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We like to think enlightened managers understand employee motivation. But research conducted by Stanford's Chip Heath suggests that managers are not as good at judging what drives their employees as they might think. The key to improving your ability to understand motivation is to appreciate that employees are driven by the same things you are.

It sounds simple: Compensate managers with stock or options, and they'll do what's best for shareholders. But it doesn't always work that way; more than a few executives have cashed in while shareholder value burned up. To fix that problem, Roger Martin contends, boards need to abolish stock-based compensation and replace it with bonuses based on real earnings growth.

David Gergen, adviser to presidents Nixon, Ford, Reagan, and Clinton, knows a thing or two about how leaders get their messages across. In this edited e-mail interview with HBR's Gardiner Morse, Gergen discusses the power of persuasion and the theatrics of communicating well.

Labor-management cooperation has been regarded for many years as a panacea for organizations' competitive woes. The academic and popular presses have lauded the joint efforts of companies and their unionized workforces to come together to solve companies' competitive problems while saving employees' jobs. Moreover, research on and examples of labor-management cooperation have found that through joint efforts, unions and firms can improve organizational performance and employee outcomes. Increasingly, however, it appears that cooperation is often but a short-lived phenomenon. This article examines a major initiative of labor-management cooperation that was undertaken to facilitate the fundamental restructuring of the health care delivery system in Minneapolis/St. Paul, Minnesota. For 10 years, management of more than a dozen hospitals and representatives of the Minnesota Nurses' Association came together to negotiate and manage the process of system integration, rationalization, and delivery improvement. The results were remarkable. Yet, just a few years later, despite the success, only remnants of labor-management cooperation remain in these hospitals. This article examines the reasons for this demise and provides lessons for those engaged in cooperative undertakings that may help extend the life of those initiatives.

The boom-to-bust cycle for Internet start-ups has been remarkably compressed. This article reports on a longitudinal study of eight industries that found that only 43% of independent B2B exchanges survived in the two years following Spring 2000. Most of these start-ups failed because they misdiagnosed their advantage over existing ways of doing business. In reality, the Internet is mainly about reformed applications that facilitate interactions and squeeze costs but do not change the basic structure and functioning of existing markets. Incumbents prevail when a technological disruption reforms an existing market rather than completely redefines industry boundaries and norms. Building on the lessons of past industry shakeouts, this article suggests that the prospective winners in digital markets will be found in three camps: adaptive survivors who find a protected niche by retooling their strategy for reformed markets; acquisitive incumbents who acquire the assets of pure-play companies at steep discounts; and pure-play start-ups that capitalize on their early-mover advantages in breakthrough markets.

Organizations differ considerably in their rate of performance improvement. Because any improvement trajectory is the fruit of a series of improvement projects, the proximate cause of this variation among organizations lies in the varied ways these projects are managed. The success of these projects depends, however, not only on the goals and the efforts of the project team, but also on the context within which the projects are undertaken--and, more specifically, on the competencies on which the projects can draw. It is variation in these competencies--the organization's underlying "performance improvement capability" (PIC)--that explains the substantial and sustained differences in rates of improvement across organizations. This article describes the efforts of several hospitals to strengthen their PIC through five key components: skills, systems, structure, strategy, and culture.

The decision to adopt a new technology in the health care setting is merely the first step in an implementation journey. Whereas some new technologies are readily embraced by those who must use them, most are met with some resistance. In some cases, members of diverse groups--including administrators, clinicians, and technicians--must work together for a new technology to take hold effectively, becoming incorporated into routine practice in an organization. This article reports on a qualitative study of hospitals adopting a new technology for minimally invasive cardiac surgery that uncovered substantial differences in both approach and implementation success. Four case studies are presented to illustrate distinct, tacit frames held by the leaders of each implementation project and how these influenced the team learning process and, in turn, implementation success.

The importance of hospitals learning from their failures hardly needs to be stated. Not only are matters of life and death at stake on a daily basis, but also an increasing number of U.S. hospitals are operating in the red. This article reports on in-depth qualitative field research of nurses' responses to process failures in nine hospitals. It identifies two types of process failures--errors and problems--and discusses the implications of each for process improvement. A dynamic model of the system in which frontline workers operate reveals an illusory equilibrium in which small process failures actually erode organizational effectiveness rather than drive learning and change in hospitals. Three managerial levers for change are identified, suggesting a new strategy for improving hospitals' and other service organizations' ability to learn from failure.

High performance is often attributed to an organization's culture. However, culture can just as easily undermine performance when it blinds decision makers to important performance issues and entraps them in unfortunate courses of action from which they cannot disengage. The dynamics of cultural entrapment are explored in the case of the Bristol Royal Infirmary, in which pediatric cardiac surgeries continued for over a 14-year period despite evidence of poor-quality care and performance that was far below that of other comparable pediatric surgical centers. A single organizational process of behavioral commitment explains how the cultural mindset originated and why it persisted. The sequence of small, public, volitional, and irrevocable action; socially acceptable justification for that action; and the potential for subsequent activities to validate or threaten the justification created a causal loop that stabilized subsequent action patterns.

This is an MIT Sloan Management Review article. The quality initiative Six Sigma is sweeping the United States. Is it good for whatever ails your company? Consultant Michael Hammer thinks not. He warns that in their quest for operations performance improvement, many business leaders fail to distinguish its strengths from its weaknesses. Hammer presents a strategic, holistic approach--business process management--in which Six Sigma is only one of many useful initiatives. If a business process, such as billing customers, is fundamentally defective, why use Six Sigma to improve the performance of it? Companies that Hammer calls process enterprises (Caterpillar, Johnson & Johnson, Merck, Progressive Casualty Insurance, Bombardier, and IBM) have found more success redesigning whole processes. Certainly, Six Sigma's ability to unearth root causes of problems is outstanding for narrow cost-saving improvements. But it deploys statistical analytic tools to uncover flaws in the execution of an existing process without asking whether the process itself is flawed. Six Sigma assumes that the existing design is fundamentally sound--a dangerous assumption. For peak performance, companies should position Six Sigma in the context of process management and assign process owners. Process owners ensure that all performance initiatives (Six Sigma, enterprise resource planning, balanced scorecard, customer relationship management and so on) are integrated to support strategic goals. Fitting Six Sigma into the process-management framework allows organizations to enjoy Six Sigma's benefits while keeping it away from areas where it doesn't belong. Process enterprises already are reaping cost savings, accelerated new-product introduction, improvements in customer satisfaction, and increases in profitability.

This is an MIT Sloan Management Review article. Forget capital; it's relatively easy to obtain nowadays. Today's scarce, sought-after strategic resource is expertise, which comes in the form of employees. Although organizations have changed mightily from the days of hierarchical, top-down management, they still have a long way to go. In addition to issues of company structure and who should be involved in strategic decision making, there are questions of how the value that companies create should be distributed, now that employees, as well as shareholders, control a scarce resource. And then there are the intangible yet crucial changes that must occur in senior managers' ways of thinking--and in the atmosphere and culture of the company. Reorienting old-school senior managers away from capital and toward knowledgeable employees will be difficult, but Christopher Bartlett of Harvard Business School and Sumantra Ghoshal of London Business School have several recommendations for human resources professionals, who, Bartlett and Ghoshal maintain, will be key players in the design, development, and delivery of strategy. Their task is threefold: build up the company by acquiring and retaining highly skilled employees; find a way to embed individual-based knowledge in the company, making it accessible and useful not just to one unit or one function, but to the entire organization--that is the linking task; and create an engaging, motivating, and bonding culture to attract and keep talented employees--the bonding task.

New research from MIT's Center for Information Systems Research and others reveals that successful companies are revolutionizing the way IT investments get decided. Investments are no longer justified merely on the basis of making a functional silo more profitable. Today, the strategic needs of the whole company come first. In the last 15 years, write professors Jeanne Ross of MIT's Sloan School of Management and Cynthia Beath of the University of Texas, a tidal wave of IT-enabled initiatives has elevated the importance of investing strategically. The Internet alone has created numerous opportunities: to reengineer processes, introduce online products and services, approach new customer segments, and redo business models. The opportunities seem limitless, but the resources required--capital, IT expertise, management focus, and capacity for change--are not. How to choose? Traditionally, companies justified a given project by presenting a strong business case. But with IT's growing strategic importance, companies must now weigh individual ROIs against demands for organizationwide capabilities--and must assess opportunities to leverage and improve existing systems and infrastructures, create new capabilities, and test new business models. The authors recommend a new investment approach based on a framework they developed after studying the e-business initiatives and supporting IT investments of 30 enterprises. The framework encourages simultaneous investment in four kinds of IT initiative. Transformation investments are necessary if a company's core infrastructure limits its ability to develop applications critical to long-term success. Renewal investments maintain the infrastructure's functionality and cost effectiveness. Process improvements allow business applications to leverage infrastructure by delivering short-term profitability. Experiments enable learning about opportunities and testing the capabilities of new technologies.

This is an MIT Sloan Management Review article. The word of the hour is "uncertainty"; it permeates all of modern life and business. Uncertainty so strongly affects companies' project management, for example, that three project management experts decided to study companies that successfully embrace it. The authors acknowledge the challenges of increased complexity, the shrinking of development cycles, and the inadequacy of traditional risk management in shifting markets. But they observe that, counterintuitively, projects conducted in such environments often have high returns. The secret is a willingness to redefine everything in midcourse on the basis of the predominant type of uncertainty. Arnoud De Meyer, Christoph H. Loch, and Michael T. Pich, professors of technology management at INSEAD Singapore, observed 16 major projects in a variety of industries. Using interviews and research on project documentation, they identify four major uncertainty categories. In variation, the project plan is detailed and stable, but project schedules and budgets drift from their projected values. Foreseen uncertainty is characterized by identifiable and understandable influences that the team cannot be sure will occur. Unforeseen uncertainty and chaos are the hardest categories to address because they require a balance between planning and learning. Projects featuring unforeseen uncertainty or chaos are common when the technology is in upheaval or when research, not development, is the main goal. At such times, a project may have successful results that are completely unexpected. Companies must learn to ascertain what kind of uncertainty is likely to dominate a project. For those that do, the authors reveal the best mix of tools and techniques to select when managing each type.

This is an MIT Sloan Management Review article. Regardless of the industry, all companies are operating on ever faster evolutionary tracks and at ever greater risk. A company's real core capability--perhaps its only sustainable one, say authors Charles Fine, Roger Vardan, Robert Pethick, and Jamal El-Hout--is its ability to redesign its value chain continually, reshuffling structural, technological, financial, and human assets to find maximum, albeit temporary, competitive advantage. The ultimate goal of strategic value chain analysis, say the authors, is building an organizational capability for fast response to rapidly evolving industry dynamics. To execute such an analysis, the authors developed a value chain strategy framework during a year-long strategic assessment at the General Motors Powertrain organization. The framework seeks to answer four key questions: Where is value being created and what activities are not adding to overall enterprise value? What areas of the business should remain in-house vs. be outsourced? Where should investments be made and how should they be leveraged? How can the value chain be organized to optimize existing and emerging alliances? To answer those questions, the authors employ not only traditional economic value-added analysis, but also their own strategic value assessment, which considers factors such as customer preferences, the rate of change of underlying technology, competitive position in the marketplace, depth of the supply base, and the integral or modular nature of the asset. The wide applicability of the framework is illustrated in the authors' discussion of IBM's decision to outsource its first PC microprocessor to Intel, a consumer products company's decision to outsource the manufacture of a branded product, and the Recording Industry Association of America's decision to quell rather than acquire Napster's file-sharing capability.

In their guarded use of language, CEOs reveal more about themselves and their companies than they realize, says Stanford linguist and NPR commentator Geoffrey Nunberg.

Everyone knows that industries start out fragmented and then consolidate. But new research suggests that most industries do so in a predictable way. They go through four stages, each one requiring companies to employ a different competitive strategy.

Managing corporate projects as though they were a portfolio of financial options appears to be an exact science. But it's not. That's because decisions to drop projects are never made as objectively as decisions to sell shares.

A small software company has remarkable success repairing its dysfunctional organizational dynamics through a form of improvisational theater. The key is an exercise in which actions truly speak louder than words.

Everyone knows a story about a talented businessperson who has lost his passion for work or a person who ditched a 20-year career to pursue something completely different and is the happier for it. "Am I doing what is right for me, or should I change direction?" is one of the most pressing questions for today's midcareer professional. A true change of direction is hard to swing. Many academics and career counselors contend that the problem lies in basic human behavior: We fear change and don't want to make sacrifices. But author Herminia Ibarra suggests another explanation. People most often fail, she says, because they take the wrong approach to finding new careers. Indeed, the conventional wisdom on how to change careers is a prescription for how to stay put. Most of us have heard that the key to a successful career change is figuring out what we want to do next, then acting on that knowledge. But change actually happens the other way around. Doing comes first, knowing second, because changing careers means redefining our working identity--our sense of self in our professional roles, what we convey about ourselves to others and, ultimately, how we live our working lives. Who we are and what we do are tightly connected, the result of years of action. And to change that connection, we must first resort to action.

In the wake of the recent corporate scandals, it's time to reconsider the assumptions underlying American-style stock-market capitalism. That heady doctrine--in which the market is king, success is measured in terms of shareholder value, and profits are an end in themselves--enraptured America for a generation, spread to Britain during the 1980s, and recently began to gain acceptance in Continental Europe. But now, many wonder whether the American model is corrupt. The American scandals are not just a matter of dubious personal ethics or of rogue companies fudging the odd billion. And the cure for the problems will not come solely from tougher regulations. We must also ask more fundamental questions: Whom and what is a business for? And are traditional ownership and governance structures suited to the knowledge economy? According to corporate law, a company's financiers are its owners, and employees are treated as property and recorded as costs. But whereas that might have been true in the early days of industry, it does not reflect today's reality. Now a company's assets are increasingly found in the employees who contribute their time and talents rather than in the stockholders who temporarily contribute their money. The language and measures of business must be reversed. In a knowledge economy, a good business is a community with a purpose, not a piece of property.