Harvard Business Review

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For the most part, managers looking to cure their organizational ills rely on obsolete knowledge they picked up in school, long-standing but never proven traditions, patterns gleaned from experience, methods they happen to be skilled in applying, and information from vendors. They could learn a thing or two from practitioners of evidence-based medicine, a movement that has taken the medical establishment by storm over the past decade. A growing number of physicians are eschewing the usual, flawed resources and are instead identifying, disseminating, and applying research that is soundly conducted and clinically relevant. It's time for managers to do the same. The challenge is, quite simply, to ground decisions in the latest and best knowledge of what actually works. In some ways, that's more difficult to do in business than in medicine. The evidence is weaker in business; almost anyone can (and many people do) claim to be a management expert; and a motley crew of sources--Shakespeare, Billy Graham,Jack Welch, Attila the Hunare used to generate management advice. Still, it makes sense that when managers act on better logic and strong evidence, their companies will beat the competition. Like medicine, management is learned through practice and experience. Yet managers (like doctors) can practice their craft more effectively if they relentlessly seek new knowledge and insight, from both inside and outside their companies, so they can keep updating their assumptions, skills, and knowledge.
 
Most executives would say that adding a point of growth and gaining a point of operating-profit margin contribute about equally to shareholder value. Margin improvements hit the bottom line immediately, while growth compounds value over time. But the reality is that the two are rarely equivalent. Growth often is far more valuable than managers think. For some companies, convincing the market that they can grow by just one additional percentage point can be worth six, seven, or even ten points of margin improvement. This article presents a new strategic metric, called the relative value of growth (RVG), which gives managers a clear picture of how growth projects and margin improvement initiatives affect shareholder value. Using basic balance sheet and income sheet data, managers can determine their companies' RVGs, as well as those of their competitors. Calculating RVGs gives managers insights into which corporate strategies are working to deliver value and whether their companies are pulling the most powerful value-creation levers. The author examines a number of well-known companies and explains what their RVG numbers say about their strategies. He reviews the unspoken assumption that growth and profits are incompatible over the long term and shows that a fair number of companies are effective at delivering both. Finally, he explains how managers can use the RVG framework to help them define strategies that balance growth and profitability at both the corporate and business unit levels.
 
What distinguishes a company that has deeply engaged and committed employees from another one that doesn't? It's not a certain compensation scheme or talent-management practice. Instead, it's the ability to express to current and potential employees what makes the organization unique. Companies with highly engaged employees articulate their values and attributes through "signature experiences"--visible, distinctive elements of the work environment that send powerful messages about the organization's aspirations and about the skills, stamina, and commitment employees will need in order to succeed there. Whole Foods Market, for example, uses a team-based hiring and orientation process to convey to new employees the company's emphasis on collaboration and decentralization. At JetBlue, the reservation system is run by agents from their homes, a signature experience that boosts employees' satisfaction and productivity. Companies that successfully create and communicate signature experiences understand that not all workers want the same things. Indeed, employee preferences are an important but often overlooked factor in the war for talent. Firms that have engendered productive and engaged workforces address those preferences by following some general principles: They target potential employees as methodically as they target potential customers; they shape their signature experiences to address business needs; they identify and preserve their histories; they share stories--not just slogans--about life in the firm; they create processes consistent with their signature experiences; and they understand that they shouldn't try to be all things to all people. The best strategy for coming out ahead in the war for talent is not to scoop up everyone in sight but to attract the right people--those who are intrigued and excited by the environment the company offers and who will reward it with their loyalty.
 
The sheer enormity of last year's terrorist attacks on the World Trade Center and the Pentagon gave new meaning to the term "crisis management." Suddenly, companies near Ground Zero, as well as those more than a thousand miles away, needed a plan. Because the disasters disrupted established channels not only between businesses and customers but between businesses and employees, internal crisis-communications strategies that could be quickly implemented became a key responsibility of top management. Without these strategies, employees' trauma and confusion might have immobilized their firms and set their customers adrift. In this article, executives from a range of industries talk about how their companies, including Morgan Stanley, Oppenheimer Funds, American Airlines, Verizon, the New York Times, Dell, and Starbucks, went about restoring operations and morale. From his interviews with these individuals, author and management professor Paul Argenti was able to distill a number of lessons, each of which, he says, may "serve as guideposts for any company facing a crisis that undermines its employees' composure, confidence, or concentration." His advice to senior executives includes: Maintain high levels of visibility, so that employees are certain of top management's command of the situation and concern; establish contingency communication channels and work sites; strive to keep employees focused on the business itself, because a sense of usefulness enhances morale and good morale enhances usefulness; and ensure that employees have absorbed the firm's values, which will guide them as they cope with the unpredictable. The most forward-thinking leaders realize that managing a crisis-communications program requires the same dedication and resources they give to other dimensions of their business. More important, they realize that their employees always come first.
 
On the day of the terrorist attacks on New York's World Trade Center, 1,779 employees of Marsh & McLennan Companies had office space in the twin towers, and another 129 were visiting that day. From his office at MMC headquarters in midtown, CEO Jeffrey Greenberg watched in horror as the second plane hit. By the time the towers fell, he had gathered a team of his colleagues to begin to outline how the company would respond. In this first-person account, Greenberg relates what it was like to manage through the unimaginable. The needs of MMC's people, and the families of employees who perished, took top priority. In the midst of chaos and unforeseeable problems, Greenberg and his colleagues improvised ways of communicating and assembled a broad-based program of support. Help appeared from all sides, from people of various ranks, titles, and functional expertise within MMC as well as past chairmen, outside directors, and retired executives. An emergency communications center was immediately set up at MMC headquarters and became a centralized location for messages and information and a memorial to colleagues lost in the attacks. The company arranged for grief counselors and established a family assistance center and a Family Relationship Management Program for those who had lost MMC employees. It has also provided families with access to long-term psychological and financial counseling. At the same time, Greenberg offers lessons about leadership, company culture, and adaptability. He and his colleagues held responsibility for a business beset by operational destruction and financial losses and facing dramatically changed market conditions. Their resolve was not simply to keep it on course but to come back stronger than ever.
 
Of all the risks of doing business in China, the greatest is the threat posed by environmental degradation. And yet it's barely discussed in corporate boardrooms. This is a serious mistake. Multinationals may be more concerned with intellectual property rights violations, corruption, and potential political instability, but the Chinese government, NGOs, and the Chinese press have been focused squarely on the country's energy shortages, soil erosion, lack of water, and pollution problems, which are so severe they might constrain GDP growth. What's more, the Chinese expect the international community to take the lead in environmental protection. If that doesn't happen, multinationals face clear risks to their operations, their workers' health, and their reputations. In factoring environmental issues into their China strategies, foreign firms need to be both defensive, taking steps to reduce harm, and proactive, investing in environmental protection efforts. Coca-Cola, for example, installed state-of-the-art bottling plants in China that operate with no net loss of water resources. Mattel increased the safety of its Barbie-manufacturing process to protect workers' health. With its efforts to reduce greenhouse gas emissions, GE is shrinking its environmental footprint in China; more proactively, GE is working closely with the Chinese government and scientists to develop clean coal, water purification, and water reuse technologies. In considering the value of such efforts, companies can not only factor in reduced risk but also increased opportunity, as they use innovations designed for the Chinese market in the rest of the world. The bottom line: How well multinationals address environmental issues in China will affect their fortunes in one of the most important economies in the world.
 
As the decade of the 1970s closes, new trends in human resources will test the ingenuity of corporate planners to produce policies for the 1980s that will match changing corporate demands with changing employee expectations. The 1970s have produced much-publicized problems--for example, the introduction to the work force of larger numbers of minorities and women--that are not yet fully resolved and that can be expected to continue. But the 1980s will bring their own special challenges. Shifting populations (such as legal and illegal immigrants), the women's movement's demand for equal pay for work of comparable worth, and the push for civil liberties at the workplace are all factors that will dramatically change the business climate. With these factors in mind, the author examines the 1980s' business environment, takes a backward look at planning policies in the 1970s, and shows how the priorities of those policies will have to be reevaluated to meet the challenges of the future.
 
When does a group have responsibility for the well-being of an individual? And what are the differences between the ethics of the individual and the ethics of the corporation? Those are the questions Bowen McCoy wanted readers to explore in this HBR Classic, first published in September-October 1983. In 1982, McCoy spent several months hiking through Nepal. Midway through the difficult trek, as he and several others were preparing to attain the highest point of their climb, they encountered the body of an Indian holy man, or sadhu. Wearing little clothing and shivering in the bitter cold, he was barely alive. McCoy and the other travelers-who included individuals from Japan, New Zealand, and Switzerland, as well as local Nepali guides and porters-immediately wrapped him in warm clothing and gave him food and drink. A few members of the group broke off to help move the sadhu down toward a village two days' journey away, but they soon left him in order to continue their way up the slope. What happened to the sadhu? In his retrospective commentary, McCoy notes that he never learned the answer to that question. Instead, the sadhu's story only raises more questions. On the Himalayan slope, a collection of individuals was unprepared for a sudden dilemma. They all "did their bit," but the group was not organized enough to take ultimate responsibility for a life. How, asks McCoy in a broader context, do we prepare our organizations and institutions so they will respond appropriately to ethical crises?
 
Most big deals--megamergers, major sales, infrastructure projects--are built on a series of smaller ones. Each component deal presents a tactical challenge, but sequencing the parts in a way that achieves the target outcome is a strategic challenge that can unfold over months or years. This process, which the authors call a negotiation campaign, must generally be conducted on several fronts, each involving multiple parties. A multifront campaign can be much more effective than direct negotiation. After failed talks between Longshoremen and the Pacific Maritime Association--a group of shippers and port operators--the PMA's president turned away from the bargaining table and embarked on a campaign to align member-firms, the business community, the U.S. government, and the public around his target outcome: the deployment of new information technologies to help unclog busy ports. The result was an agreement that was ultimately mutually beneficial. Designing and executing a negotiation campaign involves identifying the relevant parties, grouping them into fronts according to shared interests, determining whether to combine fronts (if, for instance, doing so would unite your allies), and deciding which fronts to approach early on and which to engage only after you've made progress elsewhere. The deal between the PMA and the Longshoremen involved high stakes, but many small-scale deals--such as gaining approval for a new product--also play out on multiple fronts. Going straight to a key decision maker often makes sense, but in many cases a multifront campaign is the only way.
 
Before the Internet, organizations had far more time to monitor and respond to community activity, but that luxury is long gone, leaving them in dire need of a coherent outreach strategy, fresh skills, and adaptive tactics. Drawing on the authors' study of more than two dozen firms, this article describes the changes wrought by social media in particular and shows managers how to take advantage of them--lessons that Kaiser Permanente, Domino's, and others learned the hard way. Social media platforms enhance the power of communities by promoting deep relationships, facilitating rapid organization, improving the creation and synthesis of knowledge, and enabling robust filtering of information. The authors cite many examples from the health care industry, where social media participation is vigorous and influential. For instance, members of Sermo, an online network exclusively for doctors, used the site to call attention to and organize against insurers' proposed reimbursement cuts. And on PatientsLikeMe, where people share details about their chronic diseases and the treatments they've pursued, charts and progress curves help members visualize their own complex histories and allow comparisons and feedback among peers. As you modernize your company's approach to community outreach, you'll need to assemble a social media team equipped to identify new opportunities for engagement and prevent brand damage. In the most successful firms the authors studied, community management was a dedicated function, combining marketing, public relations, and information technology skills.
 
By now, most executives are familiar with the famous Year 2000 problem--and many believe that their companies have the situation well in hand. After all, it seems to be such a trivial problem--computer software that interprets "oo" to be the year 1900 instead of the year 2000. And yet armies of computer professionals have been working on it--updating code in payroll systems, distribution systems, actuarial systems, sales-tracking systems, and the like. The problem is pervasive. Not only is it in your systems, it's in your suppliers' systems, your bankers' systems, and your customers' systems. It's embedded in chips that control elevators, automated teller machines, process-control equipment, and power grids. Already, a dried-food manufacturer destroyed millions of dollars of perfectly good product when a computer counted inventory marked with an expiration date of "oo" as nearly a hundred years old. And when managers of a sewage-control plant turned the clock to January I, 2000 on a computer system they thought had been fixed, raw sewage pumped directly into the harbor. It has become apparent that there will not be enough time to find and fix all of the problems by January I, 2000. And what good will it do if your computers work but they're connected with systems that don't? That is one of the questions Harvard Business School professor Richard Nolan asks in his introduction to HBR's Perspectives on the Year 2000 issue. How will you prepare your organization to respond when things start to go wrong? Fourteen commentators offer their ideas on how senior managers should think about connectivity and control in the year 2000 and beyond.
 
Just as there are global markets for products, technology, and capital, managers must now think of one for labor. Over the next 15 years, human capital, once the most stationary factor in production, will cross national borders with greater and greater ease. Driving the globalization of labor is a growing imbalance between the world's labor supply and demand. While the developed world accounts for most of the world's gross domestic product, its share of the world work force is shrinking. Meanwhile, in the developing countries, the work force is quickly expanding as many young people approach working age and as women join the paid work force in great numbers. The quality of that work force is also rising as developing countries like Brazil and China generate growing proportions of the world's college graduates. Developing nations that combine their young, educated workers with investor-friendly policies could leapfrog into new industries. South Korea, Taiwan, Poland, and Hungary are particularly well positioned for such growth. And industrialized countries that keep barriers to immigration low will be able to tap world labor resources to sustain their economic growth. The United States and some European nations have the best chance of encouraging immigration, while Japan will have trouble overcoming its cultural and language barriers.
 
Back in the 1990s, computer engineer and Wall Street "quant" were the hot occupations in business. Today data scientists are the hires firms are competing to make. As companies wrestle with unprecedented volumes and types of information, demand for these experts has raced well ahead of supply. Indeed, Greylock Partners, the VC firm that backed Facebook and LinkedIn, is so worried about the shortage of data scientists that it has a recruiting team dedicated to channeling them to the businesses in its portfolio. Data scientists are the key to realizing the opportunities presented by big data. They bring structure to it, find compelling patterns in it, and advise executives on the implications for products, processes, and decisions. They find the story buried in the data and communicate it. And they don't just deliver reports: They get at the questions at the heart of problems and devise creative approaches to them. One data scientist who was studying a fraud problem, for example, realized it was analogous to a type of DNA sequencing problem. Bringing those disparate worlds together, he crafted a solution that dramatically reduced fraud losses. In this article, Harvard Business School's Davenport and Greylock's Patil take a deep dive on what organizations need to know about data scientists: where to look for them, how to attract and develop them, and how to spot a great one.
 
Over the past decade, 360-degree feedback has revolutionized performance management. But one of its components--peer appraisal--consistently stymies executives and can exacerbate bureaucracy, heighten political tensions, and consume lots of time. For ten years, Maury Peiperl has studied 360-degree feedback and has asked: under what circumstances does peer appraisal improve performance? Why does peer appraisal sometimes work well and sometimes fail? And how can executives make these programs less anxiety provoking for participants and more productive for organizations? Peiperl discusses four paradoxes inherent to peer appraisal: In the Paradox of Roles, colleagues juggle being both peer and judge. The Paradox of Group Performance navigates between assessing individual feedback and the reality that much of today's work is done by groups. The Measurement Paradox arises because simple, straightforward rating systems would seem to generate the most useful appraisals--but they don't. Customized, qualitative feedback, though more difficult and time consuming to generate, is more helpful in improving performance. During evaluations, most people focus almost exclusively on reward outcomes and ignore the constructive feedback generated by peer appraisal. Ironically, it is precisely this overlooked feedback that helps improve performance--thus, the Paradox of Rewards. These paradoxes do not have neat solutions, but managers who understand them can better use peer appraisal to improve their organizations.
 
Virtually all business plans are written as a list of bullet points. Despite the skill or knowledge of their authors, these plans usually aren't anything more than lists of "good things to do." For example: Increase sales by 10%. Reduce distribution costs by 5%. Develop a synergistic vision for traditional products. Rarely do these lists reflect deep thought or inspire commitment. Worse, they don't specify critical relationships between the points, and they can't demonstrate how the goals will be achieved. 3M executive Gordon Shaw began looking for a more coherent and compelling way to present business plans. He found it in the form of strategic stories. Telling stories was already a habit of mind at 3M. Stories about the advent of Post-it Notes and the invention of masking tape help define 3M's identity. They're part of the way people at 3M explain themselves to their customers and to one another. Shaw and his coauthors examine how business plans can be transformed into strategic narratives. By painting a picture of the market, the competition, and the strategy needed to beat the competition, these narratives can fill in the spaces around the bullet points for those who will approve and those who will implement the strategy. When people can locate themselves in the story, their sense of commitment and involvement is enhanced. By conveying a powerful impression of the process of winning, narrative plans can mobilize an entire organization.
 
Most senior managers want their product development teams to create break-throughs--new products that will allow their companies to grow rapidly and maintain high margins. But more often they get incremental improvements to existing products. That's partly because companies must compete in the short term. Searching for breakthroughs is expensive and time consuming; line extensions can help the bottom line immediately. In addition, developers simply don't know how to achieve breakthroughs, and there is usually no system in place to guide them. By the mid-1990s, the lack of such a system was a problem even for an innovative company like 3M. Then a project team in 3M's Medical-Surgical Markets Division became acquainted with a method for developing breakthrough products: the lead user process. The process is based on the fact that many commercially important products are initially thought of and even prototyped by "lead users"--companies, organizations, or individuals that are well ahead of market trends. Their needs are so far beyond those of the average user that lead users create innovations on their own that may later contribute to commercially attractive breakthroughs. The lead user process transforms the job of inventing breakthroughs into a systematic task of identifying lead users and learning from them. The authors explain the process and how the 3M project team successfully navigated through it. In the end, the team proposed three major new product lines and a change in the division's strategy that has led to the development of breakthrough products. And now several more divisions are using the process to break away from incrementalism.
 
Today's overachieving professionals labor longer, take on more responsibility, and earn more than the workaholics of yore. They hold what Hewlett and Luce call "extreme jobs", which entail workweeks of 60 or more hours and have at least five often characteristics-such as tight deadlines and lots of travel--culled from the authors' research on this work model. A project of the Hidden Brain Drain Task Force, a private-sector initiative, this research consists of two large surveys (one of high earners across various professions in the United States and the other of high-earning managers in large multinational corporations) that map the shape and scope of such jobs, as well as focus groups and in-depth interviews that get at extreme workers' attitudes and motivations. In this article, Hewlett and Luce consider their data in relation to increasing competitive pressures, vastly improved communication technology, cultural shifts, and other sweeping changes that have made high-stakes employment more prominent. What emerges is a complex picture of the all-consuming career-rewarding in many ways, but not without danger to individuals and to society. By and large, extreme professionals don't feel exploited; they feel exalted. A strong majority of them in the United States-66%-say they love their jobs, and in the global companies survey, this figure rises to 76%. The authors' research suggests, however, that women are at a disadvantage. Although they don't shirk the pressure or responsibility of extreme work, they are not matching the hours logged by their male colleagues. This constitutes a barrier for ambitious women, but it also means that employers face a real opportunity: They can find better ways to tap the talents of women who will commit to hard work and responsibility but cannot put in over-long days.
 
A decade ago in these pages, Goleman published his highly influential article on emotional intelligence and leadership. Now he, a cochair of the Consortium for Research on Emotional Intelligence in Organizations, and Boyatzis, a professor at Case Western, extend Goleman's original concept using emerging research about what happens in the brain when people interact. Social intelligence, they say, is a set of interpersonal competencies, built on specific neural circuits, that inspire people to be effective. The authors describe how the brain's mirror neurons enable a person to reproduce the emotions she detects in others and, thereby, have an instant sense of shared experience. Organizational studies document this phenomenon in contexts ranging from face-to-face performance reviews to the daily personal interactions that help a leader retain prized talent. Other social neurons include spindle cells, which allow leaders to quickly choose the best way to respond to someone, and oscillators, which synchronize people's physical movements. Great leaders, the authors believe, are those whose behaviors powerfully leverage this complex system of brain interconnectedness. In a handy chart, the authors share their approach to assessing seven competencies that distinguish socially intelligent from socially unintelligent leaders. Their specific advice to leaders who need to strengthen their social circuitry: Work hard at altering your behavior. They share an example of an executive who became socially smarter by embracing a change program that comprised a 360-degree evaluation, intensive coaching by an organizational psychologist, and long-term collaboration with a mentor. The results: stronger relationships with higher-ups and subordinates, better performance of her unit, and a big promotion.
 
Cheryl Hailstrom, the CEO of Lakeland Wonders, a manufacturer of high-quality wooden toys, is the first person outside the Swensen family to hold the top job. But she's not a stranger to this 94-year-old company: She'd been the COO of one of its largest customers and had worked with Lakeland to develop many best-selling products. Wally Swensen IV, the previous CEO, chose Cheryl because she knew how to generate profits and because he believed her energy and enthusiasm could take the company to the next level. Yet here she is, nearing her six-month anniversary, wondering why her expansive vision for the company isn't taking hold. She's tried to lead by example: traveling a pounding schedule to visit customers, setting aggressive project deadlines, and proposing a bonus schedule. She has a plan to reach the board's growth goals--going beyond Lakeland's core upscale market and launching into the midmarket with an exclusive toy contract with a new customer. The problem is that while Cheryl's senior managers are giving her the nod on the surface, they're all really dragging their feet. Some fear that offshore outsourcing will hurt their brand, not to mention make for tricky union negotiations. Others are balking at trying a new design firm. Is Cheryl pushing too much change too quickly? Should she bring in outsiders to speedily adopt the changes she envisions and overhaul Lakeland's corporate culture? Or should she keep trying to work with the current team? Commentators Kathleen Calcidise of Apple Retail Stores; executive coach Debra Benton; Dan Cohen, coauthor of The Heart of Change; and consultant Nina Aversano offer advice in this fictional case study.
 
Abraham Lincoln would have well understood the challenges facing many modern emerging nations. In Lincoln's America, as in many developing nations today, sweeping economic change threatened older industries, traditional ways of living, and social and national cohesion by exposing economies and societies to new and powerful competitive forces. Yet even in the midst of the brutal and expensive American Civil war--and in part because of it--Lincoln and the Republican Congress enacted bold legislation that helped create a huge national market, a strong and unified economy governed by national institutions, and a rising middle class of businessmen and property owners. Figuring out how to maximize the benefits of globalization while minimizing its disruptions is a formidable challenge for policy makers. How do you expand opportunities for the talented and the lucky while making sure the rest of society doesn't fall behind? It may be helpful to look at the principles that informed the policies that Lincoln and the Republican Congress instituted after they came to power in 1861: Facilitate the upward mobility of low- and middle-income groups to give them a significant stake in the country. Emphasize the good of the national economy over regional interests. Affirm the need for sound government institutions to temper the dynamics of the free enterprise system. Tailor policies to the national situation. Realize that a period of turmoil may present a unique opportunity for reform. These principles drove the reforms that helped Americans cope with and benefit from rapid technological advances and the fast integration of the American economy in the nineteenth century. They may be instructive to today's policy makers who are struggling to help their own citizens integrate into the fast-changing global economy of the twenty-first century.
 
In the past, companies kept most of their research and development activities in their home country because they thought it important to have R&D close to where strategic decisions were being made. But today many companies choose to establish R&D networks in foreign countries in order to tap the knowledge there or to commercialize products for those markets at a competitive speed. Adopting a global approach entails new, complex managerial challenges. It means linking R&D strategy to a company's overall business strategy. The first step in adopting such an approach is to build a team to lead the initiative--a team whose members are sufficiently senior to be able to mobilize resources at short notice. Second, companies must determine whether an R&D site's primary objective is to augment the expertise that the home base has the offer or to exploit that knowledge for use in the foreign country. That determination affects the choice of location and staff. For example, to augment the home base laboratory, a company would want to be near a foreign university; to exploit the home base laboratory it would need to be near large markets and manufacturing facilities. The best individual for managing both types of site combines the qualities of good scientist and good manager, knows how to integrate the new site with existing sites, understand technology trends, and is good at gaining access to foreign scientific communities. As more pockets of knowledge emerge around the globe and competition in foreign markets mounts, only those companies that embrace an informed approach to global R&D will be able to meet the new challenges.
 
Anyone who has ever managed people who abuse time--whether they are chronic procrastinators or individuals who work obsessively to meet deadlines weeks in advance--knows how disruptive they can be to a business's morale and operating efficiency. But lessons in time management will have no impact on these employees. That's because real time abuse results from psychological conflict that neither a workshop nor a manager's cajoling can cure. Indeed, the time abuser's quarrel isn't even with time but rather with a brittle self-esteem and an unconscious fear of being evaluated and found wanting. This article describes four types of time abusers typically encountered in the workplace: Perfectionists are almost physically afraid of receiving feedback. Their work has to be "perfect," so they can increase their likelihood of earning a positive evaluation or at least avoid getting a negative one. Preemptives try to be in control by handing in work far earlier than they need to, making themselves unpopular and unavailable in the process. People pleasers commit to far too much work because they find it impossible to say no. Procrastinators make constant (and often reasonable-sounding) excuses to mask a fear of being found inadequate in their jobs. Managing these four types of people can be challenging, since time abusers respond differently from most other employees to criticism and approval. Praising a procrastinator when he is on time, for instance, will only exacerbate the problem, because he will fear that your expectations are even higher than before. In fact, some time abusers, like the perfectionist, may need professional treatment. This article will give you insight into why they are the way they are--and what can be done to help them manage their problems.
 
The ability to persuade others to contribute to your efforts is a key skill for managers, for team members--for anyone who wants to elevate the probability of success. Research by leading social scientist Robert Cialdini has found that persuasion works by appealing to certain deeply rooted human responses: liking, reciprocity, social proof, commitment and consistency, authority, and scarcity. In this edited interview with HBR's executive editor, Cialdini expands on the six principles of persuasion and how leaders can make effective, authentic use of them in everyday business situations. He also previews findings from new research on the ethics of influence and how dishonesty affects individuals and the organization.
 
The old ways of setting and implementing strategy are failing us, writes the author of Leading Change, in part because we can no longer keep up with the pace of change. Organizational leaders are torn between trying to stay ahead of increasingly fierce competition and needing to deliver this year's results. Although traditional hierarchies and managerial processes--the components of a company's "operating system"--can meet the daily demands of running an enterprise, they are rarely equipped to identify important hazards quickly, formulate creative strategic initiatives nimbly, and implement them speedily. The solution Kotter offers is a second system--an agile, networklike structure--that operates in concert with the first to create a dual operating system. In such a system the hierarchy can hand off the pursuit of big strategic initiatives to the strategy network, freeing itself to focus on incremental changes to improve efficiency. The network is populated by employees from all levels of the organization, giving it organizational knowledge, relationships, credibility, and influence. It can Liberate information from silos with ease. It has a dynamic structure free of bureaucratic layers, permitting a level of individualism, creativity, and innovation beyond the reach of any hierarchy. The network's core is a guiding coalition that represents each level and department in the hierarchy, with a broad range of skills. Its drivers are members of a "volunteer army" who are energized by and committed to the coalition's vividly formulated, high-stakes vision and strategy. Kotter has helped eight organizations, public and private, build dual operating systems over the past three years. He predicts that such systems will lead to long-term success in the 21st century--for shareholders, customers, employees, and companies themselves.
 
Companies are becoming more dependent on business partners, but coordinating with outsiders takes its toll. Negotiating terms, monitoring performance, and, if needs are not being met, switching from one partner to another require time and money. Such transaction costs, Ronald Coase explained in his 1937 essay "The Nature of the Firm," drove many organizations to bring their activities in-house. But what if Coase placed too much emphasis on these costs? What if friction between companies can be productive? Indeed, as John Hagel and John Seely Brown point out, interactions between organizations can yield benefits beyond the goods or services contracted for. Companies get better at what they do--and improve faster than their competitors--by working with outsiders whose specialized capabilities complement their own. Different enterprises bring different perspectives and competencies. When these enterprises tackle a problem together, they dramatically increase the chances for innovative solutions. Of course, misunderstandings often arise when people with different backgrounds and skill sets try to collaborate. Opposing sides may focus on the distance that separates them rather than the common challenges they face. How can companies harness friction so that it builds capabilities? Start by articulating performance goals that everyone buys into. Then make sure people are using tangible prototypes to wrangle over. Finally, assemble teams with committed people who bring different perspectives to the table. As individual problems are being addressed, take care that the underpinnings of shared meaning and trust are also being woven between the companies. Neither can be dictated--but they can be cultivated. Without them, the performance fabric quickly unravels, and business partnerships disintegrate into rivalrous competition.
 
The most successful private-equity firms regularly spearhead dramatic business transformations, creating exceptional returns for their investors. To understand how those firms do it, the authors studied more than 2,000 PE transactions over the past ten years and discovered that the top performers' success stems from the rigor with which they manage their businesses. This article describes the four management disciplines vital to the success of the best PE firms. First, for each business, they define an investment thesis: a brief, clear statement of how to make the business more valuable within three to five years. The thesis, which guides all actions by the company, usually focuses on growth. PE firms know that the demonstration of a path to strong growth produces the big returns on investment. Second, they don't measure too much. They zero in on a few financial indicators that most clearly reveal the business's progress in increasing its value. They watch cash more closely than earnings and tailor performance measures to each business, rather than imposing one set of measures across their entire portfolio. Third, they work their balance sheets, mining undervalued assets, turning fixed assets into sources of financing, and aggressively managing their physical capital. Last, they make the center the shareholder. Corporate staffs in PE firms make unsentimental investment decisions, buying and selling businesses when the price is right and bringing in new management when performance falters. These firms also keep their corporate centers extremely lean. By adopting these four disciplines, executives at public companies should be able to reap significantly greater returns from their own business units.
 
Companies try all kinds of ways to improve collaboration among different parts of the organization: cross-unit incentive systems, organizational restructuring, teamwork training. While these initiatives produce occasional success stories, most have only limited impact in dismantling organizational silos and fostering collaboration. The problem? Most companies focus on the symptoms ("Sales and delivery do not work together as closely as they should") rather than on the root cause of failures in cooperation: conflict. The fact is, you can't improve collaboration until you've addressed the issue of conflict. The authors offer six strategies for effectively managing conflict: Devise and implement a common method for resolving conflict. Provide people with criteria for making trade-offs. Use the escalation of conflict as an opportunity for coaching. Establish and enforce a requirement of joint escalation. Ensure that managers resolve escalated conflicts directly with their counterparts. Make the process for escalated conflict-resolution transparent. The first three strategies focus on the point of conflict; the second three focus on escalation of conflict up the management chain. Together they constitute a framework for effectively managing discord, one that integrates conflict resolution into day-to-day decision-making processes, thereby removing a barrier to cross-organizational collaboration.
 
Many managers face increasing calls to invest corporate resources in charitable causes. How should executives balance a firm's very real economic imperative to maximize profitability with its hypothetical moral imperative to improve society? To provide one answer, the author draws on his experience as president of an economic-development company, IBEC. Viewing profit as "an essential discipline and measure of economic success" but not "the sole corporate goal," the company actively invested in social programs that met four criteria: they served a need of the local population; they required innovative approaches; they made sense on economic grounds; and they respected the social norms of the community. Such civic-minded efforts, the author argues in this prescient 1971 article, not only improve people's lives but also create the foundation for more affluent and dynamic markets--markets that ultimately produce greater profits for business. For example, one of IBEC's earliest ventures was directed toward solving Venezuela's problems in retail food marketing. Many important items were unavailable at the small stores where people shopped. So in 1949, working with local partners, IBEC opened a supermarket. Supermarkets soon changed the food-buying habits of the nation, and the initiative helped alter patterns of food distribution and created the reliable demand needed to establish a host of local suppliers. Return on IBEC's investment, and that of its local partners, was most satisfactory, the author reports. The road to meeting a public need-especially a major one--is rarely easy, the author says. But if management sizes up the need well, there is a good chance its new venture will survive under adversity.
 
When leaders don't fire underperforming executives, they send a bad message to the whole organization. A case in point is the U.S. Army. "To study the change in the army across the two decades between World War II and Vietnam," Ricks writes, "is to learn how a culture of high standards and accountability can deteriorate." In this essay, adapted from his new book, The Generals: American Military Command from World War II to Today, Ricks illuminates the contrast between General George C. Marshall, an unlikely figure of quiet resolve who became a classic transformational Leader, and the disastrous generals of the Vietnam era. In Vietnam, he writes, the honesty and accountability of Marshall's system were replaced by deceit and command indiscipline. If inadequate leaders are allowed to remain in command of an enterprise, their superiors must look for other ways to accomplish its goals. In Vietnam commanders turned to micromanagement, hovering overhead in helicopters to direct (and interfere with) squad leaders and platoon leaders on the ground. This both undercut combat effectiveness and denied small-unit leaders the opportunity to grow by making decisions under extreme pressure. In Iraq and Afghanistan, Ricks writes, though U.S. troops fought their battles magnificently, their generals often seemed ill equipped for the tasks at hand-especially the difficult but essential job of turning victories on the ground into strategic progress. This brief but powerful history of the army since World War II holds stark lessons for business leaders.
 
In recent years, sales leaders have had to devote considerable time and energy to establishing and maintaining disciplined processes. The thing is, many of them stop there--and they can't afford to, because the business environment has changed. Customers have gained power and gone global, channels have proliferated, more product companies are selling services, and many suppliers have begun providing a single point of contact for customers. Such changes require today's sales leaders to fill various new roles: Company leader. The best sales chiefs actively help formulate and execute company strategy, and they collaborate with all functions of the business to deliver value to customers. Customer champion. Customers want C-level relationships with suppliers in order to understand product strategy, look at offerings in advance, and participate in decisions made about future products--and sales leaders are in the best position to offer that kind of contact. Process guru. Although sales chiefs must look beyond the sales and customer processes they have honed over the past decade, they can't abandon them. The focus on process has become only more important as many organizations have begun bundling products and services to meet important customers' individual needs. Organization architect. Good sales leaders spend a lot of time evaluating and occasionally redesigning the sales organization's structure to ensure that it supports corporate strategy. Often, this involves finding the right balance between specialized and generalized sales roles. Course corrector. Sales leaders must watch the horizon, but they can't take their hands off the levers or forget about the dials. If they do, they might fail to respond when quick adjustments in priorities are needed.
 
On July 30, President Bush signed into law the Sarbanes-Oxley Act addressing corporate accountability. A response to recent financial scandals, the law tightened federal controls over the accounting industry and imposed tough new criminal penalties for fraud. The president proclaimed, "The era of low standards and false profits is over." If only it were that easy. The authors don't think corruption is the main cause of bad audits. Rather, they claim, the problem is unconscious bias. Without knowing it, we all tend to discount facts that contradict the conclusions we want to reach, and we uncritically embrace evidence that supports our positions. Accountants might seem immune to such distortions because they work with seemingly hard numbers and clear-cut standards. But the corporate-auditing arena is particularly fertile ground for self-serving biases. Because of the often subjective nature of accounting and the close relationships between accounting firms and their corporate clients, even the most honest and meticulous of auditors can unintentionally massage the numbers in ways that mask a company's true financial status, thereby misleading investors, regulators, and even management. Solving this problem will require far more aggressive action than the U.S. government has taken thus far. What's needed are practices and regulations that recognize the existence of bias and moderate its effects. True auditor independence will entail fundamental changes to the way the accounting industry operates, including full divestiture of consulting and tax services, rotation of auditing firms, and fixed-term contracts that prohibit client companies from firing their auditors. Less tangibly, auditors must come to appreciate the profound impact of self-serving biases on their judgment.
 
Motivated by the financial difficulties that have beset city governments and some private nonprofit organizations, the accounting profession and other circles are urging these organizations to conform to business accounting practices. (See Robert N. Anthony's article on p. 83 of this issue.) Fund accounting, these reformers claim, is too complex, too segmented to permit intelligent analysis. The authors of this article demur; not only is it legally and logically necessary to maintain separately the restricted and unrestricted monies received from various sources and spent for designated purposes; also close examination of the financial statements of nonprofit enterprises can provide a very good idea of how well they are doing financially. Furthermore, the authors advocate adoption of certain fund accounting principles for businesses, and they show why they could be helpful. This article is much more than a defense of how nonprofit organizations account for their operations; it is a comprehensive but brief introduction to the subject.
 
With rising prices and increased competition, service companies are finding that knowing the costs of their products and services is vital to their health, if not to their existence. However, many of these companies have found their cost accounting systems less than satisfactory. This author points out that many service companies use traditional product cost techniques, which are inappropriate for them. He explains why these techniques fail and describes a system of unique costs that should be successful.
 
In the current economic climate, there is tremendous pressure--and personal incentive for managers--to report sales growth and meet investors' revenue expectations. As a result, more companies have been issuing misleading financial reports, according to the SEC, especially involving game playing around earnings. But it's shareholders who suffer from aggressive accounting strategies; they don't get a true sense of the financial health of the company, and when problems come to light, the shares they're holding can plummet in value. How can investors and their representatives on corporate boards spot trouble before it blows up in their faces? According to the authors, they should keep their eyes peeled for common abuses in six areas: revenue measurement and recognition, provisions and reserves for uncertain future costs, asset valuation, derivatives, related party transactions, and information used for bench-marking performance. If a disaster strikes, it will most likely be in one of these accounting minefields. This article examines the hazards of each minefield in turn, using examples like Metallgesellschaft, Xerox, MicroStrategy, and Lernout & Hauspie. It also provides a set of questions to ask in order to determine where a company's accounting practices might be overly aggressive. For those whose greatest interest is in fairly valuing the business--not presenting it in the best possible light--these questions are the first line of defense against creative accounting. Accounting game players are adroit, but it's both foolish and dangerous, contend the authors, to declare oneself ignorant and hence powerless against their machinations. They argue that members of corporate boards need to be financially literate.
 
The nonbusiness world of municipalities, colleges and universities, hospitals, and other nonprofit organizations follows its own rules when it comes to financial statements, and these are often confusing to anyone who is accustomed to business accounting. According to this author, it was the concept of fund accounting that divided the two worlds of business and nonbusiness accounting and led to a situation where it is almost impossible to judge the financial performance of nonbusiness entities. He shows how financial statements of the business and nonbusiness worlds can use the same standards, with a few modifications for the unique features of nonbusiness organizations.
 
Global account management--which treats a multinational customer's operations as one integrated account, with coherent terms for pricing, product specifications, and service--has proliferated over the past decade. Yet according to the authors' research, only about a third of the suppliers that have offered GAM are pleased with the results. The unhappy majority may be suffering from confusion about when, how, and to whom to provide it. Yip, the director of research and innovation at Capgemini, and Bink, the head of marketing communications at Uxbridge College, have found that GAM can improve customer satisfaction by 20% or more and can raise both profits and revenues by at least 15% within just a few years of its introduction. They provide guidelines to help companies achieve similar results. The first steps are determining whether your products or services are appropriate for GAM, whether your customers want such a program, whether those customers are crucial to your strategy, and how GAM might affect your competitive advantage. If moving forward makes sense, the authors' exhibit, "A Scorecard for Selecting Global Accounts," can help you target the right customers. The final step is deciding which of three basic forms to offer: coordination GAM (in which national operations remain relatively strong), control GAM (in which the global operation and the national operations are fairly balanced), and separate GAM (in which a new business unit has total responsibility for global accounts). Given the difficulty and expense of providing multiple varieties, the vast majority of companies should initially customize just one---and they should be careful not to start with a choice that is too ambitious for either themselves or their customers to handle.
 
Many business thinkers believe it's the role of senior managers to scan the external environment to monitor contingencies and constraints, and to use that precise knowledge to modify the company's strategy and design. As these thinkers see it, managers need accurate and abundant information to carry out that role. According to that logic, it makes sense to invest heavily in systems for collecting and organizing competitive information. Another school of pundits contends that, since today's complex information often isn't precise anyway, it's not worth going overboard with such investments. In other words, it's not the accuracy and abundance of information that should matter most to top executives--rather, it's how that information is interpreted. After all, the role of senior managers isn't just to make decisions; it's to set direction and motivate others in the face of ambiguities and conflicting demands. Top executives must interpret information and communicate those interpretations--they must manage meaning more than they must manage information. So which of these competing views is the right one? Research conducted by academics Sutcliffe and Weber found that how accurate senior executives are about their competitive environments is indeed less important for strategy and corresponding organizational changes than the way in which they interpret information about their environments. Investments in shaping those interpretations, therefore, may create a more durable competitive advantage than investments in obtaining and organizing more information. And what kinds of interpretations are most closely linked with high performance? Their research suggests that high performers respond positively to opportunities, yet they aren't overconfident in their abilities to take advantage of those opportunities.
 
Top-cited authors
Gary Hamel
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Robert S. Kaplan
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Thomas H. Davenport
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B. Joseph Pine II
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Nitin Nohria
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