees and interest, therefore revealing the level of credit constraints or impatience. We find that more credit constrained or impatient individuals spend their monies more quickly. The mix of cash and merchant transactions is similar between more and less constrained groups. Finally, the primary merchant uses of refunds are to pay for necessities (grocery stores, gas stations, etc.), and the fraction of the refund spending devoted to these necessities is higher for those with greater revealed credit constraints.