Simple Rules for a Complex World

Here is an excerpt from an article written by Donald Sull and Kathleen M. Eisenhardt for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

Artwork: Nuala O’Donovan/Photography: Sylvain Deleu

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A decade ago, in the course of studying why certain high-tech companies thrived during the internet boom, we discovered something that surprised us: To shape their high-level strategies, companies like Intel and Cisco relied not on complicated frameworks but on simple rules of thumb. This was true even though they were in extraordinarily complex, challenging, and fast-moving industries. The rules were not only simple, we found, but quite specific. Typically, managers had identified one critical process—making acquisitions, for example, or allocating capital—where a bottleneck impeded growth, and then crafted a handful of guidelines to manage that process. This approach helped companies to bridge the gap between strategy and execution—to make on-the-spot decisions and adapt to rapidly changing circumstances, while keeping the big picture in mind.

We reported our findings in HBR (“Strategy as Simple Rules,” January 2001). At the time, we knew that simple rules worked in practice, but now—as a result of subsequent research that we and others have done—we have a much richer understanding of why they are effective and how to construct them.

Simple Rules in Action

The story of América Latina Logística (ALL) illustrates how simple rules can help companies shape strategy in an uncertain environment. It also demonstrates that this approach can be useful in a setting beyond the technology sector—such as a dilapidated freight railway in southern Brazil.

In the late 1990s the government of Brazil privatized the country’s freight lines. After decades of neglect, the nation’s freight-rail infrastructure was run-down: Half the bridges needed repair; a fifth were on the verge of collapse. Twenty steam locomotives that were decades out-of-date were still in use. Rail accounted for only 20% of long-haul shipments in Brazil, compared with 80% in most countries.ALL was spun off from the Brazilian railway authority in 1997 to manage one of the country’s eight freight lines. Its new management team took over an organization that was bureaucratic, overstaffed, and bleeding cash. Transport on the line was so unreliable that crops in the areas it served were routinely left to rot in the fields during the harvest season. Middle managers were confused about what to do, and many pushed their local agendas at the expense of the company’s overall best interests.

The team decided to adopt a simple-rules approach to the work ahead. Let’s look at how that approach helped ALL’s executives achieve alignment, adapt to local circumstances, foster coordination across units, and make better decisions.

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To read the complete article and watch a brief 3-minute video during which Donald Sull explains how to simplify your strategy, please click here.

 

Donald Sull is a professor of management practice at the London Business School and a global expert on managing in turbulent markets. His latest book is The Upside of Turbulence: Seizing Opportunity in an Uncertain World, published by HarperBusiness. Kathleen M. Eisenhardt is the Stanford W. Ascherman M.D. Professor at Stanford University and a codirector of the Stanford Technology Ventures Program.

For Those Who Want to Lead, Read

Here is an excerpt from an article written by John Coleman for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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When David Petraeus visited the Harvard Kennedy School in 2009, one of the meetings he requested was with author Doris Kearns Goodwin. Petraeus, who holds a PhD in International Relations from Princeton, is a fan of Team of Rivals and wanted time to speak to the famed historian about her work. Apparently, the great general (and current CIA Director) is something of a bibliophile.

He’s increasingly an outlier. Even as global literacy rates are high (84%), people are reading less and less deeply. The National Endowment for the Arts (PDF) has found that “[r]eading has declined among every group of adult Americans,” and for the first time in American history, “less than half of the U.S. adult American population is reading literature.” Literacy has been improving in countries like India and China, but that literacy may not translate into more or deeper reading.

This is terrible for leadership, where my experience suggests those trends are even more pronounced. Business people seem to be reading less — particularly material unrelated to business. But deep, broad reading habits are often a defining characteristic of our greatest leaders and can catalyze insight, innovation, empathy, and personal effectiveness.

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To read the complete article, please click here.

John Coleman is a co-author of the new HBR Press book, Passion & Purpose: Stories from the Best and Brightest Young Business Leaders. Follow him on Twitter at @johnwcoleman. To check out his other articles, please click here.

Narcissism: The Difference Between High Achievers and Leaders

Here is an excerpt from an article written by Justin Menkes for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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A chief executive had a dilemma. After working in a fast-growing company as COO, he accepted an offer from venture capitalists to start his own company. Within five years he had built a new enterprise generating revenues over $300 million and profit margins so high that his company had compiled a substantial cash reserve with which it was poised to go on an acquisition run. His passion, strategic and analytical brilliance, and relentless focus on practical results made him a rare, virtually unstoppable force in industry

So what was his problem? He was irreplaceable, at least according to his board. It was the board’s fundamental responsibility to protect the shareholders’ interests with a viable succession plan, and for this they simply had no acceptable answer. They demanded that he find a solution

He asked me for counsel.

“Justin, I have two people on my team that I think can grow into my role. But my board vehemently disagrees and thinks I vastly overestimate their long-term potential to actually run a company. They’re both superstars. How do I know which one — or if either one — can make the leap, or whether this is just a pipe dream that’s going to waste a lot of time, money, and focus?

It’s a good question, one I’m often asked. How do you know when someone can make the leap from high performer to CEO? There is one driving factor that determines the answer: narcissism

Those selected for development have one universal trait in common: They are by definition high achievers. But there is a difference between those superstar achievers that can make the leap to CEO and those that will implode: To what degree do they feel invigorated by the success and talent of others, and to what degree does the success of others cause an involuntary pinch of insecurity about their own personal inadequacies? Only an individual who feels genuinely invigorated by the growth, development, and success of others can become an effective leader of an enterprise. And it remains the most common obstacle of success for those trying to make that leap

There is powerful evidence (download pdf) that narcissists have difficulty forging long-term relationships. Because narcissists are continuously seeking recognition from others to reinforce their own self-worth, they tend to form new relationships where they can see a positive reflection of themselves in the other person’s eye. However, because of their obsession with analyzing events around them to see what they suggest about their own identities, they also exhaust those relationships. In leadership positions, this leaves colleagues feeling like collective efforts are being used to increase a single narcissist leader’s ego, rather than a team’s shared goal

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To read the complete article, please click here.

Justin Menkes is a leader in C-suite talent evaluation, a consultant at Spencer Stuart, and the author of Better Under Pressure (Harvard Business Review Press).

 

Why You Are Not a Failure

Here is an excerpt from an article written by Dorie Clark for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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Success sells. Everybody loves a winner. These clichés are reaffirmed every day in our business and media culture, especially if the winners are young or “emerging.” Fast Company recently released their list of the year’s 100 Most Creative People in Business. Every city has its roundup of the local heavy hitters (hello “30 under 30″ and “40 under 40″). And don’t forget the World Economic Forum’s posse of Young Global Leader. What, you didn’t make the cut? (Actually, me neither.) In this kind of environment, it’s all too easy to feel like a failure — but just because the world doesn’t yet recognize your genius doesn’t mean it’s not there.

I talked recently with David Galenson, an economist at the University of Chicago who began studying prices at art auctions — an exploration that drove him to understand the nature of creativity over the course of one’s career. He realized there were two very distinct types of creativity — “conceptual” (in which a young person has a clear vision and executes it early, a la Picasso or Zuckerberg) and ”experimental” (think Cezanne or Virginia Woolf, practicing and refining their craft over time and winning late-in-life success).

I saw this kind of fast, “conceptual” creativity and success exemplified not too long ago at my Smith College reunion, where I heard a talk by one of our notable alumnae, Thelma Golden, now the Director of the Studio Museum in Harlem. Golden has been on my radar for a long time — the year I graduated, she was honored by the college with a special prize. Though it typically goes to older alumnae, she won it only 10 years after graduation for her achievements as a Whitney Museumcurator. She’d known she wanted to enter the field since high school, she told us. Her focus was singular, and she attained professional success almost immediately. It’s enough to make anyone feel like a loser in comparison.

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To read the complete article, please click here.

Dorie Clark is CEO of Clark Strategic Communications and the author of the forthcoming Reinventing You: Define Your Brand, Imagine Your Future (Harvard Business Review Press, 2012). She is a strategy consultant who has worked with clients including Google, Yale University, and the Ford Foundation. Listen to her podcasts or follow her on Twitter.

Three Myths about What Customers Want

Here is an excerpt from an article written by Karen Freeman, Patrick Spenner, and Anna Bird  for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

Note: This post is the last in a three-part series.

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Most marketers think that the best way to hold onto customers is through “engagement” — interacting as much as possible with them and building relationships. It turns out that that’s rarely true. In a study involving more than 7000 consumers, we found that companies often have dangerously wrong ideas about how best to engage with customers. Consider [the first of] three myths.

Myth #1: Most consumers want to have relationships with your brand.

Actually, they don’t. Only 23% of the consumers in our study said they have a relationship with a brand. In the typical consumer’s view of the world, relationships are reserved for friends, family and colleagues. That’s why, when you ask the 77% of consumers who don’t have relationships with brands to explain why, you get comments like “It’s just a brand, not a member of my family.” (What consumers really want when they interact with brands online is to get discounts).

How should you market differently?

First, understand which of your consumers are in the 23% and which are in the 77%. Who wants a relationship and who doesn’t? Then, apply different expectations to those two groups and market differently to them. Stop bombarding consumers who don’t want a relationship with your attempts to build one through endless emails or complex loyalty programs. Those efforts will be low ROI. Chances are there are higher returns to be had elsewhere in your marketing mix.

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To read the complete article, please click here.

To check out more of their blog posts, please click here.

Karen Freeman is a managing director with the Corporate Executive Board. Patrick Spenner is a managing director and Anna Bird is a senior researcher in CEB’s Sales, Marketing and Communications practice.

How to Change the Conversation in Your Company

Here is an excerpt from an article written by Boris Groysberg and Michael Slind for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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In our experience, it’s rare for a diverse group of headstrong Executive Education participants from around the globe to agree on anything. Yet earlier this month, when we surveyed a group of leaders who attended the Driving Performance Through Talent Management program at Harvard Business School, 92% agreed that the practice of internal communication “has undergone a lot of change” at their companies “in recent years.”

While the sample size in this case isn’t large — about three-dozen leaders took part in the survey — these participants make up a highly representative group. They hail from every part of the globe, and from organizations small and large (with head counts that range from about 200 to more than 100,000). They occupy senior positions in fields that include sales and talent management, and they work in industries that range from manufacturing to health care to financial services.

That survey result reinforces a finding that we’ve observed elsewhere in our research: in company after company, the patterns and processes by which people communicate with each other are unmistakably in flux. The old “corporate communication” is giving way to a model that we call “organizational conversation.” That shift is, for many people, a disorienting process. But it also offers a great leadership opportunity.

Our research has shown that more and more leaders — from organizations that range from computer-networking giant Cisco Systems to Hindustan Petroleum, a large India-based oil supplier — are using the power of organizational conversation to drive their company forward. For these leaders, internal communication isn’t just an HR function. It’s an engine of value that boosts employee engagement and improves strategic alignment.

Broadly speaking, there are four steps that you can take to make your approach to leadership more conversational. (In future posts, we will address each of these points at greater length.)

[Here are two of the four steps Groysberg and Slind recommend.]

1. Close the gap between you and your employees. In our survey, we also asked respondents to name the biggest employee communication challenge at their company. In response, one participant cited the need to “move away from top-down communication.” Another highlighted a “disparity between the senior management team and middle management due to low transparency.” Trusted and effective leaders overcome such challenges by speaking with employees in ways that are direct, personal, open, and authentic.

2. Promote two-way dialogue within your company. One survey respondent lamented “a lack of understanding in management of the need for communication,” adding that “the traditional practice” of communication at his or her company “has been one-way.” Leaders can show that they appreciate the value of real communication by adopting channels that allow ideas to move in multiple directions across their organization, and by working to create a truly conversational culture within that organization.

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To read the complete article, please click here.

Boris Groysberg (bgroysberg@hbs.edu) is a professor of business administration at Harvard Business School. Michael Slind (mike@talkincbook.com) is a writer, editor, and communication consultant. They are co-authors of the book Talk, Inc.: How Trusted Leaders Use Conversation to Power Their Organizations (HBR Press, 2012).

Here Are Two Lists You Should Look at Every Morning

Here is an excerpt from an article written by Peter Bregman for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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I was late for my meeting with the CEO of a technology company and I was emailing him from my iPhone as I walked onto the elevator in his company’s office building. I stayed focused on the screen as I rode to the sixth floor. I was still typing with my thumbs when the elevator doors opened and I walked out without looking up. Then I heard a voice behind me, “Wrong floor.” I looked back at the man who was holding the door open for me to get back in; it was the CEO, a big smile on his face. He had been in the elevator with me the whole time. “Busted,” he said.

The world is moving fast and it’s only getting faster. So much technology. So much information. So much to understand, to think about, to react to. A friend of mine recently took a new job as the head of learning and development at a mid-sized investment bank. When she came to work her first day on the job she turned on her computer, logged in with the password they had given her, and found 385 messages already waiting for her.

So we try to speed up to match the pace of the action around us. We stay up until 3 am trying to answer all our emails. We twitter, we facebook, and we link-in. We scan news websites wanting to make sure we stay up to date on the latest updates. And we salivate each time we hear the beep or vibration of a new text message.

But that’s a mistake. The speed with which information hurtles towards us is unavoidable (and it’s getting worse). But trying to catch it all is counterproductive. The faster the waves come, the more deliberately we need to navigate. Otherwise we’ll get tossed around like so many particles of sand, scattered to oblivion. Never before has it been so important to be grounded and intentional and to know what’s important.

Never before has it been so important to say “No.” No, I’m not going to read that article. No, I’m not going to read that email. No, I’m not going to take that phone call. No, I’m not going to sit through that meeting.

It’s hard to do because maybe, just maybe, that next piece of information will be the key to our success. But our success actually hinges on the opposite: on our willingness to risk missing some information. Because trying to focus on it all is a risk in itself. We’ll exhaust ourselves. We’ll get confused, nervous, and irritable. And we’ll miss the CEO standing next to us in the elevator.

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Peter next explains what the two lists are and why they should be reviewed each morning. To read the complete article, please click here.

Peter Bregman is a strategic advisor to CEOs and their leadership teams. His latest book is 18 Minutes: Find Your Focus, Master Distraction, and Get the Right Things Done. To receive an email when he posts, click here.

There Is No Invisible Hand

Here is an excerpt from an article written by Jonathan Schlefer for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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One of the best-kept secrets in economics is that there is no case for the invisible hand. After more than a century trying to prove the opposite, economic theorists investigating the matter finally concluded in the 1970s that there is no reason to believe markets are led, as if by an invisible hand, to an optimal equilibrium — or any equilibrium at all. But the message never got through to their supposedly practical colleagues who so eagerly push advice about almost anything. Most never even heard what the theorists said, or else resolutely ignored it.

Of course, the dynamic but turbulent history of capitalism belies any invisible hand. The financial crisis that erupted in 2008 and the debt crises threatening Europe are just the latest evidence. Having lived in Mexico in the wake of its 1994 crisis and studied its politics, I just saw the absence of any invisible hand as a practical fact. What shocked me, when I later delved into economic theory, was to discover that, at least on this matter, theory supports practical evidence.

Adam Smith suggested the invisible hand in an otherwise obscure passage in his Inquiry Into the Nature and Causes of the Wealth of Nations in 1776. He mentioned it only once in the book, while he repeatedly noted situations where “natural liberty” does not work. Let banks charge much more than 5% interest, and they will lend to “prodigals and projectors,” precipitating bubbles and crashes. Let “people of the same trade” meet, and their conversation turns to “some contrivance to raise prices.” Let market competition continue to drive the division of labor, and it produces workers as “stupid and ignorant as it is possible for a human creature to become.”

In the 1870s, academic economists began seriously trying to build “general equilibrium” models to prove the existence of the invisible hand. They hoped to show that market trading among individuals, pursuing self-interest, and firms, maximizing profit, would lead an economy to a stable and optimal equilibrium.

Leon Walras, of the University of Lausanne in Switzerland, thought he had succeeded in 1874 with his Elements of Pure Economics, but economists concluded that he had fallen far short. Finally, in 1954, Kenneth Arrow, at Stanford, and Gerard Debreu, at the Cowles Commission at Yale, developed the canonical “general-equilibrium” model, for which they later won the Nobel Prize. Making assumptions to characterize competitive markets, they proved that there exists some set of prices that would balance supply and demand for all goods. However, no one ever showed that some invisible hand would actually move markets toward that level. It is just a situation that might balance supply and demand if by happenstance it occurred.

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To read the complete post, please click here.

Jonathan Schlefer is author of The Assumptions Economists Make (Belknap/Harvard, 2012). The former editor of Technology Review, he holds a Ph.D. in political science from MIT and is currently a research associate at Harvard Business School.

To read more more blog posts by Jonathan Schlefer, please click here.

Why Managing Risks Means Managing Arguments

Here is an excerpt from an article written by Justin Fox for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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So it was Lyme disease that did it! The tick-borne illness kept JPMorgan Chase’s Ina Drew out of the office for extended periods in 2010 and 2011. And it was during Drew’s absences, according to a richly detailed account in The New York Times, that the bank’s chief investment office, which she ran, began to get into trouble:

The morning conference calls Ms. Drew had presided over devolved into shouting matches between her deputies in New York and London, the traders said. That discord in 2010 and 2011 contributed to the chief investment office’s losing trades in 2012, the current and former bankers said.

Whether this really was the main reason for JP Morgan’s $3 billion (and growing) trading loss or not, it does at least sound like it could be true. Managing risks — especially the hard-to-pin-down, moving-target risks that any financial trading operation has to cope with — inevitably involves arguing. Which is why managing those arguments, as Ina Drew appears to have done brilliantly during the financial crisis but wasn’t around to do for the past couple of years, is so important.

The words “risk management” usually evokes less subjective, more data-driven pursuits. But data and objectivity can only get you so far. Philosopher Karl Popper famously proposed that to be scientific, a theory had to be falsifiable: that is, it had to make predictions that could be tested and possibly shown to be wrong. Popper spent a lot of time thinking about this definition of science and the burgeoning science of probablility, which he called propensity. (This summary is from Wittgenstein’s Poker, a book I’ve been reading):

As far as falsification is concerned, he thought that statements involving stable propensities — such as, ‘The die has a one in six chance of landing on six’ — could be tested by looking at what happens in the long run. But isolated statements of propensity — such as ‘There is a propensity of 1/100 that there will be a nuclear holocaust before the year 2050′ may resist testing, and to that extent exclude themselves from science.

Routine risks like worker safety and even some day-to-day trading hazards can thus be managed successfully with a mechanistic, scientific approach. But the kind of big-picture bets that JP Morgan’s chief investment office made could never be tested, or managed, in that way. Decisions either worked out or they didn’t; given the small sample size it was impossible to test what the true probabilities were.

To navigate such unquantifiable hazards, then, you need to make judgment calls. And that’s where argument (or discussion, or conversation, if you prefer) comes in. You want diverse, even opposing viewpoints. You want to manage their interactions in a way that allows the quieter, less-senior, less-predictable voices to be heard. You probably do want to accord different weights to the arguments of different people, although deciding how to do so (past track record? clarity of argument?) is hard.

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To read the complete article, please click here.

Justin Fox is editorial director of the Harvard Business Review Group and author of The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street.

How to Get the Corporate Antibodies on Your Side

Here is an excerpt from an article written by Mitra Best for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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People often ask me why it’s so hard for big companies to be innovative. My answer is “corporate antibodies” — the people and processes that extinguish a new idea as soon as it begins to course through the organization.

Corporate antibodies are not just naysayers; they are necessary to protect the company from risk. When they attack an idea, it’s because they perceive that idea to be a foreign object trying to harm the stability of the organization. But that doesn’t mean innovation can’t happen, even in the biggest, most entrenched firm. It simply means that senior leaders need to prepare their antibody system not only to identify ideas that are too risky but to recognize the ones that will strengthen and grow the company.

Easy to say, of course.

At PwC, we learned a powerful lesson in how to engage our corporate antibodies. We learned it through our experience with an internal contest — “PowerPitch” — in which we challenged everyone in the firm to submit a business brief proposing our next $100 million opportunity. It was fun to bring our finalists to New York as if they were American Idol contestants ready for their close-ups. In the end though, the competition wasn’t about the flash and dazzle. It was a lesson in how to prime the organization to become an optimal environment for innovation to thrive — an effort that started a full year before the competition was held.

How did we do it? We began by lining up the biggest sponsor to champion the project, identifying the most powerful naysayers to help us mitigate the risks we were about to introduce, and then systematically recruiting our general management structure to do the real legwork.

[Here are the first two of several initiatives Mitra discusses.]

Getting the Big Gun on Board

We started at the top — by convincing PwC chairman Bob Moritz that he needed to lead the charge in a high-profile way. He manifested his support with two of the most potent weapons a chief executive has — empowerment and sponsorship.

By establishing the Innovation Office, and empowering me with resources to run it, he sent a crucial signal to the organization that innovation is on top of his agenda. By explicitly sponsoring the contest, he put his weight behind the initiative. He launched the contest through a companywide Webcast and reinforced the importance of innovation to the future of the organization through a series of e-mail communications. He was relying, he said, on absolutely every single person to participate. That got people going.

Getting the Naysayers to Join Us

It wasn’t hard to identify the most powerful corporate antibodies. They were the people whose job it is to worry about risks to the on-going organization — legal, risk management, finance, IT, and the brand team. To make them into allies, we held a series of highly personalized meetings in which we asked each person to use his or her core area of expertise to help us plan out the details of our PowerPitch initiative. For example, we sought the Office of General Counsel’s help in developing terms and conditions for the contest. We collaborated with our CFO to think through the budget and prize strategy. We engaged our brand team to help us increase the impact of the project through our newly launched visual identity.

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To read the complete article, please click here.

To check out Mitra’s other articles, please click here.

Mitra M. Best is the U.S. Innovation Leader at PricewaterhouseCoopers, leading the disciplined approach to inspire, evaluate and implement innovative ideas across the organization with the critical mission to support the development of new services and market opportunities across industries. Mitra influences and advises PwC senior leaders on new ideas and approaches to organizational strategy, works with clients and third parties to foster open innovation, and promotes the PwC brand as an innovative leader in the marketplace.