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Best content from the best source handpicked by Shyam. The source include The Harvard University, MIT, Mckinsey & Co, Wharton, Stanford,and other top educational institutions. domains include Cybersecurity, Machine learning, Deep Learning, Bigdata, Education, Information Technology, Management, others.

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    Shyam's views on this project

    We often ask as to why Indian Universities do not rank high in global rankings while China has some. Even a small country like Singapore has world class Universities.

    This was explained by the former HRD minister and a scholar Dr. Shashi Tharoor. He says the main criteria for ranking of Universities are the amount of Research they do and citations they receive in International Papers. These two factors carry 60 weightage in the rankings.

    Our Universities and the Educational... Institutions lack the funds to spend for research. They also seem to be very lethargic in approaching the corporates and multinationals for funding or collaborations in their research programmes.

    in this background, it is really heartening to know the fact that Wipro has come forward to fund the research programme in sustainability at IIM Bengaluru.

    IIM Bengaluru's Fellow Programme in Management (FPM) will now be funded by Wipro for research into Sustainability.

    IIMB’s doctoral programme research initiatives get a fillip from Wipro

    Sustainability Fellowship and Sustainability Grant from the IT major to boost FPM students’ research on sustainability.

    BENGALURU, JANUARY 19, 2016: The Indian Institute of Management Bangalore (IIMB), in its efforts to reach greater heights in the domain of education and research, has entered into a partnership with Wipro Limited (NYSE:WIT, BSE: 507685, NSE: WIPRO), a leading global information technology, consulting and business process services company, headquartered in Bangalore.

    Wipro will partner and support the Wipro Sustainability Fellowship and the Wipro Sustainability Grant, for doctoral students of IIM Bangalore. This is as part of their overarching charter on sustainability in education – the Wipro-earthian program. The Fellowship and Grant will commence during the academic year 2015-16.

    Mr. P.S. Narayan, Vice President and Head-Sustainability, Wipro Limited, said: “We are delighted to partner with IIMB in a joint effort to foster doctoral research on areas that lie at the intersection of business and sustainability. The business sector has a critical role to play in facing the manifold challenges of sustainability. Therefore, embedding sustainability in management education has become a critical imperative.”

    The Fellow Programme in Management (FPM) is the globally ranked doctoral programme of IIMB, which is committed to training individuals who will excel in their area of research and publish high quality work. Professor Shashidhar Murthy, IIMB’s FPM Chairperson, said: “We at IIMB are glad that Wipro values our students and the nurturing provided by our faculty. We thank Wipro for their generosity. This will provide an impetus to students’ research in the area of Sustainability.”

    The FPM at IIMB is a premier source of rigorous and inter-disciplinary research in all areas of business management and public policy, including Corporate Strategy & Policy, Economics & Social Sciences, Finance & Control, Marketing, Organisational Behaviour & Human Resource Management, Production & Operations Management, Quantitative Methods & Information Systems, and Public Policy.

    The Wipro Sustainability Fellowship & the Wipro Sustainability Grant each allows up to two FPM students to be funded, to support research interests that fall in the broad area of sustainability.

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    Engineering Reverse Innovations

    Slowly but steadily, it’s dawning on Western multinationals that it may be a good idea to design products and services in developing economies and, after adding some global tweaks, export them to developed countries. This process, called “reverse innovation” because it’s the opposite of the traditional approach of creating products for advanced economies first, allows companies to enjoy the best of both worlds. It was first described six years ago in an HBR article co-written by one of the authors of this article, Vijay Govindarajan. (See “How GE Is Disrupting Itself,” October 2009.)But despite the inexorable logic of reverse innovation, only a few multinationals—notably Coca-Cola, GE, Harmon, Microsoft, Nestlé, PepsiCo, Procter & Gamble, Renault, and Levi Strauss—have succeeded in crafting products in emerging markets and selling them worldwide. Even emerging giants—such as Jain Irrigation, Mahindra & Mahindra, and the Tata Group—have found it tough to create offerings that catch on in both kinds of markets.

    For three years now we’ve been studying this challenge, analyzing more than 35 reverse innovation projects started by multinationals. Our research suggests that the problem stems from a failure to grasp the unique economic, social, and technical contexts of emerging markets. At most Western companies, product developers, who spend a lifetime creating offerings for people similar to themselves, lack a visceral understanding of emerging market consumers, whose spending habits, use of technologies, and perceptions of status are very different. Executives have trouble figuring out how to overcome the constraints of emerging markets—or take advantage of the freedoms they offer. Unable to find the way forward, they tend to fall into one or more mental traps that prevent them from successfully developing reverse innovations.

    Our study also shows that executives can avoid these traps by adhering to certain design principles, which together provide a road map for reverse innovation. We distilled them partly from our work with multinationals and partly from the firsthand experiences of a team of MIT engineers led by this article’s other author, Amos Winter. His team spent six years designing an off-road wheelchair for people in developing countries, which is now manufactured in India. Called the Leveraged Freedom Chair (LFC), it is 80% faster and 40% more efficient to propel than a conventional wheelchair, and it sells for approximately $250—on par with other developing world wheelchairs. The technologies that generate its high performance and low cost have been incorporated into a Western version, the GRIT Freedom Chair, which was modified with consumer feedback and sells in the United States for $3,295—less than half the price of competing products.

    As we will show in the following pages, the reverse innovation process succeeds when engineering creatively intersects with strategy. Companies can capture business opportunities only when they design appropriate products or services and understand the business case for them. That’s why it took two academics—one teaching mechanical engineering, and the other strategy—to come up with the principles that must guide the creation of reverse innovations.

    Five Traps—and How to Avoid Them

    For every product, multinational companies typically produce three variations: a top-of-the-line offering, which provides the best performance at a premium price; a “better” version, which delivers 80% of that performance at 80% of the price; and a “good” variant, which provides 70% and costs 70% as much. To break into emerging markets, where consumers have very high expectations but much smaller pocketbooks, multinationals usually follow a design philosophy that minimizes the up-front risks: They value-engineer the “good” product, watering it down to a “fair” one that offers 50% of the performance at 50% of the price.

    This rarely works. In developing countries, not only do “fair” (or “good enough”) products prove too expensive for the middle class, but the upmarket consumers—who can afford them—will prefer the top-of-the-line versions. Meanwhile, because of economies of scale and the globalization of supply chains, local companies are now bringing out high-value products, at relatively cheap prices, more quickly than they used to. Consequently, most multinationals capture only small slivers of the local market.

    To win over consumers in developing countries, multinationals’ products and services must match or beat the performance of existing ones but at a lower cost. In other words, they must provide 100% of the performance at 10% of the price, as product developers wryly put it. Only through the creation of such disruptive products and technologies can companies both outperform local rivals and undercut them on price. But the traps we mentioned earlier prevent companies from meeting this challenge. To escape those traps, they must follow five design principles.

    Trap 1: Trying to match market segments to existing products.

    Current offerings and processes cast a long shadow when multinationals start creating products for developing countries. At first it appears to be quicker, cheaper, and less risky to adapt an existing product than to develop one from scratch. The idea that time-tested products, with modifications, won’t appeal to lower-income customers is difficult to digest. Designers struggle to get away from existing technologies.

    The U.S. tractor-manufacturer John Deere, a seasoned global player, encountered this problem in India. There Deere initially sold tractors it had carefully modified for emerging markets. But its small tractors had a wide turning radius, because they had been designed for America’s large farms. Indian holdings are very small and close to one another, so farmers there prefer tractors that can make narrow turns. Only after John Deere designed ab initio a tractor for the local market did it taste success in India.

    Design Principle 1: Define the problem independent of solutions.

    Casting off preconceived solutions before you set down to define problems will help your company avoid the first trap—and spot opportunities outside its existing product portfolio. Consider the problem of irrigating farms in emerging markets. Farmers will argue for the expansion of the power grid so that they can use electricity to run water pumps and irrigate fields. However, farmers need water, not electricity, and the real requirement is getting water to crops—not power to pumps. If they isolate the problem, engineers may find that creating ponds near fields or using solar-powered pumps is more cost-effective and environmentally appropriate than expanding the power grid.

    When defining problems, executives must keep their eyes and ears open for behavior that may signal needs that customers haven’t articulated. In 2002, Commonwealth Telecommunications Organisation researchers reported that in East Africa, people were transferring airtime to family and friends in villages, who were then using or reselling it. Doing so allowed workers in cities to get money to people back home without making long and unsafe journeys with large amounts of cash. It indicated a latent demand for money remittance services. That’s how M-Pesa, the successful mobile money-transfer service, was born.

    It’s good to study the global market in-depth before kicking off the design process. For example, when the MIT team analyzed the wheelchair market, it learned that of the 40 million people with disabilities who didn’t have wheelchairs, 70% lived in rural areas where rough roads and muddy paths were often the only links to education, employment, markets, and the community.

    Environmental conditions were harsh; traditional wheelchairs broke down quickly as a result and were difficult to repair. Because of their poverty, most people got wheelchairs free or at subsidized prices from NGOs, religious organizations, or government agencies. Those suppliers were willing to pay $250 to $350 for a wheelchair—an important price constraint.

    No wheelchair user specified the mobility solution he or she desired; the team had to figure out the needs of the market by watching and listening. For inspiration, it drew on the numerous complaints it heard: Wheelchairs were tough to push on village roads; manually powered tricycles were too big to use indoors; imported wheelchairs couldn’t be repaired in villages; the commute to an office was often more than a mile, so it was tiring. And so on.

    The team’s assessment of consumer needs generated four core design requirements:

    1. A price of approximately $250

    2. A travel range of three miles a day over varied terrain

    3. Indoor usability and maneuverability

    4. Easy, low-cost maintenance and local repair

    Those criteria conveyed little about what form the wheelchair would have to take. However, had the team missed one of them, imposed an existing solution, or made its own assumptions, it probably would have failed.

    Trap 2: Trying to reduce the price by eliminating features.

    Many multinationals think this is the way to make products affordable for consumers in emerging markets. People in developing countries are willing to accept lower quality and products based on sunset technologies, runs the argument. This approach often leads to poor decisions and bad product designs.

    For example, when one of the Big Three automobile makers decided to enter India in the mid-1990s, it charged its product developers in Detroit with coming up with a suitable model. The designers took an existing midprice car and eliminated what they felt were unnecessary features for India, including power windows in the rear doors. The new model’s price was within the reach of Indians at the top of the pyramid—who hire chauffeurs. Thus the chauffeurs got power windows up front while the owners had to hand-crank the rear windows, greatly reducing customer satisfaction.

    Design Principle 2: Create an optimal solution, not a watered-down one, using the design freedoms available in emerging markets.

    Though emerging markets have many constraints, they offer intrinsic design freedoms as well. These freedoms take various forms: In Egypt high irradiance makes solar power attractive in areas with unreliable power; in India low labor costs and high material costs make manual fabrication cost-effective. Even behavioral differences broaden companies’ options: Some African consumers prioritize the purchase of TV sets over roofs, suggesting that companies must appeal to users’ wants as well as their needs.

    Carefully considering design freedoms helped the MIT team achieve many objectives. For instance, wheelchairs that use a mechanical system of multiple gears, just as geared bicycles do, were available in the developing world, but they were very expensive, and few could afford them. Compelled to devise an alternative, the engineers homed in on people’s ability to make a broad range of arm movements as something they could use in the drivetrain to make the chair go faster or slower. While that ability isn’t specific to emerging markets, the engineers wouldn’t have thought of using it if they weren’t trying to achieve high performance at a low price—a requirement specific to emerging markets.

    The MIT team designed the LFC with two long levers that are pushed to propel the chair; users change speed by shifting the position of their hands on the levers. To go up a hill, users grab high on the levers and gain more leverage; in “low gear” the levers provide 50% more torque than pushing the rims of the chair does. On a flat road, they grab low and push through a larger angle to move faster, generating speeds that are 75% faster than a standard wheelchair’s. To brake, users pull back on the levers.

    Products for emerging markets must provide 100% of the performance at 10% of the price.
    By making the users the machines’ most complex part—they are both the power source and the gearbox—the team could fabricate the drivetrain from a simple, single-speed assembly of bicycle parts. In fact, the ability to use bicycle parts was another freedom the team could exploit. People in developing countries use bicycles extensively, and repair shops that stock spare parts are almost everywhere. Incorporating bicycle parts into the drivetrain made the LFC low cost, sustainable, and easy to repair, especially in remote villages.

    Trap 3: Forgetting to think through all the technical requirements of emerging markets.

    When designing offerings for the developing world, engineers assume they’re dealing with the same technical landscape that they are in the developed world. But while the laws of science may be the same everywhere, the technical infrastructure is very different in emerging markets. Engineers must understand the technical factors behind problems there—the physics, the chemistry, the energetics, the ecology, and so on—and conduct rigorous analyses to determine the viability of possible solutions.

    Thorough calculations will allow engineers to validate or refute assumptions about the market. Consider the PlayPump, designed for Africa, which pumps water from the ground into a tower by harnessing the energy of village children pushing a merry-go-round. Having children do something useful for the community while playing is a win-win by any yardstick. Moreover, a first-order engineering analysis suggested that the technological assumptions were logical.

    Let’s assume that in a 1,000-strong village, each person needs three liters of drinking water a day, the village has a tower that can hold 3,000 liters, and it’s 10 meters high. Using high school physics, one can calculate that 25 children, playing for 10 minutes each, could theoretically fill the tower.
    But further analysis alters the picture. After all, children spin merry-go-rounds so that they can ride them until they’re dizzy, and if all the energy from their pushing goes to pumping water, the merry-go-round will stop as soon as they stop pushing. That’s no fun! If we assume that half their energy goes into spinning and half into pumping, the energy requirement doubles; 50 children must use the PlayPump for 10 minutes each daily to keep the tower full.

    If the water comes from a well 10 meters deep, double the energy will be necessary and 100 children must use the merry-go-round. Accounting for inefficiencies, the number could go to 200. What happens when it’s too hot, wet, or cold, and children don’t want to play on the PlayPump? How will the village get its water then? If the makers of the PlayPump had included all those factors in their calculations, they would have realized it wasn’t a technically viable solution. Despite receiving the World Bank Development Marketplace award in 2000 and donor pledges of $16.4 million in 2006, PlayPumps International had stopped installing new units by 2010. The PlayPump sounded like a good idea, but a village water system needs reliable power—and ensuring that isn’t child’s play.

    Design Principle 3: Analyze the technical landscape behind the consumer problem.

    Underlying technical relationships may look markedly different in developing countries. For example, urban Indian homes receive water from pressurized municipal supply systems, just like those found in the United States, which ensure that if there is a leak, water goes out but contaminants can’t get in. However, most Indian households use booster pumps to suck water from the municipal pipes to rooftop tanks. This suction pulls contaminants from the ground into the pipes, creating a mechanism for contamination that is not common in the United States.

    Social and economic factors often drive the technical requirements for products. For instance, if a company wants to sell inexpensive tractors to low-income farmers, it must make them light; material costs determine much of a tractor’s price. Engineers then must check how lowering the weight would affect the machine’s performance, particularly traction and pulling force. The latter is important; in emerging markets, farmers use tractors not only to farm but for odd jobs, such as transporting people.

    By studying the technical landscape, engineers can identify pain points as well as creative paths around them. Understanding the requirements for energy, force, heat transfer, and so on will illuminate novel ways of satisfying them. As noted earlier, the LFC is human powered, which eliminates the costs of a motor and an energy source. However, the design team had to figure out how users’ upper body strength could provide propulsion. It did so by calculating the power and force that people could produce with their arms and the amounts needed on various kinds of terrain. Finally, the designers worked out the optimal length of the two levers so that users could travel at peak efficiency across normal terrain and have enough strength to propel their way out of trouble in harsh conditions such as mud or sand.

    Trap 4: Neglecting stakeholders.

    Many multinationals seem to think that all they need to do to educate product designers about consumers’ needs and desires is to parachute them into an emerging market for a few days; drive them around a couple of cities, villages, and slums; and allow them to observe the locals. Those perceptions will be enough to develop products that people will purchase, they assume. But nothing could be further from the truth.

    Design Principle 4: Test products with as many stakeholders as possible.

    Companies would do well to map out the entire chain of stakeholders who will determine a product’s success, at the beginning of the design process. In addition to asking who the end user will be and what he or she needs, companies must consider who will make the product, distribute it, sell it, pay for it, repair it, and dispose of it. This will help in developing not just the product but also a scalable business model.
    It’s best to adopt the attitude that you’re designing with, not for, stakeholders. If treated as equals, they’re more likely to participate in the process and provide honest feedback. When you’re designing a prosthetic limb, for instance, collaborate with amputees, the clinics that provide the prostheses, and the organizations that pay for them. If you’re able-bodied, it doesn’t matter how many doctoral degrees you’ve earned; you still don’t know what it’s like to live with a prosthetic device in a developing country.
    It’s not enough to parachute product designers into a market for a few days to observe the locals.
    The MIT team formed partnerships with wheelchair builders and users throughout the developing world. Those stakeholders, who provided insights on how to make the wheelchair better, easier to manufacture, more robust, and cheaper, came up with ideas for several features. The team gathered further feedback through field trials in East Africa, Guatemala, and India, conducted in conjunction with local wheelchair manufacturing and supply organizations. The tests had a huge impact, resulting in several design modifications.
    Although the first prototype performed well on rough terrain in East Africa, it didn’t do so well indoors. It was too wide to go through a standard doorway, which the MIT designers hadn’t noticed, and it was 20 pounds heavier than rival products were. For the next iteration, tested in Guatemala, the engineers reduced the chair’s width by shaping the seat closer to the user’s hips, bringing the wheels closer to the frame, and using narrower tires. By conducting a structural analysis, optimizing the strength-to-weight ratio of the frame, and reducing materials wherever possible, the team also decreased the LFC’s weight by 20 pounds. That version performed well indoors, but several users felt they might fall out when traversing rough terrain. So the team included foot, waist, and chest straps to secure the user to the seat in tests in India. Users rated the third version at par with conventional wheelchairs indoors and far superior outdoors.
    No matter how thorough engineers are, users expose design flaws that only they can notice. For instance, of the seven major improvements users suggested, only eliminating the LFC’s excess weight had been evident to the MIT team before the East African trial. It’s critical to test prototypes in the field with potential users and design solutions with organizations that will disseminate the product. Remember, design is iterative; you can’t get it right the first time, so be prepared to test many prototypes.

    Trap 5: Refusing to believe that products designed for emerging markets could have global appeal.

    Western companies tend to assume that consumers in developed markets, who are brand-conscious and performance-sensitive, will never want products from emerging markets, even if their prices are lower. Executives also worry that even if those products did catch on, they could be dangerous, cannibalizing higher-priced, higher-margin offerings.

    Design Principle 5: Use emerging market constraints to create global winners.

    Before designing solutions, companies should identify the inherent constraints that will operate on the new product or service—such as low average consumer income, poor infrastructure, and limited natural resources. This list will dictate the requirements—like price, durability, and materials—that new designs must meet.
    The constraints of developing countries usually force technological breakthroughs that help innovations crack global markets. The new products become platforms on which companies can add features and capabilities that will delight many tiers of consumers across the world. One example is the Logan, a car Renault designed specifically for Eastern European customers, who are price-sensitive and demand value. Launched in Romania in 2004, the Logan cost only $6,500 but offered greater size and trunk space, higher ground clearance, and more reliability than rival products. To ensure a low price, Renault used fewer parts than usual in the vehicle and manufactured it in Romania, where labor costs are relatively low.
    Two years later, Renault decided to make the Logan attractive to consumers in developed markets, by adding more safety features and greater cosmetic appeal, including metallic colors. In France it sold the Logan for as much as $9,400. In Germany sales of the Logan jumped from 6,000 units to 85,000 units over a three-year period. By 2013 sales in Western Europe had reached 430,000 units—a 19% increase over 2012. Thus, while the constraints in Eastern Europe forced Renault to create a new auto design, the result was a product that delivered high value at low cost to consumers in Western Europe as well.
    The constraints of developing countries usually force technological breakthroughs.
    Something similar is happening with the LFC: Wheelchair users in the United States and Europe have noticed the media buzz about the product and want to buy it. The MIT team worked with Continuum, a Boston-based design studio, to conduct a study of what a U.S. version of the LFC could look like. The designers also tested the LFC with potential customers in the West to identify features to add. The GRIT Freedom Chair, as the developed world model is called, was designed to fit into car trunks in the United States. It also has quick-release wheels that users can remove with one hand and is made from bicycle parts available in the United States.
    Although commercial production of the Freedom Chair began only in May 2015, it’s on its way to success in the developed world. The venture the MIT team founded to make the chairs, Global Research Innovation and Technology, was one of four start-ups that received a diamond award at MassChallenge, the world’s largest start-up competition, three years ago. In 2014, GRIT ran a Kickstarter campaign to launch the Freedom Chair, meeting its funding goal in only five days.

    How the Principles Pay Off

    Few companies have avoided the traps we’ve described as well as the global shaving products giant Gillette did when designing an offering for India. As recently as a decade ago, Gillette made most of its money in that country by catering to top-of-the-pyramid consumers with pricey products. In 2005, Procter & Gamble acquired Gillette and immediately saw an opportunity to expand market share in the country.
    Prodded by its new parent, which had been in India since the early 1990s, Gillette decided to develop a product for the 400 million middle-income Indians who shave primarily with double-edge razors. It began by exploring consumer requirements. After mapping out the value chain, from steel suppliers to end users, a cross-functional team conducted ethnographic research, spending over 3,000 hours with 1,000 would-be consumers.
    Gillette learned that the needs of Indian shavers differ from those of their developed world counterparts in four ways:


    The price would be a critical constraint, since Gillette’s main competitor, the double-edge razor, costs just Re 1 (less than 2 cents).


    Consumers in this market segment sit on the floor in the dark early-morning hours and, using a small amount of still water, wield a mirror in one hand and a razor in the other. Shaving often results in nicks and cuts, because double-edge razors don’t have a protective layer between the blade and the skin.
    Even so, when Gillette’s product designers watched Indian men shaving, most of the men did not cut themselves. Their response was simple: “We are experts; we don’t cut ourselves.” However, the team concluded that shaving requires concentration; Indian shavers could not relax or talk during the process for fear of injuring themselves. Gillette had identified a latent need: Most shavers were keen to relieve the tension by using a safer razor and blade.

    Ease of use.

    Indian men have heavier beards and thicker facial hair than most American men do, and shave less frequently, so they have to tackle longer hairs. They also like to use a lot of shaving cream. All of that leads their razors to clog up quickly. With little running water at their disposal, Indian men need razors that they can easily rinse.

    Close shaves.

    Gillette rightly assumed that Indian men want close shaves, as men across the world do, but the difference is that they do not place a premium on time. They spend up to 30 minutes shaving, whereas U.S. men spend five to seven minutes.
    To come up with a competitive product, Gillette had to relearn the science of shaving with a single blade. It found that multiple passes of a single-blade razor can achieve a close shave because of the viscoelastic nature of hair. As a blade cuts strands of hair, it also pulls them out a little from the skin. The hairs don’t spring back at once; the follicles act like the mechanisms that close a screen door slowly. Because the hairs continue to protrude, the next pass of the blade can cut them a little shorter. And so on.

    This process helped Gillette hit upon a valuable design freedom: It could use only a single blade in its new razor, which drastically lowered the production cost. The new razor would also need 80% fewer parts than other razors did, greatly reducing manufacturing complexity.

    Gillette’s engineers then had to figure out how to flatten the skin before cutting the hairs to ensure a close shave without injury. They also had to understand the mechanics of flushing out the razor by swishing it in a cup of water. Finally, they had to balance competing requirements: Small teeth at the cartridge’s front were necessary to flatten the skin before it made contact with the blade, while the rear had to have an unobstructed pass-through to allow hair and shaving cream to wash out easily.
    Rethinking the razor from the ground up, the Gillette team also designed a unique pivoting head. That helped the user maneuver around the curves of the face and neck, particularly under the chin—an area difficult to shave. Seeing that Indians gripped razors in numerous ways, Gillette created a bulging handle and textured it to prevent slippage.

    Gillette didn’t stop at designing a product specifically for India; it also built a new business model to support it. To reduce production and transportation costs, it manufactures the product at several locations. And because India’s distribution infrastructure consists of millions of mom-and-pop retailers, the team designed packaging that consumers could easily spot in any store.
    Over time the American company did well in this Indian segment—mainly because it didn’t set out to make the cheapest razor; it strove to make a product with superior value at an ultralow cost. The Gillette Guard razor costs Rs 15 (around 25 cents)—3% as much as the company’s Mach3 razor and 2% as much as its Fusion Power razor—and each refill blade costs Rs 5 (8 cents). Introduced in 2010, the innovative product has quickly gained market share: Two out of three razors sold in India today are Gillette Guards. Although Gillette has not sold the Guard outside India yet, it embodies the promise of a successful reverse innovation.

    Though most Western companies know that the business world has changed dramatically in the past 15 years, they still don’t realize that its center of gravity has pretty much shifted to emerging markets. China, India, Brazil, Russia, and Mexico are all likely to be among the world’s 12 largest economies by 2030, and any company that wants to remain a market leader will have to focus on consumers there. Chief executives have no choice but to start investing in the infrastructure, processes, and people needed to develop products in emerging markets. Doing so will also allow multinationals to benefit from the “frugal engineering” (as Renault’s CEO Carlos Ghosn labeled it) that’s possible there. Because of abundant skilled talent—especially engineers—and relatively low salaries in those countries, the costs of creating products there are often lower than in developed nations. But no amount of investment will result in portfolios of successful new products and services if companies don’t follow the design principles that govern the development of reverse innovations.

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  • 01/20/16--13:14: CORPORATE GOVERNANCE 2.0


    Although corporate governance is a hot topic in boardrooms today, it is a relatively new field of study. Its roots can be traced back to the seminal work of Adolf Berle and Gardiner Means in the 1930s, but the field as we now know it emerged only in the 1970s. Achieving best practices has been hindered by a patchwork system of regulation, a mix of public and private policy makers, and the lack of an accepted metric for determining what constitutes successful corporate governance. The nature of the debate does not help either: shrill voices, a seemingly unbridgeable divide between shareholder activists and managers, rampant conflicts of interest, and previously staked-out positions that crowd out thoughtful discussion. The result is a system that no one would have designed from scratch, with unintended consequences that occasionally subvert both common sense and public policy.

    Consider the following:
    • In 2010 the hedge fund titans Steve Roth and Bill Ackman bought 27% of J.C. Penney before having to disclose their position; Penney’s CEO, Mike Ullman, discovered the raid only when Roth telephoned him about it.

    • The proxy advisory firm Glass Lewis has announced that it will recommend a vote against the chairperson of the nominating and governance committee at any company that imposes procedural limits on litigation against the company, notwithstanding the consensus view among academics and practitioners that shareholder litigation has gotten out of control in the United States.

    • In 2012 JPMorgan Chase had no directors with risk expertise on the board’s risk committee—a deficiency that was corrected only after Bruno Iksil, the “London Whale,” caused $6 billion in trading losses through what JPM’s CEO, Jamie Dimon, called a “Risk 101 mistake.”

    • Allergan, a health care company, recently sought to impose onerous information requirements on efforts to call a special meeting of shareholders, and then promptly waived those requirements just before they would have been invalidated by the Delaware Chancery Court.

    • The corporate governance watchdog Institutional Shareholder Services (ISS) issued a report claiming that shareholders do better, on average, by voting for the insurgent slate in proxy contests; within hours, the law firm Wachtell, Lipton, Rosen & Katz issued a memorandum to clients claiming that the study was flawed.

    • The same ISS issues a “QuickScore” for every major U.S. public company, yet it won’t tell you how it calculates your company’s score or how you can improve it—unless you pay for this “advice."
    We can do better. And with trillions of dollars of wealth governed by these rules of the game, we must do better. In this article I propose Corporate Governance 2.0: not quite a clean-sheet redesign of the current system, but a back-to-basics reconceptualization of what sound corporate governance means. It is based on three core principles—principles that reasonable people on all sides of the debate should be able to agree on once they have untethered from vested interests and staked-out positions. I apply these principles to develop a package solution to some of the current hot-button issues in corporate governance.

    The overall approach draws from basic negotiation theory: Rather than fighting issue by issue, as boards and shareholder activist groups currently do, they should take a bundled approach that allows for give-and-take across issues, thereby increasing the likelihood of meaningful progress. The result would be a step change in the quality of corporate governance, rather than incremental meandering toward what may (or may not) be a better corporate governance regime for U.S. public companies.
    • Principle #1: Boards Should Have the Right to Manage the Company for the Long Term

      Perhaps the biggest failure of corporate governance today is its emphasis on short-term performance. Managers are consumed by unrelenting pressure to meet quarterly earnings, knowing that even a penny miss on earnings per share could mean a sharp hit to the stock price. If the downturn is severe enough, activist hedge funds will start to become interested in taking a position and then clamoring for change. And, of course, there are the lawyers, ever ready to file litigation after a big drop in the company’s stock.

    • It is ironic that companies today have to go private in order to focus on the long term. Michael Dell, for example, took Dell private in 2013 because, he claimed, the fundamental changes the company needed could not be achieved in the glare of the public markets. A year later he wrote in the Wall Street Journal,“Privatization has unleashed the passion of our team members who have the freedom to focus first on innovating for customers in a way that was not always possible when striving to meet the quarterly demands of Wall Street.” The idea that “innovating for customers” can be done more effectively in a private company is deeply troubling; public companies, after all, are still the largest driver of wealth creation in our economy.
    To allow managers at public companies to focus on the long term, Corporate Governance 2.0 includes the following tenets:

    End earnings guidance.

    With holding periods in today’s stock markets averaging less than six months, short-termism cannot be avoided completely. Nevertheless, dispensing with earnings guidance—the practice of giving analysts a preview of what financial results the company expects—would mitigate the obsession with short-term profitability. Earnings guidance has been in decline over the past 10 years, but many companies are nervous about eliminating it for analysts who have come to rely on it. Research shows that the dispersion in analysts’ forecasts increases after companies stop giving guidance—presumably because analysts are no longer being fed the answers to the questions. With less consensus among them, the stock market reacts less negatively when earnings are lower than the average view, thereby mitigating the pressure for quarterly results. Instead of providing earnings guidance, companies should provide analysts with long-term goals, such as market share targets, number of new products, or percent of revenue from new markets.

    Dispensing with earnings guidance would mitigate the obsession with short-term profitability.

    Bring back a variation on the staggered board.

    When a board is staggered, one-third of the directors are elected each year to three-year terms. This structure promotes continuity and stability in the boardroom, but shareholder activists dislike it, because a hostile bidder must win two director elections, which may be as far apart as 14 months, in order to gain the two-thirds board control necessary to facilitate a takeover. In my research with Lucian Bebchuk and John Coates, of Harvard Law School, I find that no hostile bidder has ever accomplished this.

    As shareholder activists gained more power in the 2000s, the number of staggered boards in the S&P 500 fell from 60% in 2002 to 18% in 2012. The trend is continuing: In 2014, 31 S&P 500 companies received de-staggering proposals for their annual meetings, and seven of those companies preemptively agreed to de-stagger their boards before the issue came to a vote. The result of this trend is that most corporate directors today are elected every year to one-year terms (creating so-called unitary boards).

    It is virtually tautological that directors elected to one-year terms will have a shorter-term perspective than those elected to three-year terms. This is particularly true because ISS and other proxy advisory firms have not been shy about using withhold-vote campaigns to punish directors who make decisions they don’t like. One director attending a program at HBS told me that his board had decided against hiring a talented external candidate for CEO who would have required an above-market compensation package. Even though he was the best candidate, and even though this director thought that he’d be worth the money, the board did not move forward in part because of concern that ISS would recommend against the compensation committee at the next annual meeting. With a staggered board, ISS would have recourse against only one-third of the compensation committee each year, because only one-third of the committee members would be up for re-election.

    Of course, shareholder activists make a strong case that a staggered board may discourage an unsolicited offer that a majority of shareholders would like to accept. But this drawback would be avoided if the stagger could be “dismantled,” either by removing all the directors or by adding new ones. A staggered board that could be dismantled in this way would combine the longer-term perspective of three-year terms with the responsiveness to the takeover marketplace that shareholders want. It would give ISS recourse against individual directors, but only every three years rather than every year. A triannual check would allow longer-term investments (such as the superstar CEO mentioned above) to play out, and would be better aligned with long-term wealth creation than an annual check on all directors.

    Install exclusive forum provisions.

    In our litigation-prone system of corporate governance, plaintiffs’ attorneys (representing shareholders who typically hold only a few  shares) look for any hiccup in stock price or earnings to file litigation against the company and its board. Plaintiffs’ attorneys are especially attracted to major transactions, such as mergers and acquisitions, because of corporate law that is friendly to litigation in this arena. Any public-company board announcing a major transaction is highly likely to be sued—sometimes within hours—regardless of how much care and effort its members put into their decision. It is anyone’s guess how many value-creating deals are deterred by this “tax” that the plaintiffs’ bar imposes on the system. In fact, a board that goes forward with a transaction will often deliberately keep something in its pocket—such as a disclosure item or even a bump in the offer price—to be given up as part of a quick settlement so that the plaintiffs’ attorneys can collect their fees and the deal can proceed.

    It is not only the frequency of claims that causes concern, but also where they are brought. A U.S. corporation is subject to jurisdiction wherever it has contacts—its headquarters state, its state of incorporation, and states where it does business. Plaintiffs’ attorneys take advantage of this fact to bring suit in multiple states—particularly those that permit a jury trial for corporate law cases. The prospect of inexperienced jurors deciding a complex corporate case leads many companies to settle in a hurry. This kind of blackmail is bad for corporate governance and society overall. Exclusive forum provisions permit litigation against a company only in its state of incorporation. For companies incorporated in Delaware, which are the majority of large U.S. public companies this means the case would be heard before an experienced and sophisticated judge on the Delaware Chancery Court rather than an inexperienced jury.

    Yet despite these clear benefits, shareholder activists have expressed knee-jerk opposition to exclusive forum provisions. Glass Lewis has threatened a withhold vote against the chair of the nominating and governance committee of any board that installs one without shareholder approval. The argument is that the prospect of multistate litigation will make directors pay more attention. But most directors do not need the sharp prod of a jury trial for them to want to do a good job. Exclusive forum provisions give plaintiffs’ attorneys a fair fight in a state where the rules of the game are well established. In exchange for such a provision, boards might consider renouncing more-draconian measures, such as a fee-shifting bylaw that forces plaintiffs to pay the company’s expenses if their litigation is unsuccessful.

    Corporate Governance 2.0 asks the functional question: What goals are the activists, governance rating agencies, boards, and everyday shareholders all trying to achieve? The answer is clear: insulation from frivolous litigation, but meaningful exposure to liability in the event of a dereliction of duty in the boardroom. In the old days, activists and their allies agreed on this shared goal. In the late 1980s, when most U.S. states enabled boards to waive liability for certain breaches of fiduciary duty, ISS encouraged directors to take up the invitation, on the understanding that they should be focused on shaping strategy and monitoring performance rather than worrying about shareholder litigation. Corporate Governance 2.0 would return to this old wisdom through exclusive forum provisions. Directors would be accountable for their actions, but only as judged by a corporate law expert. The result would be greater willingness among directors to make longer-term decisions, without fear of a jury’s 20/20 hindsight.

    Principle #2: Boards Should Install Mechanisms to Ensure the Best Possible People in the Boardroom

    In exchange for the right to run the company for the long term, boards have an obligation to ensure the proper mix of skills and perspectives in the boardroom. Shareholder activists have proposed several measures in recent years to push toward this goal—principally age limits and term limits, but also gender and other diversity requirements. According to the most recent NACD Public Company Governance Survey, approximately 50% of U.S. public companies have age limits, and approximately 8% have term limits. ISS is urging more companies to adopt such limits, and if history is any guide, boards will give the idea serious consideration.

    Activists and corporate governance rating agencies are motivated by a sense that boards don’t take a hard look at their composition and whether the skill set on the board reflects the needs of the company. Too often directors are allowed to continue because it’s difficult to ask them to step down.

    But age and term limits are a blunt instrument for achieving optimal board composition. Anyone who has served on a corporate board knows that an individual director’s contribution has little to do with either age or tenure. If anything, the correlation is likely to be positive. As for age limits, directors who have retired from full-time employment can devote themselves to their work on the board. And as for term limits, directors will often need a decade to shape strategy and evaluate the success of its execution; moreover, directors who have been in office longer than the current CEO are more likely to be able to challenge him or her when necessary. Yet these are precisely the directors who would be forced out by age limits or term limits.

    Corporate Governance 2.0 would approach the issue of board composition in a tailored manner, focusing more on making sure that boards really engage in meaningful selection and evaluation processes rather than ticking boxes. In particular it would:

    Require meaningful director evaluations.

    Many boards today have internal evaluations conducted by the chairman or lead director. Although these evaluations are well-intentioned, directors may be unwilling to disclose perceived weaknesses to the person most responsible for the effective functioning of the board. A Corporate Governance 2.0 approach would engage an independent third party to design a process and then conduct the reviews. The process would include grading directors on various company-specific attributes so that they and their contributions were evaluated in a relevant way.

    In Corporate Governance 2.0, director evaluations wouldn’t just get filed away. They would be shared with the individual director, with comments reported verbatim when necessary to make clear any opportunities for improvement. They would also go to the chairman or lead director, to provide objective evidence with which to have difficult conversations with underperforming directors.
    Meaningful board evaluations would also have more-subtle effects on board composition and boardroom dynamics. Foreseeing a rigorous review process, underperforming directors would voluntarily not stand for reelection. Even more important, directors would work hard to make sure they weren’t perceived as underperforming in the first place.

    Consider shareholder proxy access.

    Under such a rule, shareholders with a significant ownership stake in the company would have the right to put director candidates on the company’s ballot. For the first time in corporate governance, a company proxy statement could have, say, 10 candidates for eight seats on the board. Hewlett-Packard and Western Union, among other companies, have implemented shareholder proxy access over the past two years.

    The Securities and Exchange Commission tried to impose proxy access on all companies in 2010, but the D.C. Circuit Court of Appeals invalidated the move. The SEC has since allowed companies to implement it on a voluntary basis. My research with Bo Becker, then at HBS, and Daniel Bergstresser, of Brandeis, shows that a comprehensive proxy access rule would have added value, on average, for U.S. public companies. The company-by-company approach is not as good as a comprehensive rule, because qualified directors may gravitate to boards that don’t offer proxy access; nevertheless, it should be considered a backstop to rigorous director evaluations.

    An individual director’s contribution has little to do with either age or tenure.

    Implementing a proxy access rule would help ensure the right mix of skills in the boardroom. For example, if J.P. Morgan had a proxy access rule, it seems likely that it would not have lacked directors with risk expertise on the risk committee at the time of the London Whale incident. More than a year before that event, CtW Investment Group, an adviser to union pension funds, highlighted the point: “The current three-person risk policy committee, without a single expert in banking or financial regulation, is simply not up to the task of overseeing risk management at one of the world’s largest and most complex financial institutions.” With a proxy access regime, either the board would have put someone on the risk committee with risk expertise, or a significant shareholder could have nominated such a person, and the shareholders collectively would have decided whether the gap was worth filling.

    This is not to say that if JPM’s risk committee had included directors with risk expertise, the London Whale incident would have been prevented. As is well known, primary frontline responsibility for managing risk exposure at JPM belongs to the operating committee on risk management, whose members are high-ranking JPM employees. But the odds of identifying the problem would certainly have been higher in a proxy access regime.

    Only in the aftermath of the debacle did the board add a director with risk expertise to the risk committee. Of course, it should not take a multibillion-dollar trading loss to put people with the right skill set on the JPM risk committee. A shareholder proxy access regime should be considered as a supplement to meaningful board evaluations, to ensure the right composition of directors in the boardroom.

    Principle #3: Boards Should Give Shareholders an Orderly Voice

    Today, when an activist investor threatens a proxy contest or a strategic buyer makes a hostile tender offer, boards tend to see their role as “defender of the corporate bastion,” which often leads to a no-holds-barred, scorched-earth, throw-all-the-furniture-against-the-door campaign against the raiders. As George “Skip” Battle, then the lead director at PeopleSoft, put it to me in the context of Oracle’s 2003 hostile takeover bid for his company, “This is the closest thing you get in American business to war.”

    Consider the more recent case of CommonWealth REIT, one of the largest real estate investment trusts in the United States. As of December 2012, CommonWealth’s properties were worth $7.8 billion against $4.3 billion in debt, but its market capitalization stood at only $1.3 billion. Corvex Management, a hedge fund run by Keith Meister (a Carl Icahn protégé), and the Related Companies, a privately held real estate firm specializing in luxury buildings, saw an investment opportunity in CommonWealth’s poor performance. In February 2013 they announced a 9.8% stake in CommonWealth and proposed acquiring the rest of the company for $25 a share. This offer represented a 58% premium over CommonWealth’s unaffected market price.

    The Corvex-Related strategy for unlocking value at CommonWealth was relatively simple. CommonWealth had no employees; it paid an external management company to manage the real estate assets. This company, Reit Management & Research, was run by Barry and Adam Portnoy, a father-and-son team who also constituted two-fifths of the CommonWealth board. Corvex and Related believed that internalizing management would eliminate conflicts of interest within the board, align shareholder interests, and unlock substantial value. Their investment thesis boiled down to three words: Fire the Portnoys.

    Would the plan unlock value at CommonWealth? The board was determined not to find out. Despite having given shareholders the right to act by written consent, it imposed onerous information requirements that made it impossible, as a practical matter, for them to do so. The board also lobbied the Maryland legislature (unsuccessfully) to amend its takeover laws to protect the company. Perhaps most egregious, the board added a provision to its bylaws declaring that any dispute regarding the company would be heard by an arbitration panel, not a Maryland court. After 18 months of arbitration hearings and sharply worded press releases, Corvex and Related finally replaced the CommonWealth board with their own nominees in June 2014. Today CommonWealth (renamed Equity Commonwealth) trades at about $25 a share, compared with about $16 before the offer.

    CommonWealth’s board took the typical scorched-earth approach, but it shouldn’t be like this. The principle of “orderly shareholder voice” involves a different conceptualization of the board’s role—to guarantee a reasonable process whereby shareholders get to decide, rather than to defend the corporate bastion at all costs. Even when a board genuinely believes that the competing vision is mistaken (which is true in the vast majority of cases), its fiduciary duty—contrary to popular belief—does not require preventing shareholders from deciding. In a Corporate Governance 2.0 world, the directors would campaign hard for their point of view but leave the decision to the shareholders.

    “Orderly” is a critical qualifier, because some shareholders are undeniably disorderly. With the steep decline of poison pills, which block unwanted shareholders from acquiring more than 10% to 15% of a company’s shares, hedge funds and other activist investors can buy substantial stakes in a target company before they have to disclose their positions. Recall the case of J.C. Penney: Because it did not have a poison pill in 2010, Roth and Ackman could secretly buy a 27% stake The company put them on the board, and Mike Ullman was replaced as CEO by the Apple executive Ron Johnson, who planned to give Penney a younger, hipper look. The strategy proved disastrous, and the stock price dropped from about $30 to as low as $7.50 over the next two years. Johnson was forced out in 2013—and replaced by none other than Mike Ullman.

    In theory, companies are protected against such lightning-strike raids by the SEC rule that shareholders must disclose their ownership position after crossing the 5% threshold. But they have 10 days in which to do so, and nothing stops them from buying more shares in the meantime. This is exactly what happened in the Penney case. By the time Roth and Ackman had to make the disclosure, they had bought more than a quarter of the company’s shares.

    The relevant rule dates back to the 1960s, when 10 days was a reasonable amount of time. Today, of course, 10 days in the securities markets is an eternity, and no one designing a disclosure regime from scratch would dream of giving shareholders such a long window. (European countries have substantially shorter windows.) Nonetheless, shareholder groups have resisted change, on the rather questionable grounds that the Roths and Ackmans of the world need sufficient incentive to keep looking for underperforming targets.

    Under a Corporate Governance 2.0 system, boards would get early warning of lightning-strike attacks. One way to do this would be with what I call an “advance notice” poison pill—a pill with a 5% threshold but also an exemption: Any shareholders that disclosed their positions within two days of crossing the threshold would avoid triggering the pill and could continue buying shares without being diluted. John Coffee, of Columbia Law School, and Darius Palia, of Rutgers Business School, have proposed a similar version of self-help, which they call a “window-closing” poison pill. Either kind of pill would give directors fair warning that their company was “in play” before the bidder could build up an unassailable position.

    Directors should guarantee a reasonable process whereby shareholders get to decide.

    Today a change in corporate governance usually occurs when ISS threatens a withhold vote against the board unless certain reforms are implemented. Corporate Governance 2.0 takes a proactive approach that achieves the same (desirable) goals in a holistic and better way. Managers actively engage with shareholders from a functional perspective (“What are we all trying to achieve?”) rather than an issue-by-issue reactionary perspective (“Should we surrender, or do we fight?”).

    In this article I have applied the three fundamental principles of Corporate Governance 2.0 to provide a package solution to certain hot-button issues in corporate governance today. A board that wants to adopt this solution could do so unilaterally in many jurisdictions (including, for the most part, Delaware), though in general it would be better advised to adopt Corporate Governance 2.0 through a shareholder vote.

    Other hot-button issues will emerge in the future. The most recent version of ISS’s QuickScore, for example, includes 92 factors, any of which could become the next pressure point against corporate boards. Rather than evaluating each of these innovations incrementally, boards should hold up future proposals to the same three principles of Corporate Governance 2.0.

    This shift is vital in the United States, where the power of shareholders has increased over the past 10 years and the natural instinct of boards is to simply cave to activist demands. A Corporate Governance 2.0 perspective is critical outside the U.S. as well, particularly in emerging economies where companies are trying to achieve the right balance of authority between boards and shareholders in order to gain access to global capital markets. Over the long term, a Corporate Governance 2.0 perspective would transform corporate governance from a never-ending conflict between boards and shareholders to a source of competitive advantage in the marketplace.

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    Customer Data: Designing for Transparency and Trust

    With the explosion of digital technologies, companies are sweeping up vast quantities of data about consumers’ activities, both online and off. Feeding this trend are new smart, connected products—from fitness trackers to home systems—that gather and transmit detailed information.

    Though some companies are open about their data practices, most prefer to keep consumers in the dark, choose control over sharing, and ask for forgiveness rather than permission. It’s also not unusual for companies to quietly collect personal data they have no immediate use for, reasoning that it might be valuable someday.

    As current and former executives at frog, a firm that helps clients create products and services that leverage users’ personal data, we believe this shrouded approach to data gathering is shortsighted. Having free use of customer data may confer near-term advantages. But our research shows that consumers are aware that they’re under surveillance—even though they may be poorly informed about the specific types of data collected about them—and are deeply anxious about how their personal information may be used.

    In a future in which customer data will be a growing source of competitive advantage, gaining consumers’ confidence will be key. Companies that are transparent about the information they gather, give customers control of their personal data, and offer fair value in return for it will be trusted and will earn ongoing and even expanded access. Those that conceal how they use personal data and fail to provide value for it stand to lose customers’ goodwill—and their business.

    The Expanding Scope of Data

    The internet’s first personal data collectors were websites and applications. By tracking users’ activities online, marketers could deliver targeted advertising and content. More recently, intelligent technology in physical products has allowed companies in many industries to collect new types of information, including users’ locations and behavior. The personalization this data allows, such as constant adaptation to users’ preferences, has become central to the product experience. (Google’s Nest thermostat, for example, autonomously adjusts heating and cooling as it learns home owners’ habits.)

    The rich new streams of data have also made it possible to tackle complex challenges in fields such as health care, environmental protection, and urban planning. Take Medtronic’s digital blood-glucose meter. It wirelessly connects an implanted sensor to a device that alerts patients and health care providers that blood-glucose levels are nearing troubling thresholds, allowing preemptive treatments. And the car service Uber has recently agreed to share ride-pattern data with Boston officials so that the city can improve transportation planning and prioritize road maintenance. These and countless other applications are increasing the power—and value—of personal data.

    Of course, this flood of data presents enormous opportunities for abuse. Large-scale security breaches, such as the recent theft of the credit card information of 56 million Home Depot customers, expose consumers’ vulnerability to malicious agents. But revelations about companies’ covert activities also make consumers nervous. Target famously aroused alarm when it was revealed that the retailer used data mining to identify shoppers who were likely to be pregnant—in some cases before they’d told anyone.

    At the same time, consumers appreciate that data sharing can lead to products and services that make their lives easier and more entertaining, educate them, and save them money. Neither companies nor their customers want to turn back the clock on these technologies—and indeed the development and adoption of products that leverage personal data continue to soar. The consultancy Gartner estimates that nearly 5 billion connected “things” will be in use in 2015—up 30% from 2014—and that the number will quintuple by 2020.

    Resolving this tension will require companies and policy makers to move the data privacy discussion beyond advertising use and the simplistic notion that aggressive data collection is bad. We believe the answer is more nuanced guidance—specifically, guidelines that align the interests of companies and their customers, and ensure that both parties benefit from personal data collection.

    Consumer Awareness and Expectations

    To help companies understand consumers’ attitudes about data, in 2014 we surveyed 900 people in five countries—the United States, the United Kingdom, Germany, China, and India—whose demographic mix represented the general online population. We looked at their awareness of how their data was collected and used, how they valued different types of data, their feelings about privacy, and what they expected in return for their data.

    To find out whether consumers grasped what data they shared, we asked, “To the best of your knowledge, what personal information have you put online yourself, either directly or indirectly, by your use of online services?” While awareness varied by country—Indians are the most cognizant of their data trail and Germans the least—overall the survey revealed an astonishingly low recognition of the specific types of information tracked online. On average, only 25% of people knew that their data footprints included information on their location, and just 14% understood that they were sharing their web-surfing history too.

    It’s not as if consumers don’t realize that data about them is being captured, however; 97% of the people surveyed expressed concern that businesses and the government might misuse their data. Identity theft was a top concern (cited by 84% of Chinese respondents at one end of the spectrum and 49% of Indians at the other). Privacy issues also ranked high; 80% of Germans and 72% of Americans are reluctant to share information with businesses because they “just want to maintain [their] privacy.” So consumers clearly worry about their personal data—even if they don’t know exactly what they’re revealing.

    To see how much consumers valued their data, we did conjoint analysis to determine what amount survey participants would be willing to pay to protect different types of information. (We used purchasing parity rather than exchange rates to convert all amounts to U.S. dollars.) Though the value assigned varied widely among individuals, we are able to determine, in effect, a median, by country, for each data type.

    The responses revealed significant differences from country to country and from one type of data to another. Germans, for instance, place the most value on their personal data, and Chinese and Indians the least, with British and American respondents falling in the middle. Government identification, health, and credit card information tended to be the most highly valued across countries, and location and demographic information among the least.

    We don’t believe this spectrum represents a “maturity model,” in which attitudes in a country predictably shift in a given direction over time (say, from less privacy conscious to more). Rather, our findings reflect fundamental dissimilarities among cultures. The cultures of India and China, for example, are considered more hierarchical and collectivist, while Germany, the United States, and the United Kingdom are more individualistic, which may account for their citizens’ stronger feelings about personal information.

    The Need to Deliver Value

    If companies understand how much data is worth to consumers, they can offer commensurate value in return for it. Making the exchange transparent will be increasingly important in building trust.
    A lot depends on the type of data and how the firm is going to use it. Our analysis looked at three categories: (1) self-reported data, or information people volunteer about themselves, such as their e-mail addresses, work and educational history, and age and gender; (2) digital exhaust, such as location data and browsing history, which is created when using mobile devices, web services, or other connected technologies; and (3) profiling data, or personal profiles used to make predictions about individuals’ interests and behaviors, which are derived by combining self-reported, digital exhaust, and other data. Our research shows that people value self-reported data the least, digital exhaust more, and profiling data the most.

    We also examined three categories of data use: (1) making a product or service better, for example, by allowing a map application to recommend a route based on a user’s location; (2) facilitating targeted marketing or advertising, such as ads based on a user’s browsing history; and (3) generating revenues through resale, by, say, selling credit card purchase data to third parties.

    Our surveys reveal that when data is used to improve a product or service, consumers generally feel the enhancement itself is a fair trade for their data. But consumers expect more value in return for data used to target marketing, and the most value for data that will be sold to third parties. In other words, the value consumers place on their data rises as its sensitivity and breadth increase from basic information that is voluntarily shared to detailed information about the consumer that the firm derives through analytics, and as its uses go from principally benefiting the consumer (in the form of product improvements) to principally benefiting the firm (in the form of revenues from selling data).
    Let’s look now at how some companies manage this trade-off.

    Samsung’s Galaxy V smartphone uses digital exhaust to automatically add the contacts users call most to a favorites list. Most customers value the convenience enough to opt in to the feature—effectively agreeing to swap data for enhanced performance.

    Google’s predictive application Google Now harnesses profiling data to create an automated virtual assistant for consumers. By sifting through users’ e-mail, location, calendar, and other data, Google Now can, say, notify users when they need to leave the office to get across town for a meeting and provide a map for their commute. The app depends on more-valuable types of personal data but improves performance enough that many users willingly share it. Our global survey of consumers’ attitudes toward predictive applications finds that about two-thirds of people are willing (and in some cases eager) to share data in exchange for their benefits.

    Disney likewise uses profiling data gathered by its MagicBand bracelet to enhance customers’ theme park and hotel experiences and create targeted marketing. By holding the MagicBand up to sensors around Disney facilities, wearers can access parks, check in at reserved attractions, unlock their hotel doors, and charge food and merchandise. Users hand over a lot of data, but they get convenience and a sense of privileged access in return, making the trade-off worthwhile. Consumers know exactly what they’re signing on for, because Disney clearly spells out its data collection policies in its online MagicBand registration process, highlighting links to FAQs and other information about privacy and security.

    Firms that sell personal information to third parties, however, have a particularly high bar to clear, because consumers expect the most value for such use of their data. The personal finance website Mint makes this elegant exchange: If a customer uses a credit card abroad and incurs foreign transaction fees, Mint flags the fees and refers the customer to a card that doesn’t charge them. Mint receives a commission for the referral from the new-card issuer, and the customer avoids future fees. Mint and its customers both collect value from the deal.

    Trust and Transparency

    Firms may earn access to consumers’ data by offering value in return, but trust is an essential facilitator, our research shows. The more trusted a brand is, the more willing consumers are to share their data.

    Numerous studies have found that transparency about the use and protection of consumers’ data reinforces trust. To assess this effect ourselves, we surveyed consumers about 46 companies representing seven categories of business around the world. We asked them to rate the firms on  the following scale: completely trustworthy (respondents would freely share sensitive personal data with a firm because they trust the firm not to misuse it); trustworthy (they would “not mind” exchanging sensitive data for a desired service); untrustworthy (they would provide sensitive data only if required to do so in exchange for an essential service); and completely untrustworthy (they would never share sensitive data with the firm).

    After primary care doctors, new finance firms such as PayPal and China’s Alipay received the highest ratings on this scale, followed by e-commerce companies, consumer electronics makers, banks and insurance companies, and telecommunications carriers. Next came internet leaders (such as Google and Yahoo) and the government. Ranked below these organizations were retailers and entertainment companies, with social networks like Facebook coming in last.

    A firm that is considered untrustworthy will find it difficult or impossible to collect certain types of data, regardless of the value offered in exchange. Highly trusted firms, on the other hand, may be able to collect it simply by asking, because customers are satisfied with past benefits received and confident the company will guard their data. In practical terms, this means that if two firms offer the same value in exchange for certain data, the firm with the higher trust will find customers more willing to share. For example, if Amazon and Facebook both wanted to launch a mobile wallet service, Amazon, which received good ratings in our survey, would meet with more customer acceptance than Facebook, which had low ratings. In this equation, trust could be an important competitive differentiator for Amazon.

    Approaches That Build Trust

    Many have argued that the extensive data collection today’s business models rely on is fraught with security, financial, and brand risks. MIT’s Sandy Pentland and others have proposed principles and practices that would give consumers a clear view of their data and control over its use, reducing firms’ risks in the process. (See “With Big Data Comes Big Responsibility,” HBR, November 2014.)
    We agree that these business models are perilous and that risk reduction is essential. And we believe reasoned policies governing data use are important. But firms must also take the lead in educating consumers about their personal data. Any firm that thinks it’s sufficient to simply provide disclosures in an end-user licensing agreement or present the terms and conditions of data use at sign-up is missing the point. Such moves may address regulatory requirements, but they do little if anything to help consumers.

    Consider the belated trust-building efforts under way at Facebook. The firm has been accused of riding roughshod over user privacy in the past, launching services that pushed the boundaries on personal data use and retreating only in the face of public backlash or the threat of litigation. Facebook Beacon, which exposed users’ web activities without their permission or knowledge, for example, was pulled only after a barrage of public criticism.

    More recently, however, Facebook has increased its focus on safeguarding privacy, educating users, and giving them control. It grasps that trust is no longer just “nice to have.” Commenting in a Wiredinterview on plans to improve Facebook Login, which allows users to log into third-party apps with their Facebook credentials, CEO Mark Zuckerberg explained that “to get to the next level and become more ubiquitous, [Facebook Login] needs to be trusted even more. We’re a bigger company now and people have more questions. We need to give people more control over their information so that everyone feels comfortable using these products.” In January 2015 Facebook launched Privacy Basics, an easy-to-understand site that explains what others see about a user and how people can customize and manage others’ activities on their pages.

    Like Facebook, Apple has had its share of data privacy and security challenges—most recently when celebrity iPhoto accounts were hacked—and is taking those concerns ever more seriously. Particularly as Apple forays into mobile payments and watch-based fitness monitoring, consumer trust in its data handling will be paramount. CEO Tim Cook clearly understands this. Launching a “bid to be conspicuously transparent,” as the Telegraph put it, Apple recently introduced a new section on its website devoted to data security and privacy. At the top is a message from Cook. “At Apple, your trust means everything to us,” he writes. “That’s why we respect your privacy and protect it with strong encryption, plus strict policies that govern how all data is handled….We believe in telling you up front exactly what’s going to happen to your personal information and asking for your permission before you share it with us.”

    On the site, Apple describes the steps taken to keep people’s location, communication, browsing, health tracking, and transactions private. Cook explains, “Our business model is very straightforward: We sell great products. We don’t build a profile based on your email content or web browsing habits to sell to advertisers. We don’t ‘monetize’ the information you store on your iPhone or in iCloud. And we don’t read your email or your messages to get information to market to you. Our software and services are designed to make our devices better. Plain and simple.” Its new stance earned Apple the highest possible score—six stars—from the nonprofit digital rights organization Electronic Frontier Foundation, a major improvement over its 2013 score of one star.

    Enlightened Data Principles

    Facebook and Apple are taking steps in the right direction but are fixing issues that shouldn’t have arisen in the first place. Firms in that situation start the trust-building process with a handicap. Forward-looking companies, in contrast, are incorporating data privacy and security considerations into product development from the start, following three principles. The examples below each highlight one principle, but ideally companies should practice all three.

    Teach your customers.

    Users can’t trust you if they don’t understand what you’re up to. Consider how one of our clients educates consumers about its use of highly sensitive personal data.

    This client, an information exchange for biomedical researchers, compiles genomic data on anonymous participants from the general public. Like all health information, such data is highly sensitive and closely guarded. Building trust with participants at the outset is essential. So the project has made education and informed consent central to their experience. Before receiving a kit for collecting a saliva sample for analysis, volunteers must watch a video about the potential consequences of having their genome sequenced—including the possibility of discrimination in employment and insurance—and after viewing it, must give a preliminary online consent to the process. The kit contains a more detailed hard-copy agreement that, once signed and returned with the sample, allows the exchange to include the participant’s anonymized genomic information in the database. If a participant returns the sample without the signed consent, her data is withheld from the exchange. Participants can change their minds at any time, revoking or granting access to their data.

    Give them control.

    The principle of building control into data exchange is even more fully developed in another project, the Metadistretti e-monitor, a collaboration between frog, Flextronics, the University Politecnico di Milano, and other partners. Participating cardiac patients wear an e-monitor, which collects ECG data and transmits it via smartphone to medical professionals and other caregivers. The patients see all their own data and control how much data goes to whom, using a browser and an app. They can set up networks of health care providers, of family and friends, or of fellow users and patients, and send each different information. This patient-directed approach is a radical departure from the tradition of paternalistic medicine that carries over to many medical devices even today, with which the patient doesn’t own his data or even have access to it.

    Deliver in-kind value.

    Businesses needn’t pay users for data (in fact, our research suggests that offers to do so actually reduce consumers’ trust). But as we’ve discussed, firms do have to give users value in return.
    The music service Pandora was built on this principle. Pandora transparently gathers self-reported data; customers volunteer their age, gender, and zip code when they sign up, and as they use the service they tag the songs they like or don’t like. Pandora takes that information and develops a profile of each person’s musical tastes so that it can tailor the selection of songs streamed to him or her; the more data users provide, the better the tailoring becomes. In the free version of its service, Pandora uses that data to target advertising. Customers get music they enjoy at no charge and ads that are more relevant to them. Consumers clearly find the trade satisfactory; the free service has 80 million active subscribers.

    In designing its service, Pandora understood that customers are most willing to share data when they know what value they’ll receive in return. It’s hard to set up this exchange gracefully, but one effective approach is to start slowly, asking for a few pieces of low-value data that can be used to improve a service. Provided that there’s a clear link between the data collected and the enhancements delivered, customers will become more comfortable sharing additional data as they grow more familiar with the service.

    If your company still needs another reason to pursue the data principles we’ve described, consider this: Countries around the world are clamping down on businesses’ freewheeling approach to personal data. (See the sidebar “Data Laws Are Growing Fiercer.”)

    There is an opportunity for companies in this defining moment. They can abide by local rules only as required, or they can help lead the change under way. Grudging and minimal compliance may keep a firm out of trouble but will do little to gain consumers’ trust—and may even undermine it. Voluntarily identifying and adopting the most stringent data privacy policies will inoculate a firm against legal challenges and send consumers an important message that helps confer competitive advantage. After all, in an information economy, access to data is critical, and consumer trust is the key that will unlock it.

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    Managing Your Mission-Critical Knowledge

    When executives talk about “knowledge management” today, the conversation usually turns very
    quickly to the challenge of big data and analytics. That’s hardly surprising: Extraordinary amounts of rich, complicated data about customers, operations, and employees are now available to most managers, but that data is proving difficult to translate into useful knowledge. Surely, the thinking goes, if the right experts and the right tools are set loose on those megabytes, brilliant strategic insights will emerge

    Tantalizing as the promise of big data is, an undue focus on it may cause companies to neglect something even more important—the proper management of all their strategic knowledge assets: core competencies, areas of expertise, intellectual property, and deep pools of talent. We contend that in the absence of a clear understanding of the knowledge drivers of an organization’s success, the real value of big data will never materialize.

    Yet few companies think explicitly about what knowledge they possess, which parts of it are key to future success, how critical knowledge assets should be managed, and which spheres of knowledge can usefully be combined. In this article we’ll describe in detail how to manage this process.

    Map Your Knowledge Assets

    The first step is to put boundaries around what you’re trying to do. Even if you tried to collect and inventory all the knowledge floating around your company—the classic knowledge-management approach—you wouldn’t get anything useful from the exercise (and you’d suffer badly from cognitive overload). Our goal is to help you understand which knowledge assets—alone or in new combinations—are key to your future growth. We would bet heavily that if your company has a knowledge-management system, it doesn’t adequately parse out your mission-critical knowledge.

    This step alone can be quite challenging the first time around. When we worked with a group of decision makers at ATLAS, the major particle physics experiment at the European Organization for Nuclear Research (CERN), we interviewed many stakeholders to get a holistic view of the knowledge underpinning its success and then surveyed nearly 200 other members of the organization. Ultimately we mapped only a portion of the ATLAS knowledge base, but in the process we whittled down a list of 26 knowledge domains to the eight that were deemed most important to organizational outcomes.
    Absent a clear understanding of your knowledge assets, big data’s value won’t materialize.

    Your list of key assets should ultimately include some that are “hard,” such as technical proficiency, and some that are “soft,” such as a culture that supports intelligent risk taking. You may also have identified knowledge that you should possess but don’t or that you suspect needs shoring up. This, too, should be captured.

    The next step is to map your assets on a simple grid along two dimensions: tacit versus explicit (unstructured versus structured) and proprietary versus widespread (undiffused versus diffused). The exhibit “What Kind of Knowledge Is This?” which includes a mapping grid, will help you figure out where to place your knowledge assets on your own map. (We owe a debt to Sidney G. Winter, Ikujiro Nonaka, and the late Max Boisot for their work on these dimensions. Had he lived, Boisot would have been a coauthor on this article.)

    Use these categories to help place your assets along the y axis from bottom to top:
    • An expert can use the knowledge to perform tasks but cannot articulate it in a way that allows others to perform them.
    • Experts can perform tasks and discuss the knowledge involved with one another.
    • People can perform tasks by trial and error.
    • People can perform tasks using rules of thumb, but causal relationships aren’t clear.
    • It’s possible to identify and describe the relationship between variables involved in doing a task so that general principles become clear.
    • The relations among variables are so well known that the outcome of actions can be calculated and reliably delivered with precision. (Knowledge assets covered under patents or other forms of copyright protection generally fit here.)
    Use these categories to help place your assets along the x axis from left to right:
    • Only one person in the organization has this knowledge.
    • A few people in the organization have this knowledge.
    • Many people in one part of the organization have this knowledge.
    • People throughout the organization have this knowledge.
    • Many people in the industry have this knowledge.
    • Many people both inside and outside the industry have this knowledge

    Unstructured versus structured.

    Unstructured (tacit) knowledge involves deep, almost intuitive understanding that is hard to articulate; it’s generally rooted in great expertise. World-class, highly experienced engineers may intuit how to solve technical problems that nobody else can (and may be unable to explain their intuition). Rainmakers in a strategy consulting firm know in their bones how to steer a conversation or a discussion, develop a relationship, and close a deal, but they would have trouble telling colleagues why they made a particular move at a particular moment. 

    Structured (explicit or codified) knowledge is easier to communicate: A company that’s expert in the use of discovery-driven planning, for example, can bring people up to speed on that methodology quickly because it has given them recourse to a common language, rules of thumb, and conceptual frameworks. Some knowledge is so fully structured that it can be captured in patents, software, or other intellectual property.

    Undiffused versus diffused.

    To what extent is the knowledge spread through—or outside—the company? One division may have expertise in negotiating with officials of the Chinese government, for example, which another division totally lacks. That knowledge is obviously undiffused. But most companies have certain broadly shared competencies: Those in the consumer packaged goods industry tend to have companywide strength in developing and marketing new brands; and many employees in the defense industry know a lot about bidding on government contracts. Some knowledge, of course, is diffused far beyond the boundaries of the organization.

    Interpret the Map

    Simply mapping your knowledge assets and then discussing the map with your senior team can uncover important insights and ideas for value creation, as our experience with decision makers at Boeing and ATLAS demonstrate.

    Global sourcing at Boeing.

    Sourcing managers at Boeing were aware that their relationships with internationally dispersed customers, suppliers, and partners were changing. The whole ecosystem was sharing in the creation of new aircraft technologies and services and in the associated risks. Future success would depend on learning to manage this interdependence.

    With that insight in mind, the managers mapped the critical knowledge assets in their global sourcing activities, which ultimately resulted in a research paper that one of us (Martin Ihrig) coauthored with Sherry Kennedy-Reid of Boeing. They saw that cost-related knowledge—performance metrics, IP strategy, and supply-base management—was well structured and widely diffused. However, knowledge about supplier capabilities, although codified, had not spread throughout the Boeing sourcing community. And other knowledge that was important to future value creation—how to leverage Boeing’s potent and technically sophisticated culture for effective communication and negotiation, determine Boeing’s business needs and global sourcing strategy, and, most important, assess the geopolitical influences on global sourcing decisions—was neither codified nor widely shared.

    Taken together, these observations suggested that Boeing was placing greater emphasis on technical efficiencies, such as improving processes and productivity, than on strategic growth, such as creating research initiatives with suppliers or building a shared innovation platform. As Boeing’s business became progressively more intertwined with that of its ecosystem partners, the development of knowledge assets would need to change.

    Insights from this mapping exercise enabled the team to recommend several initiatives aimed at developing and disseminating tacit knowledge, such as a program to help employees who had a deeper understanding of geopolitical influences to put some structure around their knowledge and pass it on to others in the company, and a program to identify the capabilities of key suppliers and determine how Boeing could work more strategically with them.

    Advanced physics at CERN.

    The experimental work done at ATLAS is carried out by thousands of visiting scientists from 177 organizations in 38 countries, working without a traditional top-down hierarchy. This extraordinary operation has had spectacular results, including the discovery of the Higgs boson, for which Peter Higgs and François Englert were awarded a Nobel Prize in 2013. Our mapping of ATLAS’s knowledge base was done in a research partnership with Agustí Canals, Markus Nordberg, and Max Boisot.

    Our team had a surprising insight when a study of that map revealed that “overview of the ATLAS experiment” was one of the top eight knowledge domains. We hadn’t given much thought to that domain, but we quickly realized how central it was to a knowledge-development program like ATLAS. Changes in the overall direction of a project can’t easily be codified when the project is so complex. The direction is continually evolving, and not necessarily in a linear fashion, as the technical and scientific work advances; but individual researchers can’t adapt their work accordingly when they don’t know what that direction is. ATLAS requires that huge numbers of people, from many countries and cultures, understand what others are learning and how it affects the overall technical direction.

    Without the knowledge map, the leadership team at ATLAS would have predicted that scientific and technical knowledge were regarded as mission critical—indeed, most existing resources went to helping those domains make progress. But we found it extraordinary that the soft domains of project management and communication skills also emerged as central to ATLAS’s performance. Retrospectively, that made sense: A consensus on overall direction depends on the successful sharing of knowledge among specializations and between scientists as they cycle back to their home organizations and new people take their place. These important soft domains were much less developed and not well diffused; clearly, they needed more resources and attention.

    Identify New Opportunities

    Mapping knowledge assets and discussing their implications often leads directly to strategic insights, as it did at Boeing and ATLAS. But we also find it helpful to systematically explore what would happen if knowledge were moved around on the map or different spheres of it were combined. Here are some examples:

    Selectively structure tacit knowledge (move it up on your map’s Y axis).

    The proprietary knowledge assets in the lower left corner of your map are often the most important knowledge your company has—the deep-seated source of future strategic advantage. You need to think about which of them can and should become more structured so that (for example) your basic research will lead to the creation of bona fide intellectual property that can be developed into new products, licensed, or otherwise monetized. Structuring tacit knowledge often involves capturing expert employees’ insights with the ultimate goal of disseminating them to many more people in the company. In general, speeding up codification will increase the value of knowledge. But making the tacit explicit can also be dangerous. The more codified the knowledge is, the more easily it may be diffused and copied externally.

    When you’re trying to decide what to structure further and what to keep tacit, it can be useful to distinguish between product and process. Suppose you’ve decided that your expertise in some technical domain can be codified into intellectual property. You may want to capture some of your process knowledge—whether it’s an engineer’s know-how or the conversational routines your marketing people use to tease out emerging customer needs—only informally. That way, even if a patent expires or codified knowledge is leaked, essential experience stays within the company.

    Disseminate knowledge within the company (move it to the right on your map’s X axis).

    Purposefully deciding which knowledge to diffuse internally can pay huge dividends. Very often one division is wrestling with a problem that another division has solved, and close study of the map will reveal the potential for productive sharing—as it would with the exemplary business unit’s expertise in negotiating with the Chinese. Productive sharing can also be done between functions: Korean chaebols (conglomerates) expend considerable money and effort to ensure that knowledge is transferred from company to company as well as from headquarters to subsidiaries.

    The ease of knowledge sharing is directly proportional to the degree of knowledge codification, of course: A written document or spreadsheet is easier to share than tacit experience accumulated over many years. Some tacit knowledge can’t be codified but can be shared. One powerful way to do so internally is to run workshops that bring together people who have subject matter expertise with people facing a particular problem for which that expertise is relevant. Apprenticeship programs, too, have long been an effective way to transfer difficult-to-codify tacit knowledge.

    Diffuse knowledge outside the company (move it farther right on your map’s X axis).

    The most straightforward way to create value through knowledge dissemination is to sell or license your intellectual property. DuPont, for example, commercializes only a small fraction of the hundreds of patents it owns; the rest can be licensed, sold, or shared with other companies. Even companies without patents can often identify new markets for existing IP. This magazine is an example: Reprints of HBR articles have been sold to MBA and corporate learning programs for decades. A few years ago someone had the idea of collecting the best of those articles in “Must Read” collections for individual buyers, and a profitable business was born.

    Some companies give away knowledge and still make a big profit.

    Many companies are experimenting with less familiar ways of sharing knowledge across organizational boundaries. If suppliers, customers, and even competitors that work together on projects are creating value within your ecosystem, as at Boeing, this is worth considering. But you should keep in mind what knowledge must be protected; your map of assets will help you make those judgment calls.

    Some companies even give away knowledge, ultimately making more money than they would if they kept it proprietary. In the early 1990s Adobe Systems saw an opportunity to develop a file-sharing format that would retain the text, fonts, images, and other graphics in a document no matter what operating system, hardware, or software was used to send and view it. Adobe was among the first to develop the idea behind the PDF. It then structured that knowledge in the form of the Adobe Acrobat PDF Writer and Adobe Reader. It shared the Reader on the internet, thereby creating demand for the Writer (at $300 and up), which was free from competition for years and remains one of Adobe’s leading products. Similarly, McKinsey shares selected insights through McKinsey Quarterly, generating demand for its proprietary problem-solving skills.

    The recent decision of the business magnate and inventor Elon Musk to share Tesla Motors patents with anyone who wants to use them was also very astute. Clearly, Musk believes that Tesla (like Adobe) will make more money if more people build on the platform he has provided. His decision also recognizes that in order to thrive, Tesla (like Boeing) needs to create a strong ecosystem. It’s a vote of confidence in the company’s capacity to protect enough tacit knowledge to stay ahead of the competition. (Musk told a reporter for Bloomberg Businessweek,“You want to be innovating so fast that you invalidate your prior patents, in terms of what really matters. It’s the velocity of innovation that matters.”) This is one of the most interesting examples of open innovation that we’ve seen: Musk is betting not just that he can pull more partners into the world of electric cars but that he can pull the mainstream automobile industry into a more responsible position with respect to climate change.

    Contextualize knowledge (move it down on your map’s Y axis).

    Codified knowledge can be applied in less structured spaces in a variety of ways. Sometimes it’s a matter of taking well-established routines and applying them to new businesses. This approach is central to the growth strategies of many companies. Procter & Gamble, for instance, uses world-class brand-building competencies when it moves into new markets and develops new products. Similarly, Goldman Sachs rapidly generates new investment banking offerings by applying its analytics capabilities to changes in financial market conditions.

    Contextualization can also come from combining structured and unstructured knowledge. The people who originally tried to build knowledge-management systems for consulting firms quickly discovered that most consultants used codified information as a networking tool: They would notice who wrote an article on sourcing from Indonesia (for example) and then talk with that person directly, picking her brain for more-tacit insights. Indeed, many companies build competitive advantage on just such combinations.

    To be applied in a new setting, codified knowledge must generally be contextualized. If Boeing USA comes up with a new production process and then ships the related knowledge to China in the form of supporting documents, Chinese engineers have to assimilate the knowledge and adapt it to their context.

    Discover new knowledge (move it to the left on your map’s X axis).

    The most challenging—and highest-potential—opportunities often come from spotting connections between disparate areas of expertise (sometimes inside the company, sometimes outside it). The analytic techniques that can turn big data into big knowledge are used partly in hopes of finding such unexpected connections.

    In the pursuit of innovation, flashes of insight can come from many sources. Sometimes a new technology embedded in an existing product makes it possible to change your value proposition. That happened when Rolls-Royce’s jet engine sensors provided the company with new performance data, which in turn made it more profitable to sell power by the hour than to sell engines outright. Thinking about someone else’s business model can lead to strategic insights as well. After managers at CEMEX studied how FedEx, Domino’s, and ambulance squads operate, they decided to charge for delivering truckloads of ready-mix concrete within a specified time window rather than for cubic meters of the product. Changes in the external environment can create new opportunities. Subway went from an also-ran to a high-growth fast-food business when it capitalized on consumers’ growing interest in tasty, more-nutritious, low-calorie food. Your company may have developed valuable process expertise that you could sell through consulting to other companies even outside your industry. IBM has done that many times over. 

    It’s not easy to systematize this part of the knowledge-development process, which arises to some extent from intuition, tacit knowledge, and time spent studying the map. The ATLAS team’s insight about the importance of soft skills is an example. So is Boeing’s insight that becoming part of an interdependent ecosystem had major implications for what kinds of knowledge would have to be developed. A small publishing industry that is devoted to helping companies make innovative connections of this kind includes the book MarketBusters: 40 Strategic Moves That Drive Exceptional Business Growth, which one of us (Ian MacMillan) wrote with Rita McGrath; William Duggan’s Strategic Intuition: The Creative Spark in Human Achievement; and Frans Johansson’s The Medici Effect: What Elephants and Epidemics Can Teach Us About Innovation

    One thing we can assure you: Your competitors will have access to the same kinds of data and general industry knowledge that you do. So your future success depends on developing a new kind of expertise: the ability to leverage your proprietary knowledge strategically and to make useful connections between seemingly unrelated knowledge assets or tap fallow, undeveloped knowledge.
    Companies invest tens of millions of dollars to develop knowledge but pay scant attention to whether it contributes to future competitive advantage. The process we’ve outlined here is meant to prevent that lapse. Once you’ve mapped your mission-critical knowledge assets, the challenge is to be disciplined about which of them to develop and exploit, keeping future growth front and center. (Remember, strategy always includes deciding what not to do.) If your company thoughtfully manages its knowledge portfolio, it will achieve a distinct competitive advantage.

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    My Wife Says I Never Listen To Her, At Least I Think That’s What She Said.

    If you’re in sales I know you have heard the saying, “The reason you have two ears and one mouth is so that you can listen twice as much as you talk.” Listening is one of the most important skills you can ever acquire. How well you listen has a major impact on your job effectiveness, and on the quality of your relationships with others. We listen for enjoyment. We listen to understand. We listen to obtain information. We listen to learn.

    When I am in an interview with prospective employees the most important trait that I am looking for is their listening skills. If my interviewee can’t wait to talk until I am finished speaking, I know that is exactly the way they will act with the prospect. What that tells me and the potential prospect is what we have to say is less important than what they have to say. More likely than not, I will move on to the next prospect. The potential client will, consciously or sub-consciously, probably do the same thing. Next!

    The way to become a better listener is to practice “active listening”. Active listening is the process where you make a conscious effort to hear not only the words that another person is saying but, more importantly, to try and understand the total message being sent.

    Given all the listening we do, you would think we would be good at it! Fact is we’re not. Research has shown that we remember a dismal 25-50% of what we hear. That means when you are listening to your boss, peers, potential clients, children or spouse for 10 minutes, you have only heard 2½-5 minutes of the conversation.
    "Wisdom is the reward you get for a lifetime of listening when you'd have preferred to talk." ~Doug Larson
    Turn it around and it reveals that when you are giving directions or presenting information, your audience isn’t hearing the entire message either. You can only hope the important parts are captured in your 25- 50%, but what if they’re not?

    Selling is an extremely advanced form of communication. It requires the utilization of all our senses. Although you may feel that the greatest barriers to your selling performance may be attributed to having the wrong product, closing techniques, presentation tools, or even prospects, I want you consider the possibility that the foundation of successful selling is based on how well you listen.
    The ability to actively listen has been proven to significantly improve the productivity of a professional salesperson. Knowing that, isn’t it ironic that listening is most likely the least developed skill amongst salespeople?

    Just think back to your childhood, your time in school, even in your career, were you formally trained to listen? My money is on that your answer is no. Very few of us were formally taught effective listening skills. Most of the time we are listening it is simply the practice of hearing words coming out of our potential prospect’s mouth. So tell me please, if we know that effective listening makes a dramatic difference, why don't we listen better?

    To listen actively and comprehensively takes concentration, hard work, patience, the ability to interpret other people's ideas and summarize them, as well as the ability to identify nonverbal communication such as body language. Listening is both a complex process and a learned skill; it requires a conscious intellectual and emotional effort.

    Listening with intention improves the quality of the relationships you have with prospects, friends, co-workers, and your family members. Ineffective listening can damage relationships and weaken the trust that you have with those very same people. The price of poor listening is many lost opportunities, professionally and personally. Not taking advantage of a selling opportunity is tragic and can easily be avoided.

    It has been noted that more than 60 percent of all problems existing between people and within businesses is a result of faulty communication. A failure to actively listen can result in costly mistakes and misunderstandings. Clearly, listening is a skill that we can all benefit from improving. By becoming a better listener, you will increase your paycheck by improving your productivity, as well as your ability to influence, persuade and negotiate. What’s more, you’ll avoid conflict and misunderstandings – all necessary for sales success.

    Listening is a learned and practiced skill that will open up new selling opportunities that you may have never noticed. It allows you to receive and process valuable information that might have been missed or neglected otherwise. So, invest the time needed to sharpen your listening skills.

    Remember, when speaking with a prospect, you will not learn anything from listening to yourself talk. When selling ideas to a battered nation as the Prime Minister of England, Winston Churchill understood the importance of listening. “Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen.” The point is that all anyone wants in a conversation is to be heard and acknowledged. Take notice what happens when you give someone your attention by actively listening. They will want to reciprocate. To be successful in the game of sales your potential clients have to hear what you are saying. Listen to them and they will listen to you.

    I have found over the years that the training room is simply a microcosm of the sales situation. Salespeople will act exactly in the conference room as they do in an office or home of their potential clients. Armed with that knowledge I use that conference room as both a place to observe and modify certain behaviors in the group, as well as, individuals.

    Here are a few tips that will help you help your salespeople improve their active listening skills.

    1. I find that role playing is often a great help to salespeople. In your next meeting encourage silence to practice active listening. Many salespeople can only wait a split second before they respond to a potential prospect’s comments or questions. Instead, in your meeting, get them in the habit of waiting a minimum of three to four seconds before responding to your questions or comments. Silently count to ensure that enough time has elapsed. This conscious pause will make your salespeople more comfortable with that moment of silence they are used to filling with their own voice. Although many salespeople find the conscious effort to stay quiet challenging, silence creates the space that will motivate their prospect to share additional information. It also gives them enough time to respond thoughtfully and intelligently to their prospect’s specific needs.

    1. Never interrupt while the prospect is speaking. This is my strongest pet peeve. Not only is it unproductive it is rude, rude, rude. Did I mention it is rude? Make a game of catching salespeople interrupting each other as they vie for your attention or acknowledgment. Most people really don’t know they do this. It is such a part of their everyday personality that it goes totally unnoticed. Pointing it out in a good natured way at least makes them aware of the interruptions. From there they can be more conscious and start to change the behavior. Obviously, what we were taught as children still applies. Enough said.

    1. Teach them to be present, to listen with an open mind (without filters or judgment), and to focus on what the potential prospect is saying (or trying to say) instead of being concerned with closing a sale. In the middle of a sales meeting I will stop, tell everyone to get out a piece of paper and to write down exactly what it is I just said. The first time I attempted this not a single person in the room could accurately reproduce what I had just said to them. What a learning experience that was for me. I began to do this on a regular basis and lo and behold they began to get better at paying attention. As the reps learned the importance of listening over time they realized that in doing so showed the potential prospect they had a genuine interest in helping them. Without actively listening to their prospects, they run the risk of missing subtle nuances or inferences that could make or stall the sale.

    1. Resist the temptation to rebut your prospects. As human beings we have a natural tendency to resist new information that conflicts with what we believe. Often, when we hear someone saying something with which we disagree, we immediately begin formulating the rebuttal in our mind and obscure the message that they are giving. If we are focused on creating a rebuttal, we are not listening. Remember that you can always rebut later, after you have heard the whole message and had time to think about it. Just remember that it is essential to NEVER make the potential client feel stupid. When presenting information that is opposed to what they believe, do so in a series of questions that will allow them to move down the path themselves. In the end you are much better served if they believe that they came to the change of mind on their own.

    1. Make the prospect feel heard. This goes beyond simply becoming a better listener. It involves making certain that the person to whom you are listening actually feels like you’ve been listening. To make someone feel heard, clarify what your potential client has said during the conversation. Rephrase their questions or comments in your own words to ensure that you not only heard but understood them as well. If you need more information for a clearer understanding, use clarifiers like:

    ''To further clarify this ...''

    ''What I am hearing is ...''

    ''For my own understanding what you are saying is ...''

    ''Help me understand ...''

    ''Tell me more ...''

    Asking questions and using clarifiers demonstrates your concern and interest in finding a solution for the prospect’s specific situation.

    I use the same technique in my sales meeting as I mentioned before. I go over something in the meeting and then ask individual reps to rephrase, paraphrase and parrot what I have just said. The more they practiced the better they got.
    1. Listen for what is not said. What is implied is often more important than what is articulated. If you sense that the prospect is sending conflicting messages, ask a question to explore the meaning behind the words and the message that you think the prospect is trying to communicate. Listen FOR information. Consider that during most conversations, we listen TO information. In other words, all we hear is what they are saying. However, when you listen FOR information, you are looking through the words to discover the implied meaning behind them. This prevents you from incorrectly prejudging or misinterpreting the message that the prospect is communicating to you. There are four main things we listen for when speaking with a prospect:

    1. Listen for what is missing.
    2. Listen for concerns the prospect may have or what is important to them.
    3. Listen for what they value.

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    Breaking the brain’s garbage disposal: Study shows even a small problem causes big effects

    You wouldn’t think that two Turkish children, some yeast and a bunch of Hungarian fruit flies could teach scientists much.

    But in fact, that unlikely combination has just helped an international team make a key discovery about how the brain’s “garbage disposal” process works — and how little needs to go wrong in order for it to break down.

    The findings show just how important a cell-cleanup process called autophagy is to our brains. It also demonstrates how even the tiniest genetic change can have profound effects on such an essential function.

    The new understanding could lead to better treatments for people whose brain and nerve cells have troubles “taking out the trash.” Some such drugs already exist, but more could follow.

    Following a mystery to its end

    In a new paper in the online journal eLife, the team describes their painstaking effort to figure out what was wrong in the Turkish siblings, and to understand what it meant. The children have a rare condition called ataxia that makes it harder for them to walk. They also have intellectual disability and developmental delays.

    Ataxia is rare–affecting about one in every 20,000 people–and can cause movement problems in people who develop it in adulthood, or a range of symptoms when it arises in children.
    Because researchers from the University of Michigan Medical School had published studies about families with multiple cases of ataxia before, Turkish researchers got in touch with them when the children’s parents brought them in for treatment.

    That started a long chain of scientific sleuthing that led to today’s publication. First, the U-M team studied samples of the children’s DNA, and used advanced methods to pinpoint the exact genetic mutation that caused their symptoms.

    It turned out to be on one of the genes that scientists know play a key role in autophagy, called ATG5. Cells throughout the body trigger their internal garbage crews by turning on this gene and its partners, and using them to make proteins that help clean up the cell.

    The junk that these garbage crews clean up includes botched proteins–ones that have been used up or weren’t made right in the first place.

    In fact, many forms of ataxia (and lots of other diseases) are caused by genetic problems that result in brain and nerve cells making such damaged, misfolded proteins. The proteins build up inside cells, killing them and causing neurological problems.

    So, scientists and drug developers have tried to ramp up autophagy activity. They hope that by cleaning that cellular junk up faster, they can keep it from causing symptoms.

    Tiny change – big effects

    The children’s ataxia gene problem turned out to be not such a big deal genetically–it was such a slight mutation that it barely changed the way the cells made the protein. But that tiny change was enough to alter the autophagy process, and keep the children’s brain and nerve cells from working properly.

    And that’s where the yeast and Hungarian flies come in. Using them, the researchers could see what the children’s problem gene did–and what that meant for the autophagy process. That’s because the autophagy process is so important that organisms ranging from yeast to humans make almost exactly the same ATG5 protein–it’s what scientists call “highly conserved” across species.

    What they saw amazed them. The genetic mutation led cells to change just one link in the chain of amino acids that make up the ATG5 protein. The new amino acid even had the same electrical charge as the usual one. But that one changed link happened to be at the exact spot where ATG5 and its partner, called ATG12, connect to one another.

    Since the two crucial autophagy partners couldn’t link together as usual, the children’s cells–and the yeast and flies’ cells–couldn’t clean up their cellular trash nearly as well. Autophagy didn’t shut down completely, but less of it happened. And the fruit flies, like the children, had problems walking.
    “This is a window into the autophagy system, and the first time where having less autophagy causes ataxia, developmental delays and intellectual disability,” says Margit Burmeister, Ph.D. the U-M neurogeneticist who led the research and is co-senior author on the new paper. “It’s a subtle change, but it shows how important autophagy is in neurological disorders.”

    Burmeister and colleagues from the University of Michigan, St. Jude Children’s Research Hospital, Howard Hughes Medical Institute, Istanbul University and Bogazici University in Istanbul and Eötvös Loránd University in Budapest hope the findings lead to autophagy-related treatments.
    Meanwhile, they’re still working to understand how the change in ATG12-ATG5 binding actually changes autophagy. They’re looking at cells made with the mutations from other ataxia patients to see if autophagy is also changed.

    They’re also looking for more families with ataxias. Each family could hold clues as important as the Turkish children’s mutation did. In fact, Burmeister was in Turkey late in 2015 to work with colleagues to find more potential cases. Small villages with centuries of marriage among people with some relation to one another, and large families, can prove to be important to science.

    The acceleration in genetic sequencing and other testing, made possible in the last decade by advances in technology and scientific methods, means they’ll get closer to answers faster. What once took years can now be done in a single year. Having the expertise concentrated at U-M in genetics, autophagy, fruit fly biology, cell biology and more made the work go even faster, says Burmeister. U-M colleagues Daniel Klionsky, Jun Hee Lee and Jun Z. Li were critical to the new research. So were St. Jude colleagues led by Brenda Schulman who made X-ray images of the mutant ATG5 protein, and Zuhal Yapici and Aslihan Tolun, the colleagues in Istanbul and Gabor Juhasz in Budapest.

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    How Do You Hire an 'Impostor'?

    Impostors are highly talented people who believe their success is a mistake—that they don't deserve the honors. James Heskett argues these people have too much to contribute to ignore. But how do you find and hire them? What do YOU think?

    Have you ever felt that you didn’t deserve admission to a prestigious school, an award, or even a particular job that you’ve always prized? Students in my Harvard Business School MBA classes often expressed the notion that they were “admissions mistakes.” In my case, I had doubts about whether I should have been admitted to the Stanford MBA program. I filled out the application in pencil to please an Army buddy when we were stationed in Europe, and my grade record at a little college in Iowa didn’t warrant admission anyway. Then I got his seat in the Stanford class.
    I’ve learned that this is called the “impostor phenomenon.” Researcher Pauline Rose Clance defines it as “an internal experience of intellectual phoniness.” HBS professor Amy Cuddy in her new book, Presence, sums up the research on one aspect of the impostor phenomenon by pointing out that those who experience it most are “People who have achieved something; people who are demonstrably anything but frauds.”

    So maybe it would be worthwhile to have at least a few impostors in our organization, although we probably wouldn’t want just any impostors. The trait is a double-edged sword.

    Research shows that some people who experience imposterism allow it to build to such an extent that the fear of failure takes over, making it harder for them to succeed as they battle feelings of low self-esteem, second-guess themselves, and experience performance anxiety. Some may actually suffer serious depression. Among my MBA “imposters,” a few left School after the first week of class.
    Most, however, succeeded in completing their MBAs with honors. They used the phenomenon as an incentive to succeed, setting high standards for performance and worrying about being under-prepared. They were (and are) achievers, the kind we could benefit from hiring. But how do we identify the right kind of impostors to bring on board?

    Believe me, they become very good at covering up their feelings. If impostors—even the achievers—were to expose their fears and other impostor-like feelings in an interview, we probably wouldn’t hire them. How do we distinguish between productive and nonproductive impostors? Will the person overcome by fears and uncertainty let it show differently than a candidate unconsciously using the feeling to succeed? Should we even allow anyone to interview them, instead relying solely on what such imposters have achieved in order to eliminate interview bias?

    Should we be focusing on hiring impostors anyway? There are probably plenty of other candidates with more “normal” confidence levels, motivations, and abilities. An organization comprised solely of impostors could be a pretty exhausting, chaotic place. On the other hand, can we afford not to hire a few of them?

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    Creating a Strategy That Works

    The most farsighted enterprises have mastered five unconventional practices for building and using distinctive capabilities.

    Almost every business today faces major strategic challenges. The path to creating value is seldom clear. In an ongoing global survey of senior executives conducted by Strategy&, PwC’s strategy consulting business, more than half of the 4,400 respondents said they didn’t think they had a winning strategy. In another survey of more than 500 senior executives around the world, nine out of 10 conceded that they were missing major opportunities in the market. In the same survey, about 80 percent of those senior executives said that their overall strategy was not well understood, even within their own company.

    These problems are not caused simply by external forces. They are the outcome of the way most companies are managed. In all too many businesses there is a significant and unnecessary gap between strategy and execution: a lack of connection between where the enterprise aims to go and what it can accomplish.

    Yet a few companies seem to have this problem solved. They naturally combine strategy and execution in everything they do. These companies seem to make the right choices about what type of value to offer and how to deliver it — and those choices often run contrary to the conventional wisdom of the industry.

    For example: A European retailer–manufacturer sells stylish, functional, inexpensive furniture so that people at any income level can more easily improve their lives. Its large retail stores are designed so shoppers can comfortably spend a whole day there, eating in the store’s restaurant and leaving their children in its play area. The enterprise has remarkable capabilities, including an innovative manufacturing process and supply chain; a proficiency in designing attractive furniture that ships in a flat box; and an ability to develop keen insights about the way customers live at home, and to translate those insights into new products. This rapidly growing enterprise, of course, is IKEA. In 2014, IKEA had 361 retail stores in 46 countries, with total annual revenues of €30.1 billion (about US$40 billion).

    Another example is a Brazilian purveyor of high-quality, natural personal-care products. Its identity, captured by the Portuguese slogan bem estar bem (“well-being, being well”) celebrates health and quality of life at every age, rather than a forever-young ideal of beauty. The company has built a network of 1.5 million direct sales consultants, who have close relationships with seemingly every woman in Brazil.

    To give those consultants a reason to visit their customers every few weeks, the company has developed a proficiency in rapid-fire innovation, releasing more than 100 new products every year. It demonstrates respect for nature and local communities by sourcing many raw materials from remote villages in the Amazon rain forest, and by using its business skills to help make those regions economically and environmentally sustainable. You may not have heard of Natura Cosméticos unless you live in Latin America, but it is the largest personal-care products company in that region. It had revenues of 7.4 billion reals (about US$2.6 billion) in 2014.

    Another case is a U.S. enterprise known for buying industrial and technological companies, reframing the way its member businesses operate, and managing them for profitability. It has developed its own rigorous day-to-day disciplines for managerial excellence and continuous improvement. The Danaher Corporation, named after the founders’ favorite fishing creek, is recognized among management experts for its remarkable performance and its phenomenal M&A success rate. It had revenues of about US$19.9 billion in 2014. (See “Danaher’s Instruments of Change,” moderated by George Roth and Art Kleiner, s+b, Spring 2016.)

    Several other well-known enterprises, including Apple, Haier, Industria de Diseño Textil (Inditex, known for its Zara brand), Lego, Qualcomm, and Starbucks, have also closed the strategy-to-execution gap. These companies are all idiosyncratic; at first glance, they seem to have little in common, and they are rarely thought of together. And yet, they have all built the kind of differentiating capabilities that give them a major strategic advantage.

    Extraordinary Enterprises

    In our previous book, The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Review Press, 2011), we described the financial advantage that companies enjoy when they build their business around a clear, coherent identity: a few distinctive capabilities aligned with their value proposition and their lineup of products and services. It’s not enough to simply have good capabilities; every company has them. To sustain success you have to have capabilities that are truly superior, and distinctive enough that others cannot copy them. When you have several such capabilities reinforcing one another, you will be able to both differentiate yourself from and consistently execute better than your competitors.

    Distinctive capabilities are not easy to build. They are complex and expensive, with high fixed costs in human capital, tools, and systems. How then do businesses such as IKEA, Natura, and Danaher design and create the capabilities that give them their edge? How do they bring these capabilities to scale and generate results?

    To answer these questions, we conducted a study between 2012 and 2014 of a carefully selected group of extraordinary enterprises that were known for their proficiency, for consistently doing things that other businesses couldn’t do. From dozens suggested to us by industry experts, we chose a small group, representing a range of industries and regions, that we could learn about in depth — either from published materials or from interviews with current and former executives.

    The 14 we studied are Amazon, Apple, CEMEX, Danaher, Frito-Lay (the snack foods enterprise within PepsiCo), Haier, IKEA, Inditex, the JCI Automotive Systems Group (the seat-making division of Johnson Controls Inc., since renamed the Automotive Experience Group), Lego, Natura, Pfizer (specifically its consumer healthcare business, sold to Johnson & Johnson in 2006), Qualcomm, and Starbucks.

    To be sure, these are not the only enterprises that successfully use their distinctive capabilities for competitive advantage. You might assemble a different list, and we would probably agree with many of your choices. But these businesses represent a cross-section broad enough to provide us with a clear understanding of what they, and other businesses like them, have in common.

    Success has not always come naturally to them. At some point in their history, each moved away from the conventional wisdom of mainstream business practice. Each in its own way, these businesses followed a similar path — a path of five unconventional acts. These five management practices represent an approach to strategy that makes it easier to consistently succeed.

    Beyond Conventional Wisdom

    Why does it pay to run your business with these five unconventional practices? Because most conventional management practices have developed through trial and error, often without a direct link to a company’s strategy. The enterprises we looked at tend to seek success on their own terms. The five unconventional acts embody the attitudes and actions that help them accomplish this, day after day, in their businesses.

    1. Commit to an identity. These enterprises may offer a wide variety of products and services in multiple sectors, but their identity is always clear. Everyone who interacts with them — including customers, employees, suppliers, shareholders, and regulators — knows who they are and what they stand for. The identity of a successful company aligns three basic elements: a value proposition (how this company distinguishes itself from others in delivering value to customers); a system of distinctive capabilities that enable the company to deliver on this value proposition; and a chosen portfolio of products and services that all make use of those capabilities.

    Why be different? Because most conventional management practices have developed without any link to strategy.

    Thus, for example, the Apple value proposition combines the roles of innovator, aggregator, and experience provider. (These and similar terms are defined in our online “way-to-play” tool:

    Apple’s computers, tablets, and smartphones form the hub of a single digital system that allows people to easily manage media production, media consumption, and communication. The company accomplishes this through extraordinary capabilities in consumer insight, intuitively accessible design, technological integration, and breakthrough innovation of products, services, and software. It has applied these capabilities to its computers, mobile devices, retail stores, online services, wearables (the Apple watch), and media players (Apple TV).

    Haier, the Chinese appliance company that has held the world’s largest market share in “white goods” since 2011, competes with Apple in a few categories, including televisions and computers. But it has a very different value proposition: that of an innovator and solutions provider, offering products and services that meet the needs of particular customers and help them deal with problems. For example, Haier makes a small washing machine designed for undergarments (which are washed separately in China) and a large one designed for the robes of Pakistani men. It makes no-frost freezers for countries where power outages are common. It makes air conditioners that clean polluted air (and indicate the level of air quality with colored lights), and water conditioners that can be tailored to filter out the particular chemicals in the water supply of thousands of different Chinese neighborhoods.

    To provide products like these (and many others), it has developed its own capabilities system, very different from Apple’s. Haier’s system combines consumer-responsive innovation, operational excellence, the management of local distribution in a variety of regions, and on-demand production and delivery. Like Apple, Haier applies its capabilities to a broad portfolio of products and services. These include water-quality monitoring for cities in China, interior design for new homeowners there, and microcredit lending for Chinese purchasers who need it. Despite the variance within the portfolio, all the offerings are fitting for a global innovator and solutions provider from a large emerging economy. Haier’s capabilities will also fit its expanding global portfolio after its planned purchase of GE’s appliance business.

    Staying true to your identity doesn’t mean becoming complacent or losing your ability to change. It means using your strengths as a guide as you move through a rapidly changing world. When the entire company focuses on a specific way of creating value, employees are not easily distracted. They can concentrate on differentiating the enterprise in ways that naturally outpace their competitors’ efforts.

    2. Translate the strategic into the everyday. The companies we studied focus on a few capabilities that are worth their full attention, and devote themselves to making them excellent — rather than supporting dozens of capabilities that merely have to be pretty good. To develop these capabilities, the companies often blueprint them (designing in detail how they will work). They continuously build them out with small management changes (we call these “point interventions”) and with regular breakthrough innovations in their own technologies and practices. They bring these capabilities to scale by combining tacit (ingrained) and explicit (codified) knowledge. Though these capabilities tend to pay off even in their early stages of development, it usually takes quite some time for them to reach full fruition. After all, if they could be created overnight, they wouldn’t be worth very much, because anyone could copy them.

    We found many remarkable capabilities among the companies we studied, and few, if any, of them reside within a single function. Instead of aiming for functional excellence or external benchmarks, these capability builders make their processes and practices their own. If you ask people at Starbucks what they know about the customer experience, ask people at Danaher how they manage postmerger integration, or ask people at Natura how they organize their supply chain, they respond with precision and artistry about what they do and why it matters. Each company is a broad ensemble of virtuoso performers, continually learning from one another. Their individual skills and talents become more significant when the company weaves them together to produce something unique to that enterprise.

    3. Put your culture to work. Business leaders know that the culture of a company — the way people collectively think and behave — can either reinforce or undermine its strategy. Because culture is difficult to manipulate or control, many executives tend to regard it as an enemy of change. Indeed, at companies stuck in the strategy-to-execution gap, executives tend to complain about cultural resistance and disharmony. This complaint is a symptom of lack of strategic focus. Since the company isn’t clear about where it is going, employees don’t know where they stand.

    The companies we studied, however, view their culture as their greatest asset. The details of their culture may be unique, but all of these companies have a culture that reinforces their distinctive strengths. Within them, people are committed to the work; they feel mutually accountable for results and develop a kind of collective mastery that is hard to duplicate.

    You immediately sense the high level of trust and enthusiasm in these cultures in the very specific pride people have about their companies. Natura’s people refer continually to the importance of relationships in everything they do, and Starbucks employees speak of their genuine love of coffee, along with the ambience of a barista-style establishment. At Qualcomm, you hear about the company’s persistence in solving complex technological problems and promoting its solutions throughout the industry, “even when others doubt us.” At Danaher, people refer to their willingness to learn from one another at a moment’s notice, taking every opportunity to raise their management game.

    4. Cut costs to grow stronger. Companies that close the strategy-to-execution gap spend more than their competitors do on what matters most to them and as little as possible on everything else. Rather than managing to a preconceived bottom line, they treat every cost as an investment. They know that the same sum of cash could be used to fund either powerful, distinctive capabilities or incoherent activities that hold them back. They base their decisions about where to cut and where to invest on the need to differentiate themselves.

    These companies don’t treat costs as something separate from strategy. Cost management itself is a way to make critical choices about identity and direction. It moves these companies to a high level of financial discipline, redirecting resources to the core capabilities that are strategically important. Even when times are tough, these companies don’t cut costs across the board. They find ways to double down on their strategic priorities and cut everything else.

    CEMEX, a global building materials company, cut most expenses to the bone when, along with the rest of its industry, it suffered during the 2008 housing crisis and the recession that followed. But even in the midst of a threatening debt crisis, CEMEX continued to develop its internal knowledge-sharing platform, an investment in technology and training that other companies might have considered superfluous. Doing so allowed the company not just to sell cement, which is a commodity, but to offer guidance to its customers (such as home builders and small municipal governments, often in emerging economies) about materials, construction financing, and urban design and development. CEMEX’s leaders knew that its return to growth depended on maintaining a distinctive edge with this capability.

    5. Shape your future. Over time, most of the companies we studied have developed capabilities that take them far beyond their original ventures. They seek out higher aspirations — applying their capabilities to a broader range of challenges and loftier goals, serving the most fundamental needs and wants of their customers, and ultimately leading their own industries. These companies are relatively unthreatened by disruption, because their capabilities give them opportunities for expansion into new markets. They build on their early success to shape their future.

    They tend to work hard to avoid complacency. They explicitly try to anticipate how their capabilities will need to evolve. They build privileged relationships with their key customers, creating demand instead of just following it. In the same way that beavers and earthworms (known as ecosystem engineers) transform their environment to better meet their needs, these companies stake out a dominant role in the sectors where they are clear leaders — using M&A in many cases to influence the structure of their industries.

    Frito-Lay was already successful when it faced the prospect of disruptive competition in the early 1990s. It responded by investing more in its most important capabilities, dramatically cutting other costs, taking charge of the snack food retail shelf, and (for at least the second time in its history) using its prowess in distribution to gain leverage over its category that continues today. Danaher did something similar in the early 2000s, when it expanded its innovation capabilities to meet the needs of more scientific and technical businesses. In 2015, it announced a still greater effort to shape its future by splitting into two companies — one a focused science and technology company, the other a diversified industrial enterprise — each of which will benefit from capabilities systems more tailored to its business.

    How the Five Acts Fit Together

    At one business school where we presented these findings, a student raised his hand. “I get that the conventional wisdom is problematic,” he said. “But most of our professors are telling us to do those things.”

    Executives tell us something similar. The five acts of unconventional leadership contradict what many believe is the right way to run a business. Companies that focus on growth are universally applauded, even if the new offerings don’t fit well together. Functional excellence, organizing for success, going lean across the board, and agility are all regarded favorably in business circles. But those are precisely the approaches that often lead to a gap between strategy and execution.

    Another insightful comment came from a high-ranking official of a branch of the U.S. military. The conventional wisdom, he said, accurately captured the management style of his overall organization.

    “But there are small groups that do [the unconventional acts] very, very well.” These groups, he said, were typically the special forces units: Green Berets, Navy SEALs, and other elite groups that take on highly sensitive jobs. Most companies also have similar elite groups, which are insulated from the rest of the enterprise. Company leaders delegate the premium activities to their special forces. But if you truly want to have strategy linked seamlessly with execution throughout your company, you can’t rely on a few extraordinary performers. You have to create distinctive capabilities that will scale across your enterprise, involving everyone in applying them to all the company’s products and services. That takes a level of attention, and a way of thinking and acting, that may seem difficult to achieve at scale. These five acts embody practices that help companies reach that state.

    The five acts themselves are so interconnected that you have to adopt them all together. If you overlook any one of them, you fall back. For example:

    •  When you don’t commit to an identity, you risk becoming scattered among a variety of objectives. It is all too easy to continually shift your focus — to deal with exigencies and never quite build the capabilities you need. You gain a right to play in many markets, but a right to win in none.
    •  When you can’t find a way to translate the strategic into the everyday, you have to rely on your existing functions to achieve your strategic goals. You risk becoming a company that perennially promises great things but never seems able to deliver.

    •  When your company doesn’t put its culture to work, your people feel trapped and disengaged. Yours might be one of those passive-aggressive companies where new strategies fail because people pay lip service to them without believing they will last.

    •  When you fail to cut costs to grow stronger, you starve the parts of your company that matter the most and overindulge those you don’t need. Your critical capabilities lose support, and they blend and blur into the rest of the enterprise.

    •  If you can’t shape your future, you run the risk of falling behind competitors that are shaping theirs. You might lose the opportunity to become influential and thereafter be dependent on more coherent and thus more dominant players in your industry.

    We do not hold up the five unconventional acts as the only path to success. But it is the only path we know that provides this kind of long-term, sustainable success. It is also an appealing path that feels intrinsically rewarding. Even taking a few steps in this direction can boost a company’s energy and morale.

    To be sure, it requires you to have the courage of your convictions. You have to be discriminating and decisive, willing to say no to opportunities that don’t fit the strategy and persistent enough to bring the entire organization along for the ride. But it is not a leap into the unknown. There is a great deal of precedent, and you are in good company: Some of the most renowned, creative, and influential enterprises in the world keep moving forward along this path.

    The Idea of IKEA

    by Per-Ola Karlsson,  Marco Kesteloo, and Nadia Kubis

    For a good example of the five unconventional acts of coherent leadership, consider the story of IKEA, the world’s largest furniture manufacturer and retailer. The identity of this enterprise is embodied in two simple statements. The first lays out its value proposition, which founder Ingvar Kamprad articulated this way in the mid-1950s: “to create a better everyday life for the many people.”
    IKEA’s Identity Profile

    Value Proposition

      IKEA delivers value as a low-price player and experience provider. It creates “a better everyday life” at home for many people around the world — providing functional and stylish home furnishings at very low prices with a high level of quality, sustainability, and customer engagement.

    Capabilities System

      IKEA delivers its value proposition by excelling at four differentiating capabilities:
    • Deep understanding of how customers live at home: IKEA applies this insight to a variety of design, production, and retail practices.

    • Price-conscious and stylish product design: IKEA integrates customer engagement, supply chain efficiency, and price considerations into the design process itself.

    • Efficient, scalable, and sustainable operations:

    • IKEA has developed its own distinctive operational capability integrating supply chain, manufacturing, and retail practices.

    • Customer-focused retail design: The company knows how to create a distinctive combination of immersive and open-warehouse environments that provide engagement, inspiration, and a distinctive “day out” shopping experience where people can comfortably spend time choosing the things they live with every day.

    Portfolio of Products and Services

      Known for its flat-packed furniture and its self-pick, self-carry, and self-assemble model, IKEA sells affordable furniture and other home-oriented products.

    The second statement embodying the identity of this enterprise is a succinct reference to the way IKEA involves customers in its operating model: “You do your part. We do our part. Together, we save money.” Each store, for example, is laid out so that customers pick up their furniture from the warehouse and assemble it at home.

    From its earliest years, IKEA has devoted itself to building and managing this identity. Kamprad started the enterprise as a college-age entrepreneur in 1943, selling seeds, postcards, and stationery. In the 1950s, he realized that furniture in Sweden was so expensive that many people, especially those moving into their first home, could not afford it. Part of the expense came from an elaborate system of middle merchants that bought and distributed furniture. From that moment, Kamprad’s company, IKEA, would give people low-cost style at home.

    Kamprad demonstrated his commitment to this identity when he began buying furniture direct from manufacturers, bypassing distributors to reduce the prices paid by customers. When Swedish industry leaders saw the threat he posed, they tried to prevent their suppliers from selling to him. So he moved on to producers in low-cost Eastern Europe, where manufacturers could customize the product to his needs and give him an even better price.

    The first IKEA retail store opened in Älmhult, a Swedish village, in 1958. Kamprad and his staff began to put a great deal of time and thought into translating the strategic into the everyday: designing and building capabilities that set IKEA’s retail stores apart. For example, the company began explicitly creating a capability in consumer insight, learning how IKEA’s customers lived, how they aspired to live, and what frustrated them about their current living situation. Kamprad became known for walking up to shoppers in IKEA stores and asking, “How did we disappoint you today?” Today’s company-wide requirement that managers visit customers in their homes is a direct extension of this original practice.

    As IKEA expanded around the world, it codified and standardized many practices, but it also purposefully reinforced its participative way of bringing capabilities to scale, and thus translated the strategic into everyday practice. IKEA is a place where managers routinely let their coworkers figure out new ways to do things, and it deliberately percolates the best of these ideas back up to the central organization. As Torbjörn Lööf, CEO of Inter IKEA Systems B.V. (which manages the worldwide store franchise system and the “IKEA concept,” the intellectual property shared by the full system), puts it: “Of course there are areas where we’re very strict and structured. But people don’t resist.

    They know [the IKEA concept] has been extensively tested, [and] they know we’re constantly trying
    out new things, and if they prove out to work, [those ideas] become part of the concept.”
    IKEA is also known for its ability to cut costs to grow stronger. (See “Is Your Company Fit for Growth?” by Deniz Caglar, Jaya Pandrangi, and John Plansky, s+b, Summer 2012.) Its people look for cost-saving opportunities relentlessly in every way that doesn’t affect the quality of the merchandise, the customer experience in the stores, or the efficiency of operations. That frugality is reinforced by an annual moment of discipline: The company reduces prices by an average of 2 percent at the start of every fiscal year. “This means we always start with a minus,” says Peter Agnefjäll, president and CEO of the IKEA Group. “If our group turns over ¤27 billion [US$28.7 billion], we start with a minus of ¤500 million [US$532 million]. If we don’t do more, we’re going to lose.”

    IKEA’s culture reinforces all these practices. “The glue, or the inner strength, of IKEA is the cultural part,” says former CEO Mikael Ohlsson. If you’re an IKEA manager, and you visibly waste resources or reprimand a subordinate for suggesting an idea, you’ll hear about it immediately, not just from your boss, but from everyone around you.

    Finally, IKEA uses its global scale, and its status as the world’s largest home furnishings brand, to shape its future. For example, it purchases furniture in such large volumes that suppliers go to great lengths to meet IKEA’s specifications. Although the leaders of this enterprise are conscious of its enviable market position, they are careful not to become complacent. As Jesper Brodin, the range and supply manager for IKEA of Sweden, put it, “Our number one threat is not the markets or the European economy or the recession or anything like that. It is ourselves and our own capacity to transform and deliver.”

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    How Leaderless Groups End Up with Leaders

    We’ve always known that communication is an important leadership skill. But most leadership research and advice is centered on what leaders say and how they say it, not on the underlying neural processes that govern communication between people.

    A new finding in brain science reveals a curious dynamic — a neural synchronization — during communication between leaders and followers: the brain activity of leaders and followers is more highly synchronized than the brain activity between followers and followers.

    In their experiment, Jing Jiang of the Max Planck Institute and her colleagues asked 11 groups of three people to conduct a leaderless discussion while their brain activity was monitored and the conversations were recorded. They were given the following topic for discussion: “An airplane crash-landed on a deserted island. Only six persons survived: a pregnant woman, an inventor, a doctor, an astronaut, an ecologist, and a vagrant. Whom do you think should be given the only one-person hot-air balloon to leave the island?” Each group was given five minutes to think about the problem alone, and then five minutes to discuss it. After the discussion, one person had to be chosen as the leader to represent the group and report the findings.

    In addition, independent judges observed the group discussions and were asked to choose a leader using their own criteria. They also rated the quality of communication skills of people using the following seven criteria: group coordination, active participation, new perspectives, input quality, logic and analytic ability, verbal communication, and nonverbal communication.

    Brain synchrony was determined for each two-person interaction within the three-person groups. Every time one person addressed another, this synchrony was determined by a measure called “coherence,” which indicates how often the frequency and scale of brain waves of both people are in sync.

    The findings in the study were remarkable: Most (nine out of 11) of the external judges chose the same group leaders that the participants themselves chose. Something about these leaders clearly stood out.

    When a leader and a follower were talking to each other, the degree of coherence, or neural synchrony, between the two was much greater than when followers were talking to each other within the groups. But then the question was, in the leader-follower pairs, who initiated the synchrony? Whose brain does the synchronizing with the other?

    A statistical test called a Granger Causality Analysis (GCA) can be used to determine this. GCA indicated that both leaders and followers initiated the synchrony, but another statistical test, a two sample t-test, found that leader-initiated communication induced greater coherence and synchrony than did follower-initiated communication. Also, the degree of synchrony was associated with the quality of communication skills mentioned above.

    The researchers found that one could predict leaders after 23 seconds by looking at the synchrony data alone, because leaders induced much greater coherence. So just by looking at the degree of synchrony induced when someone spoke, one could tell who was a leader.

    Clearly, neither the leader nor the followers were aware of this neural synchronization, since it’s all happening on a biological level. The brain region in which the synchrony was detected was the junction between the left temporal (side and bottom) and parietal (side and top) lobes (the left TPJ). The synchronization occurred during verbal communication, but not during nonverbal

    communication or periods of silence. The results are important because they help us reflect on how communication influences who is a leader, how leaders emerge during the communication process, and what factors cause them to be leaders. There are four important implications:

    It’s not how much you communicate. It’s how well you communicate. How often leaders spoke did not matter. Even when they spoke less often, it was the degree of brain synchronization and the quality of their communication, measured by the seven aspects mentioned above, that mattered. The greater the quality, the greater the coherence and synchrony with followers. High-quality communications may increase synchrony with followers.

    It’s your verbal skills, not your nonverbal skills, that matter when making decisions. In general, nonverbal communication can reveal a lot, but in this experiment it did not affect whether leaders were chosen. Their verbal communication skills were that mattered.

    When leaders initiate conversations, they should seek to synchronize with followers or have followers synchronize with them. Being aware of the brain synchronization phenomenon helps leaders better understand the biological basis of good communication. This implies that it is important for leaders to start conversations with a view to developing synchrony with followers. Finding common ground and a means for connection is important and can result in a higher level of coherence during communication between leaders and followers.

    In decision making, your synchrony, not your authority, is what matters. Try to predict how others will respond to you by putting yourself in their shoes; this is especially important when managing another person’s emotions. It’s a skill that can be developed. Leaders would benefit from setting time aside to anticipate how their decisions will impact others, and then adjusting those choices if necessary.

    We also know that social synchrony is disturbed when people are threatened; the brain’s “alarm,” the amygdala, registers the threat. In organizations, this fact implies that for leaders to be perceived as leaders, they need to be in touch with their followers emotionally, understand their points of view, and address threats that disrupt cooperation.

    The brain region that synchronized in the Jiang study is also known for having a significant role in sharing emotional states and in reading the mental states of others, which are important for maintaining group cohesion and cooperation. When the brain is cooperative, it is usually activated by shared social emotions. If leaders want to truly influence their followers, they’ll remember this — and speak accordingly.

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    Progress on Clean Energy

    It’s been barely two months since I got to be part of some exciting announcements about energy innovation, but there’s already some excellent progress to tell you about. Here’s a quick update.

    Just weeks before the announcement, Senator Lisa Murkowski went to the floor of the Senate to make a crucial point: If we’re going to make energy more affordable and reliable while solving the problems created by climate change, we need innovative new approaches. She called on her colleagues to work together to speed up the cycle of innovation. 

    Since then, her call has been clearly answered. Senator Murkowski and Senator Maria Cantwell joined with colleagues from Tennessee, South Carolina, Illinois, and Hawaii to lead a series of votes in the Senate that laid the groundwork for expanding the federal government’s investments in energy R&D. This weekend, the President highlighted their leadership when he announced that his 2017 budget will call for significant increases in this funding.

    This is all very promising, because government investments in early R&D are an essential foundation for successful, innovative industries. The digital revolution was built on government investments in the Internet and the semiconductor.

    Our thriving biotech industry relies on government investments in basic and applied research into drugs and other therapies. Energy is actually one area where we have historically invested far too little, so it is fantastic to see leaders changing course.

    I’m also excited about what’s happened since the announcement of the Breakthrough Energy Coalition last November. We are ready to bring together private investors who will support the most promising energy breakthroughs.

    We are also working with the top American research institutions to make it easier to take the innovations that come out of their labs—which are supported by government investments in R&D—and turn them into products that change the way we generate energy.

    I’m sure I’ll have more to report in the coming months. I’m feeling quite optimistic about the progress we’ll see in 2016 and the years ahead.

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    Harvard Business Review Announces 57th Annual HBR McKinsey Award Winners

    Top article offers principles for engineering “reverse innovations” in emerging markets.

    Articles in Harvard Business Review are meant to inspire leaders to adopt new ideas that can transform their companies. And from this pool of "million-dollar ideas," a panel of judges picks the very best article of the year and gives it the HBR McKinsey Award. This year's winner: “Engineering Reverse Innovations” by Amos Winter and Vijay Govindarajan published in HBR’s July-August 2015 issue.

    Based on a three-year study, the article outlines how companies can successfully create products for emerging markets that can then be adapted into disruptive offerings for developed countries – a concept known as reverse innovation. As part of their research, Winter and Govindarajan followed the experiences of a team that created a wheelchair for the developing world, a modified version of which is now taking Western markets by storm. 
    “This is a must-read for anyone who wants to understand how to apply the principles of reverse innovation and design thinking,” said Adi Ignatius, editor in chief of Harvard Business Review.
    Amos Winter is the Ratan N. Tata Career Development Assistant Professor of Mechanical Engineering at the Massachusetts Institute of Technology, where he directs the Global Engineering and Research Laboratory in the Department of Mechanical Engineering. Vijay Govindarajan is the Coxe Distinguished Professor at Dartmouth’s Tuck School of Business and a Marvin Bower Fellow at Harvard Business School. He is the author of the forthcoming book The Three Box Solution: A Strategy for Leading Innovation (HBR Press, April 2016). 
    The annual HBR McKinsey Awards, judged by an independent panel of business and academic leaders with input from members of HBR’s Advisory Board, commend outstanding articles published each year in Harvard Business Review. This year’s announcement appears in the April issue of the magazine, which is available online today and hits newsstands March 29.
    This year’s HBR McKinsey Awards also recognizes three finalists:
    The 2015 HBR McKinsey judges were: Scott Anthony, Managing Partner, Innosight; Cathy Benko, Vice Chairman and Managing Principal, Deloitte LLP; Robin Ely, Professor, Harvard Business School; Vijay Govindarajan*, Professor, Tuck School of Business, Dartmouth; Kurt Kuehn, Chief Financial Officer (retired), UPS; Rita Gunther McGrath, Professor, Columbia Business School; Robert E. Moritz, Chairman, PricewaterhouseCoopers; Kevin Sharer, Senior Lecturer, Harvard Business School; and Robert J. Thomas, Managing Director for Research; Accenture Institute for High Performance. 
    *Note: Judges recuse themselves from voting on articles they authored.
    About the HBR McKinsey Awards
    Since 1959, the HBR McKinsey Awards have recognized practical and groundbreaking management thinking by determining the best articles published each year in Harvard Business Review. Past winners include Peter Drucker, Clayton M. Christensen, Daniel Goleman, Rosabeth Moss Kanter, George Stalk, Michael E. Porter, Mark R. Kramer, and John Kotter.
    About Harvard Business Review
    Harvard Business Review is the leading destination for smart management thinking. Through its flagship magazine, 13 international licensed editions, books from Harvard Business Review Press, and digital content and tools published on, Harvard Business Review provides professionals around the world with rigorous insights and best practices to lead themselves and their organizations more effectively and to make a positive impact.

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    Secrets of the Superbosses

    What do Ralph Lauren, Larry Ellison, Julian Robertson, Jay Chiat, Bill Walsh, George Lucas, Bob Noyce, Lorne Michaels, and Mary Kay Ash have in common?

    Certainly all of them are known for being talented and successful—even legendary—in their respective fields. All have reputations as innovators who pioneered new business models, products, or services that created billions of dollars in value. But there’s one thing that distinguishes these business icons from their equally famous peers: the ability to groom talent. They didn’t just build organizations; they spotted, trained, and developed a future generation of leaders. They belong in a category beyond superstars: superbosses.

    I started researching this cohort of managers a decade ago, when I noticed a curious pattern: If you look at the top people in a given industry, you’ll often find that as many as half of them once worked for the same well-known leader. In professional football, 20 of the NFL’s 32 head coaches trained under Bill Walsh of the San Francisco 49ers or under someone in his coaching tree. In hedge funds, dozens of protégés of Julian Robertson, the founder of the investment firm Tiger Management, have become top fund managers. And from 1994 until 2004, nine of the 11 executives who worked closely with Larry Ellison at Oracle and left the company without retiring went on to become CEOs, chairs, or COOs of other companies.

    Eager to learn the secrets of these star makers, I reviewed thousands of articles and books and conducted more than 200 interviews to identify 18 primary study subjects (definite superbosses) and a few dozen secondary ones (likely superbosses). I then looked for patterns—common tastes, proclivities, behaviors—anything that might help explain why these people were able to propel not only their companies but also their protégés to such great heights.

    I found that superbosses share a number of key personality traits. They tend to be extremely confident, competitive, and imaginative. They also act with integrity and aren’t afraid to let their authentic selves shine through.

    But far more interesting (and more important for teaching purposes) were the similarities I saw in the “people strategies” that superbosses employed. Their remarkable success as talent spawners was not the result of some innate genius. These leaders follow specific practices in hiring and honing talent—practices that the rest of us can study and incorporate into our own repertoires.

    Unconventional Hiring

    Superbosses begin by seeking out unusually gifted people—individuals who are capable not merely of driving a business forward but of rewriting the very definition of success. As Lorne Michaels, the longtime producer of Saturday Night Live, has said, “If you look around the room and you think, ‘God, these people are amazing,’ then you’re probably in the right room.” Here’s how he and others do it.

    Focus on intelligence, creativity, and flexibility.

    Superbosses value these three attributes above all others. C. Ronald Blankenship and R. Scot Sellers, both protégés of real estate guru Bill Sanders before they became CEOs of leading property companies themselves, remember how Sanders would brag about bringing in so many people who were “four times smarter” than he was. He would insist that if you weren’t going to hire someone great, you shouldn’t hire anyone at all.

    Superbosses begin by seeking out unusually gifted people.

    Superbosses want people who can approach problems from new angles, handle surprises, learn quickly, and excel in any position. Norman Brinker, the casual-dining innovator who founded Steak and Ale, was a good example. As Rick Berman, who worked under him before founding a successful lobbying firm, recalls, Brinker “wasn’t a fan of hiring people to play first base; he just wanted to hire a good baseball player.” That emphasis on versatility helped give rise to a generation of top leaders in the restaurant industry, including the CEOs of Outback Steakhouse, P.F. Chang’s, and Burger King.

    Find unlikely winners.

    Superbosses consider credentials, of course, but they’re also willing to take chances on people who lack industry experience or even college degrees. According to Marty Staff, who worked for Ralph Lauren before becoming CEO of Hugo Boss USA, Lauren once made a runway model the head of women’s design “for no other reason than she seemed to get it—she got the clothes.” At health care giant HCA, Tommy Frist sometimes set even physical therapists on a path to the C-suite, simply because he spotted something in them.

    Because they reject preconceived notions of what talent should look like, superbosses often show greater openness toward women and minorities. Mary Kay Ash, in fact, expressly designed her company to empower women, holding sales conferences where the message was “If she can do it, so can I.” Walsh started a fellowship program in the NFL for minority coaches, giving participants a fast track into the league and himself a chance to tap into a vast new source of talent.

    Superbosses often dispense with the conventional interview process, too; instead, they pose unusual or quirky questions or use observation as a tool. When Ralph Lauren met with job candidates, for example, he would ask them to explain what they were wearing and why. Sanders would invite prospects to hike a 7,000-foot peak on his New Mexico ranch with him and other managers. “We learned a whole lot about these kids on the hikes,” recalls Constance Moore, who worked for Sanders at Security Capital before becoming CEO of BRE Properties. “After, we would all sit down and talk about each of them and figure out which ones we wanted to ask to join.”

    Adapt the job or organization to fit the talent.

    Superbosses opportunistically tailor jobs and sometimes even their organizations to new hires. As an assistant coach for the Cincinnati Bengals, Walsh had to invent a new offense to enable the backup quarterback to excel after an injury brought down the team’s starter. Because the second-stringer had more accuracy than arm strength, Walsh designed an unusual strategy around short passes—which later became known as the West Coast offense (when Walsh was with the 49ers). Lorne Michaels lets his ensemble’s ideas and abilities constantly shape and reshape their contributions to Saturday Night Live.Writers sometimes become performers, and performers or assistant directors sometimes become writers. At Industrial Light & Magic, George Lucas’s employees didn’t even have job descriptions. They were assigned tasks on various projects according to what was needed and who was available. All these examples run counter to traditional HR practices, but they reflect an innovative mindset that superbosses bring to virtually everything they do.

    Accept churn.

    Smart, creative, flexible people tend to have fast-paced careers. Some may soon want to move on. That’s OK with superbosses. They understand that the quality of talent on their teams matters more than stability, and they regard turnover as an opportunity to find fresh stars. Consider how Discovery Communications founder John Hendricks reacted when, in 1997, his second in command, Richard Allen, was asked to become the head of National Geographic’s for-profit arm. Hendricks would have loved to have kept Allen but never tried to hold him back, realizing that he’d rather have a friend leading his rival than anyone else. “It was a real indication of his generosity of spirit,” Allen says.

    This kind of attitude has an added payoff: When word gets out that people who work for you succeed not only at your organization but outside it, the world will start beating a path to your door. Superbosses barely need to recruit, because their reputations bring a continuous stream of talent to them.

    Hands-on Leadership

    Superbosses also have a distinct way of developing employees. Take Larry Ellison. His greatest strength, according to one of his protégés, is his ability “to make exceptional people do the impossible.” I heard stories in a similar vein about other superbosses. From them, one can distill these principles:

    Set high expectations.

    Superbosses are bullish on what their teams can accomplish. They demand extraordinarily high performance; “perfect is good enough” captures their attitude. The legendary Bob Noyce, for instance, “could be a very, very tough taskmaster,” remembers his fellow Intel cofounder Gordon Moore. “If you were up for the challenge, you could be very successful.” But superbosses go beyond pushing hard for results and instill a sense of confidence and exceptionalism in their people. Michael Rubin, who was a young member of Lucasfilm’s Graphics Group in the 1980s, recalls how transformational it was to hear Lucas talk about his vision for digital filmmaking and the role they would all play in it. “I heard him explain what the future could be like, and I was infected with that at age 22. I believed him. And it changed my career.” Tom Carroll, now chairman of TBWA Group, sounds a similar note about former boss Chiat: “Jay left something in people that makes it hard for you to go back to being ordinary. Once you feel it, you can’t change it.”

    Be a master.

    Superbosses are extremely effective delegators. Having chosen smart, ambitious, adaptable people and offered them a vision, they trust the team to execute. “Norman Brinker gave us incredible autonomy,” explains Richard Frank, a former senior manager at Steak and Ale who went on to run Chuck E. Cheese. “We definitely had the ability to fail.” And yet superbosses also remain intimately involved in the details of their businesses and their employees’ work. HCA’s Tommy Frist, a licensed pilot, would take subordinates on his plane to company events, using the flight time to engage in what was almost a tutorial on some aspect of what those people were working on. I compare it to the master-apprentice relationship you find in a traditional artisan workshop. Like highly skilled craftsmen, superbosses give protégés an unusual amount of hands-on experience but also monitor their progress, offer instruction and intense feedback, and step in to work with them side by side when necessary.

    Even if people leave the organization, superbosses continue to offer them advice.

    Superbosses’ teachings extend to leadership and life lessons as well. Frist would counsel managers on everything from setting daily goals to the importance of exercising to stay sharp. Luc Vandevelde, the former chairman of Marks and Spencer and Carrefour, was taught by former Kraft CEO Michael Miles to walk a fine line between partnering with subordinates and micromanaging them. Miles advised Vandevelde to work closely enough with his people to “elicit skills” but not so closely that he would “limit skills.” “I’ll never forget those words,” Vandevelde explains. “They profoundly changed my management approach, creating an environment where people can be at their best.”

    Encourage step-change growth.

    All the superbosses I studied offered advancement opportunities far beyond those found in traditional organizations. Rather than relying solely on “competency models” to guide development and promotion decisions, they customized career paths for protégés who had proved their worth, seeking to dramatically compress their learning and growth. Chase Coleman, a disciple of Julian Robertson, says that his former boss “was good at providing a steep learning curve for people who excelled at their first task.” In fact, just three years after Coleman joined Tiger Management as a technology analyst, Robertson sent him off with $25 million to start his own fund. Larry Ellison took a similar approach, says Gary Bloom, a former executive VP of Oracle who later became CEO of Veritas. “One thing Oracle was incredibly good at was on a continual basis throwing new responsibility at people,” Bloom notes. For example, Safra Catz was acting as CEO in all but name for a decade before formally being elevated to co-CEO (with Mark Hurd) in 2014.

    Stay connected.

    For superbosses, counseling protégés is a long-term commitment. Even after someone moves out of their organization, superbosses continue to offer advice, personal introductions, and “membership” in their networks. Former creative director Ken Segall says that although he served under Jay Chiat for only three years during the mid-1990s, he made a practice of calling his former boss whenever he changed jobs. “Usually within two or three hours at the most, I would get a call back,” Segall recalls. “He would consult with me and advise me. He was that kind of guy.”

    Maintaining relationships with ex-employees sets superbosses up for all sorts of follow-on opportunities, such as developing business partnerships. Frist helped many of the managers who’d worked for him at HCA start companies in the health care space by investing or becoming a customer. Lorne Michaels excelled at this, too, producing films and TV shows with former SNL stars Jimmy Fallon, Seth Meyers, Fred Armisen, and Tina Fey.

    Superbosses employ practices that set them head and shoulders above even the best traditional bosses. They seek out talent differently and hire them in unusual ways. They create high expectations and take it upon themselves to serve as “masters” to up-and-coming “apprentices.” And they accept it when their protégés go on to bigger and better things, making sure to stay connected.

    You, too, can move closer to this ideal. Don’t feel you need to try every move in the playbook at once. Experiment with one or two. Consider unorthodox applicants for open positions, looking at people who might possess unusual abilities. Remember that people are more effective when they feel confident, and make it your job to build them up. Get in the trenches more often with line employees, so you can learn more about their particular talents and challenges and impart wisdom that will help them grow. Look for opportunities to delegate big responsibility even to younger team members.
    Following the superboss playbook, we can all become better at nurturing talent, creating higher-performing workforces and, ultimately, more dynamic and sustainable businesses and industries.

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    India as a Leading Power    


    Prime Minister Narendra Modi’s call for India to become a leading power represents a change in how the country’s top political leadership conceives of its role in international politics.

    Prime Minister Narendra Modi’s call for India to become a leading power represents a change in how the country’s top political leadership conceives of its role in international politics. In Modi’s vision, a leading power is essentially a great power. However, India will only acquire this status when its economic foundations, its state institutions, and its military capabilities are truly robust. It will take concerted effort to reach this pinnacle.


    Realizing Unfulfilled Potential

    • When fulfilled, Modi’s ambition to make India a great power will mark the beginning of a third epoch in Indian foreign policy, when its weight and preferences will determine outcomes in the global system.
    • New Delhi’s current ability to expand its national power is handicapped by an overly regulated economy, inadequate state capacity, burdensome state-society relations, and limited rationalization across state and society writ large, all of which have persisted throughout India’s history as an independent nation.
    • Whether India becomes a great power depends on its ability to achieve multidimensional success in terms of improving its economic performance and wider regional integration, acquiring effective military capabilities for power projection coupled with wise policies for their use, and sustaining its democracy successfully by accommodating the diverse ambitions of its peoples.
    • Even if India manages to undertake the myriad reforms necessary to achieve these aims, many analyses suggest that it will be the weakest of the major poles for decades to come, geographically located uncomfortably close to a powerful China.

    What India Must Do to Become a Leading Power

    Complete the structural reforms necessary to create efficient product and factor markets. India has lost too many opportunities to build efficient markets that foster innovation and accelerate long-term trend growth. The government needs to redirect its activities toward producing better public goods, while establishing an institutional framework that stimulates private creativity and increases rationalization across Indian society.

    Create an effective state to leverage India’s capacity to build its national power. Without a vastly improved presence in society as well as better extractive and regulatory capacities—all of which require a more autonomous state—India cannot accumulate material capabilities to rapidly become a great power.

    Foster a strong relationship with the United States. The United States is an important host for India’s skilled labor; remains a critical source of capital, technology, and expertise; and constitutes the fulcrum of strategic support for India’s global ambitions. If India maintains robust ties with the United States, even as it strengthens relations with key U.S. allies in Asia and beyond, it will continue to gain indispensable benefits.

    Less than a year after he took office in May 2014, India’s Prime Minister Narendra Modi challenged his senior diplomats “to help India position itself in a leading role, rather than [as] just a balancing force, globally.”1 Elaborating on this idea, the foreign secretary, Subrahmanyam Jaishankar, later noted that Modi’s dramatic international initiatives reflected India’s growing self-confidence, declaring that the country now “aspire[s] to be a leading power, rather than just a balancing power.”2
    When this ambition is realized, it will mark the third and most decisive shift in independent India’s foreign policy, one that could have significant consequences for the future international order. It will take concerted effort, however, to reach this pinnacle in the years ahead: New Delhi will have to reform its economy, strengthen its state capacity, and elevate the levels of rationalization across state and society writ large so that India may be able to effectively produce those military instruments that increase its security and influence in international politics.

    From Balancing to Leading Power?

    For the longest time, India’s foreign policy was essentially defensive. Its early rhetoric was bold—championing, in former prime minister Jawaharlal Nehru’s words, a “real internationalism” that promoted global peace and shared prosperity.3 Yet its material weaknesses ensured that its strategic aims in practice were focused principally on protecting the country’s democracy and development from the intense bipolar competition of the Cold War. Although the character of India’s international engagement varied during these years, its broad orientation did not: remaining fundamentally conservative, India’s nonalignment aimed mainly at preventing U.S.-Soviet hostility from undermining its security, autonomy, and well-being at a time when the country was still relatively infirm.
    India’s nonalignment aimed mainly at preventing U.S.-Soviet hostility from undermining its security, autonomy, and well-being at a time when the country was still relatively infirm.
    In retrospect, this effort turned out to be more successful than was imagined initially. India survived the Cold War with its territorial integrity broadly intact, its state- and nation-building activities largely successful, and its political autonomy and international standing durably ensconced. In the process, it created some impressive industrial and technological capabilities, but its obsession with “self-reliance” unfortunately also ensured the relative decline of India’s economic weight in Asia and beyond.

    After 1991, when it was freed from the compulsions of having to avoid competing alliances at all costs, India entered into the second phase of its foreign policy evolution. Pursuing a variety of strategic partnerships with more than 30 different countries, India sought to expand specific forms of collaboration that would increase its power and accelerate its rise. The domestic economic reforms unleashed in the very year of the Soviet Union’s collapse paved the way for consolidating India’s path toward higher growth. From the abysmal 3.5 percent annual growth witnessed until the 1980s, the 1991 reforms accelerated the improving 5.5 percent growth rate to the 7 percent demonstrated since the new millennium, leading the U.S. Central Intelligence Agency to conclude that India was likely to become the most important “swing state” in the international system.4 This assessment suggested that India’s significance in global politics lay mainly in its being a balancing power. That is, even if it were not strong enough to be an independent pole, its presence in any particular international coalition would strengthen that grouping significantly.

    Since the presidency of George W. Bush, this realization has driven the United States to consciously assist the growth of Indian power. On the assumption that New Delhi and Washington share a common interest in preventing Chinese hegemony in Asia, the United States has sought to bolster India as a counterweight to China, fully appreciating that India would pursue an independent foreign policy but expecting nonetheless that it would concord with larger U.S. interests in the Indo-Pacific. Even if India were to eventually become a true pole in international politics, U.S. calculations would not in any way be undermined: shared democratic values would then position India as a valuable partner for the United States, while its growing national capacities would help to create those objective constraints that check the misuse of Chinese power in Asia in the interim.
    Modi’s vision, strictly speaking, envisages India becoming a traditional great power.
    Modi’s clarion call for India to assume a leading, rather than merely a balancing, role signifies larger ambitions. Jaishankar summarized these aims succinctly when he stated, insofar “as larger international politics is concerned, India welcomes the growing reality of a multi-polar world, as it does, of a multi-polar Asia.”5 In other words, India, by its choices at home and its actions abroad, would seek to create the distribution of capabilities at both the global and the continental levels that would accommodate its presence as an authentic great power. Although these aspirations are conveyed by the more modest locution “leading power,” Modi’s vision, strictly speaking, envisages India becoming a traditional great power—an inescapable conclusion if the desire for multipolarity at the global level has any consequential meaning.

    Contrasting the concepts clarifies the point abundantly. From a structural perspective, great powers in international politics are genuine poles: their number defines the configuration of the global system, and their preferences regulate its institutions and determine the ways in which its constituent entities relate to one another. Great powers, accordingly, are system makers. Leading powers, in contrast, are not genuine poles. They exist within the dispositions defined by the great powers, and while they do influence various issues, they cannot determine outcomes pertaining to the fundamental questions of order against the core inclinations of the great powers. Leading powers, therefore, can at best be system shapers. Minor powers, in even greater contrast, are unambiguously system takers. They cannot impose their desires on others, and they can secure their national aims only through aid from other states and institutions or at the sufferance of stronger powers.
    Modi seeks to transform India from being merely an influential entity into one whose weight and preferences are defining for international politics.
    Clearly, Modi seeks to transform India from being merely an influential entity into one whose weight and preferences are defining for international politics. While this desire is laudable, it appears that India’s climb to great power status will take time. Although contemporary projections of global growth out to 2050 suggest that India will become a true pole by then, they also conclude that it will remain the weakest of the principal entities—China, the United States, the European Union, and India—dominating the international system at that time.6 A detailed analysis from 2012 suggested that India, representing only 7 percent of the global product in 2050, will remain well behind China at 20 percent and the United States and the European Union at 17 percent each, though it will be somewhat ahead of Japan at 5 percent and comfortably lead Russia and Brazil at 3 and 2 percent, respectively. Assuming that current U.S. alliances survive until then, the Western democracies and Japan will still reign supreme with 39 percent of the global product, almost double that of China’s and similarly close to double China’s and Russia’s gross domestic products (GDPs) combined.7
    It is in the greater Asia-Pacific region, however, that India can make a dramatic difference to the continental balance. If India allies with the United States and Japan, the resulting 29 percent of the global product will easily exceed China’s 20 percent in contrast to only the marginal advantage that the two democracies will enjoy if India sits out. Against China and Russia together (a total of 23 percent), India’s contribution will become even more valuable because it will erase the slight inferiority that will otherwise mark the collective U.S.-Japanese product.

    Such projections help to characterize India’s value in the larger geopolitical context, and their underlying insight is sobering. Although India will likely be transformed into a genuine pole by 2050, it will remain fundamentally a balancing power—a swing state—rather than a colossus capable of either holding its own against a major rival such as China or defining the international system to its advantage in the face of possible opposition.

    To be sure, all long-term economic projections are fragile for various reasons. But insofar as such forecasts represent disciplined analysis, any differences between their predictions and the actual outcomes are likely be of degree rather than of fundamental mischaracterization.

    This does not imply that Modi’s vision of India as a leading power ought to be jettisoned. Far from it. It should in fact be pursued even more vigorously to protect the possibility of India becoming a true pole by 2050 with material power exceeding what the current prognoses suggest—an outcome that will require New Delhi to purposefully expand its own national capabilities in ways that other great powers have done before.

    Patchy Success Thus Far

    It is tempting to suggest, as some commentators have, that India’s path to becoming a great power will be paved either by the resolute use of military capabilities or by the persuasion of its soft power. Both notions, employed exclusively, can be deceiving. India’s capacity to deploy a powerful military as well as to attract admirers internationally will depend fundamentally on its ability to durably achieve multidimensional success: sustaining high levels of economic growth, building effective state capacity, and strengthening its democratic dispensation. As the last sixty-five-odd years have demonstrated, the mere preservation of an impressive system of self-rule is insufficient for procuring great power capabilities if it is not accompanied by an Indian capacity to increase the mass standard of living, to raise technological proficiency, to sustain a competent state, and to project military power beyond its homeland more or less consistently.
    As the last sixty-five-odd years have demonstrated, the mere preservation of an impressive system of self-rule is insufficient for procuring great power capabilities.
    The historical record suggests that becoming a great power essentially hinges on the ability to master the cycles of innovation to produce at least sustained, if not supernormal, growth for long periods of time and, thereafter, to use the fruits of this potency to generate effective military capabilities that can neutralize immediate and far-flung challengers. Even if pushing the technological frontier outward is difficult, emulating the innovators and deepening (or improving) a country’s own comparative advantages can enlarge the opportunities for broad-based domestic growth. An analysis published in 2001 argued that if India could sustain a growth rate of consistently 7 percent or higher, it would represent “an economic performance that inexorably transforms India into a great power, positions it as an effective pole in the Asian geopolitical balance, and compels international attention to itself as a strategic entity with continent-wide significance.”8

    Although India has managed to chalk up such elevated growth in recent years, whether it can transform this peak performance into a sustainable rate of expansion for at least another two or three decades is an open question. There are several reasons for doubt, all anchored solidly in contemporary growth theory, which emphasizes the importance of capital accumulation, labor force expansion, and total factor productivity increases as critical to maintaining superior levels of trend growth.

    Serious challenges abound on each count. India’s savings are still remarkably low compared to its investment needs, and its diffidence about foreign investment in many sectors only magnifies these capital constraints. India has been more welcoming of overseas capital in recent years. However, the problems it has had with respect to “tax terrorism,” the continuing difficulties of doing business in India, and the volatility of all emerging markets make the prospect of relying on large infusions of external capital for long-term growth somewhat challenging at precisely the time when the country’s credit markets are primitive and its banking sector is mired in deep crisis because of numerous bad loans.

    The Indian population too, undoubtedly, is large and its demographic profile eminently favorable. But employment opportunities are still scarce, and the majority of its workforce is very poorly educated and lacks decent access to public healthcare. Meanwhile, the current Indian emphasis on manufacturing to generate employment may not be able to deliver adequately in the face of the increasing technology-intensity of production, the global transitions exemplified by manufacturing moving closer to the sources of demand, and India’s own severe infrastructure limitations.

    The total factor productivity of the Indian economy, finally, is still meager, and although it has improved since the 1991 reforms, its projected growth is nonetheless assessed as among the lowest in Asia. This should not be surprising because productivity in those segments employing the largest numbers of people in India—agriculture and informal industry—is still quite dismal. Even if the high growth India has witnessed recently is driven more by productivity increases than by factor accumulation, sustaining this outcome over time will be difficult if the current liabilities in capital accumulation and labor force employability are not addressed by targeted economic reforms.

    All told, these difficulties represent only the tip of the iceberg. They are exacerbated by a voracious government that siphons private resources toward maintaining large and inefficient public enterprises, a redistribution regime that is driven more by electoral than by economic logic, and directed investments that are compelled by political prejudices instead of considered judgments about financial returns. The deficiencies of the pricing mechanisms in important sectors of the economy such as agriculture, energy, and natural resources further magnify the problems.

    Successive governments in India have amplified these distortions over time. Even Modi, who identifies himself as a reformer, has focused on rectifying these ills through incremental solutions to discrete problems rather than through fundamental structural transformations aimed at enlarging the reach, depth, and effectiveness of the market nationally (especially where the factors of production more generally are concerned). Many of the efforts that have been initiated in these areas, unfortunately, have been stymied by the Opposition in parliament, making the task of revamping the

    Indian economy even more difficult. Furthermore, reforms that would restrict the government
    principally to the production of public goods, while investing in improving its institutional effectiveness, have still not been enacted. And the political class more broadly continues to shy away from the idea that scarce resources must be priced efficiently and impersonally and paid for by their consumers (with only the truly indigent assisted by various kinds of direct income transfers).

    These failures have precipitated a systemic misallocation of resources and continue to levy a high toll on efficiency, competitiveness, and innovation nationally. Because of this, India’s ability to generate high growth over long periods of time relative to its competitors—the sine qua non for becoming a great power—is constrained more than it should be.
    Recognizing that subcontinental stability liberates India to play a significant role on the larger global stage, Modi—even more than his predecessors—has moved swiftly to engage all of India’s smaller neighbors.
    India’s recent performance in the arena of geopolitics has been more impressive. Recognizing that subcontinental stability liberates India to play a significant role on the larger global stage, Modi—even more than his predecessors—has moved swiftly to engage all of India’s smaller neighbors. Although success has been the least pronounced where Pakistan is concerned, the issues there have more to do with Rawalpindi than with New Delhi. Pakistan will likely continue to pose intractable problems for Indian policy, but recognizing these realities, Modi has refused to be consumed by its distractions. Rather, he has reached out ever more boldly farther afield. India has forged a blazing new partnership with Japan, one that is critical for rejuvenating its economy and creating an intra-Asian balance against China. New Delhi has also sought to keep relations with Moscow on an even keel, despite Russia’s growing collaboration with China, while simultaneously engaging Beijing to secure a modicum of economic gains and geostrategic tranquility. Throughout this adroit balancing act, Modi has not neglected other important partners such as France, Germany, Israel, and the United Kingdom.

    India has also displayed dramatic strategic innovativeness in other spaces. It has undertaken remarkable engagements in the Middle East, with both Iran and the United Arab Emirates simultaneously, and plans for a renewed outreach to Saudi Arabia are in the offing. And the new government has carried the earlier Look East policy, which focused on rebuilding ties with East and Southeast Asia, to its logical Act East conclusion, though much more remains to be done here.

    Modi’s India has now begun to insert itself as a player in Southeast Asia, declaring its interest in preserving freedom of navigation in the South China Sea, while simultaneously intensifying ties with the Association of Southeast Asian Nations (ASEAN) in the face of growing Chinese assertiveness. This renewed interest in India’s eastern flanks has been complemented by a determination to become the security provider of first resort for the island states in the Indian Ocean despite a new Chinese presence in these waters—a policy that is buttressed by important domestic decisions to reinvest in building naval capabilities for extended presence and power projection around the Indian peninsula.

    Above all else, Modi’s initiative to deepen the partnership with Washington is most portentous. It implies a recognition that the United States holds the most important keys for India’s long-term success outside of its own domestic policies: as a host for India’s skilled labor; as a source of capital, technology, and expertise; and as the fulcrum of strategic support for India’s global ambitions. While the evolving U.S.-Indian relationship will always require careful management by both sides, Modi’s daring decision to collaborate wholeheartedly with the United States opens new avenues for assisting the rise of Indian power.

    While these initiatives are significant—sometimes even melodramatic—and indicate that New Delhi is consciously building a web of partnerships through which it can exercise influence and protect its interests, India is still some way from leaving an indelible impression on the Indo-Pacific, let alone the world. India’s foreign trade, the lifeblood of connectivity in its larger sphere of interest, is yet all too modest. The compulsions of democratic politics and the still-strong fears of foreign domination have prevented New Delhi from embarking on greater external openness, thus denying it additional resources for domestic growth; foregoing closer ties with those nations bound to, but nevertheless wary of, China; and most dangerously, limiting the prospects of one day being included in those megaregional agreements that now promise to dominate global trade.
    Modi’s initiative to deepen the partnership with Washington implies a recognition that the United States holds the most important keys for India’s long-term success outside of its own domestic policies.
    Forfeiting the possibilities of enhanced trade-driven growth follows naturally from the currently tepid domestic economic liberalization efforts, the impact of which will be felt not simply in lowered secular growth rates but also in constrained military modernization—both relevant for India’s great power ambitions. The Indian armed forces are large and adequate for internal security and frontier defense, but although India “has acquired the nucleus of a substantial [power projection] capability . . . it remains limited in number and in terms of specific enablers,” as one illuminating study has noted.9 The current and prospective defense budget constraints imply that India will be unable to fund these three warfighting orientations adequately, consequently limiting its capacity to provide the protective reassurance sought by many smaller states in the Indo-Pacific.

    Compensating for such deficits through a forced promotion of Indian soft power is untenable. India’s soft power will garner the attractiveness necessary to legitimize its rise in Asia and the world only when the country proves that it is an enduring success in terms of economic performance and wider regional integration, possesses effective military capabilities for power projection coupled with wise policies for their use, and can sustain its democracy successfully by accommodating the diverse ambitions of its peoples. On all these counts, the contemporary record suggests that India still has much to do if it is to realize its ambition of becoming a true great power in world politics.

    Confronting Weaknesses in National Performance

    While India’s languid power accumulation in the first instance is owed to poor policies, those failures are themselves the result of conspicuous weaknesses in national performance. All great powers historically rose not because they necessarily possessed large amounts of natural resources but because they consciously nurtured productive state-society relations. This means that they built effective states presiding over fecund societies, which enabled them to generate material capabilities faster and more effectively than their rivals. This process was often propelled by the presence of significant external or internal threats, or the ambitious aims of leaders or elites who sought to cement their power both within and outside the polity.
    India faces few existential threats that compel it to marshal national power speedily to protect itself.
    These motivating elements appear only weakly in the Indian case. The country’s large area, population, and resource stocks make it relatively immune to most external dangers, which since independence have emerged largely from smaller states such as Pakistan. Although Beijing’s power now arrives consequentially on New Delhi’s doorstep for the first time, India is neither so small nor so weak as to be simply pushed over. The country’s inherent diversity and crosscutting cleavages also place natural limitations on any internal insurrections mobilizing successfully enough to threaten the state or the nation as a whole. The end result is that India faces few existential threats that compel it to marshal national power speedily to protect itself—as actors in early modern Europe had to do, leading to the creation of absolutist states that eventually became great powers. Whether the ongoing rise of China alters this reality dramatically remains to be seen.

    The history of India’s independence movement and the remarkable survival of its democracy only reinforced its moderation. The quest for high office domestically was regulated by orderly processes that did not require any frenetic mobilization of resources, and the possibility of external expansion was extinguished thanks to the heritage of nonviolence, the burdens stemming from unfulfilled development demands, and the constraints imposed by democratic institutions. As a result, India was not compelled by either external or internal exigencies to build a strong state or nurture the productive economy that would have generated robust national power urgently. Moreover, the presence of social fissures in India reinforced the belief that paced growth was necessary to limit the potential for domestic disruptions. Consequently, while Indian statesmen certainly sought greatness for themselves and their country, these ambitions were never driven either by the imperatives of survival or by the need to demonstrate awesome virility, and, hence, they precluded the concerted societal mobilizations witnessed often and elsewhere in history.

    Necessity, however, represents only a permissive cause; the political choices made by India’s founding generation about state-society relations remain the unmistakable reason for many of its current disabilities in regard to producing national power. Nehru’s early decisions to overly regulate the economy—which his daughter, Indira Gandhi, later translated into blatant state control during her tenure as prime minister—resulted in lost opportunities to build wide efficient markets that would encourage innovation, competitiveness, and growth, even as decay in the political system over time slowly corroded the rule of law, weakened property rights, undermined the sanctity of contracts, and failed to ensure the speedy adjudication of disputes.

    These failures were exacerbated by the Indian state’s weaknesses in “infrastructural capacity,” meaning its ability to set and attain specific political goals.10 The difficulties in setting targets derive primarily from the fact that Indian elites—especially the wielders of political power—are not particularly united in their aims or the means to achieve them. Although there is a superficial consensus on some objectives, such as high growth or social stability, the political class does not agree on what these goals actually mean in practice or what policy instruments should be employed to realize them. The reliance on a poorly equipped and often recalcitrant bureaucracy only makes things worse. And the democratic process further exacerbates these problems of cohesion because the need to placate many competing social bases of support or to prevent the extant government from succeeding merely for electoral advantage often leads various elites to oppose even sensible policies that would increase Indian power. None of these pathologies is unique to India, but when governments rather than markets are disproportionately responsible for material success nationally, elite fragmentation turns out to be especially costly.
    The political choices made by India’s founding generation remain the unmistakable reason for many of its current disabilities in regard to producing national power.
    Beyond the constraints imposed by a fractured elite in regard to setting goals, the institutional impediments to attaining the aims associated with accumulating national power in India are particularly grievous. For starters, the Indian state does not penetrate its own society sufficiently: there are still vast swaths—territorial and functional—where state power is conspicuous by its absence. In fact, the Indian state is overly present in those areas where it ought not to be, producing private goods for example, but seriously deficient in other spaces where it has no substitute, such as in administering law, order, and justice; providing various public and merit goods; and managing national security.

    Furthermore, the Indian state performs abysmally with respect to resource extraction: whether measured by direct, indirect, or property taxes, India’s tax-to-GDP ratios are among the lowest of its G20 or BRIICSAM (Brazil, Russia, Indonesia, India, China, South Africa, and Mexico) peers, and the incidence of tax evasion is also high. These realities underscore how pervasive underdevelopment, regressive economic policies, and poor enforcement capabilities combine to produce unproductive  state-society interactions that ultimately subvert both India’s developmental aims and its acquisition of great power capabilities.

    Finally, except where national security issues are concerned, the Indian state does not enjoy sufficient autonomy from its own society and seems unable to regulate social relations in ways that would permit it to pursue important national interests without being constrained by veto-wielders domestically. This problem is more intense in democracies, but the difficulties that successive Indian governments have faced in regard to subsidy reduction, trade liberalization, and labor law reform, for example—all widely agreed in India to be vital for future success—bode ill for expectations of any speedy expansion of state autonomy. It is unfortunate that the nature of electoral competition in India has actually sharpened its social cleavages, with democracy thus making the state even more susceptible to societal pressures. Therein lies a tragic irony: the very crosscutting cleavages that prevent any internal threats from becoming existential dangers to the country also end up weakening the state, thereby raising the question of how a state that cannot shape its own society can expect to shape the outside world—the ultimate hallmark of a great power.
    The crosscutting cleavages that prevent internal threats from becoming existential dangers to India end up weakening the state, raising the question of how a state that cannot shape its own society can expect to shape the outside world.
    These components of national performance, which bear on whether the state can convert its control over society into usable resources for power-political purposes, are also shaped by a more abstract, even elusive, element: the extent of rationalization in state and society. Rationalization, as reflected in Max Weber’s work examining the rise of the West, refers to the extent to which reason is incarnated in the worldviews and actions of various actors in a given social system and, by extension, ultimately in its institutions. The distinction between substantive and instrumental rationality is relevant here: the former refers to what reason judges to be essential for success in a given context, whereas the latter pertains to the adequacy of the means used to secure these aims.

    In competitive politics, power is essentially manifested as the capacity for domination. In Western thought, this potentiality derives from the view of man as radically separated from nature, thereby making the external world a fit object for purposive control. The worth of all social institutions, accordingly, is judged by the degree to which they enable ever more efficient mastery in their particular domains, and the modern state thus becomes the exemplar of rationalization in a competitive international system.

    This outcome obtains because the state can fuse social mobilization, technological innovation, bureaucratic organization, institutional design, and ideological promotion to stimulate power maximization in ways that few of its competitors can.

    Given India’s different cultural inheritance, which emphasizes man’s existence as part of nature—rather than outside of or opposed to it—the question of whether the Indian ethos can legitimize relentless power maximization as the natural telos of the state remains open and difficult. This issue of substantive rationality implicates tricky conceptual problems, such as the impact of a nation’s worldview on its strategic behaviors, including the priority placed on the assertive mobilization, extraction, and transformation of resources for competitive ends.
    India does not currently demonstrate an implacable desire to maximize its power or to use it willfully for assertive ends.
    The tensions between India’s ideational inheritance and the demands that modernity places upon it will affect its performance in some way, even if the character of that causality turns out to be either controversial or only dimly discerned. What can be said with some accuracy is that India does not currently demonstrate an implacable desire to maximize its power or to use it willfully for assertive ends, a disposition that is sometimes labeled “strategic restraint.”11

    This hesitancy appears to be reinforced by the weaknesses of instrumental rationality in the Indian context, meaning the inability to effectively pursue the best means to a given end, as evidenced by many of the cumbersome rules, regulations, and procedures that abound in India; the shortcomings of its diverse regulatory institutions; and sometimes the manifestly counterproductive nature of some of its policies. As one scholar succinctly concluded, this failure is ultimately rooted in “India’s uneven encounter with modernity: the forms and institutions have been imported or grafted on, but the spirit of modernity, an innate appreciation of rational thinking, has not taken root.”12

    Both Max Weber’s and Karl Marx’s magisterial analyses converge in their recognition that instrumental rationality deepens inexorably as a result of the growth and extension of market capitalism, because the profit motive ruthlessly weeds out all strategies, processes, and activities that undermine the goals of survival and expansion necessitated by substantive rationality. Over time, this rationalization seeps into the polity writ large and transforms all of its institutions, including the state. India’s efforts to limit marketization as an instrument of social change for either ideological or cultural reasons, consequently, have had the unfortunate effect of retarding the rationalization of its society in ways that constrain its capability to maximize power accumulation quickly.


    Prime Minister Modi’s call for India to become a leading power represents a change in how the country’s top political leadership conceives of its role in international politics. Attaining Modi’s ambition will require India to undergo a concerted transformation. This entails strengthening what India has most successfully achieved thus far—territorial integrity, liberal democratic politics, and civic nationalism—but drastically renovating the sclerotic elements of its economy to enable the progressive rationalization that comes, inter alia, from enlarging its market system. Deep structural reforms accompanied by carefully targeted remediation would significantly mitigate the constraints on long-term accumulation, in effect serving, as one study noted, as “positive shocks to the trend that will enable growth to pick up” and persist at high levels over time.13

    Concerted marketization thus holds the promise of improving India’s trend growth rates, enabling appropriate redistribution when desirable, and empowering the state with the resources necessary to accomplish its international goals. Achieving durable success, however, will require strengthening India’s state capacity along multiple dimensions in order to mitigate the weaknesses, as one scholar put it, that affect “both [the country’s] ability to grasp the big strategic picture and [its] ability to get the nuts and bolts right.”14

    Prime Minister Modi is cognizant of the need for comprehensive transformation if India is to one day become a genuine great power. But his efforts thus far in promoting such change, though laudable in many ways, have been unduly conservative. He has certainly embarked on several high-profile projects intended to stimulate growth and development, but he has yet to articulate an overarching defense of systemic reform, and he has shied away from undertaking those consequential initiatives that would appropriately reposition the Indian state within the national economy while
    simultaneously strengthening it. This hesitation is obviously shaped by the realities of Indian politics.

    When Modi was chief minister of Gujarat, his most audacious policies materialized only during his second term in office, and he may well be following a similar script in New Delhi. But, even if true, this approach harbors risks for his ambition to make India a great power quickly if its “persistent, encompassing, and creative incrementalism,” as the Ministry of Finance described it,15 either falters or proves to be insufficient at a time when India’s competitors, most importantly China, appear willing to make bolder reform decisions and implement them with greater alacrity.
    Prime Minister Modi is cognizant of the need for comprehensive transformation if India is to one day become a genuine great power.
    It bears remembering that even as all these tasks are satisfactorily completed, most compelling analyses of the future global economy suggest that India will remain the weakest of the great powers for a long time to come. Given this possibility—and the likelihood that a rising China will challenge Indian security in ways that New Delhi has never had to cope with before—finishing the renovations necessary to make India a great power cannot be either put off or approached lackadaisically as has been the case thus far.

    Modi’s invocation that India become a leading power, consequently, offers transformative possibilities if it drives the speedy acquisition of great power capabilities and makes their procurement a formal object of Indian national policy. If this vision takes root, perhaps the most important immediate change engendered would be the imbuing of self-assurance within the Indian polity, its elites, and its leaders. For all the distinctive shifts that have occurred in Indian foreign policy in recent times, it is remarkable how large segments of the intellectual, bureaucratic, and political classes are still fundamentally insecure about their country’s capacity to engage with the world on its own terms. This is partly a legacy of colonialism and partly a consequence of India’s persisting material weaknesses in international politics. Yet it is nevertheless unsettling because among India’s native strengths has been the capacity to assimilate diverse foreign ideas, cultures, and peoples over the millennia—enriching both the entrants and the host in the process.
    Modi’s invocation that India become a leading power, consequently, offers transformative possibilities if it drives the speedy acquisition of great power capabilities and makes their procurement a formal object of Indian national policy.
    Given this fact, the strong fears of the “foreign” still residing in India are disconcerting. For example, in the political class, the Rashtriya Swayamsevak Sangh (RSS) and the Communist Party of India today converge in their fundamental suspicion of the outsider, albeit different ones. In the Indian bureaucracy, the apprehension about external penetration strongly limits its willingness to divest control over both the economy and the state. And in the Indian military, the anxiety about penetration by powers abroad serves to curb access to the institution, while constraining its ability to sustain deep engagement with its best global partners.

    These insecurities, however manifested, impede India’s ability to learn from the outside world and eventually improve upon it, thus raising doubts about how a country so lacking in aplomb can become a great power swiftly. This reticence is, in fact, paradoxical not only because of India’s history, which demonstrates the extraordinary absorptive powers of its civilization, but also because Indian citizens often effortlessly leave their birthplace to settle abroad and acculturate easily to their adopted homelands.

    If Modi’s quest for India to become a leading power, then, strengthens Indian self-confidence, the foundations would be laid for making some difficult decisions about economic reform domestically; containing those elements on both the right and the left that would disfigure India’s democracy and retard its development, respectively; and articulating a clear perspective of India’s role in Asia and the world without either defensiveness or hubris. The stage would also be set for cementing the strategic partnerships that India has sought to build in furtherance of its own interests, taking the initiative in developing cooperative solutions that address the most pressing regional and global challenges, and building the military capabilities necessary to protect India and to provide the public goods needed to strengthen peace and security throughout the Indo-Pacific.

    A focused effort along these lines would make India’s journey toward achieving great power status easier. But it would require more of Modi than has been in evidence lately. There are few leaders in India today who have the capacity to articulate the importance of this vision in ways that are comprehensible to the polity at large. And India enjoys the unique advantage of having its rise unambiguously welcomed by the most important power in the international system, the United States.

    Building on the initiatives first undertaken by Atal Bihari Vajpayee and then elevated to new heights by his successor as prime minister, Manmohan Singh, Modi can be justifiably proud of his own contributions to strengthening New Delhi’s strategic partnership with Washington. By consummating the path-breaking Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region agreed to with President Barack Obama, and complementing it with deeper economic integration with the United States, Modi can solidify a geopolitical bond that will be incredibly valuable for India as it continues along the road to becoming a real great power.

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    Call for Applications: Raman–Charpak Fellowship 2016 for Indian and French Students.

    Department of Science and Technology, Govt of India

    Sector:  Cultural Development Education Inclusion
    Last date:  Tuesday, May 31, 2016
    Country:  France  India

    Detailed Description

    The Department of Science and Technology (DST), Government of India and the Service for Science and Technology (SST), French Embassy in India, Ministry of Foreign Affairs & International Development, Government of France have jointly announced a call for applications for Raman–Charpak Fellowship 2016 with an aim to facilitate the exchange of doctoral students between the two countries, in order to broaden the scope and depth of future engagements in science, technology and innovation.
    Research Fields

    • Atmospheric and Earth Sciences

    • Chemical Sciences

    • Engineering Sciences

    • Life and Medical Sciences

    • Material Sciences

    • Mathematical and Computational Sciences

    • Physical Sciences

    • Environmental Sciences

    • For Indian Fellow: Fellowship Support of 1500 Euros per month for daily expenses, local travel, accommodation charges plus Social Security charges.

    • For French Fellow: Fellowship support Rs. 40,000 per month for daily expenses, local travel, etc. plus accommodation charges not exceeding Rs. 45,000 per month

    Eligibility Criteria
    • Applicants from India must be Indian citizens residing in India and have registered for a PhD in a recognized university or research institution in India.

    • Applicants from France must be residing in France and have registered for a PhD in a recognized university or research institution in France.

    • Have a Master’s degree (in science, technology or medicine) from a recognized University/Institute.

    • Age: Maximum 30 years as on 1st April, 2016.

    • Students once supported by CEFIPRA, also in the framework of CEFIPRA projects, and students who have a permanent position in institutions/universities are not eligible.

    • Pre-authorization or prior consent from his/her Institute / University to apply for a foreign fellowship program [No objection certificate from Head of the Institution] (Not applicable for French candidates).

    • A letter of recommendation from the Ph.D. supervisor in his/her native lab.

    • A letter of recommendation and agreement from the proposed host supervisor in the fellowship lab (Foreign Research Institute / University).

    How to Apply

    Applicants must apply online via given website.

    For more information, please visit Raman–Charpak Fellowship (link is external).

    View at the original source

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    Power Posing: Fake It Until You Make It

    Nervous about an upcoming presentation or job interview?

    Holding one's body in "high-power" poses for short time periods can summon an extra surge of power and sense of well-being when it's needed, according to Harvard Business School professor Amy J.C. Cuddy.

    We can't be the alpha dog all of the time. Whatever our personality, most of us experience varying degrees of feeling in charge. Some situations take us down a notch while others build us up.

    New research shows that it's possible to control those feelings a bit more, to be able to summon an extra surge of power and sense of well-being when it's needed: for example, during a job interview or for a key presentation to a group of skeptical customers.

    "Our research has broad implications for people who suffer from feelings of powerlessness and low self-esteem due to their hierarchical rank or lack of resources," says HBS assistant professor Amy J.C. Cuddy, one of the researchers on the study.
    “It's not about the content of the message, but how you're communicating it.”
    In "Power Posing: Brief Nonverbal Displays Affect Neuroendocrine Levels and Risk Tolerance", Cuddy shows that simply holding one's body in expansive, "high-power" poses for as little as two minutes stimulates higher levels of testosterone (the hormone linked to power and dominance in the animal and human worlds) and lower levels of cortisol (the "stress" hormone that can, over time, cause impaired immune functioning, hypertension, and memory loss).

    The result? In addition to causing the desired hormonal shift, the power poses led to increased feelings of power and a greater tolerance for risk.

    "We used to think that emotion ended on the face," Cuddy says. "Now there is established research showing that while it's true that facial expressions reflect how you feel, you can also 'fake it until you make it.' In other words, you can smile long enough that it makes you feel happy. This work extends that finding on facial feedback, which is decades old, by focusing on postures and measuring neuroendocrine levels."

    The Experiment

    In their article, to be published in a forthcoming Psychological Science, Cuddy and coauthors Dana R. Carney and Andy J. Yap of Columbia University detail the results of an experiment in which forty-two male and female participants were randomly assigned to a high- or low-power pose group. No one was told what the study was about; instead, each participant believed it was related to the placement of ECG electrodes above and below his or her heart.

    Subjects in the high-power group were manipulated into two expansive poses for one minute each: first, the classic feet on desk, hands behind head; then, standing and leaning on one's hands over a desk. Those in the low-power group were posed for the time period in two restrictive poses: sitting in a chair with arms held close and hands folded, and standing with arms and legs crossed tightly. Saliva samples taken before and after the posing measured testosterone and cortisol levels. To evaluate risk tolerance, participants were given $2 and told they could roll a die for even odds of winning $4. Finally, participants were asked to indicate how "powerful" and "in charge" they felt on a scale from one to four.

    Controlling for subjects' baseline levels of both hormones, Cuddy and her coauthors found that high-power poses decreased cortisol by about 25 percent and increased testosterone by about 19 percent for both men and women. In contrast, low-power poses increased cortisol about 17 percent and decreased testosterone about 10 percent.

    Not surprisingly, high-power posers of both sexes also reported greater feelings of being powerful and in charge. In addition, those in the high-power group were more likely to take the risk of gambling their $2; 86 percent rolled the die in the high-power group as opposed to 60 percent of the low-power posers.

    Previous research established that situational role changes can cause shifts in hormone levels. In primate groups, for example, after an alpha male dies the testosterone levels of the animal replacing him go up. The hormonal shifts measured in this experiment show that such changes can be influenced independent of role, situation, or any consciously focused thoughts about power. The physical poses are enough.

    And that, she suggests, has broad implications for people who suffer from feelings of powerlessness and low self-esteem due to their hierarchical rank or lack of resources.

    Why We Judge

    Cuddy's overall research agenda focuses on stereotyping and questions around how we form judgments of others' warmth and competence.

    Just Because I'm Nice, Don't Assume I'm Dumb

    reveals how and why we come to snap judgments about coworkers (and how to fight that natural instinct). The article was cited as a "Breakthrough Business Idea" for 2009 by Harvard Business Review.

    "The power poses paper came about in part because my coauthor Dana and I had noticed that women in our classes seemed to be participating less," says Cuddy, who teaches the MBA elective Power and Influence. "Some of the women exhibited body language associated with low power, so we wondered if that was in turn affecting how they feel," she adds, citing the "fake it till you make it" research that shows smiling can affect feelings and hormone levels.
    “It's about understanding what moves people.”
    "The poses that we used in the experiment are strongly associated across the animal kingdom with high and low dominance for very straightforward evolutionary reasons. Either you want to be big because you're in charge, or you want to close in and hide your vital organs because you're not in charge.

    "It does appear that even this minimal manipulation can change people's physiology and psychology and, we hope, lead to very different, meaningful outcomes, whether it's how they perform in a job interview or how they participate in class."

    Cuddy acknowledges that there are moderating factors in how easily some groups can use traditional power poses. It would run counter to social norms, for example, if a woman wearing a skirt sat with her feet up on her desk while talking to a colleague.

    "I'm not saying it's fair, but there is a different range for women versus men," says Cuddy, who also teaches several HBS Executive Education programs.

    Female managers seem to have an intuition about the need to communicate confidence by striking expansive poses through other means. They might use a whiteboard as a prop that they can reach out and rest a hand on—allowing them to take up more space.

    "There are implications across cultures as well," she adds. Cuddy believes American poses are bigger and more flamboyant than what would be acceptable in Korea or Japan, for example, and expects to focus on this question in future research.

    Warmth Versus Competence

    It ultimately boils down to how we connect to one another. In general, she says, people form impressions of others through a matrix of how much we trust and like them and how much we think they're competent and respect them.

    For the most part people underestimate the powerful connection of warmth and overestimate the importance of competence.

    "We are influenced, and influence others, through very unconscious and implicit processes," she says. "People tend to spend too much energy focusing on the words they're saying—perfectly crafting the content of the message—when in many cases that matters much less than how it's being communicated. People often are more influenced by how they feel about you than by what you're saying. It's not about the content of the message, but how you're communicating it.

    "Many students believe that if they have a great idea, they should be able to magnetize their audience toward them because their audience will recognize the 'greatness' of that idea—that they'll get on board because the idea is so good," she continues. "I try to show students that it doesn't work that way—you have to go meet people where they are and then all move together. You have to connect with them before you can lead them."

    If understanding how you are influenced and can influence others feels a bit too Machiavellian, Cuddy helps bring it down a notch.

    "It's not about politics," she says. "It's about understanding what moves people."

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    From Data to Decisions — Moving Past the Hype

    The 2016 Data & Analytics Report by MIT Sloan Management Review and SAS finds that analytics is now a mainstream idea, but not a mainstream practice. Few companies have a strategic plan for analytics or are executing a strategy for what they hope to achieve with analytics. Organizations achieving the greatest benefits from analytics ensure the right data is being captured, and blend information and experience in making decisions.

    The hype around data and analytics has reached a fever pitch. From baseball to biomedical advances, the media highlights one money-making or money-saving corporate experience with analytics after another. Stories abound about data scientists applying their wizardlike talents to find untapped markets, make millions, or save lives. Pundits have been talking up the promise of data in grand terms for several years now: Data has been described as the new oil, the new soil, the next big thing, and the force behind a new management revolution.

    Despite the hype, the reality is that many companies still struggle to figure out how to use analytics to take advantage of their data. The experience of managers grappling, sometimes unsuccessfully, with ever-increasing amounts of data and sophisticated analytics is often more the rule than the exception. In many respects, the hype surrounding the promise of analytics glosses over the hard work necessary to fulfill that promise. It is hard work to understand what data a company has, to monitor the many processes necessary to make data sufficient (accurate, timely, complete, accessible, reliable, consistent, relevant, and detailed), and to improve managers’ ability to use data. This unsexy side of analytics is where companies need to excel in order to maximize the value of their analytics initiatives, but it is also where many such efforts stall.

    Moving past the hype takes a measure of resolve that few companies demonstrate. A 2015 survey of more than 2,000 managers conducted by MIT Sloan Management Review and SAS Institute — as well as more than a dozen interviews with executives at global companies — reveals insights about the unglamorous but necessary actions required to improve decision making with analytics.
    Five key findings came from this research:

    • Competitive advantage with analytics is waning. The percentage of companies that report obtaining a competitive advantage with analytics has declined significantly over the past two years. Increased market adoption of analytics levels the playing field and makes it more difficult for companies to keep their edge. In addition, many organizations are in the early stage of their analytics initiative.
    Many managers in organizations that have difficulty obtaining a competitive advantage are still experimenting with what they can do with data, and have yet to capitalize on data use across the enterprise. The transition from pilots to organization-wide deployments can be difficult given costs, effort required, and broader questions about whether the analytics will be used consistently by decision makers. Silicon Valley Bank is one company that’s making the transition. “We’ve gone from experimenting with some analytics tools to deploying one visualization tool across the entire enterprise,” says Allan. “Every person has access to data reports and the ability to look at the data from the exact viewpoint they would like. If you had told me two years ago I was going to shift that tool out from a small group of people to all 1,400 employees, I would have said, ‘I highly doubt it.’”

    • Optimism about the potential of analytics remains strong, despite the decline in competitive advantage. Most managers are still quite positive about the potential of analytics. They’ve seen increased interest in analytics over the past few years, and they expect its use to continue to grow in their organizations. In addition, use of analytics for innovation remains steady.

    • Achieving competitive advantage with analytics requires resolve and a sustained commitment to changing the role of data in decision making. This commitment touches many aspects of organizational behavior, from revamping information management to adapting cultural norms.

    • Companies that are successful with analytics are much more likely to have a strategic plan for analytics, and this plan is usually aligned with the organization’s overall corporate strategy. These companies use analytics more broadly across the organization, and they are able to measure the results of their analytical efforts.

    • Most companies are not prepared for the robust investment and cultural change that are required to achieve sustained success with analytics, including expanding the skill set of managers who use data, broadening the types of decisions influenced by data, and cultivating decision making that blends analytical insights with intuition.
    Our research suggests that companies more advanced in their application of analytics view the collection, management, and use of valuable data in terms of strategic ends, not merely operational goals. These analytically advanced companies pursue their hard-won success with leadership and execution, not by leadership fiat or simply by hiring new analytics talent. Companies that have not been able to use analytics for competitive advantage — or those that have lost their analytical edge due to rapid advances in the marketplace — need to understand the level of commitment and hard work required to execute and sustain a successful analytics strategy. At the conclusion of this report, we identify four key organizational issues that managers need to address when planning for success with analytics.

    Competitive Advantage From Analytics Is Down

    For the past six years, MIT Sloan Management Review has asked managers to what degree analytics creates competitive advantage for their companies. For the first few years, the percent of managers reporting a competitive advantage from their use of analytics increased dramatically. In 2013, the steep incline flattened, and in the last two years, there has been a significant decline. Down from a high in 2012 of 66%, just 51% of survey respondents in 2015 indicated that analytics creates competitive advantage for their organizations. (See “Competitive Advantage From Analytics Is Declining.”) This decline is taking place across all industries, with energy and health care reporting the steepest declines, and manufacturing reporting the lowest decline.

    View enlarged image

    Figure 1: Competitive Advantage From Analytics Is Declining
    The percentage of organizations gaining competitive advantage from analytics declined significantly in 2015

    This decrease in the percentage of organizations reporting a competitive advantage from analytics might suggest that analytics is losing its luster. After all, the original hype around analytics was that it helped organizations compete more effectively. In addition, now there is more data, better technology to capitalize on it, and increased focus on analytical skills. So what’s behind this dramatic drop-off?
    One factor in this downward trend is the increase in adoption of analytics across the corporate landscape. As more companies develop analytic capabilities, it is becoming harder for some companies to gain an edge with analytics. “Analytics used to be a competitive advantage, but now it’s becoming table stakes,” says Steve Allan, head of analytics for Silicon Valley Bank. Surprisingly, many managers report that they are innovating with analytics at about the same rate as managers in previous surveys — suggesting that companies are using analytics to stay competitive, but are having difficulty pulling away from competitors.

    Beyond the increased use of analytics among companies, there is no single source of the decline that might suggest a simple fix. Among companies not obtaining a competitive advantage from analytics, the reasons varied. (See “Difficulties Gaining an Edge With Analytics.”)

    Figure 2: Difficulties Gaining an Edge With Analytics
    Many organizations not gaining a competitive advantage from analytics are just beginning to apply analytics and need more experience.

    Figure 2: Difficulties Gaining an Edge With Analytics
    Many organizations not gaining a competitive advantage from analytics are just beginning to apply analytics and need more experience.

    Many managers in organizations that have difficulty obtaining a competitive advantage are still experimenting with what they can do with data, and have yet to capitalize on data use across the enterprise. The transition from pilots to organization-wide deployments can be difficult given costs, effort required, and broader questions about whether the analytics will be used consistently by decision makers. Silicon Valley Bank is one company that’s making the transition. “We’ve gone from experimenting with some analytics tools to deploying one visualization tool across the entire enterprise,” says Allan. “Every person has access to data reports and the ability to look at the data from the exact viewpoint they would like. If you had told me two years ago I was going to shift that tool out from a small group of people to all 1,400 employees, I would have said, ‘I highly doubt it.’”

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    From Data to Decisions - Moving past the Hype II

    View the enlarged image
    Figure 3: More Data, but Insights Have Less Effect on Strategy
    While access to useful data has increased, the ability to use insights to drive strategy continues to decline.

    Respondents also noted several difficulties applying analytical insights — not using analytics to drive strategic decisions, uncertainty about how to apply analytics, and failure to act on insights. Over the years, access to useful data has continued to increase, but the ability to apply analytical insights to strategy has declined. As the volume and complexity of data grows at exponential rates, companies wrestle with how to turn the data into useful insights that can guide the business. (See “More Data, but Insights Have Less Effect on Strategy.”)

    View the enlarged image
    Figure 4: Broken Links in the Information Value Chain
    Organizations have made no progress in managing how they capture and integrate data or disseminate relevant insights to strategic decision makers.

    This decrease in the percentage of organizations reporting a competitive advantage from analytics might suggest that analytics is losing its luster. After all, the original hype around analytics was that it helped organizations compete more effectively. In addition, now there is more data, better technology to capitalize on it, and increased focus on analytical skills. So what’s behind this dramatic drop-off?
    One factor in this downward trend is the increase in adoption of analytics across the corporate landscape. As more companies develop analytic capabilities, it is becoming harder for some companies to gain an edge with analytics. “Analytics used to be a competitive advantage, but now it’s becoming table stakes,” says Steve Allan, head of analytics for Silicon Valley Bank. Surprisingly, many managers report that they are innovating with analytics at about the same rate as managers in previous surveys — suggesting that companies are using analytics to stay competitive, but are having difficulty pulling away from competitors.

    Beyond the increased use of analytics among companies, there is no single source of the decline that might suggest a simple fix. Among companies not obtaining a competitive advantage from analytics, the reasons varied. (See “Difficulties Gaining an Edge With Analytics.”)

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    Executing an Analytics Strategy Will Change Behavior

    The main goal of a formal organizational strategy for data and analytics is typically to improve decision making with analytics in a wide realm of activities. These might include customer segmentation, pricing, identifying new markets, managing supply chain risk, fraud detection, creating efficiencies, and improving operational effectiveness. Our survey results and interviews offer strong evidence that successful analytics strategies dramatically shift how decisions are made in the organization. Organizations with formal analytics strategies exhibit four key characteristics.

    1. Executives are both proponents and users of analytics

    In the most analytically mature organizations, senior management, including members of the C-suite, are much more likely to use analytics than their counterparts in less mature organizations. (See “All Management Levels Use Analytics in Analytically Advanced Organizations.”) One survey respondent from an Analytical Innovator company remarked, “Data analytics is used by C-suite for providing strategic direction to the whole organization. It is also used by middle management to improve day-to-day operation of the organization.”

    Figure 9: All Management Levels Use Analytics in Analytically Advanced Organizations
    Successful analytics strategies shift how decisions are made at all levels in the organization.

    Senior managers in Analytical Innovator organizations also tend to be more open to change their business in response to analytical insights. One manager reported that “a long-standing premise for a business line was disproved using analytics, bringing into question both its pricing and viability going forward.” Another Analytical Innovator respondent said, “We recently analyzed the prescribing behavior of tens of thousands of physicians [in the U.S.] over the past six years in order to inform our launch strategy. The analysis changed marketing decisions and significantly improved the potential outcome. The analysis and model predictions changed our behaviors and strategic plan.”
    Respondents from Analytically Challenged organizations offered a more negative appraisal about the use of analytics by senior management. Some emphasized the reluctance of senior managers to incorporate analytics in their decision making:
    “Senior management tends to come from sales/marketing functions where gut feel and/or outsourcing have dominated, so they just don’t have the skills or understanding.”
    “Top management are people before the computer; they have more confidence in their intuition and feelings than in hard data analysis.”
    “Our senior partners believe that an organization of our size does not have time/resources to apply analytics, and they are convinced that their intuition is the best tool to use. They fear being wrong.”
    “Our CEO is ‘often wrong, but never in doubt,’ and hates seeing anything that contradicts his intuition.”

    2. Analytics and intuition are blended, not balanced

    In more analytically advanced organizations, managers tend to give more weight to analytics when making a wide range of decisions than managers in less advanced analytical organization. (See “Blending Analytics With Intuition.”) From cost-cutting decisions to more strategic choices, data is deployed to a far greater extent in the most advanced analytical companies. This reliance on data is a reach for many Analytically Challenged organizations, whose executives may perceive analytics and experience-based intuition in terms of a trade-off or, worse, as different approaches to decision making that are inevitably at odds. “Intuition versus data is a false dichotomy,” counters Sprigg of IHG. “Great analytics teams love intuitive thinkers who love data, because it’s that intuition — that human spark — that brings ideas and innovation. When I work with a decision maker, we identify the questions we’re trying to answer and we come back to them with answers. I love when this process sparks an entirely new conversation and someone says, ‘Oh, now that I know this, wow; now I need to think differently in these three other areas.’”

    View the enlarged image
    Figure 10: Blending Analytics With Intuition
    Managers in more analytically advanced organizations lean more on analytics than in less mature organizations.

    Furthermore, when analytical tools bolster intuition, new opportunities can be created. Joseph Bruhin, chief information officer at New York-based beverage conglomerate Constellation Brands, says analytics has helped the company’s own sales force have strategic discussions with retailers about the relative value of different opportunities such as product shelf placements. When the analytic evidence from the company’s visualization tool showed the comparative benefits of different product placements or offerings, and that evidence matched the experience of retailers, the tool came to be used as a credible platform to have new kinds of conversations. “It’s been a massive and very positive transition,” says Bruhin.

    3. Analytics is applied strategically

    The strategic use of analytics increases with analytical maturity. Analytical Innovators are much more likely to apply analytics strategically than Analytically Challenged and Analytical Practitioner organizations, which tend to use analytics for more operational purposes. (See “Operational Versus Strategic.”) Using analytics to ask and answer larger strategic questions can deliver significant benefits. In 2005, a major car company’s executives wanted to assess how cohesive the company’s international operations were. According to Gahl Berkooz, the former global head of data and governance, “We started generating metrics around how close we were to a global enterprise. How common are our parts, for example. Once we generated those analytical metrics, people realized that there was very little commonality between the products and the different regions [Americas, Europe, and Asia]. We saw a huge opportunity to deliver savings and efficiency.”  

    View the enlarged image
    Figure 11: Operational Versus Strategic
    Analytics is used strategically in more analytically advanced organizations.

    While the automaker’s managers were not surprised that so few duplicate parts existed, the parts inventory helped establish a global product parts taxonomy that eventually was credited with saving the company $2 billion in costs. According to Berkooz, this system embodies how analytics can enhance traditional business decision making: “Once we had the global product structure in place, any time somebody wanted to introduce what we call a new base part, we were able to run it against this single global taxonomy and see if we already had that kind of a base part in the system. This change in the structure involved changing people’s responsibilities, and people didn’t like that. We needed to have strong executive support to do this, and because of the imperative of globalization, we had that. Eventually, we were able to reduce dramatically, by over 90%, the rate of new base part number introductions.”

    4. Initiatives go beyond optimizing existing processes to explore new ideas

    The most mature analytical organizations have a decisive advantage when it comes to exploring the potential of data. While less mature organizations conduct pilot studies to see what they are capable of doing with data, more mature companies are using their capabilities with data to discover new ways to create business value. (See “Spirit of Discovery.”) A case in point is a population analytics initiative sponsored by the U.S. Department of Veteran Affairs called the Million Veteran Program (MVP). It is designed to answer key questions about high-priority health conditions affecting U.S. military veterans, such as heart disease, kidney disease, diabetes, cancer, and substance use. The goal is to build one of the world’s largest medical databases by collecting blood samples and health information from 1 million veteran volunteers. Data is stored anonymously to support research on the effects of genetics, military exposure, lifestyle, and health factors on diseases and military-related illnesses, such as post-traumatic stress disorder.

    Figure 12: Spirit of Discovery
    Analytical Innovators are more likely to use data to make new discoveries.

    “We’re at this very interesting point in time where we now have the capability to measure biochemical parameters such as genes, to do genotyping on a large scale at a reasonable price,” said Dr. Michael Gaziano, a principal investigator. The studies using this data will not only explore questions related to chronic illnesses common among veterans but will also help establish new methods for securely linking MVP data with other sources of health information, such as the Centers for Medicaid and Medicare Services.

    View the enlarged image

    Figure 13: Proactive With Big Data
    Analytical Innovators explore early to gain awareness about technology potential and limitations.

    One way managers can explore data is through big data initiatives, which can open up new ways of conducting business. Analytical Innovators are well underway with big data initiatives, having gained experience and started to benefit from their up-front investments. (See “Proactive With Big Data.”) More mature organizations are likely to be building familiarity with other technologies, such as the Internet of Things, so that they can identify, assimilate, and apply these technologies to their organization’s specific needs.

    Transitioning to the Next Phase of Analytics

    For many organizations, cultivating a formal analytics strategy and ultimately linking that with corporate strategy requires changing how important business decisions are made. For some companies, the biggest stumbling block may be building processes that enable managers to not only trust the data but also trust that their reliance on data will not undermine the respect that others have for their experience. Information management is clearly a critical component of any robust analytics strategy, but at the same time, cultural norms around decision making, such as respect for and use of data, along with skills development, may need adjustment. A strategy for successful analytics will integrate the business and technology sides of an organization by providing the ground rules for how these groups work together and why. Making this transition to the next phase of analytics will often include an emphasis on four key issues:

    Data awareness and responsibility. As managers rely more on data, their awareness of data in the organization — where it is, who has it, what’s available, how to find what one needs — has to grow as well. Adam Leary, lead data scientist and senior director of the data team at CBS Interactive, calls this “data awareness.” With greater awareness, however, comes greater responsibility. Curating data, for instance, once the exclusive purview of business intelligence units, is increasingly being required of general managers. Similarly, a greater number of general managers are being called upon to participate in data governance and compliance activities.

    At the insurance giant Aetna, the CEO mandated reporting requirements for financial performance data across business lines after each business head presented data showing that their function was profitable, even though the company had just lost hundreds of millions of dollars.7 At the Bank of England, senior managers from across the Bank sit on a data council that addresses a wide range of data issues — from quality to access to data governance. Just as important, as recent stories about data-related deceptions at Volkswagen and Takata demonstrate, the credibility of data can be an organizational risk factor as well as a building block for achieving the potential of analytics.

    Openness to new ideas. Entertaining a wide range of ideas is fundamental to cultivating both innovation and competitive advantage with analytics, but creating room in an organization to enable that to happen demands openness to new ideas that challenge the status quo, along with a tolerance for mistakes. As the philosopher Ludwig von Wittgenstein once remarked, “If people did not do silly things, nothing intelligent would ever get done.” Analytical Innovators use existing data to create or curate new data by looking at it in inventive ways, developing new attributes, or asking questions in new ways. Greg Jones, vice president of enterprise data and analytics at credit reporting agency Equifax, says it best: “We use existing data to uncover really interesting relations and identify things that we didn’t have the capabilities to do before.” For every interesting analytics anecdote, however, the people we interviewed also talked about the many uninteresting results and attempts that didn’t yield a “eureka” moment. An organization must be tolerant of these; after all, the analysis wouldn’t be necessary at all if people knew ahead of time which results would work out.

    Signals about the importance of analytics. Employees frequently look for signals about what is important to management, and whether what is important today will be important tomorrow. Establishing organizational structures such as data councils, data labs, and centers of excellence signals to staff that the organization is taking data seriously as a core asset. Senior managers who use analytics themselves and set clear expectations about staff’s use of data in proposals make visible statements about the importance of analytics. One interviewee says he uses the phrase “the analytics side is bringing in the truth” to signal to people in the organization that the voice of data and evidence will be a key part of the conversation.

    Decisions that blend analytics with intuition. Managers in more advanced analytics companies give more weight to analytics when they make key business decisions. However, if the reports from Analytically Challenged respondents are any indication, the humility required to rely on analytics remains a stretch for some executives. Equip senior managers with skills and the attitude to appreciate that analytics can take intuition much further, in some instances, than intuition by itself. Help managers appreciate that the process of developing analytics is not a mechanical process devoid of intuitive leaps. As Sprigg of IHG notes, analytics teams love intuitive thinkers, especially among general manager decision makers. Some of the best analytical results may come from inspired collaborations between IT and traditional decision makers that forge new questions and elicit new types of insights. The perceived dichotomy between analytics and intuition is false for two reasons: Intuition has a critical role in developing analytics; and blending analytics with intuition in decision making can produce more effective results than either alone, especially when making strategic decisions.


    Managing with analytics is now a mainstream idea, though not a mainstream practice. It is not surprising that Gartner Research identifies getting “the right information to the right person, at the right time” as a strategic technology trend.8 Accenture has identified this issue as a top priority for CIOs.

    Even so, many companies underappreciate the organizational resolve necessary to achieve this goal.
    On the technology side, simply identifying where and what data exists in an organization can be extremely valuable, but it is also an arduous, time-consuming exercise that few organizations pursue.

    The Bank of England and the City of Amsterdam are two exceptions: In their efforts to  institutionalize analytics, each began to reinforce its analytics foundations by taking an inventory of the data sets in their respective organizations. This tedious task identified nearly a thousand data sets at the Bank of England, and 12,000 among city departments in Amsterdam. “Inventory sounds quite boring,” remarks one executive, “but it’s fundamental. We need to know what we’ve got to know how to manage it.”

    On the management side, deepening the use of analytical decision making changes management behavior at several levels: how managers blend information and experience to make specific decisions, how managers and technologists together build processes to create the right information, and how managers improve their skill sets to make the best use of data. Together, achieving these shifts may fundamentally change how managers operate. Yet few companies have a strategic plan for analytics or are executing a strategy for what they hope to achieve with analytics. Without a strategy for advancing the use of analytics among decision makers, the desired results from data-driven insights will be elusive.

    On both the technology and management sides, organizational resolve is the difference between experimenting with analytics and using analytics to achieve strategic ends. If executives believe that analytics can help them gain a competitive advantage in their markets and, by implication, help reverse the downward trend among companies gaining a competitive edge with analytics, they must recognize and engage in the hard work that’s necessary to achieve these results.

    Our research clearly shows that companies in the early stages of their analytics maturity are far less likely to have a strategic plan for analytics. This matters, especially in this era of rapidly evolving evidence-based management. In the twentieth century, the rate of technological change and business trends occurred on a much slower time frame, making it easier for companies to catch up if they fell behind the latest tech trends. But today, even as they gain better access to data, less analytically developed companies struggle to develop data-driven strategic insights. Veteran managers accustomed to experimentation and pilots with twentieth-century cycle times may (increasingly) find themselves at a disadvantage among companies that move rapidly and purposefully from experiments to new technology adoption.

    More analytically advanced organizations ensure that the right data is being captured or created on an ongoing basis. In these organizations, information management is an organizational goal, not a technical one. For many organizations, especially among the growing numbers of the Analytically Challenged companies, it is time to recognize that to get the most out of data and effectively improve decision making with data across the organization, better algorithms and better analytical talent are necessary but not sufficient. Changing how decisions are made is a crucial part of how organizations function, and buying the latest technology fad alone may not cut it. With access to useful data becoming less of a problem, CIOs might consider joining with other colleagues in the C-suite to “develop the right information so that the right person with the right skills can use it at the right time.” The right information might not exist if the right questions have yet to be asked.

    Courtesy MIT Sloan Management Review.

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    About the Research

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    About the Research

    About the Research

    To understand the challenges and opportunities associated with the use of business analytics, MIT Sloan Management Review conducted its sixth annual survey of business executives, managers, and analytics professionals from organizations located around the world. The survey, conducted in the summer of 2015 in partnership with SAS, captured insights from 2,192 respondents across the world, from a wide variety of industries and from organizations of all sizes. The sample was drawn from a number of sources, including MIT alumni, MIT Sloan Management Review subscribers, and other interested parties.

    In addition to these survey results, we interviewed subject matter experts from a number of industries and disciplines to understand the practical issues facing organizations today in their use of analytics. Our interviewees’ insights contributed to a richer understanding of the data. We also drew upon a number of case studies to illustrate how organizations are using business analytics as a strategic asset.
    In this report, the term “analytics” refers to the use of data and related business insights developed through applied analytical disciplines (for example, statistical, contextual, quantitative, predictive, cognitive, and other models) to drive fact-based planning, decisions, execution, management, measurement, and learning.

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