First Look

October 30, 2018

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

Women get harsher punishments for misconduct than men

After an incident of misconduct, female financial advisers are 20 percent more likely to lose their jobs and 30 percent less likely to find new jobs compared to male advisers, according to new research that reveals a “gender punishment gap” by Mark Egan, Gregor Matvos, and Amit Seru. When Harry Fired Sally: The Double Standard in Punishing Misconduct.

Corporate sustainability: tough but necessary

In a new book, Geoffrey G. Jones chronicles the roadblocks businesses have faced on the road to sustainability over time. He hopes businesses learn some lessons from the past, arguing that the journey toward sustainability may be difficult, but is urgently needed. Varieties of Green Business: Industries, Nations and Time.

Booking.com revamps the customer experience

For Booking.com, online experimentation was key to designing effective digital experiences for customers. Stefan Thomke and Daniela Beyersdorfer write in a new case study that the company had to challenge conventional assumptions about innovation in order to become the world’s leading travel accommodation platform. Booking.com.

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

— Dina Gerdeman
 
  • 2018
  • Northamption, MA: Edward Elgar Publishing

Varieties of Green Business: Industries, Nations and Time

By: Jones, G.

Abstract—Published at a time of ever-increasing warnings that the pace of climate change and other environmental changes risk making the Earth unsustainable within our own lifetimes, this book looks at the past of green business to identify lessons for the future. It provides rich new evidence and insights on green business as it examines its variation between industries and nations over time. It shows the deep historical origins of endeavors to create for-profit businesses that were more responsible and sustainable as well as how these strategies have faced constraints, trade-offs, and challenges of legitimacy. The industries covered range from sustainable finance and solar energy to organic food and wine, ecotourism, and outdoor clothing. Strategies pursued range from incremental shifts towards sustainability to abandoning for-profit business entirely and re-wilding and conserving millions of acres of lands in Latin America. The book's distinctiveness lies in the use of original empirical data and the willingness to engage with both successful and unsuccessful cases. The wide geographical coverage includes not only the United States and Europe but also less studied settings, including Chile, Costa Rica, New Zealand, and Japan. The book serves as a warning against facile beliefs in the potential of win/win solutions as business tries to reduce its environmental impact or even save the planet. The lesson of history is that making business sustainable is a hard journey, littered with system-wide roadblocks, but it is a journey that is possible and one that is urgently needed.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=55178

Developing Theory Using Machine Learning Methods

By: Choudhury, Prithwiraj, Ryan Allen, and Michael G. Endres

Abstract—We describe how to employ machine learning (ML) methods in theory development. Compared to traditional causal inference methods, ML methods make far fewer a priori assumptions about the functional form of the underlying model that best represents the data. Thus researchers could use such methods to explore novel and robust patterns in data, allowing the researcher to engage in inductive or abductive theory building. ML’s strengths include replicable identification of novel patterns in data. ML methods also address several issues raised by scholars pertinent to the norms of empirical research in the fields of strategy and management (such as “p-hacking” and confounding local effects with global effects). We provide a step-by-step roadmap that illustrates how to use four ML methods (decision trees, random forests, K-nearest neighbors, and neural networks) to reveal patterns in data that could be used for theory building. We also illustrate how ML methods can illuminate interactions and non-linear effects better than traditional methods do. In summary, ML methods could serve as a complement to existing theory-creating methods, such as multiple-case inductive studies, as well as traditional methods of causal inference.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=55043

Arbitration with Uninformed Consumers

By: Egan, Mark, Gregor Matvos, and Amit Seru

Abstract—We examine whether firms have an informational advantage in selecting arbitrators in consumer arbitration as well as the impact of the arbitrator selection process on outcomes. We collect data containing roughly 9,000 arbitration cases in securities arbitration. Securities disputes present a good laboratory: the selection mechanism is similar to other major arbitration forums; arbitration is mandatory for all disputes, eliminating selection concerns; and the parties choose arbitrators from a randomly generated list. We first document that some arbitrators are systematically industry friendly while others are consumer friendly. Firms appear to utilize this information in the arbitrator selection process. Despite a randomly generated list of potential arbitrators, industry friendly arbitrators are 40% more likely to be selected than their consumer friendly counterparts. Better informed firms and consumers choose more favorable arbitrators. We develop and calibrate a model of arbitrator selection in which, like the current process, both the informed firms and uninformed consumers have control over the selection process. Arbitrators compete against each other for the attention of claimants and respondents. The model allows us to interpret our empirical facts in equilibrium and to quantify the effects of changes to the current arbitrator selection process on consumer outcomes. Competition between arbitrators exacerbates the informational advantage of firms in equilibrium resulting in all arbitrators slanting towards being industry friendly. Evidence suggests that limiting the respondents’ and claimants’ inputs over the arbitrator selection process could significantly improve outcomes for consumers.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=55179

When Harry Fired Sally: The Double Standard in Punishing Misconduct

By: Egan, Mark, Gregor Matvos, and Amit Seru

Abstract—We examine gender differences in misconduct punishment in the financial advisory industry. We find evidence of a "gender punishment gap": following an incident of misconduct, female advisers are 20% more likely to lose their jobs and 30% less likely to find new jobs relative to male advisers. Females face harsher outcomes despite engaging in misconduct that is 20% less costly and having a substantially lower propensity towards repeat offenses. The gender punishment gap in hiring and firing dissipates at firms with a greater percentage of female managers at the firm or local branch level. The gender punishment gap is not driven by gender differences in occupation (type of job, firm, market, or financial products handled), productivity, misconduct, or recidivism. We extend our analysis to explore the differential treatment of ethnic minorities and find similar patterns of "in-group" tolerance. Our evidence is inconsistent with a simple Bayesian model and suggests instead that managers are more forgiving of missteps among members of their own gender/ethnic group.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=53407

Complex Disclosure

By: Jin, Ginger Zhe, Michael Luca, and Daniel Martin

Abstract—We present evidence that complex disclosure can result from the strategic incentives to shroud information. We implement an experiment where senders are required to report their private information truthfully but can choose how complex to make their reports. We find that senders use complex disclosure more than half the time. Most of this obfuscation is profitable because receivers make systematic mistakes in assessing complex reports. Receivers understand that senders are using complexity to hide bad news. However, strategic complexity is still effective, which can be attributed to receivers being overconfident in their ability to process complex information.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=54546

Abstract—Dominant platform businesses often develop products in adjacent markets to complement their core business. One common approach used to gain traction in these adjacent markets has been to pursue a tying strategy. For example, Microsoft pre-installed Internet Explorer into Windows, and Apple set Apple Maps as the iOS default. Policymakers have raised concerns that dominant platforms may be leveraging their market power to gain traction for lower quality products when they use a tying strategy. In this paper, we empirically explore this question by examining Google’s decision to tie its new reviews product to its search engine. We experimentally vary the content displayed above Google’s organic search results to show either exclusively Google reviews (Google’s current tying strategy) or reviews from multiple platforms determined to be the best-performing by Google’s own organic search algorithm. We find that users prefer the version that does not exclude competitor content. Furthermore, looking at observational data on user traffic to Yelp from search engines, we find that Google’s exclusion of downstream competitors may have been effective. The share of Yelp’s traffic coming from Google has declined over this period, relative to traffic from Bing and Yahoo (which do not exclude other companies’ reviews), and Google’s review content has grown quicker than Yelp and TripAdvisor. Overall, these results shed light on platform strategy and market entry: tying can facilitate entry in complementary markets, even when the tied product is of worse quality compared to existing options.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=55176

  • Harvard Business School Case 518-067

HubSpot and Motion AI: Chatbot-Enabled CRM

HubSpot, an inbound marketing, sales, and customer relationship management (CRM) software provider, announced that it had acquired Motion AI, a software platform that enabled companies to easily build and deploy chatbots, fueled by artificial intelligence, to interact with their customers. Before unleashing bot-building technology to its B2B customers, HubSpot first needed to develop some best practices for the use of chatbots for CRM. First, the team had to clearly assess the trade-offs between effectiveness and efficiency associated with the use of bots versus humans to create, nurture, and manage customer relationships. Second, they had to decide to what extent to anthropomorphize the chatbots. How human-like should they be? Was a conversational user interface (UI) the desired solution for B2B CRM, or would a stripped down, more functional UI produce more efficiency for the customers who interacted with the bot? Historically, HubSpot had “practiced what it preached,” using its own products to build its business. The team had to consider whether to use chatbots to nurture and service its own customer relationships and manage the effectiveness and efficiency of its sales funnel. Currently, a team of chat representatives worked with marketing to qualify and prime prospects for HubSpot’s sales team. Could they and should they be replaced with chatbots? Was HubSpot ready for bots to become the face of its brand to its prospective customers?

Purchase this case:
https://hbsp.harvard.edu/product/518067-PDF-ENG

  • Harvard Business School Case 318-114

Verizon 2018

In 2018, CEO Lowell McAdam led efforts to transform Verizon through digital innovation, media acquisitions and integration, and changes to the company culture. He sought to manage change at the company as growth in traditional areas slowed and position it as a leader in a 5G world.

Purchase this case:
https://hbsp.harvard.edu/product/318114-PDF-ENG

  • Harvard Business School Case 617-039

*gramLabs

No abstract available.

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https://hbsp.harvard.edu/product/617039-PDF-ENG

  • Harvard Business School Case 815-060

Napalm: From Soldiers Field to Trang Bang

Napalm is one of the most destructive weapons ever to be invented. Yet, at its original inception it was nothing more than a technical challenge, and it was never intended to be used in indiscriminate antipersonnel warfare. The pathway of its development by a Harvard research scientist to its use in flamethrowers by U.S. ground troops in World War II, and as an incendiary device during the Vietnam War (1959–75) was unanticipated. Many of the early technical challenges associated with napalm were solved by experimentation under the guidance of the National Defense Research Committee (NDRC), created to coordinate scientific research into the problems of modern warfare. Because the government needed private contractors to manufacture napalm, it turned to several companies with experience in chemicals manufacturing. One in particular—The Dow Chemical Company—bore the brunt of the moral opprobrium associated with the production of napalm.

Purchase this case:
https://hbsp.harvard.edu/product/815060-PDF-ENG

This case looks at entrepreneurship via franchising through the leadership of an African-American entrepreneur who owns almost 150 stores including Burger King, Pizza Huts, and Auntie Anne’s Pretzels. Her company is the largest female-owned franchise business in the country. The challenge that Valerie faces is how to grow. Should she continue growth as a franchisee or change her business model and become a franchisor? In addition to addressing the issue of growth, this case is an introduction to the topic of franchising and looks at the history of franchising, franchise options, and how to do a financial analysis of franchise opportunities.

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https://hbsp.harvard.edu/product/317030-PDF-ENG

  • Harvard Business School Case 517-078

Expanding Ecommerce at Technos

Technos was the market leader in the Brazilian watch market. Its CEO had made a firm commitment to evolve the company’s marketing and commercial practices by focusing less on pushing product to retail clients and more on branding to end consumers to pull watches from retailers. In 2016, the company was about to re-launch its master brand’s website. But the more time passed, the greater were the discrepancies between what the marketing, commercial (sales), and retail divisions of the company envisioned as an ideal ecommerce-enabled Technos website. What should be the fundamental role(s) of the master brand’s website?

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https://hbsp.harvard.edu/product/517078-PDF-ENG

  • Harvard Business School Case 619-015

Booking.com

The case reveals how Booking.com has become the world's leading travel accommodation platform. The company has put online experimentation at the heart of how it designs digital experiences for its customers and partners. To unlock the potential of large-scale testing, the leadership team had to challenge conventional assumptions about culture, process, and the management of innovation.

Purchase this case:
https://hbsp.harvard.edu/product/619015-PDF-ENG

  • Harvard Business School Case 118-080

Air Products' Pursuit of Airgas (C)

No abstract available.

Purchase this case:
https://hbsp.harvard.edu/product/118080-PDF-ENG

  • Harvard Business School Case 118-081

Air Products' Pursuit of Airgas (D)

No abstract available.

Purchase this case:
https://hbsp.harvard.edu/product/118081-PDF-ENG