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American institutions of higher learning have long played a disproportionate role in supplying leadership talent to the world's business and professional organizations. New research by William Bowen and Derek Bok, former presidents of Princeton and Harvard respectively, suggests that the experience of these institutions can provide insight on how to create diverse organizations that succeed. The first insight has to do with clarity of mission. It is not enough to pursue diversity because it is "the right thing to do." The second insight concerns recruiting. The authors challenge what they call "the myth of pure merit," the notion that recruiting is a precise science based only on grades and test scores. Instead, they argue, merit is about assembling a team by deciding which applicants, considered individually and collectively, will contribute most to achieving the company's goals. The third insight concerns how organizations help employees perform to their potential. Of the factors contributing to high graduation rates at the most selective schools, higher expectations and the efforts of mentors stand out as most important. Finally, the fourth insight is about how to achieve accountability in a corporate setting. Boards must ask: Are our recruiting policies working? and How are recruited employees doing? While the authors' research was intended specifically to inform the debate over race in higher education, here the authors report on their findings, and with the help of Glenda Burkhart, a corporate executive working with them, they draw out the major lessons for business leaders. Ray Gilmartin, the CEO of Merck, discusses diversity initiatives at his company in light of the research.

The topic of empowerment is receiving a lot of attention, but how many employees are truly empowered? At the global electricity giant AES Corporation, the answer is all 40,000 of them. In this interview with HBR Senior Editor Suzy Wetlaufer, AES Chairman Roger Sant and CEO Dennis Bakke reflect on their trials and triumphs in creating an exceptional company and explain how their employee-run company works. When they founded AES in 1981, Sant and Bakke set out to create a company where people could have engaging experiences on a daily basis--a company that embodied the principles of fairness, integrity, social responsibility, and fun. Putting those principles into action has created something unique--an ecosystem of real empowerment. What does that system look like? Rather than having a traditional hierarchical chain of command, AES is organized around small teams that are responsible for operations and maintenance. Moreover, AES has eliminated functional departments; there's no corporate marketing division or human resources department. For the system to work, every person must become a well-rounded generalist--a mini-CEO. That, in turn, redefines the jobs of the people at headquarters. Instead of setting strategy and making the "the big decisions," Sant and Bakke act as advisers, guardians of the principles, accountability officers, and chief encouragers. Can other companies successfully adopt the mechanics of such a system? Not unless they first adopt the shared principles that have guided AES since its inception. "Empowerment without values isn't empowerment," says Sant. "It's just technique," adds Bakke.

It had been almost a decade since the first article surfaced in the media alleging that factories subcontracted by Nike in China and Indonesia were forcing workers to work long hours for low pay and for physically and verbally abusive managers. The article was the seed of a media campaign that created a public relations nightmare for the company. A financial crisis in Asia and intense competition in the domestic market contributed to a decline in Nike's revenue and market share after three years of record performance. Though no direct correlation could be proven between the consumer's negative perceptions of Nike and the company's decline in market share and stock, it certainly did not help in its efforts to establish itself as the global leader in a hotly competitive industry.

This case looks at how Lincoln Electric, the US-based company renowned for its compensation scheme, tried to implement its human resource policies globally and particularly in China.

New United Motors Manufacturing, Inc. (NUMMI) is a joint venture between General Motors (GM) and Toyota. Begun in 1983, NUMMI continues to be one of the most efficient of U.S. manufacturing plants and produces automobiles that are at the top of the quality ratings. The case describes how Jamie Hresko, an experienced GM manager, spent several weeks at NUMMI as an operator working on the assembly line. Uses background data and Jamie's experience to illustrate how the NUMMI system operates. Designed to explore how the alignment of HR practices can produce extraordinary results in a manufacturing facility. Challenges the reader to explain why NUMMI is so successful and whether this approach can be used in other settings.

This is an MIT Sloan Management Review article. As companies continue to downsize, they need to consider how to maintain their employees' morale to realize gains such as higher productivity and more flexibility. Those who survive layoffs and the managers who must implement those layoffs frequently exhibit reduced commitment. Their trust in the company may be destroyed and they may feel powerless in the wake of top management's actions. The authors propose a four-stage approach to downsizing, gleaned from interviews and surveys, that will retain workers' trust and sense of empowerment. First, consider downsizing only as a last resort. Also downsizing should be part of a clearly defined, long-term vision that fits into the company's overall strategic plan. Second, consider all stakeholders' needs--survivors, laid-off employees, the community, local and national press, and any affected government agencies. The company should form a cross-functional team to represent all stakeholders' interests. Third, at the announcement stage, senior managers should explain the necessity of the downsizing and how it helps the firm in the long term. The fourth stage, implementation, is the most important. Management should communicate frequently and be open and honest. The company should do its best to ensure that laid-off employees are employed elsewhere and offer them generous benefits packages. It should seek remaining employees' ideas about restructuring work processes and provide any necessary training.

Using actual examples from front-line managerial situations, this article explains and explores three work-life principles executives can adopt to create wins for their organizations and individual employees. Most companies view work and personal life as competing priorities in a zero-sum game, in which a gain in one area means a loss in the other. From this traditional perspective, managers decide how their employees' work and personal lives should intersect and often view work-life programs as just so much social welfare. A new breed of managers, however, is trying a new tack, one in which managers and employees collaborate to achieve work and personal objectives to everyone's benefit. These managers are guided by three principles. The first is to clearly inform their employees about business priorities and to encourage them to be just as clear about personal priorities. The second is to recognize and support their employees as whole people, not only acknowledging but also celebrating their roles outside the office. The third is to continually experiment with the way work gets done, looking for approaches that enhance the organization's performance and allow employees to pursue personal goals. The managers who are acting on these principles have discovered that conflicts between work and personal priorities can actually be catalysts for identifying inefficiencies at the workplace.

How does a high technology firm successfully grow and compete in a market where software may be obsolete in 12 months? Cisco Systems, with annual revenues of more then $8 billion and a market capitalization larger than General Motors, is a leader in the market for computer networking equipment. They have achieved this remarkable success by designing a unique approach to a technology business that is based on people, frugality, and attention to customers. It is a success born out of a winning human resources approach that adds real value to the business.

A year had elapsed since Mabuchi Motor Co. Ltd. of Japan, the world's most successful producer of small electric motors, had implemented a new management training program at one of its foreign operations in China. The program had two objectives. First, it was intended to enable the corporation to maintain its strategy of cost minimization by making it possible to reduce Japanese expatriate levels by improving the management skills of local managers in foreign subsidiaries. Second, by overcoming the shortage of qualified Japanese managers, the program would also allow the continued aggressive expansion of production that had become a cornerstone of corporate strategy.

This human services contracting case describes an innovative system launched by the Oklahoma Department of Rehabilitative Services when faced with what it viewed as skyrocketing costs and ineffectual assistance for citizens with severe disabilities. Under fiscal pressure, the Department decided on a drastic change in its historic approach to contracting--which had reimbursed service providers for their billable hours. The new, "milestones" approach would reward vendors, instead, for specific results, on the road toward employment for the disabled. The case describes the virtues of the milestones system, as seen by the state; the fears of service providers and advocates that the new incentive system would cause a deterioration in the nature of assistance and therapy; and the early results of the program. Supported by a grant from Innovations in American Government Program; written for the Hauser Center for Nonprofit Institutions. HKS Case Number 1477.0

Harry Denton, the CEO in this fictional case study, has been caught off guard. As the head of Delarks, a venerable department-store chain in the Midwest, he has engineered a remarkable turnaround in only a year. Sales have rebounded, and Wall Street is applauding. But when Delarks's head of merchandising defects to a competitor, Denton is shocked to realize that many of the layoff survivors, in fact, have had it with him and with the company. The last straw was the recent closing of the Madison store, which Denton announced without warning to anyone--not even the company's head of HR, Thomas Wazinsky, a supposedly trusted adviser. The rumor mill says that many employees are considering leaving before Denton can inflict the next blow. And senior managers are not immune to the fear and anger. Even Wazinsky, one of the few links to Delarks's proud past, confesses to Denton, "I'll bet you're thinking of firing me." Denton has to act--and fast. He calls a "town meeting" for the 600 employees of the St. Paul store. The plan: rally the troops. Instead, Denton is routed. Angry questions are hurled at the CEO, and he is forced to beat a hasty retreat through the back door. In 98510A and 98510Z, Bob Peixotto, Jim Emshoff, Richard Manning, Gun Denhart, and Saul Gellerman offer advice on how to revive morale at the successful but troubled company.

Harry Denton, the CEO in this fictional case study, has been caught off guard. As the head of Delarks, a venerable department-store chain in the Midwest, he has engineered a remarkable turnaround in only a year. Sales have rebounded, and Wall Street is applauding. But when Delarks' head of merchandising defects to a competitor, Denton is shocked to realize that many of the layoff survivors, in fact, have had it with him and with the company. The last straw was the recent closing of the Madison store, which Denton announced without warning to anyone--not even the company's head of HR, Thomas Wazinsky, a supposedly trusted adviser. The rumor mill says that many employees are considering leaving before Denton can inflict the next blow. And senior managers are not immune to the fear and anger. Even Wazinsky, one of the few links to Delarks' proud past, confesses to Denton, "I'll bet you're thinking of firing me." Denton has to act--and fast. He calls a "town meeting" for the 600 employees of the St. Paul store. The plan: rally the troops. Instead, Denton is routed. Angry questions are hurled at the CEO, and he is forced to beat a hasty retreat through the back door. In 98510A and 98510Z, Bob Peixotto, Jim Emshoff, Richard Manning, Gun Denhart, and Saul Gellerman offer advice on how to revive morale at the successful but troubled company.

Harry Denton, the CEO in this fictional case study, has been caught off guard. As the head of Delarks, a venerable department-store chain in the Midwest, he has engineered a remarkable turnaround in only a year. Sales have rebounded, and Wall Street is applauding. But when Delarks' head of merchandising defects to a competitor, Denton is shocked to realize that many of the layoff survivors, in fact, have had it with him and with the company. The last straw was the recent closing of the Madison store, which Denton announced without warning to anyone--not even the company's head of HR, Thomas Wazinsky, a supposedly trusted adviser. The rumor mill says that many employees are considering leaving before Denton can inflict the next blow. And senior managers are not immune to the fear and anger. Even Wazinsky, one of the few links to Delarks' proud past, confesses to Denton, "I'll bet you're thinking of firing me." Denton has to act--and fast. He calls a "town meeting" for the 600 employees of the St. Paul store. The plan: rally the troops. Instead, Denton is routed. Angry questions are hurled at the CEO, and he is forced to beat a hasty retreat through the back door. In 98510 and 98510Z, Bob Peixotto, Jim Emshoff, Richard Manning, Gun Denhart, and Saul Gellerman offer advice on how to revive morale at the successful but troubled company.

Willamette Industries, a large wood products and pulp and paper manufacturer, has traditionally not used any short-term pay at risk as part of its compensation approach. That means there are no sales commissions, gainsharing, or short-term bonus payments to anyone anywhere in the firm. David Morthland, the vice president of personnel and industrial relations, has been asked to reexamine these practices in the context of trends in industry at large toward the greater use of contingent compensation. The case outlines the rationale for Willamette's current pay practices in light of its particular culture, business strategy, and other management practices. Can be used by itself or with other cases illustrating different pay practices to stimulate a discussion of the pros and cons of various approaches to pay.

This article describes the benefits and challenges of alternative workplace programs. Today many organizations, including AT&T and IBM, are pioneering the alternative workplace--the combination of nontraditional work practices, settings, and locations that is beginning to supplement traditional offices. This is not a fad. Although estimates vary widely, it is safe to say that some 30-40 million people in the United States are now either telecommuters or home-based workers. What motivates managers to examine how people spend their time at the office and where else they might do their work? Among the potential benefits for companies are reduced costs, increased productivity, and an edge in vying for and keeping talented employees. They can also capture government incentives and avoid costly sanctions. But at the same time, alternative workplace programs are not for everyone. Indeed, such programs can be difficult to adopt, even for those organizations that seem to be most suited to them. Ingrained behaviors and practical hurdles are hard to overcome. And the challenges of managing both the cultural changes and systems improvements required by an alternative workplace initiative are substantial. How should senior managers think about alternative workplace programs? What are the criteria for determining whether the alternative workplace is right for a given organization? What are the most common pitfalls in implementing alternative workplace programs? The author provides the answers to these questions in his examination of this new frontier of where and how people work.

Everyone talks about empowerment, but it's not working. CEOs subtly undermine empowerment. Employees are often unprepared or unwilling to assume the new responsibilities it entails. Even change professionals stifle it. When empowerment is used as the ultimate criteria of success in organizations, it covers up many of the deeper problems that they must overcome. To understand this apparent contradiction, author Chris Argyris (Harvard Business School Professor Emeritus and Director at Monitor Co.) explores two kinds of commitment: external and internal. External commitment--or contractual compliance--is what employees display when they have little control over their destinies and are accustomed to working under the command-and-control model. Internal commitment occurs when employees are committed to a particular project, person, or program for their own individual reasons or motivations. Internal commitment is very closely allied with empowerment. The problem with change programs designed to encourage empowerment is that they actually end up creating more external than internal commitment. One reason is that these programs are rife with inner contradictions and send out mixed messages like "do your own thing--the way we tell you." The result is that employees feel little responsibility for the change program, and people throughout the organization feel less empowered. What can be done? Companies would do well to recognize potential inconsistencies in their change programs; to understand that empowerment has its limits; to establish working conditions that encourage employees' internal commitment; and to realize that morale and even empowerment are penultimate criteria in organizations. The ultimate goal is performance.

The influence of history on an organization is a powerful but often overlooked force. Managers, in their haste to build companies, frequently fail to ask such critical developmental questions as, Where has our organization been? Where is it now? and What do the answers to these questions mean for where it is going? Instead, when confronted with problems, managers fix their gaze outward on the environment and toward the future, as if more precise market projections will provide the organization with a new identity. In this HBR Classic, Larry Greiner (professor of management and organization at the University of Southern California's Marshall School of Business) identifies a series of developmental phases that companies tend to pass through as they grow. He distinguishes the phases by their dominant themes: creativity, direction, delegation, coordination, and collaboration. Each phase begins with a period of evolution, steady growth, and stability, and ends with a revolutionary period of organizational turmoil and change. The critical task for management in each revolutionary period is to find a new set of organizational practices that will become the basis for managing the next period of evolutionary growth. Those new practices eventually outlast their usefulness and lead to another period of revolution. Managers therefore experience the irony of seeing a major solution in one period become a major problem in a later period. Originally published in 1972, the article's argument and insights remain relevant to managers today. Accompanying the original article is a commentary by the author updating his earlier observations.

In this article, Jeffrey Pfeffer (Thomas D. Dee Professor of Organizational Behavior at Stanford Business School) identifies widely accepted "fictions" about pay, disproves them with evidence, and then offers advice on how managers should pay their employees, and why. Every day, executives make decisions about pay, and they do so in a landscape that's shifting. As more and more companies base less of their compensation on straight salary and look to other financial options, managers are bombarded with advice about the best approaches to take. Unfortunately, much of that advice is wrong. Indeed, much of the conventional wisdom and public discussion about pay today is misleading, incorrect, or both. The result is that business people are adopting wrongheaded notions about how to pay people and why. In particular, they are subscribing to six dangerous myths about pay: 1) Labor rates are the same as labor costs; 2) Cutting labor rates will lower labor costs; 3) Labor costs represent a large portion of a company's total costs; 4) Keeping labor costs low creates a potent and sustainable competitive edge; 5) Individual incentive pay improves performance; and 6: People work primarily for the money. The author explains why these myths are so pervasive, shows where they go wrong, and suggests how leaders might think more productively about compensation. With increasing frequency, the author says, he sees managers harming their organizations by buying into--and acting on--these myths. Those that do, he warns, are probably doomed to endless tinkering with pay that at the end of the day will accomplish little but cost a lot.

No doubt about it, the top managers in this fictitious case study agree, Wellington Associates is a great place to work. Analysts at the high-tech consulting firm enjoy some of the best pay in the industry. And their benefits are extensive: flextime, liberal educational opportunities, comprehensive medical and dental coverage, generous vacation leave, and even on-site day care. So it came as something of a shock to CEO Jane Wellington and her top executives when HR chief Elvin Cusack started out the weekly senior-management meeting by declaring that the United Office Workers Union had begun organizing the support staff. Turns out, Cusack explained, that the company looks very different from the support staff's point of view. Although their starting salaries are indeed competitive, raises average a mere 2% to 3%, and promotions to professional ranks are rare. Medical and dental coverage take a greater chunk out of clerical pay than out of the larger professional salaries, and the cost of the day care center is pretty much out of reach for the support staff. Flextime is impractical for workers who need to be in the office to answer phones and to file papers. Worse, the support staff is expected to accommodate the analysts' flexible schedules; if an analyst decides to work late to finish a project, the secretary has to stay as well. What to do? Suggestions ranged from "fire 'em" to "say nothing before calling in legal counsel." Five commentators examine Wellington's options and its legal obligations. In 98311 and 98311Z, Susan Schurman, Marick F. Masters, Robert S. Atkin, Jacqueline M. Blanchard, and Fern Feil examine Wellington's options and its legal obligations.

No doubt about it, the top managers in this fictitious case study agree, Wellington Associates is a great place to work. Analysts at the high-tech consulting firm enjoy some of the best pay in the industry. And their benefits are extensive: flextime, liberal educational opportunities, comprehensive medical and dental coverage, generous vacation leave, and even on-site day care. So it came as something of a shock to CEO Jane Wellington and her top executives when HR chief Elvin Cusack started out the weekly senior-management meeting by declaring that the United Office Workers Union had begun organizing the support staff. Turns out, Cusack explained, that the company looks very different from the support staff's point of view. Although their starting salaries are indeed competitive, raises average a mere 2% to 3%, and promotions to professional ranks are rare. Medical and dental coverage take a greater chunk out of clerical pay than out of the larger professional salaries, and the cost of the day care center is pretty much out of reach for the support staff. Flextime is impractical for workers who need to be in the office to answer phones and to file papers. Worse, the support staff is expected to accommodate the analysts' flexible schedules; if an analyst decides to work late to finish a project, the secretary has to stay as well. What to do? Suggestions ranged from "fire 'em" to "say nothing before calling in legal counsel." In 98311 and 98311Z, Susan Schurman, Marick F. Masters, Robert S. Atkin, Jacqueline M. Blanchard, and Fern Feil examine Wellington's options and its legal obligations.