Thursday, March 24, 2016

Secrets of the Superbosses 03-24

Secrets of the Superbosses

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

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

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

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

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

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

Unconventional Hiring

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

Focus on intelligence, creativity, and flexibility.

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

Superbosses begin by seeking out unusually gifted people.

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

Find unlikely winners.

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

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

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

Adapt the job or organization to fit the talent.

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

Accept churn.

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

	GLORIOUS BASTARDS These superbosses care about one thing: winning. They’re the ultimate hard drivers, yet they realize that to get the very best results, they need to develop the world’s best people and teams. So they do. EXAMPLES: Larry Ellison, Michael Milken, Bonnie Fuller, Julian Robertson, Jay Chiat
	NURTURERS These coaches and teachers resemble traditional mentors the most. They take pride in bringing others along and care deeply about the success of their protégés. They help people accomplish more than they ever thought possible. EXAMPLES: Mary Kay Ash, Bill Walsh, Michael Miles, Norman Brinker, Tommy Frist
	ICONOCLASTS These executives usually operate in creative fields, where their single-minded passion for their work inspires their protégés. EXAMPLES: Ralph Lauren, Alice Waters, George Lucas, Jon Stewart, Lorne Michaels, Robert Noyce
Amanda Edwards, Graham Bezant, Neilson Barnard/Getty Images

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

Hands-on Leadership

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

Set high expectations.

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

Be a master.

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

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

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

Encourage step-change growth.

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

Stay connected.

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

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

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

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

Following the superboss playbook, we can all become better at nurturing talent, creating higher-performing workforces and, ultimately, more dynamic and sustainable businesses and industries.

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Harvard Business Review Announces 57th Annual HBR McKinsey Award Winners 03-24

Harvard Business Review Announces 57th Annual HBR McKinsey Award Winners

Thursday, March 10, 2016

Progress on Clean Energy 03-11

Progress on Clean Energy

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

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

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

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

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

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

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

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

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Wednesday, February 24, 2016

How Leaderless Groups End Up with Leaders 02-24

How Leaderless Groups End Up with Leaders

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Sunday, February 7, 2016

Creating a Strategy That Works 02-

Creating a Strategy That Works

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

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

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

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

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

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

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

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

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

Extraordinary Enterprises

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

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

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

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

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

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

Conventional wisdom	The unintended consequences of conventional wisdom	The alternative: unconventional acts
Focus on growth	Getting trapped on a growth treadmill: chasing multiple market opportunities where you have no right to win	Commit to an identity: Differentiate and grow by being clear-minded about what you can do best
Pursue functional excellence	Striving to be world-class at everything but mastering nothing; treating external benchmarking as the path to success	Translate the strategic into the everyday: Build and connect the cross-functional capabilities that deliver your strategic intent
Reorganize to drive change	Falling into a habit of organizing and reorganizing: trying in vain to change behaviors and create success by restructuring alone	Put your culture to work: Celebrate and leverage your cultural strengths
Go lean	Cutting costs across the board: starving key capabilities while overinvesting in non-critical businesses and functions	Cut costs to grow stronger: Prune what doesn’t matter to invest more in what does
Become agile and resilient	Constantly reacting to market changes: shifting direction in the misguided conviction that if you listen hard and act fast, you will survive	Shape your future: Reimagine your capabilities, create demand, and realign your industry on your own terms

Source: Strategy That Works

Beyond Conventional Wisdom

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How the Five Acts Fit Together

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

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

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

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

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

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

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

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

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

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

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

The Idea of IKEA

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

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

IKEA’s Identity Profile
Value Proposition IKEA delivers value as a low-price player and experience provider. It creates “a better everyday life” at home for many people around the world — providing functional and stylish home furnishings at very low prices with a high level of quality, sustainability, and customer engagement.
Capabilities System IKEA delivers its value proposition by excelling at four differentiating capabilities: Deep understanding of how customers live at home: IKEA applies this insight to a variety of design, production, and retail practices. Price-conscious and stylish product design: IKEA integrates customer engagement, supply chain efficiency, and price considerations into the design process itself. Efficient, scalable, and sustainable operations: IKEA has developed its own distinctive operational capability integrating supply chain, manufacturing, and retail practices. Customer-focused retail design: The company knows how to create a distinctive combination of immersive and open-warehouse environments that provide engagement, inspiration, and a distinctive “day out” shopping experience where people can comfortably spend time choosing the things they live with every day.
Portfolio of Products and Services Known for its flat-packed furniture and its self-pick, self-carry, and self-assemble model, IKEA sells affordable furniture and other home-oriented products.

IKEA’s Identity Profile

Value Proposition

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

Capabilities System

IKEA delivers its value proposition by excelling at four differentiating capabilities:

Deep understanding of how customers live at home: IKEA applies this insight to a variety of design, production, and retail practices.

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

Efficient, scalable, and sustainable operations:

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

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

Portfolio of Products and Services

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

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

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

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

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

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

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

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

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

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Friday, February 5, 2016

How Do You Hire an 'Impostor'? 02-05

How Do You Hire an 'Impostor'?

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

Have you ever felt that you didn’t deserve admission to a prestigious school, an award, or even a particular job that you’ve always prized? Students in my Harvard Business School MBA classes often expressed the notion that they were “admissions mistakes.” In my case, I had doubts about whether I should have been admitted to the Stanford MBA program. I filled out the application in pencil to please an Army buddy when we were stationed in Europe, and my grade record at a little college in Iowa didn’t warrant admission anyway. Then I got his seat in the Stanford class.

I’ve learned that this is called the “impostor phenomenon.” Researcher Pauline Rose Clance defines it as “an internal experience of intellectual phoniness.” HBS professor Amy Cuddy in her new book, Presence, sums up the research on one aspect of the impostor phenomenon by pointing out that those who experience it most are “People who have achieved something; people who are demonstrably anything but frauds.”

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

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

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

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

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