First Look

January 30, 2018

Among the highlights included in new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

Blockchain firms look for more government clients

A new case study looks at how Bitfury Group used blockchain technology to secure and manage land titles in the Republic of Georgia, “making them immutable and, many believed, unhackable.” The case, written by Mitchell Weiss and Elena Corsi, follows company leaders as they evaluate opportunities to offer more property-related services to governments. Bitfury: Blockchain for Government.

What the rise of populism means for business

The growth of populism in the second decade of the twenty-first century raises important issues for business leaders to ponder, including the role of business in spurring the movement in the first place, according to George Serafeim and David Freiberg. 21st Century Populism.

Who protects online consumers?

Federal laws such as the Communications Decency Act are being used to “prevent all manner of prudent regulation” by state and local agencies that would better protect online marketplaces, according to Benjamin Edelman and Abbey Stemler. “We offer specific suggestions to correct this misinterpretation to assure that state and local governments can appropriately respond to the digital activities that impact physical realities.” From the Digital to the Physical: Federal Limitations on Regulating Online Marketplaces.

Other new publications from Harvard Business School faculty are listed below.

— Sean Silverthorne
 
  • 2017
  • Annual Review of Economics

Agricultural Insurance and Economic Development

By: Cole, Shawn A., and Wentao Xiong

Abstract—This article provides a review of recent research on agricultural insurance (AI) in developing countries. Agricultural producers face a variety of significant risks; historically, only government-subsidized products have achieved widespread adoption. A recent contractual innovation, which links insurance payouts to realized weather rather than farmer indemnity, has spurred substantial research in the past decade. This review begins by describing the experience in developed economies and then turns to developing countries, covering the following topics: farmers' adoption of AI, how AI affects their decision to invest in risky assets, and the extent to which AI helps farmers smooth income and consumption. We conclude with suggestions for future research and practice related to AI in developing countries.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=52296

Abstract—The article discusses the notion of advertising as a profession in relation to the impact of digital analytics and data-driven marketing. Topics include the history of internet marketing, the investments of the content-driven internet firms Facebook Inc. and Google Inc. in data transmission, and the role of telecommunications firms in providing content.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53774

  • forthcoming
  • Journal of Accounting Research

Effects of an Information Sharing System on Employee Creativity, Engagement, and Performance

By: Li, Shelley Xin, and Tatiana Sandino

Abstract—Many service organizations rely on information sharing systems to boost employee creativity to meet customer needs. We conducted a field experiment in a retail chain, based on a registered report accepted by Journal of Accounting Research, to test whether an information sharing system recording employees’ creative work affected the quality of creative work, job engagement, and financial performance. We found that, on average, this system did not have a significant effect on any outcomes. However, it significantly improved the quality of creative work in stores that had accessed the system more frequently and in stores with fewer same-company nearby stores. It also improved creative work and job engagement in stores in divergent markets, where customers needed more customization. We found weak evidence of better financial results where salespeople had lower creative talent before the system was introduced. Our findings shed light on those conditions in which information sharing systems affect employees’ creative work.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=53887

  • 2018
  • Handbook of Well-Being

Time, Money, and Subjective Wellbeing

By: Mogilner, Cassie, A.V. Whillans, and Michael I. Norton

Abstract—Time and money are scarce and precious resources: people experience stress about having insufficient time and worry about having insufficient money. This chapter reviews research showing that the ways in which people spend their time and money, the tradeoffs that people make between having more time or having more money, and the extent to which people focus on each resource can have a significant impact on happiness. Considering subjective well-being (or “happiness”) as a combination of high positive affect, low negative affect, and high feelings of life satisfaction, we explore when, how, and why time and money impact peoples’ anticipated, momentary, and lasting happiness.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=53781

Abstract—U.S. survey respondents' views on distributive justice differ in two specific, related ways from what is conventionally assumed in modern optimal tax research. When expressing their preferences over allocations in stylized, hypothetical scenarios meant to isolate key features of the tax problem, a large share of respondents resist the full equalization of unequal outcomes due to innate brute luck that standard analyses recommend. A similar share prefer a classical benefit-based logic for taxes over the conventional logic of diminishing marginal social welfare. Moreover, these two views are linked: respondents who more strongly resist equalization are more likely to prefer the classical benefit-based principle. Though the Amazon Mechanical Turk survey population is not a representative sample of the U.S. population, robustness of these results across demographic traits and political views suggests that a large share of the American public holds views inconsistent with standard welfarist objectives.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=53771

Abstract—Online marketplaces have transformed how we shop, travel, and interact with the world. Yet, their unique innovations also present a panoply of challenges for communities and states. Surprisingly, federal laws are chief among those challenges despite the fact that online marketplaces facilitate transactions traditionally regulated at the local level. In this paper, we survey the federal laws that frame the situation, especially §230 of the Communications Decency Act (CDA), a 1996 law largely meant to protect online platforms from defamation lawsuits. The CDA has been stretched beyond recognition to prevent all manner of prudent regulation. We offer specific suggestions to correct this misinterpretation to assure that state and local governments can appropriately respond to the digital activities that impact physical realities.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=53823

Assortment Rotation and the Value of Concealment

By: Ferreira, Kris Johnson, and Joel Goh

Abstract—Assortment rotation—the retailing practice of changing the assortment of products offered to customers—has recently been used as a competitive advantage for both brick-and-mortar and online retailers. Fast-fashion retailers have differentiated themselves by rotating their assortment multiple times throughout a standard selling season. Interestingly, the entire online flash sales industry was created using this idea as a cornerstone of its business strategy. In this paper, we identify and investigate a new reason why frequent assortment rotations can be valuable to a retailer, particularly for products where consumers typically purchase multiple products in a given category during a selling season. Namely, by distributing its seasonal catalog of products over multiple assortments rotated throughout the season—as opposed to selling all products in a single assortment—the retailer effectively conceals a portion of its full product catalog from consumers. This injects uncertainty into the consumer's relative product valuations since she is unable to observe the entire catalog of products that the retailer will sell that season. Rationally acting consumers may respond to this additional uncertainty by purchasing more products, thereby generating additional sales for the retailer. We refer to this phenomenon as the value of concealment. A negative value of concealment is possible and represents the event that rationally acting consumers respond to the additional uncertainty by purchasing fewer products. We develop a consumer choice model and finite-horizon stochastic dynamic program to study when the value of concealment is positive or negative. We show that when consumers are myopic, the value of concealment is always positive. In contrast, we show that when consumers are strategic, the value of concealment is context dependent; we present insights and discuss intuition regarding which product categories likely lead to positive vs. negative values of concealment.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=49531

The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation

By: MacKay, Alexander, Tatyana Deryugina, and Julian Reif

Abstract—Economic theory suggests that demand is more elastic in the long run relative to the short run, but evidence on the empirical relevance of this phenomenon is scarce. We study the dynamics of residential electricity demand by exploiting price variation arising from a natural experiment: the introduction of an Illinois policy that enabled communities to select electricity suppliers on behalf of their residents. Using a flexible difference-in-differences matching approach, we estimate a one-year price elasticity of -0.16 and three-year elasticity of -0.27. We also present evidence that consumers increased usage ahead of these announced price changes. Finally, we project that the price elasticity converges to a value between -0.30 and -0.35 after ten years. Our findings highlight the importance of accounting for consumption dynamics when evaluating energy policy.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=53813

Zig-Zagging Your Way to Transformative Impact

By: Rangan, V. Kasturi, and Tricia Gregg

Abstract—Achieving transformative impact has been much discussed by social entrepreneurs, funders, and consultants. These discussions have focused on issues of increasing impact and scale, but often with no clear distinction between the two terms. In order to provide clarity, we offer a framework that distinguishes between the two and use that distinction to illustrate the decision dilemmas faced by social entrepreneurs as they pursue impact or scale, or both. In our framework, scale can be interpreted at two levels: either as operational efficiency, which is achieved by minimizing unit costs, or expanding reach to cover a large proportion of the target group. In parallel, impact refers to either the outcomes of an organization’s immediate interventions or the ability to affect system-wide change. By graphing the two levels of scale against the two levels of impact, we have constructed a four-quadrant framework. Quadrant #1 focuses on the activities of a single organization where efficiency and efficacy would lead to organizational impact. Moving vertically, quadrant #2 refers to organizations that have reached deeper into the target population by scaling their activities, reaching transformative scale. Moving horizontally to quadrant #3, means extending the intervention to “solve” the problem at the circumscribed scale, achieving transformative impact. Lastly, quadrant #4, refers to organizations that have both expanded reach and created comprehensive change in the ecosystem to achieve systemic impact. We illustrate our framework with case studies of five social enterprises that have all chosen to pursue scale or impact or both: Akshaya Patra, Magic Bus, Health Leads, Year Up (YU), and KaBoom! Both Akshaya Patra and Magic Bus committed to transformative scale by remaining focused on their core mission and gaining operational efficiencies, what we call “zigging.” In contrast, Health Leads chose to pursue transformative impact, abandoning its original core model to focus on new system-wide collaborations, a process which we call “zagging.” Combining these strategies, YU and KaBoom! have zig-zagged by alternately seeking scale and impact. YU first scaled by delivering its program through partner institutions, then chose to also pursue field building roles. KaBoom! reached scale by “giving away” its model online, before shifting its focus to working with municipal governments to expand capacity. Generalizing from these cases, we conclude that achieving economies of scale with a demonstrably successful model enhances the ability to zig. However, pursuing transformative scale requires a deep understanding of the operational model and its underlying costs. Second, an organization’s ability to zag depends on obtaining the support of funding partners who understand the need for stretching the organization’s mission. While some may be able to deepen their existing funder relationships, others may need to find new funders to match. Third, the decision to zig or zag may create gaps in organizational capabilities that will need to be addressed as the organization continues to evolve. We believe that achieving systemic impact is a dynamic process requiring continuous adjustments in strategy.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=53822

  • Harvard Business School Case 818-028

FJ Management Inc.

In late 2015, Crystal Call Maggelet, president and CEO of FJ Management, is working with her investment committee to help set the company’s strategic direction. Maggelet, daughter of the company’s founder, has led FJ Management since 2009 when she stepped in as CEO following an unexpected bankruptcy. At that time, FJ Management was known as Flying J. Flying J owned and operated hundreds of truck stops—which it called Travel Plazas—nationwide and was a growing multi-billion dollar business, but broader problems in the oil and credit markets in late 2008 forced it to declare Chapter 11 bankruptcy. Maggelet, who had been serving on Flying J’s board, became its new CEO and was able to successfully manage competing stakeholder demands, keep the business running, and ultimately paid back every dollar it owed to its creditors by selling the company’s core assets—its travel plazas—to its main competitor in 2010. Since that time, the company had returned to a healthy financial position, diversified its holdings, and made investments in diverse industries to determine how to grow the company, since renamed FJ Management. In 2015, Maggelet now wants to set a clear path forward for the company.

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https://cb.hbsp.harvard.edu/cbmp/product/818028-PDF-ENG

  • Harvard Business School Case 718-401

Jumia Nigeria: From Retail to Marketplace (A)

Founded in 2012, Jumia Nigeria, a startup effort by Germany-based Rocket Internet, aimed to become an African Amazon. The company entered the nascent market and immediately enjoyed an uptick in consumer spending fueled by the strength of Nigeria’s oil-based economy. By 2016, however, Jumia’s growth had begun to taper, hindered by plummeting oil prices, the subsequent economic downturn, and the pressure of Nigeria’s limited retail ecosystem. In addition, Jumia’s inventory-intensive retail model required significant infusions of capital that, in the face of a deteriorating economy and the company’s inability to show a profit, was becoming increasingly difficult to obtain. Considering all this and looking to the success of the Amazon and Alibaba marketplace models where third-party sellers largely carried inventory costs, the Board had made a drastic decision: Jumia would shift from an online retail model to a marketplace model. They also made it very clear that a failure to properly implement this transition could mean the end of investor support for Jumia. Senior management wondered how they would meet the challenges ahead. While Amazon in the U.S. and Alibaba in China had found success with the marketplace model, they wondered if Jumia would be able to do the same. Was this the right model for the very different Nigerian environment? Would vendors, many of whom already had retail operations in the country, choose to sell through Jumia? How could Jumia continue to provide the same high quality customer service on which the company’s success had been built while switching to a marketplace model in which parts of this critical aspect would now be in the hands of third parties?

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https://cb.hbsp.harvard.edu/cbmp/product/718401-PDF-ENG

  • Harvard Business School Case 317-097

BIM: Finding New Ways to Grow

BIM, Turkey’s giant retailer with a hard-discount model for the popular segments, must decide whether to launch a brand-new format challenging the modern supermarkets. Since its founding in 1995, BIM has adhered to a business model based on a relentless focus on costs and operational efficiency, built on private labels and an unswerving limit on SKUs. Unprecedented in Turkey, the success of this retail concept propelled BIM to an IPO in the Istanbul Stock Exchange and to being the country’s largest retail company by market capitalization. Seeing an opportunity to pioneer the format internationally, the company was now also in Morocco and Egypt. While the hard-discount format was still growing, in 2014 Haluk Dortluoglu, the company’s CFO, began to develop an entirely new retail model for Turkey—FILE, a discount supermarket. FILE would carry many more SKUs in larger stores and compete head-to-head with national and local supermarkets. Throughout the year, in their various executive committee meetings, the senior executives of the company have debated the many issues posed by a totally different retail format and the advisability of launching it. Finally, in its first meeting of 2015, the company’s board of directors are set on reaching a decision on FILE.

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https://cb.hbsp.harvard.edu/cbmp/product/317097-PDF-ENG

  • Harvard Business School Case 317-100

Raj Kapoor: The Socialist Showman

This case examines the career of Raj Kapoor, the legendary Bollywood filmmaker of the postwar decades. It explores how Kapoor built RK studios after 1948 by releasing a series of movies that combined romance with social messages focused on the fate of the common man in a world of social injustice. The case discusses how women were depicted in Kapoor’s films and enables a discussion of the role of cinema in propagating gender stereotypes and contributing to the challenges faced by women in rural India today. The case also explores the huge success of Kapoor’s films in the Soviet Union and elsewhere in the Communist world. During the postwar decades there were two global worlds. In the Western world, Hollywood provided a stream of cinematic entertainment. In the Communist world, Bollywood provided the same service. They each provided alternative visions of the world.

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https://cb.hbsp.harvard.edu/cbmp/product/317100-PDF-ENG

  • Harvard Business School Case 218-022

Altoona State Investment Board & Bain Capital Fund XI

Considers the decision faced by state pension fund manager Rod Calhoun as he decides whether to invest $200 million in Bain Capital's eleventh global buyout fund: Bain Capital Fund XI. For the fund, Bain was offering its limited partners a choice among three different fee structures: first, a "conventional" fee structure of a 1.5% management fee with 20% carried interest and a 7% preferred rate of return; second, a 1% management fee with 30% carried interest and a 7% preferred rate of return; or third, a 0.5% management fee, 30% carried interest, and a 0% preferred rate of return. Should Calhoun invest in Bain? If he should, which fee structure should Calhoun choose?

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https://cb.hbsp.harvard.edu/cbmp/product/218022-PDF-ENG

  • Harvard Business School Case 318-099

John Rogers, Jr.—Ariel Investments Co.

John Rogers Jr., the founder and CEO of Ariel Investments, an enormously successful finance firm with $12 billion of invested capital, is one of the few African Americans in the asset management industry. As one of the high profile leaders in the black business community, John has decided to encourage Fortune 500 companies and major foundations to increase the volume of business that they do with black and other minority-owned companies. His encouragement comes in the form of public criticism of these organizations. He challenges them to stop paying “lip service” to inclusion, diversity, and fair business opportunity and sincerely commit to these ideals through action and results. A member of John’s Board of Directors has advised him to cease his leadership of this effort because it could be detrimental to Ariel Investments. Is the board member right? Is John being reckless? Is there a model that can be created to determine if and when John and other leaders should publicly express their opinions?

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This technical note explores how advancements in technology are fundamentally transforming how consumers interact with mobility. Transformation is being driven by three independent trends: the emergence of affordable electric vehicles, the development of autonomous vehicles, and the growth of modernized ride sharing. When integrated, these trends create a transportation model that utilizes a fleet of autonomous, electric vehicles that are not privately owned to provide cheaper, safer, and "greener" travel to more consumers, more often. The potential economy-wide disruptions caused by this transportation system are enormous. How will car manufacturers adapt when vehicle sales plummet as shared, autonomous vehicles increase vehicle utilization and provide greater mobility with a fraction of the number of cars currently on the road? How will oil companies react to falling oil demand caused by the increased adoption of electric vehicles? What are the income inequality ramifications of significantly increased disposable income? How will governments deal with large increases in unemployment as autonomous cars replace professional human drivers? Before disruption occurs, corporate leaders must be prepared to usher their organization through a phase of transformational change; but change is hard. The note ends with a discussion on how to build and lead a successful ambidextrous organization.

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https://cb.hbsp.harvard.edu/cbmp/product/118008-PDF-ENG

  • Harvard Business School Case 118-029

21st Century Populism

While the first decade of the 21st century saw a massive financial crisis that led to significant economic downturn, the second decade saw the rise of political leaders, who built their support upon a political message that championed the common person against the collective enemy—the political and economic elite. Historically, waves of populism were infrequent and occurred almost exclusively in developing nations. However, not seen since the pre-World War II years had populist leaders gained such a following throughout the developed world—in countries with the strongest democracies. Driven heavily by growing inequality and degrading trust in institutions, populist leaders took global elections by storm. Populist movements raised the fundamental question of the role of business in the development of the conditions for the genesis of these movements, especially in relation to inequality, and how business would respond to subsequent government interventions that reduced the freedom of markets.

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  • Harvard Business School Case 218-030

Asset Allocation at the Cook County Pension Fund

Nickol Hackett, chief investment officer of the Cook County Pension Fund, is responsible for investing the fund’s $9 billion worth of assets on behalf of the employees of Cook County, Illinois. Like many other defined-benefit pensions at the time, the Cook County pension faces a funding shortfall, meaning that the value of its assets is below the value of its future obligations to retirees. Hackett can invest in fixed income securities, public equities, and alternative assets such as hedge funds, real estate, or private equity. What are the costs and benefits of each asset class? Should the funding status of the pension impact the asset allocation process? How should Hackett invest in order to grow the value of the fund’s assets and secure the retirement benefits for thousands of Cook County’s employees?

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  • Harvard Business School Case 818-031

Bitfury: Blockchain for Government

In the Republic of Georgia, legend had it their land was a precious gift from God he had intended to keep for his mother. But over time, the land had been under intermittent threat from without and within. In 2017, the Bitfury Group, which Valery Vavilov had co-founded, had helped publish 300,000 Georgian land titles onto the blockchain, making them immutable and, many believed, unhackable. What came next, Vavilov’s team envisioned, were smart purchase and sale contracts via the blockchain; and from there, a full suite of property-related services and, eventually, blockchain as the foundation for a transformation in government services. Vavilov, who had co-founded Bitfury and expanded it substantially from its bitcoin mining roots, felt a blockchain-driven makeover of this sort would take place not just in Georgia's government but also around the world. It was not a matter of "if?" anymore; although that still left the question of "when?"

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https://cb.hbsp.harvard.edu/cbmp/product/818031-PDF-ENG