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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.

Most diversity training programs are a waste of money, says Iris Bohnet. Companies often conduct programs without ever measuring their impact. And unfortunately, research on their effectiveness shows they seldom change attitudes, let alone behavior. The solution? Focus on processes, not people. Behavioral science tells us that it's very hard to eliminate our biases, but we can redesign organizations to circumvent them. Behavioral design makes it easier to do the unbiased thing by either preventing biased choices or changing people's beliefs. Companies can start by collecting data on their current diversity training. Then they must bring the same rigor to people management that they apply to financial and marketing decisions. This means defining the desired change, implementing new programs, collecting hard data, and evaluating the results. Even simple changes can be effective. For example, hiring managers can use software that allows them to strip age, gender, socioeconomic background, and similar information out of résumés so that they focus only on talent. Bias affects everyone, despite efforts at awareness and the best of intentions. The good news, says Bohnet, is that behavioral design can break the link between our gut reactions and our actions, and allow our biased minds to get things right.

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.

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.

One of the biggest challenges for brick-and-mortar retailers is competing with online-only sellers such as Amazon. The conventional "omnichannel" strategy is to encourage consumers to shop across channels. But few retailers have closely examined the profitability of such efforts, and they typically pay little attention to how far a customer lives from the store. New research led by Temple University's Xueming Luo shows that distance is a crucial variable. Working with a Chinese department store on its coupon strategy, the researchers found that the most profitable promotions coaxed distant online shoppers (ones who lived more than five kilometers away) into physical stores, where they were more likely to make impulse purchases and to buy "experiential" goods such as apparel and makeup. Luring distant in-store shoppers online was actually counterproductive--profits from those customers fell. (Coupons made no significant difference when customers lived close to a store.) Retailers should also consider giving online customers incentives (such as free shipping) to have orders sent to a local store for pickup rather than delivered to their homes, the researchers say. And they should reduce the real or perceived costs of traveling to a store--for example, by locating stores near public transit or ensuring ample parking.

A team of researchers asked executives from 114 companies to describe the leadership style of their CEOs and the culture of their organizations. The responses revealed that the two were often in sync. But as it turns out, that may not be a bad thing, since the firms experiencing mismatches also had better performance.

Most business transformation projects fail. Over the past 30 years, countless studies have shown that transformation program managers face the dangers of being sucked into a transformation trap, along with buckets of wasted money. Based on the author’s experience, programs continue to fail at an alarming rate because there are actually three problems that need to be addressed: unengaged leadership, weak governance, and misunderstanding change. Because all transformation projects are business projects, there should be a business leader in charge with an expectation of positive business outcomes. The primary jobs of the leader or business sponsor are to ensure the transformation is defined in terms of business outcomes; sell the vision of the transformation; keep the team focused on the business objectives; engage the team and leadership to drive the transformation; facilitate getting the right information up to the sponsor and back down to the team executing the transformation; and break down the barriers that form when the status quo is challenged. While transformation projects require an engaged senior sponsor, success also depends on having a program manager who can coach the business sponsor. Such managers have five key jobs: build a plan that translates the strategy into an achievable plan with clear milestones and deliverables; coach the sponsor; engage all stakeholders; build an environment of open, honest communication; and manage day-to-day governance.

Errors happen more often than employees admit, so smart organizations proactively encourage reporting while seeking to maximize beneficial learnings. This article looks at the balance that needs to be found between discouraging mistakes and learning from them. Combining error prevention and error management can be difficult. After all, while error prevention typically views all errors as unacceptable, error management emphasizes constructive responses such as learning. While people tend to view wilful violations of rules as unacceptable, honest mistakes are often seen as acceptable. As a result, in order to build a just and accountable error management culture, it is imperative for managers and organizations to bring clarity to what is forgivable and what is not while also facilitating error reporting among employees. Honest mistakes can be divided into chance occurrences (bad luck); actions of others; lapses of attention; and well-intentioned mistakes. Honest mistakes, when reported, present valuable opportunities for organizational learning and better control of errors through the examination of contributing factors and processes. The authors’ data reveal that key sources of honest mistakes range from individual actions and choices (e.g., intentionally not following accepted or best practices) to process or system factors that are under the control of management (e.g., lack of attention due to workload pressure).

The Information Age represents the biggest shift since the Industrial Revolution. But despite the fact that family structures have changed dramatically since the early 1900s, the standard eight-hour workday remains entrenched. This article describes how the author’s company moved to a five-hour workday, with excellent results. As he explains, the five-hour day is about managing human energy more efficiently by working in bursts over a shorter period. Humans are not machines; just because a manager sees employees at their desk for eight hours doesn’t mean they are being productive. Having more time to pursue passions, nurture relationships and stay active also gives workers more energy emotionally and physically—which is why studies show that happiness improves productivity. Furthermore, a five-hour workday necessitates time management by forcing employees to prioritize high-value activities. The author of The Five-Hour Workday offers five tips on how to get started: 1. Read The 4-Hour Workweek by serial entrepreneur Timothy Ferriss, which discusses the 80/20 Rule or Pareto Principle. 2. Shift to a production mindset, measuring work in output rather than hours. 3. Drop the “always available” attitude. 4. Use technology to boost efficiency. 5. Don’t restrict yourself to a 25-hour week.

Although a typical public company director might help hire a CEO a few times in a career, PE executives hire multiple CEOs each year. To tap this expertise, Jeffrey Cohn, of the executive search firm DHR International, and J.P. Flaum, of the consulting firm Green Peak Partners, surveyed and interviewed the managing partners of 32 private equity firms about their CEO search process. They drew five conclusions: (1) Experience is overrated; someone who can run with a new situation is often better than someone with years of industry experience. (2) Team-building skills are paramount. (3) Urgency outranks empathy; leaders need to be able to move decisively and without regrets. (4) Resilience is a must; in turnaround situations, leaders are likely to encounter some negative results. (5) Candor is also key; leaders must have the confidence to give their PE sponsors bad news quickly and honestly.

New research on recent graduates of the top U.S. MBA programs suggests that the prevailing wisdom about establishing a specialty may be misguided. Jacks-of-all-trades tended to get more job offers and bigger signing bonuses, the study showed.

When Pure Storage did its IPO, in October 2015, the company was six years old and had completed six rounds of private funding. It could have gone public a year or so earlier, and the CEO realized that waiting entailed risks. In fact, the IPO market was cooling, and companies were pulling their offerings as a result. But staying private longer may have significant advantages as well. In retrospect, Dietzen believes that the timing worked out well for Pure. Among the factors that influenced the decision to wait: Sarbanes-Oxley has made it more expensive to be a public company; staying private would make it easier to fend off M&A interest; and the precedents set by Google and Facebook, which waited much longer than venture-backed companies have historically, drove a change in the conventional wisdom. Nevertheless, Pure's customers encouraged an IPO, because many of them preferred to do business with a public company, whose financials are available for scrutiny. In preparation for the offering, Pure gave employees flexibility with their stock options, expanded the board, and hired a strong CFO. Happily, in the months surrounding the IPO, two key competitors were distracted by internal events. Although the company's stock price has fluctuated, Dietzen says, today Pure is a fast-growing and healthy business.

The financial world set a record in 2015 for mergers and acquisitions. It's too soon to have data on how those deals will work out, but the signs are not promising. Last year Microsoft wrote off 96% of the value of the handset business it had acquired from Nokia in 2014 for $7.9 billion. The rule, confirmed by nearly all studies, remains true: M&A is a mug's game, in which some 70% to 90% of acquisitions are abysmal failures. The author has an explanation for this persistent failure and offers a way forward. Acquirers, he notes, tend to look at acquisitions as a way of obtaining value for themselves--access to a new market or capability. The trouble is, if you spot a valuable asset or capability in a company, others will too, and the value will be lost in a bidding war. But if you have something that will make the acquisition more competitive, the picture changes. As long as the acquired company is incapable of making that enhancement on its own or (ideally) with any other company, the buyer, rather than the seller, will earn the rewards. Martin describes four ways to enhance the competitiveness of a target: (1) Be a smarter provider of growth capital. (2) Provide better managerial oversight. (3) Transfer valuable skills to the acquisition. (4) Share valuable capabilities with the acquisition.

Companies today increasingly rely on teams that span many industries for radical innovation, especially to solve "wicked problems." So leaders have to understand how to promote collaboration when roles are uncertain, goals are shifting, expertise and organizational cultures are varied, and participants have clashing or even antagonistic perspectives. HBS professor Amy Edmondson has studied more than a dozen cross-industry innovation projects, among them the creation of a new city, a mango supply-chain transformation, and the design and construction of leading-edge buildings. She has identified the leadership practices that make successful cross-industry teams work: fostering an adaptable vision, promoting psychological safety, enabling knowledge sharing, and encouraging collaborative innovation. Though these practices are broadly familiar, their application within cross-industry teams calls for unique leadership approaches that combine flexibility, open-mindedness, humility, and fierce resolve.