First Look

October 25, 2016

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

The challenge of explaining pivots to investors

Investors who back entrepreneurs are likely compelled by the start-up's founding story. But how do entrepreneurs explain a change in circumstance that leads to a pivot, as so many new businesses do? According to researchers Rory McDonald and Cheng Gao, "how they explain strategic reorientations may matter as much or more than the changes themselves." Their working paper is titled Pivoting Isn’t Enough: Principled Pragmatism and Strategic Reorientation in New Ventures.

What's an innovation worth?

Elie Ofek, Eitan Muller, and Barak Libai put a price on innovation in their new book, Innovation Equity: Assessing and Managing the Monetary Value of New Products and Services, published by University of Chicago Press. They present a lens "through which to view the commercial potential of innovations and a powerful vehicle for placing a dollar value on new products and services."

How a manager's ethnic culture affects their communications with investors

A managers’ ethnic culture has a lasting effect on how they talk with investors, according to the working paper Managers' Cultural Background and Disclosure Attributes. Studying earnings calls transcripts of more than 26,000 executives in 42 countries, researchers find that managers from ethnic groups that have a greater individualistic culture use a more optimistic tone, exhibit increased self-reference, and make fewer apologies in their disclosure narratives. The research was conducted by Francois Brochet, Gregory S. Miller, Patricia Naranjo, and Gwen Yu.

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

— Sean Silverthorne
  • 2016
  • University of Chicago Press

Innovation Equity: Assessing and Managing the Monetary Value of New Products and Services

By: Ofek, Elie, Eitan Muller, and Barak Libai

Abstract—This book bridges the gap between what academics know, and what innovation stakeholders—from managers, to investors, to analysts, to consumers—need to know about how new products and services are expected to perform in the marketplace. The book develops a compelling framework that connects the rich academic knowledge on innovation diffusion with that on customer relationship management, thereby marrying our understanding of how consumers adopt innovations with how firms effectively acquire, serve, and retain customers. The result is a lens through which to view the commercial potential of innovations and a powerful vehicle for placing a dollar value on new products and services. The book shows how the framework can be used to evaluate the implications of marketing actions, consumer heterogeneity, competition, successive technology generations, and globalization. The exposition is filled with vivid examples from a wide array of domains (video games, wireless phone services, computers, tablets, satellite radio, electric vehicles, cloud-based software, pharmaceuticals, and more), which demonstrate how the topics covered apply to real-world situations. A set of hands-on tools for implementing the various topics can be accessed.

Publisher's link:

  • 2016
  • New York: Springer

Building a Culture of Health: A New Imperative for Business

By: Quelch, John A., and Emily C. Boudreau

Abstract—This ambitious volume sets out to understand how every company impacts public health and introduces a robust model, rooted in organizational and scientific knowledge, for companies committed to making positive contributions to health and wellness. Focusing on four interconnected areas of corporate impact, it not only discusses the business imperative of promoting a healthier society and improved living conditions worldwide, but also provides guidelines for measuring a company’s population health footprint. Examples, statistics, and visuals showcase emerging corporate involvement in public health and underscore the business opportunities available to companies that invest in health.

Publisher's link:

  • September–October 2016
  • European Business Review

What Senior Executives Should Know About Sales

By: Cespedes, Frank V.

Abstract—Business is more complex, data more abundant, and more specialists are needed to stay up-to-date with functional best practices. As a senior executive, you can worry all you want about disruption, but you need a salesforce aligned with strategy to do something about it. This article discusses how investments in sales affect core levers of enterprise value creation (and destruction).

Publisher's link:

  • July 20, 2016
  • Harvard Business Review

To Increase Sales, Get Customers to Commit a Little at a Time

By: Cespedes, Frank V., and David Hoffeld

Abstract—This article discusses what behavioral research does and does not tell us about factors that aid the "closing" of a sales call.

Publisher's link:

  • forthcoming
  • American Economic Journal: Economic Policy

When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization

By: Dafny, Leemore S., Christopher Ody, and Matt Schmitt

Abstract—Branded pharmaceutical manufacturers frequently offer “copay coupons” that insulate consumers from cost sharing, thereby undermining insurers’ ability to influence drug utilization. We study the impact of copay coupons on branded drugs first facing generic entry between 2007 and 2010. To overcome endogeneity concerns, we exploit cross-state and cross-consumer variation in coupon legality. We find that coupons increase branded sales by 60+ percent, entirely by reducing the sales of bioequivalent generics. During the five years following generic entry, we estimate that coupons increase total spending by $30 to $120 million per drug, or $700 million to $2.7 billion for our sample alone.

Publisher's link:

  • September 30, 2016
  • Arthroplasty Today

Variation in the Cost of Care for Primary Total Knee Arthroplasties

By: Haas, Derek A., and Robert S. Kaplan

Abstract—The study examined the cost variation across 29 high-volume U.S. hospitals for delivering a primary total knee arthroplasty without major complicating conditions. Hospital and physician personnel costs were calculated using time-driven activity-based costing. Consumable supply costs, such as the prosthetic implant, were calculated using purchase prices, and post-acute care costs were measured using either internal costs or external claims as reported by each hospital. Despite having similar patient demographics as well as re-admission and complication rates, the average cost of care for total knee arthroplasty across the hospitals varied by a factor of about 2 to 1. Even after adjusting for differences in internal labor cost rates, the hospital at the 90th percentile of cost spent about twice as much as the one at the 10th percentile of cost. The large variation in costs among sites suggests major and multiple opportunities to transfer knowledge about process and productivity improvements that lower costs while simultaneously maintaining or improving outcomes.

Publisher's link:

  • in press
  • Journal of Personality and Social Psychology

The Dark Side of Going Abroad: Broad Foreign Experiences Increase Immoral Behavior

By: Lu, J., A. Galinsky, W. Maddux, A. Chakroff, J. Quoidbach, and F. Gino

Abstract—Due to the unprecedented pace of globalization, foreign experiences are increasingly common and valued. Past research has focused on the benefits of foreign experiences, including enhanced creativity and reduced intergroup bias. In contrast, the present work uncovers a potential downside of foreign experiences: increased immoral behavior. We propose that broad foreign experiences (i.e., experiences in multiple foreign countries) foster not only cognitive flexibility but also moral flexibility. Using multiple methods (longitudinal, correlational, and experimental), eight studies (N > 2200) establish that broad foreign experiences can lead to immoral behavior by increasing moral relativism, or the belief that morality is relative rather than absolute. The relationship between broad foreign experiences and immoral behavior was robust across a variety of cultural populations (anglophone, francophone), life stages (high school students, university students, MBA students, middle-aged adults), and seven different measures of immorality. As individuals are exposed to diverse cultures, their moral compass may lose some of its precision.

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Abstract—Outlet stores are a large and growing component of many firms' retailing strategies, particularly in the fashion industry. Outlet stores offer attractive prices in locations far from central shopping districts. The main perspectives on why outlet stores exist can be broadly classified into inventory management, geographic segmentation, and price discrimination through consumer self-selection. I evaluate these perspectives in the context of a major fashion goods firm using newly available and highly granular data. Model-free evidence suggests that inventory management and geographic segmentation are not the main drivers for outlet store use. Consumers who shop at outlet stores also do not differ significantly from those who shop at regular stores in terms of income. I use a structural demand model to show that consumers are segmented according to their sensitivity to travel distance and taste for product newness. I then develop a supply model to predict product development responses to changes in store locations. Through policy simulations, I discover that the firm uses outlet stores to serve lower-value consumers who self-select by traveling to outlet stores from central shopping districts. The firm sells older, less desirable merchandise through outlet stores to prevent cannibalization of regular store revenues by means of exploiting the positive correlation between consumers' travel sensitivity and taste for new products. I find that the rate of new product introduction in regular stores would fall by 16% if outlet stores were closed down, while variable profits would decline by 23%. These results imply that the existence of outlet stores may enable firms to improve quality in their regular channels, thus counteracting brand dilution effects.

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Managers' Cultural Background and Disclosure Attributes

By: Brochet, Francois, Gregory S. Miller, Patricia Naranjo, and Gwen Yu

Abstract—We examine how a manager’s ethnic cultural background affects managers’ communication with investors. Using a sample of earnings conference calls transcripts with 26,430 executives from 42 countries, we find that managers from ethnic groups that have a more individualistic culture (i) use a more optimistic tone, (ii) exhibit greater self-reference, and (iii) make fewer apologies in their disclosure narratives. Managers’ ethnic culture has a lasting effect on their narratives—the effects persist even for executives who are later exposed to different ethnic cultures through work experience. The effect of ethnic heritage is observed in dialogues that reflect real time interactions (i.e., Q&As) and less pronounced in the scripted, less spontaneous portion of the calls (i.e., management discussion). The capital market responds positively to optimistic tone yet does not distinguish between the optimism in tone of managers from different ethnic backgrounds. The findings suggest that managers’ ethnic backgrounds have a significant effect on how they communicate with the capital markets and how the markets respond to the disclosure event.

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Abstract—Emissions regulation today is non-uniform, with some regions imposing carbon costs within their borders while many others do not. This gives rise to concerns over carbon leakage—offshoring and foreign entry in response to regional asymmetry in carbon costs. It is widely believed that carbon leakage would result in increased global emissions, undermining the intent of emissions regulation. It is also widely believed that carbon tariffs—carbon taxes imposed on goods imported from an unregulated region to a region subject to carbon costs—would eliminate this leakage. Results here contrast these beliefs. This paper demonstrates that carbon leakage can arise despite a carbon tariff but, when it does, it decreases emissions in practical settings. Due in part to this clean leakage, imposing a carbon tariff is shown to decrease global emissions. Domestic firm profits, on the other hand, can increase, decrease, or remain unchanged due to a carbon tariff. Therefore a carbon tariff's general benefit is not protectionism disguised as climate policy, as some argue. Rather, a carbon tariff improves the efficacy of emissions regulation, enabling emissions price to be used to reduce global emissions in many settings in which it would otherwise fail to do so.

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Managing Reputation: Evidence from Biographies of Corporate Directors

By: Gow, Ian D., Aida Sijamic Wahid, and Gwen Yu

Abstract—We examine how corporate directors manage reputation through disclosure choices in biographies in proxy statements filed with the SEC. Directors are more likely to withhold information about directorships at firms that experienced adverse events. Withholding such information is associated with more favorable stock price reactions at appointment and loss of fewer subsequent directorships. Nondisclosure of directorships is significantly reduced following changes to SEC rules, with the greatest change being for adverse-event directorships. These findings suggest that reputation concerns of corporate directors lead to strategic disclosure choices that have real consequences in both capital and labor markets.

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Abstract—Do online communities segregate into separate conversations when contributing to contestable knowledge involving controversial, subjective, and unverifiable topics? We analyze the contributors of biased and slanted content in Wikipedia articles about U.S. politics and focus on two research questions: (1) Do contributors display tendencies to contribute to sites with similar or opposing biases and slants? (2) Do contributors learn from experience with extreme or neutral content, and does that experience change the slant and bias of their contributions over time? The findings show enormous heterogeneity in contributors and their contributions, and, importantly, an overall trend towards less segregated conversations. A higher percentage of contributors have a tendency to edit articles with the opposite slant than articles with similar slant. We also observe the slant of contributions becoming more neutral over time, not more extreme, and, remarkably, the largest such declines are found with contributors who interact with articles that have greater biases. We also find some significant differences between Republicans and Democrats.

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Patent Disclosures and Standard-Setting

By: Lerner, Josh, Haris Tabakovic, and Jean Tirole

Abstract—A key role of standard setting organizations (SSOs) is to aggregate information on relevant intellectual property (IP) claims before deciding on a standard. This article explores the firms’ strategies in response to IP disclosure requirements—in particular, the choice between specific and generic disclosures of IP—and the optimal response by SSOs, including the royalty rate setting. We show that firms with a stronger downstream presence are more likely to opt for a generic disclosure, as are those with lower quality patents. We empirically examine patent disclosures made to seven large SSOs and find results consistent with theoretical predictions.

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Abstract—New technology ventures often experience deviations from their original plans that oblige them to reorient in pursuit of better fit between their evolving products and target customers. Yet research is largely silent on how entrepreneurs explain and justify their ventures in the wake of fundamental redirections in strategy. Since ventures attain legitimacy and resources based on original aims that constituencies find compelling, entrepreneurs’ initial claims are likely to complicate subsequent course corrections. To shed light on how ventures effectively manage strategic reorientations, we conducted an inductive, longitudinal field study of two startups in the “robo-advisor” sector. Despite similar initial profiles, parallel reorientations, and comparable end products, the startups’ fortunes diverged in a conspicuous way that is difficult to reconcile with prior research. We develop a theoretical model introducing principled pragmatism—a novel strategy process that enables entrepreneurs to make changes to their fledgling businesses while portraying faithfulness to enduring aims. Our framework suggests that technology ventures’ success depends not only on sensible redirections, but also on how entrepreneurs anticipate, communicate, and pace these changes to various external supporters. In other words, how they explain strategic reorientations may matter as much or more than the changes themselves. Successful entrepreneurs do not merely generate and test hypotheses, like scientists, to find viable product solutions; they also resemble adept politicians—convincingly justifying deviations from plan to diverse constituencies.

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  • Harvard Business School Case 817-006


Showpad is a growing startup whose founders are considering changes to spur growth. The options include changes to the product line, to pricing, and to sales management practices.

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  • Harvard Business School Case 817-015

Oversight Systems

The case, set in May 2016, discusses sales strategy and managing sales and service at Oversight Systems, an Atlanta, Georgia–based software firm that developed analytics for organizations to monitor their data for errors, fraud, and operational inefficiencies. Included is an overview of Oversight's founding and the evolution of its offering from customized software analytics to pre-packaged software-as-a-service (SaaS) bundles, called Insights on Demand (IOD). Oversight adapted its sales and service approach to better suit IOD by standardizing its prices, packaging, and product delivery, as well as its approach to sales, including the sales team's composition, compensation, and incentive structure. Over time, Oversight had engaged in a variety of channel partnerships, and some were more successful than others. The case examines the decision of whether to engage in a channel partnership with a major credit card company.

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  • Harvard Business School Case 817-026

Collective Academy

No abstract available.

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  • Harvard Business School Case 315-120

Acıbadem Healthcare Group

Acıbadem Healthcare Group is Turkey's only premium nationwide hospital network. This case focuses on Acıbadem’s potential expansion strategy after it was acquired by International Healthcare Holdings Berhad (IHH) in 2011, the world's second-largest publicly listed health care group and a private hospital leader in Singapore and Malaysia. By providing perspectives on both Acıbadem and IHH-Parkway-Pantai's operational models, growth aspirations, collaboration and synergies, as well as cultural and operational differences, the case allows students to discuss which expansion strategies would be best suited for Acıbadem's operations—which geographic regions should initially be targeted and what business model is best suited for Acıbadem’s growth (specialized chain, public-partnership, etc.). Students are encouraged to discuss how Acıbadem should leverage its relationship with IHH and collaborate with Parkway-Pantai.

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  • Harvard Business School Case 315-020


Bonitas, a South African medical scheme (i.e., health insurer), must navigate highly restrictive regulations that make it difficult for Bonitas to innovate, grow, and compete with market leader Discovery as well as providers of alternative insurance products. Bonitas must also plan ahead for the rollout of national health insurance—a deeply politicized issue in a country with great disparities in health care quality and access. How can Bonitas compete today while positioning itself to thrive—and not lose relevance—under a universal public health insurance system?

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