First Look

Abstract—There is a strong link between measures of stock market performance, such as changes in Tobin's Q or past stock returns, and equity issues. Typically, this performance is thought to be a characteristic of the firm, not the CEO who happens to run the firm. In contrast to this conventional wisdom, we find that equity issues depend on changes in Q and returns to a greater extent if the current CEO was at the helm when those past returns were realized. What we label the CEO-specific Q and past return explains equity issuance, but it does not explain debt issuance, investment, or profitability. Two discontinuity analyses show that the specific share price that the current CEO inherited is an important reference point, while salient share prices prior to turnover are not. A corollary is that a firm with poor stock market performance cannot, or will not, raise new capital unless the current CEO is replaced.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50062

Abstract—For any enterprise to be competitive, continuous learning and improvement are key—but not always easy to achieve. After a decade of research, the authors have concluded that four biases stand in the way: we focus too heavily on success, are too quick to act, try too hard to fit in, and rely too much on experts. Each of these biases raises challenges, but each can be curbed with particular strategies. A preoccupation with success, for example, leads to an unreasonable fear of failure, a mindset that inhibits risk taking, a focus on past performance rather than potential, and blindness to the role of luck in successes and failures. Managers, therefore, need to treat mistakes as learning opportunities, recognize and foster workers' capacity for growth, and conduct data-based project reviews. To counter the bias toward action—and the unthinking perpetual motion and exhaustion that ensue—leaders can schedule more work breaks and make time for reflection. They can redress the tendency to conform, which stifles innovation, by encouraging workers to cultivate their individual strengths and to speak up when they have ideas for improvements. And they can develop and empower their employees to solve problems instead of turning automatically to outside experts.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49606

Abstract—We use a dataset of sell-side analysts' scenario-based valuation estimates to examine whether analysts reliably assess the risk surrounding a firm's fundamental value. We find that the spread in analysts' state-side contingent valuations captures the riskiness of operations and predicts the absolute magnitude of future long-run valuation errors and changes in fundamentals. Similarly, asymmetry embedded in the analysts' scenario-based valuations conveys information about asymmetric risk-reward exposure and predicts skewness in future long-run valuation errors; however, embedded asymmetry is not correlated with changes in fundamentals. The results confirm that analysts' valuations reflect both state-contingent risk assessments and non-fundamental factors.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50060

Abstract—As firms increasingly rely on online media to acquire consumers, marketing managers feel comfortable justifying higher online marketing spending by referring to online metrics such as click-through rate (CTR) and cost per acquisition (CPA). However, these standard online advertising metrics are plagued with attribution problems and do not account for dynamics. These issues can easily lead firms to overspend on some actions and thus waste money and/or underspend in others, leaving money on the table. We develop a multivariate time series model to investigate the interaction between paid search and display ads and calibrate the model using data from a large commercial bank that uses online ads to acquire new checking account customers. We find that display ads significantly increase search conversion. Both search and display ads also exhibit significant dynamics that improve their effectiveness and ROI over time. Finally, in addition to increasing search conversion, display ad exposure also increases search clicks, thereby increasing search advertising costs. After accounting for these three effects, we find that each $1 invested in display and search leads to a return of $1.24 for display and $1.75 for search ads, which contrasts sharply with the estimated returns based on standard metrics. We use these results to show how optimal budget allocation may shift dramatically after accounting for attribution and dynamics. Although display benefits from attribution, the strong dynamic effects of search call for an increase in search advertising budget share by up to 36% in our empirical context.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50085

Abstract—Recent years have seen a large expansion in the use of rigorous impact evaluation techniques. Increasingly, public administrations are collaborating with academic economists and other quantitative social scientists to apply such rigorous methods to the study of public finance. These developments allow for more reliable measurements of the effects of different policy options on the behavioral responses of citizens, firm owners, or public officials. They can help decision makers in tax administrations, public procurement offices, and other public agencies design programs informed by well-founded evidence. This paper provides an introductory overview of the most frequently used impact evaluation methods. It is aimed at facilitating communication and collaboration between practitioners and academics by introducing key vocabulary and concepts used in rigorous impact evaluation methods, starting with randomized controlled trials and comparing them with other methods ranging from simple pre-post analysis to difference-in-differences, matching estimations, and regression discontinuity designs.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50067

Walid Hajj (HBS '95), CEO of Dubai-based restaurant franchising company Cravia, considers how best to expand his business in the fast-growing Gulf region. Should he add more American brands, expand to nearby countries, or open more of his current lineup of restaurants?

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Accor, the world's leading hotel operator with a portfolio of fourteen hospitality brands (including Sofitel and Novotel) in 92 countries, prided itself on living up to its motto, "To open new frontiers in hospitality." Accor was indeed contemplating how to do just that—but not by tackling a new frontier of the geographic variety. Rather, the firm was further exploring the digital frontier via a new distribution channel that would allow it to better compete in the online marketing space for travel reservations.

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Part of a leader's job is to equip the organization to transform inputs into outputs by defining organizational strategy, shaping organizational identity, and then managing four organizational components—formal organizational structure, culture, people, and critical tasks—such that each component, and their interaction, aligns to produce performance. Substantial research has demonstrated that well-aligned organizations will be more capable of (1) attaining strategic goals; (2) efficiently utilizing resources to do so; and (3) adapting to unforeseen, future challenges. This short note walks through the Congruence Model, a simple yet powerful tool for achieving alignment in an organization.

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“Building Strong Partnerships at the Inter-American Development “Bank” details the development of the bank's new Office of Outreach Partnerships (ORP) to sustain a culture of innovation through maintaining and generating partnerships in order to fulfill the bank's greater mission of providing multilateral development financing as well as non-financial technical support and expertise for the Latin American and Caribbean region. At the time the case takes place, the Latin American and Caribbean region had seen changes such as expansion of the middle class, emergence of a new business class, and integration with foreign trade. Additionally, the region had faced challenges such as poverty, education, productivity, and infrastructure in both small and medium enterprises. Finally, new actors had entered the region such as governments, corporations, foundations, academic institutions, and NGO's to take a supporting role. In response, the Inter-American Development Bank (IDB) had created the ORP as a dedicated team to lead strategic collaboration and interactions with a long-term vision for partnerships and innovation. The case portrays key questions concerning how the partnership process was formalized through the development of the ORP, and what innovations these new partnerships would bring to the bank. Three example partnerships are detailed including The Coca-Cola Company, The Salud Mesoamerica 2015 Initiative, and PepsiCo. The case concludes by positing questions the ORP would face moving forward such as incentives, metrics, restructuring to serve the private sector, and mechanisms for working with a new set of partners.

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This case helps students to understand how the characteristics of a business are reflected in the firm's financial statements. In this exercise, students are given balance sheet data in percentage form (common-size balance sheets) and other selected financial ratios for a set of 12 unidentified firms from 12 different industries (all 12 companies are listed on the Australian Securities Exchange, ASX). Students must use the balance sheet data and the financial ratios along with their basic knowledge of the operating characteristics of these various industries to match each firm to the correct industry.

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In May 2012, a young employee at Google's London office, Markus Berger, was thinking whether he should quit his job and go after his dream of becoming an entrepreneur. Berger's idea was to create Dinr, a company that would offer an upscale food ingredient delivery service in London. A customer would choose a recipe on Dinr's website and would receive all premeasured ingredients the same evening at their doorstep. Contrary to many existing similar companies, Dinr would not require a weekly subscription, but would operate one-off orders like other traditional food delivery services. Berger had already carried out an alpha-test of the service and completed an in-depth survey of potential customers to explore the market. Most of the feedback was positive, which confirmed Berger's intuition about this market opportunity. Berger had found a more experienced co-founder with technical expertise who was willing to join Dinr part-time and had gathered £40,000 of initial capital. Yet, making the decision to leave his corporate job and become an entrepreneur was not easy: Was Dinr a good business opportunity? Would it be attractive to outside investors? What were the risks involved?

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In 2013, Pinar Abay was appointed as the CEO of ING Bank Turkey. At 34, she was the youngest bank CEO in Turkey's history. Her appointment raised eyebrows because of her youth and because her career at McKinsey had given her no day-to-day bank management experience. ING, however, wanted a younger leader who could relate to Turkey's young and digitally savvy population. Upon her appointment, Abay determined that major changes were required in operations, personnel, and culture. She adopted a variety of innovative approaches to making these changes, ranging from non-traditional hires to sitting for hours in call centers to personally answering customer complaints on Twitter. As Turkey's 12th largest bank, however, ING Turkey lacked scale, so Abay and her team considered a number of non-traditional ways to organize distribution and market the bank to promote growth.

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