Over the past 30 years, she notes, researchers have developed tools designed to help managers understand the drivers of performance in their businesses. But in many cases, managers make assumptions about presumed links that they haven't fully tested. One study found that only 21% of managers who said they implemented strategy maps had tested the links within their own organizations; many of those who had tested the links found their early assumptions were flawed. This article emerged from research related to the "service profit chain,"a well-known body of research focused on the drivers of performance in service industries that was developed by James L. Heskett, W. Earl Sasser Jr., and Leonard A. Schlesinger. The service profit chain proposes a mirror effect between employee satisfaction and loyalty on the one hand, and customer satisfaction and loyalty on the other, which in turn drives financial performance. However, in analyzing data from two British retail chains -a superstore chain and a home improvement store chain -the author found that the assumptions contained in the model were not always supported by the empirical evidence from the two retailing organizations. "Although intuitively appealing,"the author writes, "strategy maps and models such as the service profit chain have a common pitfall: They encourage managers to embrace assumptions about the drivers of financial performance that may not stand up to close scrutiny in their own organizations."At the superstore chain, for example, rather than finding a positive relationship between employee satisfaction and productivity and profit, she found negative correlations. She found further negative correlations between employee satisfaction and sales growth, and between employee loyalty and both profit and productivity. The service profit chain posits that the most productive, profitable, and highest-growth stores would be the ones where employees are likely to be most satisfied and loyal.
Unfortunately, when decisions are framed this way, the authors contend, the outcome is frequently suboptimal. An effective way to work against this, they say, is to make better use of the classic decision matrix, which allows for the comparison of different options using the same set of predefined criteria. The authors argue that the decision matrix isn't just an evaluation tool but also a process tool that can help executives extend their decision frame beyond the obvious options and criteria and help them think "out of the box." According to the authors, the decision matrix can be useful at key stages in the decision-making process to (1) frame decisions, (2) make concrete choices, and (3) communicate solutions. It allows leaders to identify potential gaps and logical flaws in their reasoning, facilitate dialogue in the executive team, and build support and buy-in in the wider organization. To expand the decision frame in a systematic way, the authors note, executives should understand two concepts: mental buckets and golden cuts. Mental buckets are vehicles for clustering similar ideas into related yet distinct categories. While brainstorming is a common way for teams to generate lots of ideas, ideas need to be organized at some point. Categorizing them into mental buckets helps people spot gaps and overlaps -in terms of both options and criteria. The cognitive act of creating new mental buckets serves to stimulate creativity.
For centuries, plant breeding has been a labor-intensive process that depended largely on trial and error. To find the most successful variety of corn, for example, a breeder might pollinate hundreds or even thousands of plants by hand to see what happened. Syngenta had been involved in a large-scale version of trial-and-error research and development, conducting field tests on hundreds of thousands of plants each year in more than 150 locations around the world. But given that the results of experiments are often shaped by quirks and idiosyncrasies, it was sometimes difficult to draw meaningful conclusions. Syngenta's idea was to use data analytics to study a wide range of plant and seed varieties so it could identify the most desirable plants early and make optimal use of resources (everything from capital to labor to land to time). Rather than investing time and resources on more and more testing, its aim was to make decisions about plant portfolios using hard data and science. The vision, write authors Joseph Byrum and Alpheus Bingham, "was to create a suite of software tools that would replace intuition in plant breeding with data-backed science." The authors describe how open innovation can help companies tackle complex business problems that they can't solve on their own. They also discuss lessons Syngenta learned as the company turned to several online crowdsourcing platforms to find talent that could help it increase its R&D efficiency. The effort paid off: Within eight years, Syngenta tripled the average annual improvement rate of its soybean portfolio. In April 2015, an independent panel of academic and business experts in operations research validated the company's efforts and their applicability beyond agriculture, awarding Syngenta the 2015 Franz Edelman Award for Achievement in Operations Research and the Management Sciences.
Significant leaps are rare occurrences in most domains, the authors note, and the accepted wisdom involving risk and return has led many to assume that high returns from breakthrough innovations are only attainable with high risk. However, the authors have found that important opportunities can arise when the focus is placed not only on the investment but also on how it is pursued. Rather than looking at so-called "moonshots,"they examine a proactive and comparatively less risky approach to pursuing high-impact innovation -one that strings together "lily pads"of capability-building investments, technical and conceptual advances, and market explorations into what the authors call "enabling innovations." With the lily pad strategy, innovators pursue a series of lower-risk initiatives, rather than risking large amounts of resources on one path. To do this, they must link the current capabilities of their solutions, whether in parts or as a whole, to end-user needs in application spaces ready to accept them. The goal isn't to satisfy a specific end-user or application (although innovators typically do have a long-term target end-user or application in mind). Rather, it's to satisfy any end-user who will adopt now. The reason is simple: Adoption leads to resources and/or cash flow, which allows the work to continue and creates a "lily pad"on which the innovation initiative can "land"on its way to a larger goal. The idea is to jump across lily pads -even in spaces that may seem of secondary strategic importance -as early as possible as a means of building interest in the concept (internally and externally). Drawing on examples such as the development of X-ray and GPS technology, mobile robots, crowdsourcing, and microlending, the authors argue that it's useful to think about innovation impact proactively along four dimensions: reach, significance, paradigm change, and longevity.
The authors discovered five unexpected features of meaningfulness at work: (1) it is often self-transcendent, in the sense that individuals tend to experience their work as meaningful when it has an impact on others, (2) it can be associated with poignant or difficult experiences, not just happy ones, (3) the experience of meaningfulness at work tends to be episodic rather than sustained, (4) it is often only appreciated upon reflection rather than in the moment, and (5) it is personal, and managers and organizations matter relatively little in individuals'experience of meaningfulness. The authors also found that meaningfulness appears to be driven up and decreased by different factors. Whereas meaningfulness was something individuals tended to discover for themselves, meaninglessness at work was generally a function of how people were treated by managers. Seven factors within the control of managers emerged as destroyers of meaningfulness: disconnecting people from their values; taking employees for granted; giving people pointless work to do; treating people unfairly; overriding individuals'better judgment; disconnecting people from supportive relationships; and putting people at risk of physical or emotional harm. The authors note that, given meaningfulness's personal and intangible nature, organizations cannot effectively control or mandate meaningfulness, but rather should focus on creating an ecosystem that is conducive to meaningfulness at work. They argue that there are four elements to a holistic meaningfulness ecosystem: organizational, job, task, and interactional meaningfulness. Experiencing work as meaningful can be a moving and even uncomfortable experience, but organizations that are successful in fostering holistic meaningfulness are more likely to create the kind of workplaces where human beings can thrive.
When managers believe their company is a meritocracy because formal evaluative and distributive mechanisms are in place, they are actually more likely to exhibit the very biases that those systems may seek to prevent. The very belief that an organization is meritocratic may open the door to biased, non-merit-based behavior when managers make key individual-level career decisions. The good news, the author reports, is that establishing a more meritocratic workplace doesn't require an inordinate amount of time or resources. It is a matter of establishing clear processes and criteria for hiring and evaluating employees. It is also a matter of monitoring and evaluating the outcomes of such company processes and bestowing an individual or group within the organization with the responsibility, ability, and authority to ensure that those formal processes are fair. The collection and analysis of data on people-related processes and outcomes -often referred to as "people analytics"-can enable companies to identify and correct workplace biases. The author conducted a longitudinal investigation of the translation of employee performance evaluations into compensation decisions at a large service organization in North America. He found that, over the long run, women and minorities received lower salary increases than white men with the same performance evaluation scores, even after controlling for job, work unit, and supervisor effects. The company's solution was to adopt a set of organizational procedures that incorporated both accountability and transparency into its performance reward system. The intervention consisted of introducing three key changes. First, a performance reward committee was appointed to monitor the fairness of pay decisions. Second, all senior managers had to follow a formalized process for assigning rewards based on employee evaluations. This process required the senior managers to briefly justify how much was awarded
In 1985 WPP was a small, publicly traded company, worth about $1.3 million. It manufactured shopping carts and other wire and plastic products. Today it is the world's largest advertising and marketing services company, worth about $30 billion. Sorrell details how that growth occurred and why it continues, even in an industry with constraints on the top line. Within two years of buying WPP, which he always intended to use as a shell company, Sorrell and his team had made 18 acquisitions, focusing on firms that specialized in "below the line" marketing functions: packaging, design, and promotions. ("'Above the line,'" he writes, "is the sexy, creative, Don Draper stuff.") They went on to acquire J. Walter Thompson and Ogilvy & Mather in deals worth a combined $1 billion plus. When the economy went into recession, WPP found itself overleveraged; the author concluded that he needed to justify the parent company's existence. The leadership team focused on investments in its people and in real estate and launched a number of programs to cultivate and retain talent. It colocated operating companies in multiple markets throughout the world, centralized procurement, and standardized hardware and software across the group. Its effort to create horizontality, which has accelerated over the past decade, gives clients access to the best talent and ideas from WPP's entire portfolio and keeps the company growing.
Most observers who have written about holacracy and other forms of self-management take extreme positions, either celebrating these "bossless," "flat" work environments for fostering flexibility and engagement or denouncing them as naive experiments that ignore how things really get done. To gain a more accurate, balanced perspective, the authors--drawing on examples from Zappos, Morning Star, and other companies--examine why these structures have evolved and how they operate, both in the trenches and at the level of enterprise strategy and policy. Self-organization models typically share three characteristics: (1) Teams are the structure. Within them, individual "roles" are collectively defined and assigned to accomplish the work. (2) Teams design and govern themselves, while nested within a larger structure. (3) Leadership is contextual. It's distributed among roles, not individuals, and responsibilities shift according to fit and as the work changes. Adopting self-management wholesale--using it to determine what should be done, who should do it, and how people will be rewarded across an entire enterprise--is hard, uncertain work, and the authors argue that in many environments it won't pay off. But their research and experience also suggest that elements of self-organization can be valuable tools for companies of all kinds, and they look at circumstances where it makes more sense to blend the new approaches with traditional models.
After Wall Street firms repeatedly had to shell out millions to settle discrimination lawsuits, businesses started to get serious about their efforts to increase diversity. But unfortunately, they don't seem to be getting results: Women and minorities have not gained much ground in management over the past 20 years. The problem is, organizations are trying to reduce bias with the same kinds of programs they've been using since the 1960s. And the usual tools-diversity training, hiring tests, performance ratings, grievance systems-tend to make things worse, not better. The authors' analysis of data from 829 firms over three decades shows that these tools actually decrease the proportion of women and minorities in management. They're designed to preempt lawsuits by policing managers' decisions and actions. But as lab studies show, this kind of force-feeding can activate bias and encourage rebellion. However, in their analysis the authors uncovered numerous diversity tactics that do move the needle, such as recruiting initiatives, mentoring programs, and diversity task forces. They engage managers in solving the problem, increase contact with women and minority workers, and promote social accountability. In this article, the authors dig into the data, executive interviews, and several examples to shed light on what doesn't work and what does.
Decades' worth of studies show that a diverse workforce measurably improves decision making, problem solving, creativity, innovation, and flexibility. But most of us also believe that hiring, development, and compensation decisions should come down to merit. Although the two ideas don't seem contradictory, they're tough to reconcile in practice. Cognitive roadblocks keep getting in the way. The author looks at recent books and research studies on the subject, including Success and Luck: Good Fortune and the Myth of Meritocracy, by Robert H. Frank, and Pedigree: How Elite Students Get Elite Jobs, by Lauren A. Rivera. Frank points out, for example, that hindsight bias causes us to believe that random events are predictable and to manufacture explanations for the inevitability of our achievements. And winner-take-all markets intensify the consequences of our cognitive shortcuts. Rivera studied hiring committees at professional services firms that believed they were ensuring rigor and counteracting bias through group discussions of job candidates from the school-recruitment pipeline. But those conversations actually dampened diversity by giving negative racial, ethnic, and gender stereotypes greater sway over decisions.
In a perfect world, investors, board members, and executives would have full confidence in companies' financial statements. They could rely on the numbers to make intelligent estimates of the magnitude, timing, and uncertainty of future cash flows and to judge whether the resulting estimate of value was fairly represented in the current stock price. And they could make wise decisions about whether to invest in or acquire a company, thus promoting the efficient allocation of capital. Unfortunately, that's not what happens in the real world, for several reasons. First, financial statements necessarily depend on estimates and judgment calls that can be widely off the mark, even when made in good faith. Second, standard financial metrics intended to enable comparisons from one company to another often fall short, giving rise to unofficial measures that have their own problems. Finally, executives routinely face strong incentives to manipulate financial statements. In recent years, we've seen the implosion of Enron, the passage of the Sarbanes-Oxley Act, the 2008 financial crisis, the adoption of the Dodd-Frank regulations, and the launch of a global initiative to reconcile U.S. and international accounting regimes. Meanwhile, the growing importance of online platforms has dramatically changed the competitive environment for all businesses. In this article, the authors examine the impact of those developments and consider new techniques to combat the gaming of performance numbers.
The United States stands at a crossroads in how to pay for health care. Fee for service, the dominant payment model in the U.S. and many other countries, is now widely recognized as perhaps the single biggest obstacle to improving health care delivery. A battle is currently raging, outside of the public eye, between the advocates of two radically different payment approaches: capitation and bundled payments. The stakes are high, and the outcome will define the shape of the health care system for many years to come, for better or for worse. In this article, the authors argue that although capitation may deliver modest savings in the short run, it brings significant risks and will fail to fundamentally change the trajectory of a broken system. The bundled payment model, in contrast, triggers competition between providers to create value where it matters--at the individual patient level--and puts health care on the right path. The authors provide robust proof-of-concept examples of bundled payment initiatives in the U.S. and abroad, address the challenges of transitioning to bundled payments, and respond to critics' concerns about obstacles to implementation.
Recent studies suggest that at least 35%--and maybe over 50%--of all health care spending in the U.S. is wasted on inadequate, unnecessary, and inefficient care and suboptimal business processes. But efforts to get rid of that waste face a huge challenge: Under current payment methods, the providers who develop more cost-effective approaches don't receive any of the savings. Instead, the money goes mainly to insurers. The providers, who are paid for the volume of services delivered, end up actually losing money, which undermines their finances and their ability to invest in more cost-saving innovations. To address this quandary, say two top execs from the nonprofit Intermountain Healthcare system, we need a different way to pay for health care: "population-based payment." PBP gives care delivery groups a fixed per-person payment that covers all of an individual's health care services in a given year. Under it, providers benefit from the savings of all efforts to attack waste, encouraging them to do it more. And though PBP may sound similar to the HMOs of the 1990s, there are significant twists: Payments go directly to care delivery groups, and patients' physicians--not insurance companies--assume responsibility for overseeing and managing the cost of treatment. Provider groups are also required to meet quality standards that further protect patients. By applying PBP in just part of its system, Intermountain, which serves 2 million people, has been able to chop $688 million in annual waste and bring total costs down 13%.
People, including negotiators, lie every day, so when you're trying to make a deal, it's important to defend against deception. The best strategy, says the author, is to focus not on detecting lies but on preventing them. She outlines five tactics that research has shown to be effective: (1) Encourage reciprocity. You can build trust and prompt other parties to disclose strategic information by sharing information yourself. (2) Ask the right questions. Negotiators often lie by omission, keeping mum about relevant facts, but if directly asked, they are more likely to respond honestly. (3) Watch for dodging. Don't let your counterparts sidestep your questions--write them down in advance, take notes on the answers, and make sure you get the information you're seeking. (4) Don't dwell on confidentiality. Studies show that the more you reassure others that you'll protect their privacy, the more guarded and apt to lie they become. So be nonchalant when discussing sensitive topics. (5) Cultivate leaks. People often reveal information unwittingly, so listen carefully for any slips and try indirect approaches to gaining information.
Lumiscape, a manufacturer of high-tech streetlights, has recently decided to switch from a direct sale business model to a subscription service, in which customers would get installation, maintenance, and monitoring software bundled with the product. Part of the reasoning is that customers haven't been extracting all the potential value in their streetlights. Now a customer wants to hugely increase its order--but through a direct sale. With commentary by Scott Burns, of GovDelivery, and Jack Kutner, of Bigbelly.
The Olympic gold medalist in diving talks about his early training, why he mentors rather than coaches other divers, finally winning a place on the Wheaties box, and more.
Lumiscape, a manufacturer of high-tech streetlights, has recently decided to switch from a direct sale business model to a subscription service, in which customers would get installation, maintenance, and monitoring software bundled with the product. Part of the reasoning is that customers haven't been extracting all the potential value in their streetlights. Now a customer wants to hugely increase its order--but through a direct sale. With commentary by Scott Burns, of GovDelivery, and Jack Kutner, of Bigbelly.
Lumiscape, a manufacturer of high-tech streetlights, has recently decided to switch from a direct sale business model to a subscription service, in which customers would get installation, maintenance, and monitoring software bundled with the product. Part of the reasoning is that customers haven't been extracting all the potential value in their streetlights. Now a customer wants to hugely increase its order--but through a direct sale. With commentary by Scott Burns, of GovDelivery, and Jack Kutner, of Bigbelly.
In 2015, Generation Investment Management celebrated the successful 10-year track record of its flagship Global Equity Fund, which outperformed its benchmark index by over 500 basis points per year. A mainstream investment firm whose founders included former United States Vice President Al Gore and former head of Goldman Sachs Asset Management David Blood, Generation integrated qualitative sustainability factors such as environmental, social, and governance issues with traditional financial equity analysis. Along the way, Generation proved to skeptics that it was capable of building a mission-driven investment firm that prioritized returns and delivered superior results. Generation faced a significant challenge to its long-term investment focus during the global financial crisis in 2008. One of its largest holdings, the Irish industrial panel manufacturer Kingspan Group, saw its equity price drop almost 65 percent in one year. Confronted with this precipitous drop, the Global Equity Fund team decided that it needed to revisit its analytical process and question what, if anything, it had missed. This case provides an overview of Generation's philosophy, culture and organizational structure. It includes an in-depth look at the Global Equity Fund's qualitative and quantitative investment process that utilizes the Kingspan Group investment as an example. Optional Excel spreadsheets are available to enable students to analyze Generation's valuation methodology in greater detail.