First Look

November 8, 2016

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

Winning the Chinese wine market

Christopher A. Bartlett and Sarah McAra update their case study, Global Wine War 2015: New Word versus Old. “This case contrasts the tradition-bound Old World wine industry with the market-oriented New World producers in the battle for the Chinese wine market in 2015,” write the authors.

Marketing food with color

A new working paper traces the history of standardized color in food production. The paper, Standardized Color in the Food Industry: The Co-Creation of the Food Coloring Business in the United States, 1870–1940, explores development of synthetic food dyes that replaced less stable dyes extracted from plants and minerals. The advancement “provided the food manufacturers with new tools for shaping and standardizing the color of foods,” according to the paper’s author, Ai Hisano.

Using algorithmic models to study strategy

Mihnea Moldoveanu introduces algorithmic and meta-algorithmic models for the study of strategic problem solving, aimed at illuminating the processes and procedures by which strategic managers and firms deal with complex problems. “These models allow us to explore the relationship between the complexity of an environment, the sophistication of the problem-solving processes and procedures used to optimally map problem statements into strategic actions, and the organizational structures that are best suited to implementing solutions,” according to the author. The paper is titled Algorithmic Foundations for Business Strategy

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

— Sean Silverthorne
 
  • forthcoming
  • European Competition Journal

Android and Competition Law: Exploring and Assessing Google's Practices in Mobile

By: Edelman, Benjamin, and Damien Geradin

Abstract—Since its launch in 2007, Android has become the dominant mobile device operating system worldwide. In light of this commercial success and certain disputed business practices, Android has come under substantial attention from competition authorities. We present key aspects of Google’s strategy in mobile, focusing on Android-related practices that may have exclusionary effects. We then assess Google’s practices under competition law and, where appropriate, suggest remedies to right the violations we uncover.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51875

  • 2016
  • Transformational Change in Environmental and Natural Resource Management: Guidelines for Policy Excellence

Unpacking the Dynamics of Successful Change: Ten Insights from the Private Sector

By: Henderson, Rebecca

Abstract—The aim of this book is to catalyze global interest in the pursuit of transformational changes in natural resource and environmental management. It is shown that transformational policy reforms involve fundamental shifts in strategy with far-reaching consequences for the structure of industries, the way people behave, and the resources they use. Transformational reforms typically involve a decision to change a suite of institutional arrangements that will result, within a short period of time, in a paradigm shift and the emergence of an approach that will be recognized as being totally different to the arrangements that were previously in place. Transformational change is well established in business and can deliver outstanding results. In the world of policy development, however, many transformational policy reforms flounder. Unlike incremental policy reforms, they are often seen to be politically risky and prone to failure. Using examples of success and failure, coupled with insights from practitioners and academics who have succeeded in getting transformational reforms implemented, this book presents a set of guidelines for excellence in the pursuit of transformational policy reforms. It includes detailed case studies from Australia, China, Europe, New Zealand, Southeast Asia, and the United States.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51858

  • forthcoming
  • Measuring Entrepreneurial Businesses: Current Knowledge and Challenges

Immigrant Entrepreneurship

By: Kerr, William R., and Sari Pekkala Kerr

Abstract—We examine immigrant entrepreneurship and the survival and growth of immigrant-founded businesses over time relative to native-founded companies. Our work quantifies immigrant contributions to new firm creation in a wide variety of fields and using multiple definitions. While significant research effort has gone into understanding the economic impact of immigration into the United States, comprehensive data for quantifying immigrant entrepreneurship are difficult to assemble. We combine several restricted-access U.S. Census Bureau data sets to create a unique longitudinal data platform that covers 1992–2008 and many states. We describe differences in the types of businesses initially formed by immigrants and their medium-term growth patterns. We also consider the relationship of these outcomes to the immigrants’ age at arrival to the United States.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51811

  • 2016
  • Experiences in Liberal Arts and Science Education from America, Europe, and Asia: A Dialogue Across Continents

A Global Dialogue on Liberal Arts and Sciences: Re-engagement, Re-imagination, and Experimentation

By: Kirby, William C., and Marjk van der Wende

Abstract—This book highlights the experiences of international leaders in liberal arts and science education from around the world as they discuss regional trends and models, with a specific focus on developments in and cooperation with China. Focusing on why this model responds to the twenty-first century requirements for excellence and relevance in undergraduate education, contributors examine if it can be implemented in different contexts and across academic cultures, structures, and traditions.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51876

Innovation Network

By: Acemoglu, Daron, Ufuk Akcigit, and William Kerr

Abstract—Technological progress builds upon itself with the expansion of invention in one domain propelling future work in linked fields. Our analysis uses 1.8 million U.S. patents and their citation properties to map the innovation network and its strength. Past innovation network structures are calculated using citation patterns across technology classes from 1975 to 1994. The interaction of this pre-existing network structure with patent growth in upstream technology fields has strong predictive power on future innovation after 1995. This pattern is consistent with the idea that when there is more past upstream innovation for a particular technology class to build on, then that technology class innovates more.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51866

Diversified Business Groups in the West: History and Theory

By: Colpan, Asli M., and Takashi Hikino

Abstract—This working paper examines the historical origins, evolutionary paths, and long-term resilience of diversified business groups in contemporary developed economies of Western Europe, North America, and Oceania. It aims to come up with a new theoretical understanding of diversified business groups and other comparable models of corporate organizations by broadening the analytical perspectives of earlier approaches on the subject in terms of longitudinal and geographical scope. We suggest that the straightforward association of the general environmental settings of market immaturities and institutional voids with the existence of diversified business groups is rather incomplete in reality. Our findings draw attention to the importance of examining the national differences and historical shifts in larger contexts in understanding the evolution of different varieties of diversified business groups. We further argue that diversified business groups are not simply transitionary organizations that worked well only at the early phase of modern economic growth and would not necessarily become an obstacle for dynamic development as the economies mature. Our research shows that while political institutions and capital markets have become powerful agents to dismantle those groups, a decisive factor to understand the resilience as well as effectiveness of that corporate model remains inside the business group itself. As the business groups flexibly evolve, they can adapt and fit in to remain viable organizational models even in mature markets.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51879

Structural GARCH: The Volatility-Leverage Connection

By: Engle, Robert F., and Emil N. Siriwardane

Abstract—During the financial crisis, financial firm leverage and volatility both rose dramatically. Consequently, institutions are being asked to reduce leverage in order to reduce risk, though the effectiveness depends upon the role of capital structure in volatility. To address this question, we build a statistical model of equity volatility that accounts for leverage. Our approach blends Merton’s insights on capital structure with traditional time-series models of volatility. Using our model we quantify how capital injections impact the risk of financial institutions and estimate firm-specific precautionary capital needs. In addition, the longstanding observation that volatility is more responsive to negative shocks than positive is shown to be less a consequence of actual leverage than it is of risk premiums.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49426

Abstract—This working paper examines how, starting in the 1870s, food manufacturers in the United States began to use standardized color, achieved by synthetic dyes, as part of their marketing strategies. Food manufacturers along with dye makers and regulators co-created the food-coloring business. Synthetic food dyes provided the food manufacturers with new tools for shaping and standardizing the color of foods, which had previously been colored with dyes extracted from natural plants and organic minerals, helping them to achieve mass production and mass marketing. Color was easier to control, reproduce, and commoditize than other sensory factors such as smell and texture. The federal Food and Drug Act of 1906 further assisted the management of product color in the food business by regulating and endorsing the industry's color control practices. By 1938, food dyes had achieved such widespread use, and had raised such public concern, that the federal government amended the 1906 Act to implement more stringent measures to regulate the industry.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51895

Abstract—This working paper examines the impact of two entrepreneurs who offered alternative paths to reach their shared goal of a more sustainable world. Yvon Chouinard and Doug Tompkins were respective founders of the prominent outdoor apparel brands Patagonia and The North Face. Chouinard pursued incremental sustainability strategies over decades at his firm. Tompkins, who went on to manage the fashion company Esprit, opted in 1989 to exit business entirely having concluded that capitalism could never be sufficiently sustainable to reverse environmental degradation. He purchased 1.5 million hectares of land in Chile and Argentina that he converted to protected areas and national parks. The Chouinard strategy represented best practice green entrepreneurship, which if widely adopted might markedly reduce the environmental impact of business, but its full execution appeared possible only because Patagonia was a private company. The Tompkins dual strategy of exit from business and application of entrepreneurial skills to conservation resulted in large environmental gains, including sequestering and storing an estimated 80 million tons of carbon. We lack the metrics and methodologies to compare rigorously which offers the better path to sustainability, but a case can be made that the application of entrepreneurial talents to activities beyond for-profit business (of which conservation is one example) might be a more effective strategy.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51868

The Impact of Mass Shootings on Gun Policy

By: Luca, Michael, Deepak Malhotra, and Christopher Poliquin

Abstract—There have been dozens of high-profile mass shootings in recent decades. This paper presents three main findings about the impact of mass shootings on gun policy. First, mass shootings evoke large policy responses. A single mass shooting leads to a 15% increase in the number of firearm bills introduced in a state in the year after a mass shooting. Second, mass shootings account for a small portion of all gun deaths but have an outsized influence relative to other homicides. Our estimates suggest that the per-death impact of mass shootings on bills introduced is about 80 times as large as the impact of individual gun homicides on non-mass shooting incidents. Third, when looking at enacted laws, the impact of mass shootings depends on the party in power. A mass shooting increases the number of enacted laws that loosen gun restrictions by 75% in states with Republican-controlled legislatures. We find no significant effect of mass shootings on laws enacted when there is a Democrat-controlled legislature.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51060

Abstract—I introduce algorithmic and meta-algorithmic models for the study of strategic problem solving, aimed at illuminating the processes and procedures by which strategic managers and firms deal with complex problems. These models allow us to explore the relationship between the complexity of an environment, the sophistication of the problem-solving processes and procedures used to optimally map problem statements into strategic actions, and the organizational structures that are best suited to implementing solutions. This approach allows us to distinguish among levels of sophistication in the strategic management of complex predicaments, specifically among rational, irrational, quasi-rational and super-rational problem-solving processes and responses of strategic managers and organizations. It highlights a set of dynamic search and adaptation capabilities that can be studied via the algorithmic and computational properties of the problems they are meant to solve and the efficiency and reliability by which they search a solution space. It points to several new components of competitive advantage that are linked to the complexity adaptation of a firm: “offline problem solving” and “simulation advantage” emerge as key strategic differentiators for firms facing complex problems.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51885

  • Harvard Business School Case 916-415

Global Wine War 2015: New World versus Old

This case contrasts the tradition-bound Old World wine industry with the market-oriented New World producers in the battle for the Chinese wine market in 2015. China’s wine consumption growth presented a large and fast-growing export target that was extremely attractive both to Old World producers burdened with oversupply and declining demand and to New World winemakers faced with rising costs and a deteriorating image. But changing Chinese market conditions and consumer preferences required both sets of players to devise new strategies to gain share in this fast-growing market. The case allows analysis of the way in which newcomers can change the rules of competitive engagement in a global industry. It also poses the question of how incumbents can respond, especially when constrained by regulation, tradition, and different capabilities than those demanded by changing consumer tastes and market structures.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/916415-PDF-ENG

  • Harvard Business School Case 217-022

DBL Partners: Double Bottom Line Venture Capital

This case explores the origins and current practices of DBL, a San Francisco–based venture capital fund and one of the first impact investment funds to achieve significant financial returns to scale. This case allows for a competitive analysis of DBL's investment strategy as it seeks to deploy $400m, as well as the opportunity to evaluate a specific investment in a solar power company targeting low-income consumers in Tanzania.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/217022-PDF-ENG

A smooth transition from former CEO John Chambers to new CEO Chuck Robbins had put Cisco in a position of strength. Looking back, the board reflected on what they had done well, what they might have done differently, and whether another company might be able to implement a similar CEO transition process.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/417031-PDF-ENG

  • Harvard Business School Case 417-032

CEO Succession at Cisco (B): Announcement Strategy

Supplements the (A) case.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/417032-PDF-ENG

  • Harvard Business School Case 417-033

CEO Succession at Cisco (C): Chuck Robbins' First 100 Days

Supplements the (A) case.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/417033-PDF-ENG

  • Harvard Business School Case 814-048

NOWaccount

It was September 2013, and NOWaccount Network Corporation (NOW®) co-founders John Hayes and Lara Hodgson were putting the final touches on the presentation deck for their annual shareholders' meeting. Along with co-founder Stacey Abrams, the pair had designed NOW's business model three years ago, and the company was at a critical juncture. NOW offered a program—called NOWaccount—that provided working capital to small businesses by converting their trade receivables almost immediately into cash. Founded in December 2010, NOW, based in Atlanta, Georgia, was serving clients in nine states. With 2013 year-to-date revenue of roughly $100,000, NOW was financed with $2.5 million of founder as well as friends and family equity. NOW's wholly owned, not-for-profit special purpose entity (SPE), Trade Credit Guaranty Corporation (TCGC), purchased approved receivables, funding 90% of the invoice face values by electronic transfers into clients' bank accounts. As of September 2013, TCGC had purchased more than $13 million small business trade receivables from more than 40 clients. Once TCGC reached a scale of approximately $150 million of funds in use for receivable purchases, the co-founders planned to tap into the securitization market for capital by issuing asset-backed securities (ABS), collateralized by a pool of receivables, much like the credit card industry. ABS would provide TCGC ongoing capital at a lower cost. The question the co-founders confronted was whether they should get to the $150 million securitization threshold by piecing together smaller pools of capital from credit unions and possibly smaller banks (a slower approach but one that did not involve dilution because it was all debt finance) or by accepting larger chunks of capital from a major global bank and a private equity firm, getting them much closer to the threshold but at the cost of significant dilution (35%) as these financiers were also looking for a combination of equity and warrants in NOW. As they prepared to discuss their options at the shareholders' meeting, Hayes and Hodgson considered each option's trade-offs in timing, cost, control, and execution risk.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/814048-PDF-ENG

  • Harvard Business School Case 817-037

Entrepreneurial Finance Problem Set

No abstract available.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/817037-PDF-ENG

  • Harvard Business School Case 117-032

Accenture Human Capital Strategy

Accenture, whose clients as well as its own operations are based throughout the world, is a leading global consulting, technology, and outsourcing company. This case describes the human resources and related activities necessary to deliver services to its clients. It allows students to explore how Accenture predicts its staffing needs, including identifying the necessary skills; identifies how to recruit staff, when to hire them and in what parts of the world; and determines how to develop, compensate, and motivate them, along with how to form them into project teams and manage the process in a cost effective manner. This case also provides a fictional example of an Accenture project. A potential client has issued a request for proposals to deliver a technology project. Students are asked to create a project team with the right mix of people at a cost that is competitive enough to win the project.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/117032-PDF-ENG

  • Harvard Business School Case 717-016

Generali: Paving the Way for CEE Expansion

Generali was one of Italy’s largest companies and one of Europe’s largest insurers and had for decades been at the center of the web of cross-shareholding that has characterized the opaque brand of old Italian capitalism. This bred sub-par returns while serving to strengthen a small group of shareholders. Under new CEO Mario Greco and his vision of a “revolution of simplicity, discipline, and focus” the company underwent a successful turnaround. One of Greco’s most urgent tasks was to remove uncertainty surrounding the company’s majority stake in a joint venture in Central and Eastern Europe, which it had used as a vehicle for expansion in the region.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/717016-PDF-ENG

  • Harvard Business School Case 717-005

Diageo and Mey Icki: Turkish Delight or Turkish Hangover?

In September 2013, two years after its $2.1 billion acquisition of Mey Icki Sanayi ve Ticaret AS (Mey Icki), the principal spirits company in Turkey specializing in the local beverage, raki, Diageo, the world’s leading premium drinks company, was concerned about new legislation approved by the Turkish parliament prohibiting marketing and restricting the places and times at which alcoholic beverages could be sold. Diageo’s Mey Icki investment in 2011 was the company’s biggest acquisition in more than a decade. Having been caught off guard by the 2013 legislative changes, the Diageo management found itself needing to justify its $2.1 billion valuation, given that Diageo had acquired Mey Icki in 2011 from TPG for three times TPG's purchase price in 2006. Investors as well as analysts were questioning the over seven times value increase in Mey Icki since its privatization in 2003. Menezes, new to the CEO post, found himself increasingly overwhelmed by these issues. Had Diageo underestimated the uncertainties in the Turkish market? Would Diageo, with its broad range of brands, geographical spread, and significant financial resources be able to adapt to the changing environment and recoup its vast investment in Turkey? The case describes the forces that affect investment circumstances in emerging markets, raising the issue of how to best manage and prepare for risks. The case provides the context for the students to identify the potential elements that companies could face when investing in emerging markets where rules, legislation, and taxation can change and thus affect investment outcomes. The case challenges the students to ponder what companies should think about when investing in volatile markets and what it takes for them to succeed under uncertain and shifting circumstances.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/717005-PDF-ENG

  • Harvard Business School Case 116-004

China Lodging Group (A)

This case study explores the challenges of aligning middle management interests with company goals as a company navigates rapid growth in a dynamic industry. China Lodging Group, a Chinese hotel chain that opened about 2,000 hotels during its first decade in business, uses Balanced Scorecard (BSC) metrics to promote both consistency of service and an entrepreneurial attitude among hotel managers. The company needs to encourage its managers to operate according to company-level values and goals, without gaming the BSC metrics for short-term rewards or without focusing exclusively on local, narrow results. This case illustrates how executive teams can develop incentive systems that increase managers' sense of ownership and commitment to company values and goals.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/116004-PDF-ENG

  • Harvard Business School Case 116-005

China Lodging Group (B)

Supplements the (A) case.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/116005-PDF-ENG

  • Harvard Business School Case 616-002

Vistron Inc.: The Z Glass Project

No abstract available.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/616002-PDF-ENG

This module explores how to build effective profit plans that describe business strategy in economic terms. Managers use a profit plan to assess the ability of different strategies to generate value and to evaluate whether sufficient resources will be available to implement the chosen strategy. Every profit plan is subject to the constraints imposed by the profit wheel, the cash wheel, and the ROE wheel. We illustrate how to develop accurate estimates for sales, profit, cash flow, investment in new assets, return-on-equity, profitability, and asset turnover. We discuss how to gather and analyze data and assumptions and demonstrate the effects of sensitivity analysis on predictions. We end this module by illustrating how to use a profit plan to test a strategy’s viability. This module shows how the profit plan plays a critical role in every business: setting performance goals for employees, communicating expectations to the investment community, and allowing the evaluation of the performance of individual businesses and managers. While this module is designed to be used alone, it is part of the Management Control Systems series. The series forms a complete course that focuses on the techniques for using performance measurement and control systems to implement strategy.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/117105-PDF-ENG