Why Entrepreneurs Should Care Less About Disrupting and More About Creating 10-18

Featured excerpt from WTF? What’s the Future and Why It’s Up to Us by Tim O’Reilly

If you’re an entrepreneur or aspiring to become one, Tim O’Reilly is the kind of mentor you should try to enlist. He’s been there and done that in the New Economy since, well, pretty much since there’s been a New Economy.

O’Reilly started writing technical manuals in the late 1970s, and by the early 1980s, he was publishing them, too. His company, O’Reilly Media Inc. (formerly O’Reilly R. Associates), based in Sebastopol, California, helped pioneer online publishing, and in the early 1990s, it launched the first web portal, Global Network Navigator, which AOL acquired in 1995.

Since then, O’Reilly has been an active participant in a host of developments from open source to Gov 2.0 to the maker movement. He is founding partner of San Francisco-based O’Reilly AlphaTech Ventures LLC, an early stage venture investor, and he sits on a number of boards, including Code for America Labs Inc., PeerJ, Civis Analytics Inc., and Popvox Inc. He has also garnered a huge Twitter following @timoreilly.

In his new book, WTF?, O’Reilly takes issue with the vogue for disruption. “The point of a disruptive technology is not the market or competitors that it destroys. It is the new markets and the new possibilities that it creates,” he writes. “I spend a lot of time urging Silicon Valley entrepreneurs to forget about disruption, and instead to work on stuff that matters.” In the following excerpt, edited for space, O’Reilly shares “four litmus tests” for figuring out what that means to you.

1. Work on something that matters to you more than money.

Remember that financial success is not the only goal or the only measure of achievement. It’s easy to get caught up in the heady buzz of making money. You should regard money as fuel for what you really want to do, not as a goal in and of itself.

Whatever you do, think about what you really value. If you’re an entrepreneur, the time you spend thinking about your values will help you build a better company. If you’re going to work for someone else, the time you spend understanding your values will help you find the right kind of company or institution to work for, and when you find it, to do a better job.

Don’t be afraid to think big. Business author Jim Collins said that great companies have “big hairy audacious goals.” Google’s motto, “access to all the world’s information,” is an example of such a goal.

There’s a wonderful poem by Rainer Maria Rilke that retells the biblical story of Jacob wrestling with an angel, being defeated, but coming away stronger from the fight. It ends with an exhortation that goes something like this: “What we fight with is so small, and when we win, it makes us small. What we want is to be defeated, decisively, by successively greater beings.”

The most successful companies treat success as a by-product of achieving their real goal, which is always something bigger and more important than they are. Former Google executive Jeff Huber is chasing this kind of bold dream of using technology to make transformative advances in health care. Jeff ’s wife died unexpectedly of an aggressive undetected cancer. After doing everything possible to save her and failing, he committed himself to making sure that no one else has that same experience. He has raised more than $100 million from investors in the quest to develop an early-detection blood test for cancer. That is the right way to use capital markets. Enriching investors, if it happens, will be a by-product of what he does, not his goal. He is harnessing all the power of money and technology to do something that today is impossible. The name of his company — Grail — is a conscious testament to the difficulty of the task. Jeff is wrestling with the angel.

2. Create more value than you capture.

It’s pretty easy to see that a financial fraud like Bernie Madoff wasn’t following this rule, and neither were the titans of Wall Street who ended up giving out billions of dollars in bonuses to themselves while wrecking the world economy. But most businesses that prosper do create value for their community and their customers as well as themselves, and the most successful businesses do so in part by creating a self-reinforcing value loop with and for others. They build or are part of a platform on which people who don’t work directly for them can build their own dreams.

Investors as well as entrepreneurs must be focused on creating more value than they capture. A bank that loans money to a small business sees that business grow, perhaps borrow more money, hire employees who make deposits and take out loans, and so on. An investor who bets on the future of an unproven technology can do the same. The power of this cycle to lift people out of poverty has been demonstrated for centuries.

If you’re succeeding at the goal of creating more value than you capture, you may sometimes find that others have made more of your ideas than you have yourself. It’s OK. I’ve had more than one billionaire (and an awful lot of start-ups who hope to follow in their footsteps) tell me how they got their start with a couple of O’Reilly books. I’ve had entrepreneurs tell me that they got the idea for their company from something I’ve said or written. That’s a good thing.

Look around you: How many people do you employ in fulfilling jobs? How many customers use your products to make their own living? How many competitors have you enabled? How many people have you touched who gave you nothing back?

3. Take the long view.

The musician Brian Eno tells a story about the experience that led him to conceive of the ideas that led to the Long Now Foundation, a group that works to encourage long-term thinking. In 1978, Brian was invited to a rich acquaintance’s housewarming party, and as the neighborhood his cab drove through became dingier and dingier, he began to wonder if he was in the right place. “Finally [the driver] stopped at the doorway of a gloomy, unwelcoming industrial building,” he wrote. “Two winos were crumpled on the steps, oblivious. There was no other sign of life in the whole street.”
But he was at the right address, and when he stepped out on the top floor, he discovered a multimillion-dollar palace.

“I just didn’t understand,” he said. “Why would anyone spend so much money building a place like that in a neighborhood like this? Later I got into conversation with the hostess. ‘Do you like it here?’ I asked. ‘It’s the best place I’ve ever lived,’ she replied. ‘But I mean, you know, is it an interesting neighborhood?’ ‘Oh — the neighborhood? Well ... that’s outside!’ she laughed.”

In the talk many years ago where I first heard him tell this story, Brian went on to describe the friend’s apartment, the space she controlled, as “the small here,” and the space outside, full of winos and derelicts, as “the big here.” He went on from there, along with others, to come up with the analogous concept of the Long Now. We need to think about the long now and the big here, or one day our society will enjoy neither.

It’s very easy to make local optimizations, but they eventually catch up with you. Our economy has many elements of a Ponzi scheme. We borrow from other countries to finance our consumption, and we borrow from our children by saddling them with debt, using up nonrenewable resources, and failing to confront great challenges in income inequality, climate change, and global health.

Every new company trying to invent the future has to think long-term. What happens to the suppliers whose profit margins are squeezed by Walmart or Amazon? Are the lower margins offset by higher sales or do the suppliers faced with lower margins eventually go out of business or lack the resources to come up with innovative new products? What happens to driver income when Uber or Lyft cuts prices for consumers in an attempt to displace competitors? Who will buy the products of companies that no longer pay workers to create them?

It’s essential to get beyond the idea that the only goal of business is to make money for its shareholders. I’m a strong believer in the social value of business done right. We should aim to build an economy in which the important things are a natural outcome of the way we do business, paid for in self-sustaining ways rather than as charities to be funded out of the goodness of our hearts.
Whether we work explicitly on causes and the public good, or work to improve our society by building a business, it’s important to think about the big picture, and what matters not just to us, but to building a sustainable economy in a sustainable world.

4. Aspire to be better tomorrow than you are today.

I’ve always loved the judgment of Kurt Vonnegut’s novel Mother Night: “We are what we pretend to be, so we must be careful about what we pretend to be.” This novel about the postwar trial of a Nazi propaganda minister who was secretly a double agent for the Allies should serve as a warning to those (politicians, pundits, and business leaders alike) who appeal to people’s worst instincts but console themselves with the thought that the manipulation is for a good cause.

But I’ve always thought that the converse of Vonnegut’s admonition is also true: Pretending to be better than we are can be a way of setting the bar higher, not just for ourselves but for those around us.

People have a deep hunger for idealism. The best entrepreneurs have the courage that comes from aspiration, and everyone around them responds to it. Idealism doesn’t mean following unrealistic dreams. It means appealing to what Abraham Lincoln so famously called “the better angels of our nature.”

That has always been a key component of the American dream: We are living up to an ideal. The world has looked to us for leadership not just because of our material wealth and technological prowess, but because we have painted a picture of what we are striving to become.
If we are to lead the world into a better future, we must first dream of it.

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Reshaping Business With Artificial Intelligence 10-01

 CLOSING THE GAP BETWEEN AMBITION AND ACTION......

Disruption from artificial intelligence (AI) is here, but many company leaders aren’t sure what to expect from AI or how it fits into their business model. Yet with change coming at breakneck speed, the time to identify your company’s AI strategy is now. MIT Sloan Management Review has partnered with The Boston Consulting Group to provide baseline information on the strategies used by companies leading in AI, the prospects for its growth, and the steps executives need to take to develop a strategy for their business.

Executive Summary

1. Expectations for artificial intelligence (AI) are sky-high, but what are businesses actually doing now? The goal of this report is to present a realistic baseline that allows companies to compare their AI ambitions and efforts. Building on data rather than conjecture, the research is based on a global survey of more than 3,000 executives, managers, and analysts across industries and in-depth interviews with more than 30 technology experts and executives. (See “About the Research.”) 

The gap between ambition and execution is large at most companies. Three-quarters of executives believe AI will enable their companies to move into new businesses. Almost 85% believe AI will allow their companies to obtain or sustain a competitive advantage. But only about one in five companies has incorporated AI in some offerings or processes. Only one in 20 companies has extensively incorporated AI in offerings or processes. Less than 39% of all companies have an AI strategy in place. The largest companies — those with at least 100,000 employees — are the most likely to have an AI strategy, but only half have one.

Our research reveals large gaps between today’s leaders — companies that already understand and have adopted AI — and laggards. One sizeable difference is their approach to data. AI algorithms are not natively “intelligent.” They learn inductively by analyzing data. While most leaders are investing in AI talent and have built robust information infrastructures, other companies lack analytics expertise and easy access to their data. Our research surfaced several misunderstandings about the resources needed to train AI. The leaders not only have a much deeper appreciation about what’s required to produce AI than laggards, they are also more likely to have senior leadership support and have developed a business case for AI initiatives.

AI has implications for management and organizational practices. While there are already multiple models for organizing for AI, organizational flexibility is a centerpiece of all of them. For large companies, the culture change required to implement AI will be daunting, according to several executives with whom we spoke.

Our survey respondents and interviewees are more sanguine than conventional wisdom on job loss. Most managers we surveyed do not expect that AI will lead to staff reductions at their organization within the next five years. Rather, they hope that AI will take over some of their more boring and unpleasant current tasks.

AI at Work

2. As Airbus started to ramp up production of its new A350 aircraft, the company faced a multibillion-euro challenge. In the words of Matthew Evans, vice president of digital transformation at the Toulouse, France-based company, “Our plan was to increase the production rate of that aircraft faster than ever before. To do that, we needed to address issues like responding quickly to disruptions in the factory. Because they will happen.”

Airbus turned to artificial intelligence. It combined data from past production programs, continuing input from the A350 program, fuzzy matching, and a self-learning algorithm to identify patterns in production problems. In some areas, the system matches about 70% of the production disruptions to solutions used previously — in near real time. Evans describes how AI enables the entire Airbus production line to learn quickly and meet its business challenge:

What the system does is essentially look at a problem description, taking in all of the contextual information, and then it matches that with the description of the issue itself and gives the person on the floor an immediate recommendation. The problem might be new to them, but in fact, we’ve seen something very similar in the production line the weekend before, or on a different shift, or on a different section of the line. This has allowed us to shorten the amount of time it takes us to deal with disruptions by more than a third.

AI empowered Airbus to solve a business problem more quickly and efficiently than prior approaches (such as root-cause analysis based on manual analysis of hundreds or thousands of cases).
Just as it is enabling speed and efficiency at Airbus, AI capabilities are leading directly to new, better processes and results at other pioneering organizations. Other large companies, such as BP, Infosys, Wells Fargo, and Ping An Insurance, are already solving important business problems with AI. Many others, however, have yet to get started.

High Expectations Amid Diverse Applications

3. Expectations for AI run high across industries, company sizes, and geography. While most executives have not yet seen substantial effects from AI, they clearly expect to in the next five years. Across all organizations, only 14% of respondents believe that AI is currently having a large effect (a lot or to a great extent) on their organization’s offerings. However, 63% expect to see these effects within just five years.

Expectations for Change Across Industries and Within Organizations

Expectations for AI’s effects on companies’ offerings are consistently high across industry sectors. (See Figure 1.) Within the technology, media, and telecommunications industry, 72% of respondents expect large effects from AI in five years, a 52-percentage-point increase from the number of respondents currently reporting large effects. However, even in the public sector — the industry with the lowest overall expectations for AI’s effects — 41% of respondents expect large effects from AI within five years, an increase of 30 percentage points from current levels. This bullishness is apparent regardless of the size or geography of the organization.

Figure 1 Expectations for AI’s effect on businesses’ offerings in five years are consistently high across industries. 

Within organizations, respondents report similarly high expectations for the large effects of AI on processes. While 15% of respondents reported a large effect of AI on current processes, over 59% expect to see large effects within five years. (See Figure 2.) Most organizations foresee sizable effects on information technology, operations and manufacturing, supply chain management, and customer-facing activities. (See Figure 3.) For example:

Figure 2 As with offerings, organizations expect AI to have a great impact on processes within the next five years.

Information technology: Business process outsourcing providers serve as an example of the potential of AI. “IT services, where Infosys plays a big role, has seen tremendous growth in the last 20 or so years,” says Infosys Ltd. CEO and managing director Vishal Sikka.1 “Many jobs that moved to low labor-cost countries were the ones that were more mechanical: system administration, IT administration, business operations, verification. With AI techniques, we now have systems that can do more and more of those kinds of jobs. We are still in the early stages and portions of these activities can be automated, but we will get to the point in the next few years where the majority if not all of these jobs will be automated. However, just as AI technologies automate existing, well-defined activities, they also create opportunities for new, breakthrough kinds of activities that did not exist.” 

Figure 3

Most organizations foresee a sizable effect on IT, operations, and customer-facing activities.

Operations and manufacturing: Executives at industrial companies expect the largest effect in operations and manufacturing. BP plc, for example, augments human skills with AI in order to improve operations in the field. “We have something called the BP well advisor,” says Ahmed Hashmi, global head of upstream technology, “that takes all of the data that’s coming off of the drilling systems and creates advice for the engineers to adjust their drilling parameters to remain in the optimum zone and alerts them to potential operational upsets and risks down the road. We are also trying to automate root-cause failure analysis to where the system trains itself over time and it has the intelligence to rapidly assess and move from description to prediction to prescription.”
Customer-facing activities: Ping An Insurance Co. of China Ltd., the second-largest insurer in China, with a market capitalization of $120 billion, is improving customer service across its insurance and financial services portfolio with AI. For example, it now offers an online loan in three minutes, thanks in part to a customer scoring tool that uses an internally developed AI-based face-recognition capability that is more accurate than humans. The tool has verified more than 300 million faces in various uses and now complements Ping An's cognitive AI capabilities including voice and imaging recognition.

Adoption as Opportunity and Risk

While expectations for AI run high, executives recognize its potential risks. Sikka is optimistic but cautions against hyping AI’s imminent triumph: “If you look at the history of AI since its origin in 1956, it has been a story of peaks and valleys, and right now we are in a particularly exuberant time where everything looks like there is one magnificent peak in front of us.” More than 80% of the executives surveyed are eyeing the peaks and view AI as a strategic opportunity. (See Figure 4.) In fact, the largest group of respondents, 50%, consider AI to be only an opportunity. Some see risks and the potential for increased competition from AI as well as benefits. Almost 40% of managers see AI as a strategic risk as well. A much smaller group (13%) does not view AI as either an opportunity or risk.

Figure 4

More than 80% of organizations see AI as a strategic opportunity, while almost 40% also see strategic risks.  

What is behind these high expectations and business interest in AI? There is no single explanation. (See Figure 5.) Most respondents believe that AI will benefit their organization, such as through new business or reduced costs; 84% believe Al will allow their organization to obtain or sustain a competitive advantage. Three in four managers think AI will allow them to move into new businesses.

Continued 2  3

Harnessing the Secret Structure of Innovation 03-26

Sustained innovation success is not the result of artful intuition or heroic vision but of a deliberate search using key information signals.

In an era of low growth, companies need innovation more than ever. Leaders can draw on a large body of theory and precedent in pursuit of innovation, ranging from advice on choosing the right spaces to optimizing the product development process to establishing a culture of creativity.1 In practice, though, innovation remains more of an art than a science.

But it doesn’t need to be.

In our research with the London Institute, we made an exciting discovery.2 Innovation, much like marketing and human resources, can be made less reliant on artful intuition by using information in new ways. But this requires a change in perspective: We need to view innovation not as the product of luck or extraordinary vision but as the result of a deliberate search process. This process exploits the underlying structure of successful innovation to identify key information signals, which in turn can be harnessed to construct an advantaged innovation strategy.

Innovation in Legoland

Let’s illustrate the idea using Lego bricks. Think back to your childhood days. You’re in a room with two of your friends, playing with a big box of Legos (say, the beloved “fire station” set). All three of you have the same goal in mind: building as many new toys as possible. As you play, each of you searches through the box and chooses the bricks you believe will help you reach this goal.

Let’s now suppose each of you approaches this differently. Your friend Joey uses what we call an impatient strategy, carefully picking Lego men and their firefighting hats to immediately produce viable toys. You follow your intuition, picking random bricks that look intriguing. Meanwhile, your friend Jill chooses pieces such as axles, wheels, and small base plates that she noticed are common in more complex toys, even though she is not able to use them immediately to produce simpler toys. We call Jill’s approach a patient strategy.

At the end of the afternoon, who will have innovated the most?3 That is, who will have built the most new toys? Our simulations show that this depends on several factors. In the beginning, Joey will lead the way, surging ahead with his impatient strategy. But as the game progresses, fate will appear to shift. Jill’s early moves will begin to seem serendipitous when she’s able to assemble complex fire trucks from her choice of initially useless axles and wheels. It will appear that she was lucky, but we will soon see that she effectively harnessed serendipity.

What about you? Picking components without using any information, you will have built the fewest toys. Your friends had an information-enabled strategy, while you relied only on intuition and chance. 

What can we learn from this? If innovation is a search process, then your component choices today matter greatly in terms of the options they will open up to you tomorrow. Do you pick components that quickly form simple products and give you a return now, or do you choose the components that give you a higher future option value?

We analyzed the mathematics of innovation as a search process for viable product designs (toys) across a universe of components (bricks). We then tested our insights using historical data on innovations in four real environments and made a surprising discovery. You can have an advantaged innovation strategy by using information about the unfolding process of innovation. But there isn’t one superior strategy. The optimal strategy is both time-dependent (as in the Lego game) and space/sector-dependent — Lego is just one of many innovation spaces, each of which has its own characteristics. In innovation, as in business strategy, winning strategies depend on context.

The exhibit below, "Information-Enabled Innovation Strategies Outperform," demonstrates three crucial insights. First, information-enabled strategies outperform strategies that do not use the information generated by the search process. Second, in an earlier phase of the game, an impatient strategy outperforms; in later stages, a patient strategy does. Critically, third, it is possible to have an adaptive strategy, one that changes as the game unfolds and that outperforms in all phases of the game. Developing an adaptive strategy requires you to know when to switch from Joey’s approach to Jill’s. The switching point is knowable and occurs when the complexity of products (the number of unique Lego bricks in each toy) starts to level off. 

Applying the Insight

How can companies harness these insights in practice? To answer this question, we ran simulations based on detailed historical data for a range of datasets, from culinary arts and music to language and software technologies such as those used by Uber, Instagram, and Dropbox. From our findings, we distilled a five-step process for constructing an information-advantaged innovation strategy.

Step 1. Choose your space: Where to play?

The features of your innovation space matter, so it’s important to make a deliberate choice about where you want to compete. Interestingly, it’s not enough to analyze markets or anticipate customers’ needs. To innovate successfully, you also need to understand the structure of your innovation space.
Start by taking a snapshot of key competing products and their components. How complex are the products, and do you have access to the components? As a rule of thumb, choose spaces where product complexity is still low and where you have access to the most prevalent components.


By focusing on immature spaces, you can get ahead of competitors by first employing a rapid-yield, impatient strategy and then later switching to a more patient strategy with delayed rewards. Uber International CV provides a good example. The company entered the embryonic peer-to-peer ride-sharing space three years after it was founded in 2009 as a limousine commissioning company. Uber chose its space wisely: The ride-sharing industry was immature, product complexity was low, and the necessary components were easily accessible. The impatient strategy was to get to market quickly with a ride-sharing app. As we are learning, there is also now what appears to be a patient strategy at work at Uber — self-driving technology with a much higher level of complexity and a much longer period of gestation.

Reproduced from MITSLOAN Management Review

Mobilizing the Insurgency 06-02

Mobilizing the Insurgency

The insurgent sustainability director’s goal is to empower allies to link social intelligence with their job responsibilities and the company’s overall sustainability strategy. This begins by encouraging functional managers to “relate” with key constituencies and harvest their own functionally relevant social intelligence.

As this occurs, CSR directors help employees “translate” their gathered intelligence into business insights that are connected to and aligned with the company’s strategy and the functional manager’s responsibilities. The CSR director then helps “incubate” sustainability-informed projects that create value for both the business and the identified constituencies. Finally, CSR directors ensure that the value created becomes core to the business by “acculturating” the organization to the new values and associated management processes.

Relate

“Relate” is the process used to obtain social intelligence and is something that your people already do. The goal of insurgent CSR directors is to inspire employees to identify social intelligence that will enhance the company’s performance and support its CSR goals.

Encouraging community volunteerism is a common way to generate social insights. For instance, Costa Rica-based Florida Ice and Farm Beverage Company (FIFCO) is the region’s largest producer of beer and soft drinks. This makes it a major consumer of fresh water — a demand could potentially pit the company against local communities also dependent on local water supplies. 

To help employees understand these water demands (and the user communities), CSR managers engaged employees in community projects focused on restoring watersheds serving indigenous communities. In one such project, an army of 178 blue-shirted employees waded through the Aqueduct Gavilán Canta river system to ensure the provision of clean water for the indigenous peoples of Talamanca. Florida managers believe this direct interaction between employees, communities and shared resources dramatically enhances social intelligence.

Burt’s Bees, a natural personal-care products company, finds volunteerism so valuable for relating that it has made it mandatory for all employees. Using the euphemism “non-optional,” Burt’s has even shut down production so its 400 or so employees could engage in projects like building playgrounds and affordable homes for local communities. Other projects tie into the company’s production needs, including volunteer efforts to protect eponymous bee populations from colony collapse disorder.

Walmart has taken an alternative approach to helping employees relate. In 2007, the company created the voluntary Personal Sustainability Projects (PSP) program that encourages associates to adopt practices that benefit their communities, their families and themselves. PSPs can be nearly anything, but must be personal and involve the local community. Ranging from commitments to recycle to recruiting family and friends to get out and exercise, the PSP program is employee-led, with associates recruiting and training others.

Programs like these can enhance employees’ natural tendency to relate, but do so in ways that are directly relevant to the company’s social agenda. As employees gain greater social intelligence insurgent CSR directors then help them see their application to their business responsibilities.

Translate

While research has shown that employees value volunteer opportunities offered by their companies, CSR directors want to see the social intelligence accumulated by these relating activities put to work for the organization. They therefore help translate a functional manager’s new social intelligence and align it with the company’s overall CSR efforts. To do so, insurgent sustainability managers have to understand the goals of their colleagues and help them see the benefits of implementing sustainability initiatives in their functional areas.

Translating sustainability into a value proposition that functional managers understand requires command of the local “sustainability dialect” that’s appropriate for different functional areas like finance, sales, logistics and so on. Learning the different sustainability dialects of each functional area requires a general management understanding of the business functions, as well as the local organizational culture specific to each company. It also requires a deep understanding of how sustainability fits into the function’s goals, incentive structures and capabilities.

The next post will explore the sustainability dialects for business functions in more depth. For now, recognize that it is the sustainability insurgent’s responsibility to explain the potential for value creation in terms that a potential ally can understand and link that value to the overall goals of the company.

Incubate

To have an impact, the social intelligence must be applied, so the next task is to incubate sustainability projects within the company. Insurgent sustainability directors do so by turning their office into a “social intrapreneurship” incubator, working with functional mangers to define and secure the required resources needed for a project. As the effort advances, CSR directors monitor the progress and provides support as needed.

One of the most important roles for the sustainability officer is to provide cover for the functional managers. While many sustainability initiatives are well known and proven, they still come with some level of risk. Sustainability directors need to insulate functional managers so that they feel free to innovate and are not paralyzed by the potential consequences of failure. They have to have permission to fail; if not, they’ll never try. Focusing on quick wins can create the confidence needed to move to the next level.

An example of incubation is the leading Spanish bank BBVA’s reliance on workshops to share inspirational examples of innovative CSR initiatives with managers. Enthused participants are then encouraged to apply their social intelligence to their functional responsibilities and develop their own CSR initiative. After the program, participants work to implement their initiatives with the help of the CSR director’s office. In one instance, the workshop motivated sales managers to think about their contracts with retail customers. They soon recognized that complex legal language in banking contracts made it difficult for customers to understand agreement. This social insight inspired the managers to redraft company agreements in plain language so that the mutual commitments would be clear to customers.

Once social intelligence is unleashed, ideas can come from anywhere. Take Darryl Meyers, an associate at a Walmart store in Burlington, NC. Going about his duties, Darryl noticed a constant 24-hour glow emanating from the store break rooms — a light he found coming from soda machines, which were left on permanently. To Darryl, who had been inspired by Walmart’s PSP program, this seemed a waste, so he made the suggestion that the company turn off the lights. This simple suggestion incubated an initiative that resulted in $1M in annual savings to Walmart.

Acculturate

Incubated successes will encourage more applications of social intelligence and the CSR director’s responsibility becomes one of identifying and nurturing ideas wherever they spring from. But there is a larger task at work. Insurgent CSR directors also need to embed sustainability into the company’s core if it is going to stick. I call this final process acculturation, a practice that embeds CSR values into the company’s DNA. There are two key aspects of acculturation: corporate culture and business processes.

The term du jour for CSR is creating “shared value” for the company and society. However, the task for insurgent CSR directors is to move the company from “shared value” to “shared values.” By acculturating the organization to the values inherent in the CSR initiatives, social intelligence becomes an embedded reflex and part of the organizational culture.

The worth of shared organizational values is often underestimated by traditional managers. Much of management theory assumes that employees are inherently lazy and need to be financially incentivized and monitored by superiors. But all great social change is a result of a group of people incentivized, not by financial reward, but by a shared vision about the value of their collective endeavor. Sustainability directors help the company to tap into the strength of shared values.

Shari Arison, owner of the Arison Group of companies in Israel, is actively using values to unify and energize the entire group. A diverse collection of industrial, financial and even non-profit organizations, the Arison Group is joined in a collective effort to succeed financially but also socially. One example is “Good Deeds Day,” which inspires employees and Israelis across the country to volunteer. In collectively fostering shared value, Arison Group’s shared values become an important motivational and unifying driver.

The other part of acculturation is embedding sustainability into the company’s business processes, routines and planning. This takes a different form in each functional area. For the HR function, it maybe the inclusion of sustainability in recruiting and new employee on-boarding. In Finance, it might be enterprise risk management and reporting. For Manufacturing, it could be supply-chain standards and design for environment protocols.

The end game of the CSR insurgency is the acculturation of shared values that ingrains responsibility into the organizational fabric and builds sustainability into the modus operandi of daily business. The insurgency is over when the sustainability function and its leadership are no longer needed.

Courtesy MIT Sloan Management Review 

The Surprising Benefits of Nonconformity 04-22

The Surprising Benefits of Nonconformity

New research finds that under certain circumstances, people wearing unconventional attire are perceived as having higher status and greater competence.

Mark Zuckerberg, Facebook’s founder and CEO, captured the attention of the media when he wore a hooded sweatshirt when meeting with investors before his company’s initial public offering. While his appearance before professionally dressed bankers and investors left some observers thinking the young entrepreneur’s nonconforming dress style was a sign of disrespect, it signaled confidence to others.

When and why does nonconformity in appearance lead others to make positive rather than negative inferences about an individual? We examined this question and identified conditions under which observers attribute enhanced status and competence to a person whose appearance does not conform to the norm for a particular setting. Our studies explored various environments and populations, from business executives to shop assistants at high-end boutiques in Milan, Italy. (Detailed findings from our research will be published in a forthcoming article in the Journal of Consumer Research.)

Our studies found that nonconformity leads to positive inferences of status and competence when it is associated with deliberateness and intentionality. In other words, observers attribute heightened status and competence to a nonconforming individual when they believe he or she is aware of an accepted, established norm and is able to conform to it, but instead deliberately decides not to. In Zuckerberg’s case, for example, many observers saw his decision to wear a hoodie on his tour of the most important Wall Street banks to be a deliberate choice.

In contrast, when observers perceive a nonconforming behavior as unintentional, it does not result in enhanced perceptions of status and competence. When a nonconforming behavior appears to be dictated by lack of means, lack of better alternatives or lack of awareness of the dress code, it will not lead to positive inferences from others. Thus, to benefit from deviance from the norm, we should make sure that others perceive our nonconforming practices to be deliberate and intentional choices. From a psychological standpoint, intentional deviance from a norm can project heightened status and competence by signaling that one has the autonomy to act according to one’s own inclinations. Autonomous individuals tend to act independently and behave according to their own rules.

In one study, we found that participants perceived an individual deliberately wearing a red bow tie at a black-tie party in a country club as a higher-status member of the club and a better golf player than a conforming individual wearing a black bow tie. In contrast, for participants in the experiment who were told that wearing the red bow tie was an unintentional deviation from the norm, the positive inferences associated with nonconformity dissipated, and the nonconforming conduct was no longer associated with enhanced status and competence.

To act as a positive signal, nonconformity should be pursued in settings with strong rules, shared standards of appropriate conduct and expectations of social conformity; signaling status and competence through deviance from expectations works against a background of strong established norms. For example, while Zuckerberg has often been known to appear in casual dress at board meetings and interviews, his attire was especially striking in the context of Facebook’s high-stakes meetings for its IPO. Similarly, we found that shop assistants at luxury boutiques in Milan, Italy, perceive a client to be more likely to make a purchase and to be a celebrity if she is wearing gym clothes or a Swatch watch than if she is wearing an elegant dress or a Rolex. We would not expect to detect this effect in the context of ordinary stores or in situations that lack the expected norm of being elegantly dressed.

We use the term “red sneakers effect” to signify the potential upside of nonconforming behaviors. The term was inspired by an experiment in which one of the authors taught a class to business executives at Harvard Business School while wearing nonconforming red Converse sneakers. We found that those executives thought that the professor teaching the class was a well-published scholar and high up in the hierarchy of her department, and that the positive status and competence inferences were particularly strong for executives who themselves owned an unusual pair of shoes. This result suggests that observers who typically engage in nonconforming consumption choices are more sensitive to nonconforming behaviors — and grant more status and competence to signals of nonconformity than do individuals who typically use more mainstream products. 

Based on these results, should readers give away their suits and dress shoes and start wearing hoodies and bright red sneakers to work? Maybe not. A wiser path is to try to strike a balance between the benefits of adhering to social norms and the potential, though more risky, upsides of nonconforming practices. Conformity to rules and social norms in both professional and nonprofessional settings tends to generate social acceptance and avoids negative sanctions such as social disapproval, ridicule and exclusion. Signaling through nonconformity comes at the cost of abandoning this comfort zone and the benefits of following the crowd.

Before engaging in daring nonconforming practices, you should assess whether you feel confident that you can afford to give up the social benefits of complying with norms — and tolerate the occasional odd looks that you will receive. For example, while a tenured professor happily volunteered to test our hypotheses on nonconformity by wearing red sneakers while teaching a class, a doctoral student might not dare engage in such conduct. Conformity to organizational norms might be a wise strategy for some, while others may find some surprising benefits in deviant behaviors.

What degree of deviation from the norm is appropriate, and what kind of nonconforming behavior is most likely to elicit positive perceptions? Prior research has identified three main ways in which one can pursue nonconformity. First, one can deviate by being creative and seeking social distinction through original, novel or unique products (for example, wearing a colorful, unusual tie to a formal event). Second, one can establish differentness by disregarding a norm entirely (for example, not wearing a tie to a formal event). Finally, one can engage in behaviors that strongly violate and disrupt existing norms of proper conduct (for example, wearing a tie around one’s head at a formal event). In our studies, we investigate and we recommend pursuing the first two kinds of nonconformity. There is no need to be excessive and strongly violate the norm; a simple deviance from the expected behavioral standard should be sufficient. What’s more, nonconforming behavior can, of course, go beyond dress codes. In one study, we found that selecting a nonconforming PowerPoint presentation style — one that differed from the official template at a business plan competition — can foster positive perceptions of status and competence.

Being perceived as having high status is important, since it can translate into having greater influence on teams and within organizations. Our research, somewhat surprisingly, demonstrates that deviating from a dress code or other norms in appearance may help project an enhanced image to those around us.

Reproduced from MIT Sloan Management Review

Is Your Brand a Living Entity? 04-05

Is Your Brand a Living Entity?

A few companies are using Twitter to converse with followers in ways that build a new kind of connection to the brand.

What is Twitter communicating about your brand to young adults?

Effective Twitter strategies are helping brands such as Starbucks and Whole Foods gain a special status and sense of personality among some of their Twitter followers.

If your company is like many major brands, not all that much. But through focus groups we conducted with undergraduate students who were avid Twitter users, we found indications that effective Twitter strategies are helping some companies, such as Starbucks and Whole Foods, give their brands a special status and personality among these young adults.

 These brands transcend their status as things and become seen, through their Twitter presence, as living entities with thoughts and feelings; such a brand becomes, in effect, what we call an “entified brand.” 

We see brand entification as a new and more powerful adaptation of “brand personality” for the microblogging, social media environment. Entified brands enjoy a special status among members of the “millennial” generation of young adults; these brands are viewed as authentic personalities and attributed with an elevated, celebrity-like social status.

Entified brands are not just lovable objects; they are seen as exalted entities that return the love — as can be seen in some of the tweets from their followers. In 2013, a Starbucks follower tweeted: Do you know how I know @Starbucks loves me? They’re open on Easter! Happy bunny day lovers. Status elevation is a strongly emotional outcome. Starbucks is seen not as just coffee.

 It is not even just a person; it is a “hip and cool” person. A follower tweeted: @starbucks Thank you for being so hip and cool and edgy and independent and non-corporate and young. Another follower tweeted on the same day: @Starbucks, please follow me, I love you so much, I had you yesterday :(. Twitter users even want the brands they care about to be happy. One Intel fan tweeted: @Intel congratulations on your 10^6 followers that should bring u mega happiness. Wishing u all the best for giga happiness :-). Nerd-speak perhaps, but the sentiments represent homage to an exalted individual.

As college professors, we first became interested in how young adults relate to Twitter for a simple reason: We had a hard time separating undergraduate students from their smartphones in class. Whatever interest we could trigger in students through our learned insights paled in comparison to the instant response produced by an alert on a student’s smartphone. 

Class discussions on product management and branding were too strongly peppered with social media terms to ignore. Twitter, in particular, emerged as a key medium for defining and living consumption experiences. Little in the literature, otherwise rich with descriptive insights, explained the power of Twitter for building brands.

So we asked our students. Through three focus groups, we asked students, aged 20 to 24, who were avid Twitter users to describe what they did on Twitter and why, and how and why they interacted with brands they followed on Twitter. 

What they told us suggests to us that through Twitter, these members of the millennial generation were developing new ways of interacting with brands. The brands that they had developed strong connections to via Twitter were those that, in effect, engaged in an intelligent conversation with their followers — in interactions of 140 characters or less.

The millennial generation of young adults is inseparable from smartphones and immersed in social media; their consumption experience is a complex mix of using the brand and posting about the brand on social media. Many established brands, strongly tethered to traditional ways of communicating, stand the risk of losing their connectivity to this generation. 

Yet we suspect a fundamental transformation is occurring in the way millennials connect with and consume some brands. The strengthening tether between millennials and their smartphones, tablets and laptops suggests “brand entification” will feature more, and not less, in their consumption experience. Traditional ways of building brands have passed their sell-by dates, while social media opens up new possibilities.

Reproduced from MIT Sloan Management Review

Bringing Sustainability Metrics to Purchasing Decisions 11-23

Bringing Sustainability Metrics to Purchasing Decisions

Reproduced from MIT Sloan Management Review

William Kornegay (Hilton Worldwide) and Eric Olson (BSR), interviewed by David Kiron

The new Center for Sustainable Procurement, formed by the hotel company Hilton Worldwide and the global sustainability specialists BSR, is trying to build new tools for procurement professionals. The goal: help them bring sustainability data into their everyday purchasing decisions.

It’s one thing for companies to figure out the best ways to embrace sustainability within their own operations.

It’s another thing to figure out the best ways to get other companies — specifically, suppliers — to embrace sustainability, too.

One new lever in that challenge is an initiative called the Center for Sustainable Procurement   (CSP). It was formed by Hilton Worldwide (Hilton), the global hotel company, and BSR, the global consultancy on sustainability, in what they term a “partnership in sustainable recruitment.”

CSP’s website notes that “although more sustainability data has become available in recent years, companies don’t always know how to apply this information to the products they purchase.” CSP is designed to help procurement professionals get the “methods and guidance that will help them integrate product sustainability data into everyday purchasing decisions.”

William Kornegay  , senior vice president, Hilton Supply Management, Hilton Worldwide, and Eric Olson  , senior vice president, advisory services, BSR, are in the heart of the project.

They realized two things: First, that there wasn’t a way for procurement professionals at Hilton who were trying to weigh sustainability factors to easily differentiate between products they were buying for the hotels — products from computers to towels to soap. And second, that if there wasn’t an easy way for Hilton employees to do it, there probably wasn’t an easy way for a whole lot of other people to do it.

“Through Eric and the guys at BSR,” says Hilton’s Kornegay, “we talked about creating a standard tool set that will work, hopefully, globally.” Says BSR’s Olson: “What we realized is that there was a real white space and a real need to supplement all the existing work on sustainability with efforts that focus on the procurement manager.”

In a conversation with David Kiron, MIT Sloan Management Review’s executive editor of the Big Ideas Initiative, Kornegay and Olson talk about how the two organizations got together, the challenges of driving sustainability down to the level of a purchasing decision and why AT&T is an early model.

Let’s start with suppliers. I have a picture in my head of suppliers as passive movers in the sustainability movement. Is this about companies like Hilton giving them instructions? Or is there an opportunity for suppliers to be proactive?

Olson: You raise an interesting question. First let’s think about what a supplier is. That depends very much on who the company is. So, for Hilton, Dell is a supplier, it sells them computers. In Dell’s case, it’s going to be innovating and bringing something interesting to Hilton without having been asked by Hilton.

Similarly, Walmart’s suppliers are some of the largest, most innovative branded product manufacturers in the world — Unilever, Proctor & Gamble and what have you — and many of them have their own proactive sustainability programs.

But as you go further and further up the chain, to the suppliers of the suppliers, if you will, in most industries you do get to a point where now you’re facing a basic manufacturing operation. Now we’re talking a middle-market metal-stamping enterprise in China, which will have a different capacity and level of sophistication for this kind of work. When you get that far up, then yes, generally conversations and parameters about sustainability features are flowing from the brand or the customer upstream as a requirement to them.

Kornegay: And, David, from my perspective, that’s why this sustainability metric becomes important. We can determine what the cost of an item is, or, to some degree, the quality of an item, but how do we measure sustainability?

 The further away you are from the beginning, the more you need a metric that helps you articulate and differentiate between products’ sustainability.

Bill, you must have run into issues at Hilton with suppliers when it comes to wanting them to be more sustainable than they’re already being in the products you’re getting from them.

Kornegay: Well, the first thing I’d say is that this only works when sustainable products are not more expensive than nonsustainable products. As an entity, cost is one of the primary measures that we measure. If you have the most sustainable product on the market but it costs 50% more than a nonsustainable product, it’s really about what our end user is willing to pay for that experience. And most of the end users that we have, in our opinion, at this point in time, would not be willing to pay a 50% premium for the ability to say it was sustainable.

Most of our suppliers are trying very hard to meet our expectations and they develop a range of good, better, best kind of options, laying out, “here’s our most sustainable product, but here’s what it costs” and that kind of thing.

Are suppliers presenting that in terms of the transactional costs or as a total cost of ownership?

Kornegay: The way we work, we have category owners, and then there are managers and buyers in the category. The primary tools that we’ve given them are total quality and total delivered cost. So, where is it manufactured? What’s the distribution? How much do you pay to get it, land it, where we need it, in the quantity that we need it, at the time that we need it?

We haven’t given the front-line purchasing agent, the buyer, a tool to help them understand sustainability. And so no, most of our vendors are not providing us with that because we haven’t asked the best questions. It’s still something in development for us.

Olson: This all ties back to why we saw a need for a Center. This is exactly the take-off point that we were at when we were designing the Center.

We’re working on the buyers and the suppliers at the same time. The whole point is that we went out in our early supply-chain work and used all the great third-party metrics, saw that there’s certified this and more sustainable that, but the way that it works today, a) it’s confusing and b) the business case in a lot of these cases are unclear. So we thought, we have got to develop some tools that are going to enable the buyers to ask the right questions of suppliers.

Suppliers will say things at a high level, like, “if you do business with us, your brand will be more protected, you’ll be doing the right thing — it’s consistent with your overall corporate values and high level sustainability commitments.” 

All of which is worth something for sure, but when you drive it down to the level of a purchasingdecision given current incentives and constraints, there’s been really no guidance in how to translate that into something that people can hold up alongside their measures and say, “that’s worth 20% on my scorecard.”

How did your two organizations go from working together for something internal for Hilton to working together for this Center?

Olson: One of the things that’s interesting about Hilton is that it’s similar to what people say about the impact that Walmart has on its supply chain, in that Hilton, as a buyer, buys everything. So it’s a great example, it’s a great place to consider the challenge of implementing these practices in an extremely complex organization.

 Complex in terms of the number of products, complex in terms of the global scope, complex in terms of actually taking this growing intelligence about sustainability about better products and putting it into operation with literally thousands of people who’ve got to make decisions on a daily basis.

BSR was engaged with Hilton for a couple of years tackling that problem specifically at Hilton and trying to make it tangible. That meant we had to know what “better” or “more sustainable” looks like, how you actually define that in a product. Then you have to know how to ask for it, which in turn means you’ve got to be able to get information about it that’s useful and credible. 

Then you’ve got to be able to integrate that information into the decision, which by necessity still includes considerations of cost, quality, delivery — all the things that procurement folks are rightly expected to deliver for their companies.

And then, obviously, you need to be able to track and verify that you’re having the impact, both economic and in sustainability terms, that you set out to have. If you look at this world today there is a lot of really exciting activity that’s been spearheaded by big retailers, such as Walmart, Marks & Spencer and Unilever, as well as hundreds, if not thousands, of eco-label certification programs — that whole field that has emerged to help us define what is more sustainable, from a computer to corn.

What we realized is that there was a real white space and a real need to supplement all the existing work on sustainability with efforts that focus on the procurement manager. How do we help them figure out how to integrate it into what they’re doing so that they really can buy better computers, buy better furnishings for their store, buy better food for their food service areas?

The impetus was to help make sure that all this great investment that’s going into the world of defining better life cycle analysis can actually get traction and have the positive impact we’re all hoping for.

Kornegay: I’ll add a couple things. Let me be clear: we weren’t doing this for altruistic measures to better the planet. I think that’s a wonderful thing, but as business people, we wanted to be able to provide the people making these decisions with tools that allow us to be sustainable, but in an environment where I always have to measure least-landed cost.

The transition really occurred as we recognized that we were not in the world alone doing this in an isolated environment. We didn’t want to be reinventing the wheel, and we wanted to see what other people were doing. And not just in the hospitality arena, but we wanted to be able to look across industries. We thought, in conjunction with Eric and his team at BSR, that the establishment of the Center would allow for that to happen in an environment that was focused on the tools of how you do it and not on the esoteric of why it’s the right thing to do.

Allowing this process to happen in a space where like-minded organizations could wrestle with an opportunity that we all have, we thought we could extrapolate all that knowledge into a toolset that we can all use.

Olson: The way that I summarize that, David, is it’s about opening the front end of the funnel so that we can accelerate the learning. We spent the better of two years starting the cycle through just a small number of literally hundreds of categories that a company like Hilton needs to address. It quickly became clear that if you don’t have a lot of organizations working in parallel, there’s no way they’re going to cover this territory in any kind of reasonable period of time.

Our inaugural report with the Center’s first year findings   is now out. It looks at the year-long pilot projects we did with AT&T, Best Buy and Dell.

Bill, can you tell us a little about where Hilton is in its sustainability journey? What’s the LightStay platform?

Kornegay: LightStay is our sustainability management system, and it really is a tracking system. We assess more than 200 different measures across the portfolio. We built in a way to look at all of these stock-keeping units that we’re purchasing, how the properties are using them, what their footprint is in energy, waste, water, material, carbon and packaging.

And so, the tool itself works as a measurement, but it’s not going to help a procurement professional make a good decision from one product to the other. It doesn’t provide us with that specific data.

Olson: I would add, David, that we’re so close to this, we’ve had a lot of time to sift through and think about it. What Bill just described is generation one and maybe even two of LightStay. It’s property-level operations management, for managing energy use, waste, water, et cetera, for a hotel. They built it, it’s their tool and it’s deployed on what I consider a breathtaking scope and scale already. I’ve never seen anything like it.

Hilton then got to the point of saying, “okay, now we want to take that same idea and apply it to the things we buy.” And it was then that our partnership came into being. We do a lot of supply chain and product sustainability work with a lot of companies, including a lot of the companies that supply to Hilton.

We figured all of us would benefit if we could get a lot more organizations involved.

That’s fantastic, a very clear picture. But it does beg the question of whether the LightStay platform is that something that is being shared.

Kornegay: Right now it’s proprietary tool for the Hilton Worldwide portfolio of over 4000 properties and we’re not necessarily sharing it with others.

Do you see it as something that is a potential source of revenues in terms of sharing licensing?

Kornegay: I’m thinking it hasn’t even evolved quite that far, David.

Part of where that question is coming from is that there are these transition points that sometimes happen in the development of sustainability programs where organizations see sustainability as a way to do cost savings and even an opportunity to generate revenues and possibly profit.

Kornegay: I think it’s fair to say that for Hilton this was predominantly done for the cost savings. I would also say that Hilton Worldwide prides itself on being the leader in our industry, and we thought that this would be a proprietary tool as part of our offering to our franchisees in those management companies that do business with Hilton Worldwide. It would be another distinguisher of the Hilton promise to make us the best product and the best hotel brand to do business with.

Finally, tell us a little about the research   that the Center has been doing. You’re about year in, right? What kind of findings have you had so far?

Olson: Like I mentioned, the three companies we’ve been most active with so far and the cases are outlined in the paper are AT&T, Best Buy and Dell. We deliberately chose different kinds of procurement challenges because that is fundamental to the message that there is no one size fits all approach to sustainable procurement.

I’ll tell you a little bit about AT&T’s case. AT&T has a massive, massive real estate footprint and massive related spend on energy, particularly electricity — it’s well north of a billion dollars a year.

We wanted to take a look at one of their equipment buys where we could run the case for an equipment change. In this case, it was related to their HVAC systems, where the cost of the change, switching cost and to some extent component cost, might involve a price increase or at least a one-time expense for switching that would be offset by very substantial savings over time in the form of reduced electricity expense. So, this is not a pure purchasing initiative.

And, indeed, in this case it required getting the right internal stakeholder group together that included the facilities manager, people in purchasing, people in the sustainability team, people responsible for a forward energy strategy at the company — AT&T had to get all of them together in order to identify the requirements for making this kind of a switch and being able to calculate the relevance to the business case.

So we started with a purchasing problem, and we ended up with a change effort that touched no fewer than five different departments.

What did we learn? We learned that, number one, you’ve got to have the right players in the room to scope the problem and to make it happen in order to get to these bigger, broader business cases.

Number two, I think what this illustrates is the value and the importance of starting with what’s easily measurable and then building from there. What we needed was an approach that would put some value into the system relatively quickly, and then we will build on bigger questions beyond the energy usage, like what are the other attributes of this equipment, its operation, ultimately disposal of the equipment. A total life-cycle approach that would be much broader.

I think that had we started with that, there’s no way we would have gotten traction with AT&T’s energy and facilities teams. It’s just too complicated. The lesson there? A step-wise approach was fundamental.

Reproduced from MIT Sloan Management Review