Harvard Business Review USA - May 2016

MAY 2016

94 The HBR Interview

HP’s Meg Whitman on Creating a Sense of Urgency40 The Big Idea

Embracing AgileDarrell K. Rigby, Jeff Sutherland, and Hirotaka Takeuchi

80 Spotlight

Hedge Your Strategic BetsGeorge Stalk Jr. and Ashish Iyer

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52

Contents

54 STRATEGYPlanned Opportunism Weak signals—early evidence of changes in demography, technology, customer needs, and so forth—can help companies approach the future with fresh perspectives. Vijay Govindarajan

62 LEADERSHIP“Both/And” Leadership When two goals conflict, ask how you can do both, rather than which one to choose. Wendy K. Smith, Marianne W. Lewis, and Michael L. Tushman

72 DECISION MAKINGSuperforecastingHow to dramatically improve your company’s prediction capability Paul J.H. Schoemaker and Philip E. Tetlock

80 RISK MANAGEMENTHow to Hedge Your Strategic BetsTo test opportunities in volatile markets, invest in short-term options that can be unwound quickly. George Stalk Jr. and Ashish Iyer

SPOTLIGHT ON MANAGING FOR AN UNPREDICTABLE FUTURE ABOVE Sarah Morris Jardim Botânico (Rio) 2013, household gloss paint on canvas

ON THE COVERPhotography: Bruce Peterson; Styling: Molly Schuster

May 2016 Harvard Business Review 5

Features May 2016

40THE BIG IDEAEmbracing AgileWith the best of intentions, executives may be eroding the benefits that agile innovation can deliver. Darrell K. Rigby, Jeff Sutherland, and Hirotaka Takeuchi

88ORGANIZATIONAL CULTUREIncrease Your Return on FailureMistakes can be incredibly valuable—provided you systematically capture their lessons. Julian Birkinshaw and Martine Haas

94THE HBR INTERVIEW

“We Need to Intensify Our Sense of Urgency”Customers’ problems don’t get better with age. They get better when you fix them. Hewlett Packard Enterprise CEO Meg Whitman, interviewed by Adi Ignatius

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6 Harvard Business Review May 2016

Departments May 2016

IN EVERY ISSUE 10 From the Editor 12 Contributors 18 Interaction 32 Strategic Humor 121 Executive

Summaries

When a mental illness affects an employee’s work page 109

Can a good night’s rest make your judgment worse? page 30

EXPERIENCE104 MANAGING YOURSELFLearn to Love NetworkingFour strategies to help you overcome your aversion and make rewarding connections Tiziana Casciaro, Francesca Gino, and Maryam Kouchaki

109 CASE STUDY What to Do for a Struggling Colleague? Mental health issues threaten a vital project. John A. Quelch, Carin-Isabel Knoop, and Amy Gallo

118 SYNTHESISOffice ExposéThree books in the genre of office tell-all Daniel McGinn

124 LIFE’S WORKIsabel Allende The best-selling novelist on discipline and determination

IDEA WATCH24 TALENTCreative Job Titles Can Energize WorkersThey improve attitudes and boost recruitment. PLUS The global links among corporate boards, why powerful people perform badly on teams, and more

30 DEFEND YOUR RESEARCH“Sleeping on It” Doesn’t Lead to Better DecisionsSurprising new findings on how sleep affects our mental processes

35 HOW I DID ITUpwork’s CEO on How an Introverted Engineer Learned to LeadFor one thing, he sought projects and talked his way into jobs that were outside his comfort zone. Stephane Kasriel

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Toward a More Agile Future

W e live in a fast-changing world. But there are still a few certainties (beyond, you know, death and taxes).

For example: (1) Failure happens, (2) strategy constantly needs to adapt, and (3) at some point you’re going to have to figure out “agile.”

In this issue, we try to bring fresh perspective to all three.We all know that failure is a critical part of a successful business journey. But how can

we make sure that it’s really an instructive tool? In “Increase Your Return on Failure” (page 88), Julian Birkinshaw of London Business School and Martine Haas of Wharton show that we’re actually not as tolerant of failure as we think. They offer advice, nonetheless, on how to get the most out of it.

In “Planned Opportunism” (page 54), Tuck professor Vijay Govindarajan describes a process for recognizing impending change and capitalizing on it. The trick is to be sensitive to “weak signals” in the marketplace—early evidence of shifts in demographics, customer tastes, and more.

As for agile approaches, many managers are just starting to realize their value—not only for technology development but in a broad range of functions. In “Embracing Agile” (page 40), a trio of writers—Darrell K. Rigby of Bain, Jeff Sutherland of Scrum Inc., and Hirotaka Takeuchi of Harvard Business School—show how adopting agile can accelerate growth and improve workflow. But for companies to fully benefit, top executives need to truly comprehend and buy into the system.

Though you can’t avoid the turmoil of the business landscape, you can improve your odds of succeeding amid it. We hope this issue will help you do that.

Adi Ignatius, Editor in Chief

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Julian Birkinshaw’s first boss was a tyrant. Whenever an initiative failed, he would subject its hapless leader to a public dressing-down and then make sure the project’s results never saw the light of day. This got Birkinshaw, now a professor at London Business School, thinking about the value that could be captured from failure in organizations—but usually isn’t. In the article on page 88, he and Wharton’s Martine Haas, an expert in team dynamics, describe a practical process for extracting that value.

Sarah Morris, this month’s Spotlight artist, is a British-born painter and filmmaker who’s now based in New York City. Inspired by architecture, her work investigates what she refers to as “urban, social, and bureaucratic typologies.” You can see examples of it beginning on page 52.

Longtime consultant George Stalk Jr. has observed that in uncertain markets, business leaders inevitably pick one possible outcome and go for it. “Too often, corporate just wants you to make your best guess,” he says. He sees a need for new approaches to strategy that mitigate uncertainties but focus less on accurate forecasts. He shares some of them on page 80 in an article coauthored with Ashish Iyer.

Tiziana Casciaro admits that networking used to make her feel “yucky” when she was a doctoral student trying to connect with senior scholars at academic conferences. But then she learned to schmooze without sacrificing her self-respect. On page 104, she and her colleagues Francesca Gino and Maryam Kouchaki describe how.

To help retailers become omnichannel merchants, Bain’s Darrell K. Rigby often brought in software developers who used “agile” methods. “After seeing the customer benefits and hearing developers rave about how much happier they were, I decided to dig in to how agile actually worked,” he says. Over time he urged his teams to use the approach in a broad range of innovation projects. His experiences led him to write the article on page 40 with Jeff Sutherland and Hirotaka Takeuchi.

ContributorsHBR.ORG


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Interaction

Case studies of popular brands clearly demonstrate that marketing and branding activities work when they’re linked with some way of life. You can have the perfect marketing mix, but without a hook—such as some unique association that resonates with people—it won’t be effective.Neha Bindal, media marketing manager, HT Media

To be “culturally effective,” marketing has to touch on why people do things, as opposed to what they do. The web has made it easy for everyone to be present, and therefore mediocrity has flourished. Marc Dhalluin, consultant

Learning to LearnHBR article by Erika Andersen, MarchThe pace of change requires executives to respond to constant shifts. They must be willing to experiment and become novices again and again. Andersen has found that people who succeed at this kind of learning have four attributes: aspiration, self-awareness, curiosity, and vulnerability.

These are excellent traits that you want your employees to have, but organizations need both a culture that promotes learning behaviors and a supportive business infrastructure (for example, more time to invest in learning and less noise in the system). Most important, the leadership team needs to make it clear that people will be judged by actions, not words.Yuval Dvir, head of online partnerships, Google for Work, Google

RECENTLY TRENDING ON HBR.ORG

The One Thing About Your Spouse’s Personality That Really Affects Your CareerBY ANDREW O’CONNELL

The Magic of 30-Minute MeetingsBY PETER BREGMAN

Branding in the Age of Social MediaBY DOUGLAS HOLT

7 Rules for Job Interview Questions That Result in Great HiresBY JOHN SULLIVAN

There’s a Proven Link Between Effective Leadership and Getting Enough SleepBY NICK VAN DAM AND ELS VAN DER HELM

A Modest Proposal: Eliminate EmailBY CAL NEWPORT

A Refresher on Statistical SignificanceBY AMY GALLO

How Digital Has Changed BrandingHBR article by Douglas Holt, March

Social media was supposed to usher in a golden age of branding. But instead new platforms like Facebook, YouTube, and Twitter seem to have made brands less significant. They’ve transformed the culture in a way that weakens certain marketing techniques, such as creating branded content. Holt presents an alternative that has helped a handful of companies, including Chipotle, Red Bull, and Under Armour, find success.

Branded content succeeds when the work is good and culturally relevant. PR and social media are good distribution tools, with traditional TV and paid YouTube views a distant second.

The problem is (and always has been) the quality of the creative product. Marketers keep refusing to accept this. While the debate continues, the same creative-driven companies keep delivering for intelligent brands, no matter what the climate.

I speak from experience, having written Dove’s first viral “Evolution” and cocreated the Chipotle series, which had an 800% return on investment and won enormous social media and PR attention. That said, I enjoyed the article and found it mostly valid.Tim Piper, writer and director, Piro

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I recently conducted a class about learning organizations. The students liked the concepts of

“survival anxiety” and “learning anxiety” discussed by Diane Coutu and psychologist Edgar Schein in a 2002 HBR interview. Andersen’s article helps us understand how to decrease learning anxiety and create a safer environment for unlearning and new learning.Mateus Cecílio Gerolamo, assistant professor, University of São Paulo

I used to think a love of learning for learning’s sake was mostly about attitude. It’s helpful to know there are mental tools for overcoming fear of learning something new.Caroline Moreno Foote, operations manager, OSD

Winning Back Lost CustomersHBR article, March

For any service company that bills on a recurring basis, a key variable is the rate of customer churn. Firms with high churn typically spend vast sums on marketing to try to replace defectors. Research shows that they might do better with

strategies aimed at getting lost customers back into the fold.This article shows how critical retention is in our subscription economy, and how come-back offers must be personalized for the customer. I suggest two further steps: First, get even smarter about making come-back offers that are win-win and base prices on the value realized by the customer (reflecting usage patterns and outcomes). This practice is increasingly accepted in B2B relationships, and new participative pricing techniques enable its use with consumers. Second, shift from reactive to proactive retention. Why wait for

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CHINA’S NEXT STRATEGIC ADVANTAGEFrom Imitation to InnovationGeorge S. Yip and Bruce McKern“Yip and McKern have written an eye-opening book about the startling growth of innovation in Chinese companies. Using hundreds of cases, they leave no doubt that China is now a major force in innovation with an increasing global reach.”

—A. Michael Spence, Nobel Laureate in Economics, 2001

THE SHARING ECONOMYThe End of Employment and the Rise of Crowd-Based CapitalismArun Sundararajan “Sundararajan has taken all the loose talk about the sharing economy and given it a rigorous and readable treatment. He makes it clear that there is no one model for these new economic forms, but that taken together, they represent a profound shift in how we think about everything from utility to capital to labor to employment.”

—Clay Shirky

THE DISRUPTION DILEMMAJoshua Gans“This important and thought-provoking book has been a source of fresh, new insights for me. Even when Gans disagrees with my work, it has given me a chance to improve what the theory needs to say.”

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THE MIT PRESS


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Interaction

HBR SURVEYWho has what it takes to be a “superboss”— a manager who grooms stars? Results from our recent assessment showed that

47% OF RESPONDENTS WERE SUPERBOSSES

Here were the most commonly followed superboss practices:

84% OF RESPONDENTS FOCUSED MORE ON POTENTIAL THAN ON EXPERIENCE WHEN EVALUATING JOB CANDIDATES

78% STAYED IN TOUCH WITH FORMER REPORTS WHO HAD MOVED ON TO OTHER JOBS

63% ORGANIZED GROUP WORK SO THAT PEOPLE NEEDED TO BOTH COLLABORATE AND COMPETE TO HIT TARGETS AND GET AHEAD

SOURCE “ASSESSMENT: FIND OUT IF YOU’RE A SUPERBOSS,” BY SYDNEY FINKELSTEIN

INTERACT WITH USThe best way to comment on any article is on HBR.ORG. You can also reach us via E-MAIL: [email protected] FACEBOOK: facebook.com/HBR TWITTER: twitter.com/HarvardBizCorrespondence may be edited for space and style.

your customer to ask for a divorce? Find ways to build dialogues about value into the customer journey so that you can head off defections before they happen, and make every loyalty loop a retention loop.Richard Reisman, president, Teleshuttle

Excellent article, but I have a question about what message firms would be sending to current customers. For example, I belong to a health club for $50 a month. I’m perfectly happy to pay that, but I know that if I quit, I’ll get a “please come back” offer for $40 a month. What prevents me from giving up my membership temporarily to get the cheaper rate? Fredrick “Chuck” Meitner, director of operations, Edina Country Club

What to Do When Your Workers Shut You Out HBR article by James R. Detert and Ethan R. Burris, January–February

No matter how approach-able you may be as a manager, chances are good that your employees are withholding valuable intelligence from you. Companies’ tactics for getting people to open up often fall short for two rea-sons: fear of consequences and a sense of futility. Fortunately, there are ways to create a much more

vocal culture, say Detert and Burris.

There is a lot of great insight in this article, but it is written with a fairly traditional American-style workforce in mind and doesn’t address how companies can work with employees who come from cultures that discourage direct feedback to managers and executives. Organizations with a large international workforce would do well to devote specific resources or training to employees in this category. Shawn Mullet, founder, CommxBorders

The challenge of getting “honest and open feedback” is quite commonplace in organizations. I have found more often than not that a few voices dominate discussions and others remain silent for a whole host of reasons: hierarchical constraints, shyness, culture, confidence. As a result, real learning

often is not captured and processes, procedures, and training programs are developed that may not truly reflect the needs of the organization.

Unlike the authors, I’ve found real value in anonymity. As independent debriefers with a method that demonstrates total anonymity, our firm has never had an engagement result in a witch hunt among a client’s employees. And our experience has been that the message to employees is that the business wants to strip away inhibitions and fear of consequences. Interestingly, we’ve seen that across all sectors and in every jurisdiction in which we’ve worked.Martin Daniel Polaine, barrister and director, Amicus Legal Consultants

There are so many barriers to our ability to receive real, useful feedback. Oftentimes I find the best feedback comes from people who pop their heads in and ask, “Do you have a second?” The challenge is that in a fast-paced work environment the answer is always, “No, I don’t have time for an interruption.” Sometimes the mere busyness of the environment is a barrier to open communication. Over the years, I’ve had to work on my response to that question. Now I immediately stop whatever else is taking my attention and respond with a genuine yes. Shannon Shallcross, national vice president of client management, Provant

While it can be frustrating when it feels as if you are the only one who cares enough to speak up, I believe setting an example yourself is the key to a corporate environment where people are motivated to share their ideas and opinions. Leon Jacob, senior consultant, HKP/// Group

HBR.ORG

The Challenge of Getting to ScaleHBR article by Ranjay Gulati and Alicia DeSantola, MarchWhy do so many promising start-ups go off the rails? Often they have trouble scaling up. Founders may resist imposing discipline for fear of losing agility—but the price may be chaotic operations. The authors outline four activities that can help companies handle greater complexity as they seek new growth. The Birchbox case study was perfect. I work with seven-figure businesses, helping them as a functional expert. We always grow the company with a blended approach of entrepreneurial “hacking” and more-corporate processes. None of these businesses want to be constrained with too much structure, yet they quickly recognize that processes and strategies will take the business to the next level. Kathleen Byars, marketing strategist

I loved how this article acknowledged that growing start-ups have to ensure that the reasons they succeeded in the first place (such as the founding vision, energy, and values) are not lost in the process. The true challenge will be getting pre-scale entrepreneurs, who lack structure and work 80-hour weeks, to read this.John Peterson, founder and CEO, Livday

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Idea Watch

Compiled by HBR editors

SODA

VEKT

Facing a big decision? Don’t “sleep on it” PAGE 30

The perks of self-employment PAGE 28

Creative job titles make for happier employees PAGE 24

BOARDS 26Links among the global corporate elite

COLLABORATION 28Powerful people perform badly on teams


TALENT CREATIVE JOB TITLES CAN ENERGIZE WORKERSThey reduce burnout and increase satisfaction.

Job titles don’t usually generate much excitement. They’re printed on busi-ness cards, emblazoned on LinkedIn

pages, and used in formal introductions. Some organizations, however, see them as a chance to get creative. Consider Disney, which calls its theme park workers “cast members” and its engineers and multimedia experts “imagineers.” Subway’s line workers are “sandwich artists.” At some companies, receptionists are “directors of first impres-sions” and PR people are “brand evangelists.”

It would be easy to dismiss retitling as a silly exercise in euphemisms. But over the past decade London Business School profes-sor Dan Cable has come to view it as a legiti-mate tool for improving workers’ attitudes and boosting recruitment. “The traditional view of job titles is that they’re about stan-dardization and benchmarking,” he says.

“But titles often send the wrong signals and fail to attract the best applicants. Companies should recognize that they are powerful sym-bols of who we are, what we can do, and what others can expect from us.”

Cable and two colleagues published a 2014 study on “self-reflective” job titles, and Cable has since expanded his work in the area. The paper took a deep dive into a local chap-ter of the Make-A-Wish Foundation, whose CEO invited employees to create fun titles to supplement their official ones. “Although we were skeptical in the beginning, our firsthand observations and in-depth interviews made us wonder whether there are real psycho-logical benefits to retitling work,” Cable says. Employees described how their new and

improved titles made their jobs more mean-ingful and helped them cope with the emo-tional challenges of serving families with sick or dying children. The researchers concluded that the initiative reduced stress by helping people focus on the more purposeful aspects of their jobs.

To see if that dynamic would hold up in a full-fledged experiment, the researchers worked with employees at a hospital chain. With one group, they outlined how the re-titling had improved life at Make-A-Wish and then asked the workers to suggest new titles for themselves. (An infectious disease specialist became a “germ slayer,” a nurse who gave lots of immunizations became a

“quick shot,” an X-ray technician became a “bone seeker.”) The researchers surveyed the workers, along with members of two control groups, about their attitudes toward their work before the retitling and five weeks later. They found that those who had been asked to choose new titles had lower levels of emo-tional exhaustion, felt more validated and better recognized for their work, and experi-enced greater “psychological safety,” which can promote free information exchanges. They concluded, “Rather than viewing titles solely as sources and reflections of formality and rigidity or mechanisms of bureaucratic control, our research suggests that titles can be vehicles for agency, creativity, and coping.”

Cable has continued to explore how firms can benefit from retitling. At a large European brewery he tried a different approach: Instead of having each employee create a unique title, he asked workers who performed the same function to agree on a new title that every-one would share. A survey three months later showed that those employees were 16% more satisfied with their work and 11% more closely identified with the company than employees in a control group.

Cable has since created a methodology for companies looking to launch retitling initia-tives. In step one, employees reflect on their job’s purpose (including who is served, who is affected by the quality of the work, and what value is created) and on questions of identity (including what aspects of the job


IDEA WATCH

the employee does particularly well or differ-ently from other employees or competitors). In step two, employees brainstorm poten-tial new titles, perhaps crowdsourcing ideas from other employees, and, with their man-ager’s input, decide on new ones. Much of the value of this activity lies not in the new titles but in the process that leads to them.

“The exercise causes job incumbents to ask themselves, ‘What is the purpose of the work, and what is my unique connection to it?’” Cable says. “Most employees knew the an-swers to these questions at some point, but it is easy to forget them in the midst of day-to-day hassles.”

Some may be slow to warm to the idea. Laszlo Bock, Google’s SVP of “people opera-tions,” was initially turned off by his novel title; among other con-cerns, the fact that it wasn’t clearly an HR job made him worry that it would be harder to find a new job if he left Google. But he’s grown to see the benefits, including that the title sounds less administrative and more strategic.

Retitling won’t work in every organiza-tion. The practice has been more common at start-ups and at dominant companies such as Disney and Google. Cable suggests that large companies try it with small units to gauge employee reactions. For those that want to experiment with retitling, there’s another significant benefit: Unlike many HR initia-tives, this one costs almost nothing. Says Cable: “Rebranding job titles around the ‘why of work,’ unique cultural traits, and employ-ees’ personal identities can have important effects on how outsiders respond to the jobs and how people in the jobs see themselves.”

HBR Reprint F1605A

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THE IDEA IN PRACTICE

“IT GAVE EMPLOYEES OWNERSHIP OF THEIR ROLES”A few years ago, when Susan Fenters Lerch, former CEO of the Make-A-Wish Foundation of Michigan, attended a seminar at the Disney Institute, she heard a discussion of how people’s titles influence their feelings about their jobs. So when she returned to the office, she let her 31-person staff create their own titles to supplement the ones on the org chart. She recently described the process to HBR. Edited excerpts follow.

Why did you try self-created titles? We faced challenging situations, working with families whose children had

serious health issues. I was looking to do something fun that would give employees a sense of control. People kept their traditional titles, but everyone created an additional, fun title. I became “the fairy godmother.” Our finance director became “the minister of dollars and sense.” The office manager became “the keeper of keys,” from Harry Potter. I used both titles on

business cards and in e-mail—I put the supplemental title in italics.

What did it accomplish? Creating new titles gave people a way to describe how they felt about the job. It gave them ownership of their role. The new titles often became a conversation starter with external people—they’d ask about it, and it created an opening to explain what you do.

What if someone couldn’t come up with something clever? We’d sit down, talk about it, play around with words together. Most people came up with things they felt really good about.

I’m not sure how this would go over in my workplace. For it to work well, the leader has to be comfortable with it, and it has to make sense for the organization. It could be challenging in a large one, where many people have the same title. It’s probably better suited to a smaller, less traditional organization.

ABOUT THE RESEARCH “Job Titles as Identity Badges: How Self-Reflective Titles

Can Reduce Emotional Exhaustion,” by Adam M. Grant, Justin M. Berg, and Daniel M. Cable (Academy of Management Journal, 2014)

Introducing an airline route that cuts the travel time between a VC firm and its portfolio company leads to a 3.1% increase in the company’s patents, a 5.8% increase in citations per patent, and a 1.4% increase in the odds of an IPO or an acquisition.

“THE IMPACT OF VENTURE CAPITAL MONITORING,” BY SHAI BERNSTEIN, XAVIER GIROUD, AND RICHARD R. TOWNSEND


HBR.ORG

1976 2013

CanadaU.S.

UKEuropean Com

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Rest of EuropeJapan

Other

Australia

To see how corporate boards around the world are linked, researchers led by Eelke M. Heemskerk, of the University of Amsterdam, plotted shared directorships among 176 large companies in 1976 and 2013. Each dot represents a company; the lines connecting them represent board members in common.

In 1976 most links were within countries (gray lines); only 15% were international (magenta). Companies such as Volkswagen included

“superconnectors”—people who served on four or more boards, typically in their own regions. Just 23 superconnectors accounted for 31% of all links.

Fast-forward 37 years, and boards share 37% fewer members, but a quarter of links are international. Owing to regulations and the demands of the position, there are now only five superconnectors, who account for 12% of all links. They link mostly internationally and are on the boards of 17 companies, including UBS.

The tighter networks of 1976 were a reaction to the oil crisis and the recession; boards tried to band together for strategic purposes. But because today’s board networks are less oligarchic in structure and more international, companies have a harder time reaching consensus in times of crisis, such as the 2008 recession.

“The network is becoming thinner and less centralized,” the researchers say. “It may collapse into a fragmented corporate elite. Some argue that consensus among global business leaders in 2008 helped keep the world’s financial system intact. We acknowledge that the system survived—but ask for how long.”

BOARDS GLOBAL GOVERNANCE, THEN AND NOW

FIRMS TODAY have 37% fewer shared board members, but a higher proportion of connections are international.

1976

55

313

2013

56

177

SOURCE “THE GLOBAL CORPORATE ELITE AFTER THE FINANCIAL CRISIS: EVIDENCE FROM THE TRANSNATIONAL

NETWORK OF INTERLOCKING DIRECTORATES,” BY EELKE M. HEEMSKERK, MEINDERT FENNEMA,

AND WILLIAM K. CARROLL (GLOBAL NETWORKS, 2016)TOTAL 368 233

IDEA WATCH HBR.ORG


ALTHOUGH EC FIRMS have branched out, they remain tightly interwoven. Most non-EC European firms have branched out internationally.

EACH DOT represents a company.GRAY LINES show board members shared within countries or regions, such as the European Community.MAGENTA LINES show members shared internationally.

BUSINESS NETWORKS in Asia are typically organized in distinct business groups, including keiretsu (Japan), chaebol (Korea), and qiye jituan (China). Boards connect within but not across groups, making links sparse even today.

UBS

VW

#helloworkCulture – some assembly required.

ADP and the ADP logo are registered trademarks of ADP, LLC. ADP A more human resource. is a service mark of ADP, LLC. Copyright © 2016 ADP, LLC. HR Solutions | Payroll | Good Job

Building a workplace people are excited about requires finding people you can get excited about. That’s why ADP offers insight-driven recruiting and talent management services to help your company create a work culture that is one of a kind.

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Most start-ups fail—that’s common knowledge. In fact, research has demonstrated that people who

launch companies would usually be better off financially if they’d remained in salaried jobs.

But that view is misleading, according to a new study by Gustavo Manso, of the University of California, Berkeley. Manso finds that self-employment does have a finan-cial payoff—but not always from the start-up itself. It may come in the form of higher wages when a start-up fails and the entrepreneur returns to the traditional workforce.

From the halls of government to the C-suite, groups of talented people have trouble cooperating effectively. Part of

the problem, according to new research, is the individuals’ power.

Past research has shown that high-power individuals tend to be overly confident, de-value others’ contributions, take credit for others’ ideas, and interrupt—all negative be-haviors when collaborating. To better under-stand the effects of power on group dynamics,

Rather than compare the earnings of sala-ried and self-employed workers at a given point in time—the way most research has ap-proached this issue—Manso looked at earn-ings over a long period, examining income trends for more than 5,000 Americans from 1979 to 2012. People who were self-employed for more than two years—suggesting that their ventures succeeded—earned about 10% more than similar salaried workers, he concluded. He also found that more than half of self-employment stints lasted two years or less, with many unsuccessful entrepreneurs returning to traditional employment. “Failed entrepreneurs are not punished when they return to the salaried workforce,” he writes. In fact, other factors (such as education) be-ing equal, people who have done a stint of self-employment before taking a traditional job earn more than comparable workers who have never been self-employed. “It seems the labor market values the experience [of having been] self-employed,” Manso says, perhaps because the skills learned while launching a venture are transferrable to a regular job.

Some of these articles previously appeared in different form on HBR.org.

CAREERS THE SURPRISING FINANCIAL PAYOFF FOR ENTREPRENEURS

COLLABORATION POWERFUL PEOPLE PERFORM BADLY ON TEAMS

ABOUT THE RESEARCH “Experimentation and the Returns to Entrepreneurship,”

by Gustavo Manso (working paper)

ABOUT THE RESEARCH “Failure at the Top: How Power Undermines Collaborative

Performance,” by John Angus D. Hildreth and Cameron Anderson (Journal of Personality and Social Psychology, 2016)

two researchers at the University of California, Berkeley conducted a series of experiments.

In one of them, participants worked in pairs to build towers using toothpicks and pieces of candy. One person in each pair was assigned to be the leader, who evaluated the subordinate’s performance and determined his or her compensation when the task was complete. The researchers then created three-person groups—some consisting en-tirely of high-power individuals (those who had been leaders during the tower-building task), some made up entirely of low-power individuals (subordinates in that task), and some mixed, or control, groups—and as-signed them a project involving creativity, which was videotaped.

Independent judges viewed the video-tapes and rated each group on creativity, conflict, task focus, information sharing, and positive interactions. The groups made up of high-power individuals were less creative and less focused, shared less information, and had fewer positive interactions than the low-power and control groups. Follow-up experiments involving group negotiations and decision making and conducted with actual executives (not lab subjects) had similar results.

“When more powerful individuals worked alone or on tasks that required less coordina-tion with others, they performed better than anyone else,” the researchers wrote. “But when they worked together on tasks that re-quired more coordination with others, those same powerful individuals performed worse than others.” The researchers suggest that groups containing powerful individuals may benefit from formal structures, such as an agenda listing specific times for information sharing and opportunities for every member to offer an opinion.

In a 2015 survey, 45% of respondents said that by 2025, an artificial intelligence machine would sit on a board of directors, while 75% said that nearly one-third of corporate audits would be conducted by AI.

“DEEP SHIFT: TECHNOLOGY TIPPING POINTS AND SOCIETAL IMPACT,” WORLD ECONOMIC FORUM

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Spencer: It was evident that the people who made a decision the same day felt better about their choice than those who had slept on it. However, those who’d slept on it remembered more about the bags’ attri butes. That surprised us. The fact that they knew more about the products would suggest they’d be happier with their decisions, but they weren’t.

HBR: Congratulations, your research invalidates age-old wisdom about making big decisions. I wouldn’t say that. I wouldn’t say there’s no value to sleep with regard to decision making. We know that when we sleep, the brain is doing some processing that helps give us a clean

slate. At a neurological level, information begins to get cleared out of the short-term memory space and moved into long- term memory space. So the proverbial belief that sleep gives you a fresh start is true. It not only impacts how we take on new information but also appears to have some surprising influence on past information.

How does it influence past information? It wasn’t just that people who slept on it remembered more information. When we controlled for the number of positive and negative attri butes in a follow-up study, we saw that folks who slept on it were more likely to remember

the positive features and less likely to remember the negative ones.

Sleep makes us more positive? That’s what was so surprising. Many studies have shown that we remember more negative things after sleeping. Then again, many of those studies were comparing negative with neutral, not negative with positive. So in the context of decision making, maybe sleep does make us focus on the good.

Why would people who remembered more good things be less satisfied with their choices? It might be more difficult to make a decision by comparing good things with other good things than by comparing good with bad. I suspect that people are conflicted because after the fact, they think about the good things they didn’t choose. It may be—and this is something to study—that when

DEFEND YOUR RESEARCH

“SLEEPING ON IT”DOESN’T LEAD TO BETTER DECISIONSThe research: Rebecca Spencer of UMass Amherst and her coresearchers, Uma Karmarkar of Harvard Business School and Baba Shiv of Stanford Business School, conducted a study in which they asked people to evaluate laptop cases for potential purchase. First, subjects were given pros and cons of the products to review. Some received the information late in the evening, shortly before they went to sleep, and others in the morning, when they had their day ahead of them. Twelve hours later, they were asked to choose a case and were also surveyed about the products and their satisfaction with their selections. The people who “slept on” their decision tended to feel worse about it.

The challenge: Is the folk wisdom about thinking more clearly after a good night’s rest just a fable? Could it actually make your judgment worse? Professor Spencer, defend your research.

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we asked them, people felt they had made a poor decision, but over time they would come to decide that it was good.

I’d like to find a way to use your research to institute mandatory naps during the workday. We have done a lot with naps. Naps are beneficial to adults, just as they are to little kids. What differs is that wakefulness is more detrimental to memory and information processing in kids, so it appears that naps do more for them. In this particular study, though, we eliminated people in the awake group who had taken a nap, so I can’t help you.

Choosing a laptop bag isn’t exactly a high-stakes problem. When we talk about sleeping on it, we’re often wrestling with a big life choice or, say, a decision on which people to fire. Maybe sleeping on it is better in those situations? It’s true that our subjects were probably somewhat hesitant because they weren’t really in the market for laptop bags. What we want to do now is put people in real-world situations—say, catch them when they’re actually shopping for a camera online—where there are actual needs and more information that could affect decision quality. But the picture is more complicated when you get to even bigger decisions, like laying off people. Maybe a decision occurs after multiple nights of sleep. You’re doing a lot of processing, moving a lot of things to long-term memory. But if it’s true that we tend to remember more of the positive after sleeping, think about that firing decision. It becomes more stressful because you’re comparing positives. I can imagine how that might lead to less satisfaction with the decision.

What if you added a deadline for the decision? Well, stress impairs sleep. And lack of sleep has all kinds of negative effects. The combination of deadline stress, decisions, and lack of sleep is a bad one. We were looking at a less toxic combination in this study.

Some people wear insomnia like a badge of honor. I’m guessing you’d say getting sleep is more important. We know a lot about this now, and there’s no question you need sleep. Pulling an all-nighter will not help you. The tendency is to go as hard as you can and brag about it, but research shows that you will be less able to attend to detail and will react more slowly. You’ll also respond more emotionally to negative stimuli. Sleep keeps you on an even keel, and when you don’t sleep, things go bad fast. We can see this in fMRI studies. New information comes into the hippocampus; if it’s emotional, the amygdala gets involved, too, and may trigger an overreaction. But sleep moves information out of the hippocampus so that when you wake, you have a clean slate, and you experience new emotional challenges with less baggage.

And what about all the talk of blue light from screens? Is that hurting our sleep? It’s a little blown out of proportion. At sleep time, all light is bad; blue light is a little worse. More important is the idea that sunlight is good. When you’re sitting in a windowless conference room during a meeting, melatonin is trickling out of you. You’re draining your stores, so at the end of the day, they won’t be there and you won’t be sleepy. If you work in an office, you need to expose yourself to more sunlight during the day.

I haven’t decided whether or not we’ll use this interview. I think I’ll sleep on it. Great! When you wake up, you’ll remember all the good parts.

Interview by Scott Berinato HBR Reprint F1605B

HBR.ORG

James HemsathDirector of Project Development and Asset ManagementAlaska Industrial Development and Export AuthorityAnchorage, Alaska

DOCTOR OF MANAGEMENT PROGRAM

The DM program teaches the skills of a practitioner scholar who balances research and critical thinking and looks at the problem of practice rather than the problem of theory. In the program, I hope to develop ways to collaborate across borders and cultures creating a path where a new kind of flourishing development can take place making a difference for all people of the North.

To learn more, visit us as weatherhead.case.edu/dm

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The IdeaIT professionals rarely become CEOs. Kasriel describes the steps he took to overcome this bias, broaden his skills, and learn to run a business.

HOW I DID IT… UPWORK’S CEO ON HOW AN INTROVERTED ENGINEER LEARNED TO LEADby Stephane Kasriel

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HBR.ORG

I never aspired to be a traditional engineer, but the subject suited me. I’d grown up around comput-

ers, and I’d started writing programs when I was 12. I read about Steve Jobs and Bill Gates in computer magazines. As I thought ahead to the work I might do as an adult, I expected to spend a lot of time writing code. In a way, I was like today’s typical Silicon Valley kids, except this was in Paris in the 1980s.

I also recognized early on that I was an introvert, although I probably didn’t know the word for it at the time. Some kids in high school clearly thrive on popularity and going out all the time—being surrounded by lots of people. In contrast, I enjoyed being with a small number of people. I liked to read books, program computers, and do things by myself. I’m not completely socially awkward—I can get by in a crowd, but it doesn’t come naturally.

When you think about the per-sonality types and professional back-grounds that most often lead some-one to the CEO role, you don’t think about introverted tech guys like me. Until recently, even in the technology industry, the conventional wisdom was that you make the charismatic sales chief or the well-rounded chief financial officer CEO so that he or she can deal with the outside world, and you leave the brilliant engineer alone in a cubicle to focus on the product. Judging from the résumés of company leaders today, very few have spent time as a VP of engineering or product development. Although there are cer-tainly advantages to having a techni-cal background when leading a tech-nology company (and views on this have evolved in recent years), some-one who aspires to be a CEO must still counter the perception that engineers don’t make great leaders.

Over the past decade I have worked systematically and diligently to over-come that bias—to move beyond my

engineering background and gain the broad range of skills necessary to lead a business. I sought out projects and talked my way into jobs that were out-side my comfort zone. I read widely to burnish my skills in strategy, lead-ership, and managing people. I’ve spent hundreds of hours taking online courses. Since becoming CEO, in April 2015, I’ve learned how someone with an engineer’s problem-solving mind-set must adapt to perform well in this role. As technology companies be-come an even bigger piece of the econ-omy, and as boards become more open to considering people with technical backgrounds for leadership roles, my journey may be instructive to others.

From Start-Up to B-SchoolI always knew I wanted to be an en-trepreneur. My father worked for 30 years at the same large company, which made cement products, and ultimately became CEO. I admired his career, but I wanted to work some-place smaller, where one person could more easily have an impact. This preference only increased when I left France, after engineering school, to get a master’s degree in computer science at Stanford. Larry Page and Sergey Brin were in my class, and they started what became Google in the of-fice next to mine. The department had only 100 students and a dozen profes-sors, and in the late 1990s everyone seemed to be working on a start-up on the side. When we finished the mas-ter’s program, a lot of classmates went to work with Larry and Sergey, but I didn’t want to join somebody else’s company. I wanted to start my own.

My first company was called Fireclick; it made software that helped companies’ websites load faster. (This was especially important in the dial-up era, before broadband was common.) Even though I was the founder, I

functioned more like a tech guy, and I spent most of my time working on the code. Looking back, I’m amazed at how naive I was—we know so much more about how to run start-ups today. But we had a good run, and four years later we sold the company.

After the sale, I went to get an MBA at INSEAD. My goals weren’t those of the typical business school student. I wasn’t a career changer—I had al-ready worked in tech, and I wanted to stay in tech. I wasn’t trying to expand my network, because I already had a good one from my time in Silicon Valley. I didn’t need the MBA to get my next job. I decided to go to B-school because I’d seen what mistakes en-trepreneurs make (I had made plenty at my first company), and although I’d learned meaningful lessons from them, I wanted to avoid repeating the mistakes that others had made. For me, that’s what business school was about: Each case study represented a realistic situation I might face in the future; by studying hundreds of cases, I developed skill in pattern recognition and in matching each situation with the various options for dealing with it.

Shifting to SalesI joined PayPal after business school, working as a product manager in France. The company had just en-tered the country, so we had only two people there—it felt like working at a start-up. I tend to be a workaholic, and in that job and subsequent ones, I focused on doing my primary job efficiently and using any excess time to take on various challenges. For in-stance, if I was working an average of 60 hours a week, I’d try to finish the tasks I was expected to do in 40 hours and spend the other 20 on tasks in some other part of the company. At PayPal, I used extra time to take over an orphaned project involving a money market product. I learned a

HOW I DID IT


that job, but I argued that my time at PayPal had involved a lot of business development and sales-related work. And I tried to be honest. “I’ve never been a VP of sales before, and I’m not pretending I’ll be the best one you’ve ever had,” I said. “But you have a very technical product, and I really under-stand how it works. That may help us close more business.”

lot about the banking industry, and I interacted with colleagues in finance and legal whom I might not have met otherwise. Managing your time in order to take on a second job inside the company can be a great way to broaden your skills.

When I left PayPal, I joined another company as head of sales. As an engi-neer, I wasn’t an obvious candidate for

Shifting into sales was a major fork in the road for my career. At some point you need to decide between two paths. One is to stay in your area of functional expertise, which prob-ably increases the odds that you’ll be consistently successful—but that approach may well limit your overall trajectory. The other is to take a leap, such as moving into an entirely dif-ferent function. That will definitely increase your risk of failure, but it will give you a greater breadth of experi-ence if you succeed. Historically, engi-neers have been risk-averse and have tended to follow the first path. You see a lot of people who are the head of engineering first at a company with 10 engineers, then at a company with 100, and then at a really large company. There’s a limit to how much impact you can have in those roles—you’re still doing what someone else tells you to do. Google and Facebook are among the exceptions: Their ubergeek engineers are the heroes, because that’s the culture that Larry, Sergey, and Mark Zuckerberg have worked to create. As I’ve moved into leadership roles, I’ve tried to do the same—to cre-ate a corporate culture in which it’s cool to be an engineer, where techni-cal people are empowered to influence the strategy of the company.

The Challenge of Being IntrovertedAt some point in the midst of these job changes, I took the Myers-Briggs test for the first time. The results con-firmed what I’d always suspected: that I’m very strongly introverted. There’s no question that an introvert who as-pires to be a CEO will face challenges. When you’re a leader, it’s useful if not necessary to be cheerful, smiling, and outgoing. That’s not easy for everyone, but it is achievable. One way to get better at it is to make concrete goals. A particularly difficult task for someone

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Lean Enterprise: How High Performance Organizations Innovate at Scale BY JEZ HUMBLE, JOANNE MOLESKY, AND BARRY O’REILLY

Made to Stick: Why Some Ideas Survive and Others Die BY CHIP HEATH AND DAN HEATH

The New Strategic Selling: The Unique Sales System Proven Successful by the World’s Best Companies BY ROBERT B. MILLER AND STEPHEN E. HEIMAN WITH TAD TULEJA

Predictable Revenue: Turn Your Business into a Sales Machine with the $100 Million Best Practices of Salesforce.com BY AARON ROSS AND MARYLOU TYLER

ReworkBY JASON FRIED AND DAVID HEINEMEIER HANSSON

Steve Jobs BY WALTER ISAACSON

Super Crunchers: Why Thinking-by- Numbers Is the New Way to Be Smart BY IAN AYRES

Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life BY AVINASH K. DIXIT AND BARRY J. NALEBUFF

Zero to One: Notes on Startups, or How to Build the Future BY PETER THIEL WITH BLAKE MASTERS

A Would-Be CEO’s Reading ListStephane Kasriel read widely to prepare for a leadership role. He cites the following as the most influential titles:

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like me is to go to a big networking event or conference—where there’s a large room filled with hundreds of people I don’t know—and mingle. To make that manageable, I set goals: I’m going to talk to at least 30 people, get 10 business cards, and arrange five follow-up meetings. Because I’m com-petitive and results-oriented, those goals counterbalance the anxiety I feel about inserting myself into a random conversation and introducing myself. I’ve worked on the skill of starting a conversation. I’ve also worked on find-ing ways to say good-bye gracefully, because not every interaction at these events needs to be a long one.

In 2012 I joined oDesk. The com-pany had been founded by two Greek immigrants in 2003. They saw that Silicon Valley was desperate for tech-nical freelancers whose jobs could be performed from anywhere, but the companies had no good way to find the right people. So oDesk was like a pro-fessional matchmaking site. I started out as the head of product but ended up doing the head of engineering job as well when the person filling that role departed. We interviewed a lot of potential head engineers, but nobody clicked, so I agreed to fill the need tem-porarily. After a time, the CEO asked if I’d do both jobs permanently, and I said yes. In 2014 oDesk merged with Elance, the other big player in the space. Elance’s CEO became the CEO of Elance-oDesk, which later changed its name to Upwork, and he asked me to continue serving both functions.

At that time the CEO had been in charge for 13 years, and a few months later he decided to step down. The board considered external candidates to succeed him, but I made it clear I wanted the job. The board’s biggest concern was that I’d never served as a CEO before, and some of the direc-tors felt it would make more sense to hire an outsider with previous CEO

experience. That feeling is common in Silicon Valley. While I was head of engineering, I got lots of calls from other companies looking for a head of engineering, but nobody would call me about a CEO job because I hadn’t been a CEO. It’s a chicken-and-egg issue. Ultimately, I had to convince the board that I understood the range of skills I’d need to succeed in the job.

Engaging Employees Since then I’ve learned that the tasks and decisions facing CEOs are often much more complicated than the technical problems that an engineer encounters. A lot of a CEO’s job comes down to emotional intelligence and understanding what other people need and want. Some days I feel like the company’s chief psychologist, and I have to be emotionally prepared for that. My natural impulse when I hear about a problem is to go to a white-board and start to diagram how to fix it, the way an engineer would. But for a CEO that’s often not the right re-sponse. A lot of the people who bring problems to the CEO aren’t looking for a solution—they just want to feel that they’ve been heard. That isn’t always the easiest part of my job, but it is a part, so I’m learning to listen first and

not see every situation as a problem that needs a solution.

I’ve also learned a lot about time management and what kind of direc-tion I should be giving employees about day-to-day tasks. I’m now out of the office more, because speaking with customers and investors and attending conferences is really important to our business. So when I’m in the office, I need to be there for team members, to provide guidance and hear details about what they’re doing. But I haven’t taken this need as an invitation to micro manage; I still let employees do what they do best. Most CEOs should not be like Steve Jobs. My role is to help people feel excited about their work, empower them, and give them the re-sources they require to do their jobs well. One of Upwork’s big advantages is that our employees agree with our mission, which is to create economic opportunities for millions of people around the world by matching free-lancers with clients. We don’t offer the same perks that some of Silicon Valley’s sexiest companies do, but the mission helps keep our employees engaged.

Until fairly recently, people like me, who shifted from engineering into a chief executive role, were un-usual. Bill Gates, Larry Page, and Mark Zuckerberg are well-known examples, but I think more people will make this jump in the future. The venture capi-talist Marc Andreessen now says fre-quently that founders (many of whom have technical backgrounds) should stay on as CEOs. People are starting to realize that employees who under-stand in great detail how the product works may well be the best people to decide on the future of the company and to sell that story to investors and customers—even when they find that communicating with people comes less naturally to them than interacting with technology.

HBR Reprint R1605A

UPWORK FACTSFOUNDEDIn 2014, when Elance and oDesk merged. Renamed Upwork in 2015.

FREELANCERS10 MILLION+

COUNTRIES180+

CLIENTS4 MILLION+

VALUE OF WORK DONE$1 BILLION+ A YEAR

TOP FIVE PROJECT CATEGORIES1. Web, mobile, and

software development2. Graphic design and

content production3. Advertising, sales,

and digital marketing 4. Translation,

localization, and writing

5. Administrative and customer support data entry, content writing, and internet research

HOW I DID IT


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THE BIG IDEA

Darrell K. Rigby is a partner in the Boston office of Bain & Company. He heads the firm’s global innovation and retail practices. Jeff Sutherland is a cocreator of the scrum

form of agile innovation and the CEO of Scrum Inc., a consulting and training firm. Hirotaka Takeuchi is a professor in the strategy unit of Harvard Business School.

embracing agile

How to master the process that’s transforming management BY DARRELL K. RIGBY, JEFF SUTHERLAND, AND HIROTAKA TAKEUCHI

agile innovation methods have revolutionized information technology. Over the past 25 to

30 years they have greatly increased success rates in software development, improved quality and speed to market, and boosted the motivation and productivity of IT teams.TO

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Now agile methodologies—which involve new values, principles, practices, and benefits and are a radical alternative to command-and-control-style management—are spreading across a broad range of industries and functions and even into the C-suite. National Public Radio employs agile methods to create new programming. John Deere uses them to develop new machines, and Saab to produce new fighter jets. Intronis, a leader in cloud backup services, uses them in marketing. C.H. Robinson, a global third-party logistics provider, applies them in human resources. Mission Bell Winery uses them for everything from wine production to warehousing to running its senior leadership group. And GE relies on them to speed a much-publicized transition from 20th-century conglomerate to 21st-century “digital industrial company.” By taking people out of their functional silos and putting them in self-managed and customer-focused multidisciplinary teams, the agile approach is not only accelerating profitable growth but also helping to create a new generation of skilled general managers.

The spread of agile raises intriguing possibilities. What if a company could achieve positive returns with 50% more of its new-product introductions? What if marketing programs could generate 40% more customer inquiries? What if human resources could recruit 60% more of its highest-priority tar-gets? What if twice as many workers were emotion-ally engaged in their jobs? Agile has brought these levels of improvement to IT. The opportunity in other parts of the company is substantial.

But a serious impediment exists. When we ask executives what they know about agile, the re-sponse is usually an uneasy smile and a quip such as “Just enough to be dangerous.” They may throw around agile-related terms (“sprints,” “time boxes”) and claim that their companies are becoming more and more nimble. But because they haven’t gone through training, they don’t really understand the approach. Consequently, they unwittingly continue to manage in ways that run counter to agile princi-ples and practices, undermining the effectiveness of agile teams in units that report to them.

These executives launch countless initiatives with urgent deadlines rather than assign the high-est priority to two or three. They spread themselves and their best people across too many proj ects. They schedule frequent meetings with members of agile teams, forcing them to skip working sessions or send

substitutes. Many of them become overly involved in the work of individual teams. They talk more than listen. They promote marginal ideas that a team has previously considered and back-burnered. They rou-tinely overturn team decisions and add review layers and controls to ensure that mistakes aren’t repeated. With the best of intentions, they erode the benefits that agile innovation can deliver.

Innovation is what agile is all about. Although the method is less useful in routine operations and pro-cesses, these days most companies operate in highly dynamic environments. They need not just new products and services but also innovation in func-tional processes, particularly given the rapid spread of new software tools. Companies that create an envi-ronment in which agile flourishes find that teams can churn out innovations faster in both those categories.

From our work advising and studying such com-panies, we have discerned six crucial practices that leaders should adopt if they want to capitalize on agile’s potential.

1 Learn How Agile Really WorksSome executives seem to associate agile with anarchy (everybody does what he or she wants to), whereas others take it to mean “doing what I say, only faster.” But agile is neither. (See the side-bar “Agile Values and Principles.”) It comes in several varieties, which have much in common but emphasize slightly different things. They in-clude scrum, which emphasizes creative and adap-tive teamwork in solving complex problems; lean development, which focuses on the continual elimi-nation of waste; and kanban, which concentrates on reducing lead times and the amount of work in process. One of us (Jeff Sutherland) helped develop the scrum methodology and was inspired to do so in part by “The New New Product Development Game,” a 1986 HBR article coauthored by another of us (Hirotaka Takeuchi). Because scrum and its deriva-tives are employed at least five times as often as the other techniques, we will use its methodologies to illustrate agile practices.

The fundamentals of scrum are relatively simple. To tackle an opportunity, the organization forms and empowers a small team, usually three to nine people, most of whom are assigned full-time. The team is cross-functional and includes all the skills necessary to complete its tasks. It manages itself and is strictly accountable for every aspect of the work.


THE BIG IDEA EMBRACING AGILE

The team’s “initiative owner” (also known as a product owner) is ultimately responsible for deliv-ering value to customers (including internal custom-ers and future users) and to the business. The person in this role usually comes from a business function and divides his or her time between working with the team and coordinating with key stakeholders: customers, senior executives, and business man-agers. The initiative owner may use a technique such as design thinking or crowdsourcing to build a comprehensive “portfolio backlog” of promising opportunities. Then he or she continually and ruth-lessly rank-orders that list according to the latest estimates of value to internal or external customers and to the company.

The initiative owner doesn’t tell the team who should do what or how long tasks will take. Rather, the team creates a simple road map and plans in de-tail only those activities that won’t change before ex-ecution. Its members break the highest-ranked tasks into small modules, decide how much work the team will take on and how to accomplish it, develop a clear definition of “done,” and then start building working versions of the product in short cycles (less than a month) known as sprints. A process facilita-tor (often a trained scrum master) guides the process. This person protects the team from distractions and helps it put its collective intelligence to work.

The process is transparent to everyone. Team members hold brief daily “stand-up” meetings to review prog ress and identify roadblocks. They re-solve disagreements through experimentation and feedback rather than endless debates or appeals to authority. They test small working prototypes of part or all of the offering with a few customers for short periods of time. If customers get excited, a prototype may be released immediately, even if some senior executive isn’t a fan, or others think it needs more

bells and whistles. The team then brainstorms ways to improve future cycles and prepares to attack the next top priority.

Compared with traditional management ap-proaches, agile offers a number of major benefits, all of which have been studied and documented. It increases team productivity and employee satisfac-tion. It minimizes the waste inherent in redundant meetings, repetitive planning, excessive documenta-tion, quality defects, and low-value product features. By improving visibility and continually adapting to customers’ changing priorities, agile improves cus-tomer engagement and satisfaction, brings the most valuable products and features to market faster and more predictably, and reduces risk. By engaging team members from multiple disciplines as collaborative peers, it broadens organizational experience and builds mutual trust and respect. Finally, by dramati-cally reducing the time squandered on micromanag-ing functional proj ects, it allows senior managers to devote themselves more fully to higher-value work

Idea in BriefTHE PROBLEMAgile methods such as scrum, kanban, and lean development are spreading beyond IT to other functions. Although some companies are scoring big improvements in productivity, speed to market, and customer and employee satisfaction, others are struggling.

THE ROOT CAUSELeaders don’t really understand agile. As a result, they unwittingly continue to employ conventional management practices that undermine agile proj ects.

THE SOLUTIONLearn the basics of agile. Understand the conditions in which it does or doesn’t work. Start small and let it spread organically. Allow “master” teams to customize it. Employ agile at the top. Destroy the barriers to agile behaviors.

some executives seem to associate agile with anarchy.

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work can be modularized; close collaboration with end users (and rapid feedback from them) is fea-sible; and creative teams will typically outperform command-and-control groups.

In our experience, these conditions exist for many product development functions, marketing proj ects, strategic-planning activities, supply-chain challenges, and resource allocation decisions. They are less common in routine operations such as plant maintenance, purchasing, sales calls, and account-ing. (See the exhibit “The Right Conditions for Agile.”) And because agile requires training, behavio-rial change, and often new information technologies, executives must decide whether the anticipated pay-offs will justify the effort and expense of a transition.

Agile innovation also depends on having a cadre of eager participants. One of its core principles is “Build proj ects around motivated individuals. Give them the environment and support they need, and trust them to get the job done.” When the ma-jority of a company, a function, or a team chooses to adopt agile methodologies, leaders may need to press the holdouts to follow suit or even replace them. But it’s better to enlist passionate volunteers than to coerce resisters.

OpenView Venture Partners, a firm that has invested in about 30 companies, took this path. Having learned about agile from some of the com-panies in its portfolio, Scott Maxwell, the firm’s founder, began using its methodologies at the firm itself. He found that they fit some activities more easily than others. Agile worked well for strategic planning and marketing, for instance, where com-plex problems can often be broken into modules and cracked by creative multidisciplinary teams. That wasn’t the case for selling: Any sales call can change a representative’s to-do list on the spot, and it would be too complicated and time-consuming to reassemble the sales team, change the portfolio backlog, and reassign accounts every hour.

Maxwell provided the companies in OpenView’s portfolio with training in agile principles and prac-tices and let them decide whether to adopt the ap-proach. Some of them immediately loved the idea of implementing it; others had different priorities and decided to hold off. Intronis was one fan. Its market-ing unit at the time relied on an annual plan that fo-cused primarily on trade shows. Its sales department complained that marketing was too conservative and not delivering results. So the company hired

that only they can do: creating and adjusting the cor-porate vision; prioritizing strategic initiatives; simpli-fying and focusing work; assigning the right people to tasks; increasing cross-functional collaboration; and removing impediments to prog ress.

2 Understand Where Agile Does or Does Not WorkAgile is not a panacea. It is most effective and easiest to implement under conditions commonly found in software innovation: The problem to be solved is complex; solutions are initially unknown, and product requirements will most likely change; the

agile innovation depends on having a cadre of eager participants.


Richard Delahaye, a web developer turned marketer, to implement agile. Under his guidance the mar-keting team learned, for example, how to produce a topical webinar in a few days rather than several weeks. (A swiftly prepared session on CryptoLocker malware attracted 600 registrants—still a company rec ord.) Team members today continue to create calendars and budgets for the digital marketing unit, but with far less line-item detail and greater flexibil-ity for serendipitous developments. The sales team is much happier.

3 Start Small and Let the Word SpreadLarge companies typically launch change programs as massive efforts. But the most successful introduc-tions of agile usually start small. They often begin in IT, where software developers are likely to be famil-iar with the principles. Then agile might spread to another function, with the original practitioners act-ing as coaches. Each success seems to create a group of passionate evangelists who can hardly wait to tell others in the organization how well agile works.

The adoption and expansion of agile at John Deere, the farm equipment company, provides an example. George Tome, a software engineer who had become a proj ect manager within Deere’s cor-porate IT group, began applying agile principles in 2004 on a low-key basis. Gradually, over several years, software development units in other parts of Deere began using them as well. This growing interest made it easier to introduce the methodol-ogy to the company’s business development and marketing organizations.

In 2012 Tome was working as a manager in the Enterprise Advanced Marketing unit of the R&D group responsible for discovering technologies that could revolutionize Deere’s offerings. Jason Brantley, the unit head, was concerned that traditional proj ect management techniques were slowing innovation, and the two men decided to see whether agile could speed things up. Tome invited two other unit man-agers to agile training classes. But all the terminol-ogy and examples came from software, and to one of the managers, who had no software background, they sounded like gibberish. Tome realized that oth-ers would react the same way, so he tracked down an agile coach who knew how to work with people without a software background. In the past few years he and the coach have trained teams in all five of the

Agile Values and Principles

PEOPLE OVER PROCESSES AND TOOLS Proj ects should be built around motivated individuals who are given the support they need and trusted to get the job done. Teams should abandon the assembly-line mentality in favor of a fun, creative environment for problem solving, and should maintain a sustainable pace. Employees should talk face-to-face and suggest ways to improve their work environment. Management should remove impediments to easier, more fruitful collaboration.

RESPOND TO CHANGE RATHER THAN FOLLOW A PLANMost detailed predictions and plans of conventional proj ect management are a waste of time and money. Although teams should create a vision and plan, they should plan only those tasks that won’t have changed by the time they get to them. And people should be happy to learn things that alter their direction, even late in the development process. That will put them closer to the customer and make for better results.

WORKING PROTOTYPES OVER EXCESSIVE DOCUMENTATIONInnovators who can see their results in real market conditions will learn faster, be happier, stay longer, and do more-valuable work. Teams should experiment on small parts of the product with a few customers for short periods, and if customers like them, keep them. If customers don’t like them, teams should figure out fixes or move on to the next thing. Team members should resolve arguments with experiments rather than endless debates or appeals to authority.

CUSTOMER COLLABORATION OVER RIGID CONTRACTS Time to market and cost are paramount, and specifications should evolve throughout the project, because customers can seldom predict what they will actually want. Rapid prototyping, frequent market tests, and constant collaboration keep work focused on what they will ultimately value.

In 2001, 17 rebellious software developers (including Jeff Sutherland) met in Snowbird, Utah, to share ideas for improving traditional “waterfall” development, in which detailed requirements and execution plans are created up front and then passed sequentially from function to function. This approach worked fine in stable environments, but not when software markets began to change rapidly and unpredictably. In that scenario, product specifications were outdated by the time the software was delivered to customers, and developers felt oppressed by bureaucratic procedures.

The rebels proposed four new values for developing software, described principles to guide adherence to those values, and dubbed their call to arms “The Agile Manifesto.” To this day, development frameworks that follow these values and principles are known as agile techniques.

Here is an adapted version of the manifesto:

R&D group’s centers. Tome also began publishing weekly one-page articles about agile principles and practices, which were e-mailed to anyone interested and later posted on Deere’s Yammer site. Hundreds of Deere employees joined the discussion group. “I wanted to develop a knowledge base about agile that was specific to Deere so that anyone within the organization could understand it,” Tome says. “This would lay the foundation for moving agile into any part of the company.”

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4 Allow “Master” Teams to Customize Their PracticesJapanese martial arts students, especially those studying aikido, often learn a process called shu-ha-ri. In the shu state they study proven disciplines. Once they’ve mastered those, they enter the ha state, where they branch out and begin to modify traditional forms. Eventually they advance to ri, where they have so thoroughly absorbed the laws and principles that they are free to improvise as they choose.

Mastering agile innovation is similar. Before be-ginning to modify or customize agile, a person or team will benefit from practicing the widely used methodologies that have delivered success in thou-sands of companies. For instance, it’s wise to avoid beginning with part-time assignment to teams or with rotating membership. Empirical data shows that stable teams are 60% more productive and 60% more responsive to customer input than teams that rotate members.

Using agile techniques, Enterprise Advanced Marketing has significantly compressed innova-tion proj ect cycle times—in some cases by more than 75%. One example is the development in about eight months of a working prototype of a new “ma-chine form” that Deere has not yet disclosed. “If everything went perfectly in a traditional process,” Brantley says, “it would be a year and a half at best, and it could be as much as two and a half or three years.” Agile generated other improvements as well. Team engagement and happiness in the unit quickly shot from the bottom third of companywide scores to the top third. Quality improved. Velocity (as mea-sured by the amount of work accomplished in each sprint) increased, on average, by more than 200%; some teams achieved an increase of more than 400%, and one team soared 800%.

Success like this attracts attention. Today, ac-cording to Tome, in almost every area at John Deere someone is either starting to use agile or thinking about how it could be used.

MARKET ENVIRONMENTCustomer preferences and solution options change frequently.

Market conditions are stable and predictable.

CUSTOMER INVOLVEMENT

Close collaboration and rapid feedback are feasible. Customers know better what they want as the process prog resses.

Requirements are clear at the outset and will remain stable. Customers are unavailable for constant collaboration.

INNOVATION TYPE

Problems are complex, solutions are unknown, and the scope isn’t clearly defined. Product specifications may change. Creative breakthroughs and time to market are important. Cross-functional collaboration is vital.

Similar work has been done before, and innovators believe the solutions are clear. Detailed specifications and work plans can be forecast with confidence and should be adhered to. Problems can be solved sequentially in functional silos.

MODULARITY OF WORK

Incremental developments have value, and customers can use them. Work can be broken into parts and conducted in rapid, iterative cycles. Late changes are manageable.

Customers cannot start testing parts of the product until everything is complete. Late changes are expensive or impossible.

IMPACT OF INTERIM MISTAKES They provide valuable learning. They may be catastrophic.

SOURCE BAIN & COMPANY

CONDITIONS FAVORABLE UNFAVORABLE

The Right Conditions for Agile



performance assessments, press interviews, and visits to plants, customers, and suppliers—fall into this category.) But many, and arguably the most important, are. They include strategy development and resource allocation, cultivating breakthrough innovations, and improving organizational collabo-ration. Senior executives who come together as an agile team and learn to apply the discipline to these activities achieve far-reaching benefits. Their own productivity and morale improve. They speak the language of the teams they are empowering. They experience common challenges and learn how to overcome them. They recognize and stop behaviors that impede agile teams. They learn to simplify and focus work. Results improve, increasing confidence and engagement throughout the organization.

A number of companies have reallocated 25% or more of selected leaders’ time from functional silos to agile leadership teams. These teams rank-order enterprisewide portfolio backlogs, establish and co-ordinate agile teams elsewhere in the organization to address the highest priorities, and systematically eliminate barriers to their success. Here are three examples of C-suites that took up agile:

1. Catching up with the troops. Systematic, a 525-employee software company, began applying agile methodologies in 2005. As they spread to all its software development teams, Michael Holm, the company’s CEO and cofounder, began to worry that his leadership team was hindering prog ress. “I had this feeling that I was saying, ‘Follow me—I’m just behind you,’” he told us. “The development teams were using scrum and were doing things differently, while the management team was stuck doing things the same old-fashioned way”—moving too slowly and relying on too many written reports that always seemed out-of-date. So in 2010 Holm decided to run his nine-member executive group as an agile team.

The team reprioritized management activities, eliminating more than half of recurring reports and converting others to real-time systems while increasing attention to business-critical items such as sales proposals and customer satisfaction. The group started by meeting every Monday for an hour or two but found the pace of decision making too slow. So it began having daily 20-min ute stand-ups at 8:40 AM to discuss what members had done the day before, what they would do that day, and where they needed help. More recently the senior team began to use physical boards to track its own actions

Over time, experienced practitioners should be permitted to customize agile practices. For ex-ample, one principle holds that teams should keep their prog ress and impediments constantly visible. Originally, the most popular way of doing this was by manually advancing colored sticky notes from the “to-do” column to “doing” to “done” on large whiteboards (known as kanban boards). Many teams are still devoted to this practice and enjoy having nonmembers visit their team rooms to view and discuss prog ress. But others are turning to soft-ware programs and computer screens to minimize input time and allow the information to be shared simultaneously in multiple locations.

A key principle guides this type of improvisa-tion: If a team wants to modify particular practices, it should experiment and track the results to make sure that the changes are improving rather than reducing customer satisfaction, work velocity, and team morale.

Spotify, the music-streaming company, exempli-fies an experienced adapter. Founded in 2006, the company was agile from birth, and its entire busi-ness model, from product development to marketing and general management, is geared to deliver better customer experiences through agile innovation. But senior leaders no longer dictate specific practices; on the contrary, they encourage experimentation and flexibility as long as changes are consistent with ag-ile principles and can be shown to improve outcomes. As a result, practices vary across the company’s 70

“squads” (Spotify’s name for agile innovation teams) and its “chapters” (the company term for functional competencies such as user interface development and quality testing). Although nearly every squad con-sists of a small cross-functional team and uses some form of visual progress tracking, ranked priorities, adaptive planning, and brainstorming sessions on how to improve the work process, many teams omit the “burndown” charts (which show work performed and work remaining) that are a common feature of agile teams. Nor do they always measure velocity, keep prog ress reports, or employ the same tech-niques for estimating the time required for a given task. These squads have tested their modifications and found that they improve results.

5 Practice Agile at the TopSome C-suite activities are not suited to agile meth-odologies. (Routine and predictable tasks—such as

FURTHER RESOURCES

From HBR.org:“Lean Knowledge Work” Bradley R. Staats and David M. Upton

“Decoding the DNA of the Toyota Production System” Steven Spear and H. Kent Bowen

“Beyond Toyota: How to Root Out Waste and Pursue Perfection”James P. Womack and Daniel T. Jones

Other:Agile Alliance For guides to agile practices, links to “The Agile Manifesto,” and training videos

Scrum Alliance For a “Scrum Guide,” conference presentations and videos, and the “State of Scrum” research report

ScrumLab Open For training presentations, videos, webinars, and published papers

Annual State of Agile Survey For key statistics such as usage rates, customer benefits, barriers to adoption and success, and specific practices used

HBR.ORG


is how we will improve things.” Surak believes that this shows the organization that “executives work in the same ways as engineers,” increasing employee motivation and commitment to agile practices.

3. Aligning departments and functions on a common vision. Erik Martella, the vice president and general manager of Mission Bell Winery, a pro-duction facility of Constellation Brands, introduced agile and helped it spread throughout the organiza-tion. Leaders of each department served as initia-tive owners on the various agile teams within their departments. Those individual teams achieved im-pressive results, but Martella worried that their time was being spread too thin and that department and enterprise priorities weren’t always aligned. He de-cided to pull department leaders into an executive agile team focused on the enterprise initiatives that held the greatest value and the greatest opportunity for cross-functional collaboration, such as increasing process flows through the warehouse.

The team is responsible for building and continu-ally refining the backlog of enterprise priorities, en-suring that agile teams are working on the right prob-lems and have sufficient resources. Team members also protect the organization from pet proj ects that don’t deserve high priority. For instance, shortly after Martella started implementing agile, he received an e-mail from a superior in Constellation’s corporate office suggesting that the winery explore a personal passion of the sender. Previously, Martella might have responded, “OK, we’ll jump right on it.” Instead, he replied that the winery was following agile prin-ciples: The idea would be added to the list of poten-tial opportunities and prioritized. As it happened, the executive liked the approach—and when he was informed that his suggestion had been assigned a low priority, he readily accepted the decision.

Working on agile teams can also help prepare functional managers—who rarely break out of their silos in today’s overspecialized organizations—for general management roles. It exposes them to people in other disciplines, teaches collaborative practices, and underscores the importance of working closely with customers—all essential for future leaders.

6 Destroy the Barriers to Agile BehaviorsResearch by Scrum Alliance, an independent non-profit with 400,000-plus members, has found that more than 70% of agile practitioners report tension

and the improvements coming from the business units. Other functions, including HR, legal, finance, and sales, now operate in much the same way.

2. Speeding a corporate transition. In 2015 General Electric rebranded itself as a “digital indus-trial company,” with a focus on digitally enabled products. Part of the transformation involved creat-ing GE Digital, an organizational unit that includes all 20,000-plus of the company’s software-related employees. Brad Surak, who began his career as a software engineer and is now GE Digital’s COO, was intimately familiar with agile. He piloted scrum with the leadership team responsible for developing industrial internet applications and then, more re-cently, began applying it to the new unit’s manage-ment processes, such as operating reviews. Surak is the initiative owner, and an engineering executive is the scrum master. Together they have prioritized backlog items for the executive team to address, including simplifying the administrative process that teams follow to acquire hardware and solving knotty pricing issues for products requiring input from multiple GE businesses.

The scrum team members run two-week sprints and conduct stand-up meetings three times a week. They chart their prog ress on a board in an open con-ference room where any employee can see it. Surak says, “It takes the mystery out of what executives do every day. Our people want to know if we are in tune with what they care about as employees.” The team collects employee happiness surveys, conducts root cause analysis on the impediments to working more effectively, and reports back to people throughout the organization, saying (in effect), “We heard you. Here

scrum “takes the mystery out of what executives do every day.”


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members, appointing the team leader, and approv-ing the team’s decisions. An agile leadership team often authorizes a senior executive to identify the critical issues, design processes for addressing them, and appoint a single owner for each innovation ini-tiative. Other senior leaders must avoid second-guessing or overturning the owner’s decisions. It’s fine to provide guidance and assistance, but if you don’t like the results, change the initiative owner—don’t incapacitate him or her.

Focus on teams, not individuals. Studies by the MIT Center for Collective Intelligence and others show that although the intelligence of individuals af-fects team performance, the team’s collective intel-ligence is even more important. It’s also far easier to change. Agile teams use process facilitators to con-tinually improve their collective intelligence—for example, by clarifying roles, teaching conflict reso-lution techniques, and ensuring that team members contribute equally. Shifting metrics from output and utilization rates (how busy people are) to business outcomes and team happiness (how valuable and engaged people are) also helps, as do recognition and reward systems that weight team results higher than individual efforts.

Lead with questions, not orders. General George S. Patton Jr. famously advised leaders never to tell people how to do things: “Tell them what to do, and they will surprise you with their ingenuity.” Rather than give orders, leaders in agile organiza-tions learn to guide with questions, such as “What do you recommend?” and “How could we test that?” This management style helps functional experts grow into general managers, and it helps enterprise strategists and organizations evolve from silos bat-tling for power and resources into collaborative cross-functional teams.

AGILE INNOVATION has revolutionized the software industry, which has arguably undergone more rapid and profound change than any other area of business over the past 30 years. Now it is poised to transform nearly every other function in every industry. At this point, the greatest impediment is not the need for better methodologies, empirical evidence of signifi-cant benefits, or proof that agile can work outside IT. It is the behavior of executives. Those who learn to lead agile’s extension into a broader range of business activities will accelerate profitable growth.

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between their teams and the rest of the organization. Little wonder: They are following different road maps and moving at different speeds.

Here’s a telling example: A large financial ser-vices company we examined launched a pilot to build its next mobile app using agile methodolo-gies. Of course, the first step was to assemble a team. That required a budget request to authorize and fund the proj ect. The request went into the batch of submissions vying for approval in the next annual planning process. After months of reviews, the com-pany finally approved funding. The pilot produced an effective app that customers praised, and the team was proud of its work. But before the app was released, it had to pass vulnerability testing in a tra-ditional “waterfall” process (a protracted sequence in which the computer code is tested for documen-tation, functionality, efficiency, and standardiza-tion), and the queue for the process was long. Then the app had to be integrated into core IT systems—which involved another waterfall process with a six-to-nine-month logjam. In the end, the total time to release improved very little.

Here are some techniques for destroying such barriers to agile:

Get everyone on the same page. Individual teams focusing on small parts of large, complex problems need to see, and work from, the same list of enterprise priorities—even if not all the teams responsible for those priorities are using agile pro-cesses. If a new mobile app is the top priority for soft-ware development, it must also be the top priority for budgeting, vulnerability testing, and software in-tegration. Otherwise, agile innovations will struggle in implementation. This is a key responsibility of an executive team that itself practices agile.

Don’t change structures right away; change roles instead. Many executives assume that creat-ing more cross-functional teams will necessitate ma-jor changes in organizational structure. That is rarely true. Highly empowered cross-functional teams do, by definition, need some form of matrix manage-ment, but that requires primarily that different dis-ciplines learn how to work together simultaneously rather than separately and sequentially.

Name only one boss for each decision. People can have multiple bosses, but decisions cannot. In an agile operating model it must be crys-tal clear who is responsible for commissioning a cross-functional team, selecting and replacing team


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Managing for an Unpredictable Future

54Planned Opportunism by Vijay Govindarajan

62“Both/And” Leadership by Wendy K. Smith, Marianne W. Lewis, and Michael L. Tushman

72Superforecasting: How to Upgrade Your Company’s Judgment by Paul J.H. Schoemaker and Philip E. Tetlock

80How to Hedge Your Strategic Bets by George Stalk Jr. and Ashish Iyer

SPOTLIGHT

ARTWORK Sarah Morris, Globo (Rio) 2013, household gloss paint on canvas


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Vijay Govindarajan is the Coxe Distinguished Professor at Dartmouth’s Tuck School of Business and a Marvin Bower Fellow at Harvard Business School.

This article is based on his book The Three Box Solution: A Strategy for Leading Innovation (Harvard Business Review Press, 2016).

SPOTLIGHT

Planned OpportunismUsing weak signals to spur innovationBY VIJAY GOVINDARAJAN

n the first few years of the new millennium, at the height of the boom in the offshore call-center business, Tata Consultancy Services, the Indian technology-services giant, made the counterintuitive decision to divest its call-center operations.

I54 Harvard Business Review May 2016

SPOTLIGHT ON MANAGING FOR AN UNPREDICTABLE FUTURE

ARTWORK Sarah Morris, Marco 2011 (Rio) 2013, household gloss paint on canvas

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Why? Because although outsourced call centers were a fast-growing piece of its current business, TCS’s leadership had come to believe that they would soon be burdensome. Employee churn was exceptionally high, forcing the HR department into a round-the-clock effort to hire and train as many as half a million new reps annually. This drained resources and distracted the company from its real goal—to develop more-sophisticated capabilities and service offerings. By moving out of call centers even though demand was stronger than ever, TCS was acting to prevent the right future from being swamped by the wrong one.

TCS’s move was the result of what I call planned opportunism. The idea starts with recognizing that the future is unpredictable, shaped by nonlinear changes and chance events—the “opportunism” part. How you as a leader respond is the “planned” part. Planned opportunism requires sensitivity to weak signals—early evidence of emerging trends from which it is possible to deduce important changes in demography, technology, customer tastes and needs, and economic, environmental, regulatory, and political forces. Attention to weak signals gives rise to fresh perspectives and nonlinear thinking, which help an organization imagine and plan for various plausible futures.

TCS’s leaders had picked up on several weak signals. They saw that technologies were mov-ing to the cloud, allowing business services to be delivered as an online utility rather than through traditional enterprise-owned technology infra-structures. They rightly believed that global busi-nesses would eventually demand higher-level, more strategic outsourced services. (Sales revenue per employee tended to be higher for higher-value-added services, so by focusing on those services,

TCS could significantly improve the top line with a smaller workforce.) And they knew that TCS needed to attract increasingly sophisticated tal-ent, which would require HR’s recruiting efforts. They concluded that call centers would not lead to—in fact, would get in the way of—the future they wanted to pursue.

Planned opportunism is a systematic process not only for recognizing impending changes and ascertaining what opportunities they may offer but for developing experiments to distill and scale up promising nonlinear business ideas. It accom-plishes three exceptionally important things for the enterprise: (1) It creates a circulatory system for new ideas; (2) it develops the capacity to pri-oritize, investigate, and act on those ideas; and (3) it builds an adaptive culture that embraces contin-ual change. It will enable your organization to be proactive rather than reactive. To be sure, planned opportunism can accommodate scenario planning and other conventional tools and cultural aspira-tions, such as a flatter organization and a more em-powered workforce. But it is not just an event, an activity, or a tool. It is a discipline encompassing processes and behaviors across many functions that will strengthen resiliency and lead to growth.

Identify and Capture Weak SignalsOrganizational resiliency begins with a clear un-derstanding of the circumstances that either favor or threaten your business. Consider the case of Hasbro, the toy and game maker. By the mid-1990s significant signals that technology was likely to disrupt the gaming space could be discerned. They included the rise of PCs and the debut of Atari’s video gaming system. But Hasbro also noted weak

When TCS moved out of call centers, it was acting to prevent the right future from being swamped by the wrong one.56 Harvard Business Review May 2016


Idea in BriefTHE CHALLENGEThe future is shaped by nonlinear changes and chance events. How can you prepare your organization to respond?

THE STARTING POINT Companies have to recognize the weak signals that herald important changes to the business and identify the opportunities they present.

THE WAY FORWARD They must then develop a program of experimentation to distill and scale up promising ideas.

signals: The U.S. birthrate was falling, the popula-tion was becoming more ethnically diverse, and more households included two-income couples. At the same time, accelerated globalization stimu-lated the company’s appetite for growth in un-tapped markets around the world. Hasbro could not have predicted all the changes that would affect it over the next 20 years (see the sidebar

“How Hasbro Responded to Nonlinear Change”), but it picked up on enough weak signals to point it in productive directions.

Hasbro continues to deftly navigate frequent shifts in the industry because it has a process, devel-oped by CEO Brian Goldner, for tapping into weak signals and envisaging futures that might develop from them. The process involves asking three basic questions: What factors and conditions does our current success depend on? Which of them might change over time (or are changing already), thus putting current success at risk? How can we prepare for these possible changes in order to cushion or even exploit their impact?

Goldner’s process works for Hasbro, but other organizations can employ different, equally effec-tive approaches. TCS now uses an internal digital platform, Ultimatix, to encourage its more than 300,000 employees to share their perceptions about discontinuous industry shifts with manage-ment and one another. The company has developed a software application that sifts through the huge volume of responses and identifies common themes.

Ultimatix is one example of a free-for-all ap-proach to collecting weak signals from employees. Creating a task force to perform the same func-tion is another option. When I consulted for GE in 2008–2009, we designed a process for brain-storming about weak signals that might affect GE Healthcare’s future business in India. The challenge

was to build a business to serve nonconsumers—in this case, rural Indians with limited access to health care—while competing against nontraditional rivals, including small local players. We assembled a carefully chosen task force: 20 company execu-tives (not necessarily at the top of the organization) and 20 outsiders, including hospital administrators, health care academics, government officials, non-consumers, and regulators. The members of the task force had very little vested in GE Healthcare’s past—specifically, its high-end medical imaging equipment, which it sells at a steep price to lead-ing Indian hospitals. They spent a week identifying weak signals that suggested a variety of nonlinear shifts, including extensive unmet health care needs, low customer affordability, a shortage of hospitals and qualified doctors, an underdeveloped health insurance industry, poor physical infrastructure, and good digital connectivity.

The task force and free-for-all approaches could conceivably be used in combination. Ideas gleaned from an Ultimatix-style system might be refined by a task force, or the latter’s output might get feed-back from the crowd. Whatever approach an organi-zation takes, it is important to remember that a good process must address the following questions:

• Who will be your customers in the future? What will be their priorities?

• What disruptive technologies might open up new opportunity spaces?

• Whom will you be competing against in the future, and on what basis?

• Will your go-to-market approach change funda-mentally in the future?

• What are the potential regulatory reforms? At this stage of the process, it is not necessary to

narrow down the list of weak signals. Be as divergent and expansive as possible.

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by attracting new demographics. We can increase sales among current customers by expanding our product line.

Similarly, in the late 1990s Mahindra Group’s au-tomotive business, Mahindra & Mahindra, had to develop an assortment of hypotheses in the midst of transforming its future. Historically, M&M had assembled vehicles for Western automakers to be marketed to Indian consumers. Now, however, M&M believed the time was right to launch a new business in designing and manufacturing original vehicles, in particular its own line of SUVs.

In the wake of economic liberalization, India’s middle class was growing rapidly. Weak signals sug-gested that these new consumers would embrace well-performing vehicles of Indian origin that were styled to local tastes and priced in line with local means. However, the profitability of the new ven-ture required that M&M test hypotheses involving its understanding of customer preferences, the size of the addressable market, the appeal of the SUV to the growing middle class at the right price point, and M&M’s own capacities, including its ability to design and manufacture the SUV cost-effectively and to reduce costs by leveraging the strengths of suppliers.

Weak signals are typically neutral in their impli-cations and can be interpreted as opportunities, as risks, or as both. Moreover, they can be real signals or just noise. Thus their usefulness grows as your busi-ness begins to plumb their implications by convert-ing them into new business ideas, reducing the ideas to hypotheses, and then testing them.

Test Hypotheses with Low-Cost, Low-Risk ExperimentsMahindra & Mahindra’s SUV venture, the Scorpio, was a high-risk gamble, to be sure. The company had no

Develop Hypotheses About the Future Weak signals are valuable only to the extent that they generate ideas about how to access currently un-served parts of the market or to create entirely new markets. To convert those ideas into real opportuni-ties, you must resolve several uncertainties, which can be framed as hypotheses. You can develop the hypotheses by assembling a cross-functional team and asking it to deliberate on this simple question: What assumptions must be true for this idea to be highly profitable?

Hasbro faced significant uncertainties when it chose to make a concerted push into the technol-ogy-based gaming space. In 1995 no one knew how quickly the internet would become a potent chan-nel. Possible competitors and partners had yet to be identified. It was unclear whether the PC would remain the dominant platform for home technology or be replaced by something else—television or per-haps a totally new device. And as the web matured, other questions emerged: How would companies serve their customers in both the physical and vir-tual realms? How would the economic model change when the industry moved from analog dollars to digital pennies?

Hasbro reframed these uncertainties as hypoth-eses that spelled out potential opportunities. For ex-ample: We can develop successful game titles based on Hasbro brands. We can develop successful titles from scratch. We can keep development costs and time frames minimal enough to be profitable, even as computers and other gaming platforms become more sophisticated. With more people buying home computers, we can reduce costs via electronic points of sale. We can expand brand awareness by creating a presence on the web. We can increase market share

Weak signals can be interpreted as opportunities, as risks, or as both. Moreover, they can be real signals or just noise.



proven competency in auto design, and the projected cost to develop the Scorpio was $120 million, which would have been M&M’s biggest investment to date.

The company decided to pursue a strategy of frugal engineering. Frugality combined with inexperience drove some especially innovative solutions in which experimentation was a crucial enabler. One experiment was M&M’s development of a new version of an existing Jeep (licensed from the U.S. automaker) that could be used as a test bed for Scorpio parts, technologies, design elements, development, and marketing strategies. According to Pawan Goenka, who headed the Scorpio project (and is now M&M’s executive director), the test bed vehicle—called the Bolero—was to be smaller and less expensive than the Scorpio. It was fast-tracked to get to market a full two years before the Scorpio, allowing sufficient time for the experiments it hosted to produce results and for the Scorpio to be tweaked accordingly. For example, M&M used the Bolero to test its ability to design and manufacture body pan-els, which the company had previously outsourced.

“Scorpio was a full 360-degree innovation,” Goenka says. “It was a new product category aimed at a new market and relying on a new development strategy, radical cost goals, and a new business model. So we used Bolero as an experiment with an investment of about $5 million. We learned a lot from Bolero before placing the bigger bet on Scorpio.”

Though the Bolero was not as finely appointed as the Scorpio would be, it was designed to be stylish and comfortable and at least as much fun as func-tional. And it tested new marketing approaches that emphasized messages and concepts more subtle than those M&M had been accustomed to using. The company’s marketing had previously been

“very generic,” according to Goenka, focused more on function and utility than on style and sizzle. The Bolero broke new ground by inverting those virtues and establishing credibility with buyers in urban centers. Consumer acceptance of the car’s stylish design and appointments validated the assumption that the Scorpio would appeal to India’s cosmopoli-tan middle class. The team also realized that no mar-ket for SUVs yet existed in India, so that designation would be meaningless. “Instead, we just called it a car,” Goenka says.

The marketing campaign also deemphasized the Mahindra brand, which was most strongly associ-ated with manufacturing Jeep-like vehicles, mainly

From 2001 to 2015, a period that included the dot-com bust and the Great Recession, Hasbro’s stock price rose from $11 to $72, while that of its main competitor, Mattel, rose from $15 to just $25. Hasbro thrived by responding nimbly to the weak signals that heralded dramatic nonlinear changes in the family entertainment industry. Below are some of them.

DISRUPTIVE TECHNOLOGIESMonopoly and other board games dominated in the early 1990s, but new technologies soon disrupted the gaming space: • Games found a new platform on digital and hand-held devices.• Games as apps created dramatically lower entry barriers.• Digital games spread virally and achieved global volumes, upending

traditional revenue models.

NEW DISTRIBUTION CHANNELSIn the early 1990s toys and games were distributed primarily through brick-and-mortar retail outlets. Then:• Big-box stores began squeezing out mom-and-pop stores and boutiques.• Amazon and other e-commerce players emerged.

FUNDAMENTAL CUSTOMER SHIFTSIn 1995 Hasbro’s primary target consumers were 15 and younger. Over the next two decades: • Dual-career parents spent less time with their children but had more

disposable income. Per capita spending on children increased.• Parents began to prefer toys and games with apparent “enrichment” value.

• As children became increasingly hyperscheduled, competition for their time and attention intensified.

• They were alone more often and preferred fast-paced video games.• Grandparents, who often cared for young children and now had more

disposable income, became attractive target consumers. • More people were playing games while commuting on trains or buses.

NONTRADITIONAL COMPETITORSSince 1995 new competitors have emerged:• Technology and consumer electronics companies such as Electronic Arts,

Microsoft, Sony, and Nintendo• Smartphones and other products from the convergence of

telecommunications, computing, and consumer electronics• Media and entertainment companies such as Disney• Tech-savvy local gaming companies from China and India • Big players that offer private-label store brands

GLOBALIZATIONIn 1995 Hasbro was primarily an American company. Now globalization has provided new opportunities: • Birthrates are rising in poor countries while declining in rich ones. • Emerging markets—with their differing concept of play, low affordability,

and unique distribution channels—demand new competencies and new business models.

• They offer a low-cost manufacturing base and are sources of inexpensive and highly skilled talent.

How Hasbro Responded to Nonlinear Change

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for rural customers. In advertising, Goenka says, “we called it the Scorpio—then, sort of below in fine print, ‘by Mahindra.’” TV commercials tried to cap-ture the aspirational feel of a “typical commercial for Rolls-Royce,” he adds, “which the Indian public connected to very well.”

Finally, the Bolero experiment was a chance to test the idea that the Scorpio’s frugality could be increased through an innovative approach to sup-plier relationships. M&M’s lack of experience gave the company an incentive to learn from suppliers rather than dictate to them. So it provided clear per-formance characteristics and budget targets and en-listed suppliers as design partners. Because this was atypical in the auto industry, it took a while to catch on. But M&M discovered that many suppliers were pleased to have their expertise valued and to have more latitude than automakers typically offered.

Having honed its frugal-engineering capabilities with the Bolero, M&M was able to price its high-quality, low-cost Scorpio 30% to 40% lower than competitors’ vehicles. Today the Scorpio contin-ues to outsell competing vehicles made by Ford, Renault, and others.

Low-cost, low-risk experimentation can chal-lenge many organizations—as IBM learned in 1993 when it tried to get a new idea called pervasive computing off the ground. The concept was rooted in the premise that internet commerce would spread rapidly beyond computers to other devices—from cell phones and PDAs to cars, kitchen appli-ances, and other objects that could be networked. The idea anticipated what is now called the internet of things. But the pervasive computing initiative struggled to get traction. In part that was because it covered a broad area of research and was not a formally organized unit. Its assortment of loosely related projects thus ended up being assigned to various siloed core businesses. The silos applied a range of development approaches better suited to

established businesses than to start-ups aimed at still-evolving markets.

IBM addressed this problem in the late 1990s, when it implemented an organizational architec-ture called emerging business opportunities, or EBO, to incubate embryonic ventures and help the com-pany meet head-on the meteoric rise of the internet as a business platform. EBO followed an explicitly start-up-friendly framework that differed markedly from the way IBM ran its established businesses. It was heavily focused on learning about emerging technology markets.

Senior management ultimately unified the vari-ous projects connected with pervasive computing in a single business unit that operated using new rules spelled out in the EBO process. Rather than being put under the control of an operating division president, pervasive computing was reorganized as a dedicated team reporting directly to IBM Vice Chairman John Thompson, and thus was insulated from the short-term pressures of the core businesses. This enabled it to experiment patiently, assess the still-fluid market, and refine the strategy.

Metrics for progress were based not on short-term financial performance but on new learning: testing underlying assumptions, refining strategy, achieving milestones for identifying leading sources of future profit as embryonic markets solidified. Rod Adkins, who headed up the unit during its EBO years, says, “Almost everything we did began as an in-market experiment” done in collaboration with an IBM customer. For example, a team from pervasive computing worked with a mobile handset provider on a platform capable of presenting rich data in mul-timedia formats. The process involved developing a service tailored to the client’s unique requirements. The fruits of that collaboration were eventually hard-ened into products that could be replicated for other customers. In time the pervasive computing unit became a billion-dollar business for IBM.

The future is not a far-off point: It arrives in daily doses that must be noticed and understood. 60 Harvard Business Review May 2016


Since its implementation, EBO has helped IBM turn more of its research capability into successful new businesses. Using empowered teams to test hy-potheses has proved an effective, low-risk strategy for the company.

One of Hasbro’s past ventures offers a cautionary tale about the dangers of rushing into a new market without the benefit of iterative learning. In 1970 the Nixon administration had begun a program of subsidized day care for working mothers. To capi-talize on this opportunity, Hasbro launched a chain of nursery schools under the Romper Room brand (made famous by a popular U.S. children’s television program). Instead of using low-cost experiments to create rapid learning cycles, Hasbro’s approach was more like “If we build it, they will come.” The company was confident that the nursery schools could leverage its successful line of Romper Room–branded toys. But Hasbro was a product company, not a service provider; it had ventured out of its depth. Alan Hassenfeld, a member of Hasbro’s founding family, told the Wall Street Journal, “We’d get phone calls saying, ‘We can’t find one of the kids.’ The whole company would stop.” After five years of a bold but ill-advised strategy, Hasbro exited the nursery school business.

Invest in the “Horse You Can Control” Businesses and CEOs often don’t know how best to think about the future, much less to act on it. Although they rightly concede that it is unpredict-able, they may think of it as a far-off point on the horizon—a reality they’ll deal with when the time comes. But the future is not a far-off point. Rather, it is like a software program that is continually up-dated: It arrives in daily doses that must be noticed and understood. Only by working toward the future day by day can your enterprise respond resiliently when it encounters nonlinear opportunities or, equally likely, menacing threats.

Planned opportunism is a strategy for exerting some control over unpredictable circumstances before they occur. Of course, this involves one of life’s most persistent conundrums. As Elizabeth Gilbert writes in her memoir Eat, Pray, Love, “We gallop through our lives like circus performers bal-ancing on two speeding side-by-side horses—one foot is on the horse called ‘fate,’ the other on the horse called ‘free will.’ And the question you have

to ask every day is—which horse is which? Which horse do I need to stop worrying about because it’s not under my control, and which do I need to steer with concentrated effort?”

Though Gilbert is writing about personal con-duct, her metaphor applies equally well to organi-zations and their leaders. Across every activity a business must continually ask itself, “Which horse is which?” The horse of free will can be steered, but the horse of fate cannot. Planned opportunism demands that leaders spend their energies and attention on the former.

I am not suggesting that you should ignore the horse you can’t control. On the contrary, you need to understand, respect, and work to hedge against the destructive potential of uncontrollable fate. And the most effective way to manage the horse you can’t control is to focus on the horse you can. Hasbro’s process for identifying and acting on weak signals, M&M’s learning through experimentation, and IBM’s EBO program increased their readiness for the future.

Planned opportunism is a way to take control of the future instead of being passive in the face of its unpredictability. It doesn’t require a change-ready culture; over time, it creates one. HBR Reprint R1605C

BOB

VOJT

KO

“I’m afraid the new guy isn’t working out here.”

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SPOTLIGHT



“Both/And” LeadershipDon’t worry so much about being consistent.by Wendy K. Smith, Marianne W. Lewis, and Michael L. Tushman

ARTWORK Sarah Morris, 1972 (Rings) 2006, household gloss paint on canvas


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J ack Welch once claimed that great leaders are “relentless and boring.” Management thinkers largely agree: Good leaders, so the narrative

goes, are consistent in their decision making, stick to their commitments, and remain on-message. The trouble is, much as we may value consistency in our leaders, we don’t live in a world that rewards it—at least not in the long term.

We all know that leaders face contradictory chal-lenges. They may be under pressure to improve their existing products incrementally at the same time that they invent radically new products based on new business models. Or they may be striving to reach a global network while also serving distinct local needs. Some CEOs respond by prioritizing one challenge over the other; some seek an integra-tive middle ground, negotiating acceptable trade-offs that all stakeholders can abide by. What those approaches have in common is that they aim to provide a stable resolution of the conflicting chal-lenges—the implicit assumption being that stability is what organizations need in order to prosper.

We disagree profoundly with this image of lead-ership, because it is rooted in a mischaracterization of the business environment. The challenges we focus on in this article are not conflicting goals that invite a calculated choice or a compromise. They are fundamental paradoxes that persist over time, as to-day’s “long term” becomes tomorrow’s “short term.” Too much focus on one goal triggers a demand for the other. And as the business environment and the actors in it change, stability breaks down, often destroying a great deal of value and eventually cul-minating in a crisis that prompts a leader to impose a different order—fueling the start of another cycle.

In the following pages we propose a new model—one in which the goal of leadership is to maintain a dynamic equilibrium in the organization. Executives with this goal do not focus on being consistent; in-stead they purposefully and confidently embrace the paradoxes they confront. Senior teams build dy-namic equilibrium by separating the imperatives that are in conflict with one another in order to recognize and respect each one (creating a separate unit to

develop a new business model, for example), while at the same time actively managing connections be-tween them in order to leverage interdependencies and benefit from their synergies.

The Paradoxes of LeadershipIn our work with corporations over the past 20 years, we have seen that senior leaders constantly grapple with the same sets of opposing goals, which often polarize their organizations. These tensions or paradoxes fall into three categories related to three questions that many leaders perceive as

“either/or” choices: • Are we managing for today or for tomorrow?

Tensions around time frame are especially salient, because a firm’s long-term survival depends on ex-perimenting, taking risks, and learning from failure in the pursuit of new products, services, and pro-cesses. However, firms also need consistency, dis-cipline, and steady attention to make the most of the products, services, and processes they already have. These innovation paradoxes involve tensions between today and tomorrow, existing offerings and new ones, stability and change.

In the late 1990s, for example, senior leaders at IBM saw the internet wave cresting and realized that the company’s future depended on harnessing the new technology. But IBM was also committed to sustaining its traditional strength in client-server markets. The two strategies demanded different structures, cultures, rewards, and metrics, which meant they could not be easily executed in tan-dem. Pursuing both involved addressing conflict between executives, as those committed to the old world and those championing the emerging world each felt their identity threatened.



Idea in BriefTHE PROBLEMWe look to leaders to make consistent decisions, keep a steady course, and align an organization’s culture. But leaders typically face multiple demands that conflict with one another, and it’s a mistake to assume there are cut-and-dried choices.

WHY IT HAPPENSStrategic paradoxes are essentially dilemmas that cannot be resolved. Tensions continually arise between today’s needs and tomorrow’s (innovation paradoxes), between global integration and local interests (globalization paradoxes), and between social missions and financial pressures (obligation paradoxes).

THE SOLUTION Managers need to shift from an “either/or” mindset to a “both/and” one by seeing the virtues of inconsistency, recognizing that resources are not always finite, and embracing change rather than chasing stability. In practical terms, this means nurturing the unique aspects of competing constituencies and strategies while finding ways to unite them.

• Do we adhere to boundaries or cross them? Leaders are always making and unmaking deci-sions around boundaries—geographic, cultural, and functional. A geographically dispersed supply chain can be wonderfully efficient, but it may lack flexibility. Dispersed innovation can produce a di-versity of ideas, but certain benefits get lost when your best and brightest aren’t together in one place. These globalization paradoxes surface tensions between global interconnection and local needs, breadth and depth, collaboration and competition.

In 2009 NASA’s director of human health and performance, Jeff Davis, began pushing to generate new knowledge through collaborative cross-firm and cross-disciplinary work. Yet over the next 18 months, he faced stiff resistance from scientists protecting their turf and their identities as indepen-dent researchers. The more that technology enabled open, collaborative research, the more concerned NASA’s scientists became about recognition of their individual achievements. Both collaboration and independent work were needed for the creation of new ideas, but they were organizationally and culturally incompatible.

• Do we focus on creating value for our shareholders and investors or for a broader set of stakeholders? All firms exist to create value, but leaders may be torn between maxi-mizing profits for the firm and trying to generate

wider benefits—for investors, employees, custom-ers, and society. These tensions have mounted as public concerns about poverty and climate change have grown, as technology has helped enable and empower consumer activism, and as human capi-tal has been increasingly recognized as the major driver of value. But being socially responsible can bring down share price, and prioritizing employ-ees can conflict with short-term shareholders’ or customers’ needs. Companies struggle to address these obligation paradoxes.

For example, in 2010 Unilever CEO Paul Polman launched the Unilever Sustainable Living Plan, aimed at doubling the size of the business by 2020 while improving the health and well-being of more than a billion people and cutting the compa-ny’s environmental impact in half. Polman argues that over the long term, social and environmental investments will lead to greater profits, whereas a singular focus on short-term profits can fuel deci-sions that harm our society and the environment. That is persuasive to many, but Polman faces ongoing challenges in executing the plan. Its inher-ent uncertainty and ambiguity have caused senior team leaders to feel a high level of anxiety and to fight about resource allocation.

These either/or questions can never be defini-tively answered. In part, that’s because they don’t really pre sent black-and-white choices; they invite

Paradoxes invite consideration of alternatives that are interdependent as well as contradictory.

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Practicing Paradoxical Leadership

conflict can arise. CEOs and senior executives, for example, are often motivated by holding stock op-tions, which makes them vulnerable to pressure from capital markets seeking immediate financial returns. If sales, however, are largely driven through building and maintaining long-term relationships, there is potential for a major rift: Investments that the sales force might see as necessary for goodwill could be viewed by bosses as costs ripe for cutting. Similarly, product designers at a car company might take pride in being creative engineers who build great cars, and they might resent management pressure to standardize in the pursuit of cost savings.

consideration of alternative demands that are interdependent as much as they are con-tradictory. For example, innovativeness may conflict with operational efficiency, but you can’t be efficient unless you are innovative at some point—and you won’t be around to be innovative unless you know how to be efficient. This interdependence is what makes the tensions strategic paradoxes, requir-ing leaders to reframe the questions not as classic either/or trade-offs that can be firmly resolved, but rather as ongoing “both/and” exercises (“How can we simultaneously do both X and Y?”).

It is challenging, of course, to adopt a both/and approach. The relationship between the sources of a tension will change over time and in response to competitors’ moves or other external events. If a company focuses on short-term performance, for instance, at the expense of innovation, the risk of not investing in innovation—and potentially missing opportunities to increase future profits—increases with time.

For Unilever, managing the competing demands of shareholders and broader stakeholders led the company to explore a more interconnected world, asking questions about how to balance global wel-fare and local needs. This in turn opened up debate over enhancing current products or innovating for tomorrow. Unilever’s experience demonstrates that actions taken to manage any one strategic paradox will affect and maybe trigger others, which means that a piecemeal approach to managing interwoven tensions is doomed to fail.

Furthermore, the sources of a paradoxical ten-sion are often nested in different parts or levels of an organization, which makes strategic paradoxes a major driver of internal conflict. Typically any large organization hosts many different cultures, reflect-ing the professional identities, networks, competen-cies, incentives, and geographies of the people in them. People in R&D are often scientists with iden-tities rooted in academic disciplines and commu-nities; they are rewarded for generating new ideas. People in marketing and sales are often close to customers, especially large customers, and they are rewarded for generating sales. In the long term, new ideas enable more sales, and more sales generate the resources to support new ideas. Yet in the short term, sales and innovation seem like competing priorities.

Because people in each business unit tend to as-sociate with one side or another of a paradox, real

An Interview with Terri Kelly, CEO of W.L. Gore & AssociatesTerri Kelly, whose company makes Gore-Tex fabric and other innovative products, talked with Wendy Smith about how she manages strategic paradoxes.

Smith: What are some of the key paradoxes you have to address? Kelly: We have a few paradoxes that we continually try to manage. One is striking the balance between meeting short-term and long-term objectives. Another one is creating the right focus on innovation and at the same time driving improvements in efficiency and effectiveness. A third one is balancing what we call the “power of our small teams” with the greater needs of the enterprise. These are all tensions we try to balance on a daily basis.

As CEO, what are you doing to manage the tensions? I try to bring them to the surface and make them explicit, so that they’re right in front of people all the time—and that helps. It’s important to talk about them not as a choice, where one or the other is more important, but as a balance we must continually strive to achieve. I think it’s a mistake in organizations to oversimplify by conveying a sole focus on one end of the spectrum at the expense of the other—for example, “We must deliver short-term results.” When you do this, you end up swinging guardrail to guardrail. It is much more powerful to talk about the “and” of focusing on both the short-term and the long-term objectives. By doing that, you start teaching the organization how to appreciate and deal with the inherent paradoxes.

How do you create an organization that can embed these tensions? This is the big question for us as we continue to grow. Partly we are creating different structures. For example, we realize that you need a different management structure for innovating than for managing the day-to-day business. The two activities require a different mindset, different skills, a different focus, a different time frame, and different metrics. So we establish different organizational structures to manage both, but also create clear linkages such that the teams value each other’s contributions to the whole. If you separate your innovation efforts completely, you run the risk of the existing businesses rejecting what they come up with. You also miss the opportunity for the innovators to tap into key talent and resources within the existing businesses. Meanwhile, one of the expectations we have of our leaders is that they will value both activities and reinforce that within their teams.



virtue—indeed, it’s a vice, keeping leaders from suc-cessfully dealing with strategic paradoxes. Senior executives must go into the job appreciating mul-tiple, often conflicting, truths. They need to be con-sistently inconsistent and focus on managing that inconsistency. Tellingly, the Whole Foods research found that the employees most likely to move up through the leadership ranks were largely those who could effectively embrace both the financial imperatives and the social mission of the company.

From scarce resources to abundant resources. Traditional leadership approaches as-sume that resources—time, money, people, and so on—are limited. This is not altogether surprising when you think of the constraints that managers at lower levels of an organization face. Resources are typically fixed by a higher authority—a state of affairs that doesn’t change much until you are the higher authority, by which time the idea that resources are limited has been baked into you. It becomes natural for executives to look for sources of constraint—and they often find them in “market expectations” or “competitor threats.” But assum-ing that resources are constrained necessarily re-sults in zero-sum thinking: Allocating resources to one goal means that they are no longer available for another. This fuels conflict between managers with different agendas.

In contrast, leaders who embrace paradox realize that resources, viewed in a different light, can be abun-dant and often generative. Rather than seeking to slice the pie thinner, people with this value-creating mindset pursue strategies to grow the pie, such as exploring collaborations with new partners, using alternative technologies, or adopting more-flexible time frames for shifting resources for better use.

Over time, committing to multiple strategies can enable more resources for each. That was the case at Zensar Technologies, an India-based provider of IT services, where leaders of the extant software franchise eventually realized that their exploratory

The inherent features of strategic paradoxes make managing in such an environment very diffi-cult. The leader’s challenge is not to choose between alternatives but to recognize that both imperatives must be addressed. Making that change from either/or to both/and thinking requires leaders to shift fo-cus frequently in the short term in order to satisfy competing demands in the long term. Rather than swinging wildly between opposing forces, leaders must execute purposeful microshifts that enable growth and sustainability.

The Paradoxical MindsetParadoxical leadership begins with a reexamination of some implicit assumptions about leadership— which leads to movement in a new direction.

From well-intentioned consistency to con-sistent inconsistency. Hostility to contradictions is deeply rooted, especially in the Western world. Aristotelian logic treats contradictions and tensions as signals that we need to seek a more accurate, uni-fied truth. If one idea is “right,” its opposite must be wrong; if that seems not to be the case, then we must redefine our idea to eliminate the contradiction. We also struggle to make decisions and take actions that we see as inconsistent with an accepted truth, feel-ing a discomfort that psychologist Leon Festinger de-scribed as “cognitive dissonance.” The same discom-fort surfaces when values conflict. A recent study at Whole Foods showed that employees understood the company’s explicitly dual mission of earning profits and making the world a better place. Yet most people working in the stores identified with only one part of the mission—either the organization’s profit focus or its social and environmental goals.

When two ideas seem contradictory, choosing and championing just one can minimize cognitive dissonance. It’s not surprising, then, that people often deal with paradoxical tensions by picking a side and consistently supporting it. But at the top of an organization, consistency is far from a necessary

At the top, consistency is a vice. Executives must be able to appreciate multiple, often conflicting, truths.

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“BOTH/AND” LEADERSHIP

For example, in the early 2000s Lego’s middle managers faced tensions amid ongoing organiza-tional change. Subordinates felt anxious and raised concerns about how their familiar practices, rules, and expectations would work in the new world. Rather than respond to these specific concerns, mid-dle managers posed questions. They asked which parts of the current organizational approaches they should keep. They explored ways of meshing the existing world and the new one. Their questions opened up conversations that allowed both man-agers and subordinates to move away from seeking permanent solutions and instead develop tempo-rary “workable certainties” that helped them move forward but were understood to be subject to future modification.

Managing Dynamic EquilibriumWhen leaders assume that there are multiple truths, that resources are abundant, and that the role of management is to cope with change rather than fight it, they can help their organizations reach a state of dynamic equilibrium. This is at the center of paradox-ical leadership. However, trying to shift the hearts and minds of senior team members is challenging and time-consuming. Moreover, their roles and responsibilities often lead senior people to deeply identify with one goal or another, fostering conflict. To unleash the power of paradox, therefore, leaders must build supporting organizational competencies into their senior team. This requires managers to both separate and connect opposing forces.

Separating. Tapping the potential of paradox begins with respecting the distinct needs of groups with different agendas. Doing so requires pulling apart the organization’s goals and valuing each of them individually. One way to accomplish this is to create business units based on functions, ge-ographies, or products, each with its own leader, mission, metrics, and culture. A strong sales and marketing department will focus on effectively

software product could increase sales of existing products. Similarly, the coffee division of a large European food group overcame its initial resistance to an innovative proportioned-serving brewing sys-tem after seeing success in the new niche and using the new product design to increase sales of its exist-ing brands.

From stability and certainty to dynamism and change. Leaders seek to reduce their follow-ers’ discomfort with uncertainty by asserting con-trol—making decisions that minimize complexity and emphasize stability. This, too, is understand-able: Traditional leadership and management the-ory was heavily influenced by studies of the military, which prizes regularity. Therefore, business manag-ers have long been encouraged to build a common culture, where everyone is headed in the same direction, speaks the same language, and shares best practices.

But when the strategic environment changes, this approach often results in defensive and detri-mental actions. As we’ve discussed, NASA’s leaders resisted open innovation methods because scien-tists were invested in individual research and felt threatened by the idea of collaboration. Polaroid famously lost the battle for the digital-imaging mar-ket partly because company leaders committed to applying their successful analog-camera strategy—making money on the film, not the camera—to a market that no longer printed out pictures.

Rather than seeking stability and certainty, paradoxical leadership depends on embracing dy-namism and change. Leaders must be emotionally and cognitively open to the new, developing a man-agement strategy of coping with, rather than con-trolling and minimizing, ambiguity. They must be humble, even vulnerable, admitting that they might not know what the future holds. This approach em-phasizes the value of experimentation and failure, spurring critical feedback to enable learning and ongoing adjustments.

To unleash the power of paradox, leaders must both separate and connect opposing forces.



clients. DDD’s social mission—to alleviate poverty by offering training and jobs to those in need—is intricately linked with its goal of running a sustain-able business. Yet the firm’s social mission and its financial demands frequently conflict, as when the leadership team considers strategic issues about whom to hire (people who are more disadvantaged or those who are more skilled) and where to expand (into regions of greater poverty or ones with more business resources). To disentangle and respect the dual missions, executives created two sets of finan-cial statements, each with its own metrics. In board meetings CEO Jeremy Hockenstein routinely asks,

“How does this decision impact our social mission?” and then, “How does this decision impact our busi-ness?”—inviting managers to consider the different needs of each strategy.

Connecting. Connecting involves finding link-ages and synergies across goals. One way to do this is to build an overarching organizational identity and unite people in a higher purpose—which helps

serving its primary stakeholders (customers), while a strong finance department keeps an eye on eco-nomic efficiency and the company’s image in the financial markets. Even within a function there is scope for separation into subgroups—for ex-ample, companies increasingly keep their radical- innovation teams separate from the people working on incremental improvements.

When an organization’s critical tasks are inter-twined, however, creating distinct units for each im-perative may not be possible. Often an organization’s global integration must be carried out by each of its local business units. In these situations, separation involves carving out dedicated times and spaces for exploring each goal, using different decision-making processes, or developing communication practices that enable teams to pull strategies apart.

Consider Digital Divide Data (DDD), an award-winning professional outsourcing firm that employs disadvantaged people to provide data management, research, content digitization, and other services to

Two Leadership Approaches to Competing DemandsTraditional leadership differs from paradoxical leadership in its underlying assumptions about truth, resources, and management practices.

TRADITIONAL LEADERSHIP “Either/Or”

PARADOXICAL LEADERSHIP“Both/And”

ASSUMPTIONS HOW LEADERS BEHAVE

ASSUMPTIONS HOW LEADERS BEHAVE

TRUTH True ideas, beliefs, and identities are internally consistent and coherent.

• Make strategic choices• Forge compromises• Keep decisions

consistent with the chosen strategy

• Align the firm’s culture • Act consistently

True ideas, beliefs, and identities consistently embed multiple, often inconsistent, perspectives.

• Engage conflicting strategies simultaneously

• Accept and value multiple cultures

• Learn from multiple perspectives

• Act consistently inconsistent

RESOURCES Resources (time, money, people, and so on) are scarce.

• Set a clear agenda• Make allocation

trade-offs to best achieve priorities

• Encourage competition for limited resources

Resources are abundant and can expand and generate new resources.

• Search for opportunities to grow resources, looking beyond current sources and tools

• Explore new technologies and collaboration partners

• Be flexible in setting time frames

MANAGEMENT PRACTICES

Managing involves controlling—by seeking stability and certainty.

• Adopt and apply a consistent identity across the organization

• Promote best practices

• Keep it simple

Managing involves coping—by embracing dynamism and change.

• Embrace multiple strategies and identities

• Tolerate uncertainty• Learn from failure• Implement workable,

temporary fixes and keep experimenting

HBR.ORG “BOTH/AND” LEADERSHIP


stakeholder group, the result can be a bland compro-mise—a “false synergy.” At worst, one point of view dominates, leaving the other to wither. Social en-terprises and microfinance banks have experienced this problem. These hybrid organizations seek to address social missions through business purposes. But unless they clarify how much attention the so-cial mission deserves, the quantifiable, focused, and short-term financial metrics often take over and drive the big decisions. Financial pressures have become so prevalent in microfinance organizations that Muhammad Yunus, founder of the Grameen Bank, has lamented that these organizations are

“sacrificing microcredit for megaprofits.”To avoid these traps, smart leaders design

metrics and rewards—even build out different fi-nancial statements (as at DDD)—for each strategy, and complement those with additional metrics and rewards that depend on the success of the entire organization. They create team dynamics that en-courage focus on the unique needs of each strategy, while fostering respectful, trusting cultures that en-able collaboration and learning. They recognize that senior team members play multiple roles—advocat-ing for their own priorities but also considering the organization’s overall needs. Most important, they demonstrate both the confidence to embrace para-doxes and the humility to know that doing so will be an ongoing challenge.

THE NOBEL PRIZE–WINNING physicist Niels Bohr once said, “How wonderful that we have met with a para-dox. Now we have some hope of making prog ress.” Paradox has long been at the heart of great accom-plishments—revealing profound truths and spur-ring creativity. Advances such as Einstein’s theory of relativity emerged as individuals made sense of conflicting demands. As business organizations face increasingly unpredictable, complex, and challeng-ing environments, those that have the greatest hope of surviving and contributing to the world will have leaders who embrace strategic paradoxes.

HBR Reprint R1605D

employees and executives alike to embrace the in-terdependence of opposing strategies. At NASA, Jeff Davis was able to break down his scientists’ resis-tance to collaborative innovation when he defined his directorate’s top goal this way: “We aspire to keep astronauts safe in space.” In the service of safety, traditional scientists could understand the value of engaging in open-source methods. Similarly, Lego has moved beyond tensions between unabashed in-novation and disciplined execution by reaffirming that it is “building the builders of tomorrow.” DDD brings together its business operations and its social mission by declaring its passionate commitment to

“stop the cycle of poverty.” Leaders can also design roles and processes

intended to integrate separate strategic goals. For example, a leader might designate a manager to act as a business integrator, with responsibility for linking innovation with existing products. A senior manager given this assignment in a social enterprise described it as follows: “I was the bridge. I served in the role of bringing together warring camps.” In other organizations, leaders use integrated metrics and reward systems to foster connections. They can also provoke conversations, asking, “How do these two goals support each other?” At DDD, Hockenstein uses this question as a key follow-up to having his top team members consider the dis-tinctions between the firm’s social mission and its financial goals.

Toward a dynamic equilibrium. Or gan i za-tional success depends on both separating and con-necting. In fact, doing each alone can be detrimental. Although a separate division can avoid tension in the short term, it impedes the creation of shared value in the long run, because the conflicting groups fail to benefit from one another. For example, Zensar’s new software platform was initially so isolated from other units that it was unable to leverage the firm’s marketing and sales capabilities. Only when the CEO encouraged his team to make structural linkages between the established products and the innovation unit was the firm able to bring its new technology to existing customers.

Connecting without separating is just as prob-lematic. In the interest of fostering synergies, senior leaders may promote an overarching identity, stress a collective mission statement, and develop unified measurement systems. But without encouraging deep respect for the distinct value and needs of each

Wendy K. Smith is an associate professor at the University of Delaware’s Alfred Lerner College of

Business & Economics. Marianne W. Lewis is the dean of Cass Business School at City University London. Michael L. Tushman is the Paul R. Lawrence MBA Class of 1942 Professor of Business Administration at Harvard Business School. He and Smith have made paid presentations to W.L. Gore & Associates.


SPOTLIGHT ON MANAGING FOR AN UNPREDICTABLE FUTURE HBR.ORG

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Paul J.H. Schoemaker is the former research director of the Wharton School’s Mack Institute and a coauthor of Peripheral Vision (Harvard Business Review Press, 2006). Philip E. Tetlock is the

Annenberg University Professor at the University of Pennsylvania and a coauthor of Superforecasting (Crown, 2015). Schoemaker served as an adviser to and Tetlock co-led the Good Judgment Project.

Superforecasting: How to Upgrade Your Company’s JudgmentBY PAUL J.H. SCHOEMAKER AND PHILIP E. TETLOCK

magine that you could dramatically improve your firm’s forecasting ability, but to do so you’d have to expose just how unreliable its predictions—and the people making them—really are. That’s exactly what the U.S. intelligence community did, with dramatic results.

I

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Back in October 2002, the National Intelligence Council issued its official opinion that Iraq pos-sessed chemical and biological weapons and was ac-tively producing more weapons of mass destruction. Of course, that judgment proved colossally wrong. Shaken by its intelligence failure, the $50 billion bureaucracy set out to determine how it could do better in the future, realizing that the process might reveal glaring organizational deficiencies.

The resulting research program included a large-scale, multiyear prediction tournament, co-led by one of us (Phil), called the Good Judgment Project. The series of contests, which pitted thousands of amateurs against seasoned intelligence analysts, generated three surprising insights: First, talented generalists often outperform specialists in making forecasts. Second, carefully crafted training can en-hance predictive acumen. And third, well-run teams can outperform individuals. These findings have im-portant implications for the way organizations and businesses forecast uncertain outcomes, such as how a competitor will respond to a new-product launch, how much revenue a promotion will generate, or whether prospective hires will perform well.

The approach we’ll describe here for building an ever-improving organizational forecasting capabil-ity is not a cookbook that offers proven recipes for success. Many of the principles are fairly new and have only recently been applied in business settings. However, our research shows that they can help leaders discover and nurture their organizations’ best predictive capabilities wherever they may reside.

Find the Sweet SpotCompanies and individuals are notoriously inept at judging the likelihood of uncertain events, as studies show all too well. Getting judgments wrong, of course, can have serious consequences. Steve Ballmer’s prognostication in 2007 that “there’s no chance that the iPhone is going to get any significant market share” left Microsoft with no room to con-sider alternative scenarios. But improving a firm’s forecasting competence even a little can yield a com-petitive advantage. A company that is right three times out of five on its judgment calls is going to have an ever-increasing edge on a competitor that gets them right only two times out of five.

Before we discuss how an organization can build a predictive edge, let’s look at the types of judgments that are most amenable to improvement—and

those not worth focusing on. We can dispense with predictions that are either entirely straightforward or seemingly impossible. Consider issues that are highly predictable: You know where the hands of your clock will be five hours from now; life insurance companies can reliably set premiums on the basis of updated mortality tables. For issues that can be pre-dicted with great accuracy using econometric and operations-research tools, there is no advantage to be gained by developing subjective judgment skills in those areas: The data speaks loud and clear.

At the other end of the spectrum, we find issues that are complex, poorly understood, and tough to quantify, such as the patterns of clouds on a given day or when the next game-changing technology will pop out of a garage in Silicon Valley. Here, too, there’s little advantage in investing resources in sys-tematically improving judgment: The problems are just too hard to crack.

The sweet spot that companies should focus on is forecasts for which some data, logic, and analy-sis can be used but seasoned judgment and careful questioning also play key roles. Predicting the com-mercial potential of drugs in clinical trials requires scientific expertise as well as business judgment. Assessors of acquisition candidates draw on formal scoring models, but they must also gauge intangibles such as cultural fit, the chemistry among leaders, and the likelihood that anticipated synergies will actually materialize.

Consider the experience of a UK bank that lost a great deal of money in the early 1990s by lend-ing to U.S. cable companies that were hot but then tanked. The chief lending officer conducted an au-dit of these presumed lending errors, analyzing the types of loans made, the characteristics of clients and loan officers involved, the incentives at play, and other factors. She scored the bad loans on each fac-tor and then ran an analysis to see which ones best explained the variance in the amounts lost. In cases where the losses were substantial, she found prob-lems in the underwriting process that resulted in loans to clients with poor financial health or no prior relationship with the bank—issues for which exper-tise and judgment were important. The bank was able to make targeted improvements that boosted performance and minimized losses.

On the basis of our research and consulting ex-perience, we have identified a set of practices that leaders can apply to improve their firms’ judgment

ABOUT THE GOOD JUDGMENT PROJECTIn 2011, Philip Tetlock teamed up with Barbara Mellers, of the Wharton School, to launch the Good Judgment Project. The goal was to determine whether some people are naturally better than others at prediction and whether prediction performance could be enhanced. The GJP was one of five academic research teams that competed in an innovative tournament funded by the Intelligence Advanced Research Projects Activity (IARPA), in which forecasters were challenged to answer the types of geopolitical and economic questions that U.S. intelligence agencies pose to their analysts.

The IARPA initiative ran from 2011 to 2015 and recruited more than 25,000 forecasters who made well over a million predictions on topics ranging from whether Greece would exit the eurozone to the likelihood of a leadership turnover in Russia to the risk of a financial panic in China. The GJP decisively won the tournament—besting even the intelligence community’s own analysts.



Idea in BriefTHE PROBLEMOrganizations and individuals are notoriously poor at judging the likelihood of uncertain events. Predictions are often colored by the forecaster’s susceptibility to cognitive biases, desire to influence others, and concerns about reputation. Getting judgments wrong can of course have serious consequences.

THE RESEARCHOn the basis of research involving 25,000 forecasters and a million predictions, the authors identified a set of practices that can improve companies’ prediction capability: training in the basics of statistics and biases; debating forecasts in teams; and tracking performance and giving rapid feedback.

IN PRACTICETo improve prediction capability, companies should keep real-time accounts of how their top teams make judgments, including underlying assumptions, data sources, external events, and so on. Keys to success include requiring frequent, precise predictions and measuring accuracy for comparison.

in this middle ground. Our recommendations focus on improving individuals’ forecasting ability through training; using teams to boost accuracy; and tracking prediction performance and providing rapid feed-back. The general approaches we describe should of course be tailored to each organization and evolve as the firm learns what works in which circumstances.

Train for Good Judgment Most predictions made in companies, whether they concern proj ect budgets, sales forecasts, or the per-formance of potential hires or acquisitions, are not the result of cold calculus. They are colored by the forecaster’s understanding of basic statistical argu-ments, susceptibility to cognitive biases, desire to influence others’ thinking, and concerns about rep-utation. Indeed, predictions are often intentionally vague to maximize wiggle room should they prove wrong. The good news is that training in reasoning and debiasing can reliably strengthen a firm’s fore-casting competence. The Good Judgment Project demonstrated that as little as one hour of training improved forecasting accuracy by about 14% over the course of a year. (See the exhibit “How Training and Teams Improve Prediction.”)

Learn the basics. Basic reasoning errors (such as believing that a coin that has landed heads three times in a row is likelier to land tails on the next flip) take a toll on prediction accuracy. So it’s essential that companies lay a foundation of forecasting ba-sics: The GJP’s training in probability concepts such as regression to the mean and Bayesian revision (up-dating a probability estimate in light of new data), for example, boosted participants’ accuracy measurably. Companies should also require that forecasts include a precise definition of what is to be predicted (say, the chance that a potential hire will meet her sales targets) and the time frame involved (one year, for

example). The prediction itself must be expressed as a numeric probability so that it can be precisely scored for accuracy later. That means asserting that one is “80% confident,” rather than “fairly sure,” that the prospective employee will meet her targets.

Understand cognitive biases. Cognitive bi-ases are widely known to skew judgment, and some have particularly pernicious effects on forecasting. They lead people to follow the crowd, to look for information that confirms their views, and to strive to prove just how right they are. It’s a tall order to debias human judgment, but the GJP has had some success in raising participants’ awareness of key biases that compromise forecasting. For example, the proj ect trained beginners to watch out for con-firmation bias that can create false confidence, and to give due weight to evidence that challenges their conclusions. And it reminded trainees to not look at problems in isolation but, rather, take what Nobel laureate Daniel Kahneman calls “the outside view.” For instance, in predicting how long a proj ect will take to complete, trainees were counseled to first ask how long it typically takes to complete similar proj ects, to avoid underestimating the time needed.

Training can also help people understand the psychological factors that lead to biased probability estimates, such as the tendency to rely on flawed intuition in lieu of careful analysis. Statistical intu-itions are notoriously susceptible to illusions and su-perstition. Stock market analysts may see patterns in the data that have no statistical basis, and sports fans often regard basketball free-throw streaks, or “hot hands,” as evidence of extraordinary new capability when in fact they’re witnessing a mirage caused by capricious variations in a small sample size.

Another technique for making people aware of the psychological biases underlying skewed estimates is to give them “confidence quizzes.”

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SUPERFORECASTING: HOW TO UPGRADE YOUR COMPANY’S JUDGMENT

collaboratively in teams. In each of the four years of the IARAP tournament, the forecasters working in teams outperformed those who worked alone. Of course, to achieve good results, teams must be deftly managed and have certain distinctive features.

Composition. The forecasters who do the best in GJP tournaments are brutally honest about the source of their success, appreciating that they may have gotten a prediction right despite (not because of) their analysis. They are cautious, humble, open-minded, analytical—and good with numbers. (See the sidebar “Who Are These Superforecasters?”) In assembling teams, companies should look for natu-ral forecasters who show an alertness to bias, a knack for sound reasoning, and a respect for data.

It’s also important that forecasting teams be in-tellectually diverse. At least one member should have domain expertise (a finance professional on a budget forecasting team, for example), but non-experts are essential too—particularly ones who won’t shy away from challenging the presumed ex-perts. Don’t underestimate these generalists. In the GJP contests, nonexpert civilian forecasters often beat trained intelligence analysts at their own game.

Participants are asked for range estimates about general-interest questions (such as “How old was Martin Luther King Jr. when he died?”) or company-specific ones (such as “How much federal tax did our firm pay in the past year?”). The predictors’ task is to give their best guess in the form of a range and assign a degree of confidence to it; for example, one might guess with 90% confidence that Dr. King was be-tween 40 and 55 when he was assassinated (he was 39). The aim is to measure not participants’ domain-specific knowledge, but, rather, how well they know what they don’t know. As Will Rogers wryly noted:

“It is not what we don’t know that gets us into trou-ble; it is what we know that ain’t so.” Participants commonly discover that half or more of their 90% confidence ranges don’t contain the true answer.

Again, there’s no one-size-fits-all remedy for avoiding these systematic errors; companies should tailor training programs to their circumstances. Susquehanna International Group, a privately held global quantitative trading firm, has its own idiosyn-cratic approach. Founded in 1987 by poker aficio-nados, the company, which transacts more than a billion dollars in trades a year, requires new hires to play lots of poker—on company time. In the process, trainees learn about cognitive traps, emotional in-fluences such as wishful thinking, behavioral game theory, and, of course, options theory, arbitrage, and foreign exchange and trading regulations. The poker-playing exercises sensitize the trainees to the value of thinking in probability terms, focusing on information asymmetry (what the opponent might know that I don’t), learning when to fold a bad hand, and defining success not as winning each round but as making the most of the hand you are dealt.

Companies should also engage in customized training that focuses on narrower prediction do-mains, such as sales and R&D, or areas where past performance has been especially poor. If your sales team is prone to hubris, that bias can be systemati-cally addressed. Such tailored programs are more challenging to develop and run than general ones, but because they are targeted, they often yield greater benefits.

Build the Right Kind of Teams Assembling forecasters into teams is an effective way to improve forecasts. In the Good Judgment Project, several hundred forecasters were randomly assigned to work alone and several hundred to work

How Training and Teams Improve PredictionThe Good Judgment Project tracked the accuracy of participants’ forecasts about economic and geopolitical events. The control group, made up of motivated volunteers, received no training about the biases that can plague forecasters. Its members performed at about the same level as most employees in high-quality companies—perhaps even better, since they were self-selected, competitive individuals. The second group benefited from training on biases and how to overcome them. Teams of trained individuals, who debated their forecasts (usually virtually), performed even better. When the best forecasters were culled, over successive rounds, into an elite group of superforecasters, their predictions were nearly twice as accurate as those made by untrained forecasters—representing a huge opportunity for companies.

(% more accurate than random guesses)

NO TRAINING 36%

TRAINING 41%

TEAMS 44%

ELITE TEAMS 66%



opinions far too long. This often happens uncon-sciously because easily available numbers serve as convenient starting points. (Even random numbers, when used in an initial estimate, have been shown to anchor people’s final judgments.)

One of us (Paul) ran an experiment with University of Chicago MBA subjects that demonstrated the im-pact of divergent exploration on the path to a final prediction. In one test, subjects in the control group were asked to estimate how many gold medals the U.S. would win relative to another top country in the next summer Olympics and to provide their 90% confidence ranges around these estimates. The other group was asked to first sketch out various reasons why the ratio of medals might be lower or higher than in years past and then make an estimate. This group naturally thought back to terrorist attacks and boy-cotts, and considered other factors that might influ-ence the outcome, from illness to improved training to performance-enhancing drugs. As a consequence of this divergent thinking, this group’s ranges were significantly wider than the control group’s, often by more than half. In general, wider ranges reflect more carefully weighed predictions; narrow ranges commonly indicate overconfident—and often less accurate—forecasts.

Trust. Finally, trust among members of any team is required for good outcomes. It is particularly criti-cal for prediction teams because of the nature of the work. Teams that are predicting the success or fail-ure of a new acquisition, or handicapping the odds of successfully divesting a part of the business, may reach conclusions that raise turf issues or threaten egos and reputations. They are also likely to expose areas of the firm, and perhaps individuals, with poor forecasting abilities. To ensure that forecasters share their best thinking, members must trust one another and trust that leadership will defend their work and protect their jobs and reputations. Few things chill a forecasting team faster than a sense that its conclusions could threaten the team itself.

Track Performance and Give Feedback Our work on the Good Judgment Project and with a range of companies shows that tracking prediction outcomes and providing timely feedback is essential to improving forecasting performance.

Consider U.S. weather forecasters, who, though much maligned, excel at what they do. When they

Diverging, evaluating, and converging. Whether a team is making a forecast about a single event (such as the likelihood of a U.S. recession two years from now) or making recurring predictions (such as the risk each year of recession in an array of countries), a successful team needs to manage three phases well: a diverging phase, in which the issue, assumptions, and approaches to finding an answer are explored from multiple angles; an evaluating phase, which includes time for productive disagree-ment; and a converging phase, when the team settles on a prediction. In each of these phases, learning and prog ress are fastest when questions are focused and feedback is frequent.

The diverging and evaluating phases are essen-tial; if they are cursory or ignored, the team develops tunnel vision—focusing too narrowly and quickly locking into a wrong answer—and prediction qual-ity suffers. The right norms can help prevent this, including a focus on gathering new information and testing assumptions relevant to the forecasts. Teams must also focus on neutralizing a common predic-tion error called anchoring, wherein an early—and possibly ill-advised—estimate skews subsequent

Who Are These Superforecasters?The Good Judgment Project identified the traits shared by the best-performing forecasters in the Intelligence Advanced Research Projects Activity tournament. A public tournament is ongoing at gjopen.com; join to see if you have what it takes.PHILOSOPHICAL APPROACH AND OUTLOOK CAUTIOUS They understand that few things are certainHUMBLE They appreciate their limitsNONDETERMINISTIC They don’t assume that what happens is meant to be

ABILITIES AND THINKING STYLE OPEN-MINDED They see beliefs as hypotheses to be testedINQUIRING They are intellectually curious and enjoy mental challengesREFLECTIVE They are introspective and self-criticalNUMERATE They are comfortable with numbers

METHODS OF FORECASTING PRAGMATIC They are not wedded to any one idea or agendaANALYTICAL They consider other viewsSYNTHESIZING They blend diverse views into their ownPROBABILITY-FOCUSED They judge the probability of events not as certain or uncertain but as more or less likelyTHOUGHTFUL UPDATERS They change their minds when new facts warrant it INTUITIVE SHRINKS They are aware of their cognitive and emotional biases

WORK ETHICIMPROVEMENT-MINDED They strive to get better TENACIOUS They stick with a problem for as long as needed

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SUPERFORECASTING: HOW TO UPGRADE YOUR COMPANY’S JUDGMENT

the forecast: time pressure, directive leadership, failure to fully explore alternate views, silencing of dissenters, and a sense of infallibility (after all, 24 previous flights had gone well).

To avoid such catastrophes—and to replicate successes—companies should systematically col-lect real-time accounts of how their top teams make judgments, keeping rec ords of assumptions made, data used, experts consulted, external events, and so on. Videos or transcripts of meetings can be used to analyze process; asking forecasters to re cord their own process may also offer important insights. Recall Susquehanna International Group, which trains its traders to play poker. Those traders are required to document their rationale for entering or exiting a trade before making a transaction. They are asked to consider key questions: What information might others have that you don’t that might affect the trade? What cognitive traps might skew your judgment on this transaction? Why do you believe the firm has an edge on this trade? Susquehanna further emphasizes the importance of process by pegging traders’ bonuses not just to the outcome of individual trades but also to whether the underlying analytic process was sound.

Well-run audits can reveal post facto whether forecasters coalesced around a bad anchor, framed the problem poorly, overlooked an important insight, or failed to engage (or even muzzled) team members with dissenting views. Likewise, they can highlight the process steps that led to good forecasts and thereby provide other teams with best practices for improving predictions.

EACH OF the methods we’ve described—training, team building, tracking, and talent spotting—is es-sential to good forecasting. The approach must be customized across businesses, and no firm, to our knowledge, has yet mastered them all to create a fully integrated program. This presents a great oppor-tunity for companies that take the lead—particularly those with a culture of organizational innovation and those who embrace the kind of experimentation the intelligence community did.

But companies will capture this advantage only if respected leaders champion the effort, by broad-casting an openness to trial and error, a willingness to ruffle feathers, and a readiness to expose “what we know that ain’t so” in order to hone the firm’s predictive edge. HBR Reprint R1605E

say there’s a 30% chance of rain, 30% of the time it rains on those days, on average. Key to their su-perior performance is that they receive timely, continual, and unambiguous feedback about their accuracy, which is often tied to their performance reviews. Bridge players, internal auditors, and oil geologists also shine at prediction thanks in part to robust feedback and incentives for improvement.

The purest measure for the accuracy of predic-tions and tracking them over time is the Brier score. It allows companies to make direct, statistically reliable comparisons among forecasters across a series of pre-dictions. Over time, the scores reveal those who ex-cel, be they individuals, members of a team, or entire teams competing with others. (See the sidebar “Brier Scores Reveal Your Best—and Worst—Predictors.”)

But simply knowing a team’s score does little to improve performance; you have to track the process it used as well. It’s important to audit why outcomes were achieved—good or bad—so that you can learn from them. Some audits may reveal that certain pro-cess steps led to a good or a bad prediction. Others may show that a forecast was correct despite a faulty rationale (that is, it was lucky), or that a forecast was wrong because of unusual circumstances rather than a flawed analysis. For example, a retailer may make very accurate forecasts of how many customers will visit a store on a given day, but if a black-swan event—say, a bomb threat—closes the store, its forecast for that day will be badly off. Its Brier score would in-dicate poor performance, but a process audit would show that bad luck, not bad process, accounted for the outlying score.

Gauging group dynamics is also a critical part of the process audit. No amount of good data and by-the-book forecasting can overcome flawed team dynamics. Consider the discussions that took place between NASA and engineering contractor Morton Thiokol before the doomed launch of the space shuttle Challenger in 1986. At first, Thiokol engineers advised against the launch, concerned that cold tem-peratures could compromise the O-rings that sealed the rocket boosters’ joints. They predicted a much higher than usual chance of failure because of the temperature. Ultimately, and tragically, Thiokol reversed its stance.

The engineers’ analysis was good; the organiza-tional process was flawed. A reconstruction of the events that day, based on congressional hearings, re-vealed the interwoven conditions that compromised

BRIER SCORES REVEAL YOUR BEST—AND WORST— PREDICTORSIt’s important that forecasters make precise estimates of probability—for example, pegging at 80% the likelihood that their firm will sell between 9,000 and 11,000 units of a new product in the first quarter. That way, the predictions can be analyzed and compared using a method called Brier scoring, allowing managers to reliably rank forecasters on the basis of skill.

Brier scores are calculated by squaring the difference between a probability prediction and the actual outcome, scored as 1 if the event happened and 0 if not. For example, if a forecaster assigns a 0.9 probability (a 90% confidence level) that the firm will exceed a sales target and the firm then does, her Brier score for that forecast is:

(0.9 – 1)², or 0.01. If the firm misses the target, her score is:

(0.9 – 0)², or 0.81. The closer to zero the score is, the smaller the forecast error and the better the prediction.

Brier scoring makes it readily apparent who’s good at forecasting and who isn’t. By enabling direct comparison among forecasters, the tool encourages thoughtful analysis while exposing

“shooting from the hip” and biased prognostications.


SPOTLIGHT ON MANAGING FOR AN UNPREDICTABLE FUTURE HBR.ORG

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How to Hedge Your Strategic BetsMake short-term investments to test opportunities.BY GEORGE STALK JR. AND ASHISH IYER

o cope with growing uncertainty and volatility, most companies try to improve their forecasting and increase their agility. While important, both tactics have limitations. In times of rapid change, forecasts become obsolete almost as soon as the ink dries on them.

T

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ARTWORK Sarah Morris, Antenna (John Hancock), 2011 Household gloss paint on canvas

A temporary organization can help a company test a response to a competitive threat, evaluate a new strategy or concept, explore a joint venture, or capitalize on a fleeting opportunity without disrupt-ing the operations of the existing business. It can be an attractive choice if, say, there are conflicting pri-orities or when an unexpected competitor emerges, making rapid market penetration critical.

Orbitz, the online travel agency, was launched in this fashion. (Full disclosure: The Boston Consulting Group was involved in the start-up of Orbitz and has relationships with the other companies featured in this article.) In late 1999 and early 2000, during a period of slow growth for airlines, five major U.S. carriers—Delta, United, Northwest, Continental, and American—joined forces to create the travel site. Unlike Expedia and other online services that charged airlines a fee for favorable placement of their flights, Orbitz planned to list in an unbiased or-der all available flights (with the exception of those of Southwest, which did not share information with third parties). The airlines believed that value propo-sition would appeal to customers and would be dif-ficult for rival online travel services to match, since their sites were designed to display only the most common flights between cities.

Orbitz had a good strategy, but its success was far from assured. A new IT system, including the core search algorithm, had to be built. The website had to be user-friendly and easy to navigate. Both would re-quire a major investment of time and money. What’s more, to compete with Travelocity and Expedia,

And though responding quickly to market shifts is crucial, “perfect” flexibility and agility are costly to achieve—if not impossible.

A complementary—and potentially more effec-tive—approach for established companies is to use

“strategic options” as a hedge against uncertainty. Just as financial options can shield investors from risk and help them profit from fluctuations in securi-ties and commodity markets, strategic options can protect companies and allow them to thrive in the face of the unexpected: moves by competitors, dis-ruptive advances in technology, the rise of new mar-kets, sudden swings in demand, and other surprises. By using strategic options, companies can test the waters, conserve capital, and delay final decisions until the tea leaves become clearer.

Some strategic options—such as buying an op-tion for mineral rights or locking in a delivery slot for a new airliner—have long been widely used. Others, however, are much less familiar or are un-derexploited, including three that we’ll focus on in this article: temporary organizations, exploratory acquisitions, and disposable factories.

All strategic options are small-enough bets that a company can walk away from them. But they do in-cur monetary costs, which in the short term may be high. That explains why they aren’t employed more frequently: Many executives see them as wasteful, risky, and ambiguous. Often executives want to “get it right the first time” rather than experiment.

But because they tie up less capital and are easy to unwind if trends prove unfavorable, strategic op-tions can save money in the long run. Equally im-portant, they help companies learn and build their experience, positioning them to capture valuable opportunities they otherwise might miss.

Temporary OrganizationsSome opportunities can’t be pursued within the structure of the core business. They may require completely different capabilities or a business model that could cannibalize the core. But if an opportunity or threat is uncertain, building a separate permanent organization around it can be hard to justify. One solution is to create a temporary organization—with a management team staffed by a mix of contract workers and consultants. This approach makes it possible to hit the ground running and avoid mas-sive layoffs if the new venture fails. If the venture succeeds, permanent staff can be hired.

With temporary organizations, you can hit the ground running and avoid massive layoffs if the new venture fails.



THE PROBLEMTo cope with uncertainty and volatility, companies try to improve their forecasting and increase their agility. But these tactics have limitations. Forecasts quickly become obsolete, and perfect flexibility is costly to achieve—if not impossible.

THE SOLUTIONComplement your efforts with “strategic options” that serve as a hedge against uncertainty. These include temporary organizations, exploratory acquisitions, and disposable or modular factories.

IMPLEMENTATION CHALLENGESPersuading employees that the long- term benefits of options outweigh their high short-term costs. Building skills—for instance, in acquiring and integrating acquisitions. Changing the forecasting culture and focusing more on understanding risks.

Orbitz had to grow rapidly, leaving little time to test the concept with customers. If the new business failed, the partners would be stuck with costly assets that they’d have to sell at a loss and people they’d have to jettison.

Because they were competitors, the partners ruled out incubating the venture inside one of their own organizations. They also realized that a tradi-tional start-up approach—building the business one employee at a time—would take far too long. So they created a temporary organization staffed largely with contract employees and managers from pro-fessional services firms, who cost about two to four times more than permanent employees (excluding full-time benefits). Orbitz started with five managers from BCG, who oversaw operations, finance, IT, cor-porate development, and HR, and eventually grew to 60 workers, including lawyers, accountants, en-gineers, IT developers, and human resource experts. Once it was clear, three months into the launch, that the site was a success, Orbitz began replacing the contractors with permanent hires, a process that took half a year.

The temporary organization paid big dividends. The total cost to build and fund Orbitz until it reached self-sustaining profitability was about $250 million. In 2004, Cendant bought the company for $1.25 billion, netting the partners $1 billion in profits.

Exploratory AcquisitionsCompanies seeking to diversify through acquisi-tions face a lot of risks and unknowns. Although acquisitions can be a quick way to gain market entry and new customers, technical expertise, and lines of business, they typically involve enormous inte-gration challenges and have notoriously high fail-ure rates. This is particularly true with large deals in noncore markets.

With smaller acquisitions, the cost of failure is lower and integration goes more quickly. While lots of companies use small deals to expand into new geographies, we haven’t seen many use them as a low-risk way to explore new businesses. The best approach is to focus on complementary markets where a company can leverage its current strengths and capabilities.

If an acquisition is small and is viewed as a highly targeted trial run with specific objectives, it’s better able to avoid the pitfalls of mergers. It affords an op-portunity for learning—for walking before running. And it can be disposed of relatively painlessly if it doesn’t deliver value. However, if the acquisition suc-ceeds in helping the parent company get a foothold in a new area, it provides a foundation and frame-work for the parent to acquire more complementary businesses and become the market leader.

This was the path taken by Brooks Automation, based in Chelmsford, Massachusetts. Brooks was a leading producer of precision-materials-handling equipment, environmental controls, instruments, and subsystem components used in semiconductor manufacturing. In the early 2000s, industry growth began to slow and the business became more cycli-cal. In response, Brooks began to consider diversify-ing into areas with more potential. Mindful of the challenges and poor outcomes of many large-scale diversification efforts—especially those that in-volved mergers and acquisitions—the management team chose an options-based approach.

After inventorying its capabilities, Brooks de-termined that its ability to move materials in sci-entific cryogenic environmental chambers while precisely controlling atmosphere and temperature could be applied to the growing life-sciences in-dustry—particularly pharmaceuticals and biotech. At that time, industry researchers were storing

Idea in Brief

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HOW TO HEDGE YOUR STRATEGIC BETS

life sciences. Brooks expanded that capability, in-vested in further developing the Nexus product line, and worked to bring large-company discipline to both acquisitions.

As it won more materials-handling contracts in life sciences, Brooks gained confidence. Over the next four years it bought all or part of four more companies for a total of $156 million. In the process it acquired a new capability (-150 degrees Celsius cryo-genics) and grew its offerings to include new services and consumables such as storage containers.

Today, Brooks is the market leader in materials handling for life sciences, which now accounts for about 20% of its revenues of $500 million. The com-pany intends to follow the same approach in other markets: identify opportunities where it can apply its capabilities, acquire small companies to test the waters, improve and extend the product and service offerings by transferring its technical skills, and then buy more companies that complement and grow its market position.

Disposable FactoriesWhen building factories, companies often strive to use scale and automation to lower the per-unit cost of production. But big state-of-the art plants are expensive and time-consuming to construct—and typically they can add capacity only in large amounts. When demand is volatile or uncertain, these facilities may become albatrosses.

In businesses where profit margins are high, first movers seize the advantage, or the cost of stock-outs is large, relatively small “disposable” factories are a good alternative. They can offer a better way to deal with the unknowns of a new market and provide early data on costs, capacity, and product mix that informs the design of permanent factories (should the company decide it needs them).

Disposable factories inevitably have higher per-unit production costs than full-scale facilities do. That—and the reluctance to “throw away” a factory—is why many executives are hesitant to re-sort to them. But the added costs usually are more than offset by benefits such as a lower up-front in-vestment, faster time to market, and greater ability to match supply and demand.

Of course, companies can also use outsourcing to achieve production flexibility. Firms can even buy an option to increase the amount that a contract manufacturer produces. But when a company has a

formulations and tissue samples in the equivalent of dormitory refrigerators, with lax controls that al-lowed temperature swings that could interfere with cell activity. Materials transport, storage, and rec ord keeping were all done manually. Pharma and bio-tech researchers were unhappy with this state of af-fairs. Besides being automated, Brooks’s equipment kept digital rec ords of the movement and placement of all formulations and sample tests—a critical ben-efit given the emphasis that regulators such as the U.S. Food and Drug Administration were placing on the “traceability” of materials.

Brooks’s management team recognized that while the life-sciences market seemed promising, it was very different from the semiconductor in-dustry. The latter was highly consolidated among a handful of manufacturers and equipment suppliers that were concentrated geographically. Brooks had been working very closely with a relatively small number of customers and often based its service people onsite at key accounts to minimize equip-ment downtime—and help chip makers maintain the high volume and low costs they required. The buyers and other decision makers tended to be en-gineers centrally located in semiconductor factories. The chip makers also planned capital investments far in advance and involved Brooks in those dis-cussions, giving the company a clear window into future demand.

By contrast, the life-sciences industry was frag-mented. Equipment manufacturers had thousands of customers—who typically were researchers and doctors, not engineers. Instead of being centralized, the buyers and other decision makers were distrib-uted across the supply chain and included funders and regulatory agencies. Equipment purchases tended to be less predictable and involved shorter decision cycles, which made capacity planning more difficult.

Deciding it needed to get a jump on other likely competitors and that developing full-blown op-erations from scratch would take too long, Brooks made two exploratory acquisitions. In 2011 it paid $3 million to buy RTS Life Sciences, a small British company with a contract to handle medical sam-ples for the UK’s National Health Service; and about $80 million for Nexus, a 100-person company in the same line of work. Nexus had materials-handling equipment, but even more important to Brooks was the company’s experience with customers in



Modular factories are a variant on this theme, though they’re usually not intended to be disposed of. In some cases, they are preassembled in special plants, which dramatically cuts the time required to get them up and running. Another advantage is their mobility. They can be dispatched to match output with near-term demand—but if local sociopoliti-cal conditions deteriorate, they can be moved to a more stable location. If and when enough demand materializes, modular plants can be replaced with a global-scale facility.

Procter & Gamble is now using modular facto-ries to make some products. One is surfactants, an ingredient in detergent, fabric softener, hair condi-tioner, shampoo, and toothpaste. Surfactants had long been produced in large centralized factories, using a decades-old technology, but a new greener technology now allows them to be made in distrib-uted factories, shortening the supply chain and re-sponse time and lowering transportation costs and investment risks.

The Challenges of ExecutionWhile there won’t be strategic options for every situation, our experience suggests that they’re powerful tools and could be used far more often. But in most organizations they’re easier to identify and design than to implement—mainly because of management resistance. Three factors explain this foot dragging.

First, higher near-term costs are easier to calcu-late than long-term benefits. Without equal clarity on long-term benefits, how can a company justify pursuing an option? A review of past investments may help executives overcome this reaction. How far off were previous estimates of demand? What were the costs of underestimating—and being un-able to meet—demand? What were the capital costs of overestimating demand? If the costs of inaccurate forecasts were high, management will probably feel more comfortable moving ahead.

Second, strategic options often require capa-bilities an organization lacks—and the task of build-ing those new skills can be daunting. Brooks, for example, had to learn the art of acquisitions: how to identify targets with the right technologies and skills, evaluate candidates, and do deals, as well as integrate and manage the acquired businesses. With disposable and modular factories, engineers who have long focused on building low-cost facilities

proprietary production technology or process that can give it a competitive advantage, a disposable factory is the way to go.

Disposable factories typically have 5% to 10% of the capacity of a permanent facility and can be built in months versus the usual years. Because they’re smaller, they can be placed closer to centers of de-mand, which allows companies to better serve lo-cal tastes and to decrease transportation costs—an underappreciated benefit, given that logistics costs exceed manufacturing costs (minus purchased materials) by wide margins in many businesses.

Chinese companies are using low-tech dispos-able factories to compete in the pharmaceuticals industry, as some of our colleagues found during an assignment for a major U.S. drug company. The U.S. firm’s Chinese factory was highly automated and engineered for large-scale, flexible, low-cost production, but it had an inflexible cost structure with a 30-year life. In sharp contrast, the Chinese competitors’ plants were small, simple, manual, and dedicated. Instead of using computer-controlled process-monitoring equipment, for instance, the Chinese relied on repeated visual inspections. In other words, they threw people at the process to get it on spec. If demand did not materialize, it was no big deal to the Chinese. They could swap the in-expensive equipment out or tear down the cheaply built plant and move on.

Small disposable factories can be placed closer to centers of demand, allowing companies to reduce transportation costs.

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HOW TO HEDGE YOUR STRATEGIC BETS

But the transition to an organization that can take initiative despite uncertainty requires action on multiple fronts. Leaders have to introduce op-tions into their regular strategic dialogues with business unit and functional heads. The assess-ment of critical unknowns and the development of responses to them need an organizational home and must be integrated into strategy development. There should be rewards for the artful use of strate-gic options—and executives and engineers who fail to embrace them may need to be replaced or trans-ferred to other roles.

We are often asked, When should a company not consider strategic options? Our response is that management teams should carefully take them into account whenever they’re contemplating any in-vestment for which the payoff is far in the future and uncertainty is high. Given today’s competitive and volatile environment, strategic options are often the best choice. HBR Reprint R1605F

George Stalk Jr. is a senior adviser and a fellow at the Boston Consulting Group and a senior partner

at BanyanGlobal Family Business Advisors. Ashish Iyer is a senior partner in the Mumbai office of the Boston Consulting Group and the global leader of the firm’s strategy practice.

with global scale have to learn to think and design in different ways.

Finally, a forecasting culture is hard to move beyond. Forecasting is embedded deeply into the way that managers operate. Most organizations plan for uncertainty by creating scenarios with high, medium, and low probabilities. Then, all too often, they take the middle course. While we’re cer-tainly not advocating an end to forecasting, we are suggesting that companies should recognize its limi-tations. The strategic options approach enables man-agement to spend less time and resources on trying to foresee an unpredictable future and more time on understanding upside opportunities and downside risks and how they can be mitigated. If organizations can begin to imagine how high-, medium-, and low-probability outcomes could be accommodated with a single approach (such as disposable or modular fac-tories), strategic options will become more popular.

The three factors bias companies toward inac-tion or a “wait and see” approach that may not be in their best long-term interests. In many situations, companies that find lower-risk ways to gain experi-ence and market intelligence and build relationships will be able to outmaneuver their more cautious and less creative rivals.

“I taught him everything I know.” P.C.

VEY



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HEALTHIER IS HERE

Modernizing health care is all about bringing the right people together to solve problems. As a health services and innovation company, we power modern health care by combining data and analytics with technology and expertise. That means stronger strategic partnerships and greater access to resources that enable the health system to work as one. Because when you start with better collaboration, what happens next is better care.

optum.com/healthier

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COLLABORATING ON CARE IS WHAT WE CALL

A HEALTH CARE

COMMUNITY

Julian Birkinshaw is a professor of strategy and entrepreneurship at London Business School. Martine Haas is an associate professor of management at the Wharton School at the University of Pennsylvania.

INCREASE YOUR RETURN ON FAILURE

BY JULIAN BIRKINSHAW AND MARTINE HAAS

HBR.ORG


ONE OF THE MOST IMPORTANT—AND

MOST DEEPLY ENTRENCHED—REASONS

WHY ESTABLISHED

COMPANIES STRUGGLE TO

GROW IS FEAR OF FAILURE. Indeed, in a 2015 Boston Consulting Group survey, 31% of respondents identified a risk-averse culture as a key obstacle to innovation.

Senior executives are highly aware of this prob-lem. On one hand, they recognize the usefulness of failure. As 3M’s legendary chairman William McKnight once said, “The best and hardest work is done in the spirit of adventure and challenge…Mistakes will be made.” Pixar’s president, Ed Catmull, has a similar point of view. “Mistakes aren’t a neces-sary evil,” he has said. “They aren’t evil at all. They are an inevitable consequence of doing something new.…and should be seen as valuable.”

On the other hand, management processes for budgeting, resource allocation, and risk control are built on predictability and efficiency, and executives get promoted by showing they’re in control. So even if people understand that they can and should fail, they do everything possible to avoid it.

But there’s a way to resolve this conundrum: Rigorously extract value from failure, so you can measure—and improve—your return on it, boosting benefits while controlling costs.

In a return on failure ratio, the denominator is the resources you’ve invested in the activity. One way to raise your return is by reducing this number—by keeping your investments low. Or you can deliber-ately sequence them, starting with small amounts, until major uncertainties have been resolved. The numerator is the “assets” you gain from the

experience, including information you gather about customers and markets, yourself and your team, and your operations. Increasing these is the other way to boost your return.

In the 10-plus years we’ve spent researching team and organizational dynamics and working with more than 50 companies across a dozen industries, we’ve found that when people adopt the right mind-set, they can increase this ratio—not just by minimiz-ing the downsides of proj ects but also by maximizing the upsides. Some failures provide immediate value in the form of market insights that can be capital-ized on. Others provide broader lessons that lead to significant personal or organizational development.

There are three steps you can take to raise your organization’s return: First, study individual proj-ects that did not pan out and gather as many insights as possible from them. Second, crystallize those insights and spread them across the organization. Third, do a corporate-level survey to make sure that your overall approach to failure is yielding all the benefits it should.

STEP 1 Learn from Every FailureBegin by getting people to reflect on proj ects or ini-tiatives that disappointed. Of course, this doesn’t come naturally: Reviewing past problems isn’t just tedious; it’s painful. Most of us would prefer to in-vest our time looking forward, not back. To help people answer the right questions, we’ve developed



an exercise that categorizes all the sources of value that might accrue from a failed proj ect and all the costs. (See “Assessing a Proj ect’s Return on Failure.”) Though we’ve just begun to test it in organizations, so far it’s yielding promising results. (See the sidebar

“Experimenting with Failure Reviews at Roche.”)When something doesn’t go as planned, it’s an op-

portunity to challenge your default beliefs and adjust accordingly. We recommend spelling out what the proj ect has taught you about each of these things: customers and market dynamics; your organization’s strategy, culture, and processes; yourself and your team; and future trends. These insights, of course, are the assets. Our exercise also has you compile a list of the associated liabilities—the proj ect’s direct costs in time and money, any external costs (reputation, for example), and any internal indirect costs (such as excessive consumption of management attention).

Consider how this approach played out at a daily newspaper in the UK. A few years ago the CEO asked one of his brightest young editors to work with col-leagues from marketing, design, and technology to prototype a new tabloid format and test it with customers. The experiment led to two important re-alizations: First, despite what people said in market research studies, they preferred traditional broad-sheets or digital alternatives. Second, the small cross-functional team was a highly effective way to de-velop new editorial products. But perhaps the biggest lesson was a personal one. Because the young editor in charge of the proj ect felt he had failed, he took a job elsewhere. Though the CEO might have chalked this up only in the liability category, he turned it into an asset by recognizing where he had made a criti-cal misstep and growing from it. The young editor

“thought he was developing a pilot, where success is about making it work,” the CEO told us. “But for me it was an experiment, where success is about

confirming or refuting a hypothesis. I should have been much more explicit with him.” The CEO pub-licly took full blame for the departure and commit-ted to communicating more clearly and encouraging a culture of experimentation going forward.

A second example comes from an elite consulting firm that lost a juicy new government contract to a much less prestigious competitor. This was a big and unexpected blow. But through a painstaking review, including an hour-long discussion in an executive committee meeting, the team members involved increased their return on this failure. They realized that the government’s selection criteria were subtly different from what they had expected and that their competitor had been far more savvy in understand-ing what was needed and working with officials to position its bid. As the discussion pro gressed, deeper insights began to surface. The team had misjudged the criteria because they’d been complacent, making assumptions instead of investing time in finding out what the government wanted. And the firm hadn’t even put its best people on the job, assuming its brand would be enough. “The truth is, we didn’t take the whole process nearly as seriously as our com-petitor did, and we got burnt,” one executive com-mented. In other words, the real value of the failure was learning that the firm needed to dramatically change how it responded to opportunities.

We’ve found that when you encourage people to talk about proj ects in this way, the resulting conver-sation is illuminating. It forces them to think about everything they’ve learned, how that might help them move forward, and all the positive side effects gleaned from the experience.

STEP 2 Share the Lessons While it’s useful to reflect on individual failures, the real payoff comes when you spread the lessons across

Idea in BriefTHE PROBLEMThough leaders know that they must tolerate and even embrace failure in the pursuit of innovation and growth, most will still do anything they can to avoid it.

THE SOLUTION Increase acceptance of failure by improving your return on it: Rigorously extract and document the benefits of blown projects, including insights about customers, markets, the team and people involved, future trends, and the organization’s structure, processes, and culture.

ADDING VALUETo magnify the return, ensure that those lessons are shared across groups and divisions and routinely review your overall approach to failure to make sure you’re achieving the right balance.

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were struggling. Patel pushed the store managers to make a lot of changes—new layouts, ways of work-ing with suppliers, and pricing models—and insti-tuted weekly unit meetings. “On Friday mornings, we’d have a review: What did you set out to learn? What did you learn? What is it costing you? Bang, five to 10 min utes, move on to the next team.” Ultimately, he recommended closing down all the Best Buys in China. But because he was also overseeing the Five Star chain, he was able to transfer a lot of the insights gleaned to that operation and retain most employ-ees, and he also conveyed what he’d learned to other members of the leadership team.

Another example comes from a dairy food man-ufacturer. A review of a failed technology proj ect revealed that although problems had surfaced two months in, it took the investment committee four more months to pull the plug. When the team leader pointed this out to his colleagues and bosses, there was momentum for a faster-cycle review process to ensure that failing proj ects would be killed more quickly in the future.

We have even seen some organizations create formal structures for sharing lessons from failures with all employees. At Engineers Without Borders International, a not-for-profit that strives to improve the quality of life in disadvantaged communities worldwide, executives were so frustrated with the limited knowledge transfer among their various af-filiates that they launched an annual “failure report” that publicized, for all to see, the proj ects that were the biggest flops.

Informal approaches work too, however. The key is to capture relevant lessons with sayings or stories that catch on beyond the proj ect’s immediate circle and eventually become corporate folklore. At the UK newspaper, the CEO’s distinction between pilot and experiment was repeated around the company. At the elite consulting firm, the tale of the lost bid became a shorthand way to remind colleagues to check their arrogance. At Coca-Cola, stories about the failure of New Coke are still told 30 years on.

STEP 3 Review Your Pattern of FailureThe third step is to take a bird’s-eye view of the orga-nization and ask whether your overall approach to failure is working. Are you learning from every un-successful endeavor? Are you sharing those lessons across the organization? And are they helping you improve your strategy and execution?

the organization. As one executive commented, “You need to build a review cycle where this is fed into a broader conversation.” When the information, ideas, and opportunities for improvement gained from an unsuccessful proj ect in one business area are passed on to another, their benefits are magnified.

Shared learning also increases the likelihood of future initiatives. “The biggest mistake you can make as a leader is to shoot the messenger and bury the bad news,” one executive noted. By reflecting on the posi-tives, you build trust and goodwill and clear the path-way for others to take action on riskier ideas.

We recommend bringing senior leaders (across a unit or the whole organization) together on a regular basis to talk about their respective failures. These reviews work best when they are fast and to the point; take place frequently, through good times and bad; and are forward-looking, with an emphasis on learning. We call them Triple F reviews.

When Kal Patel was brought in as head of Best Buy’s Asian operations, in 2009, he implemented this approach. The company had acquired a Chinese retail chain, Five Star, a few years earlier, and it was performing well. But the Best Buy branded stores

Even when initiatives flop, they can still provide tremendous value to your organization—if you examine them carefully and capture the critical lessons.

Assessing a Project’s Return on Failure

Assets1 What have we learned about our customers’ needs and preferences

and our current markets? Should we change any of our assumptions? 2 What insights have we gained into future trends? How should we adjust

our forecasts? 3 What have we discovered about the way we work together?

How effective are our organizational processes, structure, and culture? 4 How did we grow our skills individually and as a team? Did the project

increase trust and goodwill? Were any developmental needs highlighted?

Liabilities1 What were the direct costs—for materials, labor, and production?2 What were the external costs? Did we hurt our reputation in the

market or with customers, or weaken our competitive position?3 What were the internal costs? Did the project damage team morale or

consume too much attention? Was there any organizational fallout?

To get a complete picture of the benefits and costs of your failed project, answer the following questions:

The Bottom LineWhat are the key insights and takeaways for the business?

To download a worksheet your team can use to capture the lessons of failed projects, visit this article on HBR.org.



Venture capital firms are very disciplined about examining their review process in this way. At Hoxton Ventures, for instance, partners sit down for half a day every quarter and go over the businesses they’ve invested in, asking if they’ve gotten some-thing fundamentally wrong and looking for patterns.

“It’s easy to be swayed by one big success or failure,” says partner Hussein Kanji, “so we push ourselves to do this systematically.” At the 2008 Future of Management conference, Silicon Valley investor Steve Jurvetson observed, “You have to strive for a process of decision making that over a large number of decisions gives good outcomes. It’s not ‘Are we making good decisions?’ but ‘Do we have a process for making decisions that is statistically working?’”

These discussions should help you determine whether your failure rate is too high, too low, or just right. Sometimes you’ll find you need to tighten up your systems. Consider a mining company we worked closely with. In the early 2000s it was obses-sive about its post-investment review process. Proj-ects that did not yield a positive return were ana-lyzed carefully and then analyzed again. But during the resource industry boom of the mid-2000s, the company got overconfident, and enthusiasm for these reviews faded. They still happened, but in-consistently. The company subsequently made two spectacularly bad acquisitions, leading to a massive write-down and a change in leadership. The new CEO, unsurprisingly, came in with a “back to basics” man-date, including a return to the old post-investment review process.

In other cases a corporate-level review will show that you need to nudge your people toward greater openness to failure. We’ve seen several firms create awards celebrating failure: New York agency Grey has a Heroic Failure award; NASA has a Lean Forward, Fail Smart award; and the Tata Group has a Dare to Try award, which had 240 submissions in 2013. “We want people to be bold and to not be afraid to fail,” Sunil Sinha, the head of Tata Quality Management Services, told Bloomberg Businessweek in 2009.

FAILURE IS less painful when you extract the maxi-mum value from it. If you learn from each mistake, large and small, share those lessons, and periodically check that these processes are helping your organi-zation move more efficiently in the right direction, your return on failure will skyrocket.

HBR Reprint R1605G

Experimenting with Failure Reviews at Roche

Pharmaceutical companies operate in a high-stakes environment where the rewards for successful innovation are huge, but the vast majority of drug discovery projects fail. As a leading player in the industry, Roche is always on the lookout for ways of working that will help it get the right balance between risk taking and caution.

To capture the benefits of experimentation, a cross-business team at Roche launched an initiative in 2015 implementing individual project-failure reviews. They identified 10 teams (of six to 15 people) working in different parts of the company and asked the leader of each to conduct a three-month pilot.

In kickoff meetings, groups were reminded of the importance of learning from failure and then asked to discuss a recent failed project. At two to four more follow-up meetings, team members were encouraged to share more examples of their own failures.

Participants embraced the process tentatively. As one team leader explained, “In the first meeting some people were very guarded, but the second worked much better and went on longer than planned.” But another leader said that as the pilot pro gressed, he was “surprised by how candid people were with each other.”

The reviews helped many participants recognize the personal growth they’d derived from failures. One manager described a project that had been derailed because she pushed it too far along without buy-in from other internal stakeholders. Another talked about being so focused on hitting his numbers in a new leadership role that he failed to pick up on problems that members of his team were having. Both learned from those incidents and changed their tactics accordingly.

Other participants noted new insights about their customers or markets. One team realized it had lost a major sale because it was so focused on its own agenda that it wasn’t listening to or addressing its customer’s questions. In another case, the failure happened because a team hadn’t discerned who the real decision maker in the client organization was. Their main contact appeared to be in charge of the bid and gave them information, but he was not that influential. Those discussions helped Roche improve how it managed key relationships.

Another general benefit was team building. “It was a great opportunity to help my newly formed team work more collectively,” said one leader. Another agreed: “The process helped us diffuse some tensions in the group.”

Suggestions for improvement to the process also surfaced. For instance, one team leader suggested steering the discussion toward specific and recent projects to ensure that the recommendations generated were immediately relevant. “Some people protected themselves a bit, talking about things that happened a couple of years ago, which is fine if you want to improve the team’s sharing culture, but the market-based insights are more limited,” she noted.

But all the team leaders agreed that structured, semiformal failure reviews were useful. As one put it: “It doesn’t come naturally to share failures, and you have to give people time, so you cannot really do this as part of the regular rhythm of meetings. You need to create the space for it to happen, to put it on the calendar.”

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THE HBR INTERVIEW

Hewlett Packard Enterprise CEO Meg Whitman


WHEN MEG WHITMAN BECAME CEO of Hewlett-Packard, in 2011, she was taking the reins of a badly dam-aged company. Whitman was the third top executive in just three years, and her immediate predeces-sors, Mark Hurd and Léo Apotheker, had both flamed out in disgrace. Once a paragon of innovation and success, HP had lost its way.

“We need to intensify our sense of

urgency”

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challenges of reviving a faltering icon. Following are edited excerpts from that conversation.

HBR: The split of HP involved big costs and big lay-offs. How will you know that it’s been worth it?Whitman: The separation will be judged a success if the two companies go on to thrive as industry lead-ers. Already I can see a difference in how they’re run. Dion Weisler, HP Inc.’s CEO, is focused on his busi-ness; I’m focused on mine. I had underestimated the benefit of focus, because you can’t put it in a cash flow model. It’s a remarkable accelerant.

Some investors seem skeptical. What are they not seeing? When we announced the separation, the stock price actually went up, because investors un-derstood that we had been trading at a conglomer-ate discount. More recently, both stocks have been under pressure, like everyone else’s. But I don’t measure the success of the separation by the stock price today or next week. What matters is whether these two companies over the long term are more successful independently than they would have been together. PR

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Whitman wasn’t an obvious candidate for the role. As the CEO of eBay, a job she held from 1998 to 2007, she had won praise for successfully guiding the company from a 30-person start-up to a publicly listed powerhouse. But then she moved on to poli-tics, spending a big chunk of her fortune on an ulti-mately unsuccessful run for governor of California. She also joined a number of boards, including HP’s. When Apotheker was removed after just 11 months in the post—owing in part to his disastrous deci-sion to buy the British software company Autonomy, which resulted in an $8.8 billion write-off—HP’s board asked Whitman to step in.

In her four-and-a-half years on the job, Whitman has restored stability. But she’s done so at consider-able cost, presiding over the layoffs of some 85,000 employees. Late in 2015 she led the split of HP into two new $50-billion-plus companies. She is now the CEO of Hewlett Packard Enterprise, which focuses on software and business services, and the chairman of HP Inc., which retains HP’s personal computer and PC businesses.

Whitman spoke with HBR’s editor in chief, Adi Ignatius, about leadership, gender, and the

The Whitman Era at HPHewlett-Packard has seen dramatic changes since Meg Whitman took the helm, less than five years ago.

OCT 2011Completes

purchase of Autonomy for

$11.1 billion

SEP 2011Appoints Whitman

CEO

MAY 2012Unveils its

first net- zero-energy data center

Announces plans to lay off approximately

27,000 employees

APR 2013Introduces Moonshot, the world’s

first software-defined server

APR 2012Introduces

free electronics recycling at Staples for all brands

FEB 2013Releases the new HP Officejet Pro X series, recognized

by Guinness World Records for the fastest

time to print among office color

desktop printers

2011 2012 2013


“WE NEED TO INTENSIFY OUR SENSE OF URGENCY”

You’re the CEO of Hewlett Packard Enterprise and also the chairman of HP Inc. Why didn’t you make a clean split with completely different teams at the top? This was very much by design. First, when you do a separation like this, there has to be some-one who can make fair decisions that benefit both parties. We didn’t even tell board members which company they were going to until about a month and a half beforehand so that they could help me make decisions in the best interests of all the pre-split shareholders. Second, these two companies need to be very close relatives—to work together on deals for customers and for partners. And they need to be each other’s best friend and supporter. Part of my role as the chairman of HP Inc. is to make sure they are working together.

HP has had some challenges over the years. Why do you think that happened? The biggest challenge facing the company was that it had too many CEOs in too short a period of time. I was the third CEO in as many years. That is really tough on a company. And the three CEOs had quite different strategies. When you make changes at the center, they get

amplified on the ground in Singapore or Berlin or Rio. The company was not sure what its strategy was, and therefore it was difficult for everyone to execute.

Is this a clean start for the two companies in terms of culture? Nothing’s ever a clean start. When I took over, we had more than 300,000 people and a 72-year legacy. But I think we made a lot of progress in evolving the culture prior to the split, and it has accelerated, because now we have two companies, each half the size of the old one, with leadership and real accountability for what are smaller businesses.

What kind of impact have you tried to have at HP? When the board asked me to step in, I did so be-cause I thought that HP was a global icon and that nothing was fundamentally wrong with the bones of the company. We had a chance—not a 100% chance, by any stretch of the imagination—of turning this company around. So we set out on a turnaround journey, which I predicted would take five years. I said, “What are the core values of this company? Let’s identify what it does really well

SEP 2015Announces

up to 30,000

new layoffs

OCT 2015Divests Tipping

Point

NOV 2015Splits into

Hewlett Packard

Enterprise and HP Inc.

MAY 2015Acquires

Aruba Networks for campus

networking and ConteXtream

for network function

virtualization

APR 2015Announces divestiture of Snapfish

(acquired in 2005)

MAY 2014Launches

Helion, a portfolio of open-source

cloud-computing products and

services for the enterprise

OCT 2014Unveils

Sprout and Multi Jet Fusion

as part of its new “blended reality

ecosystem”

2014 2015 2016

HP INC. STOCK PRICE

AS OF MARCH 18 $12.20

HEWLETT PACKARD

ENTERPRISE $17.35

JUN 2014Doubles

layoff target to 50,000

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past four years, even as we’ve reduced head count and made tough strategic choices, R&D spending has increased.

What specific innovations has HP developed in recent years? Our Gen9 is the world’s best-sell-ing server and is significantly more feature- and function-rich than Gen8. Our 3PAR all-flash-based storage is growing by triple digits, and we’re a recognized innovation leader in networking. The Machine is Hewlett Packard Labs’ biggest research project and aims to reinvent computing in terms of performance, power efficiency, and security. And on the HP Inc. side, the team recently introduced our vision for the future of computing and 3-D printing with the blended reality ecosystem.

Has HP received enough credit for being innovative? Maybe not in the public press, but look at Gartner and IDC. Gartner produces a Magic Quadrant report every year on what it thinks of the strategy and of-ferings of various companies. For years we were in the lower left-hand quadrant. We’ve gone from ba-sically having no products in the upper right—what Gartner calls the Magic Quadrant—to having them in 26 categories, across every business unit and major product segment where we compete.

and do more of that as the anchor for the turn-around. Then let’s make a to-do list of the things to be fixed.” So we went back to our core founding principles, and the company responded.

You mentioned the board’s role. But one of the biggest problems was the ill-fated purchase of Autonomy, which the directors had approved. To what extent were they responsible for the very situation they were trying to fix? The board had changed a lot after the departure of Mark Hurd, in 2010. About half the directors were now new. True, the board is in service to the company; it supervises the company. But if you don’t have the right CEO, it has no chance. So the board felt it needed to replace Léo after only 11 months. It was very difficult: Half the directors had not chosen him, but half had.

How did the Autonomy debacle happen? Was there no warning? It was financial misrepresentation. We’re talking about a company that was audited by a very reputable firm. It was not Bernie Madoff’s accounting firm. One of the benefits when you buy a public company is that the financials have been audited. But if the books are misrepresented, it’s very difficult to find out, maybe even for the auditing firm.

Restoring the Entrepreneurial SpiritWhen you took over, Rosabeth Moss Kanter wrote a piece for HBR saying that HP’s long-admired cul-ture was dead. The company was no longer “feisty” or “entrepreneurial.” It was a decade behind IBM in business model change. Was she right, and have you been able to move the needle? She was right in that HP had been through a lot. When companies change CEOs often and achieve poor results, there’s a reason. But I didn’t spend a lot of time worrying about how we got here. I was just determined to turn the ship around. The first step was to decide whether to spin off the PC business. The second was to get our cost structure in line with the reve-nue trajectory, because in 2012 revenues declined by more than 5%. When you have declining revenues, you have to manage your cost structure very aggres-sively in order to expand margins and save for in-vestment in what’s needed to fix the company. Next we had to reignite the innovation engine. We were falling behind in some of the newer technologies, because R&D had been cut year after year. Over the

“Over the past four years, even as we’ve reduced head count

and made tough strategic choices,

R&D spending has increased.”



out the milestones of the turnaround journey, so people knew they didn’t have to wait five years for something to happen. And we tried to be authen-tic as leaders, telling people: Here’s the challenge, here’s what we’re doing, and here’s how we’ll know whether we’ve been successful or not.

“Authentic leadership” is a term that’s used a lot. What does it mean to you? You have to be exactly who you are, because ultimately people will see through you if you’re not leading in an authentic way. For me, it’s about very simple, straightforward communication. Our industry tends to do a lot of technospeak, to make things more complicated than they need to be. With a company this size, you have to speak clearly and lay out the objectives so that your teams can explain what’s happening to customers and partners and one another.

You need to be yourself, sure, but don’t you also need to play the role of a leader? You have to communicate that you believe your goal can be achieved. And I actually believed it could. Some times were tough. But you have to exude confi-dence. You have to celebrate the victories along the way. I learned that at eBay, which had created a value set around transparency. Pierre Omidyar, the founder of eBay, said that we have to operate in the marketplace in a transparent way and that the culture inside needs to be the same, because buyers and sellers will know if we’re operating differently internally.

Is HP’s turnaround finished? Partially. The sepa-ration was possible only because of the success of our turnaround journey, and the decision to sepa-rate is meant to accelerate it. We’ve been at this for four years, and now we have two companies. There’s more work to do at both. Hewlett Packard Enterprise will grow in a lot of markets this year. HP Inc. has some challenges because the PC and printer markets are challenged. But it’s gaining share. And all you can ask of a company in a declining market is to gain share.

A Philosophy of LeadershipLet’s talk more about your experience at eBay. You were running a relatively small company that was still close to its start-up stage as it grew. What did that take? I’m a big believer in situational

Why doesn’t the popular press see this? I think it’s because people are wondering, What is the one thing HP has done that blows everything away?

You mean, What is your “iPhone”? Yes, what’s our iPhone? What’s our Amazon Web Services? Innovations like that are few and far between. My view is that we have to build our reputation prod-uct by product, service by service—by blocking and tackling and getting into the leader quadrant. There’s no big bang, no product that’s going to do $30 billion in revenues in the near term, but we’ve made huge progress in each of our businesses.

How would you define the core principles of HP, at least before the split? It’s very hard to kill founder DNA, and that’s a good thing for HP. Dave Packard and Bill Hewlett have been gone from the company for many years. There have been many acquisi-tions, many changes. But the core values still show through: the ability to do incredible innovation; a passion for customer support and service; giving back to the community. Dave and Bill were social responsibility leaders and environmentalists be-fore those were even terms. We may have fallen on some hard times, but we’re going to double down on those values.

What still needs to change? There are things we want to improve. We need to intensify our sense of urgency. The company had lost some of its commit-ment to run to the fire, jump on a problem, service it in 24 hours, resolve it in 48. So we worked very hard on the sense of urgency and running to the fire. Our business is complicated, but usually cus-tomers’ problems don’t get better with age. They get better when you go fix them.

Leading a TurnaroundHave you found it difficult to lead and inspire when you’re presiding over a turnaround that has included the layoffs of tens of thousands of people? The first thing was to state that this was a turnaround. I named the problem, and I explained how we were going to get ourselves reoriented and return to being a successful company. We were very straight with people. When I ran for governor of California, in 2010, I learned that repetition is your friend. So we communicated, communicated, and then communicated some more. We also laid

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to untangle complexity. Second is communication. I don’t know that I would have been successful at Hewlett-Packard coming right out of eBay. That two-and-a-half-year stint running for governor made a big difference. My communication skills got much better. When you’re trying to do a turnaround and lead people, it’s not about the facts and figures. We tend to be left-brain: Here’s the total available mar-ket, here’s our market share, here’s the return on invested capital. But when you’re turning around a company at this scale, it’s about the stories you tell. I learned that on the campaign trail—too late on the campaign trail, one might argue.

There’s always another shot at running for governor. I don’t think so.

What else did you need to learn? I developed a much thicker skin, which helped because people were quite critical when I was named CEO of HP. You get tested. Compared with when I was running for office, handling the criticism at HP has been easy.

Do you read your press? I have a team that tells me if there’s something I need to know. If there’s a recurring theme, you have to pay attention. But I don’t actually read it. When I ran for governor, I read the press. Probably a mistake.

What do you think a CEO really needs to focus on? First, you need the right strategy. Less than perfect execution against the right strategy will probably work. A 100% execution against the wrong strategy won’t. The next thing is getting the right people. And at scale, you have no choice but to instrument the business. It was different at eBay. I was the 30th employee, and by the end I had an instinct—I could almost feel what was wrong with the business. I could have a couple of conversations, look at some high-level numbers, and I’d know. But at HP you have to have a plan, and you have to measure that plan. You don’t get what you expect; you get what you inspect. At scale, you can’t just feel it; you have to have the metrics. We monitor everything, so the minute something goes off track, we know.

How can you increase the odds that you’re on the right strategic path? I learned how to do strategy for nine years at Bain, and it has stood me in good stead, because there’s a formula for it. It’s all about

leadership. HP is a turnaround. EBay was a growth story. The challenge at eBay was how to keep up with a 70% compound monthly growth rate. But the principles of leadership were the same: clear strategy, well communicated, well metricked. Celebrate the victories and hold people, including yourself, accountable for results. When you’re the CEO of a 30-person company that grows to 15,000 people, as eBay did, you have to keep reinventing yourself as the company scales.

It sounds as if you have a certain philosophy of leadership. Where does that come from? Harvard Business School had a big impact on me. But mostly it’s from experience. I still do things today that I learned at Procter & Gamble 30 years ago. I’ve worked at Bain, Disney, Hasbro, FTD, Stride Rite, eBay, and Hewlett-Packard. I’m the product of a variety of experiences in a number of industries in quite different business situations.

What are some basic rules you’ve learned along the way? First, you have to deliver results. You have to do what you say you are going to do to build credibility within your organization, with your customers, and with your partners. Second, you need the right people in the right jobs at the right time with the right attitude. That sounds easy, but it’s very hard. At eBay, someone who was perfect when it was a $40 million company was not quite so perfect when it grew to $4 billion. And attitude makes a huge difference: You want enthusiasm, can do, glass half full. It’s taken me a couple of years to get the team dynamic right at Hewlett-Packard.

What did you misread initially? I’ve said this often, but you can always move faster than you think you can to get the team in place. I’ve had to learn this lesson many times in my career. Some CEOs may want a different team dynamic than I do, but you have to get it right, and you have to get it right fast. You’re always hesitant to move fast enough. I wish I had moved faster.

What new leadership skills did you have to learn at HP? First, the scale is enormous. Very few people have run a $110 billion company. Everything has more zeros attached to it, more complexity, more countries, more tax jurisdictions. I had to learn how



in a position like yours? I’m a CEO who happens to be female. Sometimes gender can influence how you lead, but not always. We’re all products of our upbringing and our experiences. I’m focused on the fact that I have to deliver results and I have to be authentic, and some elements of my personal-ity—strengths and weaknesses—shine through in my leadership. Many years ago I gave up thinking about being a female in the workplace because I wasn’t going to change that. God gave me the wis-dom to know what I can change and what I can’t, and I can change how to approach financials or how to communicate.

Is the bar higher for women at the top? You have to be very good at what you do, male or female, and maybe in the early days women had to be a little bit better. In 1979, for example, there were just four women in my entering class at Procter & Gamble. But I never felt hugely disadvantaged. I just had to deliver results, be fun to work with, be easy to work with and enthusiastic. I had played a lot of sports as a girl, so I knew how to be part of a team.

A lot of leaders, men and women, cite their expe-rience playing team sports as an important asset. Can you talk more about that? The great thing about team sports is that you don’t win unless ev-eryone plays her position. Have you ever watched a bunch of five-year-olds play soccer? They all go with the ball, and it’s not very effective. The abil-ity to play defense and offense, to know your posi-tion, to know what you’re accountable for—all of that is learned by doing. That doesn’t mean there aren’t plenty of successful businesspeople who never played team sports, but for me, that “all for one, one for all” approach, led by a coach, was part of how I learned to lead.

You’ve had a successful career. You’ve made money. What keeps you going? I took the job because I think companies like HP are the essence of what makes this country great and have had a very posi-tive impact on the world. I thought it mattered what happened to the company. I also like a challenge, and this is a challenge. It has been great fun. There are days I want to tear my hair out, but there’s a real role for the company to play in the industry, and I think we’ve redefined that role.

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who your customers are, who your competitors are, what cost structure you need, and what things you are not going to do. That is the most difficult deci-sion for companies, because we all have eyes that are bigger than our stomachs.

What’s your strategic goal for the new Hewlett Packard Enterprise? We want to provide cutting-edge solutions that help customers optimize their traditional IT while building the secure, cloud- enabled, mobile-ready future that suits their needs.

What would you like the world to say about HP when you’re finished? I would love for our custom-ers to say that Hewlett Packard Enterprise helped their companies transform an old, rigid, legacy IT infrastructure into an environment that helped them win in the marketplace. I’d love for HP Inc. to be known as still the worldwide leader in printers and PCs and perhaps to have captured some new adjacent areas, such as 3-D printing.

A CEO Who Happens to Be FemaleSome female CEOs are happy to talk about gender issues, some not. Do you view yourself as a “female CEO” or simply a CEO? And are there gender issues

“You need the right people in

the right jobs at the right time with

the right attitude. That sounds easy,

but it’s very hard.”

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MANAGING YOURSELF 104Networking for people who hate it

CASE STUDY 109Confronting a colleague’s erratic behavior

LIFE’S WORK 124Isabel Allende on becoming a writer

WHY WE LOVE WORKPLACE EXPOSÉS PAGE 118


Managing Yourself Learn to Love NetworkingEven people who find it repugnant can do it effectively. by Tiziana Casciaro, Francesca Gino, and Maryam Kouchaki

“I HATE NETWORKING.” We hear this all the time from executives, other professionals, and MBA students. They tell us that networking makes them feel uncomfortable and phony—even dirty. Although some people have a natural passion for it—namely, the extroverts who love and thrive on social interaction—many understandably see it as brown-nosing, exploitative, and inauthentic.

But in today’s world, networking is a necessity. A mountain of research shows that professional networks lead to more job and business opportunities, broader and deeper knowledge, improved capacity to innovate, faster advancement, and greater status and authority. Building and nurturing professional relationships also improves the quality of work and increases job satisfaction.

When we studied 165 lawyers at a large North American law firm, for example, we found that their success depended on their ability to network effectively both internally (to get themselves assigned to choice clients) and externally (to bring business into the firm). Those who regarded these activities as distasteful and avoided them had fewer billable hours than their peers.

Fortunately, our research shows that an aversion to networking can be overcome. We’ve identified four strategies to help people change their mindset. RA

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1Focus on LearningMost people have a dominant motivational focus—what psychologists refer to as either

a “promotion” or a “prevention” mindset. Those in the former category think primarily about the growth, advancement, and accomplishments that networking can bring them, while those in the latter see it as something they are obligated to take part in for professional reasons.

In laboratory experiments we conducted in the United States and Italy with college students and working adults, and in an additional sample of 174 lawyers at the firm we studied, we documented the effects of both types of thinking. Promotion-focused people networked because they wanted to and approached the activity with excitement, curiosity, and an open mind about all the possibilities that might unfold. Prevention-focused people saw networking as a necessary evil and felt inauthentic while engaged in it, so they did it less often and, as a result, underperformed in aspects of their jobs.

Thankfully, as Stanford University’s Carol Dweck has documented in her research, it’s possible to shift your mindset from prevention to promotion, so that you see networking as an opportunity for discovery and learning rather than a chore.

Consider a work-related social function you feel obliged to attend. You can tell yourself, “I hate these kinds of events. I’m going to have to put on a show and schmooze and pretend to like it.” Or you can tell yourself, “Who knows—it could be interesting. Sometimes when you least expect it, you have a conversation that brings up new

ideas and leads to new experiences and opportunities.”

If you are an introvert, you can’t simply will yourself to be extroverted, of course. But everyone can choose which motivational focus to bring to networking. Concentrate on the positives—how it’s going to help you boost the knowledge and skills that are needed in your job—and the activity will begin to seem much more worthwhile.

2 Identify Common InterestsThe next step in making networking more palatable

is to think about how your interests and goals align with those of people

you meet and how that can help you forge meaningful working relationships. Northwestern University’s Brian Uzzi calls this the shared activities principle. “Potent networks are not forged through casual interactions but through relatively high-stakes activities that connect you with diverse others,” he explains. (See “How to Build Your Network,” HBR, December 2005.) Numerous studies in social psychology have demonstrated that people establish the most collaborative and longest-lasting connections when they work

together on tasks that require one another’s contributions.

Indeed, research that one of

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us (Tiziana) conducted with INSEAD’s Miguel Sousa Lobo showed that this

“task interdependence” can be one of the biggest sources of positive energy in professional relationships.

Consider the approach taken by Claude Grunitzky, a serial entrepreneur in the media industries, when he set out to meet Jefferson Hack, founder of the underground British style and music magazine Dazed & Confused. As described in a Harvard Business School case study by Julie Battilana, Lakshmi Ramarajan, and James Weber, Grunitzky—then 22 and preparing to found his first business, an urban hip-hop magazine in London—learned everything he could about Hack.

“I read every one of his magazines, noticed what he was writing about and what kinds of bands he reviewed,” Grunitzky recalled.

“I did so much of this I felt I could almost understand his personality before we met.” Armed with that knowledge and convinced that he and Hack had similar worldviews and aspirations, Grunitzky felt much more comfortable approaching the industry elder.

When your networking is driven by substantive, shared interests you’ve identified through serious research, it will feel more authentic and meaningful and is more likely to lead to relationships that have those qualities too.

3Think Broadly About What You Can GiveEven when you do not share an interest with

someone, you can probably find something valuable to offer by thinking beyond the obvious. Of course, this isn’t always easy. We’ve found that people who feel powerless—because they are junior in their organizations, because they

belong to a minority, or for other reasons—often believe they have too little to give and are therefore the least likely to engage in networking, even though they’re the ones who will probably derive the most benefit from it.

This problem was highlighted in two studies we conducted at the law firm mentioned above, which involved different groups of lawyers at different points in time. We found that senior people were typically much more comfortable networking than junior people were because of their greater power in the organization. This makes sense. When people believe they have a lot to offer others, such as wise advice, mentorship, access, and resources, networking feels easier and less selfish.

A controlled experiment confirmed this finding: People in whom we induced feelings of power found networking less repulsive and were more willing to do it than people assigned to a condition that made them feel powerless.

However, even those with lower rank and less power almost certainly have more to offer than they realize. In their book Influence Without Authority, Allan Cohen and David Bradford note that most people tend to think too narrowly about the resources they have that others might value. They focus on tangible, task-related things such as money, social connections, technical support, and information, while ignoring less obvious assets such as gratitude, recognition, and enhanced reputation. For instance, although mentors typically like helping others, they tend to enjoy it all the more when they are thanked for their assistance.

The more heartfelt the expression of gratitude, the greater its value to

If Networking Makes You Feel Dirty, You’re Not AloneMany people find professional networking so distasteful that it makes them feel morally and physically dirty. In a controlled experiment, we asked 306 adults working at various organizations to write about times when they engaged either in networking for professional advancement or in social networking to make friends. We then asked them to complete word fragments, such as W _ _ H, S H _ _ E R, and S _ _ P—a measure of subconscious preferences first used by Chen-Bo Zhong, of the Rotman School of Management, and Katie Liljenquist, of the Marriott School of Management.

Participants who had recalled professional networking wrote “WASH,” “SHOWER,” and

“SOAP”—words associated with cleanliness—twice as frequently as those who had recalled social networking, who more often wrote neutral words such as “WISH,” “SHAKER,” and “STEP.” In other words, although most participants viewed networking to socialize and make friends as positive, they saw networking to enhance their careers as distinctly negative. Their negativity was not simply dislike or discomfort. It was a deeper feeling of moral contamination and inauthenticity.

After California mandated paid family leave, in 2004, fathers were 46% likelier to take paternity leave in the first year of their child’s life. The main participants were first-time fathers, fathers with sons, and those in occupations with a high share of female workers.

“PAID FAMILY LEAVE, FATHERS’ LEAVE-TAKING, AND LEAVE-SHARING IN DUAL-EARNER HOUSEHOLDS,” BY ANN BARTEL ET AL.

EXPERIENCE


the recipient. One young professional we know told us that when she turned 30, she wrote to the 30 people she felt had contributed the most to her professional growth, thanking them and describing the specific ways each had helped her. The recipients no doubt appreciated the personalized update and acknowledgement.

When gratitude is expressed publicly, it can also enhance an adviser’s reputation in the workplace. Think of the effect you have when you sing your boss’s praises to your colleagues and superiors, outlining all the ways you’ve progressed under his or her tutelage.

People also appreciate those who understand their values and identities and make them feel included. Juan, an Argentinian executive based in the Toronto office of a Canadian property management company, told us about Hendrik, a junior hire from Germany who rallied everyone in the office to join a series of soccer games that he single-handedly organized. His fellow expats—and there were many, because the company’s workforce was internationally diverse—finally had something fun to do with their colleagues, and Hendrik’s status and connections immediately shot up. In spite of his low-power position,

he had brought something new to the table.

You might also have unique insights or knowledge that could be useful to those with whom you’re networking. For example, junior people are often better informed than their senior colleagues about generational trends and new markets and technologies. Grunitzky is a prime example. “I knew I could bring something to [Jefferson Hack], which was expertise in hip-hop,” he said. The relationship ended up being a two-way street.

When you think more about what you can give to others than what you can get from them, networking will seem less self-promotional and more selfless—and therefore more worthy of your time.

4Find a Higher PurposeAnother factor that affects people’s interest

in and effectiveness at networking is the primary purpose they have in mind when they do it. In the law firm we studied, we found that attorneys who focused on the collective benefits of making connections (“support my firm” and “help my clients”) rather than on personal ones (“support or help my career”) felt more authentic and less dirty while networking, were more likely to network, and had more billable hours as a result.

Any work activity becomes more attractive when it’s linked to a higher goal. So frame your networking in those terms. We’ve seen this approach help female executives overcome their discomfort about pursuing relationships with journalists and publicists. When we remind them that women’s voices are underrepresented in business and that the media attention that would

result from their building stronger networks might help counter gender bias, their deep-seated reluctance often subsides.

Andrea Stairs, managing director of eBay Canada, had just such a change in perspective. “I had to get over the feeling that it would be self-centered and unseemly to put myself out there in the media,” she told us. “I realized that my visibility is actually good for my company and for the image of women in the business world in general. Seeing my media presence as a way to support my colleagues and other professional women freed me to take action and embrace connections I didn’t formerly cultivate.”

MANY IF not most of us are ambivalent about networking. We know that it’s critical to our professional success, yet we find it taxing and often distasteful. These strategies can help you overcome your aversion. By shifting to a promotion mindset, identifying and exploring shared interests, expanding your view of what you have to offer, and motivating yourself with a higher purpose, you’ll become more excited about and effective at building relationships that bear fruit for everyone.

HBR Reprint R1605J

Tiziana Casciaro is an associate professor of organizational behavior

and holds the Professorship in Leadership Development at the University of Toronto’s Rotman School of Management. Francesca Gino is a professor at Harvard Business School, a faculty affiliate of the Behavioral Insights Group at Harvard Kennedy School, and the author of Sidetracked: Why Our Decisions Get Derailed, and How We Can Stick to the Plan (Harvard Business Review Press, 2013). Twitter: @francescagino. Maryam Kouchaki is an assistant professor of management and organizations at Northwestern University’s Kellogg School of Management.

Further ReadingFor more about networking, see these articles at HBR.org.

“How Leaders Create and Use Networks” Herminia Ibarra and Mark Lee Hunter

“A Smarter Way to Network” Rob Cross and Robert J. Thomas

“How Star Women Build Portable Skills”Boris Groysberg

“Succeed in New Situations” Keith Rollag

“How to Build Your Network”Brian Uzzi and Shannon Dunlap

“The Art of Evangelism”Guy Kawasaki

When your networking is driven by substantive, shared interests, it will feel more authentic and meaningful.

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Case Study What to Do for a Struggling Colleague?A manager faces a peer’s mental health issue. by John A. Quelch, Carin-Isabel Knoop, and Amy Gallo

As Carlos Guerrero walked to the whiteboard where the app development team

had gathered for its daily stand-up, he noticed that Larry Berman was absent again. But this time he didn’t bother to ask anyone about it. He just carried on.

“Morning,” he said, staring at the dizzying assortment of sticky notes on the whiteboard. “Hit me with your updates.”

As the director of digital strategy for Meals Now, a rapidly growing subscription meal-delivery service,

Carlos was cosponsoring a critical app redesign project, staffed by a team of seven plus a few external consultants.

Larry, the head of technology, was

his partner in this endeavor, but recently

it hadn’t felt much like a partnership. In fact,

Carlos had offered to run the

stand-ups on

an as-needed basis only—they really should’ve been Larry’s job.

Carlos tried to focus on what Irina, one of Larry’s developers, was telling him about the current agile sprint. With the redesign six months along and more than halfway done, these daily stand-ups were increasingly important if the team was to meet its aggressive deadlines.

“We’re just not sure whether Larry has signed the contract with the social login provider yet,” Irina said.

“OK, let’s check with him on that,” Carlos replied, realizing that he’d said the exact same thing the day before. “What time did he say he’d be in?” Irina exchanged a nervous glance with Mike, Larry’s number two, and they both shrugged. “I’ll give him a call,” Carlos said with a sigh.

He knew that Larry had had a rough year. The app development team’s application architect had left mere days before the redesign project began, and Larry had struggled to find a replacement, in the meantime assuming many of that position’s responsibilities. On the personal

front, rumor had it that he’d been separated from his wife for several months and was living in an apartment somewhere near the office. Though he was in the habit of working from home occasionally, his schedule had been very erratic in recent weeks. Some days he didn’t show up at the office; others he arrived before everyone else, worked furiously at his desk without even getting up to eat, and stayed well into the evening if not through the night.

As the meeting was breaking up, Carlos caught Irina’s attention and beckoned her aside. “Do you have a min ute?” he asked. She nodded, and

they walked to a small conference room nearby.

“What’s going on with Larry?” he said.

Irina looked uncomfortable. “Don’t worry,” he reassured her. “I’m just trying to make sure we’re on track with this project.”

“As you know, he hasn’t been in yet this week,” she confessed. “But it’s only Wednesday, and we’ve got things more or less under control. And honestly, it’s nice to have a bit of leeway to figure it out ourselves. Mike is doing an amazing job. And when Larry is here, he works twice as hard as the rest of us. Besides, I’m sure he’ll be back to normal soon.”

On the way to his office, Carlos dialed Larry’s cell phone. No answer. He could feel his chest tightening. Meals Now had a lot riding on this project. Cynthia Walker, the company’s brilliant, hard-charging CEO, had assured the board that the redesign would set their business apart from the competition in an increasingly crowded space, and the company had invested close to $500,000 in the project. “More or less under control” wasn’t really good enough. Where was Larry? RA

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Tell us what you’d do in this situation. Go to HBR.org.


HBR.ORGEXPERIENCE

Larry in what was certainly an empty building. He texted his friends:

“Running late. Go ahead and order without me.”

Back inside, he could hear Larry talking loudly. Was he on the phone, or talking to himself? Carlos knocked on the open office door and peered in. Larry looked up angrily. “What are you doing here?”

“I’m worried about you, Larry. It’s almost eight o’clock and you’re just coming to work.”

“I know that—don’t you think I know that?” Larry’s voice rose. “I’ve been working all day at home, too. There are a million things to do. A million things. A million things. Why wouldn’t I be here at night? Why on earth wouldn’t I?”

Carlos forced himself to stay calm. “But you’ve been out three days this week, and quite a few days last week and the week before, and your team hasn’t been able to reach you. We’ve been waiting for you to move a few things along.”

anyone how to work with vendors and contractors, and he keeps the rest of the organization off our backs so that we can get our work done. I’m not sure we can hit all the project targets without him.”

“But you don’t seem to have him now,” Carlos said.

“Half-time is better than nothing.”“But who’s leading the team?” “I guess I am,” Mike said, with

a touch of weariness in his voice. “Have you talked to Kara or

Anaya?” Carlos asked, referring to the company’s small HR team.

“They’re both pretty new, and I worry they’d overreact and take it straight to Cynthia. And I’d never want Larry to hear that I’d been talking behind his back, much less reporting him to HR. I guess I’m saying I don’t know where to go.”

Carlos didn’t know either.

A Million Things to Do Carlos’s car was the last in the parking

lot; he’d stayed late because he was meeting

friends for dinner in town. As he put his laptop

in the backseat, he saw Larry’s Volkswagen pull into a spot near the front of the building. “Larry,” he called, walking over as his colleague got out of the car.

“Hey, man,” Larry said, looking a little surprised to see him. His hair was mussed, his eyes were red, and his T-shirt was wrinkled and stained.

“In a bit of a rush here.” He grabbed his computer bag, closed the car door, and started walking toward the entrance. When Carlos moved to follow him, he waved his hand dismissively. “Don’t come back in on my account. I’ll see you tomorrow.”

Carlos returned to his car but didn’t get in. It felt strange to leave

Growing ConcernLater that afternoon Mike stopped by Carlos’s office and asked if he could shut the door. “I’d like to check in about timing,” he said.

“Things seem to be moving along,” Carlos said. “Right?”

“Yeah. But we might have to push the launch date back again.”

“We should try to avoid that,” Carlos replied curtly, and then added, more diplomatically, “You know we can’t afford any more delays. Cynthia’s breathing down my neck, and the board’s breathing down hers.”

“I know—we’re all feeling the pressure,” Mike said. “Speaking of, I wanted to talk to you about Larry. I’m concerned about him. A lot of what we used to shrug off as quirky is starting to seem a little scary. I know he slept in the conference room at least two nights last week, and this week he hasn’t been in at all. I spoke to him yesterday, but today he’s not picking up.”

“Have you asked him what’s going on?”

“I tried, but he didn’t really respond, and I don’t feel it’s my place to push. I don’t want to jump to conclusions, and I’m not a psychologist, of course, but I think he might be cracking a bit.”

Carlos nodded, remembering his own experience with anxiety. A few years back he’d seen a therapist and considered taking medication.

“I know you both report to Cynthia,” Mike continued, “but the last thing I want to do is go to her. I’m not at all comfortable speculating on his mental health with the CEO, and if I just emphasize the work issues, I’m scared she’ll get rid of him, which would obviously be terrible for him and for us. He still knows better than

HBR’s fictionalized case studies present problems faced by leaders in real companies and offer solutions from experts. This one is based on

“Mental Health and the American Workplace” (case no. 515062-PDF-ENG), by John A. Quelch and Carin-Isabel Knoop, which is available at HBR.org.

WHAT DREW YOU TO THIS STORY?The course encourages dialogue and understanding between public health and business students. With 18% of U.S. GDP now allocated to health care, leaders across all sectors need to be familiar with the health care system, including mental wellness.

HOW DO STUDENTS TYPICALLY RESPOND?They often share personal experiences of trying to help colleagues suffering from mental illness. Many felt unprepared to do so and were unaware of the legal and ethical aspects of any intervention.

WHAT DO YOU HOPE THEY WILL LEARN FROM THE DISCUSSION?The goal is to encourage them to think about promoting mental wellness in the organizations they will influence during their careers. We hope to dispel some of the stigma around mental illness and to encourage students to look out for their own mental well-being along with that of colleagues.

Case Study Teaching Notes

John A. Quelch teaches the note on which this story is based in his course Consumers, Corporations, and Public Health.

EXPERIENCE


Larry’s face softened some, but he still didn’t look healthy.

“Sure, sure. Of course. Whatever you need. Send me an e-mail, and I’ll take care of it tonight.”

“Are you sure you’re all right? It’s not only about the project— it’s about you, too. If you need to talk about something, I’m here.”

Larry looked angry again. “Do me a favor and go home, Carlos. Everything’s fine. Just let me do my job my way.”

Mike was right, Carlos thought. This went beyond unusual behavior. Was Larry breaking under the stress of work? Was it mental illness? Could he be taking drugs?

Tell Me If There’s a Problem The next morning Carlos’s in-box was full of e-mails from Larry. Some were reassuring: Yes, the contract with the login provider had been signed. Yes, he’d sent the beta to the user-experience people already. Yes, he’d reviewed the plan for social media integration several times, and it was fine. No, he hadn’t gotten approval from HR for the revised application architect position yet, but they had worked through the latest salary question, and he expected to have the approval by Friday. Other messages were troubling: Had they considered adding a more robust ingredient search feature? Could they double the amount of user testing? Should they alter the color scheme? Larry knew that Cynthia, the board, and the project team had already decided on all those issues. Well, the old Larry knew.

When Carlos went to his colleague’s office to talk about it, Larry wasn’t there. He was heading back into his own office when Cynthia stopped him.

“I was just coming to get an update,” she said. “Three board

members have e-mailed me this week asking if we’re still on schedule. Are we?

And where’s Larry?” “I’m not sure,” Carlos said,

willing his face not to turn red. “I know he was working late

last night.” He pushed himself to be straight with her. “Mike told me yesterday that we might need to delay the launch. The tech team is doing what it can, but we’ve had some unexpected hiccups, and the timeline is tight.”

“We can’t afford another delay, Carlos. The board will have my head. Tell me Larry can fix this.”

Carlos was silent. “Is there something else you

should be telling me? I know I’ve been traveling, but I haven’t seen Larry in weeks, and my assistant mentioned that he’d been acting strangely and his team seemed stressed. Is that true?”

Carlos hesitated and then said, “We’re all under a lot of pressure.”

“Listen, Carlos. I’m trusting you to tell me if there’s a problem and I need to bring in someone else to do this job. Because you know as well as I do that this needs to get done.”

“I’m on it, Cynthia,” he said. As soon as she left, he closed his

office door, picked up his cell phone, and dialed a number he hadn’t called in a while. “Could I leave a message for Dr. Thales, please?” He knew he wouldn’t get her immediately, but she called him back not 30 min utes later.

“Thanks for taking my call,” he said, happy to hear his former therapist’s voice. “This actually isn’t about me. I wanted to get your advice about a friend of mine.” He described what was happening with Larry.

“Obviously, I can’t make a diagnosis without meeting him,” she said, “but from what you’ve told me, I think it might be manic behavior.”

“Like bipolar?”“Possibly, yes. It’s more common

than most people think—not as prevalent as depression or anxiety, but close to 4% of adults in the U.S. have it. Do you know if he’s seeing anyone?”

“No, I don’t.”“Well, if that’s indeed the problem,

it can often be managed with a therapist’s help and medication. Does he acknowledge there’s an issue? Have others noticed?”

“I’ve tried to talk to him about it, and his team has too, but he just ignores us. I could go to our boss or HR, but I don’t want to get him fired.”

“If he’s diagnosed with a mental health issue, he’ll be in a protected class.”

“I’m also a little worried about losing him,” Carlos continued. “I probably wouldn’t admit this to anyone else, but he’s critical to this project. If he gets help and needs to take a leave of absence or something, we’re screwed. That sounds completely selfish, I know.”

“I can see how you’d feel that way. Those episodes seem to have kept him productive for a while. But now it’s different—at least different enough for you to call me. He might be unraveling.”

Yes, Carlos thought after hanging up the phone,

“unraveling” seemed like the right word.

What should Carlos do? See commentaries on the next page.

John A. Quelch is the Charles Edward Wilson Professor of Business Administration at Harvard Business School and a professor in health policy and management at Harvard School of Public Health. Carin-Isabel Knoop is the executive director of the Case Research & Writing Group at Harvard Business School. Amy Gallo is a contributing editor at HBR.

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The Experts Respond

Barbara Ricci is a managing director in global markets at Deutsche Bank and the president of the board of the NYC Metro affiliate of the National Alliance on Mental Illness.

CARLOS NEEDS to help Larry. Many people would ignore what’s happening and focus on the proj ect. But if Larry showed up bleeding after an accident on the way to work, no one would ignore that. Someone would drive him to the hospital.

The equivalent in this case is finding time to sit down with Larry and privately express concern. Carlos might say, “I’m worried about you. Your behavior has been erratic, and it’s affecting your work and your team. I think you need to seek treatment.” He might mention his own counseling for anxiety (if he feels comfortable doing so) and ask if Larry has a doctor he trusts or someone else he could ask for help.

Situations like this are much more common than people think. In any given year, one in five Americans has a mental health issue. Depression alone accounts for 200 million missed workdays each year. Sadly,

because of social stigma, a fear of repercussions at work, and the lack of quality, affordable, accessible care, only a third of the people who need help will get it.

If Larry is indeed having a manic episode, he may continue to resist Carlos’s offers of help because he enjoys the “up.” It doesn’t appear that anyone at Meals Now has expertise in mental health, so I’d suggest that Carlos go to the CEO, Cynthia. He might say, “Larry is struggling with something—I don’t know what, but we can’t ignore it. He needs to get treatment and take time off.” If she’s a good boss, she’ll insist—with discretion and compassion—that Larry take a leave of absence until he is again able to do his job. That probably wouldn’t derail the proj ect: Larry has a strong team in place, and Mike can assume leadership of it temporarily.

I’ve been in Carlos’s shoes. When I suspected that a client

was having a manic break—he was talking more loudly and quickly than usual and, alarmingly, making large and imprudent bond trades with his company’s investment portfolio—I approached him about it directly. Unfortunately, probably because he was enjoying the mania and the grandiose feelings, he didn’t realize he was ill, so I ultimately had to go to his manager, who told

him to take time off. He returned to work a few weeks later and continued to be very good at his job.

Organizations need to do better at supporting and improving the mental health of employees and their families. At NAMI-NYC Metro we’ve collaborated with American Express, EY, Goldman Sachs, and Prudential Insurance as they’ve developed cutting-edge programs to increase awareness about these issues and encourage people to support their coworkers. If Meals Now had such a program, Carlos could seek advice from knowledgeable professionals, and Larry would have access to the resources he needs. Most important, he and others could talk as openly about their mental health as they would about, say, diabetes or hypertension. People often think this topic is too private to be discussed at work, but that just perpetuates the stigma. After all, if you can’t mention it, you can’t manage it.

Comments from the HBR.org communityLarry Has to GoCarlos should get rid of Larry and look for alternatives. Larry is no doubt an asset, but he’s not dependable. Carlos should let Cynthia know this sooner rather than later.Krishna Gundlapalli, product manager

Let Larry Talk to CynthiaCarlos should let Larry deal with the issue on his own by meeting with Cynthia and admitting that he has a problem. If he’s unwilling to do that, Carlos should bring the situation to Cynthia’s attention while there’s still

People often think this topic is too private to be discussed at work, but that just perpetuates the stigma.

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World Investment News worldinvestmentnews winnenews winnenews | www.winne.comWE CONNECT BUSINESS PEOPLE

GUYANAAs Guyana celebrates its 50 years

of independence on May 26th, 2016, local businesses mark

the occasion in their own way, such as Demerara Distillers Ltd.’s special 50th anniversary bottle.

Demerara Bank Limited Guyana banking done right

Roraima Airways Inc. Much more than an airline

While it is, indeed, common-place for countries to boast a variety of homegrown banks,

that has not always been the case in Guyana. In fact, it was not until 1994 that the Demerara Bank, Guayana’s only local bank, officially became active in the country. It came out of the perseverance and business acumen of the

YESU PERSAUDChairman of Demerara Bank

Guyana native, Dr. Yesu Persaud. After experi encing enormous success in the sugar and dis til lation sec-tors and with an unwavering belief in the strength of his country, Dr. Persaud created this bank de spite strong words of warning to the contrary by the country’s most prominent leaders of the time.

Now, more than 20 years after its creation, Deme-ra ra Bank’s incredible success is undeniable, which can be attributed to its initial business strategy. Early on, it recognized the need for the economy to become export-oriented and, there-

Established in 1992, Roraima Airways Inc. has since become the premier tourism and hospitality service provider in Guyana— consistently creating the ultimate business and travel experience for those looking to enjoy all the country has to offer. Roraima was originally created to offer domestic air-line charters in and around Guyana, South Am erica, and the Caribbean; however, it quickly expanded its range of services to include a total of ten diverse divisions that accom modate the varied needs of its ex ec-utive clientele. Its divisions now include

fore, offer export trade financing options. This realization catapulted it to its current place among the top banks in the country, now of fer-ing a wide range of competitive and advanced banking services.

Demerara Bank, lead by CEO Mr. P. Dave and supported by its directors, is a technological and customer-centric bank which has shown outstanding performance in areas of deposit growth, extension of credit and creation of wealth for its shareholders.

airline charter, terminal, and ground ser-vices, hotels, nature tours, and even medical evacuation services.

While there are, indeed, a number of divi-sions falling under the Roraima umbrella, maintaining a high-level of customer sat-isfaction remains of utmost importance. What’s more, its experience working with both international and regional corporations is often cited as its primary competitive advantage, making it the perfect regional partner.

50 years of independence

www.roraimaairways.com Telephone: (+592) 225-9684

www.demerarabank.com

This Promotional Case Study was produced by World Investment News for May 2016 edition of HBR. Publisher: Pascal Belda; Executive Director: Stéphanie Huertas; Project Coordinator: Marina Garcia; Project Associate: Lisa Gordillo; Editor: Stan Aron; Creative Director: Daniel Martínez.

You can read more Guyana’s interviews at www.winne.com/interviews

The Experts Respond

has on his plate, he shouldn’t feel bad about shifting some of the responsibility, and he should trust HR to do the right thing, including informing Cynthia about the problem. Hopefully, the CEO will realize the importance of having a healthy, high-functioning employee and respond appropriately, offering Larry as much time off and support as he needs. If she fires him just to meet a product revision deadline, knowing that he is probably suffering from an illness, Carlos will see what kind of company he is working for.

If Carlos takes these steps, it’s possible that Larry will feel betrayed,

which could hurt their relationship in the short term. But that’s a price worth paying.

After my first company failed, in 2001, I was severely depressed. At the time, I didn’t reach out to colleagues. It didn’t occur to me to ask for help. The company I then worked for was tiny and didn’t have an HR group. I recovered on my own, eventually getting out of that hole by focusing on my next proj ect. But in retrospect, I wish that someone had noticed I was struggling and invited me to have a conversation away from work or visited me when I was sick at home. I might have tried to push the person away at first, but I would have appreciated the effort in the long term.

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time to redistribute responsibilities and, possibly, bring the proj ect in on or near the deadline.Howard M. Wiener, principal, Evolution Path Associates

Larry Comes FirstLarry’s health issues should be addressed as soon as possible, and he should know that he will have a job to come back to after he seeks treatment. If the proj ect has to be delayed, so be it. Isn’t a human life worth more? Dolly Triviz, lead structural engineer, CH2M Hill

Ben Huh is the founder and former CEO of the Cheezburger Network.

RIGHT NOW Carlos’s priority should be the proj ect. Yes, Larry seems to be struggling with his mental health, but when faced with the high probability of an occurrence that will affect many people (the failure of the redesign) and the low probability of one that will severely affect an individual (a breakdown), you have to focus on the former.

That’s not to say that Carlos should ignore what’s going on with Larry. He just needs to accept

that he’s shouldering the proj ect leadership alone, with Larry as an erratic but still valuable contributor who merits special attention. Carlos should maintain brief, positive interactions with his colleague, face-to-face as often as possible, and watch for any slippage in his decision-making abilities. He can enlist Mike to do the same. This is not to spy on Larry but to give him the opportunity to confide in one of them if he so chooses.

Carlos and Mike should strive to support each other—working more closely on the redesign and also in deciding what to do about Larry. It’s stressful to deal with someone

who has an unrecognized and untreated mental illness, and it’s

hard to do it alone. Of course, if Larry’s behavior

deteriorates further and begins to affect morale and productivity on the proj ect team, I do think Carlos needs to go to Meals Now’s HR managers and tell them what he’s observed. I know some people distrust HR, viewing it as a protective agent of the company rather than an ally of employees. But most HR departments have access to useful materials and resources. For example, many health insurance plans include confidential and free access (by phone or in person) to mental health counselors.

Carlos’s reluctance to go to Cynthia or HR is understandable, but given how much he already

Carlos should maintain brief, positive interactions with Larry and watch for any slippage in his decision-making abilities.

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TANZANIATribute to Jakaya Kikwete: 10 years of LeadershipPresident Kikwete’s decade in Tanzania’s highest office has proven transformative for the country, now one of Africa’s fastest growing economies. As he passes the torch, we take a look at his legacy…

There’s little doubt the young Jakaya Mrisho Kikwete was primed for leadership,

having spent his childhood with his grandfather, a local chief, before following his father, also a public servant, to outposts across Tanzania.

Rising quickly up the political ladder, the future president became one of the youngest ministers in Tanzanian history when he took the reins of the Finance Ministry. He then served 10 years as Minister of Foreign Affairs and International Cooperation. Mr. Kikwete’s international influence did not go unnoticed, as he was the first African leader to meet President Barack Obama in 2009.

Domestically, the Kikwete presidency has been a turning point for Tanzania. “The major key behind all this is the pursuit of sound economic policies,

nomic frame remains of the right track,” the former president says. “The agricultural sector is still our main focus now, but we are also glad that other sectors are doing pretty well.”

The country’s infrastructure has

seen the most visible change over the past decade. “The road network has been enhanced and tarmac roads now connect most of the regions of Tanzania,” says Gabriel Silayo, Director of Planning & Investment at the Public

solving power generation by finding alternative solutions.”

Michael Mhando, Acting Director General at the National Health

in place to ensure the poor have access to health care services,” he says.

“The establishment of the Social

is one of the president’s main achievements,” adds SSRA Director General Irene Isaka.

With a vision to transform Tanzania

translated to “a good life for every Tanzanian.” With yet a long road ahead, the country seems on the right track towards making that vision a reality.

JAKAYA MRISHO KIKWETE

The significance of our two terms in office has been to scale up everything.

This Promotional Case Study was produced by World Investment News for May 2016 edition of HBR. Publisher: Pascal Belda; Executive Director: Manuel Sáinz; Project Director: Omar El-Asfari; Project Coordinator: Diana Lopes; Project Asso-ciate: Alejandro Dorado Nájera; Editor: Stan Aron; Creative Director: Daniel Mar-tínez; Partnership Director: Maxine Gordon; Special thanks to: H.E. Ambassador Ombeni Sefue, H.E. Ambassador Liberata Mulamula, Salvator Rweyemamu, Angel Mbogoro, Martine Shigella, Shabani Mseba, Golden Tulip, Xpress Rent a Car.

@jmkikwete



National Housing CorporationReal Estate Investors Seek to Catch up With Soaring Demand

Simon GroupDreaming big to modernize Tanzania

The National Housing Corpo-ration (NHC), working under the Ministry of Lands, Hous-

ing and Settlement Development, is undertak-ing a number of construction projects in order to keep up with Tanzania’s booming real estate demand.

The rise in demand of Tanzania’s housing sector is mainly driven by the country’s GDP growth rate – leading to higher living standards – as well as easier access to mortgages and its demographic expansion; currently at 53 million, Tanzania’s population is expected to double by 2050.

According to Nehemiah Kyando Mchechu, Di-rector General of NHC, a major player in East-African real estate, the current demand of ap-proximately three million homes is growing at a pace of 200,000 housing units per year. Such a rate calls for a joint effort from various stake-holders, especially investors, to address the shortage of decent or modest housing.

As Tanzania’s young rural population moves towards urban areas, the real estate boom mainly

If there is such a thing as the Tanzanian dream, Robert S. Kisena embodies it. The rags-to-riches story of Simon Group Ltd.’s founder and CEO, a boy from a disadvantaged family now among the country’s top businessmen, shows nothing is im-possible for those with ambition.

“I would like to inspire my fellow people to believe in themselves and in whatever they are doing,” says Mr. Kisena, who grew up in a small Simiyu Region village, in Tanzania’s Lake Zone, where he founded his first company trading cotton in 1997, Simon Agency Ltd., planting the seed for what would later become Simon Group, one of the country’s largest conglomerates.

The company became a major supplier for the pri-vate sector, which began to dominate the cotton trade in the late 1990s. However, after growing his business for over a decade, price fluctuations on commodities brought by the 2008 financial crisis forced the entrepreneur to diversify.

affects major cities such as Dar es Salaam as well as Mwanza, Dodoma, Arusha and Mbeya.

The government has extended its support to the housing sector, changing the legal framework to create a conducive environment for investors in order to alleviate poverty.

Investors can join NHC project execution through urban redevelopment as NHC properties are located in prime areas where land is more valuable without pre-existing buildings. These areas include new satellite cities, which still re-quire planning and building in order to reduce pressure on overcrowded urban centers, as well as affordable housing projects across the coun-try, and urban renewal and transformation.

Tanzania’s business friendly and booming prop-erty market is especially conducive to such projects thanks to amicable relations with and support from institutions such as the parliament, UN Habitat, as well as banks and pension funds.

After moving his offices to Dar es Salaam to focus on logistics, Mr. Kisena now has stakes in real estate, agriculture, transportation, port services and media, among other sectors, through Simon Group.

His latest foray in transportation came in 2011 with the acquisition of Usafiri Dar es Salaam (UDA), operating Dar es Salaam’s commuter ser-vice network with a current fleet of more than 400 buses. But UDA isn’t just any mass-market transpor-tation service. At a time when the modernizing African continent is building up its infrastructure and coming online, UDA plans to lead the trans-portation industry in Dar es Salaam with the in-troduction of more than 140 high-end smart or executive buses, 350 in the near future, to the newly inaugurated Dar es Salaam’s Bus Rapid Transit (BRT) network, which UDA Rapid Transit operates, providing not only air conditioning but wireless internet services.

Mr. Kisena hopes to inspire a new generation of Tanzanian entrepreneurs to follow his example. “It takes time to achieve big things, but nothing is impossible,” he says.

NEHEMIAH KYANDO MCHECHUDirector General

FELCHESMI J.MRAMBADirector General

ROBERT S. KISENAFounder and CEO

Tanzania Electric Supply Company Limited (TANESCO) is a Tanzanian parastatal organi-zation established in 1964. It is 100 percent owned by the government and the Ministry of Energy and Minerals regulates its operations.

TANESCO’s core business is to generate, transmit, distribute and sale electricity to the Tanzanian mainland and bulk power supply to the archipelago of Zanzibar.

TANESCO aims at improving its financial position by increasing its sales and connect-ing more customers. The company’s target in 2015 was to acquire 250,000 customers, bringing its customer base up to 1.5 million. Focuses are to put more efforts on rural elec-trification and improving metering technolo-gy from credit meters to prepaid meters.

Tanzania’s state power supplier TANESCO said it expects to clear arrears worth $250 million to suppliers by the end of 2016, thanks to cutting reliance on imported oil and switching to cheaper domestic gas-fired plants.

Managing Director Felchesmi Mramba said that the firm was talking to banks for refi-nancing to help meet the arrears, which have been deterrent for new investors in develop-ing gas fields and private power production.

TANESCO, which generates and distributes electricity, has already cut arrears from al-most $400 million in January 2015, thanks for switching generation reliance to gas.

Power generated using gas costs about 9-10 U.S. cents per kilowatt-hour (kwh) while fuel power plants cost 40-45 U.S cents. “That is why our focus now is to speed up generation using natural gas,” Mramba said.

TANESCO aims to add about 2,000 MW in gas-fired generation by 2018. In the govern-ment Power Master Plan the country targets an installed capacity of 10,000 MW come 2025.

Most of planned new plants such as Kinye-rezi 2, Kinyerezi 3, Kinyerezi 4, Kilwa Gas Plant and Mtwara Gas Plant will be gas fired, but it also wants to use coal reserves and add other renewables such as wind and geother-mal.

It takes time to achieve big things, but nothing is impossible

Tanzania Electric Supply Company Limited (TANESCO)



Tanzania Airports AuthorityConnecting Tanzania to the world

Established in 1999, TAA is charged with the devel-opment, operation, management, and maintenance of all airports in Tanzania. From Kilimanjaro all the way to Tabora, TAA controls a total of six major air-ports in the country and oversees the development and operation of the leading airports in Dar es Salaam and Zanzibar as well.

Since its creation, this institution has worked tire-lessly to support the construction of new airports and to facilitate the rehabilitation process of existing ones as well. Investment, upwards of some €250 million, has been directed towards infrastructural develop-ments, which has already been applied to both a number of the country’s major and regional airports.

TAA officials admit that such a profound transforma-tion would not have been possible without the hard work of its impressively talented workforce. Before any flights take to the sky, TAA’s team of engineers

spends countless hours solving the most compli-cated problems surrounding each project. The team currently consists of 11 professional en-gineers and one consulting engineer, all having been selected specifically based on their ability and dedication to furthering the development of the country’s airport infrastructure. At the moment, TAA is managing a number of projects aimed to better the country’s airport infrastructure. One project with the potential to have the greatest impact is found in the creation of Terminal 3, a new terminal to be added to the Dar es Salaam Airport. TAA is charged with man-aging the construction of this new addition, and upon completion, it will more than double the airport’s passenger capacity, thus accommodating 6 million passengers to travel through the airport on any given day.

For those familiar with air travel in and around Tanzania, looking back from as little as just one decade ago, the dramatic trans-formation seen in the country’s airport infrastructure and overall service can be viewed as nothing short of a miracle. Such shock-ing improvements could not have been possible without the unwavering support of President Kikwete paired with the Tanza-nia Airport Authority’s (TAA) fine project management skills.

S.S. SULEIMANFormer CEO of Tanzania Airports Authority

TAA has two major functions: airport development and operations & maintenance. Throughout his last ten years in office, President Jakaya Kikwete has been supporting TAA enormously, and he has helped the institution achieve tremendous progress.

Synthesis Office ExposéWhy we love employee tell-alls by Daniel McGinn

experience would make a great memoir. I figured he was kidding.

He wasn’t. In Disrupted: My Misadventure in the Start-Up Bubble, Lyons skewers the culture of HubSpot in particular and start-ups in general—the office Nerf gun battles, the focus on growth over profits, the young employees’ naive belief that they’re

“changing the world” when they’re really just peddling B2B software. He also explores the tech world’s ageism. “This book is about more than HubSpot,” he writes. “[It’s] about what it’s like to try to reinvent yourself and start a new career in your fifties, particularly in an industry that is by and large hostile to older workers.” His new desk was outfitted with a yoga ball instead of a chair. Some of his male colleagues met in the lobby at noon each day for a push-up contest. Lyons was the only employee reluctant to dress in costume on Halloween.

During 2013 and 2014 I was always thrilled when my in-box pinged with an

e-mail from my friend Dan Lyons. A former colleague and a longtime technology journalist, he had left the magazine business to join HubSpot, a Boston-area marketing software company, but the job was instantly and obviously a bad fit. Although he’d been hired by the founders as a “marketing fellow,” his supervisors didn’t know precisely what to do with him. His forte was writing smart analyses of tech strategy, while the coin of the realm at HubSpot was posts like “35 of the Best Free Fonts You Should Download Now.” Then 52, Lyons was working with a gaggle of 20-somethings who regarded him as a strange old man. To blow off steam, he occasionally forwarded his boss’s inane memos to me or sent tales of other idiocies. Once or twice he mentioned that his surreal RA

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This humorous and well-crafted memoir is part of a proud literary tradition: the disgruntled ex-employee tell-all. It’s a genre that includes classic nonfiction accounts such as John DeLorean’s On a Clear Day You Can See General Motors (detailing the carmaker’s decline in the 1970s) and Michael Lewis’s Liar’s Poker (describing life at Salomon Brothers during the 1980s boom). It also features thinly veiled romans à clef such as The Devil Wears Prada, by Lauren Weisberger, a former assistant to Vogue editor Anna Wintour, and the recently released Opening Belle, Maureen Sherry’s fictionalized account of life on a Wall Street trading floor just before the 2008 global financial crisis.

Readers love this genre for at least three reasons. First, journalists may try to write knowingly about companies from the outside, but insiders have an unrivaled ability

Daniel McGinn is a senior editor at Harvard Business Review.

Disrupted: My Misadventure in the Start-Up BubbleDan LyonsHachette, 2016

Opening BelleMaureen SherrySimon & Schuster 2016

To be sure, some of Lyons’s misery was self-inflicted. He antagonized and mocked colleagues and made little effort to fit in. When Brian Halligan, the CEO of HubSpot, lauded its youth-oriented culture in an interview with the New York Times (“In the tech world, gray hair and experience are really overrated”), Lyons wrote an angry Facebook post alleging age discrimination, which went viral.

Companies in the crosshairs of a tell-all have no effective defense, because any attempt at refutation inevitably draws more attention. Some subjects try to be good sports. Anna Wintour, for instance, attended the red-carpet premiere of the movie based on her former assistant’s book. (Yes, she even wore Prada.) Other companies fall back on the etiquette that’s prescribed when someone passes gas in public: Let’s just pretend that didn’t happen. When Vanity Fair editor Graydon Carter’s former contributing editor Toby Young wrote the unflattering memoir How to Lose Friends & Alienate People, Carter said, “You’re forced into playing it cool, when all you really want to do is throttle them.”

At HubSpot playing it cool wasn’t the first impulse. In July 2015 the company’s chief marketing officer was fired for attempting to steal a copy of Lyons’s draft manuscript— an incident that sparked news stories and an FBI investigation, giving the book an unexpected promotional boost. (Halligan was fined by the board for failing to report the incident.) In the winter, when I asked HubSpot if it wanted to comment on Disrupted for this article, Halligan responded with a statement praising his company as a great place to work—never once mentioning Lyons or the book.

to layer on details and capture workplace absurdities in Technicolor. For example, in the opening to Liar’s Poker, Lewis describes the CEO of Salomon strolling around the trading floor and casually challenging a subordinate to wager $1 million on a game that involved serial numbers on dollar bills. Sherry, who spent 12 years at Bear Stearns, depicts a workplace rife with sexism and harassment: Men feel free to boast about their families, whereas women feel compelled to hide family photos; and Belle, the main character, endures daily groping from colleagues and come-ons from clients. (Reese Witherspoon will play her in the movie adaptation.)

Tell-alls also constitute a form of revenge against bad managers, something that appeals to the downtrodden Dilbert in all of us. Consider Barton Swaim’s well-regarded 2015 memoir, The Speechwriter, which chronicles his years working as an aide in South Carolina Governor Mark Sanford’s office. On his first day a colleague told Swaim, “Welcome to hell,” and this account does paint Sanford (now a South Carolina congressman) as a type of demon—cheap, slovenly, mean, inarticulate, and self-centered—even before he became famous for a five-day disappearance to “hike the Appalachian Trail” when he’d actually gone to Argentina to carry on an affair.

Finally, memoirs like these provide comfort and reassurance to anyone who’s occasionally unhappy at work. They’re a polished version of an art form that many of us know well: the whining that typically takes place over drinks after work. Reading these admittedly one-sided accounts of life at HubSpot and Vogue and GM, one can’t help thinking, Hey, at least my employer isn’t that messed up.

JIM KOCH: WHAT I’M READING Start with Why: How Great Leaders Inspire Everyone to Take Action, by Simon Sinek (Portfolio, 2009)

“The author reminds us that every worthwhile pursuit is built around a purpose. He argues that it’s essential to focus on the ‘why,’ even though we spend most of our time trying to figure out the ‘how’ and the ‘what.’”JIM KOCH IS A FOUNDER OF THE BOSTON BEER COMPANY AND THE AUTHOR OF QUENCH YOUR OWN THIRST: BUSINESS LESSONS LEARNED OVER A BEER OR TWO (FLATIRON, 2016).

The Speechwriter: A Brief Education in PoliticsBarton SwaimSimon & Schuster 2015

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The future of management comes to MexicoFor more information go to hbrsummitmexico.com

October 13th, 2016IPADE, Mexico City

Special contributor:

“Planned opportunism” is the author’s term for responding to an unpredictable future by paying attention to weak signals—early evidence of emerging trends from which it is possible to deduce important changes in demography, technology, customer tastes and needs, and economic, environmental, regulatory, and political forces. That attention gives rise to fresh perspectives and nonlinear thinking, which help an organization imagine and plan for various plausible futures. Planned opportunism is a discipline that creates a “circulatory system” for new ideas; develops the capacity to prioritize, investigate, and act on those ideas; and builds an adaptive culture that embraces continual change.

Govindarajan illustrates his thesis with several compelling company stories. For example, Tata Consultancy Services decided to divest its fast-growing call-center operations at the height of the boom in that business, because its leaders could see that technologies were moving to the cloud and that global enterprises would eventually demand higher-level, more strategic outsourced services. Call centers would just get in the way of that future. And Hasbro, the toy and game maker, acted on numerous technological and demographic shifts in the 1990s to significantly outpace its leading competitor, Mattel.

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Leaders face a multitude of strategic paradoxes—contradictory pressures that are too often viewed as “either/or” choices. There are innovation paradoxes, in which the pursuit of new offerings and processes conflicts with the mandate to sustain the tried and true. There are globalization paradoxes, which involve tensions between local imperatives and boundary-crossing integration. And there are obligation paradoxes, when the goal of maximizing profits for shareholders clashes with the desire to generate benefits for a broader group of stakeholders.

The authors argue that organizational success depends on simultaneously addressing such conflicting demands, not choosing between them. Leaders need to become comfortable with multiple truths and inconsistency. They need to assume that resources are ample rather than scarce. And they need to embrace change instead of seeking stability.

All of this will help organizations reach a state of dynamic equilibrium, wherein paradoxes don’t impede progress—they spur it. And the way to tap the potential of paradox is to both separate and connect opposing forces: Managers must pull apart the organization’s goals and value each of them individually, while also finding linkages and synergies across goals.

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Organizations and individuals are notoriously poor at judging the likelihood of uncertain events. Predictions are often colored by the forecaster’s understanding of basic statistical arguments, susceptibility to cognitive biases, desire to influence others’ thinking, and concerns about reputation. Indeed, predictions are often intentionally vague to maximize wiggle room should they prove flawed. But getting judgments wrong can of course have serious consequences.

On the basis of research involving 25,000 forecasters and a million predictions, the authors identified a set of practices that can improve companies’ prediction capability: providing training in the basics of statistics and biases; assembling teams of forecasters to debate and refine predictions; and tracking performance and giving rapid feedback.

To improve prediction capability, companies should keep real-time accounts of how their top teams make judgments, including underlying assumptions, data sources, external events, and so on. Keys to success include requiring frequent, precise predictions and measuring prediction accuracy for comparison.

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Today companies grapple constantly with the unexpected: disruptive advances in technology, the rise of new markets, sudden swings in demand, surprise moves by competitors. To cope, firms try to improve their forecasting and their agility, but those efforts take them only so far. A complementary—and perhaps more effective—approach is to use “strategic options.” These are small bets that allow businesses to test the waters and build their experience. If they fail, they’re easy to unwind, but if they succeed, they position organizations to capitalize on valuable opportunities.

In this article, two BCG consultants detail three kinds of strategic options: Temporary organizations, which are staffed by consultants and contractors, help firms ramp up operations quickly and yet avoid massive layoffs if an initiative fails. Small exploratory acquisitions allow firms to get a foothold in a new business—without the costs and headaches of large-scale deals. Disposable factories are a good solution to uncertain demand; they can be set up (and taken down) quickly, be sited closer to demand, and provide early data on costs and capacity that informs the construction of permanent facilities.

Executives often resist strategic options because they seem expensive in the near term. But when a payoff is far in the future and risk is high, they may be the best way to go.

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Managing for an Unpredictable Future

54Planned Opportunism by Vijay Govindarajan

62“Both/And” Leadership by Wendy K. Smith, Marianne W. Lewis, and Michael L. Tushman

72Superforecasting: How to Upgrade Your Company’s Judgment by Paul J.H. Schoemaker and Philip E. Tetlock

80How to Hedge Your Strategic Bets by George Stalk Jr. and Ashish Iyer

SPOTLIGHT

ARTWORK Sarah Morris, Globo (Rio) 2013, household gloss paint on canvas


HBR.ORG

STRATEGY

Planned Opportunism Vijay Govindarajan | page 54

LEADERSHIP

“Both/And” Leadership Wendy K. Smith, Marianne W. Lewis, and Michael L. Tushman page 62

DECISION MAKING

SuperforecastingPaul J.H. Schoemaker and Philip E. Tetlock | page 72

RISK MANAGEMENT

How to Hedge Your Strategic Bets George Stalk Jr. and Ashish Iyer page 80

EXECUTIVE SUMMARIES MAY 2016SPOTLIGHT ON MANAGING FOR AN UNPREDICTABLE FUTURE

Most conventional wisdom about high-level management is from an era when industries were less volatile than they are today. This package looks at how strategy, leadership, and forecasting change when you can’t see what’s coming.

HBR.ORG


Over the past 25 to 30 years, agile innovation methods have greatly increased success rates in software development, improved quality and speed to market, and boosted the motivation and productivity of IT teams. Now those methods are spreading across a broad range of industries and functions and even reaching into the C-suite. But many executives don’t understand how to promote and benefit from agile; often they manage in ways that run counter to its principles and practices, undermining the effectiveness of agile teams in their organizations.

From their work studying and advising companies that have successfully employed agile methods, the authors have discerned six crucial practices for capitalizing on agile’s potential: (1) Learn how agile really works; (2) understand when it is appropriate; (3) start small and let passionate evangelists spread the word; (4) allow teams that have mastered the process to customize their practices; (5) practice agile at the top; and (6) destroy corporate barriers to agile behaviors. They expand on each, providing executives with a practical guide for accelerating innovation and profitable growth.

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Although many companies claim to embrace failure as an integral part of the innovation process, near-zero tolerance for it blocks them from pursuing new ideas. Corporate budgeting, resource allocation, and risk control are all designed to promote predictability and efficiency, and even when people understand that they can and should fail, they do everything possible to avoid missteps. There’s a way to resolve this conundrum, however: Increase your return on unsuccessful projects by rigorously extracting value from them, boosting their benefits while minimizing their downsides.

In this article, two business school professors outline three steps you can take to improve your firm’s return on failure. First, study projects that didn’t pan out and document all the insights they offer about customers, markets, future trends, your organization, your operations, your team, and yourself. Second, magnify the impact of those lessons by spreading them across your company. Senior leaders should gather frequently to discuss their failures, and efforts to share lessons with all employees will build trust and goodwill and encourage future initiatives. Third, step back and do a corporatewide review of your pattern of failure, to ensure your overall approach is yielding all the benefits it should. If failure rates are too high, you may need to tighten up your systems, but low rates may signal a need to encourage more openness to risks.

Mistakes are the inevitable consequence of trying something new. But they can also be a source of tremendous value in the form of learning if your firm has the right mindset.

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In September 2011 Hewlett-Packard had just dismissed two CEOs in quick succession before inviting Meg Whitman to step into the role. She was taking the reins of a badly damaged company, and although she has presided over more than 80,000 layoffs, she has restored stability in her four and a half years on the job. In November 2015 HP became two new $50-billion-plus companies, with Whitman the CEO of Hewlett Packard Enterprise and the chairman of HP Inc.

In this edited interview she talks about why she agreed to take the job (“I thought that HP was a global icon and that nothing was fundamentally wrong with the bones of the company”), how the disastrous Autonomy acquisition happened (“It was financial misrepresentation”), the company’s core values (“the ability to do incredible innovation; a passion for customer support and service; giving back to the community”), the role of a leader (“You have to communicate that you believe your goal can be achieved. You have to exude confidence. You have to celebrate the victories along the way”), and much more.

Whitman says she is the product of her experiences in a variety of companies—Procter & Gamble, Bain, Disney, Hasbro, FTD, Stride Rite, eBay—and of her unsuccessful campaign for the governorship of California, during which she significantly developed her communication skills. She also played a lot of sports as a girl, “so I knew how to be part of a team.”

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ORGANIZATIONAL CULTURE

Embracing Agile Darrell K. Rigby, Jeff Sutherland, and Hirotaka Takeuchi | page 40

ORGANIZATIONAL CULTURE

Increase Your Return on Failure Julian Birkinshaw and Martine Haas | page 88

LEADERSHIP

“We Need to Intensify Our Sense of Urgency” Hewlett Packard Enterprise CEO Meg Whitman, interviewed by Adi Ignatius | page 94


BY JULIAN BIRKINSHAW AND MARTINE HAAS

embracing agile

How to master the process that’s transforming management

agile innovation methods have revolutionized information technology. Over the past 25 to

30 years they have greatly increased success rates in software development, improved quality and speed to market, and boosted the motivation and productivity of IT teams.

THE BIG IDEA

“We need to intensify our sense of

urgency”

Hewlett Packard Enterprise CEO Meg Whitman

One of the most important reasons that established companies struggle to grow is fear of failure.

FeaturesThe Big IdeaEXECUTIVE SUMMARIES


Managing Yourself

“I hate networking.” It’s a familiar refrain. But in today’s world, networking is a necessity—and fortunately, an aversion to it can be overcome. Drawing on laboratory experiments and on studies at a large law firm, the authors have identified four strategies that can help people become more excited about and effective at building relationships:• Focus on learning. Adopt

a “promotion mindset” and concentrate on the positives, and you’re more likely to perceive networking as an opportunity for discovery rather than a chore.

• Identify common interests. Consider how your goals align with those of people you meet, and networking will feel more authentic.

• Think broadly about what you can give. Remember that you have something valuable to offer, whether it’s knowledge, gratitude, or recognition.

• Find a higher purpose. Frame your networking in terms of a larger goal—the collective benefits for your company, say—and the activity will feel more authentic and will lead to connections that bear fruit for everyone. HBR Reprint R1605J

Managing Yourself Learn to Love NetworkingEven people who find it repugnant can do it effectively. by Tiziana Casciaro, Francesca Gino, and Maryam Kouchaki

Learn to Love Networking Tiziana Casciaro, Francesca Gino, and Maryam Kouchaki page 104

POSTMASTERSend domestic address changes, orders, and inquiries to: Harvard Business Review, Subscription Service, P.O. Box 62270, Tampa, FL 33662. GST Registration No. 1247384345. Periodical postage paid at Boston, Massachusetts, and additional mailing offices. Printed in the U.S.A. Harvard Business Review (ISSN 0017-8012; USPS 0236-520), published monthly with combined issues in January–February and July–August for professional managers, is an education program of Harvard Business School, Harvard University; Nitin Nohria, dean. Published by Harvard Business School Publishing Corporation, 60 Harvard Way, Boston, MA 02163.

Kasriel grew up around computers and started writing programs when he was 12. In a way, he says, he was like one of today’s typical Silicon Valley kids, but for him it was Paris in the 1980s. He recognized in

high school that he prefers to be with small numbers of people or to be alone. Getting by in a crowd doesn’t come naturally—but as a CEO he now has to mingle at huge networking events or conferences. To manage that, he sets goals: Talk to at least 30 people, get 10 business cards, arrange five follow-up meetings.

For 10 years Kasriel has worked to overcome the perception that engineers don’t make great leaders. He sought projects and talked his way into jobs that were outside his comfort zone. He read widely to burnish his skills in strategy, leadership, and managing people. (The article includes a list of titles the author deems most influential.) He spent hundreds of hours taking online courses. He got an MBA at INSEAD not because he wanted to make a career change or expand his network but so that he could avoid the mistakes he’d seen other entrepreneurs make.

Since assuming his role, in April 2015, he’s learned that a lot of the job comes down to helping employees feel excited about their work, empowering them, and giving them the resources they require. When people come to him with difficulties, he must listen first and not see every situation the way an engineer would: as a problem that needs a solution.

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MANAGING YOURSELF

Upwork’s CEO on How an Introverted Engineer Learned to Lead Stephane Kasriel | page 35

The Idea

HOW I DID IT… UPWORK’S CEO ON HOW AN INTROVERTED ENGINEER LEARNED TO LEADby Stephane Kasriel

How I Did ItHBR.ORG

Life’s WorkI feel I’m on the right path. I’ve learned to trust my skill, but it took a long time. At first I had the idea that each book was like a gift from heaven, and it would not happen again—but now, after 35 years of writing, I know that if I give myself a subject and enough time, I can write about almost anything. So that gives me self-confidence, and I can relax and enjoy the process.

Do you ever feel you’re chasing the success of your most acclaimed books? Every book is a different challenge, with a different way of being told. I’ve written memoirs, historical novels, fiction, young adult, even a crime novel. So I’m never comparing, or saying,

“Is this better or worse than The House of the Spirits?” Each book is an offering; you just put it on the table and see who will accept it.

You’ve said you were always determined to work. Why? Because I wanted to support myself. One thing that shaped me in my life was seeing my mother as a victim. She was a beautiful young woman who married the wrong man, had three babies in four years, and was abandoned by that man, so she went to live in my grandfather’s house. She didn’t have a proper education or a skill. She depended completely on her father. I adore my mother, and we’ve been close all my life, but I didn’t want to be like her. Also, I’m not good at staying at home. I adored my two children, too, but I trusted my mother-in-law and an adopted grandmother to help me raise them, because I needed to get out in the world.

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HBR: You start writing every book on the same date you began writing The House of the Spirits. Why?Allende: At the beginning it was superstition, because the first book had been so lucky. Now it’s just discipline. My life is busy, so I need to save some months of the year to be in a retreat. I need time and silence, or I will never be able to write. Having a start date is good for me and everybody around me. They know that on January 8, I’m not available anymore.

How do you progress from there? Slowly. The first few weeks are terrible, because I have not yet found a narrative voice, the tone, the groove. So it’s jerky, and I know that all those pages will end up in the trash. But it’s training: I need to get in form. After a few weeks the characters start to appear and tell me their stories. Then

Isabel Allende conceived her first novel, The House of the Spirits, as a letter to her dying grandfather. Although it became an international best seller, she would write one more successful book before feeling secure enough to quit her day job. Her catalog now spans more than 20 titles, including The Japanese Lover, released last year. Interviewed by Alison Beard

Hear the complete interview online at HBR.org.

DREW

KEL

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