Corporate leaders have long subscribed to the belief that the sole purpose of business is to make money. That narrow view, deeply embedded in the American capitalist system, molds the actions of most corporations, constraining them to focus on maximizing short-term profits and returns to shareholders at the expense of worker safety and health, the environment, and society in general. In this article, HBS professor Kanter argues that a very different logic informs the practices of most high-performing and sustainable companies: an institutional logic. These companies believe that they are more than money making machines; they are also a vehicle for advancing societal goals. They deliver more than just financial returns; they also build enduring institutions. At great companies, institutional logic takes its place alongside economic logic in research, analysis, and managerial decision making. Six facets of institutional logic-a common purpose, a long-term focus, emotional engagement, partnering with the public, innovation, and self-organization-radically alter leadership and corporate behavior and form the building blocks of a more sustainable competitive advantage.
He may not appear to be one, but Murthy is quite the contrarian. At a time when few Indians felt they could become entrepreneurs, he founded Infosys with just $1,000. When no one believed that India could compete in the high tech arena, he dared to develop software services for export. In an era when hardly anyone in India conducted business ethically, he set out to create a values-based corporation. Over his 30-year tenure, Murthy has largely succeeded. He helped create a $6 billion technology firm with over 134,000 employees, pioneered an innovative way of delivering software services globally, and strove to make Infosys the epitome of a "good" company. That's a reputation that is hard won and easily lost, especially in India today, where companies are notorious for their lack of transparency. In fact, public outrage against corruption reached a flashpoint in August 2011, with millions taking to the streets in protest. As businesses gird for change in India, Infosys faces its own turning point. In August, Murthy stepped down as chairman, according to plan. In this interview, Murthy explains that building a values-based firm is a never-ending process. Leaders must demonstrate that values matter every day, at every turn.
Excellence in community engagement, labor relations, environmental protection, corporate governance, and supply chain accountability isn't easy to achieve. But in the long run, top performance in those areas strengthens an organization, as the five companies profiled in this article demonstrate. They prove that doing the right thing isn't at odds at all with building the bottom line, and in fact it can be integral to a firm's economic logic. Dutch chemical maker Royal DSM, for instance, not only specializes in nutritional and environmental products but gives them away to people in need. That unconventional move is helping DSM win the talent war and crack critical markets. Southwest has become America's largest domestic airline by committing to employee happiness. China's Broad Group has won industrial customers worldwide with its energy-efficient air conditioning and filtration systems and is now moving into sustainable building construction. PotashCorp, a Canadian fertilizer company, has raised the bar on transparency in governance-and is reaping the reputational rewards. And Unilever has proved that it is possible to make your supply chain more sustainable, even if you sell 170 billion products across 180 countries a year and run 250 factories.
A growing number of socially motivated entrepreneurs have been creating new kinds of organizations that combine a social mission with a business engine. Unlike typical for-profits, these "for-benefit" enterprises have social or environmental outcomes as their ultimate bottom line; and unlike typical nonprofits, they derive their income mostly from the sale of goods and services rather than from grants and donations. They defy classification as pure business or non-profit and are very much a blend of the two. Many more such enterprises would exist, except that most entrepreneurs haven't been able to choose "for-benefit" as a legally recognized organizational structure. Most countries' legal and economic systems allow only for-profit or nonprofit activity, so entrepreneurs often end up shoehorning their vision into one or the other structure and accepting burdensome trade-offs in the process. All this seems destined to change. For-benefit enterprises will become more commonplace as entrepreneurs learn to better navigate existing constraints, and as an ecosystem of specialized support-including public policy, financial markets, accounting standards, and professional services-develops around them. The even bigger news is what will happen then, writes the author. With formalization of the for-benefit structure, we will see the emergence of a fourth sector of the economy, interacting with but separate from government, nonprofits, and for-profit businesses. The rise of that sector is likely to reshape the future of capitalism.
The sharper a company's differentiation, the greater its competitive advantage. In studying companies that sustained a high level of performance over many years, the authors, both partners at Bain, have found that more than 80% of them had a well-defined and easily understood differentiation at the center of strategy. But differentiation can wear with age: The growth it generates creates complexity, and complex companies tend to forget what they're good at. Often they respond by trying to reimagine their entire business models quickly and dramatically. That's rarely the answer, the authors write. Really successful companies relentlessly build on their fundamental differentiation, going from strength to strength. They learn to deliver it to the front line, creating an organization that lives and breathes its strategic advantages day in and day out. They learn to sustain it through constant adaptation to changes in the market. And they learn to resist the siren song of today's hot market better than their less-focused competitors do. The result is a simple, repeatable business model that a company can apply to new products and markets over and over again to generate sustained growth.
Although most companies have collected lots of friends and followers on social platforms such as Facebook, few have succeeded in generating profits there. That's because they merely port their digital strategies into social environments by broadcasting their commercial messages or seeking customer feedback. To succeed on social platforms, says Harvard Business School's Piskorski, businesses need to devise social strategies that are consistent with users' expectations and behavior in these venues-namely, people want to connect with other people, not with companies. The author defines successful social strategies as those that reduce costs or increase customers' willingness to pay by helping people establish or strengthen relationships through doing free work on a company's behalf. Citing successes at Zynga, eBay, American Express, and Yelp, Piskorski shows that social strategies can generate profits by helping people connect in exchange for tasks that benefit the company such as customer acquisition, marketing, and content creation. He lays out a systematic way to build a social strategy and shows how a major credit card company he advised used the method to roll out its own strategy.
Cloud computing is a sea change in the way companies use technology; it's as inevitable and significant as the shift from steam power to electricity on the factory floor. Because criticisms of the cloud have gotten a lot of hype, however, many companies are hesitant to explore it. In this article, McAfee, a principal research scientist at MIT's Center for Digital Business, debunks commonly cited concerns about the cloud. When it comes to cost, reliability, and security, he says, the cloud promises to equal or better on-premise computing. Moreover, as the experiences of companies like 3M, the global contractor Balfour Beatty, and the consulting firm CSC show, cloud computing offers sizable benefits, such as improved productivity, easier collaboration, the ability to mine data for insights, and higher capacity without major capital investment. Here, McAfee walks readers through the three basic categories of cloud computing: "infrastructure-as-a-service" (the leasing of raw computing capacity), "platform-as-a-service" (the leasing of computers ready for software development), and "software-as-a-service" (the hosting of applications for users). Arguing that CEOs and senior managers need to take the lead on the shift to the cloud, he then outlines how companies can get started.
Global companies face a crucial question when they enter emerging markets: how far should they go to localize their offerings? Typically they try to sell core products or services pretty much as they've been sold in Europe or the United States, with headquarters calling all the shots-and usually with disappointing results. The authors, both of Harvard Business School, examined why KFC China has been able to find fertile ground in a market that is notoriously challenging for Western fast-food chains. KFC's executives believed that the dominant logic behind the chain's growth in the U.S.-a limited menu, small stores, and an emphasis on takeout-wouldn't produce the kind of success they were looking for in China. KFC China offers important lessons for global executives seeking guidance in determining how much of their existing business model to keep in emerging markets-and how much to throw away.
What does it take for an average manager to become a highly effective leader? There are countless books, models, and formulas for success. But the truth is that leadership transformation is deeply dependent on circumstances. The key for those who seek it is to absorb the insights that can be drawn from the successful experiences of others. During their in-depth study of seven CEOs, the authors uncovered seven interdependent metaphors, which they went on to test with more than 10,000 managers on four continents. They discuss four of those metaphors-fire, snowball, mask, and movie-here, in the context of individual managers' experiences.
When Ana Lobato was transferred from Streuvels Chemicals' Brazilian operations to the company's Brussels headquarters, she was eager to apply her considerable expertise in this foreign assignment and to expose her children to another culture. Her husband, Oswald, a doctor, seemed up for the adventure. But just over a year after their arrival in Brussels, Oswald is increasingly unhappy. He is not able to practice medicine in Belgium, and the research position that Ana's company helped him find is not all he hoped it would be. Anton Danois, the head of Streuvels's international mobility program, fears that Oswald's unhappiness will prompt Ana to consider moving back home to Brazil before the end of her assignment. In fact, Anton, who's been in HR only a few years, wonders about the logic of an international mobility program that is expensive, does not necessarily provide clear-cut returns, and poses problems not just for spouses but also for the employees who need to be reintegrated after their stints abroad. Experts John Bollman and Ann Judge comment on this fictional case study.
Frank Gehry is, at 82, America's most celebrated living architect. Though his creativity has made him famous, his approach to budgeting, client relationships, and project management have played a large role in his success.
When Ana Lobato was transferred from Streuvels Chemicals' Brazilian operations to the company's Brussels headquarters, she was eager to apply her considerable expertise in this foreign assignment and to expose her children to another culture. Her husband, Oswald, a doctor, seemed up for the adventure. But just over a year after their arrival in Brussels, Oswald is increasingly unhappy. He is not able to practice medicine in Belgium, and the research position that Ana's company helped him find is not all he hoped it would be. Anton Danois, the head of Streuvels's international mobility program, fears that Oswald's unhappiness will prompt Ana to consider moving back home to Brazil before the end of her assignment. In fact, Anton, who's been in HR only a few years, wonders about the logic of an international mobility program that is expensive, does not necessarily provide clear-cut returns, and poses problems not just for spouses but also for the employees who need to be reintegrated after their stints abroad.
When Ana Lobato was transferred from Streuvels Chemicals' Brazilian operations to the company's Brussels headquarters, she was eager to apply her considerable expertise in this foreign assignment and to expose her children to another culture. Her husband, Oswald, a doctor, seemed up for the adventure. But just over a year after their arrival in Brussels, Oswald is increasingly unhappy. He is not able to practice medicine in Belgium, and the research position that Ana's company helped him find is not all he hoped it would be. Anton Danois, the head of Streuvels's international mobility program, fears that Oswald's unhappiness will prompt Ana to consider moving back home to Brazil before the end of her assignment. In fact, Anton, who's been in HR only a few years, wonders about the logic of an international mobility program that is expensive, does not necessarily provide clear-cut returns, and poses problems not just for spouses but also for the employees who need to be reintegrated after their stints abroad. Experts John Bollman and Ann Judge comment on this fictional case study.
The Chinese fireworks industry thrived after China adopted the open-door policy in the late 1970s, and grew to make up 90 per cent of the world’s fireworks export sales. However, starting in the mid-1990s, safety concerns led governments both in China and abroad to set up stricter regulations. At the same time, there was rapid growth in the number of small family-run fireworks workshops, whose relentless price-cutting drove down profit margins. Students are asked to undertake an industry analysis, estimate the industry attractiveness, and propose possible ways to improve the industry attractiveness from an individual investor’s point of view. Jerry Yu is an American-born Chinese in New York who has been invited to buy a fireworks factory in Liuyang, Hunan.
In 2008, International Automotive Company (IAC), a German manufacturer of automotive parts, acquired a plant in Reynosa, Mexico. This plant produced various types of motors for power windows, heating, ventilating, air conditioning, and wipers. At the time of acquisition, the plant was showing record losses. Because the acquisition was internally financed, it was crucial to make the plant profitable quickly. After conducting a deep analysis, the company discovered that a lack of proper management in the supply chain system was leading to a large amount of wasted resources. As a result, managers looked for opportunities to save money and facilitate improvements mainly in areas such as packaging, warehousing, and transportation. One of the greatest obstacles involved IAC’s employees, who were falling short in terms of knowledge and motivation.
The majority owner and general manager of City Furniture and Mattress (CFM) needed to make several decisions that would determine the company’s strategy. CFM had continued to grow in terms of sales, but the general manager and his father, also an owner and manager at CFM, were concerned with profitability and the increasing competition from local and big-box stores. The general manager looked at several options including capital investment, expanding global outsourcing, store network expansion, and vertical integration.
In December 2009, about a year after it suffered a crisis when clients walked away from massive derivative losses, Gulf Bank’s new CEO is trying to change the governance and operation of Gulf Bank. This case focuses on a turnaround situation and provides students with insight into evolving corporate governance standards in Kuwait. After assessing the situation that the CEO faces, students have to decide what change he should pursue and how he should carry it out. From a broad industry governance perspective, students can examine the state of banking regulation and oversight in Kuwait and suggest ways that corporate governance can be strengthened.
Yahoo! faces a number of governance and strategic challenges in late 2011 as it tries to compete with rivals such as Google and find ways to monetize its shareholding and business links with Alibaba Group in China and Yahoo! Japan. The company is now valued at almost half the offer that Microsoft had made in its acquisition offer in 2008. The depth of the challenge is underscored by the frequent CEO changes the company has had, culminating in the recent firing of the latest CEO, Carol Bartz. The case examines the successes and failures at Yahoo! and the decisions now facing its board as it encounters investor pressure to improve performance.
The majority owner and general manager of City Furniture and Mattress (CFM), needed to make several decisions that would determine the company's strategy. CFM had continued to grow in terms of sales, but the general manager and his father, also an owner and manager at CFM, were concerned with profitability and the increasing competition from local and big-box stores. The general manager looked at several options including capital investment, expanding global outsourcing, and store network expansion and vertical integration.