First Look

May 22, 2018

Of special interest among new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

'High-purpose' firms perform better

Firms with employees that have strong beliefs in the meaning of their work end up performing more strongly than other companies. In a paper slated to be published in Organization Science, George Sarafeim, Claudine Gartenberg, and Andrea Prat say that companies with a high camaraderie among workers or ones that have managers who provide a great deal of clarity about a firm’s purpose have higher future accounting and stock market performance. Corporate Purpose and Financial Performance.

Teenage girls who learn to negotiate do well in school

Teaching adolescent girls negotiation skills will significantly improve their educational outcomes, according to a new working paper by Kathleen McGinn and colleagues. In doing a randomized control trial with teenage girls in the low-income country Zambia, the researchers find that negotiation training has a much bigger impact than two other interventions: offering girls a safe physical space with female mentors; and offering girls information about the returns on education. Negotiating a Better Future: How Interpersonal Skills Facilitate Inter-Generational Investment.

How Ferrari is driving future growth

Ferrari is one of the world’s most powerful brands, yet “how the company operates has remained mysterious,” write Stefan Thomke and colleagues in a new case study. At a time when the automotive industry faces disruptive changes, the researchers take a look at how Ferrari is responding by exploring the inner workings of the company—how it designs, produces, and markets cars, as well as how its leadership team is strategically propelling the company forward. Ferrari.

A complete list of new research and publications from Harvard Business School faculty follows.

— Dina Gerdeman
 
  • forthcoming
  • American Economic Review

Innovation, Reallocation and Growth

By: Acemoglu, Daron, Ufuk Akcigit, Harun Alp, Nicholas Bloom, and William R. Kerr

Abstract—We build a model of firm-level innovation, productivity growth, and reallocation featuring endogenous entry and exit. A new and central economic force is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using U.S. Census microdata on firm-level output, R&D, and patenting. The model provides a good fit to the dynamics of firm entry and exit, output, and R&D. Taxing the continued operation of incumbents can lead to sizable gains (of the order of 1.4% improvement in welfare) by encouraging exit of less productive firms and freeing up skilled labor to be used for R&D by high-type incumbents. Subsidies to the R&D of incumbents do not achieve this objective because they encourage the survival and expansion of low-type firms.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54520

  • forthcoming
  • Journal of Political Economy

A Theory of Intergenerational Mobility

By: Becker, Gary, Scott Duke Kominers, Kevin Murphy, and Jorg L. Spenkuch

Abstract—We develop a model of intergenerational resource transmission that emphasizes the link between cross-sectional inequality and intergenerational mobility. By drawing on first principles of human capital theory, we derive several novel results. In particular, we show that, even in a world with perfect capital markets and without differences in innate ability, wealthy parents invest, on average, more in their offspring than poorer ones. As a result, persistence of economic status is higher at the top of the income distribution than in the middle. Successive generations of the same family may even cease to regress towards the mean. Moreover, we demonstrate that government interventions intended to ameliorate inequality may in fact lower intergenerational mobility—even when they do not directly favor the rich. Lastly, we consider how mobility is affected by changes in the marketplace.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54504

  • April 19, 2018
  • Harvard Business Review

4 Ways to Improve Your Content Marketing

By: Cespedes, Frank V., and Russ Heddleston

Abstract—In the past decade, content marketing has become a widely established practice. Companies have hired writers and chief content officers to run departments as well as create blogs and other materials—in the process, some have assured sales people that content marketing can mean the end of cold calling. The authors examined 34 million interactions between customers and content on DocSend’s platform, which is used daily by organizations across a variety of sales contexts. The result is empirical data and a good starting point for examining core aspects of any content marketing initiative. The authors found that prospects spend less than three minutes on content, mobile is less important than advertised, one day of the week isn’t better than others, and case studies are most preferred.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54512

  • forthcoming
  • Organization Science

Corporate Purpose and Financial Performance

By: Gartenberg, Claudine, Andrea Prat, and George Serafeim

Abstract—We construct a measure of corporate purpose within a sample of U.S. companies based on approximately 500,000 survey responses of worker perceptions about their employers. We find that this measure of purpose is not related to financial performance. However, high purpose firms come in two forms: firms that are characterized by high camaraderie between workers and firms that are characterized by high clarity from management. We document that firms exhibiting both high purpose and clarity have systematically higher future accounting and stock market performance, even after controlling for current performance, and that this relation is driven by the perceptions of middle management and professional staff rather than senior executives, hourly, or commissioned workers. Taken together, these results suggest that firms with employees that maintain strong beliefs in the meaning of their work experience better performance.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54523

Negotiating a Better Future: How Interpersonal Skills Facilitate Inter-Generational Investment

By: Ashraf, Nava, Natalie Bau, Corinne Low, and Kathleen McGinn

Abstract—Using a randomized control trial, we examine whether offering adolescent girls nonmaterial resources—specifically, negotiation skills—can improve educational outcomes in a low-income country. In so doing, we provide the first evidence on the effects of an intervention that increased noncognitive, interpersonal skills during adolescence. Long-run administrative data shows that negotiation training significantly improved educational outcomes over the next three years. The training had greater effects than two alternative treatments (offering girls a safe physical space with female mentors and offering girls information about the returns to education), suggesting that negotiation skills themselves drive the effect. Further evidence from a lab-in-the-field experiment, which simulates parents’ educational investment decisions, and a midline survey suggests that negotiation skills improved girls’ outcomes by moving households’ human capital investments closer to the efficient frontier. This is consistent with an incomplete contracting model, where negotiation allows daughters to strategically cooperate with parents.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=54476

Abstract—As an intermediary improves trust between two sides of its market to facilitate matching and transactions, it faces an increased risk of disintermediation—with sufficient trust, the two sides may circumvent the intermediary to avoid the intermediary’s fees. We investigate the relationship between increased trust and disintermediation by leveraging a randomized control trial on a major online freelance marketplace. Our results show that enhanced trust increases the chance for hiring high-quality freelancers. When the trust level is sufficiently high, however, it also increases disintermediation, which offsets the revenue gains from the increase in hiring high-quality freelancers. We also identify heterogeneity across clients and freelancers in their tendencies to disintermediate.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=54486

Abstract—This working paper provides a new perspective on how businesses have responded to political risk in South Asia and Latin America over the last half century. The existing business history literature on political risk is focused on the experiences of Western multinationals in the 20th century, especially in Nazi Germany and the post-colonial developing world. This working paper is instead focused on perceptions of political risk by domestic business leaders active in Latin America and South Asia since the 1970s. Employing data from the Creating Emerging Markets oral history database developed at the Harvard Business School, the working paper identifies five major sources of political risk: macroeconomic and policy turbulence, excessive bureaucracy, political instability, corruption, and violence. Employing NVivo coding, marked regional differences were identified. Macroeconomic and policy turbulence was the biggest perceived source of risk in Latin America. Excessive bureaucracy was the biggest source of perceived risk in South Asia. There were regional differences also in how leaders in different regions responded to the same risk. In both regions business leaders reported having to dedicate significant time to navigating government regulations, but interviewees in South Asia frequently reported attempting to steer clear from highly regulated industries, while many interviewees in Latin America discussed how they adapted to heavier government oversight by forming closer ties or working relationships with incumbent administrations.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=54507

  • Harvard Business School Case 318-040

Wilderness Safaris: Ecotourism Entrepreneurship

Wilderness Safaris sees itself as a conservation company that is built on a business model of providing high-end, premium-priced wildlife safaris in various locations in Africa. Dependent on functioning, healthy ecosystems for its long-term survivability as a business, it invests heavily in conservation efforts, both directly, with communities and governments, and with partners and competitors. It may be reaching saturation of the high-cost, high-priced, low-volume, luxury travel product in its existing locations; so to continue its growth, it is now trying to expand into East Africa, where the traditional safari approach by most providers has been a high-volume, low-cost, low-priced product. As a publicly listed company, can Wilderness Safaris find a sustainable growth path that will allow it to profitably expand its business and meet its shareholders’ interests while still achieving its priority purposes of protecting and investing in the ecosystems and communities on which its services are based?

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https://hbsp.harvard.edu/product/318040-PDF-ENG

  • Harvard Business School Case 218-084

Root Capital and the Efficient Impact Frontier

In 2015 Root Capital, a pioneer in the impact investing space, began to explore how to more systematically integrate impact and financial management. After much deliberation, Root Capital landed on ex-ante rating system for any potential investment that produced a proprietary expected impact. With this tool in place, Root Capital had an integrated picture of impact and financial performance for a loan and across its portfolio. The next question Root capital faced was how to use this tool to optimize impact and financial performance going forward. This case was designed to be taught alongside Root Capital’s Efficient Impact Frontier Simulation exercise.

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https://hbsp.harvard.edu/product/218084-PDF-ENG

  • Harvard Business School Case 217-069

SKS Microfinance (Abridged)

Vikram Akula, CEO of SKS Microfinance, seeks a venture capital investment to fund his firm. SKS, one of the largest and fastest growing microfinance institutions in India, is a profitable, for-profit institution with a social mission. In what is one of the first commercial financing deals in the world, Akula must decide at what value to sell equity in SKS and to whom to sell it. The case focuses on valuation, which is difficult because at the time there are no publicly traded comparable companies, as well as the strategic aspects of raising money.

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https://hbsp.harvard.edu/product/217069-PDF-ENG

  • Harvard Business School Case 318-001

Environmental Technology Fund Partners and E-Leather

It is 2014 and Environmental Technologies Fund (ETF) Partners, a UK-based venture capital firm, has an opportunity to invest in a privately held UK company that manufactured engineered composition leather extracted from waste leather using an environmentally friendly process. The end product looked, smelled, and felt like natural leather. Scalable marketplace adoption of E-Leather’s products looked promising but was just that—promising. And the company’s success would largely depend on management’s ability to significantly improve the efficiency of its manufacturing operations. ETF needed to decide whether to invest in the company and, if so, at what valuation. In addition, ETF needed to decide the structure of the investment and how the firm would assess E-Leather’s environmental impact.

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https://hbsp.harvard.edu/product/318001-PDF-ENG

  • Harvard Business School Case 318-103

Morgan Stanley: Building Long-Term Sustainability

This case focuses on the 10-year journey of one of the world's largest global financial institutions developing a sustainability strategy and integrating it across all of its business units. The case provides a deep dive into the challenges and successes of trying to integrate impact, sustainability, and ESG across the firm and how that strategy translates within each unit. The case delves into the topics of building out a wealth management platform that integrates products and advice focusing on impact, embedding ESG in research, and building a green bonds business.

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https://hbsp.harvard.edu/product/318103-PDF-ENG

  • Harvard Business School Case 218-025

PFA Pension: Expansion of Alternatives Portfolio

PFA Pension was the biggest commercial pension provider in Denmark. At the end of 2015, the company had decided to boost its investments into the alternative asset class, an area where it was lagging behind its competitors. The aim was to privilege direct investments and co-investments rather than allocations through funds. One year later, PFA could count on an expert alternative investment team, a defined investment process, and a number of successful direct investments. Still, a number of questions remained: How could PFA better access attractive deal opportunities? Should PFA try to build a formal deal sourcing model? What resources and skills would be necessary to add to the alternative investment team?

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https://hbsp.harvard.edu/product/218025-PDF-ENG

  • Harvard Business School Case 818-021

Mytrah Energy

No abstract available.

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https://hbsp.harvard.edu/product/818021-PDF-ENG

No abstract available.

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https://hbsp.harvard.edu/product/218088-PDF-ENG

  • Harvard Business School Case 118-071

Designing a Compliance Program at AB InBev

Compliance programs help companies align the interests and behavior of employees with external expectations and regulation. The case discusses how AB InBev, a major brewer, developed its compliance program.

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https://hbsp.harvard.edu/product/118071-PDF-ENG

  • Harvard Business School Case 618-047

Ferrari

Ferrari is among the world’s most powerful brands, but how the company operates has remained mysterious. The case reveals the inner workings of the company—the Ferrari Way—from the way it designs, produces, and markets its cars, to how its leadership team is driving future growth. Central to Ferrari’s strategy is its response to disruptive changes in the automotive industry and their impact on the company’s products and brand.

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https://hbsp.harvard.edu/product/618047-PDF-ENG

  • Harvard Business School Case 718-041

America's Budget Impasse, 2001–2019

America's Budget Impasse, 2001–2019, draws on recent government documents to explore America's economic performance since 2001, the ideology and effects of the Bush tax cuts, Obama's fiscal stimulus in 2009, the Trump tax cuts in 2017, the bipartisan budget deal in 2018, and President Trump's budget proposal for FY2019.

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https://hbsp.harvard.edu/product/718041-PDF-ENG

  • Harvard Business School Case 718-433

Note on Blockchain and Bitcoin, 2017

Blockchain was a self-sustaining, peer-to-peer ledger technology with an integrated set of computer codes for managing and recording transactions without the involvement of any central authority. The blockchain technology had given rise to smart contracts (embedded computer codes that would automatically execute a particular set of actions), and initial coin offerings (an unregulated means by which funds were raised for a new cryptocurrency venture).

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https://hbsp.harvard.edu/product/718433-PDF-ENG