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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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.

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

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

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

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

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


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


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

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


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How 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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Breaking the brain’s garbage disposal: Study shows even a small problem causes big effects 01-27

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

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

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

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

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

Following a mystery to its end

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

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

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

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

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

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

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

Tiny change – big effects

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

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

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

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

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

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

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

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My Wife Says I Never Listen To Her, At Least I Think That’s What She Said 01-22

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

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

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

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

Given all the listening we do, you would think we would be good at it! Fact is we’re not. Research has shown that we remember a dismal 25-50% of what we hear. That means when you are listening to your boss, peers, potential clients, children or spouse for 10 minutes, you have only heard 2½-5 minutes of the conversation.

"Wisdom is the reward you get for a lifetime of listening when you'd have preferred to talk." ~Doug Larson

Turn it around and it reveals that when you are giving directions or presenting information, your audience isn’t hearing the entire message either. You can only hope the important parts are captured in your 25- 50%, but what if they’re not?

Selling is an extremely advanced form of communication. It requires the utilization of all our senses. Although you may feel that the greatest barriers to your selling performance may be attributed to having the wrong product, closing techniques, presentation tools, or even prospects, I want you consider the possibility that the foundation of successful selling is based on how well you listen.

The ability to actively listen has been proven to significantly improve the productivity of a professional salesperson. Knowing that, isn’t it ironic that listening is most likely the least developed skill amongst salespeople?

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

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

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

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

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

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

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

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

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

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

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

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

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

''To further clarify this ...''

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

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

''Help me understand ...''

''Tell me more ...''

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

I use the same technique in my sales meeting as I mentioned before. I go over something in the meeting and then ask individual reps to rephrase, paraphrase and parrot what I have just said. The more they practiced the better they got.

1. Listen for what is not said. What is implied is often more important than what is articulated. If you sense that the prospect is sending conflicting messages, ask a question to explore the meaning behind the words and the message that you think the prospect is trying to communicate. Listen FOR information. Consider that during most conversations, we listen TO information. In other words, all we hear is what they are saying. However, when you listen FOR information, you are looking through the words to discover the implied meaning behind them. This prevents you from incorrectly prejudging or misinterpreting the message that the prospect is communicating to you. There are four main things we listen for when speaking with a prospect:

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

Managing Your Mission-Critical Knowledge 01-21

Managing Your Mission-Critical Knowledge

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

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

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

Map Your Knowledge Assets

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

This step alone can be quite challenging the first time around. When we worked with a group of decision makers at ATLAS, the major particle physics experiment at the European Organization for Nuclear Research (CERN), we interviewed many stakeholders to get a holistic view of the knowledge underpinning its success and then surveyed nearly 200 other members of the organization. Ultimately we mapped only a portion of the ATLAS knowledge base, but in the process we whittled down a list of 26 knowledge domains to the eight that were deemed most important to organizational outcomes.

Absent a clear understanding of your knowledge assets, big data’s value won’t materialize.

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

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

Use these categories to help place your assets along the y axis from bottom to top:

• An expert can use the knowledge to perform tasks but cannot articulate it in a way that allows others to perform them.

• Experts can perform tasks and discuss the knowledge involved with one another.

• People can perform tasks by trial and error.

• People can perform tasks using rules of thumb, but causal relationships aren’t clear.

• It’s possible to identify and describe the relationship between variables involved in doing a task so that general principles become clear.

• The relations among variables are so well known that the outcome of actions can be calculated and reliably delivered with precision. (Knowledge assets covered under patents or other forms of copyright protection generally fit here.)

Use these categories to help place your assets along the x axis from left to right:

• Only one person in the organization has this knowledge.

• A few people in the organization have this knowledge.

• Many people in one part of the organization have this knowledge.

• People throughout the organization have this knowledge.

• Many people in the industry have this knowledge.

• Many people both inside and outside the industry have this knowledge

Unstructured versus structured.

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

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

Undiffused versus diffused.

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

Interpret the Map

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

Global sourcing at Boeing.

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

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

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

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

Advanced physics at CERN.

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

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

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

Identify New Opportunities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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





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