The bench, the Indian IT industry’s resource bank, is thinning.

For long considered a key strength of India’s tech majors, the bench is losing its relevance even as just-in-time contract hiring is gaining popularity. More companies are hiring techies on relatively short, fixed-term contracts, rather than employing them full-time even when there are no projects.
Automation, creeping unionism, and a global closing of borders for techies have in recent times accelerated this process. So much so that the average IT company’s bench strength has progressively fallen from between 8% and 10% of the billable employees to between 4% and 5% now, human resources (HR) experts believe.
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Scientists studying the brain have discovered that the organ operates on up to 11 different dimensions, creating multiverse-like structures that are “a world we had never imagined.”

By using an advanced mathematical system, researchers were able to uncover architectural structures that appears when the brain has to process information, before they disintegrate into nothing.
Their findings, published in the journal Frontiers in Computational Neuroscience, reveals the hugely complicated processes involved in the creation of neural structures, potentially helping explain why the brain is so difficult to understand and tying together its structure with its function.

The team, led by scientists at the EPFL, Switzerland, were carrying out research as part of the Blue Brain Project—an initiative to create a biologically detailed reconstruction of the human brain. Working initially on rodent brains, the team used supercomputer simulations to study the complex interactions within different regions.

In the latest study, researchers honed in on the neural network structures within the brain using algebraic topology—a system used to describe networks with constantly changing spaces and structures. This is the first time this branch of math has been applied to neuroscience.

"Algebraic topology is like a telescope and microscope at the same time. It can zoom into networks to find hidden structures—the trees in the forest—and see the empty spaces—the clearings—all at the same time," study author Kathryn Hess said in a statement.

In the study, researchers carried out multiple tests on virtual brain tissue to find brain structures that would never appear just by chance. They then carried out the same experiments on real brain tissue to confirm their virtual findings.

They discovered that when they presented the virtual tissue with stimulus, groups of neurons form a clique. Each neuron connects to every other neuron in a very specific way to produce a precise geometric object. The more neurons in a clique, the higher the dimensions.

In some cases, researchers discovered cliques with up to 11 different dimensions.

The structures assembled formed enclosures for high-dimensional holes that the team have dubbed cavities. Once the brain has processed the information, the clique and cavity disappears.

The left shows a digital copy of a part of the neocortex, the most evolved part of the brain. On the right is a representation of the structures with different dimensions. The black hole in the middle symbolizes a complex of multi-dimensional spaces, or cavities.

"The appearance of high-dimensional cavities when the brain is processing information means that the neurons in the network react to stimuli in an extremely organized manner," said one of the researchers, Ran Levi.

"It is as if the brain reacts to a stimulus by building then razing a tower of multi-dimensional blocks, starting with rods (1D), then planks (2D), then cubes (3D), and then more complex geometries with 4D, 5D, etc. The progression of activity through the brain resembles a multi-dimensional sandcastle that materializes out of the sand and then disintegrates," he said.

Henry Markram, director of Blue Brain Project, said the findings could help explain why the brain is so hard to understand. "The mathematics usually applied to study networks cannot detect the high-dimensional structures and spaces that we now see clearly,” he said.

"We found a world that we had never imagined. There are tens of millions of these objects even in a small speck of the brain, up through seven dimensions. In some networks, we even found structures with up to eleven dimensions."

The findings indicate the brain processes stimuli by creating these complex cliques and cavities, so the next step will be to find out whether or not our ability to perform complicated tasks requires the creation of these multi-dimensional structures.

In an email interview with Newsweek , Hess says the discovery brings us closer to understanding “one of the fundamental mysteries of neuroscience: the link between the structure of the brain and how it processes information.”

By using algebraic topology, she says, the team was able to discover “the highly organized structure hidden in the seemingly chaotic firing patterns of neurons, a structure which was invisible until we looked through this particular mathematical filter.”

Hess says the findings suggest that when we examine brain activity with low-dimensional representations, we only get a shadow of the real activity taking place. This means we can see some information, but not the full picture. “So, in a sense our discoveries may explain why it has been so hard to understand the relation between brain structure and function,” she explains.

“The stereotypical response pattern that we discovered indicates that the circuit always responds to stimuli by constructing a sequence of geometrical representations starting in low dimensions and adding progressively higher dimensions, until the build-up suddenly stops and then collapses: a mathematical signature for reactions to stimuli.

“In future work we intend to study the role of plasticity—the strengthening and weakening of connections in response to stimuli—with the tools of algebraic topology. Plasticity is fundamental to the mysterious process of learning, and we hope that we will be able to provide new insight into this phenomenon,” she added.

After playtime was dropped amid focus on academic performance, educators now take playground breaks seriously




Kindergarten students take to the playground at Oak Point Elementary, in Oak Point, Texas, where recess went from 30 minutes a day to one hour a day. Photo: Brandon Thibodeaux for The Wall Street Journal Three kindergarten girls looked close to taking a spill as they sat on the high back of a bench on a playground at Oak Point Elementary. Feet away, several administrators looked on, not making a move to stop them because at this school outside of Dallas, playtime is revered.

“As long as they’re safe, we allow kids to be kids,” said Daniel Gallagher, assistant superintendent for educational services in the Little Elm Independent School District.

That’s the mantra in this small school district, where schoolchildren are transitioning from one daily 30-minute recess to one hour a day, taken in four 15-minute increments. School officials say children are better focused with more unstructured breaks and do better in school.

School districts throughout the country are reassessing recess—with some bringing back the pastime or expanding it, citing academic and health benefits.

On Tuesday, the Minneapolis school board is expected to consider moving from a recommended 20 minutes of daily recess to a required 30 minutes daily. And in Florida, parents are hoping the governor will soon sign an education bill that includes a required 20 minutes of daily recess for elementary-school students in traditional public schools.

In the past year, the state of Rhode Island and school districts in Dallas, Portland, the Jefferson Parish Public School System in Louisiana, and Orange County and Manatee County school districts in Florida, are among those to implement a daily-recess requirement.About 21% of school districts required recess daily for elementary-school students in the 2013-2014 school year, according to the latest study from the Centers for Disease Control and Prevention and Bridging the Gap Research Program. That’s an increase from 16% of school districts with the requirement in 2006-2007.
It’s a change after years of recess taking a back seat to testable core subjects like math and reading, with a noticeable decline in playtime after the rollout of the now-defunct 2002 No Child Left Behind education law that put more focus on holding schools accountable for academic performance.

The Center on Education Policy, a national research group, found in a 2007 report that 58% of school districts increased time spent teaching English language arts, while 45% increased math time, after the 2002 education law. Meanwhile, 20% of school districts decreased the amount of time spent on recess, at an average of 50-minutes less a week. (The CDC recommends at least 20 minutes of daily recess for elementary-school students.)

Supporters of daily recess often point to a 2013 study by the American Academy of Pediatrics, which says in part that “recess serves as a necessary break from the rigors of concentrated, academic challenges in the classroom.” The study also found that “safe and well-supervised recess offers cognitive, social, emotional, and physical benefits that may not be fully appreciated when a decision is made to diminish it.”

“Recess resets their brain,” said Lowell Strike, superintendent in the Little Elm district, where children have recess as long as the wind chill is at least 13 degrees and the heat index is no higher than 103.

But there has been some pushback. Some school administrators and lawmakers have spoken against state bills to mandate recess, saying it takes away flexibility from schools. This year, the Arizona School Boards Association opposed a bill in the state that would have required 50 minutes of daily recess in elementary schools.

“We are absolutely not against school recess,” said Chris Kotterman, the association’s director of governmental relations. “But when it comes to how the school day should be structured, it should be left up to the local school board. We generally try to keep state policy mandates to a minimum.”
Parents in areas around the country are advocating for daily recess.

Angela Browning is among “recess moms” in Florida pushing for a statewide recess mandate. She said the group has successfully pushed for daily recess in a few Florida school districts, including Orange County Public Schools, where her three children attend school. Ms. Browning said she got active several years ago upon finding out from her children that their school didn’t offer daily recess.

“I was stunned,” she said. “Children learn on the playground—leadership skills, social skills, negotiating skills. With all the testing, recess, along the way, got squeezed out.”

Orange County Public Schools started requiring 20 minutes of recess daily for students in kindergarten through fifth grade in the 2016-17 school year.

Recess requirements are usually decided at the campus level, and to a lesser extent at the district level. Studies have found that a majority of schools offer some type of recess, but not always regularly nor with set timespans—and sometimes in conjunction with school lunch. Those who linger over lunch get less playtime.

The CDC advises against taking recess in conjunction with lunch breaks and physical-education classes, saying that it should be unstructured and on a regular schedule.

In Little Elm, teacher Nicole Beal said she has seen firsthand the benefits of her kindergarten students having recess breaks during the school day.

“Their reading is better, they’re more focused,” she said. “Getting outside, it’s a nice break.”
When the children were asked who likes the extra playtime, every hand shot up.

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Image credit: Shyam's Imagination Library

There’s plenty of anecdotal evidence about what makes a good communicator, but Noah Zandan is
more interested in the science behind it. That’s why he co-founded Quantified Communications, a firm that helps business leaders remake and refine their messages.

Zandan spoke recently to Cade Massey, Wharton practice professor of operations, information and decisions and co-director of the Wharton People Analytics Initiative, about how he applies research to the art of communication. Massey is co-host of the Wharton Moneyball show on Wharton Business Radio on SiriusXM channel 111, and this interview was part of a special broadcast on SiriusXM for the Wharton People Analytics Conference.

An edited transcript of the conversation appears below.

Cade Massey: Let’s understand what Quantified Communications is and how you got going in that direction.

Noah Zandan: The idea behind it is that communications has always been considered an art. How people talk to each other, how executives communicate, how we relate to other people, how we connect to the world around us, has always kind of been this art. Academics have been studying it for years, which is really exciting, and what we are trying to do at Quantified Communications is bring some of that research and apply it to a business environment. We work with corporations and organizations to really help their leadership, help the people moving the message of the business to deliver that message, and do it in a way where they are using objective data to know whether or not it works.

Massey: What is your background?

Zandan: I studied economics in college. Econometrics. I showed up on Wall Street, bright-eyed, and realized pretty quickly as I got further and further into Wall Street that we were modeling everything — obviously looking at risk and trying to make $1 billion decisions — off of data. But there was a missing factor from our model, and that was the people: The way that the executives communicate, the way they told the story, how confident they were was really one of the critical success factors on Wall Street. But there was no data behind it, and I’m an econ guy. [I thought,] “This isn’t rational.” I started looking and found some amazing research. Folks like James Pennebaker at the University of Texas, people who have been measuring this stuff for years, but nobody in the business environment knew this existed.

“We thought visionaries would really be complex thinkers, but in fact what they’re really concerned with is making things simple and breaking it down into steps.”

And so from there, we started. Our co-founder [Peter Zandan] has a Ph.D. in evaluation research and started finding all of this great stuff and then built a big database and a big platform to measure it. All of the big presidential speeches, all of the TED talks, media interviews — you name it, we’ve tried to go find it.

Massey: What are you doing with it?

Zandan: Well first, you have to be able to process it. So you’ve got to tag it; you’ve got to organize it; you’ve got to make sure that it’s useful. The New York Times calls it being a data janitor. It is a huge part of the job for a data scientist. We spent a long time doing that, and then we had to go understand it. Was it successful or not? Did it accomplish its purpose? Did the audience react to it in the appropriate way? Go out and ask a bunch of people what they think. Do you trust this person if they did this? Do you believe them? Do you want to engage with them more? And then measure the factors of the communication. What types of words did they use? Were they making eye contact? What were they doing with their hands? Then you can understand the factors that correlate with success.

Massey: How did you decide what factors to look for?

Zandan: Again, academic research. Folks in academics have been doing this for years. One of the best guys out is Albert Mehrabian out of UCLA. He created this model called the Three Vs — verbal, voice and visual. It breaks down someone’s communication into some of the important elements, and he did a bunch of research as to how those are correlated with whether or not I like you. You go talk to communications folks and researchers, and they understand eye contact, facial movement, features.

There are factors behind all this stuff.

Massey: As you said, it’s historically been an art. What is the disparity between what you’re bringing to this conversation versus what’s been in the conversation before? When you come to these academics with this unbelievable database and say, “I’ve run some tests of these ideas,” are they saying, “This is different than anything we’ve seen before?” Or is this just a bigger version of what they’ve done?

Zandan: I would probably say it’s just a different use case. The academics are doing it from a great research standard, really thinking about how to apply it for research validation. What we’re doing is trying to bring it in a more applied way — looking at how leaders can communicate, really thinking carefully about what their purposes and audience types are. And then we can also go a little bit further, in that we can build predictive models and just run them over and over, given that we’re a business and not held to kind of the research standards.

Massey: One question you’ve looked at is, what do visionary communicators or visionary leaders do? Can you give us a recap of your findings?

“If you think about Elon Musk talking about Tesla, he always talks about what it’s like to drive in the car, what it’s like to look at the car, how the doors work.”

Zandan: We looked at hundreds of transcripts of visionary leaders. It was just a linguistic analysis. We didn’t look at their faces or voices or things like that. What we identified was what separates these people who we consider to be visionaries, everybody from Amelia Earhardt to FDR to Elon Musk to TED Talks on innovation. What separates them from the average communicator? What distinguishes them from a factor model perspective?

There were three main findings that we had. One: We thought visionaries would talk a lot about the future, but in fact they talked about the present. Two: We thought visionaries would really be complex thinkers, but in fact what they’re really concerned with is making things simple and breaking it down into steps. Three: We thought that visionaries would be really concerned with their own vision, but in fact they’re more concerned with getting their vision into the minds of their audience.

Massey: What does that mean?

Zandan: That means using second-person pronouns and using a lot of perceptual language, talking about look, touch and feel. It really brings the audience into the experience with you. So if you think about Elon Musk talking about Tesla, he always talks about what it’s like to drive in the car, what it’s like to look at the car, how the doors work. It’s really less about the future of energy and transport. As this kind of theoretical vehicle, he really brings it and makes it tangible.

Massey: One thing that jumps out to me about that research is the present tense versus the future, especially when you’re talking about visionary leaders. You would have expected that to go the other way. Why do you think they are so much more effective?

Zandan: We saw it highly correlated with credibility. I think that people think if you’re talking so much about the future, then it’s going to be less credible. People aren’t going to believe you as much. So, you really want to [apply it to] today.

“The data can lead you down a path of replication. We don’t want to do that, because so much of what you communicate is your personality.”

Massey: How do you apply this research for your clients?

Zandan: What we often get asked to do is help people improve their communications, use the technology, use the analytics, allow them to make data-driven decisions on how to better impact their audiences. The No. 1 question Oprah Winfrey gets when the lights go off after her interviews with all of these amazing world leaders and celebrities is, “How did I do?” That’s what these people want to know. We can answer that not in a way that their team is going to — which is, “Hey, boss, you did great.” We can actually give them a lot of truth in the data — talk about how they are perceived, talk about how they can get better, and give them a very prescriptive plan to better impact their audiences and achieve their purposes.

Massey: When you work with people in that role, what data do you collect?

Zandan: We look at text, audio or video, which we can take in. We’ll break those down into the elements. So text is what you say, the words. For audio, we’ll look at the words as well as your voice. And then for video, which is our favorite, you’ve got the face and the gestures. You break down all of those into different behavioral patterns, you measure all of them, you benchmark them against what they would consider to be a measure of success. That could be themselves, that could be someone who is best in class, that could be a competitor they aspire to be. And then you could give them a road map for how to achieve that. We’ll give them some guidance on that, but a lot of times they know. The White House came to us and said, “We want to replicate one of Obama’s best speeches. We know which one was our favorite, and we want to understand the different factors behind that.”
Massey: Can you speak about what you found?

Zandan: No. But the speech was a eulogy in Arizona, which they considered to be one of the best ones he has given during his tenure.

Massey: Let’s put it this way, did you find anything interesting when you looked at that kind of speech from that level? That’s really championship-level rhetoric.

Zandan: Of course. You uncover stuff, but what’s worth saying here is that there is also the other side of the equation, which is authenticity. I am not President Obama. I do not speak like President Obama. If I did, it would seem very strange to an audience. Everybody has their authentic tone. We work really hard to measure authenticity. It’s one of the hardest problems.

Massey: Being able to do something like that would be a real advance.

Zandan: It would. And there is obviously authenticity to the way you deliver the message, and there are words that are considered authentic. But what we’re careful on is we don’t want to push people to be something that they’re not. The data can lead you down a path of replication. We don’t want to do that, because so much of what you communicate is your personality.

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Read about the antisense ASP RNA acting as viral latency factor.


Image credit : Shyam's Imagination Library

Upon infection of a new cell, the HIV-1 genome integrates into the genome of the host cell, and in this form HIV-1 is known as a provirus. Under proper cellular conditions, the HIV-1 provirus produces the transactivator Tat that drives efficient expression of the viral genome, leading to the production of new viral particles.

Alternatively, the provirus remains silent in a status known as latency. In our study, we demonstrated that HIV-1 encodes an antisense transcript (ASP) that recruits the cellular Polycomb Repressor Complex 2 (PRC2) to the proviral 5’LTR. PRC2 promotes nucleosome assembly at the 5’LTR, leading to transcription silencing and proviral latency.

While active regulation of proviral expression by Tat has long been known, latency was thought to be a passive event caused primarily by the absence of key cellular and viral transcription factors. Our study demonstrated that – on the contrary – HIV-1 also regulates the establishment and maintenance of latency through ASP, and therefore it controls all aspects of its destiny.

The impetus for this study happened – as often is the case – very serendipitously. Our lab became interested in the presence of antisense transcription in human retroviruses, HTLV-1 and HIV-1 – a research area that was relatively unexplored. There was some evidence in the literature that these antisense transcripts play a role in viral expression, but the mechanism was yet to be described. During an informal discussion, a friend and colleague – Dr. Rosa Bernardi – brought to our attention that many cellular antisense transcripts suppress the expression of their cognate sense transcript by tethering chromatin modifying protein complexes to their promoter regions, and by inducing nucleosome formation and transcriptional silencing.

This inspired us to use RNA immunoprecipitation (RIP) assays to test whether the HIV-1 antisense RNA (ASP) interacts with members of the PRC2 complex. However, our initial efforts were repeatedly unsuccessful. Discouraged by these negative results, we decided to focus on other projects in the lab. After a few months we revisited these experiments, and we realized that there was a problem in the design of the RT-PCR portion of the RIP assay. After making the necessary modifications to the RT-PCR assay, we were finally able to demonstrate specific interaction between the ASP RNA and two components of the PRC2 complex. This important result encouraged us to further pursue this line of studies.

The “eureka” moment came shortly after that when functional studies showed that over-expression of the ASP RNA in vivo suppresses acute viral replication and promotes the establishment and maintenance of latency.

Our current efforts are focused on defining the structural and functional determinants of the ASP RNA. Since this transcript contains an open reading frame, we are also investigating the expression and function of the ASP protein.

Figure legend

The HIV-1 ASP RNA acts as a viral latency gene: it interacts with the cellular Polycomb Repressor Complex 2 (PRC2), and recruits it to the HIV-1 5’LTR. There, PRC2 catalyzes trimethylation (Me3) of lysine 27 (K27) on histone H3. The deposition of this repressing epigenetic mark leads to the assembly of the nucleosome Nuc-1, turning off transcription from the HIV-1 5’LTR, and promoting viral latency.

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Researchers from the Worcester Polytechnic Institute (WPI) have transformed a spinach leaf into functional heart tissue. The team’s goal was to recreate human organ tissue down to the fragile vascular networks of blood vessels it can’t survive without. Scientists had previously attempted to 3D print intricate vascular networks without success. This breakthrough could mean that the delicate vascular systems of plants are the key.

Repairing Damage, Creating Replacements

Why it matters: Like the internet in its early years, blockchain technology is hard to understand and predict, but could become ubiquitous in the exchange of digital and physical goods, information, and online platforms. Figure it out now.

What is a blockchain?

Blockchain is a term widely used to represent an entire new suite of technologies. There is substantial confusion around its definition because the technology is early-stage, and can be implemented in many ways depending on the objective.

“At a high level, blockchain technology allows a network of computers to agree at regular intervals on the true state of a distributed ledger,” says MIT Sloan Assistant Professor Christian Catalini, an expert in blockchain technologies and cryptocurrency. “Such ledgers can contain different types of shared data, such as transaction records, attributes of transactions, credentials, or other pieces of information.

The ledger is often secured through a clever mix of cryptography and game theory, and does not require trusted nodes like traditional networks. This is what allows bitcoin to transfer value across the globe without resorting to traditional intermediaries such as banks.”

On a blockchain, transactions are recorded chronologically, forming an immutable chain, and can be more or less private or anonymous depending on how the technology is implemented. The ledger is distributed across many participants in the network — it doesn’t exist in one place. Instead, copies exist and are simultaneously updated with every fully participating node in the ecosystem. A block could represent transactions and data of many types — currency, digital rights, intellectual property, identity, or property titles, to name a few.

“The technology is particularly useful when you combine a distributed ledger together with a cryptotoken,” Catalini says. “Suddenly you can bootstrap an entire network that can achieve internet-level consensus about the state and authenticity of a block’s contents in a decentralized way. Every node that participates in the network can verify the true state of the ledger and transact on it at a very low cost. This is one step away from a distributed marketplace, and will enable new types of digital platforms.”

How is blockchain related to bitcoin?

Bitcoin, with a market cap of more than $40 billion, is the largest implementation of blockchain technology to date. While a lot of media attention has shifted from bitcoin to blockchain, the two are intertwined.

“When The Economist put blockchain on the cover in 2015, it wasn’t really about its use to support a digital currency anymore. It was all about the other applications this technology will unleash within the next 5 to 10 years,” Catalini says. “For example, in finance and accounting there is excitement about the ability to settle and reconcile global transactions at a lower cost using the technology. In logistics the attention is all on how you can use the immutable audit trail generated by a blockchain to improve the tracking of goods through the economy. Others are fascinated by the possibility to use this as a better identity and authentication system.”

There are two types of costs blockchain could reduce for you: the cost of verification and the cost of networking. 
 
So what’s the big deal?

In a recent paper, Catalini explains why business leaders should be excited about blockchain — it can save them money and could upend how business is conducted.

Every business and organization engages in many types of transactions every day. Each of those transactions requires verification. In many cases, that verification is easy. You know your customers, your clients, your colleagues, and your business partners. Having worked with them and their products, data, or information, you have a pretty good idea of their value and trustworthiness.

“But every so often, there’s a problem, and when a problem arises, we often have to perform some sort of audit,” Catalini says. “It could be actual auditors coming into a firm. But in many other cases, you’re running some sort of process to make sure the person claiming to have those credentials did have those credentials, or the firm selling you the goods did have the certification. When we do that, it’s a costly, labor-intensive process for society. The marketplace slows down and you have to incur additional costs to match demand and supply.”

“The reason distributed ledgers become so useful in these cases is because if you recorded those attributes you now need to verify securely on a blockchain, you can always go back and refer back to them at no cost,” he says. “It’s costless verification. So when you think about why bitcoin works, it’s because it can cheaply verify that the funds are actually there. You can transfer value from here to anywhere on the globe at almost zero transaction cost. Sending secure messages that carry value does not require a bank or PayPal in the middle anymore.”

In short: Because the blockchain verifies trustworthiness, you don’t have to. And the friction of the transaction is reduced, resulting in cost and time savings.

Using a blockchain can also reduce the cost of running a secure network. This will happen over a longer timeline, Catalini says, perhaps a decade. The internet has already allowed for a faster, less stilted exchange of goods and services. But it still needs intermediaries, however efficient they may be — think eBay, Airbnb, and Uber.

“Those intermediaries are costly and earn rents for processing payments, maintaining a reputation system, matching demand and supply,” Catalini says. “This is where blockchain technology,
combined with a cryptotoken, allows you to rethink an entire value chain from the ground up.

That’s where incumbents should be slightly worried, because in the long run the way you may be delivering value to your customers and competing against other companies could be fundamentally different.”

Blockchain technology could mean greater privacy and security for you and your customers.
                 
Catalini calls it data leakage. When you give a bartender your driver’s license, all that person needs to know is your age. But you’re revealing so much more — your address, your height, whether you’re an organ donor, etc.

The same thing happens in commercial transactions.

“As your business partner, I need to know that you’re trustworthy and reliable, but for simple transactions I don’t really need to know many other things about you,” Catalini says. “Information disclosure is increasingly becoming a cost because of data breaches. We can’t keep our data private and it’s becoming increasingly complex to do so within large organizations. So imagine a model where you can verify certain attributes are true or false, potentially using a decentralized infrastructure, but you don’t have to reveal all these attributes all the time.”

In a business transaction context, Catalini says, a blockchain could be used to build a reputation score for a party, who could then be verified as trustworthy or solvent without having to open its books for a full audit.

“Reputation scores both for businesses and individuals are today siloed into different platforms, and there is very little portability across platforms. Blockchain can improve on this,” he says.

Which industries could blockchain disrupt?

“All of them,” Catalini says. “The technology is what economists call a general purpose technology, and we will see many applications across different verticals.”

Here are a few to keep an eye on.

Central banks: Many central banks — including those in Canada, Singapore, and England — are studying and experimenting with blockchain technology and cryptocurrencies. The potential applications include lower settlement risk, more efficient taxation, faster cross-border payments, inter-bank payments, and novel approaches to quantitative easing. Imagine a central bank stimulating the economy by delivering digital currency automatically to citizens. Don’t expect big moves from big countries soon. The risk is too high, Catalini says. But expect to see smaller, developed countries with a high tolerance for technology experimentation lead the way and possibly experiment with a fiat-backed, digital currency for some of their needs.

Finance: The busiest area of application so far, blockchain is being used by companies seeking to offer low cost, secure, verifiable international payments and settlement. Ripple is  one of the leaders in this space on the banking side. Meanwhile, companies like Digital Asset and Chain seek to create a faster, more efficient financial infrastructure for tracking and exchanging financial assets of any type.
Money transfer: In 2014, two MIT students raised and distributed $100 worth of bitcoin to every MIT undergraduate.

They wanted to see what would happen and generate interest on campus. Catalini, together with Professor Catherine Tucker, designed the experiment and studied the results. While 11 percent immediately cashed out their bitcoin, 49 percent were still holding on to some bitcoin. Some students used the funds to make purchases at local merchants, some of whom accepted bitcoin. Others traded with each other. Meanwhile, startups around the world competed to become the consumer trading application for bitcoin.

Then PayPal bought Venmo, a payment platform that trades cash. PayPal’s own mobile app allows for peer-to-peer transactions, as well. The bitcoin-based consumer payment industry cooled down. But the application of blockchain remains attractive because of the lower costs it could offer parties in global, peer-to-peer transactions. Rapid payment company Circle, which advertises itself as “Like a text filled with cash,” stopped allowing users to exchange bitcoin last year, but is building a protocol that allows digital wallets to exchange value using a blockchain.



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Micropayments: What if, instead of subscribing to a news site online, you paid only for the articles you read?

As you click through the web, your browser would track the pages and record them for payment. Or what if you could get small payments for doing work — completing surveys, working as a freelance copy editor — for a variety of clients. By reducing the cost of the transaction and verifying the legitimacy of parties on either end, blockchain could make these micropayments, new types of cross-platform subscriptions, and forms of crowdsourcing possible and practical. A company called Brave is already attempting this, with potential ramifications for the digital advertising industry.

Identity and privacy: In October 2013, the arrest of the founder of Silk Road, a deep web marketplace where users paid for illegal goods with bitcoin, showed just how anonymous bitcoin really wasn’t. Nor was it ever intended to be — bitcoin addresses function much as a pseudonym does for a writer, Catalini says. Users can never completely mask their transactions. But others are trying. Zcash promises to be a fully private cryptocurrency.

There are significant downsides to the anonymity a blockchain could offer, such as the ability to fund terrorism or facilitate money laundering. But there are many virtuous applications too — Google’s DeepMind is attempting to use blockchain to layer privacy and security in electronic health care records.

Smart contracts: This application is still in the early stages, Catalini says, but by recording information on a blockchain, contracts could use that information to make themselves self-executing if certain conditions are met. This idea backfired last year when code was exploited to steal $60 million from The DAO, a blockchain-based venture capital firm.

Provenance and ownership: A blockchain could be used to record details about physical products, helping to verify authenticity and prevent fraud and counterfeiting. London-based EverLedger is tracking diamonds and envisions doing the same for fine wines. At the same time, for all these applications, a blockchain is only as useful as the quality of the information recorded on it in the first place.

Internet of things, robotics, and artificial intelligence: Your appliances are already talking to each other — think smart home technologies like Nest thermostats and security systems. What if they could barter or acquire resources? What if a highway could verify the identity of and accept payment from a self-driving car, opening up a pay-per-use fast lane to commuters in a rush? At the outer edge of application, but not outside the realm of possibility, Catalini says.

When will this disruption happen?

Over a period of more than ten years. Catalini is convinced blockchain has internet-level disruption potential, but like the internet it will come over a multi-decade timeline with fits and starts, and occasional setbacks. Some industries, especially finance, will see drastic change soon. Others will take longer.

“A lot of the work in this space is experimental,” Catalini says. “We are at the infrastructure building stage. Bitcoin has a market capitalization of $42 billion, which is nothing compared to the mainstream financial platforms and exchanges that move trillions of dollars every day.

But the technology is maturing and growing. At some point, one of the startups in this space may reveal itself to be the Netscape of cryptocurrencies. What would follow is something we have seen play out many times before in history.”

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Many companies today are operating several business models at once. But despite the potential that business model diversification has for generating growth and profit, executives need to carefully assess the strategic contributions of each element of their business model portfolio.

Across many industries, companies are using innovative business models as a basis for competitive advantage. In recent years, for example, we have seen upstarts such as Uber Technologies Inc. and Airbnb Inc. use multisided business models to leverage ordinary resources against established competitors that rely on unique resources. Increasingly, organizations are adopting two or more business models at once. Multiple business models provide companies with a diversification vehicle that enables them to tap into resources and capabilities that aren’t available through other means. By definition, a company diversifies into a business model portfolio when it engages in at least two ways of creating and/or monetizing value. 

To illustrate how business model diversification can work, consider Netflix Inc. Netflix deployed two distinct business models (DVDs by mail and online streaming) to challenge Blockbuster and other movie rental incumbents. Although its rapid market penetration and growth are indisputable, Netflix did not initially depend on traditional approaches to diversification. In fact, the company offered U.S. customers essentially the same movies through both its DVD by mail and online streaming services, but it offered different subscription prices, a choice of physical versus digital rentals, and value-added services online, including tailored recommendations. Netflix’s business model diversification helped it to expand its U.S. market share, which provided a springboard for extensive international expansion as well as an expanded product portfolio that now includes original content.

Although Netflix’s success shows how multiple business models can work to make organizations more competitive, such success stories are, more often than not, specific to a particular company’s circumstances. However, there can also be industry-wide patterns. When we studied various business model configurations in the Formula One automobile racing industry, we found that certain configurations of business models were associated with higher performance than others. We concluded that the higher-performing business model configurations generally led to better results because there were complementarities between the two business models chosen that helped companies both learn faster and further develop key business capabilities.

As companies attempt to diversify into portfolios of business models that achieve higher performance than other configurations, they need to match their own resources and capabilities to the external opportunities they face. The goal is to establish a unique bundle of resources and capabilities that can deliver sustainable competitive advantage.

Despite the potential that business model diversification has for generating growth and profit, most companies lack the tools to assess the value of business models in their portfolio or their strategic contributions. In practice, different business models can be in direct conflict with one another, resulting in cannibalization and resource dilution. For example, they may provide offers that are mutually exclusive, or defocus resources from core activities that sustain competitive advantage.
For instance, beginning in the late 1980s, the direct-sales business model of Dell Computer Corp. (now Dell Technologies) fundamentally altered the structure of the personal computer industry.

Once Dell’s approach was seen as a success, competitors such as IBM, Hewlett-Packard, and Compaq tried to copy it. Unfortunately, the other companies found that pursuing two business models at once undermined their existing competitive advantages. Rather than offering synergies, the direct-sales business model required different assets and new capabilities (such as flexible fabrication lines and the ability to reorganize supply chains) and risked alienating distributors, who represented a core customer base.

The Case for Business Model Diversification

Harvard Business School professor Michael E. Porter has noted that strategic diversification is about combining activities that efficiently relate to and mutually reinforce one another, forming a system of activities, as opposed to a collection of isolated activities. In the process, the strategic fit may increase the value of the individual assets in addition to contributing to competitive advantage and superior profitability.

A business model is a system of interdependent organizational activities to create and capture value. Executives need to assess whether there is fit not only between the activities underpinning each business model but also across multiple business models. In fact, although the fit within a business model’s activities can reduce costs or enhance differentiation, the complementarities within a portfolio can further enhance individual activities and create unique and hard-to-imitate resources and capabilities. Indeed, diversified configurations of business models may offer unique opportunities for increased performance.

How can companies assess whether there are advantages to using multiple business models? And when might it make sense to focus on fewer business models rather than more? To develop our understanding of business models, we studied the Formula One auto racing industry, the various businesses operated by Amazon.com Inc., and nearly 50 other companies. (See “About the Research.”) In this article, we offer a framework built on three core questions:

• What should you consider when thinking about business model diversification?

• In deciding to add a new business model to your portfolio, how can you assess and optimize its value?

• How should you modify your business model portfolio over time? 

Question 1: What should you consider when thinking about business model diversification?

When contemplating model diversification, managers should begin by assessing the extent to which the business models in the company’s portfolio can share resources. By sharing physical assets across business models, companies can enjoy economies of scope and eliminate redundancies. This approach is particularly valuable in capital-intensive and technology-focused industries. Successful business model diversification can help companies reduce risk. Biopharmaceutical companies provide a good example. Because they operate in highly uncertain environments where the time lag between an investment and the returns can be extremely long, many companies try to limit the risk by tapping into different revenue streams (such as R&D services, royalties, patents, and health care products). What’s more, they try to share valuable assets such as financial and knowledge resources across business models in order to create cross-business synergies.

Another question to consider is whether the additional business model will provide access to valuable assets that can help an existing business. For example, Formula One teams that, in addition to racing, sell advanced components such as engines and gearboxes to competitors gain access to valuable data about how those components perform — an intangible resource that can provide insights that allow the teams that sell components to further develop their own technology, win more car races, and sell future engines at higher prices. In such cases, the two business models have positive complementarities.


When considering new business models, managers should start by looking for promising opportunities that would tap into existing company resources to achieve economies of scope and greater capacity utilization. The new business models should utilize resources and capabilities that are closely related to some employed by the existing business model or models. However, managers should be careful not to let the costs of acquiring new resources restrict their freedom to develop new products and services.

Indeed, there is a risk that a company’s prior investments in valuable resources and capabilities can inhibit its ability to adopt new business models. Consider the case of Nokia Corp., the Finnish technology company. In the early 2000s, Nokia was a global leader in mobile handset manufacturing. Yet its mobile strategy was heavily geared toward controlling strategic and costly resources, as exemplified by its $8.1 billion purchase of Navteq Co., which supplied advanced navigation data. In contrast to Apple Inc., whose versatile iPhone platform took the mobile phone market by storm, Nokia failed to respond well to emerging consumer trends or leverage high-priced acquisitions such as Navteq. Within a relatively short period, it lost its competitive edge in the mobile phone business. In 2012, Microsoft Corp. acquired Nokia’s phone and tablet business for less than the amount Nokia had paid to acquire Navteq five years earlier.

Business model diversification enables companies to maximize existing resources while developing capabilities that enhance their value across multiple activities. Therefore, managers should begin by asking: Does my proposed new business model help maximize the use of my current resource base while meeting an important need in the marketplace? If the answer to that question is yes, managers can expect their portfolio to generate cost efficiencies while also providing opportunities for risk reduction through cross-subsidization of the portfolio’s interrelated activities.

In 1994, Amazon, for example, started with a single business model: selling books online. By 2016, the company had grown so that it was achieving close to $136 billion in revenue and operated a number of business models. Along the way, Amazon invested heavily in powerful servers and the development of an automated web infrastructure whose sole objective initially was to power its own website’s massive traffic. Over the years, Amazon has acquired technological prowess and invaluable expertise in the development of web and data infrastructures; based on this expertise, it offers web services and infrastructure to thousands of companies (including Netflix, Siemens, and Vodafone) and has become one of the leading cloud-computing service providers.

Not only is the ownership of such resources of immense value for Amazon’s core e-business activities, it also has value as a stand-alone business model. Indeed, in 2016, Amazon Web Services brought in more than $12 billion in revenues and more than $3 billion in operating income. Although e-commerce still accounts for the majority of Amazon’s revenues, Amazon Web Services is a high-performing business unit.

By supporting a variety of business models and ensuring their survival, Amazon enjoys access to other critical resources. For example, with the Amazon Prime membership business model, the company gains access to important user data, promotes its brand, and fuels sales through the e-commerce platform. Resources and capabilities underpinning business models are often inextricably tied to one another, and thus not easily separable. For instance, Amazon Web Services used resource codeployment to create a new revenue stream. The technological infrastructures and expertise involved are woven into Amazon’s technology development capabilities.

When crafting new business models, managers also need to ensure that the models they create will be linked to the company’s existing distinctive capabilities and what it does best. For example, Apple leveraged its superior design and product development capabilities to serve product markets — going over and above PCs — but also capitalized on its exceptional management and marketing capabilities to develop a unique value proposition and customer engagement mechanism: in other words, a business model innovation. This enabled Apple to first disrupt the digital music industry (with iTunes and the iPod) and then reap the benefits of that disruption via the iPhone.

To translate capabilities beyond their current functional boundaries, managers should first delineate the structure of their individual business models’ activities. This isn’t always easy: Existing business models are often tightly intertwined and difficult to describe in isolation. Careful investigation can reveal potent and dynamic cross-business-model linkages, which might suggest new growth opportunities that transcend industry and product market boundaries.

As noted above, Amazon’s complementary business models work together in generating mutually reinforcing advantages. Amazon Web Services, for example, helps subsidize the Amazon Prime business model. Prime memberships, in turn, provide Amazon with more customer purchase data, which enhances customer service and the online retail experience. This, in turn, feeds buyer demand, which attracts more sellers, which ensures low-cost products, and so on.

Question 3: How should you modify your business model portfolio over time?

As appealing as the idea of cross-business-model synergies may seem, implementation is rarely straightforward. The same is true for intra-business-model portfolio complementarities. Therefore, we think it’s critical for managers to regularly examine portfolio synergies critically and granularly. (See “Analyzing a Business Model Portfolio.”)



Consider the logic behind Amazon’s technology products business (which has included devices such as the Kindle reader, Kindle Fire, Fire TV, Fire Phone, Dash Button, and Echo). These products are often bundled and sold with access to other Amazon products and services (such as its e-books and Prime subscriptions). However, among the company’s business models, some of Amazon’s technology products seem to have, in our analysis, the weakest synergies within the portfolio.

As its technological resources grew, Amazon thought it was gaining new capabilities it could apply to the development of technologies that complemented its online retail activities. In reality, though, Amazon’s business model diversification into electronics manufacturing only partially leverages the company’s distinctive capabilities in the areas of online platform and big-data management.

Those capabilities are, in fact, quite different from hardware technological development in consumer electronics, and hardware design needs to respond to changing consumer tastes and overcome established customer loyalties. Amazon products often compete directly with products offered by other suppliers, and some of Amazon’s products have fallen short of expectations. For example, Amazon launched its Fire Phone in 2014. But due to poor response from consumers, the company reduced the price to just 99 cents with a two-year contract, and it discontinued the product in 2015.

However, Amazon has recently taken steps to increase the synergies between its consumer products and the rest of its business. In launching Amazon AI, a set of cloud-based artificial intelligence services, in fall 2016, the company has sought to leverage the artificial intelligence technology behind its Echo devices and Alexa personal assistant software.

In general, executives need to examine the interrelationships across their business model portfolio rigorously and on a regular basis. Like other forms of corporate diversification, business model diversification does not always generate superior performance. In settings where a business model isn’t generating the synergies that were envisioned, managers shouldn’t be afraid to improve, streamline, or divest from business models in the portfolio, to focus on and bolster the activities that are strategically optimal.

The primary purpose of a business is to drive growth and performance while generating value for customers. Although it’s common for managers to focus on financial performance, good managers seek to exploit new opportunities to create additional value, such as cross-selling, differentiation, reputation, user data, and capability development. Managed wisely, business model diversification can help executives improve performance and advance the purpose of the enterprise.

Business model portfolios encompass multiple activities that are sometimes difficult to disentangle and analyze. To maximize the complementarity across a business model portfolio, it is important to identify the relationships between the different business models’ resources and capabilities, and their impact on performance. We developed a visualization tool to map such critical connections. We used it when analyzing the business model complementarities of several companies in our research. The diagram above shows a sample analysis for a hypothetical company with four business models.

To visualize the complementarities in your own business model portfolio, follow these steps:

1. List your company’s business models in a column on the far left.

2. For each business model, identify the key resources it generates (for example, financial resources, user data, highly skilled human resources, or new technologies). Place them in the second column from the left. Label that column “Resources.”

3. For each business model, identify the key capabilities that stem from it (for example, technological capabilities, sales capabilities, new product development capabilities, or communication capabilities) and place them in a “Capabilities” column, to the right of the “Resources” column.

4. Identify one or more performance measures important to your organization. These can be financial measures (such as return on equity or return on investment), market-driven measures (such as market share or number of users), or other types of measures (such as product quality). Place them in a “Performance” column on the far right.

5. Now use arrows of one color (green in the diagram above) to connect each business model to its associated resources and capabilities and, ultimately, to performance. Think about the mechanisms that underpin such relationships. You can use thicker lines to identify the most strategic ones.

6. Resources are often bundled with other resources, as are capabilities. Use arrows of another color (orange in the diagram above) to identify such relationships. For example, amassing user data creates monetization opportunities and thus increases financial resources.

7. Then analyze: Which business models produce fewer (or less valuable) resources and capabilities? Which business models (as well as their resources and capabilities) display fewer synergies with the others? How strong is their relationship to performance measures? You might want to consider how to strengthen the weakest ties, create new synergies, or — if that is not doable — possibly drop less-embedded business models to focus on the more complementary ones.

8. Business model portfolios are as dynamic as the activities they underpin. Update your model portfolio chart periodically to make sure your business model portfolio is always maximized.

Reproduced from MITSloan Management Review

A new strain of ransomware has appeared in multiple countries. On June 27, 2017, Petya ransomware emerged and began spreading itself to large organizations across Europe. This ransomware uses what is called the Eternal Blue exploit in Windows computers. It is not impacting individual users at the time of this writing.

What is Ransomware?

Ransomware generally presents users with an ultimatum: pay a fee to unlock and reclaim personal data, or don’t pay the fee and lose the data indefinitely. Ransomware is able to automatically corrupt and delete files in the event that monetary compensation is not received, leaving most users with little time to resolve the problem through alternate means.

How to deal with Ransomware:

1. Do not pay the ransom. It only encourages and funds these attackers. Even if the ransom is paid, there is no guarantee that you will be able to regain access to your files.                                             
2. Be sure you are backing up your data on a regular basis. If you do become a victim of a ransomware attack, you will be able to restore any impacted files from a known good backup. Restoration of your files from a backup is the fastest way to regain access to your data.                               
3. Do not provide personal information when answering an email, unsolicited phone call, text message or instant message. Phishers will try to trick employees into installing malware, or gain intelligence for attacks by claiming to be from IT. Be sure to contact your IT department if you or your coworkers receive suspicious calls.                                                                                       
4. Use reputable internet security software and a firewall. Maintaining a strong firewall and keeping your security software up to date are critical. It’s important to use antivirus software from a reputable company because of fake software out there.                                                                        
5. Employ content scanning and filtering on your mail servers. Inbound e-mails should be scanned for known threats and should block any attachment types that could pose a threat.                           
6. Make sure that all systems and software are up-to-date with relevant patches. Exploit kits hosted on compromised websites are commonly used to spread malware. Regular patching of vulnerable software is necessary to help prevent infection.                                                                                            
7. If traveling, alert your IT department beforehand, especially if you’re going to be using public wireless Internet. Make sure you use a trustworthy Virtual Private Network (VPN) when accessing public Wi-Fi like Norton WiFi Privacy.

Symantec is continuing to analyze this threat and will post further information as soon as it becomes available.

This article is authored by an employee of Norton by Symantec.

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Disruptive change is accelerating, driven by new technologies and rising competition from both traditional and nontraditional players. As a result, Innosight forecasts that half of companies in the S&P 500 will be replaced over the coming decade, due to loss of market value or acquisitions.

What are leaders doing about these challenges? And how do they feel about their ability to prepare for and manage them? In May 2017, we surveyed more than 300 executives at major corporations with revenues of $2 billion and higher about their current attitudes, experiences, and responses to marketplace disruption. The results tell a mixed story. Key findings include:

• Business leaders may be overconfident in their ability to respond to disruption. 80% of respondents say they recognize they need to transform, and 82% expressed degrees of confidence that their company is prepared to change in response to disruptive trends. Yet there are multiple warning signs in the data—including perceptions of competition and disruption—that suggest they may be in a “confidence bubble.”

• Broad understanding about what they need to do to respond to disruption. Executives see the need for a two-pronged approach to the future. They say they are likely to both transform their core business while also investing in new growth businesses. They also see the need to expand within existing markets and enter into new markets.

• Talent and leadership are concerns. Executives say finding and retaining the right talent is considered the biggest obstacle to transformation. Moreover, 81% say that top management is not open to new ideas.

• Digital and AI may be blind spots. Despite artificial intelligence and digital technologies rapidly transforming markets around the world, executives are downplaying the threat these forces will play to their own businesses. 

“One could say that the worrying thing here is that executives aren’t more worried,” says Scott Anthony, managing partner at Innosight. “The pace of change continues, and digitalization is accelerating, so leaders should be investing more, expecting to reconfigure their organizations and more, and should be paying closer attention to new product ideas and new growth ventures”

Main Finding: The Confidence Bubble

Perhaps the  most striking finding  is the  disconnect between confidence levels  and  specific per- ceptions of threats and  competition. 82% of respondents expressed degrees of confidence that their company is prepared to change in response to disruptive trends. Yet their actual activities fall short of what is required to justify  their confidence. There are multiple warning signs in the data that suggest they have strategy and  organizational blind spots that may undermine their ability to adapt.

• Underestimating new  sources of competition. When asked about the  sources of future competition, fully two-thirds of respondents (67%) think  it will be from “mostly existing” competition while fewer than one-in-four (23%) think  their companies will be facing “mostly new” sources of competition. In a related question, 55% expect competition to come mostly from  within their existing industries, with just 10% saying competition will come from new industries.                                                      
• New  thinking gets short shrift. 81% say new growth products and  ideas sometimes or often do not  get enough attention from  top management.                                                                                                              
• Keeping up, but not  ahead. When it comes to keeping up with the  pace of change, only
7% report their companies are  moving much faster than the  overall market, with only
24% saying somewhat faster.

Modest investment in digital. Digital business models and platforms are  disrupting industry after industry, but  53% of respondents said that they plan either no increase in digital investment or a less than 25% increase.                                                                                                                                              
• Underestimating new  technology. Despite rapid advances in the  emerging technology of artificial intelligence, fully 65% of executives said AI is not  too threatening or not  at all a threat to their business.

“One could say that the  worrying thing here is that executives aren’t more worried,” said Innosight managing partner Scott D. Anthony. “The pace of change continues, and  digitalization is accelerating, so leaders should be investing more, expecting to reconfigure their organizations more, and  should be paying closer attention to new product ideas and  new growth ventures.”


Reproduced from Innosight Research.

Please see our essay, "It Pays to Be Smart."

Haier CEO Zhang Ruimin is transforming a manufacturing giant into a platform for entrepreneurship — and his employees into self-governing entrepreneurs.We live and work in an age when the need for corporate reinvention is treated almost as a given. Countless CEOs talk about reducing hierarchy and increasing agility, flexibility, and connectedness to the market, and virtually every large company is “transforming for digital.” Yet in most organizations, lip service to change remains more the order of the day than real change itself.

Then again, you might work with Zhang Ruimin. The CEO and chairman of the white goods giant Haier Group Corp., based in Qingdao, China, has done what most chief executives dare not even dream about. He blew up much of the administrative structure of a global manufacturing enterprise, eliminating 10,000 management jobs that once held it together. And he has guided the organization to reemerge as a network of entrepreneurial ventures run by employees, whose compensation is based on the success of their products in the market.

In its transformed state, Haier is no longer a traditional manufacturer corporation so much as a platform that provides financing, support, and coordination for microenterprises all focused on developing products and services for the “smart home,” the internet of things (IoT)-based concept of a fully connected and networked household.

Haier calls its management model Rendanheyi, a term that refers to connecting employees with users. The company sees it as a “win-win” model for reducing the distance between the organization and its end users to zero and moving as close as possible to a state of co-creation with the customer.
This isn’t the first organizational innovation Zhang has led at Haier during his three decades with the company, but it is certainly the most profound. The 68-year-old executive, who has been named to a number of “most admired” and “top thinker” lists, received the Legend in Leadership Award from the Yale School of Management’s Chief Executive Leadership Institute in 2016. In noting the honor, Jeffrey Sonnenfeld, a senior associate dean of leadership programs at Yale, called Zhang “a genuine global business giant who inspires mythic awe in his competitors, his peers, and his fellow Chinese business leaders.”

During a spring 2017 trip to Washington, D.C., Zhang sat down with MIT Sloan Management Review editor in chief Paul Michelman to discuss Haier’s latest reinvention. The interview was conducted through a translator, and a further exchange took place via email. What follows is an edited and condensed version of the conversation.

MIT Sloan Management Review: The strategic transformation that you are undertaking right now is unprecedented in many ways. I’d like to begin by asking: Why now?

Two things make us believe now is the time. One is the internet, and the other is the internet of things. The internet has closed the distance between parts of the organization and between the organization and its customers to zero. This means that traditional management models — like Taylorism and bureaucracy as proposed by Max Weber — are no longer relevant. Then there is the internet of things, which represents the next generation of the internet. Despite a dozen years of development, the idea of IoT has not taken off — or as we like to say, it has not been ignited. We are undertaking this fundamental transformation of our corporate structure using the internet in the hope of becoming a leader in IoT.

Do you believe that this is the only viable path to lead in IoT? Did you consider other possible organizational forms?

We looked at this question from two different angles. First, we have been coming to the U.S. for years. We’ve talked to many corporations in the hope of finding a management model from which we can learn. But we have failed to identify the right one. So we decided to explore on our own. And we have come to believe that the traditional corporate model has to be upended and disrupted to survive in the internet era.

Secondly, what’s called for in the IoT age? It’s a direct interaction with users and a focus on creating the best user experience. However, in the traditional economy, there are no “users,” there are only “customers.” Customers are anonymous; users are real people who are directly involved in the process of creation.

Why hasn’t IoT been ignited? Because an interactive platform for users — where companies can take direction from the people who will buy their products — has yet to be created. We need to establish a “community economy” with zero distance between customers and companies. Our end goal is to have a true connection with our users and to create legitimate lifetime value for them via the internet of things.

Will every Haier business run on the platform? Will anything be carved off and managed in a more traditional way?

The platform is the only place for a business to go to. By eradicating our middle management layer — and laying off more than 10,000 middle-level managers — we have destroyed the original hierarchical structure. So we are merely a platform for entrepreneurs. All the businesses have to succeed as innovative entrepreneurial enterprises, or they will be kicked off the platform. The platform is also accessible to entrepreneurial projects from outside Haier. Today, we have more than 3,000 microenterprises operating on it.

What has surprised you the most along this transformative journey?

Three things. The first is our transformation from a traditional hierarchical organization to one with more than 200 different entrepreneurial teams operating thousands of microenterprises on our platform. This was totally unimaginable back in 2005, when the idea for this strategic transformation was proposed. The structure we have now is totally different.

The second thing is the variety of markets the entrepreneurial teams can enter. For example, our gaming laptop has grown to become the No. 1 market player in China in the short span of two to three years since the laptop team became entrepreneurial. The team did not come to me for approval. All the decisions were made by the [team].

But what has surprised me most is that employees have accepted the radical compensation change. Previously, we used IBM’s broadbanding model, where pay was determined based on an employee’s position and contribution. Now, compensation is determined by how much value is created for the user. When employees create value, they get paid. If they don’t create measurable value, they don’t get paid. Ultimately, if they don’t create value, they have to leave.

As we think about the Haier platform as a place where entrepreneurship occurs, many of us will draw on what we’ve learned and witnessed about successful entrepreneurs — that they possess a set of skills and characteristics that differ significantly from people who succeed in more directed environments.

We don’t require employees to possess certain skills. We don’t impose a training system or coach employees on how to be entrepreneurial. I don’t believe there is any training that is so effective as to transform people into entrepreneurs overnight. If someone can meet the requirements — if they can help start up a business — then they will prosper on the platform. If they cannot, they probably have to leave.

At the same time, we have external IoT entrepreneurs joining our platform because they believe it offers resources and support that other platforms do not. We have developed a networked organization that attracts the most capable people. We often say that the whole world is now our human resources department.

Was there anything done to support employees’ transition?

What we do is help people form communities of interest so that they can work together as entrepreneurs.

The process begins with an objective. For instance, someone comes up with an idea for a product targeting a certain niche of the market. And then people from different departments or disciplines — research and development [R&D], sales, manufacturing, marketing — will sit down and analyze its viability across all the relevant dimensions. If they believe it is viable, they will form a community to bring it forward as a new microenterprise.

Then they need to attach their plan to their compensation. We call it a predefined value adjustment mechanism, or VAM, which defines what goal the plan has to realize and how the members of the community will be paid if the goal is achieved. This is a signed agreement between Haier and its microenterprises.

We also have microenterprises that focus on more cutting-edge projects. These teams may not plan to achieve revenue for a couple of years. Here, we set different targets and schedules. For example, at a certain point of this endeavor, they must be able to attract external venture capital. If they can’t achieve the investment by an agreed-upon time, then they have to let it [the project] go, or we might invite another entrepreneurial team to work on the project.

Many leaders have a vision for the way people in their organizations will act. I’m curious to know if you’ve imagined certain core behaviors that indicate whether an individual will be successful?
I think most business leaders tend to view their employees as passive performers who take orders from their superiors. According to traditional management philosophy, there are managers and those to be managed. But in my opinion, everyone is capable of leadership — or in our words, “Everyone can be their own CEO.”

The reason why a company’s employees are not leaders is that they have not had the soil or platform to grow upon. With access to such a platform and with entrepreneurial competence, anyone can prosper.

In our model we have delegated the major powers of corporate executives to the employees — or at least to the microenterprises — including the power of decision-making, the power of selecting and appointing personnel, and the power of financial allocation. Other companies would not do that. They believe that if these powers are delegated, managers will lose control. Our goal is different: We are trying to motivate employees to unleash their potential and realize their own value. We don’t want to control them.

How does this transformation affect frontline employees, particularly in the manufacturing area? What has changed with respect to the factories themselves, such as how they’re run and how individuals in manufacturing jobs are compensated?

That’s a very important question, and one of our biggest challenges. It’s true that manufacturing workers do not typically face the market directly, but we can create a connection to the market by allowing our different production lines to compete with one another.

We have 108 factories all around the world, each possessing many production lines; every production line is a microenterprise. We evaluate the performance of these microenterprises based on cost, delivery and service quality, and market response to the products they make. This evaluation determines how they are qualified to get subsequent orders. Some production lines are able to acquire many orders. Some get fewer — and as a result employees on those lines are not paid as well. Lines gaining more orders can merge with those having fewer.

In this way the production lines are organically connected with the market. Moving forward, we are forging an even tighter connection by allowing users to work directly with the factory to place, customize, monitor, and take delivery straight from the production line. We have eight of these “interconnected factories” operating now.

As a fully realized open platform for entrepreneurship, what will Haier provide or enable that can’t be replicated? Thinking ahead, what will Haier be good for?

This is a question we are constantly reflecting upon, and it guides our direction. Though we have turned Haier into an entrepreneurial platform, we are not an investment company. The goal of an investment company is to put in money and take out profit. After an IPO, the goal is fulfilled — that is not our aim.

Our primary aim is to ignite the internet of things. All the entrepreneurial teams on the platform — even though they cross industries — focus on the smart home in some way. This is also why so many teams outside of Haier are willing to start up smart-home businesses on our platform. If they turn to venture capitalists, they will get money but not coordination. On Haier’s platform, businesses gain access to our sales network, logistics operation, and R&D system. Haier’s platform offers the help to IoT businesses that other platforms or funds cannot.

Today you’re working within a certain construct: the smart home. As you explore the potential of a truly open platform for entrepreneurship, how far will you allow yourselves to stray from this focus?
The smart home is already encompassing and covering many different entrepreneurial ventures. If we cannot succeed in this very broad construct, other goals are undoubtedly out of reach.

What’s most important is our resolute aim to be the enterprise that can truly ignite the whole idea of IoT. And this requires evolving from stand-alone products to products connected to the internet and on to a network of products and services all connected to each other.

So, what has become of the electric refrigerator in this scenario? It has transformed from a single appliance into the hub of a network connected to 400 organic food suppliers that monitor inventory levels and keep the refrigerator stocked. This model — and this level of interconnectedness — is really difficult to achieve in terms of both technology and business. For companies, revenue no longer comes solely from selling refrigerators but also from sales of organic food. These are two different concepts. When you’re taking into account this kind of transformation, a true ignition for IoT becomes very hard to reach.

What facets of the transformation have been enabled by Chinese organizational tradition? And what elements, if any, have been made more challenging by the same tradition?

China doesn’t have any well-established corporate models. When it comes to business, Chinese companies basically replicate Western management. So, it’s not as difficult for us to disrupt the model because it’s not Chinese in the first place.

But I do think Chinese traditional culture can aid this transformation. Western culture mainly focuses on dichotomy and atomism. In a typical Western company, activities are siloed by departments and then further cut up into more detailed tasks.

In China, we tend to look at things from the holistic perspective. Consider the difference between traditional Chinese medicine and Western medicine, which tends to focus on the cellular level of the human body. If something is wrong with your stomach, then something is wrong with your stomach.

So, the West will look more closely: What part of the stomach is wrong? Whereas in Chinese traditional medicine, we will not just look at your stomach. We will consider the connection between your stomach and other organs of your body, and we will look at your body as a whole before providing a cure.

So we are applying this traditional holistic thinking to our management transformation. The internet and IoT require enterprises to see things from the whole and systemic perspectives and to stop dividing everything into tiny parts.

That might suggest that the open platform model could find some challenges in scaling across geographies. Do you think that Western companies will have a hard time following suit?

This is a big challenge for us. We are a global business and must be able to globalize Rendanheyi. We acquired a consumer appliance business from Sanyo Electric Co. of Japan and used this model to transform it. We also acquired Fisher & Paykel Appliances of New Zealand, and they too have gradually accepted Rendanheyi. So it’s working, although at present [it is] applied only in the Asia-Pacific region.

The biggest challenge at the moment is GE Appliances [which Haier bought in 2016]. It’s a very large American company with a standard linear management model, where every action has a basis. In its hierarchy, there are protocols that direct employee behaviors at each step.

Rendanheyi is a nonlinear management model in which employees must be able to answer the question, “What do I do next?” for themselves. There is no one for you to ask — and that’s a challenging transformation.

Since we acquired GE Appliances, we have not sent a single executive over to the U.S. to implement our model. Instead, we have focused on communication and education with the existing executive team to make sure they understand and are willing to accept this philosophy. And they are coming around.

You are a student of Western management and familiar with the idea of corporate culture as an adhesive framework that helps ensure that people are all moving in the same direction. But as we think about an organization that is self-organizing, that is freely incorporating internal and external resources, do we have reason to question whether culture remains a significant factor?

I think an organization’s values are very important. The core value of Haier is self-negation. When most companies achieve success, they tend to fall into states of self-satisfaction and complacence, celebrating and falling in love with their achievements. That is not us. Even when we have a great success, we question where we can improve. Instead of being proud, we realize our own defects and mistakes. We challenge ourselves to reach another height.

This core value was essential in our own transformation from an execution culture to an entrepreneurial culture. Because we have a DNA of self-negation, it is easier for us to disrupt ourselves and to accept the need for change. We keep saying internally to our employees that there’s no such thing as a successful business. There’s only a business that is compatible with the task at hand.

So, if you are doing well right now, don’t be conceited. You’re just doing the right thing at the right time. Things change all the time. The only thing that doesn’t change is time itself. So, if you don’t keep up with changes, you’ll be quickly made obsolete.

I have met with many companies all around the world, but few of them possess this virtue. Usually they are arrogant.

Even as you create a business that aims to transcend traditional management and become self-perpetuating, your personal leadership of Haier demonstrates the value of a strategic visionary. How will the organization survive you? I can’t help but think that you may be Haier’s Steve Jobs.
(Laughing) This question has been raised by many people. I often ask it myself. I’ve been working at Haier for more than 30 years, but even if I can keep working and keep leading the organization, it doesn’t guarantee future success. My task is not to cultivate a replacement but to cultivate many people who are willing to challenge both themselves and the status quo.

That’s the reason why we have installed Rendanheyi. We are developing a multitude of microenterprises and entrepreneurial teams with the goal of dispensing with my authority. Rather than listening to my orders, my instructions — which might turn out to be erroneous — our teams follow the demands of the market and of our users. This will lower the failure of the individual microenterprises and the probability of failure for Haier as a whole.

Nowadays, the management model in many enterprises is “empowerment,” but we are not empowering; we are returning all the power to the employees.

You just mentioned Jobs. There is a book about him titled To Live Is to Change the World. That is the organization we are designing — one meant to keep changing both ourselves and the world.

What is implicit in your answer is that Haier is on this new path permanently. And if it is, then perhaps traditional leadership will not become necessary. Maybe you don’t even need a single CEO or chairman.

Among so many foreigners I have met, you are the only one who truly understands me.

Reproduced from MITSLOAN Management Review