The Business Case for Curiosity

РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS NAVIGATING TALENT HOT SPOTS William Kerr Page 80 INITIATIVE OVERLOAD Rose Hollister and Michael D. Watkins Page 64 LINCOLN’S TRANSFORMATIVE LEADERSHIP Doris Kearns Goodwin Page 126

The Business Casefor Curiosity IT CAN IMPROVE YOUR FIRM’S ADAPTABILITY AND PERFORMANCE. Page 48

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SEPTEMBER–OCTOBER 2018

48 MANAGING PEOPLE 61 LEADERSHIP DEVELOPMENT SPOTLIGHT THE BUSINESS CASE FOR CURIOSITY FROM CURIOUS TO COMPETENT Research shows that it leads to higher- How to move your people up the CURIOSITY performing, more adaptable ﬁrms. learning curve Francesca Gino Claudio Fernández-Aráoz, Andrew Roscoe, and Kentaro Aramaki 58 PSYCHOLOGY THE FIVE DIMENSIONS OF CURIOSITY How are you curious? Todd B. Kashdan, David J. Disabato, 47 Fallon R. Goodman, and Carl Naughton

JOIN US ON SOCIAL MEDIA CONTACT HBR WWW.HBR.ORG PHONE 800.988.0886 CONNECT WITH HBR TWITTER @HarvardBiz EMAIL [email protected] FACEBOOK HBR, Harvard Business Review [email protected] LINKEDIN Harvard Business Review [email protected] INSTAGRAM harvard_business_review [email protected] ON THE COVER AND THIS PAGE: CHRISTINA GANDOLFO AND THIS PAGE: ON THE COVER

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HARVARD BUSINESS REVIEW CONTENTS

SEPTEMBER–OCTOBER 2018

FEATURES MANAGING ORGANIZATIONS INNO62VATION STRATEGY STRATEGY Too Many Projects Why Design Thinking Works Navigating Talent Alibaba and the How to deal with It addresses the biases Hot Spots Future of Business initiative overload and behaviors that How companies can Lessons from China’s Rose Hollister and hamper innovation. beneﬁt from innovation innovative digital giant Michael D. Watkins Jeanne Liedtka centers without Ming Zeng necessarily relocating 64 72 William Kerr 88 80

HEALTH CARE MARKETING MANAGING YOURSELF LEADERSHIP Organizational Grit The Good-Better-Best Give Yourself a Break: Lincoln and the Art of Turning passion and Approach to Pricing The Power of Self- Transformative Leadership perseverance into Why every company should Compassion Lincoln’s Emancipation performance: the consider a tiered model When you have a setback Proclamation imprinted a view from the health Raﬁ Mohammed at work, treat yourself as moral purpose and meaning care industry you would a friend: with upon the protracted misery Thomas H. Lee and kindness and understanding. of the Civil War. Angela L. Duckworth 106 Serena Chen Doris Kearns Goodwin 98 116 126 ALAIN DELORME

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TO BREAK THE RULES, YOU MUST FIRST MASTER THEM.

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HARVARD BUSINESS REVIEW CONTENTS

SEPTEMBER–OCTOBER 2018

22 R&D Reevaluating Incremental IDEA WATCH Innovation HOW I DID IT New Thinking and Swinging for the fences can yield United Way’s CEO on Research in Progress lower returns. Shifting a Century-Old plus A roundup of the latest Business Model management research and ideas Technology has enabled the charity to make 36 DEFEND YOUR RESEARCH strong connections with Men Buy More from Manly Men individual donors. Getting Tom Brady to promote Brian Gallagher your brand is an excellent idea, new research suggests. 38

140 MANAGING YOURSELF Sleep Well, Lead Better EXPERIENCE Managers need more rest. LIFE’S WORK Managing Your Here’s how to get it. TREVOR NOAH Professional Growth Christopher M. Barnes 145 CASE STUDY 156 Can I Step Back from My Start-Up? The founder of a pet care company wonders whether to sell it or hire a new CEO. David R. Dixon

150 SYNTHESIS You Versus the Clock Testing the latest time- management advice Gretchen Gavett

14 From the Editor DEPARTMENTS 16 Contributors 20 Interaction 152 Executive Summaries AARON RICHTER/GETTYAARON IMAGES; STEPHEN VOSS

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FROM THE EDITOR

Curiosity, we all know, is the spark that can lead to breakthrough innovation. And it turns out that it CULTIVATE helps produce more than new ideas. Recent research by Francesca Gino at Harvard Business School points to several surprisingly practical beneits for business: CURIOSITY Curiosity improves decision making because it reduces our susceptibility to stereotypes and to conirmation bias; it fuels employee engagement and collaboration; and it fortiies organizational resilience by prompting creative problem solving in the face of uncertainty and pressure. In short, curiosity boosts business performance. And yet, while managers may say they value inquisitiveness, too often they stile it. In a survey of some 3,000 employees across a wide range of irms and industries, Gino found that just one-quarter reported feeling curious on the job regularly, and 70% said they faced barriers to asking more questions at work. Gino found that leaders discourage curiosity for two main reasons: First, they believe that if they let employees explore new ideas and approaches, they’ll have a managerial nightmare on their hands. Second, their single-minded pursuit of eiciency leaves little room for experimentation. In “The Business Case for Curiosity” (page 48)—the lead article in our Spotlight package—Gino ofers ive tactics for combating these managerial tendencies. Her solutions are straightforward: hire for curiosity and Senior associate editor Susan Francis and Adi Ignatius model inquisitiveness, for example. But reaping their considerable beneit takes consistency and discipline. Gino’s work suggests that the widespread obsession with eiciency may undermine long-term business success. So encourage your employees to ask questions. Your future may depend on it.

ADI IGNATIUS, EDITOR IN CHIEF ANDREW NGUYEN

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CONTRIBUTORS

Christopher M. Barnes first became interested During the launch of a in sleep deprivation wireless data venture in while struggling to stay Angela Duckworth the late 1990s, William alert through Air Force Alain Delorme, a grew up hearing Kerr found himself Officer Training School. photographer based all about the traveling constantly There, he observed in Paris, is particularly accomplishments of between Seoul, Silicon classmates having the interested in the theme her older cousins, Valley, and Hong Kong. same problem, and of accumulation. including her coauthor He needed to bring he started to wonder While spending time In her new book, Leadership in Thomas Lee. Even so, together technologies how much they were in Shanghai in 2009, in-person encounters from those global all actually learning Delorme noticed that Turbulent Times, Doris Kearns with Tom were few and talent clusters, but under the highly “the streets seemed Goodwin explores the nature of far between. It was they were not always taxing conditions. He to bristle with moving not until recently that easy to access—at went on to manage ‘totems,’ precarious leadership—something she’s been their paths crossed one point, Kerr was research in the Fatigue assemblages of professionally, when deported from Korea Countermeasures ordinary, identical turning over in her mind since her Tom called with a for a visa snafu. Twenty Branch of the Air Force objects.” Delorme graduate school days at Harvard. question: Could years later, he is now Research Laboratory, was captivated by Angela’s research on a professor at Harvard which focused on the excess and used “I spent my career living with “gritty” high achievers Business School, where understanding his skills as a “pixel ‘dead’ presidents,” she says, “but explain how the his research examines and managing the surgeon” to question toughest doctors how companies can tap effects of sleep contemporary norms. studying them through the lens avoided burnout? into global talent hot deprivation on military of leadership, I felt I was meeting That led to a year of spots—the topic of his operations. Now an discussions and a article in this issue. associate professor them anew. I hope that in these new framework that at the University of extends Angela’s model Washington’s Foster times of fracture and fear these of grit in individuals School of Business, stories will provide perspective to health care teams he examines the and organizations, the relationship between on today’s dilemmas and stir us to subject of their article sleep and work. He in this issue. is the first business thought and action in our private school professor to and public lives.” make sleep his primary research interest.

126 FEATURE 80 FEATURE 140 MANAGING Lincoln and the Art of 98 FEATURE Navigating Talent YOURSELF 64 FEATURE Transformative Leadership Organizational Grit Hot Spots Sleep Well, Lead Better Too Many Projects

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EDITOR IN CHIEF Adi Ignatius EDITOR, HBR CREATIVE DIRECTOR Amy Bernstein John Korpics EDITOR, HBR.ORG EDITORIAL DIRECTOR, Maureen Hoch HBR PRESS EDITORIAL DIRECTOR Melinda Merino Sarah Cliﬀe EXECUTIVE EDITORS Sarah Green Carmichael Ania Wieckowski

SENIOR EDITORS DESIGN DIRECTORS Laura Amico Stephani Finks HBR Press Alison Beard Matthew Guemple HBR Scott Berinato Marta Kusztra HBR Digital David Champion Paris Karen Player Product Walter Frick DESIGNERS Eben Harrell Laura Guillen Jeﬀ Kehoe Michael Tavilla Daniel McGinn James Wheaton Gardiner Morse Curt Nickisch SENIOR INFORMATION Steven Prokesch DESIGNER Vasundhara Sawhney Matt Perry Nothing worthwhile MANAGING EDITOR, PHOTO EDITOR/ HBR PRESS RESEARCHER Allison Peter Andrew Nguyen SENIOR ASSOCIATE CONTRIBUTING DESIGNERS was ever accomplished by EDITORS Aaron Atencio Courtney Cashman Caitlin Choi Susan Francis Soo Coughlan Stephanie Testa ASSOCIATE EDITORS Hayon Thapaliya reasonable expectations. Paige Cohen Kevin Evers EDITORIAL PRODUCTION Gretchen Gavett DIRECTOR Dave Lievens Dana Lissy Nicole Torres SENIOR PRODUCTION If there’s anything your career has taught you, it’s this. The greater Erica Truxler EDITORS Jennifer Waring the challenge, the more gratifying the results. Even as a leader who’s SENIOR ASSOCIATE/ ARTICLES EDITOR Christine Wilder made your mark, continuing to transform the way you think and lead Amy Meeker PRODUCTION EDITORS ARTICLES EDITORS Jodi Fisher is key. Stanford’s Executive Program will expose you to a diversity Christina Bortz Anne Starr of thought, a gifted and engaged cohort— and a range of world-class Susan Donovan SENIOR PRODUCTION Martha Lee Spaulding SPECIALIST faculty who routinely reinvent problem solving to drive your company ASSISTANT EDITORS Robert Eckhardt Riddhi Kalsi PRODUCTION forward. Come to the source. There’s only one: Stanford. JM Olejarz SPECIALIST Alexie Rodriguez VIDEO PRODUCER Melissa Allard CONTRIBUTING STAFF STANFORD EXECUTIVE PROGRAM: Kathryn K. Dahl BE A LEADER WHO MATTERS STAFF ASSISTANT Steven DeMaio Christine C. Jack Sarabeth Fields CONTRIBUTING Alexandra Kephart June 23 – August 3, 2019 EDITORS Ramsey Khabbaz Karen Dillon Kelly Messier Application Information: Amy Gallo Kristin Murphy Romano Jane Heifetz Dana Rousmaniere Apply in any of three rounds. John Landry EDITORIAL Early submission advised. Andrew O’Connell ADVISORY BOARD Anand P. Raman Bharat Anand Azeem Azhar Application Deadlines: John Battelle Round 1: October 26, 2018 Nicco Mele Vivek Shah Round 2: February 1, 2019 Round 3: April 5, 2019 EDITORIAL OFFICES 60 Harvard Way, Boston, MA 02163 617-783-7410 | fax 617-783-7493 Enroll. Re-boot. Transform: stanfordsep.com HBR.org 20% VOLUME 96, NUMBER 5 SFI-00993 SEPTEMBER–OCTOBER 2018 Change lives. Change organizations. Change the world. Printed in the U.S.A. РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS

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INTERACTION is very helpful. I suspect most of of something big, but at the end of us codify entries in digital calendar the day if they do not feel recognized applications; wouldn’t it be great for their hard work and effort, if those applications could give us greater company purpose will be similar data for every week, month, irrelevant. and year? Anastasiia Harkusha-Ibrakhim, Peter Lees, chief executive and medical market research specialist, director, Faculty of Medical Leadership HR research, Unleash and Management Very inspiring, energizing, and actionable! After reading this, I noticed I was connecting with my colleagues at a deeper level, CREATING A PURPOSE- with more energy and enthusiasm. DRIVEN ORGANIZATION And ideas for applying this at my organization keep popping up! HBR ARTICLE BY ROBERT E. QUINN AND These concepts and methods are THE LEADER’S ANJAN V. THAKOR, JULY–AUGUST so empowering. David Fessell, professor of radiology, When employees University of Michigan are disengaged and CALENDAR underperforming, the reaction of many managers is to try HBR ARTICLE BY MICHAEL E. PORTER AND new incentives and ratchet NITIN NOHRIA, JULY–AUGUST up oversight and control. COLLABORATIVE Yet often nothing improves. Chief executives have tremendous INTELLIGENCE: HUMANS AND But there is another way, resources at their disposal, but they AI ARE JOINING FORCES say Quinn and Thakor: Rally face an acute scarcity in one critical the organization behind an area: time. Drawing on an in-depth authentic higher purpose— HBR ARTICLE BY H. JAMES WILSON AND 12-year study, this Spotlight package an aspirational mission that PAUL R. DAUGHERTY, JULY–AUGUST examines the unique time-management explains how employees are challenges of CEOs and the best Artiicial intelligence is making a dierence and gives strategies for conquering them. transforming every economic them a sense of meaning. If sector, but there’s no reason I run a small company with just 55 employees, you do that, your people will to fear that robots will replace but we do business globally in a very try new things, move into deep all human employees. In fact, competitive space. Although this article learning, and make surprising companies that automate is about CEOs of big companies, it also contributions. The workforce operations mainly to cut head applies to CEOs of small companies like will become energized and count will see only short- mine. The authors’ findings are very relevant committed, and performance term productivity gains, say and the CEOs’ experiences are surprisingly will climb. Wilson and Daugherty. Their similar to my own. I’m glad to see that many Instilling a purpose isn’t easy. Many research, involving 1,500 irms leaders face the same challenges and think companies fail because they don’t in a range of industries, shows they can draw on the same strategies. successfully connect their purpose that the biggest performance John Sorensen, owner, Couples Resort with employees’ day-to-day tasks improvements come when INTERACT WITH US These findings are interesting but aren’t and activities. People like to be part humans and smart machines The best way to enough for the average reader to make work together, enhancing each comment on any practical behavioral changes. I imagine time- other’s strengths. article is on use averages mean little once common factors HBR.ORG. You can I’m most interested in how people such as industry, geography, and culture are “The arrival of also reach us via make decisions at work. Decision E-MAIL hbr_ taken into consideration. AI raises the making is not a strictly rational [email protected] Francis Wade, president, 2Time Labs and process. The decision itself is a FACEBOOK Framework Consulting question: How much facebook.com/ subjective act, a personal judgment HBR The subdivisions of time illustrated in this individuality or based on analysis of what is TWITTER twitter. article will be familiar to most readers, important. Artificial intelligence com/HarvardBiz humanity is required Correspondence but to see them quantified is really useful. in jobs right now?” will provide us with far better may be edited for Similarly, the discussion of the relative merits analyses and knowledge, improving space and style. of each activity, and where to reclaim time, GARY E. RICCIO our judgment and helping us make

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HBR SURVEY RESULTS

Percentage of respondents who say they sacriice short-term gain for long-term objectives: 15% 47% 29% 8% 1%

ALWAYS OFTEN SOMETIMES RARELY NEVER

Source: “Are You a Compassionate Leader?” by Rasmus Hougaard et al. better decisions—throughout all learner, you can try four to make sure behavioral change the ranks in a workplace. things, say Plummer and happens as a result of the training. Frans Beerling, partner, CaC Wilson. First, focus on a single I’ve also always believed that Management topic for several months, taking time to reflect on and record doing a deep dive instead of learning in a journal helps cement The authors provide a nice spreading your attention over lessons. I’ll certainly add the four RECENTLY foundation for the kinds of a variety of topics. Second, strategies listed in this article to my discussions we now have about TRENDING put what you’re learning into coaching framework. AI in business. The reimagining ON HBR.ORG frameworks. Organizing it Libby Dishner, principal, Cresco of business processes that the into a structure will help you Strategy and Cresco Coaching & authors prioritize can and should understand it more deeply. Consulting How Are You be informed by science and the Protecting Your Third, regularly synthesize humanities. Those disciplines have High Performers what you’ve learned. When a lot to say about how we would like from Burnout? you inish reading something, BY MATT PLUMMER people to behave in organizations. for example, ask yourself, The arrival of AI raises the question: THE INDUSTRIAL ERA The Death of “What are the key takeaways How much individuality or humanity Supply Chain here?” And last, cycle between ENDED, AND SO WILL is required in jobs right now? The Management information feasting and THE DIGITAL ERA BY ALLAN LYALL answer will surely vary considerably ET AL. information fasting. It’s across organizations and job important that you have HBR.ORG ARTICLE BY GREG SATELL, JULY 11 functions and is also likely to shape What to Do seasons when you limit your When Your Boss different expectations about AI in Digital technology has consumption of information Won’t Advocate businesses. transformed our world, but if so that you can review, for You Gary E. Riccio, founder, Nascent you look closely, you can see BY NICHOLAS consider, and apply what PEARCE Science & Technology the contours of its inevitable you’ve already consumed. descent into the mundane. As Leaders Focus My only addition to the authors’ The key to retaining information digital applications mature, we Too Much list would be the ability to succeed is to apply what I call a relevance need to push the frontiers of on Changing by delegating. In addition to Policies, and filter. For example, there are entire discovery. We need to prepare augmenting and enhancing the work Not Enough on websites devoted to teaching for a new era of innovation, of humans, AI can also identify and Changing Minds keyboard shortcuts for software. one in which technologies BY TONY SCHWARTZ take on boring, onerous tasks (such I have at some stage learned about such as genomics, materials as negotiating mutually beneficial GE’s Fall 60 by heart. But I use only about science, and robotics rise to meeting times and places). Has Been nine or 10; because the rest aren’t the fore. Warren Johnson, principal program Accelerated by relevant, I’ve not implemented Two Problems. manager, Microsoft I take the author’s point that the the learning. The ones I do use, Most Other Big skill level required to work with I use at least hourly (copy/paste, Companies Face digital technology is falling and Them, Too. undo, open start menu, open that digital applications are BY ROGER L. MARTIN Windows Explorer, and so on). becoming fairly mature. However, BECOME A MORE There is no shortcut to learning. Who Killed the in the new era of innovation, I don’t It needs to be intentional, it takes GE Model? PRODUCTIVE LEARNER think we can slow down or lose the BY BENJAMIN active concentration, and it must GOMES-CASSERES agility we’ve developed. I think we HBR.ORG ARTICLE BY MATT PLUMMER AND be relevant to your needs—and need to spark the pioneering spirit. JO WILSON, JUNE 5 therefore quickly implemented. 3 Transitions The problems of the future may Even the Best Matthew MacLachlan, head of Today we consume more be more grand, so we’ll need to Leaders Struggle intercultural training, Learnlight information than ever—but develop solutions quickly. With BY CASSANDRA seem to retain less of it. To I’m a coach and prescribe group Anthony Downs, senior manager, FRANGOS become a more productive coaching after training sessions technical services, Rio Tinto

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New Thinking, Research in Progress

In Theory

The industry analysis showed that in the CPG irms, R&D spending did not drive REEVALUATING sales; marketing spending seemed to be the primary driver. But in the pharmaceutical industry, the researchers found strong and signiicant gains from both R&D and INCREMENTAL marketing spending. Turning to individual CPG companies, the researchers discovered a distinction between those with relatively large R&D INNOVATION budgets and those with smaller ones. The former (including Procter & Gamble, whose $2 billion R&D budget is the world’s Swinging for the largest) saw no measurable relationship between that investment and sales. The latter (including Henkel, L’Oréal, Beiersdorf, and Reckitt Benckiser) did see fences can yield a correlation. After studying the pattern and interviewing experienced R&D executives, the researchers concluded that companies lower returns. with very large R&D budgets are incentivized to pursue expensive, large- scale innovation eforts that have the potential to become blockbuster new products—and that those projects receive decade ago INSEAD marketing companies in R&D spending, some do the bulk of R&D funding. The problem professor Marcel Corstjens was devote more than $1 billion a year to R&D. with this high-risk, high-reward strategy is consulting with employees at a Corstjens wondered: What kinds of returns that it may not pay of. “Despite spending A multinational consumer packaged are they getting? on average $2 billion per year on R&D for goods company about ways to rejuvenate To ind out, he and two colleagues the past 15 years, P&G has had far more one of its biggest brands. During three conducted a statistical analysis of R&D failures than hits,” the researchers write. days of meetings, he found a one-hour spending and growth, using data on the “Simply put: The company has bet big presentation by the company’s R&D team world’s top 2,500 irms. After excluding and lost big.” deeply fascinating. But no one else did. companies with less than $1 billion in The researchers found that, in contrast, “There were many ideas that could have revenue, they examined the relationship Reckitt Benckiser—the British irm whose been developed,” he says, “but at the end of between sales and a number of variables: brands include Clearasil, Lysol, and the R&D session everyone said, ‘OK, let’s get R&D spending, labor costs, capital Woolite—exempliies a more proitable back to the communications and advertising expenditures, and marketing spending strategy of pursuing less ambitious issues,’ and nobody ever talked about the (using selling, general, and administrative innovations that, without fanfare, drive R&D again.” It’s no secret that large CPG expenses as a proxy). They then calculated sales higher. They call this the Lorenzian companies are marketing powerhouses, each variable’s efect on sales growth. They strategy, after the MIT mathematician but this apparent disregard for R&D insights conducted their analysis irst by industry, Edward Lorenz, who described how a stuck with him. Although CPG companies focusing on pharmaceuticals, food, and small action (such as a butterly’s lapping rank far behind high-tech and health care CPG, and then by company. its wings) can lead to an improbably

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large event (such as a tornado). “[Reckitt Finish 2-in-1. A few years later it added a by introducing new packaging, including Benckiser] doesn’t have the deep pockets salt component and renamed the detergent bottles that are stored upside down (to to spend on big-bang innovation,” they Finish 3-in-1. Today the product is Finish facilitate easy pouring) and fast-food write. “So it opts for a diferent approach: All-in-1, owing to the addition of a glaze- dipping trays that make it less messy to spend small, but focus that investment protection agent. With each incremental eat ketchup with fries. on marginal improvements in their most improvement, sales and proits grew. On the basis of their interviews valuable brands, aimed at solving real Other successful small-scale with R&D employees, Corstjens and consumer problems, that consumers value innovations involve packaging. In 2004, Northwestern professor Gregory Carpenter and would pay a little more for.” They cite when McDonald’s changed how it sold conclude that companies placing bigger the company’s Finish brand of dishwasher its milk, going from cardboard boxes to bets on R&D do see some returns on detergent. Decades after the original translucent plastic jugs resembling old- those investments, but they may not be product’s launch, Reckitt Benckiser added fashioned milk bottles, sales tripled in just obvious, top-line payofs. For instance, a rinse agent and changed the name to a year. Heinz has grown sales of ketchup he says, R&D can help a company reduce

CONTINUED ON NEXT PAGE

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CONTINUED FROM PREVIOUS PAGE costs, thereby increasing proits without In Practice generating additional revenue. He points to one company where researchers SANJAY KHOSLA focused on ways to increase food products’ shelf life. Still, he observes that companies “It’s very risky to bet operate under two distinctly diferent philosophies depending on the size of their R&D budgets. “The motto of companies only on blockbusters” with big R&D budgets is ‘bigger, better, faster,’” he says, whereas companies Sanjay Khosla spent more than 30 years pineapple in the Middle East. It became with smaller R&D budgets “seem to do as an executive at Unilever and Kraft, entrepreneurial and nimble and looked extremely well by tweaking and improving and now, as a senior adviser at Boston not only at product innovations but also things in their brands and creating a lot Consulting Group and a professor at at design and packaging innovations, more sales.” Northwestern’s Kellogg School, he helps supply chain innovations, and business The tension between the pursuit companies find ways to increase organic model innovations. Within five years of ambitious R&D eforts and more- growth and improve their innovation sales were above $1 billion. Following a incremental innovation isn’t new. In a process. He spoke with HBR about similar approach, Oreo went from sales of classic 2007 HBR article (“Is It Real? Can balancing the pursuit of incremental $200 million to sales of $1 billion outside We Win? Is It Worth Doing?: Managing Risk innovations with more-ambitious North America in six years. and Reward in an Innovation Portfolio”), projects. Edited excerpts follow. Wharton professor George Day describes How much are returns from innovation various methods companies can use to What’s the main takeaway from this limited by the culture inside large ensure the right balance of high-risk, high- research? That companies that are CPG firms? The biggest issue is not how reward innovations and safer, targeted successful at innovation build on what’s much firms spend or how they spend it; it’s ones. (He calls the two types Big I and working. They look for what I call the 3Ms: about the connections between functions. Little I innovations.) Interestingly, when he areas with good profit margins, momentum, At too many companies, R&D is looking surveyed the landscape a decade ago, he and the potential to make a material in the mirror at itself instead of looking out reached a conclusion opposite to the one financial impact. They try to find a balance the window at consumers. The scientists in the new research: that most companies between quick wins and medium- and are doing their own thing, without a focus were overinvesting in Little I innovations long-term projects. It can’t be just about on achieving commercial value. That’s and needed to pay more attention to blockbusters, because it’s very risky to bet one reason small companies are winning potential game changers. only on blockbusters. market share. Big companies can still grow, Corstjens’s team notes that the diferent but they need to focus on categories where approaches to R&D are not only a function When you ran Kraft’s developing they can win, create cross-functional, of budget size; they also stem from culture. markets businesses, what kinds of entrepreneurial teams, and become far Among the irms in the study that favor innovations were most successful at more agile in their execution. smaller innovations, some have roots in driving growth? Tang is an example. By the chemical or pharmaceutical industries, 2007 its sales outside the United States had How is innovation changing inside where the R&D function typically enjoys plateaued at about $500 million and begun big CPG firms that, like Kraft Heinz, more power and respect than at CPG irms. to slide. So we created a cross-functional have been bought by private equity The researchers believe that in the latter, team on which R&D and marketing and firms? In the case of Kraft Heinz, the buyer, R&D is often overshadowed by marketing, supply chain experts worked together 3G Capital, has a very different philosophy reducing the likelihood that spending on and asked it to push sales to $700 million and culture than most companies, so there it will translate to sales. “When R&D has within five years. We gave it a blank are a lot of changes. Many PE firms are a respected voice and collaborates with check—lots of resources and autonomy, highly successful at buying companies, marketing, irms have more success with and encouragement to experiment and cutting costs, and improving profitability. innovation,” they write. fail fast. It came up with new flavors, I think the jury is still out as to whether HBR Reprint F1805A such as mango in the Philippines and they can drive organic growth.

ABOUT THE RESEARCH “Newton Versus Lorenz: Which Is the Better Model for Successful Innovation in Consumer Goods Companies?” by Marcel Corstjens, Gregory S. Carpenter, and Tushmit M. Hasan (MIT Sloan Management Review, forthcoming)

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IDEA WATCH CREATING A VIVID VISION

Risk Materialistic CEOs Take More Chances

People who desire the iner things in life should be expected to make decisions that will help acquire them—even if that means taking big risks. To see how this has played out in the banking sector, researchers studied 445 people who served as CEO of a U.S. bank at some point from 1992 to 2013. Using private investigators and public records, they designated some of the executives as “materialistic”—those owning a car worth more than $75,000, a house or a vacation home with more than twice the median value of nearby properties, or a boat longer than 25 feet. They then compared the risk proiles of the banks headed by the 269 materialistic CEOs with those of the banks led by the unit and the national government. Some 176 nonmaterialistic executives. were given language-based prompts—asked The researchers found that banks with to choose words that relected certain Communication materialistic CEOs had higher outstanding attributes of a successful vision statement, loans, more noninterest income (which such as speciicity and achievability. Others Creating a might relect greater trading activity), were asked to project themselves into the and more mortgage-backed securities future and take an imaginary photograph. Vivid Vision (well-known for their riskiness) as a Still others served as a control group. Those proportion of assets. Those institutions From “a chicken in every pot” to “a in the “time travel” group used signiicantly also had larger stock market gains and computer in every home,” concrete more imagery than the other participants losses during the most volatile trading images have long been used to convey did. “The vast majority of experts assume days. When the researchers measured each a sense of purpose and galvanize action. leaders are best positioned to improve bank’s risk management practices, using a Yet when articulating visions, leaders vision communication by carefully standard index that includes factors such overwhelmingly gravitate to mushier, scrutinizing the words they choose,” the as whether the irm had a chief risk oicer, abstract language. Studies have found researchers write. “Our indings upend they found that banks with materialistic that they use three to 15 times as much this assumption. Leaders who averted CEOs had weaker risk management. conceptual rhetoric as image-based their immediate attention from the words Finally, the researchers looked at rhetoric, issuing lofty pronouncements they use and instead employed mental indicators of culture, such as whether about “changing the world” or “serving time travel…communicated visions that non-CEO insiders’ trading of company the community”—phrases that invite possessed greater imagery while not stock led to abnormally high returns people to merely consider the future, not altering…the other features of vision quality during the bank bailouts of the Great actually envision it. New research tests a (achievability, speciicity, and values).” Recession—and again found that remedy for the so-called blurry vision bias: Indeed, the study shows that asking people materialistic CEOs were more likely to using “mental time travel” to help leaders to imagine the future results in more vivid lead a lax culture, with less oversight. “We imagine how events will be perceived by imagery than does directly instructing follow a growing literature that provides the ive senses instead of focusing on what them to use vivid images. The technique evidence linking executives’ of-the- those events mean. might also be helpful to managers giving job behavior to corporate behavior,” In a series of lab experiments, employees feedback and leaders instructing the researchers write, adding, “While researchers divided participants into others in how to perform tasks, the materialistic individuals expose a bank to several groups that received diferent researchers say. ■ higher downside risk, they also help the prompts and asked them to write a vision bank earn higher upside rewards.” ■ statement. In one experiment, conducted ABOUT THE RESEARCH “How Can the day after the UK voted to exit the Leaders Overcome the Blurry Vision Bias? Identifying an Antidote to the Paradox of Vision ABOUT THE RESEARCH “Bank CEO European Union, 166 British government Communication,” by Andrew M. Carton and Materialism: Risk Controls, Culture and Tail oicials were asked to craft a vision Brian J. Lucas (Academy of Management Journal, Risk,” by Robert M. Bushman et al. (Journal of relevant to both their individual agency or forthcoming) Accounting and Economics, 2018)

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IDEA WATCH BUSY BOSSES OFTEN SEEM UNFAIR

Management Travel Busy Bosses Often The Road Exacts a Toll Seem Unfair Americans took more than 500 million domestic business trips in 2016. And although many workplace health programs for business travel provide immunizations, information Employees who feel fairly treated are better about avoiding food-borne illnesses, and alerts about civil or political unrest, few focus performers, more helpful to colleagues, on a more common threat: the stress, interrupted sleep, unhealthful eating and drinking, more committed to their teams and and lack of exercise that are frequent side efects of being on the road. To understand the organizations, and less likely to steal or health implications of extensive travel, researchers used data from preventive medical be rude. But one factor gets in the way of exams, health screenings, and wellness plans. The chart below shows how the risks faced fair treatment: overburdened managers by extensive travelers—who spend 21 or more nights a month away on business—compare who don’t take the time to convey with those encountered by businesspeople who travel one to six nights monthly. ■ fairness in decision making. Researchers conducted three studies to investigate Extensive business travelers experience the risks below more often than moderate travelers do, the phenomenon. The irst, using twice- by these percentages: daily surveys of managers, determined Smoking 274% that on days when managers had heavier workloads, they prioritized technical tasks Lack of exercise 95% and behaved in ways that workers often Obesity 79% perceived as unfair. The second, which surveyed managers and their direct reports, Trouble sleeping 37% found that managers who consistently had heavier workloads engaged in fewer And they exceed clinical thresholds by these percentages when it comes to: behaviors that typically lead to perceptions Depression 127% of fairness. The third was a lab experiment in which subjects had to choose between Alcohol dependence 104% completing a technical task and writing Anxiety 69% a memo explaining why someone wasn’t being promoted; subjects who were given Source: “Business Travel and Behavioral and Mental Health,” by Andrew G. Rundle, Tracey A. Revenson, and Michael Friedman (Journal of Occupational and Environmental Medicine, 2017) heavier workloads tended to shirk the memo writing. “Being fair requires time and efort, and overworked managers may struggle to prioritize fairness when more-urgent technical tasks demand their Shoppers purchasing clothing and attention,” the researchers say. They advise shoes online buy 25% more per “trip,” managers and organizations to be conscious of the trade-of and to schedule time with on average, than those shopping in a employees so that deadlines don’t encroach on that responsibility. ■ store, driven by minimum purchase

ABOUT THE RESEARCH “Too Busy to Be Fair? requirements for free shipping and by The Eﬀect of Workload and Rewards on Managers’ Justice Rule Adherence,” by Elad N. deeper inventories. Sherf, Vijaya Venkataramani, and Ravi S. Gajendran (Academy of Management Journal, pending) “5 Surprising Findings About How People Actually Buy Clothes and Shoes,” by Jeremy Sporn and Stephanie Tuttle

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IDEA WATCH CONFIDENCE MATTERS MORE THAN CERTAINTY

HARVARD BUSINESS REVIEW NOVEMBER–DECEMBER 1953 “[The businessman] knows that ‘politics’ has been a bad word for a long time—so bad, in fact, that no executive worthy of the name has wanted any part of it. As for ‘pressure groups,’ that phrase smacks of ‘radicals’ or, perhaps even worse, of ‘intellectuals.’ Taken together, the combination of ‘politics’ and ‘pressure groups’ is a very sour dish, and no self-respecting businessman would touch it.”

“POLITICS, PRESSURE GROUPS, AND THE BUSINESSMAN,” BY ROBERT F. BRADFORD

Advice Conﬁdence Matters More Than Certainty

Research indicates that people prefer advisers who project conidence. But what about conident advisers who ofer less-than-certain advice? In 11 experiments involving 4,806 subjects, researchers tested how people reacted to various combinations of communication style and certainty in predictions about stocks, sports, and the weather. In general, participants did prefer conident-seeming advisers. But they didn’t penalize advisers who conidently communicated uncertainty about their predictions by suggesting a range of possible outcomes, ofering statistical probabilities, or speaking about which event was “more likely” (although they seemed averse to the word “probably”). And when asked People primed to feel busy—which to choose between two advisers, one providing certain advice and the other typically boosts one’s sense of providing uncertain advice, subjects importance—were less likely to choose preferred the latter. The study shows that people do distinguish communication style a brownie over an apple than people from substance and suggests there is no penalty for declining to inlate one’s level primed to feel busy but decidedly not of certitude. “Our results challenge the belief that advisors need to provide false important, with 23 percentage points certainty for their advice to be heeded,” the separating the two groups. researchers write. ■ ABOUT THE RESEARCH “Do People Inherently “Feel Busy All the Time? There’s an Upside to That,” by Amitava Chattopadhyay, Monica Wadhwa, Dislike Uncertain Advice?” by Celia Gaertig and and Jeehye Christine Kim Joseph P. Simmons (Psychological Science, 2018)

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This document has been issued by Pictet Asset Management Inc, which is registered as an SEC Investment Adviser, and may not be reproduced or distributed, either in part or in full, without their prior authorisation. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

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IDEA WATCH THE FLEXIBILITY GAP

Workplace Marketing The Flexibility Gap The Upside to Employers know that employees want lexibility, and many companies say they ofer it. Gaining Customers But lots of people who need lexibility don’t have access to it. To better understand the problem, researchers at Werk, a start-up using technology to create lexible workplaces, Via Referral surveyed 1,583 white-collar professionals representative of the U.S. workforce. The graph below shows the gap between the lexibility workers need and what employers allow. ■ Companies enjoy getting new customers through referrals by existing ones for Share of workers who... obvious reasons: Among other things, it Flex type Have ﬂexibility Need ﬂexibility reduces marketing costs. And previous 0% 25 50 75 100 research has shown that customers Adapt location as needed acquired in this way deliver higher margins Adapt schedule as needed and retention rates than others, yielding as Regularly work remotely much as a 25% boost in lifetime customer Regularly work a shifted schedule value. Marketers have theorized that referred customers are better customers for Travel minimally two reasons: They’re a better match for the Work part-time brand’s products or services (because the person making the referral knows both the Source: “The Future Is Flexible: The Importance of Flexibility in the Modern Workplace,” werk.co/research, 2018 company and the referee), and one friend can help the other understand or use the products or services. But until now no one has tested those hunches. A recent study examined 1,800 new customers of a German bank and the existing customers who referred them, along with 3,663 people who became bank customers through other means. The researchers found similarities in proitability between referrers and referees, suggesting that the former believed that the people they were sending to the bank would be a good match for its services. (They also found that people referred by older, nondivorced, longtime, and highly proitable customers became more proitable new customers than other referrals did.) Referred customers were 40% more likely to leave the bank after the person referring them left, suggesting that social ties play a role in retention. The study sheds new light on the beneits of customer referrals—and may be particularly useful for irms with a limited ability to proile potential customers or with complex products for which it may be hard to identify the best potential consumers. And it suggests that companies could gain more-proitable new customers by encouraging their highest- proit existing customers to send others their way. ■

ABOUT THE RESEARCH “How Customer Referral Programs Turn Social Capital into Economic Capital,” by Christophe Van den Bulte et al. (Journal of Marketing Research, 2018)

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SEE MORE WITH THE AIRLINE THAT FLIES TO MORE COUNTRIES THAN ANY OTHER

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IDEA WATCH WHAT WOULD HAPPEN IF YOU CUT WORKERS’ PAY?

hypothetical purchase intention toward each item. The two groups of subjects Compensation Retail reacted similarly when items were advertised as either high quality or power What Would Testosterone Can enhancing, but items presented as high status were far more attractive to the high-T Happen If You Cut Fuel High-Status subjects than to the placebo group. Prior research shows that certain Workers’ Pay? Purchases experiences, such as sporting events, can boost testosterone levels; this research When times are tight and managers have Many people associate the hormone suggests that retailers could capitalize on to rein in costs, they almost always target testosterone with competitive behavior, those temporary hormone lows. “In such head count rather than wages, but the and studies have conirmed that link— contexts, male consumers might be more reasons for that preference are theoretical but new research suggests a surprising likely to engage in positional consumption, and poorly understood: Surveys point to connection between testosterone and and might ind status-related brand concern that pay cuts would fuel turnover the urge to shop. Speciically, men who communications more appealing,” the among top workers, while lab studies experience a surge in testosterone see a researchers write. ■ suggest that they would lead employees spike in their desire for conspicuously to decrease their efort. A new study branded “positional” goods—ones that ABOUT THE RESEARCH “Single-Dose examines the phenomenon in the real signify high social status. Researchers Testosterone Administration Increases Men’s Preference for Status Goods,” by Gideon Nave et al. world. Researchers followed 2,033 reps at had 243 men provide saliva samples and (Nature Communications, 2018) an inbound-sales call center for 61 weeks measured their baseline T level before before and after the irm cut commissions, giving them either testosterone or a placebo reducing take-home pay by an average of via topical gel and then asking them to 7%. As expected, many high performers complete two tasks (T levels were also 23% of U.S. full-time jumped ship; attrition among this group measured during and after the experiment, was 28% above normal, causing revenue to as a check). In the irst task, participants workers today are decline by 6%. Surprisingly, though, there rated their preference for high-status in a profession that was no meaningful drop in productivity— brands, such as Calvin Klein, versus in fact, many reps increased their eforts, everyday brands, such as Levi’s. Those requires a license, perhaps in an attempt to regain their former dosed with testosterone were signiicantly wage levels. “Understanding which of more likely than the others to opt for the compared with just the two efects dominates has numerous high-status goods. The second task was implications,” the researchers write. Their aimed at determining the speciic driver of 5% in the 1950s. indings suggest that managerial fears that preference. The researchers composed about shirking in the wake of pay cuts three ads for each of six products, variously Regulations vary may be unfounded, but “compensation emphasizing quality (“extreme robustness, widely from state to reductions will result in the permanent loss high precision, technology and comfort”), of irm-speciic assets.” ■ power “(indestructibility, sport, power and state: For instance, conidence”), or high status (“prestige, ABOUT THE RESEARCH “Analyzing the artisanal spirit, luxury and attention to opticians must be Aftermath of a Compensation Reduction,” detail”). Each participant saw one ad per Jason Sandvik et al. (working paper) product and reported his attitude and licensed in 21 states, with mandated training ranging from 0 days in California to 1,128 days in Nevada, while only one state, Louisiana, requires that ﬂorists be licensed. “More and More Jobs Today Require a License. That’s Good for Some Workers, but Not Always for Consumers,” by Edward Timmons

COMPILED BY HBR EDITORS SOME OF THESE ARTICLES PREVIOUSLY APPEARED IN DIFFERENT FORM ON HBR.ORG. 34 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2018 РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS

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IDEA WATCH

DEFEND YOUR RESEARCH

An international research team led by Tobias Otterbring, now at Aarhus University, tracked purchases people made at a home-furnishings store in a midsize Swedish city during one weekend. When a tall, athletic-looking male employee stood at the entrance, male shoppers spent signiicantly more money than usual and more, on average, than female shoppers did. The conclusion: Men Buy More from Manly Men Professor Otterbring, defend your research

MEN SPENT TWICE OTTERBRING: The presence of this physically that the efect was even greater AS MUCH AS WOMEN competitive behavior instead. DID WHEN THE FIT imposing guy in a store uniform as soon for male customers of short There were, of course, other MALE EMPLOYEE as people walked in the door did seem to stature. We think this is because WAS PRESENT. store employees around during change the way that men shopped. When the physically it male we our ield study. But we only he was there, the average bill for male used activated the classic male compared purchases made when shoppers came to about $165—more than competitive instinct. We know that this particular male employee was double the average of $72 that women tall, athletic-looking men typically have present against those made when he spent during those times and much higher greater success in economic and mating was absent. We suspected that smaller than what either men or women spent markets. So when male shoppers saw male employees wouldn’t elicit the same when the employee was absent, which him, we suspect, they sensed a rival and efect and found support for that theory was $92 for men and $97 for women. The responded by signaling their own status: in a series of later lab studies. Shorter average price per item men paid was also They opened their wallets. men just don’t seem to trigger the same higher—$18, versus about $10 when the evolutionary urge to show of. employee wasn’t at the door, which was HBR: And female employees—or less also the same amount women paid per imposing male ones—wouldn’t inspire Why wouldn’t the women also item at any time. the same reaction? Previous research spend more money in the presence My coauthors and I did this study in has shown that men are indeed more of a physically dominant guy? In conjunction with the Service Research inclined to try to prove their superiority an evolutionary sense, it’s been more Center, CTF, at Karlstad University. when exposed to physically attractive advantageous for women to play up their Interestingly, in later research we found women. We wanted to explore intrasexual beauty and health than to highlight their

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IMAGES OF status and wealth. Maybe if we’d STRONGER-LOOKING Should retailers that want conducted our ield study in GUYS CAUSED MEN more business from men (BUT NOT WOMEN “Read cover a cosmetics store, we’d have TO PREFER LARGER change their hiring criteria obtained diferent results. At LOGOS ON THEIR then? Only “The Rock” look- to cover. the same time, research has CLOTHING. alikes need apply? If you’re a shown that women respond to company selling status-signaling Superb.” intrasexual competition, too. For luxury goods—like cars, watches, and example, after looking at pictures of clothes—it’s certainly an idea to consider. Tom Peters attractive women, they’re more likely to You probably wouldn’t see the same efect Author, In Search of Excellence; favor weight loss pills, extreme exercise, in stores selling more-functional, utilitarian Thinkers50 Hall of Fame excessive suntanning, and other items, however. I’d also note that the big, beautiication behaviors. tall person doesn’t have to be an employee or even physically pres ent, as our lab Could it be the timing of the employee’s studies on logo preferences, which used shift that mattered instead? Men spend photos of men in both uniforms and street more in the afternoon than they do in clothes, showed. So we see implications the morning? We controlled for that by for not just retail hiring but also advertising having the employee work after lunch and marketing. on Saturday and before lunch on Sunday, so he was present at diferent times on You mean companies can drop the slim diferent days. male models and short male actors and hire more NBA or NFL stars to sell cars What exactly did he look like? How tall and clothes? You already see some of is tall? How muscular is muscular? He this: Tom Brady in ads for Movado, Aston was taller than 95% of the American male Martin, and Ugg; Roger Federer for Rolex population, which is also tall in Sweden, and Credit Suisse. and had recently inished competing as + a professional track-and-ield athlete, so But isn’t there something a little FREE he was perceived as signiicantly more amoral about hiring spokesmen or staﬀ GIFT physically dominant than an average man. whose main role is to make customers And in our follow-up lab experiments, feel bad about themselves so that which involved manipulating photos of they spend more? Well, I’d say that the Filled with thought- men to appear either more it or not, we psychological mechanism is an increased provoking ideas and found that seeing the images of stronger- drive to compete with people of the looking guys caused men (but not women) same gender, not decreased feelings of insights from leading to prefer larger logos on their clothing. We self-conidence. But retailers will have global academics later determined that this efect was driven to decide for themselves whether it’s a and management by the shorter male study participants, not good strategic move to, say, assign a taller practitioners. Published the taller ones. male employee to handle the account by Canada’s leading of a shorter male customer. Maybe business school. How does all of this play out for that would drive more sales in male shoppers who are gay? the short run. But it might also We didn’t measure or control MANLY MEN cause the short man to leave Subscribe today and APPEAR TO receive our mini issue for sexual orientation in our INFLUENCE SHORT the store feeling unhappy studies. But given the random MALE SHOPPERS and not come back, which on creativity FREE! assignment of study subjects in THE MOST. wouldn’t be good for business. the settings we used, we would Personally, I would never expect that the number of gay men encourage any organization to would be evenly distributed across hire staf members simply on the Just $49.95 ca/year our experimental groups, and so shouldn’t basis of looks. But that doesn’t mean we Available in print or digital have strongly inluenced the results. shouldn’t be aware of these supericial I can’t say for sure, but I’d think that gay biases and understand how heavily they www.rotman.utoronto.ca/hbr men could feel the same sense of rivalry as can inluence consumption. straight men, even if they’re competing for Interview by Alison Beard diferent types of mates. HBR Reprint F1805B РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS

HOW I DID IT United Way’s CEO on Shifting a Century-Old Business Model

by Brian Gallagher

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IDEA WATCH HOW I DID IT

s the leader of a nonproit, I ask people for names, including Crusade of Mercy, United Fund, and money as a big part of my job—and I love Community Chest. In 1970, to better organize and doing it. Making the ask isn’t as hard as you brand these eforts, we became known as United Way. might think. The most efective leaders I’ve seen in any setting—business, government, nonproit—are driven by purpose, mission, CREATING A DIRECT RELATIONSHIP Aand the sense that their work is making the world a I joined United Way in 1981, straight out of college, as better place. If you approach donors from that stand- a management trainee in the Winston-Salem, North point, you’re really just having a conversation about Carolina, oice. At the time, a company’s donations mission and purpose and then asking them to join would arrive in a big envelope. It would contain some you. You simply have to blurt out the number and cash, some personal checks, and a summary sheet not worry about how many zeros it has at the end. stating that, for example, 1,200 employees had agreed The most I have ever asked an individual to give is to payroll deductions, which would total however $250 million. That particular person said no, but I’m many dollars every other week. Companies didn’t tell pretty sure he has made a generous bequest to us in us who the individual donors were, because they were his will. What’s striking about these big donation asks concerned about preserving people’s privacy. is that for most of its history, United Way had no direct Over the past few years we’ve worked to change relationship with its donors. In fact, in most instances that model—to transform from a primarily business- we didn’t even know their names. to-business model of fundraising (in which we work mostly with employers) to a B2B2C model in which we create a more direct relationship with individual donors. Payroll deductions still play an important role, but we’re moving to a technology-driven engagement THE 1990S WERE THE HIGH-WATER platform. This new model increases our interactions with donors and allows them to become more closely MARK FOR PAYROLL DEDUCTIONS AS involved in our mission. This shift has been in the making since the early OUR LARGEST SOURCE OF FUNDS; 1990s. United Way suffered a scandal involving the longtime CEO, who was convicted in 1995 of fraud and EVER SINCE THEN INDIVIDUAL conspiracy and sentenced to federal prison. Much of the decade was spent recovering from that by revamp- DONORS HAVE BECOME A BIGGER ing our governance and operations, writing a new code of ethics, and tightening up our brand management. PART OF THE MIX. During that process our donor model was starting to change. We began seeking out individuals who could make larger gifts. The 1990s were the high-water mark for payroll deductions as our largest source of funds; ever since then individual donors have become a bigger part of the mix. Today more than 25,000 people Our organizational roots go back to the 1880s, in have each given more than $10,000 to United Way; Colorado. Industrialization was under way, and peo- more than 600 have given $1 million; and 35 have ple were moving from rural areas into the city. In small given $10 million or more. towns there’s a sense of community, which creates an Even as direct donations from individuals grew economic safety net—people know one another, so more important, we tried to increase our engage- they help those in need. Urban areas have less sense ment with donors from inside our employer-partners. of community, so as people moved to cities, they lost In the mid-1990s I was the head of fundraising and the safety net. Local business leaders wanted to do marketing for our Atlanta organization. We decided something to help, so they created a way to pool em- to send our biggest companies—Coca-Cola, Home ployee contributions, which were then distributed to Depot, and Georgia-Paciic—surveys to help us bet- local charities. In the 1950s the United Auto Workers ter understand the wishes and interests of employees negotiated a plan that allowed employees at the big who were donating via payroll deduction. Among the carmakers to donate money directly from their pay- many questions we asked was “What do you think the checks, and over the next few decades most of our most important social issues are in Atlanta?” We re- donations came from payroll deductions. Back then, ceived 186,000 responses. We ranked the responses the local fundraising entities were known by various and reported them back to everyone. It was a simple

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interaction, and we still didn’t have donors’ personal Building Direct Relationships information, but every metric we measured—giving, volunteering, public opinion—went up. It was very Since Brian Gallagher became United Way’s clear that to be more successful, we had to ind ways CEO, overall contributions have ebbed and to get people more involved. They don’t want to just ﬂowed, owing to the lingering eﬀects of the Great Recession. But the organization has give a check. They want to help with strategy, they become less dependent on employee and want to be advocates, and they want to know what’s corporate contributions and has created happening with their money. stronger relationships with individual donors.

EVOLVING TO DIGITAL Contributions by year in US$ billions I became the CEO of United Way America in 2002, Employee and corporate Individual and a few years later I led our merger with United Way International. By then we had converted United $4B Way from a federation of local charities to a franchise model. The local franchisees bring in donations, and the worldwide organization receives a percentage of 3 revenue. We promote the brand, provide infrastructure, and guide the strategy. Over the past decade a key 85% 72% piece of that strategy has been a digital transformation. 2 An important moment in the evolution of our digital strategy took place about six years ago. I was at the World Economic Forum in Davos on a panel with 1 Marc Beniof, the CEO of Salesforce. We were talking about how organizations can more deeply engage cus- 28% tomers and other stakeholders. He told a story about 15% 0 Starbucks that stuck with me. In 2008 Howard Schultz 2002 ’1 20164’12’10’08’06’04 returned to Starbucks as CEO, after being out of that Source: United Way role for eight years. The company had lost touch with consumers, and Schultz was determined to ix that. The first thing he did was create an app that asked customers how they thought the cofeehouses could average annual giving per donor by 6.5%. Through be improved. The company consolidated the top 10 digital advertising we gained more than 70,000 new responses and put them to a consumer vote. Then it leads on donors. Shifting to online interactions also implemented the top ive ixes. The process engaged reduced costs: Participating local United Ways saw customers in the turnaround and helped restore reve- their marketing costs go down by more than $1 million. nue growth. That anecdote reinforced for me the idea that if you want people to be involved, you can’t just ask them for money—you have to really engage them. PARTNERING WITH SALESFORCE Digital technology is the best way to do that at scale. In 2017 I saw Marc Beniof at Davos again. We talked By 2015 we had created a digital services operat- about the potential of digital tools to help organiza- ing group inside our organization. We worked with 11 tions like United Way engage with donors. Salesforce’s of our local United Ways and created a website where expertise in customer relationship management soft- donors could establish fun, interactive online pro- ware, which collects information about individual re- iles. That allowed us to curate content we thought lationships to make interactions between people eas- would interest them—such as relevant articles or ier, addressed this need. Marc said that his company volunteer activities and opportunities. We were able was already working on an app that would do much to put together a donor database of more than one of what we hoped to do. Originally we imagined this million people, who together represented more than as a vendor relationship, whereby United Way would half a billion dollars in giving. pay Salesforce for its efforts, but we quickly agreed Then we began measuring behaviors. We found that that it should be a partnership: We would work with donors who engaged with us online—just like those the company to create a platform that could be used who’d taken the paper surveys 20 years earlier—gave across nonprofits. United Way doesn’t want to get more and continued giving from year to year. The local into the technology business, so we needed a partner. organizations that joined the online efort increased Salesforce was perfect, because its software is already

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IDEA WATCH HOW I DID IT

An Afternoon in the Life of CEO Brian Gallagher United Way Headquarters, Alexandria, Virginia, May 21, 2018

12:56 p

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3:33 p

Gallagher meets with his executive team (facing page), greets employees (top), meditates in his oﬃce (above), and sits down with a consultant (left).

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IDEA WATCH HOW I DID IT

our focal issues have included health, education, and THIS ISN’T ROCKET SCIENCE. IT’S A inancial stability for every person in every community, and there’s a lot of evidence that our work has made a diference. 21ST-CENTURY VERSION OF WHAT I Another risk is the inertia in a 130-year-old organization. We need to show success fast to get more DID WITH PAPER SURVEYS SO LONG adoption of digital by local United Ways. We expect that once more of them are using the system and do- AGO. ASK PEOPLE WHAT THEY CARE ing well with it, even more will sign on. That’s one of the beneits of a franchise system: When one member ABOUT. ENGAGE WITH THEM. SHARE experiences success, others want to follow. The downside of a franchise system when you’re trying to drive transformations is that they often fail because organi- INFORMATION THEY ARE INTERESTED zations give up on them too soon. So you have to be IN. THEN ASK THEM TO GIVE. careful to build and maintain momentum. BENCHMARKING OUR APPROACH known and used by many of our corporate partners. We’ve continued to pilot the program in 2018, and the By the end of 2017 we had signed up several compa- results are very good. In general, when people stop do- nies to pilot the system, including Anheuser-Busch. nating to United Way, it’s not because they decided to It works like this: When you log in, you see your do so; it’s because they changed employers or we lost individual home page, with your proile and photo. track of them and stopped asking. The digital strategy It tracks all the gifts you’ve made and all the volun- reduces instances of that, lowering churn rates and teer hours you’ve committed to causes. It shows con- helping us recapture lapsed donors. tent chosen by you, United Way, or your company. We’re especially encouraged when we benchmark The platform uses Salesforce’s Einstein artiicial in- our approach against that of other nonprofits. Two telligence functionality, so the more you use it, the examples are Greenpeace and AARP. Not very many smarter it gets. If your behavior within the platform years ago, Greenpeace was best known for protesting suggests that you’re especially interested in breast at World Trade Organization events. It has shifted to- cancer awareness, or early childhood education, or ward a direct-to-consumer advocacy model, creating low-income housing, the platform will begin high- an ecosystem that helps individuals ind ways to make lighting content or policy news or volunteer oppor- their voices heard. We’ve adopted some of that think- tunities relevant to that cause. One of the advantages ing. We also admire how AARP has shifted its model, of working with a company like Salesforce is that it establishing commercial relationships that create real has the resources to update the platform every three value for its members. That helps it gain the revenue months, so the functionality keeps getting better. And it needs to exert inluence on policy matters impor- even though people create their initial proiles in the tant to its members. AARP moved from a pure service workplace, they keep the same ones if they change mentality—What can we do for our members?—to a companies or decide to work for themselves. That’s model built on commercial partnerships. crucial in an economy where people are changing jobs The global economy is changing. More people now more frequently. live outside their country of birth than ever before, Our new approach has some risks. One of them is and migration is increasing. The Baby Boomers who that it allows donors to earmark their money for cer- led the expansion of the United Way brand are retir- tain causes. For most of its history United Way took ing, and the Millennials replacing them have diferent in donations and then distributed them to commu- relationships with their employers. Meanwhile, digital nity organizations as local leaders saw it. So although technology is blowing apart business models. we can raise a lot more money under this system, we As that happens, we need new ways to bring peo- have less control over how it’s spent. But the risk that ple together and build community. This isn’t rocket donors will shift to fund causes directly has always science. It’s a 21st-century version of what I did with existed. Since I became CEO, I’ve said that our mis- paper surveys so long ago. Ask people what they care sion isn’t to raise funds but to create social change. To about. Engage with them. Share information they are do that, we need to create content and educate peo- interested in. Then ask them to give—and there’s a ple about the policies we’re targeting—and the data good chance they will. shows that we’re succeeding. Over the past decade HBR Reprint R1805A

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THE BUSINESS CASE FOR CURIOSITY 48 Research shows that it leads to higher- performing, more adaptable ﬁrms. THE FIVE DIMENSIONS OF CURIOSITY 58 How are you curious? FROM CURIOUS TO COMPETENT 61 How to move your people up the learning curve

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The Business FRANCESCA GINO Professor, Harvard Case for Business School Curiosity

ost of the breakthrough deeply and rationally about decisions and range of irms and industries, only about discoveries and remarkable come up with more-creative solutions. In 24% reported feeling curious in their jobs on inventions throughout history, addition, curiosity allows leaders to gain a regular basis, and about 70% said they face from lints for starting a ire to more respect from their followers and barriers to asking more questions at work. M self-driving cars, have something inspires employees to develop more- In this article I’ll elaborate on the in common: They are the result of curiosity. trusting and more-collaborative relation- beneits of and common barriers to The impulse to seek new information and ships with colleagues. curiosity in the workplace and then ofer experiences and explore novel possibilities Second, by making small changes to the ive strategies that can help leaders get is a basic human attribute. New research design of their organizations and the ways high returns on investments in employees’ points to three important insights about they manage their employees, leaders can curiosity and in their own. curiosity as it relates to business. First, encourage curiosity—and improve their curiosity is much more important to companies. This is true in every industry an enterprise’s performance than was and for creative and routine work alike. THE BENEFITS OF CURIOSITY previously thought. That’s because cul- Third, although leaders might say they New research reveals a wide range of tivating it at all levels helps leaders and treasure inquisitive minds, in fact most beneits for organizations, leaders, and their employees adapt to uncertain market stile curiosity, fearing it will increase risk employees. conditions and external pressures: When and ineiciency. In a survey I conducted Fewer decision-making errors. our curiosity is triggered, we think more of more than 3,000 employees from a wide In my research I found that when our

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SPOTLIGHT THE BUSINESS CASE FOR CURIOSITY

curiosity is triggered, we are less likely coworkers, and the information helped behaviors at work, such as whether they to fall prey to conirmation bias (looking them in their jobs—for instance, it boosted had made constructive suggestions for for information that supports our beliefs their creativity in addressing customers’ implementing solutions to pressing rather than for evidence suggesting we are concerns. organizational problems. wrong) and to stereotyping people (making My own research conirms that When we are curious, we view tough broad judgments, such as that women encouraging people to be curious generates situations more creatively. Studies have or minorities don’t make good leaders). workplace improvements. For one study I found that curiosity is associated with Curiosity has these positive efects because recruited about 200 employees working in less defensive reactions to stress and less it leads us to generate alternatives. various companies and industries. Twice a aggressive reactions to provocation. We More innovation and positive changes week for four weeks, half of them received also perform better when we’re curious. in both creative and noncreative jobs. a text message at the start of their workday In a study of 120 employees I found that Consider this example: In a ield study that read, “What is one topic or activity you natural curiosity was associated with better INSEAD’s Spencer Harrison and colleagues are curious about today? What is one thing job performance, as evaluated by their asked artisans selling their goods through you usually take for granted that you want direct bosses. an e-commerce website several questions to ask about? Please make sure you ask a Reduced group conﬂict. My research aimed at assessing the curiosity they few ‘Why questions’ as you engage in your found that curiosity encourages members of experience at work. After that, the work throughout the day. Please set aside a group to put themselves in one another’s participants’ creativity was measured a few minutes to identify how you’ll shoes and take an interest in one another’s by the number of items they created and approach your work today with these ideas rather than focus only on their own listed over a two-week period. A one-unit questions in mind.” perspective. That causes them to work increase in curiosity (for instance, a score The other half (the control group) together more efectively and smoothly: of 6 rather than 5 on a 7-point scale) was received a message designed to trigger Conlicts are less heated, and groups associated with 34% greater creativity. relection but not raise their curiosity: achieve better results. In a separate study, Harrison and “What is one topic or activity you’ll More-open communication and his colleagues focused on call centers, engage in today? What is one thing you better team performance. Working where jobs tend to be highly structured usually work on or do that you’ll also with executives in a leadership program at and turnover is generally high. They complete today? Please make sure you Harvard Kennedy School, my colleagues asked incoming hires at 10 organizations think about this as you engage in your and I divided participants into groups of ive to complete a survey that, among other work throughout the day. Please set aside or six, had some groups participate in a task things, measured their curiosity before a few minutes to identify how you’ll that heightened their curiosity, and then they began their new jobs. Four weeks approach your work today with these asked all the groups to engage in a simula- in, the employees were surveyed about questions in mind.” tion that tracked performance. The groups various aspects of their work. The results After four weeks, the participants in the whose curiosity had been heightened showed that the most curious employees irst group scored higher than the others performed better than the control groups sought the most information from on questions assessing their innovative because they shared information more openly and listened more carefully. ► Idea In Brief TWO BARRIERS TO CURIOSITY ► THE PROBLEM ► WHY THIS MATTERS ► THE REMEDY Despite the well-established beneits of Leaders say they value employees Curiosity improves engagement Leaders should encourage who question or explore things, and collaboration. Curious people curiosity in themselves and others curiosity, organizations often discourage but research shows that they make better choices, improve by making small changes to the it. This is not because leaders don’t see largely suppress curiosity, out of their company’s performance, design of their organization and its value. On the contrary, both leaders fear that it will increase risk and and help their company adapt the ways they manage their and employees understand that curios- undermine eﬃciency. to uncertain market conditions employees. Five strategies can ity creates positive outcomes for their and external pressures. guide them. companies. In the survey of more than 3,000 employees mentioned earlier, 92%

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SPOTLIGHT THE BUSINESS CASE FOR CURIOSITY

When we are curious, we view tough situations more creatively and have less defensive reactions to stress.

credited curious people with bringing for the masses. By 1908 he had realized In 2004 an anonymous billboard appeared new ideas into teams and organizations that vision with the introduction of the on Highway 101, in the heart of Silicon and viewed curiosity as a catalyst for job Model T. Demand grew so high that by Valley, posing this puzzle: “{irst 10-digit satisfaction, motivation, innovation, and 1921 the company was producing 56% of prime found in consecutive digits of high performance. all passenger cars in the United States—a e}.com.” The answer, 7427466391.com, Yet executives’ actions often tell a remarkable success made possible led the curious online, where they found diferent story. True, some organizations, primarily by the irm’s eiciency-centered another equation to solve. The handful of including 3M and Facebook, give employees model of work. But in the late 1920s, as people who did so were invited to submit a free time to pursue their interests, but they the U.S. economy rose to new heights, résumé to Google. The company took this are rare. And even in such organizations, consumers started wanting greater variety unusual approach to inding job candidates employees often have challenging short- in their cars. While Ford remained ixated because it places a premium on curiosity. term performance goals (such as meeting on improving the Model T, competitors (People didn’t even need to be engineers!) a quarterly sales target or launching a new such as General Motors started producing As Eric Schmidt, Google’s CEO from 2001 product by a certain date) that consume the an array of models and soon captured the to 2011, has said, “We run this company on “free time” they could have spent exploring main share of the market. Owing to its questions, not answers.” alternative approaches to their work or single-minded focus on eiciency, Ford Google also identiies naturally curious coming up with innovative ideas. stopped experimenting and innovating people through interview questions such Two tendencies restrain leaders from and fell behind. as these: “Have you ever found yourself encouraging curiosity: These leadership tendencies help unable to stop learning something you’ve They have the wrong mindset about explain why our curiosity usually declines never encountered before? Why? What exploration. Leaders often think that the longer we’re in a job. In one survey, I kept you persistent?” The answers usually letting employees follow their curiosity will asked about 250 people who had recently highlight either a speciic purpose driving lead to a costly mess. In a recent survey I started working for various companies a the candidate’s inquiry (“It was my job to conducted of 520 chief learning oicers and series of questions designed to measure ind the answer”) or genuine curiosity chief talent development oicers, I found curiosity; six months later I administered (“I just had to igure out the answer”). that they often shy away from encouraging a follow-up survey. Although initial levels IDEO, the design and consulting curiosity because they believe the company of curiosity varied, after six months company, seeks to hire “T-shaped” would be harder to manage if people were everyone’s curiosity had dropped, with the employees: people with deep skills that allowed to explore their own interests. average decline exceeding 20%. Because allow them to contribute to the creative They also believe that disagreements people were under pressure to complete process (the vertical stroke of the T) and would arise and making and executing their work quickly, they had little time to a predisposition for collaboration across decisions would slow down, raising the ask questions about broad processes or disciplines, a quality requiring empathy cost of doing business. Research inds overall goals. and curiosity (the horizontal stroke of the that although people list creativity as a T). The irm understands that empathy goal, they frequently reject creative ideas and curiosity are related: Empathy allows when actually presented with them. FIVE WAYS TO BOLSTER CURIOSITY employees to listen thoughtfully and That’s understandable: Exploration It takes thought and discipline to stop see problems or decisions from another often involves questioning the status stiling curiosity and start fostering it. person’s perspective, while curiosity quo and doesn’t always produce useful Here are ive strategies leaders can employ. extends to interest in other people’s information. But it also means not settling disciplines, so much so that one may start for the irst possible solution—and so it to practice them. And it recognizes that often yields better remedies. most people perform at their best not They seek eﬃciency to the detriment because they’re specialists but because of exploration. In the early 1900s Henry their deep skill is accompanied by an Ford focused all his eforts on one goal: 1 intellectual curiosity that leads them to ask reducing production costs to create a car Hire for curiosity. questions, explore, and collaborate.

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To identify potential employees who major locations, assembling the staf at Why do we refrain from asking are T-shaped, IDEO pays attention to each stop. Employees expected a long questions? Because we fear we’ll be judged how candidates talk about past projects. presentation but instead got a simple incompetent, indecisive, or unintelligent. Someone who focuses only on his or her question: “What is the one thing I Plus, time is precious, and we don’t want own contributions may lack the breadth should do to make things better for to bother people. Experience and expertise to appreciate collaboration. T-shaped you?” Dyke would listen carefully and exacerbate the problem: As people climb candidates are more likely to talk about then ask, “What is the one thing I should the organizational ladder, they think they how they succeeded with the help of do to make things better for our viewers have less to learn. Leaders also tend to others and to express interest in working and listeners?” believe they’re expected to talk and collaboratively on future projects. The BBC’s employees respected provide answers, not ask questions. To assess curiosity, employers can also their new boss for taking the time to ask Such fears and beliefs are misplaced, ask candidates about their interests outside questions and listen. Dyke used their my recent research shows. When we of work. Reading books unrelated to one’s responses to inform his thinking about demonstrate curiosity about others by own ield and exploring questions just the changes needed to solve problems asking questions, people like us more for the sake of knowing the answers are facing the BBC and to identify what to and view us as more competent, and the indications of curiosity. And companies work on irst. After oicially taking the heightened trust makes our relationships can administer curiosity assessments, reins, he gave a speech to the staf that more interesting and intimate. By asking which have been validated in a myriad of relected what he had learned and showed questions, we promote more-meaningful studies. These generally measure whether employees that he had been truly interested connections and more-creative outcomes. people explore things they don’t know, in what they said. Another way leaders can model analyze data to uncover new ideas, read By asking questions and genuinely curiosity is by acknowledging when they widely beyond their ield, have diverse listening to the responses, Dyke modeled don’t know the answer; that makes it interests outside work, and are excited by the importance of those behaviors. He clear that it’s OK to be guided by curiosity. learning opportunities. also highlighted the fact that when we Patricia Fili-Krushel told me that when she It’s also important to remember that are exploring new terrain, listening is as joined WebMD Health as chief executive, the questions candidates ask—not just important as talking: It helps us ill gaps she met with a group of male engineers the answers they provide—can signal in our knowledge and identify other in Silicon Valley. They were doubtful that curiosity. For instance, people who want questions to investigate. she could add value to their work and, to know about aspects of the organization That may seem intuitive, but my right of the bat, asked what she knew that aren’t directly related to the job at research shows that we often prefer to about engineering. Without hesitation, hand probably have more natural curiosity talk rather than to listen with curiosity. Fili-Krushel made a zero with her ingers. than people who ask only about the role For instance, when I asked some 230 “This is how much I know about they would perform. high-level leaders in executive education engineering,” she told them. “However, classes what they would do if confronted I do know how to run businesses, and I’m with an organizational crisis stemming hoping you can teach me what I need to from both inancial and cultural issues, know about your world.” When leaders most said they would take action: move to concede that they don’t have the answer stop the inancial bleeding and introduce to a question, they show that they value 2 initiatives to refresh the culture. Only a the process of looking for answers and Model inquisitiveness. few said they would ask questions rather motivate others to explore as well. Leaders can encourage curiosity through- than simply impose their ideas on others. New hires at Pixar Animation Studios out their organizations by being inquisi- Management books commonly encourage are often hesitant to question the status tive themselves. In 2000, when Greg Dyke leaders assuming new positions to quo, given the company’s track record of hit had been named director general of the communicate their vision from the start movies and the brilliant work of those who BBC but hadn’t yet assumed the position, rather than ask employees how they can have been there for years. To combat that he spent ive months visiting the BBC’s be most helpful. It’s bad advice. tendency, Ed Catmull, the cofounder and

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SPOTLIGHT THE BUSINESS CASE FOR CURIOSITY

president, makes a point of talking about times when Pixar made bad choices. Like all other organizations, he says, Pixar is not perfect, and it needs fresh eyes to spot opportunities for improvement (see “How Pixar Fosters Collective Creativity,” HBR, September 2008). In this way Catmull gives new recruits license to question existing practices. Recognizing the limits of our own knowledge and skills sends a powerful signal to others. Tenelle Porter, a postdoctoral scholar in psychology at the University of California, Davis, describes intellectual humility as the ability to acknowledge that what we know is sharply limited. As her research demonstrates, higher levels of intellectual humility are associated with a greater willingness to consider views other than our own. People with more intellectual humility also do better in school and at work. Why? When we accept that our own knowledge is inite, we are more apt to see that the world is always changing and that the future will diverge from the present. By embracing this insight, leaders and employees can begin to recognize the power of exploration. Finally, leaders can model inquisitiveness by approaching the unknown with curiosity rather than judgment. Bob Langer, who heads one of MIT’s most productive laboratories, told me recently that this principle guides how he manages his staf. As human beings, we all feel an urge to evaluate others— often not positively. We’re quick to judge their ideas, behaviors, and perspectives, even when those relate to things that haven’t been tried before. Langer avoids this trap by raising questions about others’ ideas, which leads people to think more deeply about their perspective and to remain curious about the tough problems they are trying to tackle. In doing so, he is modeling behavior that he expects of others in the lab.

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January day in 2009, Sully was able to It’s natural to concentrate on results, ask himself what he could do, given the especially in the face of tough challenges. available options, and come up with a But focusing on learning is generally more creative solution. He successfully fought beneicial to us and our organizations, as 3 the tendency to grasp for the most obvious some landmark studies show. For example, Emphasize learning goals. option (landing at the nearest airport). when U.S. Air Force personnel were given When I asked Captain Chesley “Sully” Especially when under pressure, we a demanding goal for the number of planes Sullenberger how he was able to land a narrow in on what immediately seems to be landed in a set time frame, their commercial aircraft safely in the Hudson the best course of action. But those who performance decreased. Similarly, in a study River, he described his passion for contin- are passionate about continuous learning led by Southern Methodist University’s Don uous learning. Although commercial contemplate a wide range of options VandeWalle, sales professionals who were lights are almost always routine, every and perspectives. As the accident report naturally focused on performance goals, time his plane pushed back from the gate shows, Sully carefully considered several such as meeting their targets and being he would remind himself that he needed alternatives in the 208 seconds between seen by colleagues as good at their jobs, to be prepared for the unexpected. “What his discovery that the aircraft’s engines did worse during a promotion of a product can I learn?” he would think. When the lacked thrust and his landing of the plane (a piece of medical equipment priced at unexpected came to pass, on a cold in the Hudson. about $5,400) than reps who were naturally

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SPOTLIGHT THE BUSINESS CASE FOR CURIOSITY

focused on learning goals, such as exploring in the importance of curious employees. how to be a better salesperson. That cost “It’s better to train and have them leave them, because the company awarded a than not to train and have them stay,” bonus of $300 for each unit sold. she told me. But according to the Society A body of research demonstrates 4 for Human Resource Management’s 2017 that framing work around learning goals Let employees explore and broaden employee beneits report, only 44% of (developing competence, acquiring skills, their interests. organizations provide or support cross- mastering new situations, and so on) rather Organizations can foster curiosity by training to develop skills not directly than performance goals (hitting targets, giving employees time and resources to related to workers’ jobs. proving our competence, impressing others) explore their interests. One of my favorite Leaders might provide opportunities boosts motivation. And when motivated examples comes from my native country. for employees to travel to unfamiliar by learning goals, we acquire more-diverse It involves Italy’s irst typewriter factory, locales. When we have chances to expand skills, do better at work, get higher grades in Olivetti, founded in 1908 in the foothills our interests, research has found, we not college, do better on problem-solving tasks, of the Italian Alps. In the 1930s some only remain curious but also become more and receive higher ratings after training. employees caught a coworker leaving the conident about what we can accomplish Unfortunately, organizations often factory with a bag full of iron pieces and and more successful at work. Employees prioritize performance goals. machinery. They accused him of stealing can “travel” to other roles and areas of the Leaders can help employees adopt a and asked the company to ire him. The organization to gain a broader perspective. learning mindset by communicating the worker told the CEO, Adriano Olivetti, that At Pixar, employees across the organization importance of learning and by rewarding he was taking the parts home to work on a can provide “notes”—questions and people not only for their performance new machine over the weekend because advice—that help directors consider all but for the learning needed to get there. he didn’t have time while performing his sorts of possibilities for the movies they Deloitte took this path: In 2013 it replaced regular job. Instead of iring him, Olivetti are working on. its performance management system gave him time to create the machine Employees can also broaden their with one that tracks both learning and and charged him with overseeing its interests by broadening their networks. performance. Employees meet regularly production. The result was Divisumma, Curious people often end up being with a coach to discuss their development the irst electronic calculator. Divisumma star performers thanks to their diverse and learning along with the support they sold well worldwide in the 1950s and networks, my research with the University need to continually grow. 1960s, and Olivetti promoted the worker of Toronto’s Tiziana Casciaro, Bill McEvily, Leaders can also stress the value of to technical director. Unlike leaders who and Evelyn Zhang inds. Because they’re learning by reacting positively to ideas that would have shown him the door, Olivetti more comfortable than others asking may be mediocre in themselves but could gave him the space to explore his curiosity, questions, such people more easily create be springboards to better ones. Writers and with remarkable results. and nurture ties at work—and those ties directors at Pixar are trained in a technique Some organizations provide resources to are critical to their career development called “plussing,” which involves building on support employees’ outside interests. Since and success. The organization beneits ideas without using judgmental language. 1996 the manufacturing conglomerate when employees are connected to people Instead of rejecting a sketch, for example, United Technologies (UTC) has given as who can help them with challenges and a director might ind a starting point by much as $12,000 in tuition annually to any motivate them to go the extra mile. MIT’s saying, “I like Woody’s eyes, and what if employee seeking a degree part-time—no Bob Langer works to raise curiosity in his we...?” Someone else might jump in with strings attached. Leaders often don’t want students by introducing them to experts another “plus.” This technique allows people to invest in training employees for fear that in his network. Similarly, by connecting to remain curious, listen actively, respect the they will jump to a competitor and take people across organizational departments ideas of others, and contribute their own. their expensively acquired skills with them. and units, leaders can encourage employees By promoting a process that allows all sorts Even though UTC hasn’t tried to quantify to be curious about their colleagues’ work of ideas to be explored, leaders send a clear the beneits of its tuition reimbursement and ways of doing business. message that learning is a key goal even if it program, Gail Jackson, the vice president of Deliberate thinking about workspaces doesn’t always lead to success. human resources when we spoke, believes can broaden networks and encourage the

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Leaders can stress the value of learning by reacting positively to mediocre ideas that could be springboards to better ones.

cross-pollination of ideas. In the 1990s, ask questions, and they don’t worry about questions. Bob Langer has said he wants when Pixar was designing a new home for whether others believe they should already to “help people make the transition itself in Emeryville, across the bay from know the answers. But as children grow from giving good answers to asking good San Francisco, the initial plans called for a older, self-consciousness creeps in, along questions” (see “The Edison of Medicine,” separate building for each department. with the desire to appear conident and HBR, March–April 2017). He also tells his But then-owner Steve Jobs had concerns demonstrate expertise. By the time we’re students that they could change the world, about isolating the various departments adults, we often suppress our curiosity. thus boosting the curiosity they need to and decided to build a single structure with Leaders can help draw out our innate tackle challenging problems. a large atrium in the center, containing curiosity. One company I visited asked Organizing “Why?” days, when employee mailboxes, a café, a gift shop, all employees for “What if…?” and “How employees are encouraged to ask that and screening rooms. Forcing employees to might we…?” questions about the irm’s question if facing a challenge, can go interact, he reasoned, would expose them goals and plans. They came up with all a long way toward fostering curiosity. to one another’s work and ideas. sorts of things, which were discussed Intellectual Ventures, a company that Leaders can also boost employees’ and evaluated. As a concrete sign that generates inventions and buys and licenses curiosity by carefully designing their teams. questioning was supported and rewarded, patents, organizes “invention sessions” in Consider Massimo Bottura, the owner of the best questions were displayed on which people from diferent disciplines, Osteria Francescana, a three-Michelin- banners hung on the walls. Some of the backgrounds, and levels of expertise come star restaurant in Modena, Italy, that was questions led employees to suggest ideas together to discuss potential solutions rated the Best Restaurant in the World in for how to work more efectively. (For more to tough problems, which helps them 2016 and 2018. His sous chefs are Davide on the importance of asking good questions consider issues from various angles (see di Fabio, from Italy, and Kondo Takahiko, before seeking solutions, see “Better “Funding Eureka!” HBR, March 2010). from Japan. The two difer not only in their Brainstorming,” HBR, March–April 2018.) Similarly, under Toyota’s 5 Whys approach, origins but also in their strengths: Di Fabio In one study, my colleagues and I asked employees are asked to investigate is more comfortable with improvisation, adults working in a wide range of jobs problems by asking Why? After coming up while Takahiko is obsessed with precision. and industries to read one of two sets of with an answer, they are to ask why that’s Such “collisions” make the kitchen more materials on three organizational elements: the case, and so on until they have asked innovative, Bottura believes, and inspire goals, roles, and how organizations as a the question ive times. This mindset can curiosity in other workers. whole work together. For half the workers, help employees innovate by challenging the information was presented as the existing perspectives. “grow method”—our version of a control condition. We encouraged that group to IN MOST ORGANIZATIONS, leaders and view those elements as immutable, and employees alike receive the implicit mes- we stressed the importance of following sage that asking questions is an unwanted 5 existing processes that managers had challenge to authority. They are trained to Have “Why?” “What if…?” and already deined. For the other half, the focus on their work without looking closely “How might we…?” days. information was presented as the “go back at the process or their overall goals. But The inspiration for the Polaroid instant method.” We encouraged those employees maintaining a sense of wonder is crucial to camera was a three-year-old’s question. to see the elements as luid and to “go back” creativity and innovation. The most efec- Inventor Edwin Land’s daughter was and rethink them. A week later we found tive leaders look for ways to nurture their impatient to see a photo her father had just that the workers who’d read about the “go employees’ curiosity to fuel learning and snapped. When he explained that the ilm back method” showed more creativity discovery. HBR Reprint R1805B had to be processed, she wondered aloud, in tasks than the workers in the “grow “Why do we have to wait for the picture?” method” group. They were more open to FRANCESCA GINO is the Tandon Family Professor of As every parent knows, Why? is ubiqui- others’ ideas and worked more efectively Business Administration at Harvard Business School and the author of the books Rebel Talent: tous in the vocabulary of young children, with one another. Why It Pays to Break the Rules at Work and in Life who have an insatiable need to understand To encourage curiosity, leaders should and Sidetracked: Why Our Decisions Get Derailed, the world around them. They aren’t afraid to also teach employees how to ask good and How We Can Stick to the Plan.

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SPOTLIGHT THE FIVE DIMENSIONS OF CURIOSITY THE FIVE DIMENSIONS OF CURIOSITY TODD B. KASHDAN | DAVID J. DISABATO | FALLON R. GOODMAN | CARL NAUGHTON

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How Are You Curious? sychologists have compiled a Use this scale to indicate the degree to which the following statements describe you: large body of research on the 1. Does not describe me at all. 2. Barely describes me. 3. Somewhat describes me. many beneits of curiosity. It 4. Neutral. 5. Generally describes me. 6. Mostly describes me. . Completely describes me. enhances intelligence: In one DEPRIVATION SENSITIVITY study, highly curious children Thinking about solutions to difficult conceptual problems can keep me awake at night. P aged three to 11 improved their intelligence test scores by 12 points more I can spend hours on a single problem because I just can’t rest without knowing the answer. than their least-curious counterparts did. I feel frustrated if I can’t figure out the solution to a problem, so I work even harder to solve it. It increases perseverance, or grit: Merely describing a day when you felt curious has I work relentlessly at problems that I feel must be solved. been shown to boost mental and physical It frustrates me to not have all the information I need. energy by 20% more than recounting a TOTAL time of profound happiness. And curiosity propels us toward deeper engagement, JOYOUS EXPLORATION superior performance, and more- I view challenging situations as an opportunity to grow and learn. meaningful goals: Psychology students who felt more curious than others during I am always looking for experiences that challenge how I think about myself and the world. their irst class enjoyed lectures more, I seek out situations where it is likely that I will have to think in depth about something. got higher inal grades, and subsequently I enjoy learning about subjects that are unfamiliar to me. enrolled in more courses in the discipline. But another stream of research on I find it fascinating to learn new information. curiosity is equally important, in our view. TOTAL Since the 1950s psychologists have ofered competing theories about what makes one SOCIAL CURIOSITY person more curious than another. Rather I like to learn about the habits of others. than regard curiosity as a single trait, we I like finding out why people behave the way they do. can now break it down into ive distinct dimensions. Instead of asking, “How When other people are having a conversation, I like to find out what it’s about. curious are you?” we can ask, “How are When around other people, I like listening to their conversations. you curious?” When people quarrel, I like to know what’s going on. A BRIEF HISTORY TOTAL In the 1950s Daniel Berlyne was one of the STRESS TOLERANCE irst psychologists to ofer a comprehensive model of curiosity. He argued that we all The smallest doubt can stop me from seeking out new experiences. seek the sweet spot between two deeply I cannot handle the stress that comes from entering uncertain situations. uncomfortable states: understimulation I find it hard to explore new places when I lack confidence in my abilities. (coping with tasks, people, or situations that lack suicient novelty, I cannot function well if I am unsure whether a new experience is safe. complexity, uncertainty, or conlict) and It is difficult to concentrate when there is a possibility that I will be taken by surprise. overstimulation. To that end we use either TOTAL what Berlyne called “diversive curiosity” (as when a bored person searches for THRILL SEEKING something—anything—to boost arousal) The anxiety of doing something new makes me feel excited and alive. or what he called “speciic curiosity” (as when a hyperstimulated person tries to Risk taking is exciting to me. understand what’s happening in order to When I have free time, I want to do things that are a little scary. reduce arousal to a more manageable level.) Creating an adventure as I go is much more appealing than a planned adventure. Building on Berlyne’s insights, in 1994 George Loewenstein, of Carnegie Mellon I prefer friends who are excitingly unpredictable. University, proposed the “information gap” TOTAL theory. He posited that people become curious upon realizing that they lack Scoring instructions: Compute the average score for each dimension (reverse score the items desired knowledge; this creates an aversive under stress tolerance). By comparing your results with those of a nationally representative sample feeling of uncertainty, which compels them of people in the United States, you can determine whether you are low, medium, or high on each to uncover the missing information. dimension. See the next page to interpret your scores.

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SPOTLIGHT THE FIVE DIMENSIONS OF CURIOSITY

But these theories, focused on our a pleasurable state; people in it seem to With Merck KGaA we have explored inherent desire to reduce tension, don’t possess a joie de vivre. attitudes toward and expressions of explain other expressions of curiosity: The third dimension, stemming from work-related curiosity. In a survey of tourists strolling through a museum, Renner’s research, is social curiosity— 3,000 workers in China, Germany, and the entrepreneurs poring over feedback from talking, listening, and observing others United States, we found that 84% believe beta testing, people engrossed in a book. to learn what they are thinking and that curiosity catalyzes new ideas, 74% The University of Rochester’s Edward doing. Human beings are inherently think it inspires unique, valuable talents, Deci addressed those in the 1970s, arguing social animals, and the most efective and 63% think it helps one get promoted. that curiosity also relects our intrinsic and eicient way to determine whether In other studies across diverse units and motivation “to seek out novelty and someone is friend or foe is to gain geographies, we have found evidence challenges, to extend and exercise one’s information. Some may even snoop, that four of the dimensions—joyous capacities, to explore, and to learn.” We eavesdrop, or gossip to do so. exploration, deprivation sensitivity, stress use it not just to avoid discomfort but to The fourth dimension, which builds on tolerance, and social curiosity—improve generate positive experiences. recent work by Paul Silvia, a psychologist work outcomes. The latter two seem to be In another body of work, the University at the University of North Carolina at particularly important: Without the ability of Delaware psychologist Marvin Greensboro, is stress tolerance—a willing- to tolerate stress, employees are less likely Zuckerman spent ive decades (from the ness to accept and even harness the to seek challenges and resources and to 1960s to the 2000s) studying sensation anxiety associated with novelty. People voice dissent and are more likely to feel seeking, or the willingness to take risks lacking this ability see information gaps, enervated and to disengage. And socially to acquire varied, novel, and intense experience wonder, and are interested in curious employees are better than others experiences. And in 2006 the psychologist others but are unlikely to step forward at resolving conlicts with colleagues, more Britta Renner, of the University of and explore. likely to receive social support, and more Konstanz, initiated the study of social The ifth dimension, inspired by efective at building connections, trust, curiosity, or people’s interest in how other Zuckerman, is thrill seeking—being willing and commitment on their teams. People or individuals think, feel, and behave. to take physical, social, and inancial risks to groups high in both dimensions are more acquire varied, complex, and intense innovative and creative. THE FIVE-DIMENSIONAL MODEL experiences. For people with this capacity, A monolithic view of curiosity is Synthesizing this and other important the anxiety of confronting novelty is insuicient to understand how that quality research, and in conjunction with our something to be ampliied, not reduced. drives success and fulillment in work and George Mason colleague Patrick McKnight, We have been testing this model in life. To discover and leverage talent and to we created a ive-dimensional model of several ways. With Time Inc. we conducted form groups that are greater than the sum curiosity. The irst dimension, derived surveys across the United States to discover of their parts, a more nuanced approach from Berlyne and Loewenstein’s work, is which of the dimensions lead to the best is needed. HBR Reprint R1805B deprivation sensitivity—recognizing a gap in outcomes and generate particular beneits. knowledge the illing of which ofers relief. For instance, joyous exploration has the TODD B. KASHDAN is a professor of psychology This type of curiosity doesn’t necessarily strongest link with the experience of and a senior scientist at the Center for the feel good, but people who experience it intense positive emotions. Stress tolerance Advancement of Well-Being at George Mason work relentlessly to solve problems. has the strongest link with satisfying the University. DAVID J. DISABATO and FALLON R. GOODMAN The second dimension, inluenced by need to feel competent, autonomous, and are doctoral students in clinical psychology at George Mason University. CARL NAUGHTON is a linguist Deci’s research, is joyous exploration— that one belongs. Social curiosity has the and an educational scientist. The ﬁrst three being consumed with wonder about the strongest link with being a kind, generous, authors consult with Time Inc., and all four fascinating features of the world. This is modest person. consult with Merck KGaA.

WHAT YOUR SCORE MEANS

Deprivation Sensitivity Joyous Exploration Social Curiosity Stress Tolerance Thrill Seeking LOW <3.7 LOW <4.1 LOW <3.0 LOW <3.1 LOW <2.6 MEDIUM +/−4.9 MEDIUM +/−5.2 MEDIUM +/−4.4 MEDIUM +/−4.4 MEDIUM +/−3.9 HIGH >6.0 HIGH >6.3 HIGH >5.8 HIGH >5.8 HIGH >5.2

60 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2018 РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS FROM CURIOUS TO COMPETENT CLAUDIO FERNÁNDEZARÁOZ | ANDREW ROSCOE | KENTARO ARAMAKI

or 30 years our executive search Although a strong positive correlation they either stagnate or jump ship. While irm has been in the business exists between curiosity and competence, most of the low-competence managers had of assessing leaders along two there is a signiicant spread—and a highly worked for just one company, the outstand- broad dimensions: potential curious executive may score much lower on ing ones had worked for more than three. and competence. One key competence than less curious counterparts. Note, too, that although our potential conclusion? You can’t have How can organizations help people and competence models hold true around F either without curiosity. make the leap from curious to competent? the world, not all cultures achieve the same Although we have found that high Studying our global database of information competence return on curiosity, as depicted potentials also need insight, engagement, on executives’ backgrounds, experiences, in the second graph below. For example, al- and determination, curiosity—deined as potential, and competence, we came up though the Japanese have lots of curiosity, a penchant for seeking new experiences, with an answer: by providing the right types their competence scores are barely average. knowledge, and feedback and an openness of stretch assignments and job rotations. The British, by contrast, are less curious but to change—is perhaps most important. Consider the cases of 20 actual general more competent. Why these diferences? In fact, in analyzing exactly how leaders managers. All were rated as extraordinarily We believe that Japan’s cultural norms limit develop, we’ve found that curiosity—which curious, yet only half reached the top level people’s development by rewarding tenure we assess on a four-point scale, from emer- of competence; the other half were at the above all and by discouraging big job moves. ging to extraordinary, using interviews and bottom. What separated the two groups was Meanwhile, British irms embrace company reference checks—is the best predictor of the complexity and breadth of the oppor- and role changes along with coaching. This is strength in all seven of the leadership com- tunities they’d been given, as shown in the yet more evidence that although curiosity is petencies we measure (results orientation, irst graph below. The top 10 executives had a necessary ingredient for executive success, strategic orientation, collaboration and worked for more companies, been exposed in itself it’s not enough. inluence, team leadership, developing to more diverse customers, worked abroad HBR Reprint R1805B organizational capabilities, change leader- or with colleagues from other cultures, dealt CLAUDIO FERNÁNDEZ-ARÁOZ is a senior adviser at ship, and market understanding). with more business scenarios (start-ups, Egon Zehnder and the author of It’s Not the We’ve also found that executives with rapid growth, M&A, integration, downsiz- How or the What but the Who (Harvard Business Review Press, 2014). ANDREW ROSCOE is the former extraordinary curiosity are usually able, with ing, turnarounds), and managed more peo- leader of Egon Zehnder’s Executive Assessment and the right development, to advance to C-level ple. When curious people are given these Development Practice, and KENTARO ARAMAKI is the roles. However, that development is critical. experiences, they shine. When they aren’t, leader of that practice in Japan.

Experiences That Transform Curiosity into Competence The Curiosity-Competence Link Across Six National Cultures Consider 20 leaders, all rated as extraordinarily curious. Ten leveraged that In many countries, executives’ average scores on curiosity (measured on a scale of one to four) and into high competence scores (represented by blue bars); 10 did not (gray bars). competence (one to seven) come in at similar levels. But Japan and the UK are outliers. In the former, high What made the diﬀerence? The extent to which they were given the opportunities below. curiosity does not yield high competence. In the latter, low curiosity does not stop leaders from being highly competent. Cultural norms that prevent (Japan) or encourage (the UK) big job moves may be one reason. The top 10 had: 3.7 Worked for more United Kingdom companies 3.6 Served more diverse 3.5 United States customers Japan India 3.4 Germany Worked abroad or on a multicultural team 3.3

COMPETENCE Brazil Experienced more 3.2 business scenarios 3.1

Managed larger teams 3.0 2.7 2.8 2.9 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 12345 CURIOSITY EXPERIENCE Note: Egon Zehnder selected these countries because they were the only ones in its database with a statistically signiﬁcant sample set.

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SEPTEMBER– OCTOBER 2018

TOO MANY PROJECTS 64 ALIBABA AND THE FUTURE OF GIVE YOURSELF A BREAK: THE POWER How to deal with initiative overload BUSINESS 88 OF SELF-COMPASSION 116 Lessons from China’s innovative digital giant When you have a setback at work, treat yourself WHY DESIGN THINKING WORKS 72 as you would a friend: with kindness and It addresses the biases and behaviors that ORGANIZATIONAL GRIT 98 understanding. hamper innovation. Turning passion and perseverance into performance: the view from the health care industry LINCOLN AND THE ART OF NAVIGATING TALENT HOT SPOTS 80 TRANSFORMATIVE LEADERSHIP 126 How companies can beneﬁt from innovation THE GOOD-BETTER-BEST APPROACH Lincoln’s Emancipation Proclamation imprinted a centers without necessarily relocating TO PRICING 106 moral purpose and meaning upon the protracted Why every company should consider a tiered model misery of the Civil War.

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ROSE HOLLISTER How to deal with Executive coach and consultant, Genesis Advisers initiative overload MICHAEL D. WATKINS Cofounder, Genesis Advisers, and professor, IMD

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Sometimes leaders are unaware of all the initiatives under and adoption rates for new initiatives dropped, because the way and their impact on the organization. In other cases organization just couldn’t process them all. organizational politics conspires to let initiatives continue When company leaders received the report, they realized long after they should have run their course. Either way, that they had to be more disciplined about setting limits overload can result in costly productivity and quality prob- and priorities, rather than expect store managers to keep lems and employee burnout. With record low unemployment, shouldering everything. The country president assigned a companies that do not adjust the workload are also at risk of senior leader to act as the gatekeeper between functional losing valuable talent. One leader who used to head up talent departments and store managers. Departments could consulting at a human capital irm told us in an interview, no longer reach out directly to managers with new work “While I enjoyed and respected my team and found the work expectations—those were funneled through the leader, motivating, the pace was unsustainable. I chose to leave before who assessed priorities and protected the managers from I had a heart attack.” impossible work demands. This change allowed store man- In many organizations, the alarm bells for initiative overload agers to focus; doing less yielded better results on the key ring when engagement survey results drop or turnover levels initiatives and priorities. rise—or both. At one Fortune 500 retail company, for example, In our consulting work with dozens of businesses, we’ve internal studies showed that store managers had more duties seen the consequences of overload play out again and again than they could accomplish in a standard workweek. Instead of across a range of industries. In conversations and interviews moderating the demands of the job, their bosses expected them in a wide variety of organizations, capacity is a frequent topic: to prioritize and juggle. Yet with business results faltering and Leaders feel pressured to do more with fewer resources. We’ve customer service scores declining, the senior executive team identiied several root causes, which we’ll discuss here so that realized that a new approach was needed and recommended you can spot the risks in your company. Organizations tend to that a task force of high-potential leaders assess the impact of rely on lawed ixes, so we’ll also explain why those typically initiatives on frontline store managers. fail and what works better. The task force found that many departments were simultaneously launching initiatives that required store managers’ attention, in areas such as product launches, training, cus- The Roots of the Problem tomer service, and IT. A comprehensive review revealed that Why does initiative overload happen? We have observed more than 90 distinct initiatives had gotten under way in the seven causes: previous six months. Store managers were expected to absorb Impact blindness. As the Fortune 500 retailer learned, and act on them while dealing with high customer volume and executive teams can be oblivious to the number and cumu- managing the staf. All these demands took their toll. Some lative impact of the initiatives they have in progress. Many outlets failed to meet company expectations and forecasts, organizations lack mechanisms to identify, measure, and manage the demands that initiatives place on the managers and employees who are expected to do the work. In practice, it can be challenging to measure the load across an organiza- ► Idea in Brief tion, because of initiative volume, company complexity and size, and insuicient tracking tools. But as the example above shows, it can be done if the business dedicates resources to ► THE PROBLEM ► ► THE SOLUTION THE making it happen. Most organizations By understanding the CONSEQUENCES Multiplier eﬀects. Most senior leaders have a line of sight struggle to kill root causes of initiative Failing to cut projects into their own groups’ initiatives and priorities but a limited initiatives, even those that don’t pull their overload, leaders that no longer support weight and to establish can better diagnose view of other groups’ activities. Because functions and units their strategy. Unaware clear priorities for the risks in their often set their priorities and launch initiatives in isolation, of the cumulative those that remain organizations, make they may not understand the impact on neighboring functions impact or unwilling to smarter decisions can lead to severe and units. Suppose, for example, that an organization consists part with pet projects about what to keep overload. Productivity, of ive units. If each one undertakes three initiatives, each of or both, senior leaders engagement, and what to kill, and pile on more and more, performance, and follow through by which requires some resources from two other units, then expecting managers retention tend to suﬀer allocating talent and frontline managers in each unit are efectively juggling nine and their teams to as a result. other resources with initiatives. And this assumes an even distribution of impact; absorb it all. discipline.

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if some units have particularly critical or scarce resources, their won’t die. This can happen even after funding has been oi- load could be far greater. cially cut, because leaders may have their own deep pockets Political logrolling. Executives tend to be strongly invested of funding and the decision-making power to keep their in some “signature” projects and may garner resources for initiatives moving forward. them through implicit agreements with their peers: “I will Unfunded mandates. In the world of politics this term is support your initiatives if you support mine.” In the world of used when legislatures pass laws that require certain things legislative politics, this is known as logrolling, a term report- to happen but don’t provide funding for implementation. edly coined in 1835 by U.S. Congressman Davy Crockett as a Similarly, in business, executive teams often task their organi- metaphor derived from the old custom of neighbors’ assisting zations with meeting important goals without giving man- one another with the moving of logs. In organizations it agers and their teams the necessary resources to accomplish leads to a pileup of promises to fulill—and projects that just them. In one major acquisition in which we were involved, the

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Does Your Organization Have a Problem?

The first step in dealing with initiative overload is to honestly executive team spent tens of millions of dollars on consulting assess and acknowledge the problem. Ask yourself the to design the new, combined organization’s strategy, struc- questions below to gauge whether your organization is at ture, systems, and staing but provided no funding to support risk. Then total up the yesses—those are red flags. If you have the critical work of transition and integration. Largely as a more than four, you may need to better manage the number result of conlicts between “us” and “them,” the acquiring or timing of initiatives. company lost most of the acquired entity’s best talent—the retention of which had been a core goal. This is not an isolated example: Initiatives are often launched without having Do leaders often talk about Are initiatives often started resources dedicated to them. the need to cut back on the mid-cycle in response to Band-Aid initiatives. When projects are launched to number of new initiatives? new external or internal provide limited ixes to signiicant problems, the result Yes/No demands? can be a proliferation of initiatives, none of which may Yes/No Does a significant amount adequately deal with root causes. We have seen companies of work and team time Is stopping or slowing down make substantial investments in training programs in revolve around launching initiatives countercultural? response to supericial assessments of the skills required, and supporting initiatives? Yes/No or provide limited support for integrating the new skills Yes/No into day-to-day practice. Are legacy projects Cost myopia. Another partial ix that can exacerbate Does the organization lack renewed without a regular overload is cutting people without cutting the related work. a central group that reviews assessment of current need This happens when organizations ixate on lowering head all current initiatives? or effectiveness? count (an obvious way to rein in human capital costs) but Yes/No Yes/No overlook the price they might pay—in employee burnout, performance strain, and turnover—for expecting the remaining Does the organization lack Are initiatives launched even people to take on the tasks of those who have left. A leader at processes for quantifying when resources are already impact and prioritizing stretched? a consumer products irm described the problem in an inter- initiatives? Yes/No view: “We had planned to reengineer our processes, but it did Yes/No not happen. The impact is that our people are working harder Are people expected to with fewer resources.” Are multiple initiatives being absorb new demands Initiative inertia. Finally, companies often lack the launched simultaneously? without stopping past means (and the will) to stop existing initiatives. Sometimes Yes/No projects? that’s because they have no “sunset” process for determining Yes/No when to close things down. A project might have been vital Are initiatives often launched for the business when it launched, but later the rationale no without coordination across Are projects launched longer exists—and yet the funding and the work continue. units and functions? without a full analysis of For example, for decades many organizations used so-called Yes/No ongoing support needs? Yes/No mystery shoppers to gather customer feedback and evaluate Are initiatives launched customer service. With the internet, companies can now without business cases? Are initiatives launched gather feedback and data directly from their customers. But Yes/No without a “sunset,” or many have been slow to make the shift, because parting stopping, process having with a well-oiled machine—even one that is clearly dated— Are initiatives launched been identified? means switching to less-tested systems that require all-new without success metrics? Yes/No competencies. The habits and the infrastructure for mystery Yes/No shoppers are already built. Capturing, understanding, and Is the success of an initiative Does the current number of valuing customer data gathered online requires time and evaluated primarily by the initiatives have a negative diferent skill sets. So, many traditional companies follow the leaders who launched and impact on productivity and lead of upstarts, which do not have to unlearn old, comfort- own the project? prioritization? Yes/No able approaches: They hire new leaders with the right skills to Yes/No help make the transition.

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Questions to Ask Before You Launch an Initiative

Analyzing the project What Doesn’t Work → What problem is this initiative meant to fix? Recognizing initiative overload is an important irst step—but → What data or other evidence tells us that this initiative leaders must then take meaningful action. Too often, though, they resort to strategies that either have no impact or make the will have the desired impact? problem worse. For instance: Prioritizing by function or department. Leaders are most Assessing resources comfortable setting priorities within their own area, because they know that territory best, but this does not allow them to → What is the true human capital demand? recognize the cumulative impact of initiatives across groups. 1. What resources (time, budget, and head count) are For example, a top goal for inance might be to adopt a new needed to design and launch the initiative? expense program across the enterprise. Even if it’s the right decision for the company, learning the new system by trial and 2. In addition to the department that owns the initiative, error or through training places extra demands on leaders out- what departments or functions will be tasked with side the inance function. Designated “superusers” put in even supporting it? more time than most, coaching their colleagues on day-to-day use and ielding questions as they arise, and that eats into the 3. What time commitments will be asked of leaders and time they can spend on their own teams’ projects. Of course, staff members to attend meetings or develop the skills all those demands butt up against recurring processes that needed to understand or implement the initiative? consume everyone’s time across the organization: Managers must create and manage budgets for inance, document indi- 4. What resources will be needed to sustain it? vidual and team performance for HR, undergo ethics or sexual harassment training for legal, and so on. → How does the human capital demand compare So priorities can’t be set in a vacuum. Senior leaders need to with the potential business impact? Does the cost encourage transparent conversations across functions about outweigh the benefit? work volume, initiative demands, and resources—this top- down message is critical. But they must also be receptive to → How will the organization determine whether it has constructive feedback from bottom-up conversations, and too the capacity to take on the initiative? often they just don’t want to hear about what people can’t do. In such an atmosphere, employees are afraid to voice concerns about workload or to admit having limits, because of the risk Sizing up stakeholder support to their careers, so they keep mum. And without that input, → Who are the key stakeholders? leaders lack a full view of demands across the enterprise and can’t prioritize accordingly. → What actions will be required to support the initiative? Establishing overall priorities without deciding what → How fully is that support in place? to cut. Leadership teams often engage in prioritization exercises that deine and communicate where people should focus their energy. However, they undermine those eforts Setting limits if they don’t also do the hard work of explicitly deciding what trade-ofs to make and what has to stop. At a real estate → What trade-offs are we willing to make? In other company we worked with, the leadership team decided to words, if we do this, what won’t get done? simultaneously launch more than a dozen initiatives. Project → What’s the sunset schedule and process? teams were formed and expected to produce results quickly. The desired outcomes were achieved, but at a steep cost: Key contributors decided to exit the organization rather than meet the escalated demands—exceedingly long hours and overwhelming new responsibilities. Making across-the-board initiative cuts. When leaders ask all departments or functions to cut their budgets or

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initiatives by a given amount—say, 10% to 20%—each group managers spent more time in the ield and less in training and inds its own way to comply. However, this approach to re- planning sessions, and the demands on their time became duction doesn’t take into consideration overall organizational more manageable. priorities and interdependencies. As a result, cuts to projects As these examples show, ighting initiative overload in one function, such as IT or marketing, can undermine requires the will and the discipline to make and enforce hard the ability of other functions to deliver critical projects. For choices. Here’s a step-by-step process that can guide you. example, as part of overall cost containment, the IT depart- 1. Get a true count of current initiatives across the ment at a hospitality company had to cut costs by 20%. So it enterprise, to see if your organization is sufering from moved to a model based on self-service and outsourcing and overload. (See the sidebar “Does Your Organization Have eliminated on-site, in-person computer support. Although a Problem?”) IT achieved its cuts, all the other functions spent more time 2. Assess all the initiatives currently under way. For each resolving their IT issues. one, identify the business need, the required budget, the head count allocation, and the business impact. 3. Have senior leaders work together to establish priorities What Does Work in an integrated way. The discussion must be driven by the top While challenging, it is possible to ight initiative overload and leadership team and informed by candid feedback from below concentrate organizational resources on strategically essential to ensure suicient decreases in initiatives. projects. For example, CBIZ, a growing business-services com- 4. Put in place a sunset clause for each initiative, identifying pany, has become much stricter about deciding which projects an end date for funding and a head count allocation, so that can move forward. Marina Davis, the company’s director of projects do not consume resources year after year unless they organization and talent development, told us in an interview, are making a signiicant business impact. “We look at each initiative through two lenses: One, does it 5. In subsequent yearly planning, require each initiative to have a positive impact on the business? And two, does it have reapply for funding and other resources. Mandated business a positive impact on the culture? As we continue to gain speed, cases should demonstrate the value to the organization. we are being very careful about choosing what we will and will 6. Strongly communicate to the rest of the organization not take on at this time.” that stopping an initiative doesn’t mean that it was a failure Similarly, senior leaders at the real estate irm mentioned or lacked merit. Emphasize that there’s simply a limit to how earlier—the one that launched so many initiatives at once— many great ideas the company can launch. began to see a need for change. Although they had pushed for Of course, the best way to avoid initiative overload is to not business transformation that year, they didn’t want that pace allow it in the irst place. That means building in rigorous re- to become the new normal. So they watched for signs of that in views to impose discipline on when and how the organization the next year and were surprised at the sheer volume of budget launches initiatives—and keeping close tabs on whose time dollars being requested for even more initiatives, most of them they consume, and how much. (See the sidebar “Questions to internal—all-staf meetings, leadership development events, Ask Before You Launch an Initiative.”) planning meetings, IT launches, and HR training. Although For companies already experiencing initiative overload, the company inancials were strong enough to support the focusing on the beneits of cutting back can make the path for- requests, the irm needed to focus more intently on hands-on ward somewhat easier. Organizations are at a great advantage sales, and the executive team worried that the other pro- when they learn how to say no, as Steve Jobs once put it, to posed initiatives could get in the way. To assess that concern, the “hundred other good ideas that there are.” They can then they asked functional leaders to break down travel budgets use their creative and productive energy more wisely, foster and time spent in and out of the oice, along with develop- greater employee commitment and loyalty, and accomplish ment funding and facility and food costs, for each requested more in the areas that really matter. initiative. The human capital implications then became clear: HBR Reprint R1805C Together, the internal meetings and events would demand more than 30% of managers’ time. After discussing the matter ROSE HOLLISTER is an executive coach and a consultant at Genesis with the senior team and targeting a lower percentage of Advisers. She teaches courses on global leadership and change at Northwestern University, and she led the Leadership Institute time away from customers, the CEO and the CFO decided at McDonald’s from 2010 to 2017. MICHAEL D. WATKINS is a cofounder of which initiatives to keep and which to cut, favoring those that Genesis Advisers, a professor at IMD Business School, and the author were important to generating business. The following year of The First 90 Days (Harvard Business Review Press, 2013).

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It addresses the biases JEANNE LIEDTKA and behaviors that Professor, Darden hamper innovation. School of Business Why Desıgn Thinking Wo r k s

ccasionally, a new way of organizing work leads to extraordinary improvements. Total quality management did that in manufacturing in the 1980s by combining a set of tools—kanban cards, quality circles, and so on—with the insight that people on the shop loor could do much higher level work than they usually were asked to. That blend of tools and insight, applied to a work process, can be thought of as a social technology. In a recent seven-year study in which I looked in depth at 50 projects from a range of sectors, including business, health care, and

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social services, I have seen that another social technology, It’s also widely accepted that solutions are much better design thinking, has the potential to do for innovation exactly when they incorporate user-driven criteria. Market research what TQM did for manufacturing: unleash people’s full cre- can help companies understand those criteria, but the hurdle ative energies, win their commitment, and radically improve here is that it’s hard for customers to know they want some- processes. By now most executives have at least heard about thing that doesn’t yet exist. design thinking’s tools—ethnographic research, an empha- Finally, bringing diverse voices into the process is also sis on reframing problems and experimentation, the use of known to improve solutions. This can be diicult to manage, diverse teams, and so on—if not tried them. But what people however, if conversations among people with opposing views may not understand is the subtler way that design thinking deteriorate into divisive debates. gets around the human biases (for example, rootedness in Lower risks and costs. Uncertainty is unavoidable in inno- the status quo) or attachments to speciic behavioral norms vation. That’s why innovators often build a portfolio of options. (“That’s how we do things here”) that time and again block the The trade-of is that too many ideas dilute focus and resources. exercise of imagination. To manage this tension, innovators must be willing to let go of In this article I’ll explore a variety of human tendencies that bad ideas—to “call the baby ugly,” as a manager in one of my get in the way of innovation and describe how design thinking’s studies described it. Unfortunately, people often ind it easier tools and clear process steps help teams break free of them. Let’s to kill the creative (and arguably riskier) ideas than to kill the begin by looking at what organizations need from innovation— incremental ones. and at why their eforts to obtain it often fall short. Employee buy-in. An innovation won’t succeed unless a company’s employees get behind it. The surest route to winning their support is to involve them in the process of The Challenges of Innovation generating ideas. The danger is that the involvement of To be successful, an innovation process must deliver three many people with diferent perspectives will create chaos things: superior solutions, lower risks and costs of change, and and incoherence. employee buy-in. Over the years businesspeople have devel- Underlying the trade-ofs associated with achieving these oped useful tactics for achieving those outcomes. But when outcomes is a more fundamental tension. In a stable environ- trying to apply them, organizations frequently encounter new ment, eiciency is achieved by driving variation out of the obstacles and trade-ofs. organization. But in an unstable world, variation becomes the Superior solutions. Deining problems in obvious, organization’s friend, because it opens new paths to success. conventional ways, not surprisingly, often leads to obvious, However, who can blame leaders who must meet quarterly conventional solutions. Asking a more interesting question can targets for doubling down on eiciency, rationality, and cen- help teams discover more-original ideas. The risk is that some tralized control ? teams may get indeinitely hung up exploring a problem, while To manage all the trade-ofs, organizations need a social action-oriented managers may be too impatient to take the technology that addresses these behavioral obstacles as well time to igure out what question they should be asking. as the counterproductive biases of human beings. And as I’ll explain next, design thinking its that bill. The Beauty of Structure ► Idea in Brief Experienced designers often complain that design thinking is too structured and linear. And for them, that’s certainly true. ► THE PROBLEM ► THE CAUSE ► THE SOLUTION But managers on innovation teams generally are not design- While we know a lot People’s intrinsic Design thinking ers and also aren’t used to doing face-to-face research with about what practices biases and behavioral provides a structured stimulate new ideas habits inhibit the process that helps customers, getting deeply immersed in their perspectives, and creative solutions, exercise of the innovators break free co-creating with stakeholders, and designing and executing most innovation teams imagination and of counterproductive experiments. Structure and linearity help managers try and struggle to realize their protect unspoken tendencies that thwart adjust to these new behaviors. beneﬁts. assumptions about innovation. Like TQM, As Kaaren Hanson, formerly the head of design innovation what will or will it is a social technology not work. that blends practical at Intuit and now Facebook’s design product director, has tools with insights into explained: “Anytime you’re trying to change people’s behavior, human nature.

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you need to start them of with a lot of structure, so they generally are not aware of. Though ostensibly geared to un- don’t have to think. A lot of what we do is habit, and it’s derstanding and molding the experiences of customers, each hard to change those habits, but having very clear guardrails design-thinking activity also reshapes the experiences of the can help us.” innovators themselves in profound ways. Organized processes keep people on track and curb the tendency to spend too long exploring a problem or to impatiently skip ahead. They also instill conidence. Most humans are Customer Discovery driven by a fear of mistakes, so they focus more on preventing Many of the best-known methods of the design-thinking errors than on seizing opportunities. They opt for inaction discovery process relate to identifying the “job to be done.” rather than action when a choice risks failure. But there is no Adapted from the ields of ethnography and sociology, these innovation without action—so psychological safety is essen- methods concentrate on examining what makes for a meaning- tial. The physical props and highly formatted tools of design ful customer journey rather than on the collection and analysis thinking deliver that sense of security, helping would-be of data. This exploration entails three sets of activities: innovators move more assuredly through the discovery of Immersion. Traditionally, customer research has been an customer needs, idea generation, and idea testing. impersonal exercise. An expert, who may well have preexisting In most organizations the application of design thinking theories about customer preferences, reviews feedback from involves seven activities. Each generates a clear output that focus groups, surveys, and, if available, data on current be- the next activity converts to another output until the organi- havior, and draws inferences about needs. The better the data, zation arrives at an implementable innovation. But at a deeper the better the inferences. The trouble is, this grounds people level, something else is happening—something that executives in the already articulated needs that the data relects. They see

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Shaping the Innovator’s Journey

What makes design thinking a social technology is its ability to the data through the lens of their own biases. And they don’t counteract the biases of innovators and change the way they recognize needs people have not expressed. engage in the innovation process. Design thinking takes a diferent approach: Identify hidden needs by having the innovator live the customer’s experience. Consider what happened at the Kingwood Trust, a UK PROBLEM DESIGN IMPROVED THINKING OUTCOME charity helping adults with autism and Asperger’s syndrome. One design team member, Katie Gaudion, got to know Pete, Innovators are: a nonverbal adult with autism. The irst time she observed Trapped in their Provides immersion A better him at his home, she saw him engaged in seemingly damaging own expertise and in the user’s understanding acts—like picking at a leather sofa and rubbing indents in a experience experience, shifting of those being wall. She started by documenting Pete’s behavior and deined an innovator’s designed for the problem as how to prevent such destructiveness. mindset toward… But on her second visit to Pete’s home, she asked herself: Overwhelmed Makes sense of data New insights and What if Pete’s actions were motivated by something other by the volume by organizing it into possibilities than a destructive impulse? Putting her personal perspective and messiness of themes and patterns, aside, she mirrored his behavior and discovered how satisfy- qualitative data pointing the innovator ing his activities actually felt. “Instead of a ruined sofa, I now toward… perceived Pete’s sofa as an object wrapped in fabric that is fun Divided by Builds alignment Convergence to pick,” she explained. “Pressing my ear against the wall and differences in as insights are around what really feeling the vibrations of the music above, I felt a slight tickle in team members’ translated into design matters to users my ear whilst rubbing the smooth and beautiful indentation… perspectives criteria, moving an So instead of a damaged wall, I perceived it as a pleasant and innovation team relaxing audio-tactile experience.” toward… Katie’s immersion in Pete’s world not only produced Confronted by too Encourages the A limited but a deeper understanding of his challenges but called into many disparate but emergence of fresh diverse set of question an unexamined bias about the residents, who had familiar ideas ideas through a potential new been perceived as disability suferers that needed to be kept focused inquiry, solutions safe. Her experience caused her to ask herself another new shifting team members toward… question: Instead of designing just for residents’ disabilities and safety, how could the innovation team design for their Constrained by Fosters articulation Clarity on strengths and pleasures? That led to the creation of living existing biases of the conditions make-or-break spaces, gardens, and new activities aimed at enabling people about what does or necessary to each assumptions that with autism to live fuller and more pleasurable lives. doesn’t work idea’s success and enables the design transitions a team of meaningful Sense making. Immersion in user experiences provides toward… experiments raw material for deeper insights. But inding patterns and making sense of the mass of qualitative data collected is a daunting Lacking a shared Offers pre- Accurate feedback challenge. Time and again, I have seen initial enthusiasm understanding of experiences to users at low cost and about the results of ethnographic tools fade as nondesigners new ideas and often through very rough an understanding unable to get good prototypes that help of potential become overwhelmed by the volume of information and the feedback from users innovators get… solutions’ true messiness of searching for deeper insights. It is here that the value structure of design thinking really comes into its own. One of the most efective ways to make sense of the knowl- Afraid of change Delivers learning in A shared and ambiguity action as experiments commitment and edge generated by immersion is a design-thinking exercise surrounding the new engage staff and confidence in the called the Gallery Walk. In it the core innovation team selects future users, helping them new product or the most important data gathered during the discovery pro- build… strategy cess and writes it down on large posters. Often these posters showcase individuals who have been interviewed, complete with their photos and quotations capturing their perspectives. The posters are hung around a room, and key stakeholders are

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invited to tour this gallery and write down on Post-it notes the Idea Generation bits of data they consider essential to new designs. The stake- Once they understand customers’ needs, innovators move on holders then form small teams, and in a carefully orchestrated to identify and winnow down speciic solutions that conform process, their Post-it observations are shared, combined, and to the criteria they’ve identiied. sorted by theme into clusters that the group mines for insights. Emergence. The irst step here is to set up a dialogue about This process overcomes the danger that innovators will be potential solutions, carefully planning who will participate, unduly inluenced by their own biases and see only what they what challenge they will be given, and how the conversation want to see, because it makes the people who were inter- will be structured. After using the design criteria to do some viewed feel vivid and real to those browsing the gallery. It cre- individual brainstorming, participants gather to share ideas ates a common database and facilitates collaborators’ ability and build on them creatively—as opposed to simply negotiat- to interact, reach shared insights together, and challenge one ing compromises when diferences arise. another’s individual takeaways—another critical guard against When Children’s Health System of Texas, the sixth-largest biased interpretations. pediatric medical center in the United States, identiied the Alignment. The inal stage in the discovery process is a need for a new strategy, the organization, led by the vice series of workshops and seminar discussions that ask in some president of population health, Peter Roberts, applied design form the question, If anything were possible, what job would thinking to reimagine its business model. During the discovery the design do well? The focus on possibilities, rather than on process, clinicians set aside their bias that what mattered most the constraints imposed by the status quo, helps diverse teams was medical intervention. They came to understand that inter- have more-collaborative and creative discussions about the vention alone wouldn’t work if the local population in Dallas design criteria, or the set of key features that an ideal inno- didn’t have the time or ability to seek out medical knowledge vation should have. Establishing a spirit of inquiry deepens and didn’t have strong support networks—something few dissatisfaction with the status quo and makes it easier for families in the area enjoyed. The clinicians also realized that teams to reach consensus throughout the innovation process. the medical center couldn’t successfully address problems And down the road, when the portfolio of ideas is winnowed, on its own; the community would need to be central to any agreement on the design criteria will give novel ideas a ighting solution. So Children’s Health invited its community partners chance against safer incremental ones. to codesign a new wellness ecosystem whose boundaries Consider what happened at Monash Health, an integrated (and resources) would stretch far beyond the medical center. hospital and health care system in Melbourne, Australia. Deciding to start small and tackle a single condition, the team Mental health clinicians there had long been concerned about gathered to create a new model for managing asthma. the frequency of patient relapses—usually in the form of drug The session brought together hospital administrators, overdoses and suicide attempts—but consensus on how to ad- physicians, nurses, social workers, parents of patients, and dress this problem eluded them. In an efort to get to the bot- staf from Dallas’s school districts, housing authority, YMCA, tom of it, clinicians traced the experiences of speciic patients and faith-based organizations. First, the core innovation through the treatment process. One patient, Tom, emerged team shared learning from the discovery process. Next, each as emblematic in their study. His experience included three attendee thought independently about the capabilities that his face-to-face visits with diferent clinicians, 70 touchpoints, or her institution might contribute toward addressing the chil- 13 diferent case managers, and 18 handofs during the interval dren’s problems, jotting down ideas on sticky notes. Then each between his initial visit and his relapse. attendee was invited to join a small group at one of ive tables, The team members held a series of workshops in which where the participants shared individual ideas, grouped them they asked clinicians this question: Did Tom’s current care into common themes, and envisioned what an ideal experi- exemplify why they had entered health care? As people ence would look like for the young patients and their families. discussed their motivations for becoming doctors and nurses, Champions of change usually emerge from these kinds of they came to realize that improving Tom’s outcome might conversations, which greatly improves the chances of success- depend as much on their sense of duty to Tom himself as it did ful implementation. (All too often, good ideas die on the vine on their clinical activity. Everyone bought into this conclusion, in the absence of people with a personal commitment to mak- which made designing a new treatment process—centered ing them happen.) At Children’s Health, the partners invited on the patient’s needs rather than perceived best practices— into the project galvanized the community to act and forged proceed smoothly and successfully. After its implementation, and maintained the relationships in their institutions required patient-relapse rates fell by 60%. to realize the new vision. Housing authority representatives

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drove changes in housing codes, charging inspectors with experiences with a work in progress. This means that quite incorporating children’s health issues (like the presence of radical changes—including complete redesigns—can occur mold) into their assessments. Local pediatricians adopted a along the way. set of standard asthma protocols, and parents of children with Pre-experience. Neuroscience research indicates that asthma took on a signiicant role as peer counselors providing helping people “pre-experience” something novel—or to intensive education to other families through home visits. put it another way, imagine it incredibly vividly—results in Articulation. Typically, emergence activities generate a more-accurate assessments of the novelty’s value. That’s why number of competing ideas, more or less attractive and more design thinking calls for the creation of basic, low-cost artifacts or less feasible. In the next step, articulation, innovators that will capture the essential features of the proposed user surface and question their implicit assumptions. Managers experience. These are not literal prototypes—and they are are often bad at this, because of many behavioral biases, such often much rougher than the “minimum viable products” that as overoptimism, conirmation bias, and ixation on irst lean start-ups test with customers. But what these artifacts solutions. When assumptions aren’t challenged, discussions lose in idelity, they gain in lexibility, because they can easily around what will or won’t work become deadlocked, with be altered in response to what’s learned by exposing users to each person advocating from his or her own understanding them. And their incompleteness invites interaction. of how the world works. Such artifacts can take many forms. The layout of a new In contrast, design thinking frames the discussion as an medical oice building at Kaiser Permanente, for example, was inquiry into what would have to be true about the world tested by hanging bedsheets from the ceiling to mark future for an idea to be feasible. (See “Management Is Much More Than walls. Nurses and physicians were invited to interact with a Science,” by Roger L. Martin and Tony Golsby-Smith, HBR, stafers who were playing the role of patients and to suggest September–October 2017.) An example of this comes from the how spaces could be adjusted to better facilitate treatment. Ignite Accelerator program of the U.S. Department of Health and At Monash Health, a program called Monash Watch—aimed Human Services. At the Whiteriver Indian reservation hospital at using telemedicine to keep vulnerable populations healthy in Arizona, a team led by Marliza Rivera, a young quality control at home and reduce their hospitalization rates—used detailed oicer, sought to reduce wait times in the hospital’s emergency storyboards to help hospital administrators and government room, which were sometimes as long as six hours. policy makers envision this new approach in practice, without The team’s initial concept, borrowed from Johns Hopkins building a digital prototype. Hospital in Baltimore, was to install an electronic kiosk for Learning in action. Real-world experiments are an essen- check-in. As team members began to apply design thinking, tial way to assess new ideas and identify the changes needed to however, they were asked to surface their assumptions about make them workable. But such tests ofer another, less obvious why the idea would work. It was only then that they realized kind of value: They help reduce employees’ and customers’ that their patients, many of whom were elderly Apache quite normal fear of change. speakers, were unlikely to be comfortable with computer tech- Consider an idea proposed by Don Campbell, a professor nology. Approaches that worked in urban Baltimore would not of medicine, and Keith Stockman, a manager of operations work in Whiteriver, so this idea could be safely set aside. research at Monash Health. As part of Monash Watch, they At the end of the idea generation process, innovators will suggested hiring laypeople to be “telecare” guides who would have a portfolio of well-thought-through, though possibly act as “professional neighbors,” keeping in frequent tele- quite diferent, ideas. The assumptions underlying them will phone contact with patients at high risk of multiple hospital have been carefully vetted, and the conditions necessary for admissions. Campbell and Stockman hypothesized that their success will be achievable. The ideas will also have the lower-wage laypeople who were carefully selected, trained support of committed teams, who will be prepared to take on in health literacy and empathy skills, and backed by a the responsibility of bringing them to market. decision support system and professional coaches they could involve as needed could help keep the at-risk patients healthy at home. The Testing Experience Their proposal was met with skepticism. Many of their Companies often regard prototyping as a process of ine- colleagues held a strong bias against letting anyone besides a tuning a product or service that has already largely been health professional perform such a service for patients with developed. But in design thinking, prototyping is carried complex issues, but using health professionals in the role out on far-from-inished products. It’s about users’ iterative would have been unafordable. Rather than debating this

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point, however, the innovation team members acknowledged challenges typically faced in reaching superior solutions, the concerns and engaged their colleagues in the codesign lowered costs and risks, and employee buy-in. Recognizing of an experiment testing that assumption. Three hundred organizations as collections of human beings who are moti- patients later, the results were in: Overwhelmingly positive vated by varying perspectives and emotions, design thinking patient feedback and a demonstrated reduction in bed use emphasizes engagement, dialogue, and learning. By involving and emergency room visits, corroborated by independent customers and other stakeholders in the deinition of the prob- consultants, quelled the fears of the skeptics. lem and the development of solutions, design thinking garners a broad commitment to change. And by supplying a structure AS WE HAVE SEEN, the structure of design thinking creates a to the innovation process, design thinking helps innovators natural low from research to rollout. Immersion in the cus- collaborate and agree on what is essential to the outcome at tomer experience produces data, which is transformed into every phase. It does this not only by overcoming workplace insights, which help teams agree on design criteria they use to politics but by shaping the experiences of the innovators, and brainstorm solutions. Assumptions about what’s critical to the of their key stakeholders and implementers, at every step. success of those solutions are examined and then tested with That is social technology at work. rough prototypes that help teams further develop innovations HBR Reprint R1805D and prepare them for real-world experiments. Along the way, design-thinking processes counteract JEANNE LIEDTKA is a professor at the University of Virginia’s Darden human biases that thwart creativity while addressing the School of Business.

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12 34 56 7

How companies can beneﬁt from innovation WILLIAM KERR Professor, Harvard centers without necessarily relocating Business School Navigating Talent Hot SPOTS

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The three options are not mutually exclusive—especially In 2016, since companies often need to keep in touch with several clusters—and each one involves substantial risks. But as the General Electric announced that it was moving its longtime inluence of a handful of global cities continues to grow, corporate headquarters from suburban Fairield, Connecticut, these approaches ofer a playbook to companies that ind to downtown Boston. The company felt it needed to plug in themselves outside the action in today’s concentrated to Boston’s high-tech young ventures and talent to become innovation geography. more innovative and digital—and ensure that it would be on the forefront of any emerging disruptive technologies. Jef Bornstein, then the CFO, summed up the advantage of Boston Option #1 to the Wall Street Journal this way: “I can walk out my door Headquarters Moves and visit four start-ups. In Fairield I couldn’t even walk out While we tend to associate innovation hubs with entrepre- my door and get a sandwich.” neurs and start-ups, increasingly they’re the domain of Leading cities have long had an outsize inluence on incumbents, too. Twenty years ago inventors working in the the global economy, but today the impact that top talent top 10 cities for patenting activity accounted for fewer than clusters like Boston and San Francisco have on innovation half the patents iled by America’s 50 largest companies; is especially pronounced. In 2017, America’s 10 largest tech their innovations were developed mostly in corporate labs in hubs accounted for 58% of U.S. patents. Globally, cities such smaller cities. In 2017, by contrast, inventors working in the top as Tokyo, Paris, Beijing, Shenzhen, and Seoul produced a 10 cities accounted for almost 70% of the Fortune 50’s patent similarly large proportion. The increased clout of these hubs ilings. Corporations have gone from being underrepresented poses a dilemma for companies that have historically located in tech hubs to exceeding the national average. their leadership and talent in suburban industrial parks. To some extent, this shift relects the displacement of Having a presence in innovation hotbeds is crucial, but it’s legacy companies in the Fortune 50 by innovative irms such also extraordinarily expensive—especially in the narrow as Alphabet and Amazon. But other incumbents besides GE innovation districts within cities where most of the high- are moving resources to tech hubs. In 2016 packaged foods tech activity takes place. manufacturer Conagra, for instance, relocated its headquarters How can companies most efectively harness the beneits from Omaha, Nebraska, to Chicago in order to attract more of these urban pools of knowledge and skills? In my work Millennials and recruit senior talent with experience in con- on global talent lows, I’ve seen corporations take three core sumer brands. While he praised Omaha, CEO Sean Connolly approaches: At one extreme, they relocate their headquarters, told the Omaha World-Herald, “Chicago is an environment that just as GE did. A less expensive and more easily reversible ofers us access to innovation and brand-building talent.” way to establish a brick-and-mortar foothold is to set up an Though cross-state moves grab headlines, companies are innovation lab or corporate outpost in a talent cluster. The also migrating out of less-dense areas surrounding talent most conservative option is to organize executive retreats clusters and into urban centers. In Boston, organizations relo- and immersive visits there. cating to the downtown area include Reebok, Converse, and much of the local venture capital industry. A local recruiting agency, WinterWyman, has reported that downtown Boston and Cambridge accounted for more than 60% of recent tech ► Idea in Brief hires in the metropolitan area, compared with just 5% two decades ago. Conagra closed a suburban Chicago facility so that ► THE SHIFT ► THE CHALLENGE ► THE SOLUTION it could move more of its executive team into its downtown Leading cities have Urban innovation hubs Companies have three HQ. McDonald’s, Motorola Solutions, Kraft Heinz, and some long had an outsize are extraordinarily options: Relocate their 50 other companies have also relocated to downtown Chicago influence on the global expensive. How can headquarters to hubs; from nearby suburbs. Greg Brown, the CEO of Motorola, noted economy, but today the companies harness the set up innovation that its HQ move would accelerate cultural change in the impact that top talent benefits of their dense labs or corporate company and make recruiting software developers and data clusters such as Boston pools of knowledge outposts there; or run and San Francisco and skills in the most executive retreats and scientists easier. have on innovation is effective manner? immersions there. The increased access to talent can be substantial, since especially pronounced. the share of the local college-educated workforce engaged

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From 1975 to 1979 the Bay Area accounted for 4.5% of patents, or the combined output of 20 states. In 2011 to 2015 its share rose to 17%, equaling the output of 34 states.

in digital ields in hub cities is typically two to three times as but there’s no better way than meeting in person to kick of or high as the national average. Moreover, many talented young renew a relationship. people want to work in hip downtown locations with sleek new A third risk is negative press and the loss of political capital. oices, not aging suburban complexes with lots of parking. No city wants a leading irm to leave, but the potential for ill But a headquarters relocation poses several risks. For large will extends to new locations, too. Many companies seek tax incumbents it can be incredibly diicult, time-consuming, breaks and other incentives for their new headquarters; it’s and expensive. The need to uproot an existing workforce, a delicate balancing act to secure preferential treatment but change legacy customer locations, and establish new local also be perceived as a partner in the new home city. Amazon political connections and responsibilities means that any has been criticized for the multiround bidding contest it held relocation will be disruptive, ofsetting the advantages a and the incentives it sought when scouting sites for its second talent cluster might ofer. What’s more, HQ moves are hard North American headquarters. As Apple began its search for to reverse. Because talent hot spots can rise and fall—in the the site of a fourth U.S. campus, CEO Tim Cook remarked that 1950s, Silicon Valley was barely a dot on the economic map, his company would not hold a beauty pageant like Amazon’s. and Detroit was the epicenter of rapidly growing industry— “That’s not Apple,” he told Recode. corporations may end up overinvesting in a temporary Headquarters moves must also deliver on high expecta- competitive advantage. tions. They must weather any changes in corporate lead- One way to mitigate that risk is to build smaller headquar- ership and the ups and downs of company performance. ters that are focused on innovation and the key needs of top Shortly after John Flannery took over as CEO of GE, in 2017, decision makers. GE is moving fewer than 800 people (out of the company announced that it would delay construction a workforce of more than 300,000) to Boston; only those who on its new $200 million building in Boston. And after GE are especially focused on innovation and digitization are being announced job cuts, some of which would afect Boston relocated. At some incumbents the top leaders already work workers, last fall, a local newspaper columnist wondered, mostly remotely, especially if they have heavy travel sched- “Was Boston sold a lemon?” GE remains committed to its ules. New corporate HQs are starting to look and operate more new HQ but is also rethinking the role of the HQ as it works like the oices of unicorn start-ups than of industrial giants. to realign itself. Communication technologies and connectivity allow corpo- A fourth risk that companies must guard against is a “leaky rate leadership to oversee operations with ever greater scope bucket.” Although they can recruit more easily in hubs, they and scale from a small command post. can see ideas and talent low out, too. In top clusters being an This points to the second broad risk with headquarters attractive local employer often means stacking up well against moves: that ideas generated within the talent hub may fail to an Apple or a Spotify with competitive salaries and beneits. spread to the rest of the organization. Cutting-edge concepts Finally, there’s a risk of unintended and unforeseen con- picked up in Boston or Berlin will beneit a global company sequences. Research shows that companies are more likely to only if they improve the productivity of operations around close plants that are distant from HQs than plants close by, for the world. Moving key executives to talent clusters may instance. Headquarters moves permanently shift the internal distance leaders from other employees in the irm, whereas workings of a irm in material ways. The company will also the older corporate HQs in suburban oice parks tended to adopt more of the culture of the new home base—which was minimize internal distances. As a result, careful thought will often the point of the move, after all—and executives will have to go into difusing acquired knowledge throughout the have a new peer group going forward. But for executives and organization’s facilities. directors looking to deeply transform their organizations, all Talent rotations can mitigate this risk. A study of an Indian those risks may be warranted. R&D center at a leading multinational showed that short business trips to the irm’s U.S. headquarters boosted the productivity of the site’s scientists and engineers upon their Option #2 return home, because they had gained technical knowledge Creating Outposts and and formed tighter personal relationships with leaders at headquarters and were better able to match people’s skills to Innovation Labs assignments. And as more companies are learning, commu- At many companies, moving the headquarters is not up for nication technology is not a substitute for people lows but a discussion. In September 2017, the same month that Amazon complement. Yes, great videoconferencing technology helps, began its search for a second North American headquarters,

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Follow the Money

Where are the global talent hot spots? Data on venture capital investment and unicorn start-ups (those with billion-dollar evaluations) point to these locations:

Metro areas with the Metro areas with greatest VC investment the most unicorns Walmart announced the construction of a new head oice (since 2009) (since 2009) in its longtime home of Bentonville, Arkansas. But even if Walmart remains forever rooted in Arkansas, it has no inten- 1. SAN FRANCISCO 1. SAN FRANCISCO tion of ceding the battle for the insights of talent clusters to the 2. BEIJING 2. BEIJING likes of Amazon (Seattle) and Alibaba (Hangzhou). Walmart 3. SHANGHAI 3. NEW YORK Labs, opened in 2011 in Silicon Valley, focuses on making 4. NEW YORK 4. LOS ANGELES advances, ranging from voice-enabled shopping to crowd- 5. BOSTON 5. SHANGHAI 6. LOS ANGELES 6. BOSTON sourced delivery, on the frontiers of e-commerce. 7. LONDON 7. LONDON Many companies a small fraction of Walmart’s size have 8. SHENZHEN 8. SEATTLE opened similar corporate outposts in order to access important 9. SAN DIEGO 9. HANGZHOU talent clusters in their industries. Such oices can serve a range 10. SEATTLE 10. CHICAGO of functions. Some simply house a small team that listens to what’s going on locally and scouts out business development Source: Calculations from Source: Calculations Thomson One data on from CB Insights data opportunities. Some establish an innovation lab like Walmart’s venture capital funding that works on new technology development. At others, companies focus on corporate venturing—partly to make a inancial return on investments, but more to have a better vantage point on new advances. Companies beneit most from innovation when they acquire the best ideas, not when their average ideas are better. A physical presence in leading clusters helps companies connect with the most powerful concepts emerging in their sector. Corporate outposts are relatively inexpensive to launch, at least compared with HQ moves, and some companies efectively buy one by acquiring a young tech start-up. An important step in the launch of Walmart Labs, for instance, was the retail giant’s purchase of Kosmix in 2011. Companies often want a presence in two or more clusters. One never knows where the next top idea will emerge, and irms can compete for talent better when they touch multiple clusters at once. Microsoft Research, for example, has built a network of labs outside Redmond, Washington, in locations that include Cambridge, Massachusetts; Cambridge, England; New York; Montreal; Beijing; and Bangalore. The Chinese white-goods giant Haier has ive R&D centers—within and outside top clusters in the United States, Europe, Japan, Australia, and China—which are helping it stake out a role in the internet of things. One of the major risks with outposts is being “penny-wise and pound-foolish” when selecting real estate. Location matters even within cities. The costs of locating close to Sand Hill Road or Market Street are substantially higher than elsewhere in the San Francisco area—but so are the beneits. A study of advertising agencies in Manhattan is illustrative. Manhattan’s agencies create about a quarter of all advertising in the United States. They rely on personal networking to share project work, splitting larger jobs into parts that can be independently attacked by each irm. However, the study found that sharing declines rapidly with geographical distance, disappearing

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entirely when two irms are more than half a mile apart. To by combining a relocating executive from the parent’s HQ with successfully tap into the market, an ad agency requires not a star already working in the cluster. When a foreign company only a New York address but an address within a few city enters the United States, this local talent is often an ex-pat of blocks of Madison Avenue. the same nationality as the parent organization. The good news is that real estate vendors that make it less A inal risk with innovation outposts is that the best ideas costly for companies to launch outposts are emerging. The and innovations will not low back to the parent company coworking company CIC, for example, located in the heart of efectively. Studies of patent data show that poor internal Kendall Square in Cambridge, Massachusetts, ofers high-end, transfer is especially pronounced in cross-border settings. This lexible oice space on a month-to-month basis. CIC has may explain why many irms are disappointed with the returns created packages suitable for the innovation outposts of large from overseas innovation work—if the right conditions aren’t companies, and its clients have included Amazon, Bayer, set, the output tends to be isolated. PwC, and Royal Dutch Shell. CIC even houses a “Captains of One efective countermeasure is to promote international Innovation” program that links corporations to local innovators. knowledge transfer by distributing collaborative teams across An advantage of outposts is that companies can experi- locations. That way, a company’s innovations are more likely ment and start with a small team—keeping the option open for to build on the patents iled in several locations. This ap- investment down the road. Five years before announcing its proach is used extensively when companies irst open new move to Boston, GE launched an outpost in Silicon Valley to international facilities, either as a deliberate hedge to protect accelerate its digital innovation eforts. The one-person oice intellectual property or simply as a needed prop for the initially housed just Bill Ruh, an executive recruited from Cisco ledgling operations. Cross-border collaborative teams now to lead a new lab. Over the next three years, he grew the oice account for 13% of the patents of large U.S. companies, up to 150 people, hiring Silicon Valley talent almost exclusively. from just 1% in 1975. Though these global teams need to be The launch strategy kept initial needs small and allowed Ruh carefully managed (see Tsedal Neeley’s HBR article “Global to shape the efort to Silicon Valley’s practices rather than Teams That Work,” October 2015), they’re likely to grow in being restricted by GE’s typical playbook. His group would importance as companies seek more access to talent clusters. grow to 1,800 employees and ultimately become its own business unit, now branded GE Digital. If outposts aren’t working out, they can be closed, but this Option #3 reversibility carries its own risk. Companies often pull the plug Executive Retreats too quickly, believing an operation is failing because they have unrealistic expectations about how quickly they’ll see results. and Immersions Leaders must understand that it takes time to build relation- Executive visits to top talent clusters can be a cost-efective ships; three to six months is rarely suicient. What makes way to increase awareness and excitement about eforts to talent clusters special is an enormous volume and diversity accelerate innovation and reshape business models and man- of activity. The investment in start-ups housed within CIC’s agement approaches. Though a weeklong trip rarely provides coworking space alone exceeds the venture investment made the missing piece to a company’s innovation puzzle, it can help in most U.S. states, for instance. There is much to learn before executives build a grounded understanding of what’s happen- a new outpost can be efective, and discovery processes take ing at the frontier and how their companies may need to react. time. This is especially true when organizations invest in a In 2014 executives at the large European bank ING cluster far from home. Netherlands felt that their organization, while proitable Another risk is that small teams away from the corporate and seemingly stable, was not realizing its full potential in a center will be viewed as impotent, rendering outpost execu- inancial services sector that was rapidly being revolutionized. tives less interesting to local entrepreneurs and innovators. So they embarked on visits to Spotify, Google, Netlix, Zappos, Empowering the local staf to make modest deals on behalf and other innovative companies to explore new possibilities. of the company goes a long way toward boosting the stature Those trips led the executives to reimagine ING Netherlands of an outpost’s leaders at the watercooler. as a smaller, nimbler organization with a stronger customer Perhaps most critical is the choice of initial outpost direc- focus. To fulill that new vision, the company would adopt tors. These executives lend their personal credibility both agile team methodology throughout the organization, reduce internally to the corporation and externally to the cluster. head count at its Dutch headquarters by 25%, and redesign its One approach is to seek a “best of both worlds” launch team facilities to have open loor plans without oices (even for the

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Starwood Hotels has moved its entire corporate headquarters from America to China, India, and the United Arab Emirates for monthlong immersions.

CEO) in order to foster new team interactions. Every person at Companies also must ensure that the insights gathered are headquarters had to reapply for a job, and all positions would acted on back home. A one-of immersion may deliver short- be quite diferent under the new system. The transformation term change while it’s top of mind for executives, but its lessons went live in 2015. CEO Vincent van den Boogert has been very may soon get crowded out by other priorities. Tying immer- pleased with the gains ING Netherlands has made since then sions to a regular strategy or leadership-building process is a in product innovation, customer satisfaction, and digital good way to capture their beneits. Immersions that have clear talent acquisition. links to important corporate work before and after the retreat The global telecom giant Vodafone has also made execu- will have the strongest power, and executives should spend tive immersions part of its innovation strategy. The company time on the trip itself debating and applying insights. is based in London, a premier talent cluster, but outgoing Vodafone ofers a good example of how to leverage an CEO Vittorio Colao strongly feels that Vodafone must tap into immersion’s insights back home. The company invites its top other clusters to stay on the cutting edge in communication 250 employees to London for three-day training sessions on technologies and other advanced technologies that afect irm the advanced technologies its top 50 leaders have studied. operations. Every year the top 50 Vodafone executives take This program—which includes exercises like building a a weeklong trip to Silicon Valley together to broaden their rudimentary chatbot for ordering cofee—pushes familiarity perspectives. Many other companies organize similar visits to with the technologies into the organization’s second tier New York, London, Boston, Shanghai, and other clusters for of leadership. To spread the insights throughout its vast their executives or board members. (I myself have organized organization, the company incorporates the emerging corporate immersions in Boston, and this article draws on technology trends it has identiied into personalized learn- those experiences. None of the companies mentioned in this ing programs on its digital Vodafone University platform. article have been my clients, however.) (Vodafone also pairs leaders with young “digital ninjas” to But many irms underinvest in immersions, for two provide ongoing upward mentoring on emerging technology reasons: Executives view the trip as a semi-vacation or, at trends and applications.) the other extreme, can’t extract themselves from e-mails A inal risk is that executives will bring the wrong insights about daily operations to the team back home. The CEO must home with them. Clusters excel when the local community emphasize immersions’ high price—especially the opportunity buys into the same priorities and perspectives, such as the costs related to executive time—to all participants. Mandates deep respect given in Silicon Valley to people who launch from the CEO regarding prework for the trip will set the tone, game-changing companies. But any tightly knit place can also and nothing keeps executives of their smartphones the way sufer from groupthink. Silicon Valley’s “move fast and break the CEO’s mindful eye and visible passion do. An all-in mental- things” ethos has arguably left many tech giants blind to a ity for leaders makes the immersion a success, and trips should backlash on issues like privacy, data security, and surveillance. be planned at times when that kind of dedication is realistic for Executives participating in immersions may be dazzled by the executive team. the wrong things, when they should be listening carefully and A second risk is that participants in immersions won’t dig asking questions. deep enough. Visits to local companies can be informative and inspiring, but not if they don’t get past preset professional A STRIKING FEATURE of today’s business landscape is the grow- tours. ING’s visit to Spotify became much more efective, for ing concentration of innovation activity—and the exceptional instance, when people at the Swedish music company began to talent associated with it—into a small number of geographic relate the costs and challenges of adopting agile methodology, clusters. As new technologies continue to disrupt industries, not just the beneits. the fate of corporations will increasingly be determined in One (rare) route to deep immersion is to park the leader- these hot spots. By taking one or more of the approaches I’ve ship team abroad for an extended time. To obtain insights outlined here, companies can access the intelligence in these on innovative technology and services in emerging regions, key locations and keep up with the fast pace of change. Starwood Hotels has moved its entire corporate headquarters HBR Reprint R1805E from America to China, India, and the United Arab Emirates for monthlong immersions. With shorter trips, visiting companies WILLIAM KERR is the Dimitri V. D’Arbeloﬀ–MBA Class of 1955 Professor of need to organize tailored sessions with local experts (such as Business Administration at Harvard Business School and the author business leaders and university faculty members) to achieve of The Gift of Global Talent: How Migration Shapes Business, Economy & greater learning. Society (forthcoming from Stanford University Press).

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Is there a DOWNSIDE to corporate growth?

NEW SCALING VENTURES: Developing the Playbook for Proﬁ table Growth dec. 9–13, 2018 • san francisco, ca

All companies want to grow. Few companies do it right. Not if you Scaling Ventures: Developing the Playbook for Proﬁ table Growth takes a holistic approach to the three pivotal elements of growth: strategy, ﬁ nance, and leadership. You’ll learn how to determine your growth DO IT readiness, create the capital required, and balance the people and processes involved to achieve a successful strategy execution. RIGHT. Grow Toward Success. execed.wharton.upenn.edu/scale РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS Alibaba and

MING ZENG Chairman, Academic Council Lessons from China’s innovative digital giant of the Alibaba Group

Art by Harry Campbell

libaba hit the headlines with the world’s biggest IPO in September 2014. Today, the company has a market cap among the global top 10, has surpassed Walmart in global sales, and has expanded into all the major markets in the world. Founder Jack Ma has become a household name. From its inception, in 1999, Alibaba experienced great growth on its e-commerce platform. However, it still didn’t look like a world-beater in 2007 when the management team, which I had joined full-time the year before, met for a strategy of-site A at a drab seaside hotel in Ningbo, Zhejiang province. Over the course of the meeting,

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12 34 56 78 9 the Future of Business

our disjointed observations and ideas Alibaba’s special innovation, we realized, was that we were truly building an about e-commerce trends began to coalesce ecosystem: a community of organisms (businesses and consumers of many types) into a larger view of the future, and by interacting with one another and the environment (the online platform and the larger the end, we had agreed on a vision. We of-line physical elements). Our strategic imperative was to make sure that the platform would “foster the development of an open, provided all the resources, or access to the resources, that an online business would coordinated, prosperous e-commerce need to succeed, and hence supported the evolution of the ecosystem. ecosystem.” That’s when Alibaba’s journey The ecosystem we built was simple at irst: We linked buyers and sellers of goods. As really began. technology advanced, more business functions moved online—including established РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS

► Idea in Brief

A NEW BUSINESS MODEL ► HOW TO BUILD IT ones, such as advertising, marketing, logistics, and inance, Alibaba is an example of Automate decision making by: and emerging ones, such as ailiate marketing, product tomorrow’s “smart business”: • making sure every interaction recommenders, and social media inluencers. And as we a tech-enabled platform that yields as much data as possible expanded our ecosystem to accommodate these innovations, coordinates multiple business • ensuring that all business players in an ecosystem. activities are mediated by we helped create new types of online businesses, completely software reinventing China’s retail sector along the way. ► HOW IT WORKS • using APIs and other interface Alibaba today is not just an online commerce company. It Players in the ecosystem share protocols to ensure smooth is what you get if you take all functions associated with retail data and apply machine-learning interaction among software and coordinate them online into a sprawling, data-driven technology to identify and better systems network of sellers, marketers, service providers, logistics fulﬁll consumer needs. • applying machine learning to make sense of data in real time companies, and manufacturers. In other words, Alibaba does what Amazon, eBay, PayPal, Google, FedEx, wholesalers, and a good portion of manufacturers do in the United States, with a healthy helping of inancial services for garnish. Of the world’s 10 most highly valued companies today, seven are internet companies with business models similar to ours. Five of them—Amazon, Google, and Facebook in the United States and Alibaba and Tencent in China—have been around barely 20 years. Why has so much value and market power emerged so quickly? Because of new capabilities in network coordination and data intelligence that all these companies put to use. The ecosystems they steward are vastly more economically eicient and customer-centric than traditional industries. These irms follow an approach I call smart business, and I believe it represents the dominant business logic of the future. WHAT IS SMART BUSINESS? Smart business emerges when all players involved in achieving a common business goal—retailing, for example, or ride sharing—are coordinated in an online network and use machine-learning technology to eiciently leverage data in real time. This tech-enabled model, in which most operational decisions are made by machines, allows companies to adapt РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS

dynamically and rapidly to changing market conditions and $1,200. In 2012, we bundled this lending operation together customer preferences, gaining tremendous competitive with Alipay, our very successful payments business, to create advantage over traditional businesses. Ant Financial Services. We gave the new venture that name Ample computing power and digital data are the fuel for to capture the idea that we were empowering all the little but machine learning, of course. The more data and the more industrious, antlike companies. iterations the algorithmic engine goes through, the better Today, Ant can easily process loans as small as several its output gets. Data scientists come up with probabilistic hundred RMB (around $50) in a few minutes. How is this prediction models for speciic actions, and then the algorithm possible? When faced with potential borrowers, lending churns through loads of data to produce better decisions in real institutions need answer only three basic questions: Should we time with every iteration. These prediction models become lend to them, how much should we lend, and at what interest the basis for most business decisions. Thus machine learning rate? Once sellers on our platforms gave us authorization to is more than a technological innovation; it will transform analyze their data, we were well positioned to answer those the way business is conducted as human decision making is questions. Our algorithms can look at transaction data to increasingly replaced by algorithmic output. assess how well a business is doing, how competitive its Ant Microloans provides a striking example of what this oferings are in the market, whether its partners have high future will look like. When Alibaba launched Ant, in 2012, the credit ratings, and so on. typical loan given by large banks in China was in the millions of Ant uses that data to compare good borrowers (those who dollars. The minimum loan amount—about 6 million RMB or repay on time) with bad ones (those who do not) to isolate just under $1 million—was well above the amounts needed by traits common in both groups. Those traits are then used to most small and medium-size enterprises (SMEs). Banks were calculate credit scores. All lending institutions do this in some reluctant to service companies that lacked any kind of credit fashion, of course, but at Ant the analysis is done automatically history or even adequate documentation of their business on all borrowers and on all their behavioral data in real time. activities. As a consequence, tens of millions of businesses Every transaction, every communication between seller in China were having real diiculties securing the money and buyer, every connection with other services available at necessary to grow their operations. Alibaba, indeed every action taken on our platform, afects At Alibaba, we realized we had the ingredient for creating a business’s credit score. At the same time, the algorithms a high functioning, scalable, and proitable SME lending that calculate the scores are themselves evolving in real time, business: the huge amount of transaction data generated by improving the quality of decision making with each iteration. the many small businesses using our platform. So in 2010 we Determining how much to lend and how much interest launched a pioneering data-driven microloan business to ofer to charge requires analysis of many types of data generated loans to businesses in amounts no larger than 1 million RMB inside the Alibaba network, such as gross proit margins and (about $160,000). In seven years of operation, the business inventory turnover, along with less mathematically precise has lent more than 87 billion RMB $13.4 billion) to nearly three information such as product life cycles and the quality of million SMEs. The average loan size is 8,000 RMB, or about a seller’s social and business relationships. The algorithms РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS

Alibaba’s Major Businesses at a Glance

might, for example, analyze the frequency, length, and type of CHINESE RETAIL OTHER SERVICES* communications (instant messaging, e-mail, or other methods MARKETPLACES AutoNavi common in China) to assess relationship quality. Taobao Marketplace (mapping and navigation) Alibaba’s data scientists are essential in identifying and testing which data points provide the insights they seek and Tmall Koubei then engineering algorithms to mine the data. This work Rural Taobao (local services) requires both a deep understanding of the business and Ele.me expertise in machine-learning algorithms. Consider again Ant CROSS-BORDER AND (delivery) Financial. If a seller deemed to have poor credit pays back its GLOBAL MARKETPLACES loan on time or a seller with excellent credit catastrophically AliExpress FINANCE* defaults, the algorithm clearly needs tweaking. Engineers can quickly and easily check their assumptions. Which parameters Tmall Global Ant Financial (includes Alipay) should be added or removed? Which kinds of user behavior Lazada should be given more weight? MYbank As the recalibrated algorithms produce increasingly WHOLESALE COMMERCE accurate predictions, Ant’s risk and costs steadily decrease, LOGISTICS* and borrowers get the money they need, when they need it, at 1688.com an interest rate they can aford. The result is a highly successful (China) Cainiao Network business: The microlending operation has a default rate of Alibaba.com CLOUD COMPUTING* about 1%, far below the World Bank’s 2016 estimate of an (global) average of 4% worldwide. Alibaba Cloud So how do you create that kind of business? DIGITAL MEDIA AND AUTOMATE ALL OPERATING DECISIONS ENTERTAINMENT* To become a smart business, your irm must enable as many Youku Tudou operating decisions as possible to be made by machines fueled (online video) by live data rather than by humans supported by their own Alibaba Pictures data analysis. Transforming decision making in this way is a four-step process. Alibaba Music Alibaba Sports UC (mobile browser) * Major investee companies Step 1: and cooperative partners of “Datafy” every customer exchange. Ant was fortunate to Alibaba Group have access to plenty of data on potential borrowers to answer the questions inherent in its lending business. For many businesses, the data capture process will be more challenging. But live data is essential to creating the feedback loops that are the basis of machine learning. РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS

Consider the bike rental business. Start-ups in China have Most businesses that seek to be more data-driven typically leveraged mobile telephony, the internet of things (in the form collect and analyze information in order to create a causal of smart bike locks), and existing mobile payment and credit model. The model then isolates the critical data points from the systems to datafy the entire rental process. mass of information available. That is not how smart businesses Renting a bike traditionally involved going to a rental use data. Instead, they capture all information generated during location, leaving a deposit, having someone give you a bike, exchanges and communications with customers and other using the bike, returning it, and then paying for the rental by network members as the business operates and then let the cash or credit card. Several rival Chinese companies put all algorithms igure out what data is relevant. of this online by integrating various new technologies with existing ones. A crucial innovation was the combination of QR codes and electronic locks that cleverly automated the Step 2: checkout process. By opening the bike-sharing app, a rider “Software” every activity. In a smart business, all activities— can see available bicycles and reserve one nearby. Once the not just knowledge management and customer relations—are rider arrives at the bicycle, he or she uses the app to scan a QR conigured using software so that decisions afecting them can code on the bicycle. Assuming that the person has money in be automated. This does not mean that a irm needs to buy or his or her account and meets the rental criteria, the QR code build ERP software or its equivalent to manage its business— will open the electronic bike lock. The app can even verify the quite the opposite. Traditional software makes processes and person’s credit history through Sesame Credit, Ant Financial’s decision lows more rigid and often becomes a straitjacket. In new online product for consumer credit ratings, allowing the contrast, the dominant logic for smart business is reactivity rider to skip paying a deposit, further expediting the process. in real time. The irst step is to build a model of how humans When the bike is returned, closing the lock completes the currently make decisions and ind ways to replicate the simpler transaction. The process is simple, intuitive, and usually takes elements of that process using software—which is not always only several seconds. easy, given that many human decisions are built on common Datafying the rental process greatly improves the consumer sense or even subconscious neurological activity. experience. On the basis of live data, companies dispatch trucks to move bikes to where users want them. They can also alert regular users to the availability of bikes nearby. Thanks in large part to these innovations, the cost of bike rentals in China has fallen to just a few cents per hour. РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS

The growth of Taobao, the domestic retailing website of software had to be broadly interoperable with all other software Alibaba Group, is driven by continuous softwaring of the on the platform to be of any value. So in 2009, Taobao began retailing process. One of the irst major software tools built developing APIs for use by independent software suppliers. on Taobao was an instant message tool called Wangwang, Today, merchants on Taobao subscribe to more than 100 software through which buyers and sellers can talk to each other easily. modules, on average, and the live data services they enable Using the tool, the sellers greet buyers, introduce products, drastically decrease the merchants’ cost of doing business. negotiate prices, and so on, just as people do in a traditional Getting the technical infrastructure right is just the retail shop. Alibaba also developed a set of software tools beginning. It took tremendous efort for us to build a common that help sellers design and launch a variety of sophisticated standard so that data could be used and interpreted in the online shop fronts. Once online shops are up and running, same way across all of Alibaba’s business units. Additionally, sellers can access other software products to issue coupons, iguring out the right incentive structures to persuade ofer discounts, run loyalty programs, and conduct other companies to share the data they have is an important and customer relationship activities, all of which are coordinated ongoing challenge. Much more work is needed. Of course, with one another. the degree to which companies can innovate in this area will Because most software today is run online as a service, an depend in part on the rules governing data sharing in the important advantage of softwaring a business activity is that countries they’re operating in. But the direction is very clear: live data can be collected naturally as part of the business The more data lows across the network, the smarter the process, building the foundation for the application of business becomes, and the more value the ecosystem creates. machine-learning technologies. Step 4: Step 3: Apply the algorithms. Once a business has all its operations Get data ﬂowing. In ecosystems with many interconnected online, it will experience a deluge of data. To assimilate, players, business decisions require complex coordination. interpret, and use the data to its advantage, the irm must Taobao’s recommendation engines, for example, need to create models and algorithms that make explicit the work with the inventory management systems of sellers underlying product logic or market dynamics that the business and with the consumer-proiling systems of various social is trying to optimize. This is a huge creative undertaking that media platforms. Its transaction systems need to work with requires many new skills, hence the enormous demand for discount ofers and loyalty programs, as well as feed into our data scientists and economists. Their challenge is to specify logistics network. what job they want the machine to do, and they have to be Communication standards, such as TCP/IP, and application very clear about what constitutes a job well done in a particular programming interfaces (APIs) are critical in getting the data business setting. lowing among multiple players while ensuring strict control of From very early on, our goal for Taobao was to tailor it to who can access and edit data throughout the ecosystem. APIs, each individual’s needs. This would have been impossible a set of tools that allow diferent software systems to “talk” without advances in machine learning. Today, when and coordinate with one another online, have been central to customers log on, they see a customized webpage with a Taobao’s development. As the platform grew from a forum where selection of products curated from the billions ofered by our buyers and sellers could meet and sell goods to become China’s millions of sellers. The selection is generated automatically by dominant e-commerce website, merchants on the site needed Taobao’s powerful recommendation engine. Its algorithms, more and more support from third-party developers. New which are designed to optimize the conversion rate of each

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Alibaba by the Numbers

The Alibaba Group went public in the United States in visit, churn data generated across Taobao’s platform, from September 2014 and has grown at a blistering pace, operations to customer service to security. A milestone in Taobao’s growth, in 2009, was the upgrade now boasting a market cap of more than $500 billion. from simple browsing, which worked reasonably well when The group’s e-commerce platforms now have more the platform had many fewer visits and products to handle, than 550 million annual active consumers. These to a search engine powered by machine-learning algorithms numbers don’t include Ant Financial, which reports and capable of processing huge volumes of inquiries. Taobao has also been experimenting with optical-recognition search financial results separately. algorithms that can take a photo of a desired item supplied by In the fiscal year ending March 2017, Alibaba the customer and match it to available products on the platform. Group reported profits of more than $15 billion on While we are still in the early stages of using this technology nearly $40 billion in revenue. Ant reported profits of to drive sales, the function has proved very popular with customers, boasting 10 million unique visits daily. $814 million on revenue of $8.9 billion and is currently In 2016, Alibaba introduced an AI-powered chatbot valued at over $100 billion. Ant pays Alibaba to help ield customer queries. It is diferent from the royalties, which amounted to $332 million in 2017. mechanical service providers familiar to most people that are programmed to match customer queries with answers in their $39.9 repertoire. Alibaba’s chatbots are “trained” by experienced representatives of Taobao merchants. They know all about $15.5 the products in their categories and are well versed in the mechanics of Alibaba’s platforms—return policies, delivery costs, how to make changes to an order—and other common Revenue (in US$ billions) questions customers ask. Using a variety of machine- EBITDA learning technologies, such as semantic comprehension, context dialogues, knowledge graphs, data mining, and deep learning, the chatbots rapidly improve their ability to diagnose and ix customer issues automatically, rather than simply return static responses that prompt the consumer to take further action. They conirm with the customer that the solution presented is acceptable and then execute it. No human action by Alibaba or the merchant occurs. Chatbots can also make a signiicant contribution to a seller’s top line. Apparel brand Senma, for example, started using one a year ago and found that the bot’s sales were 26 times higher than the merchant’s top human sales associate. There will always be a need for human customer representatives to deal with complicated or personal issues, but the $8.4 ability to handle routine queries via a chatbot is very useful, $4.9 especially on days of high volume or special promotions. Previously, most large sellers on our platform would hire temp workers to handle consumer inquiries during big events. Not anymore. During Alibaba’s biggest sales day in 2017, the chatbot handled more than 95% of customer questions, responding to some 3.5 million consumers. These four steps are the basis for creating a smart business: Engage in creative dataication to enrich the pool 2014 2015 2016 2017 2018 of data the business uses to become smarter; software the business to put worklows and essential actors online; Source: Alibaba Group institute standards and APIs to enable real-time data low

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Further Reading

and coordination; and apply machine-learning algorithms HBR ARTICLES ON STRATEGY FOR to generate “smart” business decisions. All the activities PLATFORM BUSINESSES involved in the four steps are important new competencies that require a new kind of leadership. Finding the Platform in Your Product Andrei Hagiu and Elizabeth J. Altman

THE LEADER’S ROLE Network Effects Aren’t Enough In my course on smart business at Hupan School of Andrei Hagiu and Simon Rothman Entrepreneurship, I show a slide of 10 business leaders and ask the students to identify them. They can easily pick out Strategies for Two-Sided Markets Thomas R. Eisenmann, Geoffrey G. Parker, Jack Ma, Elon Musk, and Steve Jobs. But virtually no one can and Marshall W. Van Alstyne identify the CEO of CitiGroup or Toyota or General Electric. There is a reason for this. Unlike GE, Toyota, and CitiGroup, Pipelines, Platforms, and the New Rules of Strategy which deliver products or services through optimized supply Marshall W. Van Alstyne, Geoffrey G. Parker, chains, digital companies must mobilize a network to realize and Sangeet Paul Choudary their vision. To do that, their leaders have to inspire the How to Launch Your Digital Platform employees, partners, and customers who make up that network. Benjamin Edelman They must be visionaries and evangelists, outspoken in a way that the leaders of traditional companies do not have to be. ON ARTIFICIAL INTELLIGENCE AND At the highest level, the digital evangelists must understand MACHINE LEARNING what the future will look like and how their industries will evolve in response to societal, economic, and technological changes. Algorithms Need Managers, Too They cannot describe concrete steps to realize their companies’ Michael Luca, Jon Kleinberg, and Sendhil Mullainathan goals because the environment is too luid and the capabilities they will require are unknowable. Instead, they must deine The Simple Economics of Machine Intelligence Ajay Agrawal, Joshua Gans, and Avi Goldfarb what the irm seeks to achieve and create an environment in which workers can quickly string together experimental Deep Learning Will Radically Change the Ways products and services, test the market, and scale the ideas that We Interact with Technology elicit a positive response. Digital leaders no longer manage; Aditya Singh rather, they enable workers to innovate and facilitate the core Fixing Discrimination in Online Marketplaces feedback loop of user responses to irm decisions and execution. Ray Fisman and Michael Luca In the smart business model, machine-learning algorithms take on much of the burden of incremental improvement by HBR.org automatically making adjustments that increase systemwide eiciency. Thus, leaders’ most important job is to cultivate creativity. Their mandate is to increase the success rate of innovation rather than improve the eiciency of the operation. real-time applications of machine learning are now possible and afordable in more and more environments. The rapid DIGITAL NATIVE COMPANIES such as Alibaba have the advantage development of internet-of-things technology will further of being born online and data-ready, so their transformation digitize our physical surroundings, providing ever more data. to smart business is quite natural. Now that they have proven As these innovations accumulate in the coming decades, the model works and are transforming the old industrial the winners will be companies that get smart faster than the economy, it is time for all companies to understand and competition. HBR Reprint R1805F apply this new business logic. That may look technologically intimidating, but it is becoming more and more feasible. MING ZENG is the chairman of the Academic Council of the Alibaba The commercialization of cloud computing and artiicial Group, an e-commerce, retail, and technology conglomerate, based intelligence technologies has made large-scale computational in Hangzhou, China, and the author of Smart Business: What Alibaba’s Success Reveals About the Future of Strategy (Harvard Business Review power and analytic capabilities accessible to anyone. Indeed, Press, September 2018). He is also the dean of Hupan School of the cost of storing and computing large quantities of data has Entrepreneurship, a private business school founded by Alibaba chairman dropped dramatically over the past decade. This means that Jack Ma and other leading Chinese entrepreneurs in Hangzhou.

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THOMAS H. LEE Chief medical officer, Turning passion and perseverance Press Ganey into performance: the view from ANGELA L. DUCKWORTH the health care industry Psychology professor, University of Pennsylvania

Organizational

HIGH ACHIEVERS HAVE extraordinary stamina. Even if they’re already at the top of their game, they’re always striving to improve. Even if their work requires sacriice, they Grıtremain in love with what they do. Even when easier paths beckon, their commitment is steadfast. We call this remarkable combination of strengths “grit.” Grit predicts who will accomplish challenging goals. Research done at West Point, for example, shows that it’s a better indicator of which cadets will make it through training than achievement test scores and athletic ability. Grit predicts the likelihood of graduating from high school and college and performance in stressful jobs such as sales. Grit also, we believe, propels people to the highest ranks of leadership in many demanding ields. In health care, patients have long depended on the grit of individual doctors and nurses. But in modern medicine, providing superior care has become so complex that no lone practitioner, no matter how driven, can do it all. Today great care requires great

► People in gritty organizations unite behind an important common goal. In 1942 women in Chrysler’s Chicago bomber plant stepped into new roles to support the Allied war eﬀort.

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collaboration—gritty teams of clinicians who all relentlessly low-level goals are a means to an end, helping the cardiologist push for improvement. Yet it takes more than that: Health accomplish mid-level goals, such as coordinating patients’ care care institutions must exhibit grit across the entire provider with other specialists and team members. At the top would be system. a goal that is abstract, broad, and important—such as increas- In this article, drawing on Tom’s decades of experience as ing patients’ quality and length of life. This overarching goal a clinician and health care leader and Angela’s foundational gives meaning and direction to everything a gritty individual studies on grit, we’ve integrated psychological research at does. (See the exhibit “A Cardiologist’s Goal Hierarchy.”) Less the individual level with contemporary perspectives on gritty people, in contrast, have less coherent goal hierarchies— organizational and health care cultures. As we’ll show, in and often, numerous conlicts among goals at every level. the new model of grit in health care—exempliied by leading institutions like Mayo Clinic and Cleveland Clinic—passion for A Cardiologist’s Goal Hierarchy patient well-being and perseverance in the pursuit of that goal In this simplified illustration, immediate, concrete goals sit at the bottom. become social norms at the individual, team, and institutional These support broader goals at the next level, which in turn support an levels. Health care, because it attracts so many elite performers overarching primary goal that provides meaning and direction. and is so dependent on teamwork, is an exceptionally good place to ind examples of organizational grit. But the principles outlined here can be applied in other business sectors as well. Top-level goal Improve cardiac patients’ quality and length of life Developing Individuals For leaders, building a gritty culture begins with selecting Mid-level goals and developing gritty individuals. What should organizations look for? The two critical components of grit are passion and Prevent cardiac Treat cardiac Coordinate conditions conditions care perseverance. Passion comes from intrinsic interest in your craft and from a sense of purpose—the conviction that your work is meaningful and helps others. Perseverance takes the Lower-level goals form of resilience in the face of adversity as well as unwavering Encourage Encourage Prescribe Schedule Meet to Track devotion to continuous improvement. exercise healthy therapy checkups review relevant The kind of single-minded determination that character- eating as needed cases conditions izes the grittiest individuals requires a clearly aligned hierarchy of goals. Consider what such a hierarchy might look like for a cardiologist: At the bottom would be speciic tasks on her It’s important to note that assembling a group of gritty short-term to-do list, such as meetings to review cases. These people does not necessarily create a gritty organization. It could instead yield a disorganized crowd of driven individuals, each pursuing a separate passion. If everyone’s goals aren’t ► Idea in Brief aligned, a culture won’t be gritty. And, as we’ll discuss in more detail later, it takes efort to achieve that alignment. Take Mayo Clinic. It is unambivalently committed to a ► THE PROBLEM ► THE SOLUTION ► HOW IT WORKS top-level goal of putting patients’ needs above all else. It lays Health care has long Hospitals and Sustaining a gritty depended on the passion health systems must organizational out that goal in its mission statement and diligently reinforces and perseverance of develop grit at the culture requires clear it when recruiting. Mayo observes outside job candidates for individual doctors individual, team, and communication of two to three days as they practice and teach, evaluating not and nurses. But with organizational levels. values by leadership, just their skills but also their values—speciically, whether the advent of modern That requires ensuring programs that they have a patient-centric mission. Once hired, new doctors medicine, providing that all participants are celebrate successes, superior care has committed to pursuing and the promotion of a undergo a three-year evaluation period. Only after they’ve become so complex a shared high-level “growth mindset” that demonstrated the needed talent, grit, and goal alignment are that no lone caregiver, goal. Putting patients embraces continuous they considered for permanent appointment. no matter how gritty, first is a common and improvement and How can you hire for grit? Questionnaires are useful for can do it all. effective objective. learning from setbacks. research and self-relection (see the sidebar “Gauging Your

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Grit”), but because they’re easy to game, we don’t recommend Building Teams using them as hiring tools. Instead, we recommend carefully Gritty teams collectively have the same traits that gritty reviewing an applicant’s track record. In particular, look for individuals do: a desire to work hard, learn, and improve; multiyear commitments and objective evidence of advance- resilience in the face of setbacks; and a strong sense of ment and achievement, as opposed to frequent lateral moves, priorities and purpose. such as shifts from one specialty to another. When checking In health care, teams are often deined by the population references, listen for evidence that candidates have bounced they serve (say, patients with breast cancer) or the site where back from failure in the past, demonstrated lexibility in they work (the coronary care unit). Gritty team members may dealing with unexpected obstacles, and sustained a habit of have their own professional goal hierarchies, but each will em- continuous self-improvement. Most of all, look for signs that brace the team’s high-level goal—typically, a team-speciic ob- people are driven by a purpose bigger than themselves, one jective, such as “improve our breast cancer patients’ outcomes,” that resonates with the mission of your organization. that in turn supports the organization’s overarching goal. Mayo, like many gritty organizations, develops most of Many people in health care associate commitment to a team its own talent. More than half the physicians hired at its with the loss of autonomy—a negative—but gritty people view main campus in Rochester, Minnesota, for example, come it as an opportunity to provide better care for their patients. from its medical school or training programs. One leader They see the whole as greater than the sum of its parts, recog- there told us those programs are seen as “an eight-year job nizing that they can achieve more as a team than as individuals. interview.” When expanding to other regions, both Mayo and In business, teams are increasingly dispersed and virtual, Cleveland Clinic prefer to transfer physicians trained within but the grittiest health care teams we’ve seen emphasize face- their systems rather than hire local doctors who may not to-face interaction. Members meet frequently to review cases, it their culture. set targets for improvement, and track progress. In many Creating the right environment can help organizations de- instances the entire team discusses each new patient. These velop employees with grit. (The idea of cultivating passion and meetings reinforce the sense of shared purpose and commit- perseverance in adults may seem naive, but abundant research ment and help members get to know one another and build shows that character continues to evolve over a lifetime.) The trust—another characteristic of efective teams. optimal environment will be both demanding and supportive. That’s an insight that many health care leaders have come People will be asked to meet high expectations, which will be to by studying the description of the legendary six-month clearly deined and feasible though challenging. But they’ll Navy SEAL training in Team of Teams, by General Stanley also be ofered the psychological safety and trust, plus tangible McChrystal. As he notes, the training’s purpose is “not to pro- resources, that they need to take risks, make mistakes, and duce supersoldiers. It is to build superteams.” He writes, “Few keep learning and growing. tasks are tackled alone… The formation of SEAL teams is less At Cleveland Clinic, physicians are on one-year contracts, about preparing people to follow precise orders than it is about which are renewed—or not—on the basis of their annual developing trust and the ability to adapt within a small group.” professional reviews (APRs). These include a formal discus- Such a culture allows teams to perform at consistently high sion of career goals. Before an APR, each of the clinic’s 3,600 levels, even in the face of unpredictable challenges. physicians completes an online assessment, relects on his or Commitment to a shared purpose, a focus on constant her progress over the past year, and proposes new objectives improvement, and mutual trust are all hallmarks of integrated for the year ahead. At the meetings, physicians and their practice units (IPUs)—the gold standard in team health care. supervisors agree on speciic goals, such as improving com- These multidisciplinary units provide the full cycle of care for munication skills or learning new techniques. The clinic then a group of patients, usually those with the same condition or ofers relevant courses or training along with the inancial closely related conditions. Because IPUs focus on well-deined support and “protected time” the physicians might need to segments of patients with similar needs, meaningful data complete it. Improvement is encouraged not by performance can be collected on their costs and outcomes. That means bonuses but by giving people detailed feedback about how that the value a unit creates can be measured, optimized, and they’re doing on a host of metrics, including eiciency at rewarded. In other words, IPUs can gather the feedback they speciic procedures and patient experience. The underlying need to keep getting better. assumption is that clinicians want to improve and that the or- UCLA’s kidney transplant IPU is a prime example. Two ganization, and their supervisors in particular, fully backs their years after the 1984 passage of the National Organ Transplant eforts to reach targets that may take a year or more to reach.

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Gritty teams strive for continuous improvement. Here, two workers check ► military aircraft propellers in a U.S. plant during World War II.

Act, which required organ transplant programs to collect Aligning Organizational Objectives and report data on outcomes such as one-year success rates, Kaiser Permanente approached UCLA about contracting for Gritty health care institutions have clear goal hierarchies, like the hypothetical kidney transplantation. This dominant HMO would increase schematic below. As with individual and team hierarchies, lower-level goals support those at the next tier, in service of a single, overarching top-level goal its referrals to UCLA if UCLA would accept a ixed price for the or mission. entire episode of care (a “bundled payment”). After taking the deal, UCLA had an imperative to deliver great outcomes (or risk public humiliation and loss of referrals) and be eicient Top-level goal (or risk losing money under the bundled payment contract). Put patients ﬁrst The team has grown to be one of the largest in the country, and its success rates (risk-adjusted patient and graft survival) have been signiicantly higher than national benchmarks almost every year. With medical advances and public report- ing, kidney transplantation success rates have improved across the country—but UCLA has stayed at the front of the pack.

Gritty Organizations Mid-level goals If gritty individuals and teams are to thrive, organizations need Improve care quality Reduce costs Promote wellness to develop cultures that make them, in turn, macrocosms of their best teams and people. So organizations beneit from making their goal hierarchies explicit. If an organization declares that it has multiple missions, and can’t prioritize them, it will have diiculty making good strategic choices. Another danger is promoting a high-level objective that people won’t embrace. In health care making cost cutting or Lower-level goals growth in market share the top priority is unlikely to resonate with caregivers whose passion is improving outcomes that Launch Provide Invest in Create Implement Cut Provide Educate matter to patients. disease- empathy innovation care electronic supply lifestyle patients focused training paths health costs programs In our experience, every gritty health care organization institutes records has a primary goal of putting patients irst. In fact, we believe a health care organization can’t be gritty if it doesn’t put that goal before everything else. (See the exhibit “Aligning Of course, even when the high-level goal is clear and appro- Organizational Objectives.”) Though it’s challenging to suggest priate, rhetoric alone won’t suice to promote it—and can even that other needs (such as those of doctors or researchers) come backire. If an organization’s leaders don’t use the goal to make second or third, if patients’ needs are not foremost, decisions decisions, it will undermine their credibility. tend to be based on politics rather than strategy as stakehold- Consider how Cleveland Clinic responded when it learned ers jockey for resources. This doesn’t mean an organization that a delayed appointment had caused hours of sufering for can’t have other goals; Mayo, for instance, also values research, a patient with diiculty urinating. The clinic began asking education, and public health. But those things are subordinate everyone requesting an appointment whether he or she to patient care. wanted to be seen that day. Ofering that option required complex and costly changes in how things were done, but it clearly put patients’ needs irst. As it happened, the change was rewarded with tremendous increases in market share, but this was a happy side efect, not the main intent of the change. As this story shows, clarity around high-level goals can be a competitive diferentiator in the market and have a valuable impact within the organization as well. Data from Press Ganey

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demonstrates that when clinicians and other employees em- here,” several told us. Another joked, “The earth will open up brace their organization’s commitment to quality and safety, and swallow you.” A third said, “The last thing you want is and when those goals relect their own, it leads not only to to have people say, ‘He’s the kind of guy who doesn’t answer better care but also to better business results. his page.’” It’s part of a bigger picture. There is more to “the But how can leaders help translate the top-level Mayo Way” than a dress code (and there is a dress code). It organizational goal into practical activities for teams and includes answering your beeper, working in teams, and putting individuals? Seven years ago Cleveland Clinic took an import- patients’ needs irst. ant step that helped deine its culture and direction. Toby Another fundamental characteristic of gritty organizations Cosgrove, the CEO at the time, had all employees engage in a is restlessness with the status quo and an unrelenting half-day “appreciative inquiry” program, in which personnel drive to improve. Fostering that restlessness in a health in various roles sat at tables of about 10 and discussed cases in care organization is a real test of leadership, because which the care a patient received had made them proud. The health care is full of people who are well trained and work perspectives of physicians, nurses, janitors, and administrative hard—but often are not receptive to hearing that change is staf were intertwined, and the focus was on positive real-life needed. However, a goal of “preserving our greatness” is not examples that captured Cleveland Clinic at its best. a compelling argument for change or an attraction for gritty The question posed was, What made the care great in this employees. The focus instead should be on health care’s instance, and how could Cleveland Clinic make that greatness true customers, patients—not just on providing pleasant happen every time? The cost for taking its personnel of- “service” but on the endless quest to meet their medical line for these exercises was estimated to be $11 million, but and emotional needs. Cosgrove considers it one of the most powerful ways he helped It also helps to promote inside the organization something the organization align around its mission. Stanford psychologist Carol Dweck calls a “growth mind- Another tactic is to establish social norms that support the set”—a belief that abilities can be developed through hard top-level goal. At Mayo Clinic the social norm for clinicians is work and feedback, and that major challenges and setbacks to respond to pages about patients immediately. They don’t provide an opportunity to learn. That, of course, requires lead- inish driving to their destination; they pull of the road and ership to accept, and even publicly communicate, complica- call in. They don’t inish writing an e-mail or conclude a con- tions and errors—something that doesn’t always come easily versation, even with a patient. They excuse themselves and in health care. But leaders that are explicit about the need answer the page. for calculated risk taking, reducing mistakes, and continual “What happens if you don’t answer your beeper right learning tend to be the ones who actually inspire real growth

FRANKLIN D. ROOSEVELT LIBRARY ROOSEVELT FRANKLIN D. away?” we asked several people at Mayo. “You won’t do well in their organizations.

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Gauging Your Grit

To see how gritty you are compared with a pool of more than Crises ofer special opportunities for growth—and in partic- 5,000 American adults, answer the questions below, tally your ular to strengthen culture. Organizations that have provided score, and divide by 10. Don’t overthink your answers or try to care after natural disasters or terrorist attacks have found that guess the “right” answer. The more honestly you respond, the more the experience leads to powerful bonding, a reinforced sense accurate the results. (To take an online version of the test and get of purpose, the desire to excel, and a renewed commitment to an instant score, go to angeladuckworth.com/grit-scale/.) organizational goals. For example, when Hurricane Katrina hit New Orleans, in 2005, a local hospital ailiated with Ochsner Health System Very Not at all much faced a series of incredible challenges, including power like me like me outages, looding, overcrowding, and inadequate food and 1. New ideas and projects supplies. But throughout, morale remained high, because the sometimes distract me from 4321 previous ones. employees all pulled together and performed duties outside their usual roles. Physicians served meals, for instance, and nurses cleaned units. “The team that was here throughout the 2. Setbacks don’t discourage me. I don’t give up easily. 1234 storm has a relationship that can only be duplicated by soldiers in combat,” the hospital’s vice president of supply chain and support services told Repertoire magazine. “There’s such 3. I often set a goal but later respect and trust for one another.” choose to pursue a different one. 4321 Responding to self-generated crises can be a little trickier, however. But here, patient stories can be powerful drivers of 4. I am a hard worker. 1234 improvement—especially if the stories are mortifying and involve “one of our own.” At Henry Ford Health System, for 5. I have difficulty maintaining my example, every new employee watches a video depicting focus on projects that take more 4321 the experience of a physician in the system’s intensive care than a few months to complete. unit, Rana Awdish, who nearly bled to death in the ICU in 2008 when a tumor in her liver suddenly ruptured. She was 6. I finish whatever I begin. 1234 in severe shock and had a stroke; she was also seven months pregnant, and the baby did not survive. As her conditioned worsened, Awdish heard her own 7. My interests change from year 4321 to year. colleagues say, “She’s trying to die on us,” and, “She’s circling the drain”—things that she herself had said when working in the same ICU. Hearing her describe her experience made her 8. I am diligent. I never give up. 1234 colleagues realize that her doctors were focused on the problem but not on her as a human being, and that this probably was 9. I have been obsessed with a happening a lot within Henry Ford. The crisis led leadership to certain idea or project for a short 4321 commit to the goal of treating every patient with empathy all the time but later lost interest. time. Today every employee at Henry Ford has seen the video, and the goal of being reliably empathic is clearly understood. 10. I have overcome setbacks to 1234 Sharing Awdish’s story is just one of the interventions that has conquer an important challenge. occurred at Henry Ford, and during the campaign that followed the organization saw most physician-related measures of patient experience improve by ive to 10 percentage points. Compare your results with the percentiles below to find out if you have more or less grit than average. If you scored at least 4.5, for instance, you are grittier than 90% of test takers. The Gritty Leader Ralph Waldo Emerson observed that organizations are the Grit Score 2.5 3.0 3.3 3.5 3.8 3.9 4.1 4.3 4.5 4.7 4.9 lengthened shadows of their leaders. To attract employees, build teams, and develop an organizational culture 10% 20% 30% 40% 50% 0% 70% 80% 90% 95% 99% Percentile that all have grit, leaders should personify passion and

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perseverance—providing a visible, authoritative role model for patient experience—left much to be desired. “People respected every other person in the organization. And in their personal us,” he says, “but they sure didn’t like us.” In 2009 he hired Jim interactions, they too must be both demanding—keeping stan- Merlino, a young physician who had left the clinic unhappily dards high—and supportive. after the death of his father there, and made him chief experi- Consider Toby Cosgrove. He was a diligent student but, ence oicer. Cosgrove asked Merlino to ix the things that had because he had dyslexia that was undiagnosed until his driven him away. mid-thirties, his academic record was lackluster. Nevertheless, Cosgrove supported Merlino’s many innovative ideas, he set his sights on medical school, applying to 13. Just one, the including having all employees go through the appreciative University of Virginia, accepted him. In retrospect, “the dys- inquiry exercise, and making an internal training ilm, an lexia reinforced my determination and persistence,” Cosgrove “empathy video” that is so powerful it has been watched by told us, “because I had to work more hours than anybody else many outside the clinic, getting more than 4 million views to get the same result.” on YouTube. As a result of these eforts and many others, In 1968, Cosgrove’s surgical residency was interrupted when Cleveland Clinic moved from the bottom quartile in patient he was drafted. He served a two-year tour as a U.S. Air Force sur- experience to the top. geon in Vietnam. Upon his return home, he completed his resi- The institutional changes Cosgrove and his team have dency and then joined Cleveland Clinic in 1975. “Everybody told accomplished are too numerous to catalog, but here are a few: me not to become a heart surgeon,” he said. “I did it anyway.” Swapping parking spaces so that patients, not doctors, are clos- Indeed, Cosgrove performed more cardiac surgeries (about est to the clinic’s entrances. Moving medical records from hard 22,000) than any of his contemporaries. He pioneered several copy to electronic storage. Developing standard care paths to technologies and innovations, including minimally invasive ensure consistency and optimize the quality of care. Refusing mitral valve surgery, earning more than 30 patents. to hire smokers and, recently, in response to the national Cosgrove’s development as a world-class surgeon is a case opioid crisis, doing random drug testing of all Cleveland Clinic study in grit. “I was informed that I was the least talented indi- staf, including physicians and executives. vidual in my residency. But failure is a great teacher. I worked These changes weren’t always popular when they were and worked and worked at reining the craft,” he told us. introduced. But when he knows he’s right, Cosgrove stays the “I changed the way I did things over time. I used to take what course. A placard he keeps on his desk reminds him “What can I called ‘innovation trips’—trips all over the world to watch be conceived can be created.” other surgeons and their techniques. I’d pick things up from It’s hard to argue with the results achieved during his them and incorporate them in my practice. I was on a constant 13-year tenure as CEO. In addition to the improvements in quest to ind ways to do things better.” patient experience, revenue grew from $3.7 billion in 2004 Cosgrove was named CEO of Cleveland Clinic in 2004. The to $8.5 billion in 2016, and total annual visits increased from passion and perseverance that made him great as a surgeon and 2.8 million to 7.1 million. Quality on virtually every available as the head of a cardiac care team would soon be tested in his metric has risen to the top tier of U.S. health care. new role as leader of more than 43,000 employees. “I decided When Cosgrove gave his irst big speech as CEO, he gave I had to become a student of leadership,” Cosgrove recalls. “I out 40,000 lapel buttons that said, “Patients First.” We asked had stacks of books on leadership, and every night when I came if some of his colleagues rolled their eyes. “Yes, a lot of them home, I would go up to my little oice and read. And then did,” he said. “But I made the decision that I was going to I called up Harvard Business School professor Michael Porter.” pretend I didn’t see them.” Porter, widely considered the father of the modern ield of Cosgrove showed grit. And led an organization that has strategy, invited Cosgrove to visit. “He talked with me for two become his relection. hours. After that, I got him to come to Cleveland. Since then, HBR Reprint R1805G we’ve been sharing ideas,” Cosgrove says. Porter helped him understand that as CEO he needed to be more than a renowned THOMAS H. LEE is the chief medical oﬃcer of Press Ganey. He is surgeon and an enthusiastic leader. He needed to evolve the a practicing internist and a professor (part time) of medicine organization’s strategy, focusing on how to create value for at Harvard Medical School and a professor of health policy and patients and achieve competitive diferentiation in the process. management at the Harvard T.H. Chan School of Public Health. ANGELA L. DUCKWORTH is the Christopher H. Browne Distinguished Cosgrove scrutinized Cleveland Clinic’s quality data, and Professor of Psychology at the University of Pennsylvania and while its mortality statistics were similar to those of other the founder and CEO of Character Lab. She is the author of Grit: leading institutions, performance on other metrics—especially The Power of Passion and Perseverance (Scribner, 2016).

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12 34 56 7810 9 GooThe d- Better- Best Approach to RAFI MOHAMMED Prıcing Founder, Culture of Profit

or decades the auto insurance industry operated on a simple assumption: Consumers are highly price-sensitive, and most will buy the least-expensive plan they can ind. But in the early 2000s Allstate conducted some research that caused it to revisit that assumption. Price does matter, it learned, but there’s more to the story: Many drivers worry about being hit with premium hikes if they’re in an accident. And drivers with clean records want to be rewarded. Armed with those insights, in 2005 Allstate launched Your Choice Auto. The program relied heavily on modiications to a feature in the company’s standard policy (which it continued selling) called accident forgiveness, in which drivers who went ive years without accident claims would have no premium increase after their irst accident. It introduced a Value plan, priced 5% below Standard, that didn’t include accident forgiveness. A new Gold plan, priced 5% to 7% above Standard,

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ofered immediate forgiveness (no ive-year wait) along with a Yet many companies and industries haven’t adopted tiered deductible rewards feature in which repair costs borne by the pricing—and there’s little rhyme or reason to which have, which driver would decline by $100 for every year of accident-free haven’t, and why. G-B-B is a strategy every company should driving. And at the highest end, a new Platinum plan (15% above consider. In my consulting work, I routinely see it used to Standard) also included forgiveness for multiple crashes and simultaneously attract new high-spending customers and price- a safe-driving bonus under which credits were issued for each conscious ones, dramatically boosting revenue and proits. accident-free six months. (Disclosure: Among my clients is Harvard Business Publishing, Consumers were enthusiastic: By 2008 Allstate had sold the publisher of this magazine.) 3.9 million Your Choice policies and was selling 100,000 new ones Although G-B-B is conceptually simple, implementation can each month. A decade later the pricing plan remains attractive: In be tricky. If new oferings aren’t constructed and priced correctly, 2017, 10% of customers chose the Value plan, and 23% chose Gold existing customers will trade down, hurting proits. In this article or Platinum. The company has no doubt that Your Choice drove I outline why G-B-B can beneit many irms. Then I present a step- signiicant incremental growth. “There were a lot of skeptical by-step guide to devising, testing, and launching the strategy in a people in the company,” recalls Floyd Yager, one of Allstate’s way that boosts proits and reduces the threat of cannibalization. senior vice presidents. “But we demonstrated that car insurance doesn’t have to be about being the lowest-price game.” Your Choice is a classic example of Good-Better-Best Capitalizing on GBB (G-B-B) pricing. There’s nothing new about the concept of G-B-B’s beneits come from three approaches: ofensive plays adding or subtracting product features to create variably priced aimed at generating new growth and revenue, defensive bundles targeted to customers of varying economic means or plays meant to counter or forestall moves by competitors, those who value features diferently. It’s been nearly 100 years and behavioral plays that draw on principles of consumer since Alfred Sloan introduced a “price ladder” to diferentiate psychology, whatever the competitive landscape. Chevrolets and Buicks from Oldsmobiles and Cadillacs, creat- Going on the offensive. Ofensive plays can help brands ing “a car for every purse and purpose” and powering General grow revenue in at least four ways. First, companies can dra- Motors to overtake Ford. In the modern era, G-B-B pricing is matically lift margins by creating a high-end Best version that evident in many product categories. Gas stations sell regular, persuades existing customers to spend more or attracts a new plus, and super fuel. American Express ofers a range of credit cohort of high spenders. In my work with companies, managers cards, including green, gold, platinum, and black, with varying consistently underestimate customers’ willingness to spend beneits and annual fees. Cable TV providers market basic, and the number of customers who might upgrade to Best, even extended, and premium packages. Car washes typically ofer at prices that were previously unthinkable. Across a range of several options, separated by services such as waxing industries, it’s not unusual to observe up to 40% of sales landing and undercoating. on the Best option. For example, visitors at Six Flags amusement parks can buy one of three Flash Passes (Regular, Gold, and Platinum add-on ► Idea in Brief options to the standard admission ticket, with prices varying by day and location) to bypass lines and thus enjoy more rides. The ► THE PROBLEM ► THE IMPLEMENTATION Gold Pass, which costs as much as $80 a day on popular week- Companies often crimp profits Key steps include identifying ends, reduces waits by up to 50%; the Platinum Pass, which can by using discounts to attract “fence” attributes that will reach $135, reduces them by up to 90%. “It’s amazing, actually, price-sensitive consumers and by prevent current customers from how many people pay for this,” then-CFO John Dufey told ana- failing to give high-end customers trading down from the existing lysts shortly after the new passes were rolled out, in 2011. Many reasons to spend more. offering; carefully choosing Flash Pass purchasers are existing customers who decide to features and names to create upgrade, but some are new customers who had previously been ► THE SOLUTION clear differentiation and value; put of by the notoriously long lines for rides. A multitiered offering (typically with and setting prices using feedback three options) can use a stripped- from in-house experts and, Second, and at the other end of the spectrum, a low-priced down product to attract new when possible, drawing on Good ofering can make a product accessible to price-sensitive customers, the existing product to market research. or dormant customers for whom the existing product line keep current customers happy, and (which typically then becomes a Better ofering) is out of reach. a feature-laden premium version And it can limit the need for discounts or sales on the existing to increase spending by customers who want more.

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A low-priced Good oﬀering can make a product accessible to price-sensitive or dormant customers, and it can limit the need for discounts or sales on the existing oﬀering.

product or service—a crucial advantage, because frequent sales lank. When faced with a low-cost rival, many companies’ knee- can erode long-term pricing power. jerk response is to drop prices, but that’s often a mistake. When Uber has shown continued creativity and success with its the price holds irm, 15% of sales, say, might be lost to a low-cost Good versions. The company began in 2010 as a black-car luxury competitor, but 85% of customers are still paying full price— service, and it still ofers several high-end options. But in 2014, whereas if the price is cut, 100% of customers will be paying less. hoping to lure price-sensitive riders, it launched uberPOOL, Another common response to cheaper rivals is to launch a “ighter in which riders share a car with strangers going in the same brand”—a discounted product with entirely new branding. general direction. Unlike the traditional uberX service (in which Classic examples include Procter & Gamble’s Luvs diapers and riders have a midsize sedan to themselves and go directly to Intel’s Celeron computer chip. (See “Should You Launch a Fighter their destination), uberPOOL trips involve multiple pickups and Brand?” HBR, October 2009.) That may work well, but the drop-ofs of other passengers, so there’s additional travel time; resources needed to create a new brand can be enormous. in exchange, the service is priced as much as 50% below uberX. In many cases, creating a new Good product is a better UberPOOL now accounts for 20% of all Uber rides—and in some defensive strategy. Two of my B2B clients (in inancial services cities it accounts for more than half of all trips. The company has and industrial parts) held signiicant market share and enjoyed begun experimenting with Express POOL, which costs 30% to healthy proit margins when new entrants began ofering 50% less than uberPOOL and requires riders to walk a few blocks inferior products at rock-bottom prices. Customers seized on to a central pickup location. Uber’s story shows that even after the disruptive entry as an invitation to negotiate, threatening implementing a G-B-B strategy, companies should continue to defect from my clients unless granted a discount. Although exploring innovations that might lead to new, lower-priced reluctant to lose any market share, both clients resisted the versions of Good. impulse to discount their core ofering. Instead, they quickly A third way that G-B-B can increase revenue is through a rolled out cheaper Good versions that closely matched the new new Best ofering that boosts the entire brand. In 2015 Patrón entrants’ stripped-down products. When ofered those op- Spirits debuted a line of Roca Patrón tequilas made by the tions, most customers backed of their demands for a discount tahona process, which uses a two-ton wheel hand-cut from and continued buying their existing ofering at full price; they volcanic stone to extract juice from cooked agave. The result is had been bluing and weren’t actually willing to trade down a sweeter, earthier, more complex spirit than tequila produced to a lesser product. Implementing a Good version calls such by automated means. Even at $69-plus a bottle, Roca Patrón has blufs—something a straight discount can’t do. exceeded sales expectations: It is projected to sell 60,000 cases A caveat: This defensive maneuver can have mixed results. In in 2018, which would make it the world’s seventh-best-selling 2015 Town Sports International, a chain of itness centers whose premium tequila brand. memberships averaged $40 to $90 a month, began losing custom- And the beneits go beyond that revenue: Sales of lower- ers to competitors such as Planet Fitness, whose monthly fees are priced Patrón tequilas have risen sharply. Lee Applbaum, as low as $10. To ight back, TSI retained its existing membership Patrón’s chief marketing oicer, cites research showing that plan and prices while launching a new plan—priced as low as Roca has boosted perceptions of the overall Patrón line as $19.99 a month—that excluded or restricted some beneits, such artisan-crafted (from 60% of consumers surveyed to 64%), as towel service and access to itness classes. This staunched the made by a small-batch producer (47% to 58%), and itting an membership decline: TSI gained 64,000 new customers in 2015. image people want to convey (59% to 65%). “The details of But the stock price plummeted, same-club revenues fell, and the the expensive and laborious way that Roca Patrón tequilas are CEO resigned. Still, the new Good membership may have been manufactured create a brand halo that reinforces important the best possible response in a tough environment. By steering attributes…for the entire Patrón line,” he says. clear of a simple discount or a price war, TSI ensured that many Fourth, a lower-priced Good version can spark ancillary members continued to pay their existing monthly fees, and the revenue from related or complementary goods and services. company avoided a devaluation of its primary ofering. Consider Apple’s SE phone, which sells for just $349 (roughly a Drawing on consumer psychology. Some G-B-B strategies third as much as the iPhone X). Every SE sale stimulates addi- aren’t speciically aimed at luring new customers or defending tional revenue through purchases on iTunes and the App Store, against competitive threats; they’re more-general responses to payments for iCloud storage space, and sales of cases, chargers, consumer psychology. and other accessories. For instance, companies often jam multiple features and Playing defense. Sometimes G-B-B isn’t about aggressively attributes into a single product, but this can confuse and over- seeking new revenue—it’s about protecting a brand’s exposed whelm customers. A G-B-B plan helps potential buyers focus

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on and understand features and think about which ones they quickly understand its appeal. In my consulting work, I often value—and how much they’re willing to pay for them. (See the suggest other pricing strategies but wind up helping implement exhibit “Helping Customers Understand Good-Better-Best.”) G-B-B because it’s the option managers ind the easiest to under- An educational software company I worked with found that stand, explain, and get behind. customers didn’t really grasp its myriad product features. So it tested a G-B-B model that unbundled those features, creating a Good ofering (its core software), a Better one (the core software Brainstorming About plus new electronic exercises), and a Best one (the core software and exercises plus one-on-one tutoring). Customer research Tiers and Features showed that the three-tiered model helped people diferenti- When considering a G-B-B pricing structure, the irst step is ate the company from competitors—and indicated that half of to decide how many product versions to ofer. As the name potential customers would pay a premium for Better or Best. implies, the most common approach is three. In general, (Because of a sudden leadership change, however, the G-B-B companies with a single existing product will designate it (or model was never implemented.) something close to it) as Better, adding features to create Best G-B-B can also shift customers from a binary “buy/don’t buy” and subtracting them for Good. But if taking away features mentality to consideration of incremental value and spend- to create a Good ofering isn’t feasible, companies can forgo ing. This can work in two ways. First, customers prefer having that option and simply ofer Better and Best. choices to feeling under an ultimatum, so three diferently Companies with complex products or a long buying cycle priced options can give them a sense of empowerment. Allstate may be able to justify more versions. But too much choice is CEO Thomas Wilson has identiied this as a key beneit of the risky. In a well-documented study by Sheena Iyengar and Your Choice policies, explaining that they moved people away Mark Lepper, researchers ofered samples of jam to shoppers from simply comparing Allstate’s prices with those of competi- in an upscale grocery store. When presented with six lavors, tors. “If people [have] a choice in the conversation, they are not 30% of tasters made a purchase. When 24 options were on the likely to switch [to a competitor] for $25 or $50,” he said in a July table, only 3% opted to buy. Researchers believe that when 2005 quarterly call. consumers have too many options, they become confused or Second, when faced with multiple options, customers tend paralyzed with indecision—a phenomenon the psychologist to decide more quickly whether they are going to buy some- Barry Schwartz explored in The Paradox of Choice. thing, using their remaining time to focus on what. Having If a company is set on many oferings, it can be useful to made that mental shift, they typically treat the Good version as group them in a way that turns consumers’ decision making into a sunk cost, which makes them more amenable to upgrading. a two-step process. New York’s Metropolitan Museum of Art Salespeople exploit this tendency all the time: For example, ofers seven memberships. To minimize confusion, it divides instead of detailing all the features of a $1,200 appliance, they them into two categories: Members Count plans ($80 to $600) emphasize that “for only $200 more” than the entry-level $1,000 for people joining primarily because they want to visit the unit, a buyer gets lots of extra bells and whistles. Rental car museum, and Patron Circle memberships ($1,500 to $25,000) for companies highlight the full-size sedan you could be driving for those whose primary goal is philanthropic. Grouping member- $12 a day more than the price of a subcompact. ships in such a way guides people toward a general category; Companies can also use G-B-B to exploit the so-called once there, they can examine the G-B-B options in each. Goldilocks efect: people’s propensity to choose the middle op- After a company has gotten a sense of how many tiers to tion in a set of three. In his book Priceless, William Poundstone ofer, managers can brainstorm about the features to include recounts how Williams-Sonoma reaped unexpected beneits in each. Sometimes the decisions are obvious, but many of the after launching a fancy bread machine priced at $429. That high- best G-B-B plans draw on unexpected features, as Six Flags did end model lopped—but sales of the $279 model (previously the when manipulating wait times to create a consumer beneit for highest-priced unit) nearly doubled. its Flash Passes. A inal argument for considering G-B-B relates to the real- To help companies consider a wide array of potential features politik of instituting change. The simplicity of the G-B-B strategy and beneits, I use a tool called the Value Barometer, which lists makes it highly compelling to senior executives. For change to 13 common product attributes that can be added, dropped, or occur at any organization, top management must be committed, varied to create diferent perceptions of value. (See the exhibit deploying political capital to sell others on the shift. Because “Pump Up the Value.”) Companies typically begin by identifying managers have experienced G-B-B as consumers, they can features of the current ofering that vary or would be easy to

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Pump Up the Value

A crucial step in devising Good-Better-Best bundles Examples is choosing attributes to add, drop, or vary to create Volume: Netflix prices its streaming service according to the number different perceptions of value. Adding and dropping are of devices on which content can be simultaneously viewed. straightforward; the creativity is in varying attributes that span your G-B-B offerings. The chart below can help you Service: The Princeton Review offers three SAT prep options, ranging from “self-paced” (primarily do-it-yourself online exercises) to private tutoring. find nonobvious ways to create Good and Best variations on an existing (Better) offering. Experience: The band Earth, Wind & Fire offers a “fantasy” package that gives concertgoers a personal meet-and-greet and photo ops with the musicians. G-B-B Value Barometer Time period: Season passes at Sundance Mountain Resort come in two versions: unlimited and discounted midweek. ATTRIBUTE GOOD BEST Waiting time: Massachusetts General Hospital offers a concierge option that provides 24/7 phone access to doctors; many concierge practices also Volume Low Unlimited guarantee same- or next-day appointments. Service Basic High-end Speed: Federal Express offers a variety of next-day delivery options in Experience Regular Over-the-top major cities, often including 8:30 am, 10:30 am, and 3:30 pm. Brand: 90+ Cellars buys excess inventory from highly rated wineries and sells it Time period Off-peak Peak under its own label, without revealing the wineries’ names. Waiting time Standard None Warranty: DieHard auto batteries have warranties ranging from 18 months (gold) to 4 years (platinum). Speed Slow Fast Number of restrictions: Many airlines offer “basic economy” tickets that Brand Generic Differentiated are nonrefundable and allow no advance seat assignments. Warranty Limited Extended Relationship: Memberships to the Boston Symphony Orchestra vary in such things as access to intimate gatherings with musicians, invitations to rehearsals, and behind-the-scenes lectures. Number of High None restrictions Certainty: Many heating oil companies offer homeowners the option of paying market rates (which fluctuate) or, for a premium, locking in a rate for the season. Relationship Distant Close Flexibility: TV networks typically sell up to 85% of their ad spots in advance, reserving the rest Certainty Low Guaranteed for advertisers, such as movie studios, willing to pay a premium for last-minute availability. Flexibility Low High Skill level: Equinox Fitness rates and prices its personal trainers according to how far they have advanced in its training institute. Skill level Basic Experienced

vary, but the tool’s real power is its ability to help irms come up The goal of adding a Good ofering is to pick up new budget- with out-of-the-box options that could be increased, decreased, minded customers without losing revenue from existing ones. or tweaked. (In a perfect world, not a single customer would move from Once the brainstorming is complete, a company can begin Better to Good.) Indeed, one of the biggest risks of shifting to analyzing the potential features it has identiied. Three ques- G-B-B is that existing customers will migrate to the new lower- tions are key: Does the feature have mass appeal or low appeal? priced ofering, cannibalizing revenue and margins. Fence How would adding or subtracting it afect the cost of producing attributes prevent this, by making the downgrade a diicult, the good or ofering the service? And is it a “fence” attribute— unpleasant, or painful choice. one that constitutes a barrier preventing existing customers Examples of fence attributes abound. In cable television, from crossing over to something cheaper? ESPN, CNN, and HGTV are always included in “extended basic” Many managers start by focusing on the Best option, be- (the Better ofering) because many existing viewers highly value cause of its obvious potential for revenue growth (and because at least one of those channels, and losing access makes the idea imagining new high-end features is fun). But they should begin of trading down to basic (the Good ofering) anathema. Hotels by identifying and analyzing fence attributes—often the most ofer discounted “no cancellation” reservations; the lack of lexi- challenging task in G-B-B implementation. bility creates a fence for many travelers. During a recent tour,

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the Rolling Stones sold seats for just $85, but those seats came with a catch: Concertgoers wouldn’t learn their location until arriving at the arena. That was a signiicant fence for many fans, who would rather stay home than sit in a poor location. And paperback versions of books previously published in hardcover utilize an obvious fence: They appeal only to readers who don’t mind waiting a year or more for the book. Companies seeking to implement Good ofers must ind similarly efective fences. Deﬁning and Pricing Bundles To choose the fence attributes that will separate their Good and Better oferings, companies should look for features that have both wide and deep appeal (meaning that most customers want them and consider them vitally important) and are somewhat costly to produce. The combination of high appeal and high cost means that if the feature is part of the Better but not the Good ofering, relatively few people accustomed to Better (that is, existing customers) will consider Good—but those willing to do without the feature can enjoy a signiicant discount. For instance, when the New York Times launched its digital subscrip- tions, in 2011, it moved to a G-B-B model in which the physical paper (which many subscribers were loath to discontinue, and which is costly to print and deliver) served as a fence attribute. That fence is efective enough to support a hefty price diferen- tial: An all-access digital subscription currently costs $324 a year, whereas adding print delivery brings the price to $481 and up, depending on location. The same qualities—appeal and cost—that help companies choose fence features will also guide them toward features that belong in Best. Those should similarly appeal to a wide segment of buyers, but ideally they will cost relatively little to include so that the company can keep high margins on Best. When Southwest Airlines created the Business Select package as its Best ofering, about a decade ago, it identiied high-appeal/low-cost items such as priority boarding, extra frequent-lier miles, and free cocktails as amenities worth including. Bundling those relatively inexpensive amenities in a premium package delivered $73 million in incremental revenue in the ofering’s irst full year. High-appeal/low-cost Best features are often less about the actual product and more about the customer experience. For instance, quicker delivery time can be part of a Best ofer. And in some industries, guarantees or warranties can deliver high perceived customer value at little cost, depending on the hurdles that must be overcome to redeem the guarantee or on the expected utilization rate. For example, the length of the warranty is the major diferentiator between Good, Better, and Best versions of car batteries—products that behave fairly

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Helping Customers Understand Good-Better-Best

123 Once a company has created a multitiered 2. offering, it needs to help There’s a nice consistency and customers understand progression between packages: Customers don’t lose anything the various options. This as they move up in price, and comparison grid, from a each level has three or four key website design and hosting differentiators. firm, is effective for three reasons, as described in the following annotations. 3. The packages have been intelligently named. In particular, “Business” clearly communicates the type of customer who should choose the premium option. The 80% price difference between

1. that package and “Advanced” Limiting the use of features signals the company’s belief available with the Good option that business customers—who (pages, bandwidth, and storage) typically have greater needs and creates a “fence” separating the are less price-sensitive—will be truly price-sensitive from those willing to pay signiﬁcantly more. willing to pay more.

predictably. But some products, such as tutoring services and should difer between Good and Better and between Better and weight loss programs, require customer involvement to achieve Best. And it’s important to maintain a consistent progression success. Because of that uncertainty, companies generally aren’t of beneits from Good to Better to Best—beneicial features in willing to guarantee them, even as part of Best packages and Good should be retained in the higher-priced oferings so that even if consumers would highly value guarantees. every step up the ladder is a clear improvement. When devising Best bundles, companies need to be realistic Some rules of thumb can similarly help with pricing. about the attributes they can include. During brainstorming, it’s Companies should pay close attention to the price gaps between natural to dream big—but as dreaming turns to planning, vigi- Good and Better and between Better and Best. In my consulting, lance is needed to weed out features that may be diicult to exe- I strongly advise against setting a Good price that’s more than cute well or that could delay the launch. It’s also important to be 25% below Better, and I recommend that the Best price should judicious about the number of attributes. It’s tempting to throw not exceed Better by more than 50%. Although customers’ all the latest and greatest features into Best, but this can result in perceived value must be the North Star, companies must also unnecessary complexity and an unrealistically high price. consider how many customers might opt for Good, Better, and After completing the cost-beneit analysis of the various Best and what the margins of each package will be. As a starting features, it’s time to design and assign tentative prices to the point—before conducting customer research—many companies G-B-B bundles. Two rules of thumb for design: To ensure sharp estimate that 10% to 20% of revenue will come from Good, 25% distinctions between oferings, no more than four attributes to 50% from Better, and 30% to 60% from Best. The actual mix

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will depend on how many attributes vary between versions, the biased, particularly by the composition of the customer sample degree of diferentiation achieved, and the price spread. that responds. Still, especially for companies desiring strong It’s never too early to think about names for the G-B-B options; quantitative evidence before bringing a G-B-B strategy to those are essential in helping consumers quickly identify which market, positive results from a well-designed conjoint analysis version best meets their needs. Lisa Krassner, the chief member can provide comfort and airmation. and visitor services oicer at the Metropolitan Museum of Art, Once research has helped a company inalize feature and says that the very clear names of the three Members Count pricing decisions, it’s time to launch the G-B-B oferings. Early options, each delineating a particular beneit—With Early Views, results should be watched carefully and adjustments made as With Evening Hours, and With Opening Nights—have been key needed. Compared with other product attributes, pricing is to the oferings’ success. often easy to alter on the ly.

MOST COMPANIES COULD implement some form of G-B-B. Every Bringing in Research company already ofers the equivalent of a Better ofering, Many companies conduct formal research to see whether their and even if some irms can’t implement both Good and Best, intuitive sense of what customers want is on target. The timing many could gain new customers, additional revenue, or both and scope will depend partly on organizational culture: Some by adding either a Good or a Best to their lineup. data-driven companies do several rounds of testing, starting The companies with the biggest challenges in designing a soon after the brainstorming step, while other companies wait full G-B-B lineup are those whose products have few distinct until they’ve created tentative G-B-B bundles and prices. (Still features and/or features that can’t easily be modiied, making others proceed without any formal research.) Regardless of it hard to identify efective fence attributes and move down mar- timing, companies can draw on three sources of data: ket with a Good bundle. In other cases, executives may be too Expert judgment. Experienced executives, salespeople, and fearful of cannibalization (or skeptical about the efectiveness other frontline employees have a good understanding of cus- of fences to limit it) to sign of on a Good ofering. (Some B2B tomers and their needs. They’ve watched people balk at prices, companies that decide against explicitly marketing a Good prod- and they often have a sense of when customers would pay more. uct may devise a compromise: quietly ofering a Good version When setting G-B-B prices, companies should collect and factor to budget-constrained clients on a case-by-case basis, with the in the views of these in-house experts. Although that may feel goal of establishing new customers or saving existing ones and unscientiic, my experience with clients shows that in-house upselling them in the future.) Even if a Good option is not viable expert judgments often reliably predict data gathered during in any form, exploring a G-B-B strategy may prompt companies more-formal testing—and many companies design and imple- to introduce a Best ofering, which can deliver new revenue. ment efective G-B-B strategies using only those judgments to As strategies go, shifting to G-B-B pricing may seem simplis- drive bundle and pricing decisions. tic, but many companies have discovered that it’s more powerful General market research. Basic insights can be gained by than it appears at irst blush. Jim Roth, a senior vice president at asking customers to respond to potential features and prices in Dell EMC, was in a fast-food restaurant at Chicago’s O’Hare air- quantitative or qualitative surveys (the questions can be added to port when he realized that the bundled value meals on the menu existing post-purchase satisfaction surveys). Simplicity is crucial: board made it easier for him to order. That caused him to relect A survey item might say, “We’re excited to roll out this premium on his own company’s pricing and bundles. Dell EMC ultimately feature for $79. Would you be interested in making this purchase, created Good, Better, and Best versions of its deployment and why or why not?” Modifying the questions to test customers’ support for B2B customers—and found that customers buying interest in a discounted Good product instead can yield insights those bundles generally spent three times as much as they had into fence attributes and the risk of cannibalization. previously spent on that type of after-purchase support. Dell Conjoint analysis. This common research technique EMC thus joined the many other irms who have recognized that involves giving subjects a series of binary product choices, G-B-B could help them serve their customers better—and boost each with diferent features and prices, and asking which they their bottom line. HBR Reprint R1805H prefer. It can be a powerful tool: If the choices are constructed RAFI MOHAMMED well and enough data is gathered, researchers can gain a clear is the founder of Culture of Profit, a consultancy that helps companies develop and improve their pricing strategies, and the sense of which attributes or features customers want, how much author of The Art of Pricing: How to Find the Hidden Profits to Grow Your they will pay for each, and which are fence attributes. It isn’t Business (Crown Business, 2005) and The 1% Windfall: How Successful foolproof: As with any market research, results can be lawed or Companies Use Price to Profit and Grow (HarperBusiness, 2010).

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SERENA CHEN Professor, University of California, Berkeley Give Yourself a Break: The Power of Self- Compassion

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WHEN PEOPLE EXPERIENCE A SETBACK AT WORK—whether it’s a bad sales quarter, being overlooked for a promotion, or an interpersonal conﬂict with a colleague—it’s common to respond in one of two ways. Either we become defensive and blame others, or we berate ourselves. Unfortunately, neither response is especially helpful. Shirking responsibility by getting defensive may alleviate the sting of failure, but it comes at the expense of learning. Self-ﬂagellation, on the other hand, may feel warranted in the moment, but it can lead to an inaccurately gloomy assessment of one’s potential, which undermines personal development.

What if instead we were to treat ourselves as we would take a balanced approach to negative emotions when they a friend in a similar situation? More likely than not, we’d be stumble or fall short—they allow themselves to feel bad, kind, understanding, and encouraging. Directing that type but they don’t let negative emotions take over. of response internally, toward ourselves, is known as self- Kristin Nef, a professor at the University of Texas, compassion, and it’s been the focus of a good deal of research Austin, has developed a survey tool that assesses the in recent years. Psychologists are discovering that self- three components of self-compassion. Researchers and compassion is a useful tool for enhancing performance in a practitioners have used the tool to shed light on what variety of settings, from healthy aging to athletics. I and other personality traits and behaviors are associated with self- researchers have begun focusing on how self-compassion also compassion and have found, among other things, that people enhances professional growth. who score high typically have greater motivation to improve For nonacademics, self-compassion is a less familiar themselves and are more likely to report strong feelings of concept than self-esteem or self-conidence. Although it’s authenticity—the sense of being true to the self. Both are true that people who engage in self-compassion tend to have important contributors to a successful career. The good news higher self-esteem, the two concepts are distinct. Self-esteem is that both of these traits can be cultivated and enhanced tends to involve evaluating oneself in comparison with others. through self-compassion. Self-compassion, on the other hand, doesn’t involve judging the self or others. Instead, it creates a sense of self-worth because it leads people to genuinely care about their own A Growth Mindset well-being and recovery after a setback. Most organizations and people want to improve—and self- People with high levels of self-compassion demonstrate compassion is crucial for that. We tend to associate personal three behaviors: First, they are kind rather than judgmental growth with determination, persistence, and hard work, about their own failures and mistakes; second, they recognize but the process often starts with relection. One of the key that failures are a shared human experience; and third, they requirements for self-improvement is having a realistic

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► Idea in Brief

► THE PROBLEM When we experience a setback, we tend to either become defensive and blame others, or berate ourselves. Neither response is helpful.

► THE INSIGHT Research shows that we should respond instead with self- compassion: Be kind to ourselves rather than judgmental, recognize that everyone makes mistakes, and avoid dwelling on the setback.

► THE BENEFITS Self-compassion helps us cultivate a growth mindset by encouraging the belief that improvement is possible and bolstering our desire to do better. It also helps us connect with a more authentic self.

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Self-compassion triggers people to adopt a growth mindset.

assessment of where we stand—of our strengths and our is essentially who we’ll be ive years from now. People who limitations. Convincing ourselves that we are better than we have a growth mindset, in contrast, view personality traits are leads to complacency, and thinking we’re worse than and abilities as malleable. They see the potential for growth we are leads to defeatism. When people treat themselves and thus are more likely to try to improve—to put in efort with compassion, they are better able to arrive at realistic and practice and to stay positive and optimistic. self-appraisals, which is the foundation for improvement. My research suggests that self-compassion triggers They are also more motivated to work on their weaknesses people to adopt a growth mindset. In one study I conducted rather than think “What’s the point?” and to summon the grit with Juliana Breines, participants were asked to identify what required to enhance skills and change bad habits. they considered to be their biggest weakness—most involved My colleagues Juliana Breines (at the University of Rhode social diiculties such as lack of conidence, anxiety, shyness, Island) and Jia Wei Zhang (at the University of Memphis) and and insecurity in relationships—after which they were I demonstrated this in a series of studies in which participants randomly assigned to one of three groups. Participants in were nudged to treat themselves either with self-compassion the self-compassion group were asked to write a response to or in a self-esteem-boosting manner. Then we assessed this prompt: “Imagine that you are talking to yourself about their desire for self-improvement. In one study, we asked this weakness from a compassionate and understanding participants to recall a time when they did something they perspective. What would you say?” People in the self-esteem felt was wrong and as a result experienced guilt, remorse, group were asked to write in response to: “Imagine that you and regret. The majority of participants’ transgressions are talking to yourself about this weakness from a perspective involved romantic inidelity, academic misconduct, of validating your positive (rather than negative) qualities.” dishonesty, betrayal of trust, or hurting someone they The inal group was not asked to write anything. cared about. We then randomly assigned them to one of Next, participants completed a set of measures about three conditions: self-compassion, self-esteem, or a control whether they felt content, sad, or upset and then were asked group. The self-compassion participants were asked to to spend ive minutes describing whether they’ve ever write a paragraph to themselves expressing kindness and done anything to change their weakness and where they understanding regarding the transgression. The self-esteem thought their weakness came from. Independent coders people were asked to write a paragraph describing their rated participants’ responses based on the degree to which positive qualities. Participants in the control group were they conveyed a growth or a ixed mindset (“It’s just inborn— asked to write about a hobby they enjoyed. All participants there’s nothing I can do” versus “With hard work I know I then illed out a questionnaire assessing their desire to can change”). Participants in the self-compassion condition make amends and their commitment not to repeat the expressed signiicantly more thoughts associated with a transgression in the future. We found that those who were growth mindset than participants in the other two conditions. encouraged to treat themselves with compassion reported But what about actual behavior? How do we know that being more motivated to make amends and to never repeat self-compassion—and the resulting growth mindset—will the transgression than participants who were encouraged lead people to work harder to improve themselves? According to respond to the transgression in a self-esteem-boosting to the scientiic literature on ixed and growth mindsets, manner and those in the control group. In other research, one of the most compelling signs that a person has a growth we found that self-compassion increased the resolve of mindset is his or her willingness to keep trying to do better people who said they had been responsible for a romantic after receiving negative feedback. After all, if you believe your breakup to be better partners in future relationships, abilities are ixed, there’s no point in making the efort. But if compared with participants in the other two conditions. you view abilities as changeable, getting negative feedback Self-compassion does more than help people recover shouldn’t deter you in trying to improve. from failure or setbacks. It also supports what Carol Dweck, We tested this reasoning in a study in which participants a psychology professor at Stanford University, has called (all students at a highly ranked university) irst took a very a “growth mindset.” Dweck has documented the beneits diicult vocabulary test and received feedback that they of adopting a growth rather than “ixed” approach to had performed poorly. The participants were then randomly performance, whether it be in launching a successful assigned to two groups. The experimenter remarked to the start-up, parenting, or running a marathon. People with a irst group—the self-compassion condition—“If you had ixed mindset see personality traits and abilities, including diiculty with the test you just took, you’re not alone. It’s their own, as set in stone. They believe that who we are today common for students to have diiculty with tests like this.

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If you feel bad about how you did, try not to be too hard on yourself.” To the other group of participants, the experimenter instead said: “If you had diiculty with the test you just took, try not to feel bad about yourself—you must be intelligent if you got into this university.” Afterward, all participants were told they had to take another vocabulary test. They were given a chance to study a list of words and deinitions and were advised that they could review the words as long they wanted before taking the test. We found that participants who were nudged to treat their initial failure with compassion were more likely to adopt a growth mindset about their vocabulary abilities and put in more time studying than their counterparts in the self-esteem condition were. It seems that self-compassion paved the way for self-improvement by revving up their desire to do better, encouraging the belief that improvement is possible, and motivating them to work harder.

Being True to the Self Self-compassion has beneits for the workplace beyond boosting employees’ drive to improve. Over time, it can help people gravitate to roles that better it their personality and values. Living in accord with one’s true self—what psychologists term “authenticity”—results in increased motivation and drive (along with a host of other mental health beneits). Unfortunately, authenticity remains elusive for many in the workplace. People may feel stuck in jobs where they have to suppress their true self because of incongruent workplace norms around behavior, doubts about what they have to contribute, or fears about being judged negatively by colleagues and superiors. But self-compassion can help people assess their professional and personal trajectories and make course corrections when and where necessary. A self- compassionate sales executive who misses a quarterly target, for example, not only will focus on how she can make her numbers next quarter but also will be more likely to take stock of whether she is in the right sort of job for her temperament and disposition. In recent research spearheaded by Jia Wei Zhang, we discovered that self-compassion cultivates authenticity by minimizing negative thoughts and self-doubts. In an initial study, participants completed a short survey on a daily basis for one week. They were asked to rate their levels of self-compassion (“Today, I showed caring, understanding, and kindness toward myself”) and authenticity (“Today, I felt authentic and genuine in my interactions with others”) each day. We found that daily variations in levels of self- compassion were closely linked to variations in feelings of

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Self-compassion has beneﬁts beyond boosting employees’ drive to improve. Over time, it can help people gravitate to roles that better ﬁt their personality and values.

authenticity. On days when participants reported being more adopt growth mindsets themselves. The old adage “lead by compassionate toward themselves relative to their average example” applies to self-compassion and the growth mindset level, they also reported greater feelings of authenticity. it encourages. These correlational indings were strengthened by A similar link between leader and subordinates exists for experimental evidence from another study in which we authenticity, too. People can sense authenticity in others, randomly assigned participants to respond to a personal and when leaders are seen as being true to themselves, weakness from a self-compassionate perspective, a self- it creates an atmosphere of authenticity throughout the esteem-boosting perspective, or neither. Immediately workplace. There’s also substantial evidence that stronger afterward, they completed questionnaires that measured relationships are forged when people feel authentic in their how authentic they felt. Participants who were instructed interactions with others. to be self-compassionate about their weakness reported When leaders respond to failures and setbacks with a signiicantly higher feelings of authenticity than participants self-compassionate attitude, they themselves beneit, being in the other two conditions did. more likely to exhibit psychological and behavioral tendencies What’s happening here? Treating oneself with kindness, that bode well for their own professional development and understanding, and without judgment alleviates fears success. And the beneits can trickle down to subordinates, about social disapproval, paving the way for authenticity. making the practice of self-compassion a win-win for leaders Optimism also seems to play a role. Having a positive and those they lead. outlook on life makes people more willing to take chances— such as revealing their true selves. In fact, research shows that optimistic people are more likely to reveal negative Fostering Self-Compassion things about themselves—such as distressing experiences Fostering self-compassion is not complicated or diicult. they’ve endured or diicult medical challenges they face. It’s a skill that can be learned and enhanced. For the In efect, optimism increases people’s inclination to be analytically minded, I suggest using psychologists’ authentic, despite the potential risks involved. I believe deinition of self-compassion as a three-point checklist: that the relative emotional calm and the balanced Am I being kind and understanding to myself? Do I perspective that come with being self-compassionate acknowledge shortcomings and failure as experiences can help people approach diicult experiences with shared by everyone? Am I keeping my negative feelings a positive attitude. in perspective? If this doesn’t work, a simple “trick” can also help: Sit down and write yourself a letter in the third person, as if you were a friend or loved one. Many of us Turbocharged Leadership are better at being a good friend to other people than to A self-compassionate mindset produces beneits that ourselves, so this can help avoid spirals of defensiveness spread to others, too. This is especially the case for people or self-lagellation. in leadership roles. That’s because self-compassion and The business community at large has done a good job compassion for others are linked: Practicing one boosts of removing the stigma around failure in recent years the other. Being kind and nonjudgmental toward the self at the organizational level—it’s a natural byproduct of is good practice for treating others compassionately, just experimentation and, ultimately, innovation. But too many as compassion for others can increase how compassionate of us are not harnessing the redemptive power of failure in our people are toward themselves, creating an upward cycle of own work lives. As more and more industries are disrupted compassion—and an antidote to “incivility spirals” that too and people’s work lives are thrown into upheaval, this skill often plague work environments. will become more important. The fact that self-compassion encourages a growth If you’re struggling to foster self-compassion in your mindset is also relevant here. Research shows that when professional and personal life, don’t beat yourself up about it. leaders adopt a growth mindset (that is, believe that change With a little practice, you can do better. is possible), they’re more likely to pay attention to changes HBR Reprint R1805J in subordinates’ performance and to give useful feedback on how to improve. Subordinates, in turn, can discern when SERENA CHEN is a professor of psychology and the Marian E. and their leaders have growth mindsets, which makes them Daniel E. Koshland Jr. Distinguished Chair for Innovative Teaching more motivated and satisied, not to mention more likely to and Research at the University of California, Berkeley.

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What happens when you bring eight Western universities to a small Middle Eastern country? You get Qatar’s ‘Education City.’

For the past 23 years, students in Qatar campus,” said Brendan Hill, Senior While studying at QF, students can take have been studying in a city where the Associate Dean for Students at advantage of QF’s offerings in research iconic landmarks are some of the world’s Georgetown University in Qatar. One and community development. “Education top universities from New York, Paris, example: Georgetown’s partnership with is an integral part of our mission, but, Chicago, London, Washington, DC, Northwestern on a combined minor in for us, it’s the first step to help us and more. Media and Politics, capitalizing on the develop the country’s full potential,” respective strengths of each school. says Dr Richard O’Kennedy, QF’s Vice What started with a single school has President for Research, Development transformed into Qatar Foundation’s Such joint programs are only one aspect and Innovation (RDI). “These students (QF’s) ‘Education City,’ a 3,000-acre of this unique model. Enrolled students are part of a larger ecosystem at QF urban development housing various can cross-register at other schools, that includes scholars, researchers, education and research institutes. conduct research with their faculty and innovators generating significant members, or even start entrepreneurial achievements in key areas including This model was created when initiatives with them. the social sciences, healthcare, IT, the QF’s founders developed a plan for environment, and food security with Qatar’s future that would provide a They can also study abroad at their associated commercial opportunities.” greater choice in education, research, respective university’s main campus or and community development. The participate in fully funded learning trips Some of those opportunities for organization partnered with Georgetown, and residencies in all corners of students include the chance to turn their Cornell, Carnegie Mellon, Northwestern, the globe. entrepreneurial ideas into businesses Texas A&M, Virginia Commonwealth, through QF’s technology hub, Qatar “When Education City was first HEC Paris, and University College Science & Technology Park, or turn their conceived, its vision was to provide London to offer their flagship curiosities into fully funded research world-class education to the people of programs in Doha. projects via any of the institutes based Qatar. But over the past 23 years, this in Education City. Moreover, students In 2010, QF established Hamad Bin project has achieved beyond that goal, get to participate in some of the world’s Khalifa University, a homegrown and the result is an academic hub with leading conferences, such as the World research university that offers unique opportunities and initiatives,” said Innovation Summit for Education (WISE) customized programs catered to the Omran Al-Kuwari, Executive Director and the World Innovation Summit for needs of the region. While they are of the CEO Office at QF. “Collaborations Health (WISH). supported by QF, all the universities between some of the world’s best enjoy complete academic freedom and institutions are happening right here As Qatar continues to fast track large- authority over their curricula and the in Doha.” scale developments and prepare for its recruitment of students, faculty, future needs, QF is continuing to expand Education City universities are within and staff. the offerings at Education City. To learn walking distance of one another and more about the work being done at QF At Education City, students have a chance cater to more than 3,000 students and explore its other initiatives, visit to experience multiple universities every year. Housed in built-for-purpose qf.org.qa. during their academic journey. “One of campuses, they offer programs in media, the best parts of being with QF is that international affairs, business, computer they always urge us to be experimental. science, medicine, engineering, cultural They want us to do things that we might heritage, knowledge management, not be able to do on our Washington and arts. РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS

12 34 56 78 9

by DORIS KEARNS GOODWIN LINCOLN and theArt of Transformative LEADERSHIP

o the times make the leader, or does the providing case histories that illustrate the skills and strengths leader shape the times? How can a leader that enabled these four men to lead the United States through infuse people’s lives with a sense of purpose periods of great upheaval. and meaning? The article that follows is excerpted from her case study These are among the questions that of Lincoln’s pivotal decision to issue and guide to fruition the Doris Kearns Goodwin explores in her Emancipation Proclamation—a purpose that required the newD book, Leadership in Turbulent Times, which examines support of the cabinet, the army, and, ultimately, the American four singular styles of leadership: transformative, crisis people. Rarely, Goodwin notes, was a leader better suited to management, turnaround, and visionary. She follows the course the challenge of the fractured historical moment. Strugle had of leadership development in the careers of Abraham Lincoln, been his birthright; resilience his keystone strength. Possessed Theodore Roosevelt, Franklin Roosevelt, and Lyndon Johnson, of a powerful emotional intelligence, Lincoln was both merciful

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and merciless, conident and humble, patient and persistent— So the situation stood on July 22, when the president able to mediate among factions and sustain the spirits of his gathered the cabinet to read his proclamation. He enumerated countrymen. He displayed an extraordinary ability to absorb the various congressional acts regarding coniscation of rebel the conlicting wills of a divided people and relect back to them property, repeated his recommendation for compensated an unbending faith in a uniied future. emancipation, and reiterated his goal of preserving the Union. And then he read the single sentence that would change the course of history: n July 22, 1862, President Abraham Lincoln convened a special session of his cabinet As a it and necessary military measure for efecting to reveal—not to debate—his preliminary this object [preservation of the Union], I, as draft of the Emancipation Proclamation. At Commander-in-Chief of the Army and Navy of the the outset, Navy Secretary Gideon Welles United States, do order and declare that on the irst recalled, Lincoln declared that he fully day of January in the year of our Lord 1863, all persons Oappreciated that there were “diferences in the Cabinet on the held as slaves within any state or states, wherein the slavery question” and welcomed suggestions following the constitutional authority of the United States shall conidential reading. However, he “wished it to be understood not then be practically recognized, submitted to, and that the question was settled in his own mind” and that “the maintained, shall then, thenceforward and forever, responsibility of the measure was his.” The time for bold action be free. had arrived. What enabled Lincoln to determine that the time was The scope of the proclamation was stunning. For the irst right for this fundamental transformation in how the war was time, the president yoked the Union and the abolition of waged and what the Union was ighting for? And how did slavery in a single transformative moral force. Some 3.5 million he persuade his fractious cabinet, a skeptical army, and his blacks in the South, where generations had lived enslaved, divided countrymen in the North to go along with him? were promised freedom. Seventy-eight words in one sentence Certainly, the dire situation of the war and Lincoln’s long- would supplant legislation on property rights and slavery that held conviction that “the institution of slavery is founded on had governed policy in the House and the Senate for nearly both injustice and bad policy” were vital elements. He had three-quarters of a century. By postponing for six months the always believed, he later said, that “if slavery is not wrong, date the proclamation would take efect, however, Lincoln nothing is wrong.” But underlying all was the steadfast force of ofered the rebellious states a last chance to end the war and his emotional intelligence: his empathy, humility, consistency, return to the Union before permanently forfeiting their slaves. self-awareness, self-discipline, and generosity of spirit. These Anticipate contending viewpoints. Though Lincoln had qualities proved indispensable to uniting a divided nation and signaled before reading the proclamation that his mind was utterly transforming it, and they provide powerful lessons for already made up, he welcomed reactions from his cabinet—his leaders at every level. “team of rivals”—whether for or against. So clearly did he Acknowledge when failed policies demand a change know each of the members, so thoroughly had he anticipated in direction. In the last week of June 1862, Union General their responses, that he was prepared to answer whatever George B. McClellan’s Army of the Potomac had sufered objections they might raise. He had deliberately built a team a crushing defeat in its irst major ofensive. In a series of of men who represented the major geographical, political, and brutal battles, General Robert E. Lee’s forces had repulsed ideological factions of the Union. For months he had listened McClellan’s advance up the Virginia Peninsula toward the intently as they wrestled among themselves about how best Confederate capital at Richmond, driving the Union army to preserve this Union. At various junctures diverse members into retreat, decimating its ranks, and leaving nearly 16,000 had assailed Lincoln as too radical, too conservative, brazenly dead, captured, or wounded. At one point the capitulation of dictatorial, or dangerously feckless. He had welcomed the McClellan’s entire force had seemed possible. Northern morale wide range of opinions they provided as he turned the subject was at its nadir—lower even than in the aftermath of Bull Run. over in his mind, debating “irst the one side and then the “Things had gone from bad to worse,” Lincoln recalled of that other of every question arising” until, through hard mental summer, “until I felt that we had reached the end of our rope work, his own position had emerged. His process of decision on the plan of operations we had been pursuing; that we had making, born of a characteristic ability to entertain a full played our last card and must change our tactics.” carousel of vantage points at a single time, seemed to some

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Lincoln and his cabinet with the Emancipation Proclamation Lithograph by Currier & Ives, 187 ►

laborious; but once he had inally determined to act, it was no he unexpectedly and wholeheartedly concurred—albeit with longer a question of what—only when. the condition that emancipated slaves be deported someplace Secretary of War Edwin Stanton and Attorney General in Central America or Africa. Edward Bates—the most radical and the most conservative Welles kept silent, later admitting that the proclamation’s of Lincoln’s team—were the only two who expressed strong “magnitude and its uncertain results,” its “solemnity and support for the proclamation. That Stanton recommended weight,” mightily oppressed him. Not only did he worry its “immediate promulgation” was understandable. More about “an extreme exercise of War powers,” but he feared that intimately aware than any of his colleagues of the condition “desperation on the part of the slave-owners” would most of the hard-pressed army, he instantly grasped the massive likely lengthen the war and raise the struggle to new heights of military boost emancipation would confer: Slave labor kept ferocity. Interior Secretary Caleb Smith, a conservative Whig farms and plantations in operation; the toil of slaves liberated from Indiana, remained silent as well, though he later conided

FRANCIS BICKNELL CARPENTER/LIBRARY OF CONGRESS FRANCIS BICKNELL CARPENTER/LIBRARY Confederate soldiers to ight. As for the constitutionalist Bates, to his assistant secretary that should Lincoln actually issue the

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Lincoln with General George B. McClellan (ﬁfth from the left) at Antietam, October 3, 1862 ►

proclamation, he would summarily “resign and go home and attack the Administration.” Montgomery Blair, the postmaster general, forcefully opposed the proclamation. As a spokesman for the border states (he had practiced law in Missouri before moving to Maryland), Blair predicted that emancipation would push loyal Union supporters in those states to the secessionists’ side. Furthermore, it would cause such an outcry among conservatives throughout the North that Republicans would lose the upcoming fall elections. Lincoln had considered every aspect of Blair’s objections but had concluded that the importance of the slavery issue far exceeded party politics. He reminded Blair of his own persistent eforts to seek compromise. He would, however, willingly allow Blair to lodge written objections. That Secretary of the Treasury Salmon Chase, the most ardent abolitionist in the cabinet, recoiled from the president’s initiative was irksome. “It went beyond anything I have recommended,” Chase admitted, but he feared that wholesale emancipation would lead to “massacre on the one hand and support for the insurrec- tion on the other.” Far better to deal with the dangerous issue piecemeal, in the incremental fashion General David Hunter had employed earlier that spring when our repeated reversals is so great,” Seward argued, that the he issued an order freeing the slaves within the territory of proclamation might be seen as “our last shriek, on the retreat.” his command, which encompassed South Carolina, Georgia, Far preferable to wait “until the eagle of victory takes its light” and Florida. Although Chase and his fellow abolitionists had and then “hang your proclamation around its neck.” been sorely tried when Lincoln summarily annulled Hunter’s “It was an aspect of the case that, in all my thought upon order, Lincoln had held irm: “No commanding general shall the subject, I had entirely overlooked,” Lincoln said afterward. do such a thing, upon my responsibility,” he had said. He “The result was that I put the draft of the proclamation aside.” would not “feel justiied” in leaving such a complex issue “to For two months he bided his time, awaiting word from the the decision of commanders in the ield.” A comprehensive battleield that the “eagle of victory” had taken light. At last policy was precisely what executive leadership entailed. the tide turned with the retreat of Lee’s army from Maryland Secretary of State William Seward had an internationalist and Pennsylvania. The battle at Antietam, with some 23,000 perspective and, consequently, transatlantic anxieties. If dead, was the bloodiest single day of combat in American the proclamation provoked a racial war that interrupted the history. Overwhelming carnage left both sides in a paralytic production of cotton, the ruling classes in England and France, stupor. This nightmare was not the resounding victory Lincoln dependent on American cotton to feed their textile mills, had hoped and prayed for, but it proved suicient to set his might intervene in behalf of the Confederacy. Lincoln had plan in motion. No sooner had the news of Antietam reached weighed the force of this argument, too, but was convinced him than he revised the preliminary draft of the proclamation. that the masses in England and France, who had earlier Only ive days after the “victory,” on Monday, September 22, pressured their governments to abolish slavery, would never he once again convened the cabinet. be maneuvered into supporting the Confederacy once the The moment had come for taking the action he had Union truly committed itself to emancipation. postponed in July. “I wish it were a better time,” he said, Know when to hold back and when to move forward. abruptly launching into the grave matter of emancipation. Despite the cacophony of ideas and contending voices, Lincoln “I wish that we were in a better condition.” However, he remained ixed upon his course of action. Before the meeting divulged, as witnessed by Chase and recorded in his diary, came to an end, Seward raised the sensitive question of “I made the promise to myself and (hesitating a little) to my

timing. “The depression of the public mind, consequent upon Maker” that if Lee’s army were “driven out” of Maryland, OF CONGRESS LIBRARY

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the proclamation would be issued. The decision was “ixed holding his hand as they anxiously awaited bulletins from and unalterable,” Lincoln declared. “The act and all its the battleield. responsibilities were his alone.” He had “pondered over it Reliant above all on Seward and Stanton, Lincoln was for weeks, and been more conirmed in the rectitude of the aware of the jealousy engendered by the specter of favoritism. measure as time passed on.” That clearly established, Lincoln Accordingly, he found exclusive time for each team member— read his slightly amended version of the proclamation. whether lagging down Welles on the pathway leading from If the members of this most unusual team—a microcosm of the White House to the Navy Department, suddenly dropping the disparate factions within the Union itself—were unable to in at Chase’s stately mansion, dining with the entire Blair clan, coalesce at this critical juncture, there would be small chance or inviting Bates and Smith for conversation on late-afternoon of binding the country at large. carriage rides. Set an example. How was it possible to coordinate these “Every one likes a compliment,” Lincoln observed; people inordinately prideful, ambitious, quarrelsome, jealous, need praise for the work they do. He frequently penned notes supremely gifted men to support a fundamental shift in the to his colleagues, expressing his gratitude for their actions. purpose of the war? The best answer can be found in Lincoln’s He publicly acknowledged that Seward’s suggestion to await compassion, self-awareness, and humility. He never allowed a military victory before issuing the proclamation was an his ambition to consume his kindheartedness. “So long as I original and useful contribution. When he had to issue an have been here,” Lincoln maintained, “I have not willingly order to Welles, he assured his “Neptune” that it was not planted a thorn in any man’s bosom.” his intention to insinuate “that you have been remiss in In his everyday interactions with the team, there was no the performance of the arduous and responsible duties of room for mean-spirited behavior, for grudges or personal your Department, which I take pleasure in airming had, resentments. He welcomed arguments within the cabinet in your hands, been conducted with admirable success.” but would be “greatly pained,” he warned his colleagues, if When compelled to remove one of Chase’s appointees, he he found them attacking one another in public. Such sniping understood that the prickly Chase might well be resentful. “would be a wrong to me; and much worse, a wrong to the Not wanting the situation to deteriorate, he called on Chase country.” The standards of decorum he demanded were based that evening. Placing his long arms on Chase’s shoulders, he on the understanding that they were all involved in a challenge patiently explained why the decision was necessary. Though “too vast for malicious dealing.” This sense of common the ambitious Chase often chafed under Lincoln’s authority, purpose had guided the formation of the cabinet and would he acknowledged that “the President has always treated me now sustain its survival. with such personal kindness and has always manifested such Understand the emotional needs of the team. An fairness and integrity of purpose, that I have not found myself ongoing attentiveness to the multiple needs of the complex free to throw up my trust…so I still work on.” individuals in his cabinet shaped Lincoln’s team leadership. Refuse to let past resentments fester. Lincoln never From the start Lincoln recognized that Seward, with selected members of his team “by his like, or dislike of them,” his commanding national and international reputation, his old friend Leonard Swett observed. He insisted that he did merited the preeminent position of secretary of state and not care if someone had done wrong in the past; “it is enough required special treatment. Not only attracted by Seward’s if the man does no wrong hereafter.” Lincoln’s adherence cosmopolitan glamour and the pleasure of his sophisticated to this rule opened the door to Stanton’s appointment as company but also sensitive to his colleague’s hurt pride in secretary of war, despite a troubled early history between the losing the Republican presidential nomination that had two men. They had irst crossed paths on a major patent case widely been expected to be his, Lincoln frequently crossed in Cincinnati. Stanton, a brilliant and hard-driving lawyer, had the street to pay a visit to Seward’s townhouse at Lafayette already earned a national reputation; Lincoln was an emerging Park. There the two men spent long evenings before a blazing igure only in Illinois. One look at Lincoln—hair askew, shirt ire, talking, laughing, telling stories, developing a mutually stained, coat sleeves and trousers too short to it his long arms bolstering camaraderie. Lincoln formed an equally intimate, and legs—and Stanton turned to his partner, George Harding: though less convivial, bond with the high-strung, abrasive “Why did you bring that d—d long armed Ape here…he does Stanton. “The pressure on him is immeasurable,” Lincoln said not know anything and can do you no good.” And with that, of “Mars,” as he afectionately nicknamed his war secretary. Stanton dismissed the prairie lawyer. He never opened the Lincoln was willing to do anything he could to assuage that brief Lincoln had meticulously prepared, never consulted him, stress, if only by sitting with Stanton in the telegraph oice, didn’t even speak a word with him.

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Out of that humiliation, however, came a powerful self- ofered to resign. Lincoln told him he had no intention of scrutiny on Lincoln’s part, a savage desire to improve himself. reading it, nor any desire to exact retribution. “Forget it,” he He remained in the courtroom the entire week, intently said, “and never mention or think of it again.” studying Stanton’s legal performance. He had never before Protect colleagues from blame. Time and again, Welles “seen anything so inished and elaborated, and so thoroughly marveled, Lincoln “declared that he, and not his Cabinet, prepared.” Stanton’s partner recalled that although Lincoln was in fault for errors imputed to them.” His refusal to let a never forgot the sting of that episode, “when convinced that the subordinate take the blame for his decisions was never more interest of the nation would be best served by bringing Stanton apparent than in his public defense of Stanton after McClellan into his cabinet, he suppressed his personal resentment, as not attributed the Peninsula disaster to the War Department’s many men would have done, and made the appointment.” failure to send suicient troops. A vicious public assault upon “No two men were ever more utterly and irreconcilably Stanton ensued, with subsequent calls for his resignation. unlike,” Stanton’s private secretary observed. Whereas Lincoln To create a dramatic backdrop that would garner extensive would give “a wayward subordinate” too many chances “to newspaper coverage, Lincoln issued an order to close down repair his errors,” Stanton “was for forcing him to obey or all the government departments at one o’clock so that cutting of his head.” Whereas Lincoln was compassionate, everyone might attend a massive Union rally on the Capitol patient, and transparent, Stanton was blunt, intense, and steps. There Lincoln directly countered McClellan’s charge. secretive. “They supplemented each other’s nature, and they He insisted that every possible soldier available had been fully recognized that they were a necessity to each other.” sent to reinforce the general. “The Secretary of War is not to Before the end of their partnership, Stanton not only revered blame for not giving what he had none to give.” Then, as the Lincoln; he loved him. applause mounted, Lincoln continued: “I believe [Stanton] Control angry impulses. When infuriated by a colleague, is a brave and able man, and I stand here, as justice requires Lincoln would ling of what he called a “hot” letter, releasing me to do, to take upon myself what has been charged on the all his pent wrath. He would then put the letter aside until he Secretary of War.” Lincoln’s robust and dramatic defense had cooled down and could attend to the matter with a clearer of his beleaguered secretary summarily extinguished the eye. When his papers were opened at the beginning of the campaign against Stanton. 20th century, historians discovered a raft of such letters, with In the end it was Lincoln’s character—his consistent Lincoln’s notation underneath: “never sent and never signed.” sensitivity, patience, prudence, and empathy—that inspired Such forbearance set an example for the team. One evening and transformed every member of his oicial family. In this Lincoln listened as Stanton worked himself into a fury against paradigm of team leadership, greatness was irmly grounded one of the generals. “I would like to tell him what I think of in goodness. And yet, beneath Lincoln’s tenderness and him,” Stanton stormed. “Why don’t you?” suggested Lincoln. kindness, he was without question the most complex, “Write it all down.” ambitious, willful, and implacable leader of them all. His When Stanton inished the letter, he returned and read it to team members could trumpet self-serving ambitions; they the president. “Capital,” Lincoln said. “Now, Stanton, what are could criticize Lincoln, mock him, irritate him, infuriate you going to do about it?” him, exacerbate the pressure upon him. Everything would “Why, send it, of course!” be tolerated so long as they pursued their jobs with passion “I wouldn’t,” said the president. “Throw it in the waste- and skill, so long as they were headed in the direction he had paper basket.” deined for them. “But it took me two days to write.” Certainly there was no perfect unanimity on September 22, “Yes, yes, and it did you ever so much good,” Lincoln said. 1862, when Lincoln told the cabinet he was ready to publish “You feel better now. That is all that is necessary. Just throw it his preliminary proclamation. Diferences of opinion and in the basket.” And after some additional grumbling, Stanton reservations persisted. Welles remained vexed, but if the did just that. president was willing to take the full weight of responsibility, Not only would Lincoln hold back until his anger subsided he was ready to assent. “Fully satisied” that the president and counsel others to do likewise; he would readily forgive had accorded every argument a “kind and considerate intemperate public attacks on himself. When an unlattering consideration,” Chase came aboard. Smith abandoned his letter Blair had written about Lincoln in the early days of the threat to resign, and Blair never took up Lincoln’s invitation war unexpectedly surfaced in the press months later, the to ile written objections. When the proclamation appeared embarrassed Blair carried the letter to the White House and in newspapers the following day, the entire cabinet, unlikely

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The abolitionist leader Frederick Douglass judged that “if [Lincoln] has taught us to conﬁde in nothing else, he has taught us to conﬁde in his word.”

as it had irst appeared, stood behind the president. When it with the recruitment of blacks had been inserted in the counted most, they presented a united front. proclamation, along with a humble closing appeal, suggested by Secretary Chase, for “the considerate judgment of mankind, WINNING OVER THE skeptics in his own cabinet was but an and the gracious favor of Almighty God.” early step in the journey to reunite the nation. A hundred Across New England reaction to the proclamation was days remained between the publication of the Emancipation “wild and grand,” with “Joy and gladness,” “sobs and tears,” Proclamation and its intended activation, on January 1, according to Douglass. That jubilation, however, was not 1863. They were not to be tranquil ones. This distressing shared in the border states or, for that matter, in much of period would provide a critical test of Lincoln’s leadership. the rest of the North. If a marginal victory at Antietam had As Blair had predicted, conservative resentment against the muted opposition to emancipation, the humiliating defeat proclamation produced withering results for Republicans in at Fredericksburg and the ensuing winter stalemate had the midterms. “We have lost almost everything,” Lincoln’s raised anger to full volume. In Congress, “Peace Democrats,” secretary, John Nicolay, lamented. In December the Union popularly known as Copperheads, capitalizing on the army fell into the trap of “a slaughter pen” at Fredericksburg, protracted slough of morale, opposed the new conscription leaving 13,000 Union soldiers dead or wounded. A blizzard of laws and even went so far as to openly encourage soldiers to recriminations beset the president from all sides. desert. Anecdotal reports from the army camps suggested that Keep your word. As the irst of January drew near, the emancipation was having a negative efect on the soldiers, public displayed a “general air of doubt” as to whether the numbers of whom claimed they had been deceived—they had president would follow through on his pledge to put the signed up to ight for the Union, not for the Negro. proclamation into efect on that day. Critics predicted that its But Lincoln knew how to read the public’s mood. When enactment would foment race wars in the South, cause Union his old friend Orville Browning raised the specter of the oicers to resign their commands, and prompt 100,000 men to North’s uniting behind the Democrats in their “clamor for lay down their arms. The prospect of emancipation threatened compromise,” Lincoln predicted that if the Democrats moved to fracture the brittle coalition that had held Republicans and toward concessions, “the people would leave them.” Nor was Union Democrats together. he worried that emancipation would splinter the army. While “Will Lincoln’s backbone carry him through?” wondered a he conceded that wavering morale had inlamed tensions over skeptical New Yorker. Those who knew Abraham Lincoln best emancipation and might lead to desertions, he did not believe would not have posed that question. All through his life, the that “the number would materially afect the army.” On the honor and weight of his word had been ballast to his character. contrary, those inspired by emancipation to volunteer would “My word is out,” Lincoln told a Massachusetts congressman, more than make up for those who left. Lincoln was certain, he “and I can’t take it back.” told the swarm of doubters, that the timing was right for this Though often frustrated by Lincoln’s slowness in issuing repurposing of the war. the proclamation, the abolitionist leader Frederick Douglass Indeed, nowhere was the efect of Abraham Lincoln’s had come to believe that Lincoln was not a man “to reconsider, transformative leadership illustrated more sharply than in retract, and contradict words and purposes solemnly pro- soldiers’ changed attitudes toward emancipation. During claimed.” Correctly, he judged that Lincoln would “take no the irst 18 months of the war, only three out of 10 soldiers step backward,” that “if he has taught us to conide in nothing professed a willingness to risk their lives for emancipation. else, he has taught us to conide in his word.” The majority were ighting solely to preserve the Union. That Gauge sentiment. The day before the New Year, Lincoln ratio shifted in the wake of the Emancipation Proclamation. convened his cabinet a third time for a inal reading of the Following Lincoln’s lead, an overwhelming majority of soldiers proclamation. The version he presented difered in one major came to view emancipation and the restoration of the Union respect from the one published in September. For months, as inseparably linked. How had Lincoln transferred his purpose abolitionists had argued for enlisting blacks in the armed to those men? services. Lincoln had hesitated, regarding such a radical step as Establish trust. The response of the troops was grounded in premature and hazardous for his fragile coalition. the deep trust and loyalty Lincoln had earned among rank-and- Now, however, he decided the time had come. “The dogmas ile soldiers from the very beginning of the war. In letters they of the quiet past are inadequate to the stormy present,” he told wrote home, accounts of his empathy, responsibility, kindness, Congress. “As our case is new, so we must think anew, and act accessibility, and fatherly compassion for his extended family anew.” A new clause declaring that the army would commence were commonplace. They spoke of him as one of their own;

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Part of the 127th Regiment, Ohio Volunteer Infantry—the ﬁrst completely African- American regiment recruited in Ohio—probably in 1863. It was later redesignated the 5th Regiment, United States Colored Troops. ►

emancipation policy, and the use of colored troops, constitute the heaviest blow yet dealt to the rebellion.” Lincoln had carefully observed “this great revolution in public sentiment slowly but surely progressing.” He was a keen listener and monitored the shifting opinions of his cabinet members. He was a shrewd reader, noting the direction of the wind in newspaper editorials, in the tenor of conversations among people in the North, and most centrally, in the opinion of the troops. Although he had known all along that opposition would be ierce when the proclamation was actuated, he judged that opposition to be of insuicient strength “to defeat the purpose.” This acute sense of timing, one journalist wrote, was the secret to Lincoln’s gifted leadership: “He always moves in conjunction with propitious circumstances, not waiting to be dragged by the force of events or wasting strength in premature struggles with them.” As Lincoln they carried his picture into battle. Such was the credibility himself pointed out, “With public sentiment, nothing can fail; that Lincoln had established with them that it was no longer a without it, nothing can succeed.” question of ighting solely for the Union. “If he says all Slaves are hereafter Forever Free,” wrote one soldier, “Amen.” Another AT A TIME when the spirits of the people were depleted and confessed that he had “never been in favor of the abolition war fatigue was widespread, Lincoln had gotten a powerful of slavery” but was now “ready and willing” to ight for second wind. Where others saw the apocalyptic demise of the emancipation. A new direction had been set and accepted. Founders’ experiment, he saw the birth of a new freedom. Nothing would drive home the transformative power of “Fellow citizens, we cannot escape history,” he told the Emancipation Proclamation more powerfully than the Congress a month before he put the Emancipation recruitment and enlistment of black soldiers. Blacks responded Proclamation into efect. “The iery trial through which we fervently to the enlistment call. Not only did they sign up in pass, will light us down, in honor or dishonor, to the latest record numbers—adding nearly 200,000 troops to the Union generation….In giving freedom to the slave, we assure war efort—but, according to oicial testimony, they fought freedom to the free—honorable alike in what we give and what with striking gallantry. “I never saw such ighting as was we preserve. We shall nobly save, or meanly lose, the last best done by the negro regiment,” General James G. Blunt wrote hope of earth.” after one early engagement. “They fought like veterans with In a great convergence of the man and the times, Abraham a coolness and valor that is unsurpassed.” After the battle at Lincoln’s leadership imprinted a moral purpose and meaning Port Hudson, a white oicer openly confessed, “You have on the protracted misery of the Civil War. no idea how my prejudices with regard to negro troops have been dispelled by the battle the other day. The brigade of DORIS KEARNS GOODWIN is a historian and the Pulitzer Prize–winning author of several biographies of U.S. presidents, including No negroes behaved magniicently and fought splendidly; could Ordinary Time, Team of Rivals, The Bully Pulpit, and Lyndon Johnson not have done better.” Even commanders formerly opposed and the American Dream. Her newest book is Leadership in Turbulent

to his proclamation, Lincoln stressed, now “believe the Times (Simon & Schuster, September 2018). OF CONGRESS LIBRARY

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MANAGING YOURSELF 140 CASE STUDY 145 SYNTHESIS 150 LIFE’S WORK 156 Sleep Well, Lead Better Can I Step Back You Versus the Clock Trevor Noah from My Start-Up?

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MANAGING YOURSELF

glucose (the molecule that fuels the brain), and clear out beta-amyloid (the waste product that builds up in Alzheimer’s patients and disrupts cognitive activity). By contrast, insuicient sleep and fatigue SLEEP WELL, lead to poor judgment, lack of self-control, and impaired creativity. Moreover, there are lesser-known secondary efects in organizations. My research shows that sleep deprivation doesn’t just hurt individual performance: When managers lose sleep, their employees’ experiences and output LEAD BETTER are diminished too. So how can we turn this knowledge into MANAGERS NEED MORE REST. HERE’S sustained behavior change? A irst step for sleep-deprived leaders is to come to terms HOW TO GET IT. BY CHRISTOPHER M. BARNES with just how damaging your fatigue can be—not only to you but also to those who work for you. Next, follow some simple, practical, research-backed advice to ensure HOW MUCH SLEEP do you get each night? that you get better rest, perform to your Most of us know that eight hours is the potential, and bring out the best in the recommended amount, but with work, people around you. family, and social commitments often consuming more than 16 hours of the day, it can seem impossible to make the math SPREADING DAMAGE work. Perhaps you feel that you operate just Historically, scholars have depicted ine on four or ive hours a night. Maybe supervision as stable over time—some you’ve grown accustomed to red-eye lights, bosses are just bad, and others aren’t. But time zone changes, and the occasional recent research indicates that individual all-nighter. You might even wear your behavior can vary dramatically from day sleep deprivation like a badge of honor. to day and week to week—and much of If this sounds familiar, you’re not alone. this variance can be explained by the Although the ranks of sleep advocates are quality of a manager’s sleep. Indeed, no doubt growing—led by the likes studies have found that when leaders of Arianna Huington and Jef Bezos— show up for work unrested, they are more a signiicant percentage of people, and likely to lose patience with employees, U.S. executives in particular, don’t seem to act in abusive ways, and be seen as be getting the sleep they need. According less charismatic. There is also a greater to the most recent data from the National likelihood that their subordinates will Health Interview Survey, the proportion of themselves sufer from sleep deprivation— Americans getting no more than six hours and even behave unethically. a night (the minimum for a good night’s In a recent study, Cristiano Guarana rest for most people) rose from 22% in 1985 and I measured the sleep of 40 managers to 29% in 2012. An international study and their 120 direct reports during the conducted in 2017 by the Center for Creative irst three months of their assigned time Leadership found that among leaders, the working together, along with the quality problem is even worse: 42% get six or fewer of these boss-employee relationships. We hours of shut-eye a night. found that sleep-deprived leaders were You probably already have some more impatient, irritable, and antagonistic, understanding of the beneits of rest— which resulted in worse relationships. We and the costs of not getting it. Sleep allows expected that this efect would diminish us to consolidate and store memories, over time as people got to know each other, process emotional experiences, replenish but it did not. Sleep deprivation was just as

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damaging at the end of the three months received scores 13% lower than those as it was at the beginning. However, the in the control group. Why? Previous leaders were completely unaware of the research has shown that when leaders negative dynamic. evince positive emotion, subordinates feel Lorenzo Lucianetti, Devasheesh Bhave, good and therefore perceive the bosses as Michael Christian, and I found similar charismatic. If we don’t get enough sleep, results when we asked 88 leaders and their we’re less likely to feel positive and less subordinates to complete daily surveys able to manage or fake our moods; it’s for two weeks: When bosses slept poorly, very diicult to pull ourselves out of an they were more likely to exhibit abusive insomnia-induced funk. behavior the next day, which resulted Furthermore, leaders who discount the in lower levels of engagement among value of sleep can negatively impact not subordinates. When the boss doesn’t feel just emotions but also behaviors on their rested, the whole unit pays a price. teams. Lorenzo Lucianetti, Eli Awtrey, WHEN LEADERS SHOW Sleep also afects managers’ ability to Gretchen Spreitzer, and I conducted a inspire and motivate those around them. series of studies of what we termed “sleep UP FOR WORK UNRESTED, In a 2016 experiment, Cristiano Guarana, devaluation”—scenarios in which leaders Shazia Nauman, Dejun Tony Kong, and communicate to subordinates that sleep THEY ARE MORE I manipulated the sleep of a sample of is unimportant. They may do so by setting students: Some were allowed to get a an example (for instance, boasting about LIKELY TO LOSE PATIENCE normal night’s worth, while others were sleeping only four hours or sending work randomly assigned to a sleep-deprived e-mails at 3 AM), or they may directly shape WITH EMPLOYEES, condition in which they were awake about employees’ habits by encouraging people ACT IN ABUSIVE two hours longer. We then asked each to work during typical sleep hours (perhaps participant to give a speech on the role criticizing subordinates for not responding WAYS, AND BE SEEN AS of a leader, recorded those talks, and had to those 3 AM e-mails, or praising third parties evaluate the speakers for individuals who regularly work late into LESS CHARISMATIC. charisma. Those who were sleep-deprived the night). In our studies, we found that

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MANAGING YOURSELF SLEEP WELL, LEAD BETTER

employees pay close attention to such cues and adjust their own behavior accordingly. Speciically, subordinates of leaders who model and encourage poor sleep habits get about 25 fewer minutes of nightly rest than people whose bosses value sleep, and they report that their slumber is lower in quality. One additional—perhaps more powerful—inding from this research was that leaders’ devaluation of sleep may also cause followers to behave less ethically. Bosses who systematically eschewed rest—in comparison to other managers—rated their subordinates as less likely to do the right thing. We suspect this wasn’t just a matter of the sleep-deprived leaders’ giving tougher ratings; it’s likely that employees were actually behaving in less moral ways as a result of the workplace environment or their own sleep deprivation. Indeed, in previous studies, we’ve shown that lack of sleep is directly linked to lapses in ethics.

Overlooked Solutions Fortunately, there are solutions to help leaders improve the quality and quantity of their sleep. Many of these are well- known but underutilized. They include sticking to a consistent bedtime and wake-up schedule, avoiding certain substances too close to bedtime (cafeine within seven hours, alcohol within three hours, and nicotine within three or four hours), and exercising (but not right before bed). Additionally, relaxation and mindfulness meditation exercises help lower anxiety, making it easier to drift of to sleep. A new branch of research is beginning to show how important it is to alter smartphone behavior too. Melatonin is a crucial biochemical involved in the process of falling asleep, and light not practical, you might try glasses that electronic trackers. But beware: Most sleep (especially blue light from screens) ilter out blue light. Some researchers trackers have not gone through rigorous suppresses its natural production. In have found that these can mitigate the validation for accuracy. (Your Fitbit can do research focused on middle managers, efect on melatonin production, thus many things, but it is not especially good Klodiana Lanaj, Russell Johnson, and I helping people fall asleep more easily; at measuring sleep.) Many phone apps found that time spent using smartphones I’m now in the very early stages of a study in particular make unsupported claims— after 9 PM came at the expense of sleep, examining how this may improve work for example, that they can track which which undermined work engagement outcomes as well. stage of sleep you’re in. However, some the next day. The simple advice is to stop Savvy leaders are also starting to track devices, such as ActiGraph monitors, are looking at your devices at night. If that’s their sleep, through either diaries or very accurate and can help you determine

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embrace this form of rest. Tony Hsieh, whether you’re overestimating your the CEO of Zappos, is a nap proponent, sleep (we often forget about periods of ORGANIZATIONS SUCH and organizations such as Google and wakefulness in the night) and whether PriceWaterhouseCoopers have nap pods for there are patterns you can change. For AS GOOGLE HAVE NAP employees, understanding that 20 minutes example, you might ind that although PODS FOR EMPLOYEES, of downtime can make people more you’re in bed for seven hours a night, efective and productive for many more you’re getting only ive hours of sleep, UNDERSTANDING THAT hours that day. fragmented into small segments. Or As a leader, even if you fail to get enough perhaps you notice that your bedtime 20 MINUTES OF DOWNTIME sleep yourself, you should be careful to drifts later on the weekend, leading to promote good sleeping behavior. Your “social jet lag” on Monday, when you CAN MAKE PEOPLE MORE employees are watching you for cues about have to return to your earlier waking time. what is important. Avoid bragging about With this information, you can make PRODUCTIVE. your own lack of sleep, lest you signal to adjustments, such as taking a relaxing your subordinates that they, too, should bath before bed in hopes of getting more deprioritize sleep. If you absolutely must sustained rest, or hitting the sack earlier compose an e-mail at 3 AM, use a delayed- on Saturday and Sunday nights. delivery option so that the message isn’t Leaders often overlook two other sent until 8 AM. If you must pull an all- tools. The irst is treatment for sleep nighter on a project, don’t hold that up as disorders. By some estimates, up to 30% exemplary behavior. of Americans experience insomnia, and For pro-sleep role models, look to CEOs more than 5% sufer from sleep apnea. A such as Ryan Holmes of Hootsuite (“It’s large majority of people with these issues not worth depriving yourself of sleep for are never diagnosed or treated. If you are an extended period of time, no matter how overweight, have a thick neck, snore, and pressing things may seem”); Amazon’s spend adequate time in bed at night but Bezos (“Eight hours of sleep makes a big still feel tired, you may have sleep apnea. diference for me, and I try hard to make Partners or spouses are often the irst to that a priority”); and Huington, the CEO notice the symptoms, but oicial diagnoses of Thrive Global, who wrote a whole book are typically made after a sleep study that on the subject. measures oxygen levels and brain waves. It is clear that you can squeeze in more You might then be prescribed a continuous work hours if you sleep less. But remember positive airway pressure (CPAP) mask to that the quality of your work—and your wear at night; by keeping nasal and throat The other overlooked tool for getting leadership—inevitably declines as you do airways open, these devices greatly help more rest is napping. Too often, leaders so, often in ways that are invisible to you. sleep apnea patients. view nap breaks as time spent loaing As Bezos says, “Making a small number of As for insomnia suferers, they’re instead of working. However, research key decisions well is more important than typically aware of the problem but may clearly indicates that dozing for even making a large number of decisions. If you not know how to ix it. Jared Miller, Sophie 20 minutes can lead to meaningful shortchange your sleep, you might get a Bostock, and I examined an online program restoration that improves the quality of couple of extra ‘productive’ hours, but that that uses cognitive behavioral therapy work. A brief nap can speed up cognitive productivity might be an illusion.” Even to combat this disorder. We found that processing, decrease errors, and increase worse, as my research highlights, you’ll participants who were randomly assigned stamina for sustained attention to diicult negatively afect your subordinates. to the program experienced improved tasks later in the day. One study found If instead you make sleep a priority, sleep, more self-control, better moods, and that as little as eight minutes of sleep you will be a more successful leader who higher job satisfaction, and they became during the day was enough to signiicantly inspires better work in your employees. more helpful toward colleagues. The improve memory. Don’t handicap yourself or your team by treatment cost only a few hundred dollars Many cultures outside the United failing to get enough rest. per participant, indicating a substantial States have embraced naps as a normal HBR Reprint R1805K return on investment. I’m currently in and desirable activity. In Japan, inemuri, the early stages of another study that will or napping at work, is typically viewed measure the efects of this treatment on positively. Midday siestas have long CHRISTOPHER M. BARNES is an associate professor leader behaviors and follower outcomes, been part of work life in Spain. Now of management at the University of and I expect similarly beneicial efects. some American leaders are beginning to Washington’s Foster School of Business.

SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 143 РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS THE BIG IDEA Join us on HBR.org between issues of the magazine as we go deep on a topic crucial to your business. The Big Idea starts with a new feature article from a leading thinker and continues for the next week with videos, other articles, podcasts, webinars, events, and more. TRACKED BY LESLIE K. JOHN In the age of Alexa and home DNA kits, the implicit promise to consumers is that collecting more—and more-personal—data will result in targeted, eﬀective marketing. But when devices listen to conversations, triangulate our whereabouts, or even use AI to predict behavior, have things gone too far? The surveillance economy is at a crossroads. Leslie John of HBS shows how we got here and where we’re going. Coming in September 2018

NOVEMBER 2017 JANUARY 2018 MARCH 2018 MAY 2018 JULY 2018 THE GOOD MANAGING #METOO CEO ACTIVISTS THE END OF REALITY WARS Joan C. Williams Aaron K. Chatterji Sinan Aral JOBS SOLUTION and Suzanne Lebsock and Michael W. Toﬀel CYBERSECURITY Zeynep Ton Andy Bochman hbr.org/goodjobs hbr.org/aftermetoo hbr.org/activism hbr.org/infosec hbr.org/falsenews

GOOD PAY. Good beneﬁts. MOVING BEYOND hashtags BUSINESS LEADERS are NO AMOUNT of investment FALSE NEWS travels further, Good opportunities. The to eﬀect real cultural change taking stands on divisive in digital defenses can faster, and deeper online retail revolution that’s in the business world political issues—and betting protect critical systems than accurate news does. good for companies, the on their customers to from hackers. It’s time for That’s a big problem for any economy, and workers support them. a new strategy. company.

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CASE STUDY CAN I STEP BACK FROM MY START-UP? THE FOUNDER OF A PET CARE COMPANY WONDERS WHETHER TO SELL IT OR HIRE A NEW CEO. BY DAVID R. DIXON

Bzzt. Bzzt. Bzzt. Sitting on a bench in the dog park, Elena Pelc glanced at her phone. She’d hoped to escape from

work for the morning, but as the founder and CEO of 2 Proud Pups, a DAVID R. DIXON is a major in the U.S. Marine maker of all-natural dog care products, she didn’t have much free time. Corps, an Iraq War veteran, She decided to ignore e-mail for a few more minutes. This was a rare and a 2017 Presidential outing with her pets, and she wanted to enjoy it. Leadership Scholar. He is Maggie, a yellow lab, was rolling on the ground. Broccoli, a black the author of Call in the shepherd-husky mix, was sniing a few other dogs. Elena smiled. Air and the children’s book Goodnight Marines. These were her irst and second babies, adopted just after she and her husband, Matthias, had gotten married. The business was her third baby: She’d launched it when the pups were a year old simply because HBR’s fictionalized case studies present problems she couldn’t ind any high-quality shampoos for them on the market. faced by leaders in real Existing products had touted their cleaning power, but their companies and offer CASE STUDY ingredient lists were long and full of nasty-sounding chemicals that solutions from experts. This CLASSROOM NOTES irritated the dogs’ skin. So Elena had invested her savings to hire a one is based on “Cain & chemist and create something better. They had mixed early batches in Able Collection: Every Dog More than 60 million U.S. Has Its Day Spa” (Stanford her kitchen, and she’d tested the solutions on herself irst. households own a dog, Business School case no. up from 34.5 million in When the shampoo was ready, she’d started selling it to local retailers E412), by David R. Dixon 2002. In 2017 pet supplies and developed a loyal customer base. Over the next six years she’d and J.D. Schramm, which is were a $15 billion industry, hired a few stafers and added several more all-natural products, such available at HBR.org. according to the American Pet Products Association. as conditioner and toothpaste. The line was now carried by more than 1,000 independent pet stores nationwide plus a few regional chains. Elena had managed this growth without taking on any outside investors; she’d relied on bank loans and continued to invest her own Founding a company and money in the business. But she felt at a crossroads. Although her leading it as CEO require different skill sets. How products were selling well, revenues had plateaued at about $1 million might they differ, and annually. She didn’t think she could take 2 Proud Pups any further, and when might a founder now she had a real baby on the way. Seven months pregnant and feeling make a good CEO?

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CASE STUDY CAN I STEP BACK FROM MY START-UP?

a little burned out from shareholder in the company even as years of 24/7 work, she needed—and she ceded day-to-day control. How diﬃcult will it be wanted—a change. She was ready It made sense on paper. Christine for Elena to strike this to step down as CEO and possibly to was smart and dynamic and seemed balance? Is such an sell the company. But after months of passionate about 2 Proud Pups. Her arrangement feasible? research and meetings, she still hadn’t references had raved about her. found the right successor or buyer. But Elena couldn’t help feeling that Bzzt. Elena looked at her phone something was missing—hence the again: three more e-mails and texts. It follow-up call. was time to get back to the oice. She “Thanks for taking the time to chat eased onto her feet and whistled to the with me again,” Elena said. dogs. “Broccoli! Maggie! Time to go!” “Happy to!” Christine replied. “I’m excited about this opportunity.” “That’s good to hear,” Elena said. NEW CEO, NEW COMPANY? “As you can probably tell, I feel really Walking into the 2 Proud Pups oice, protective of the 2 Proud Pups brand. Elena unleashed her dogs and greeted One challenge with a new CEO would Kelly, an employee of three years. be maintaining all the relationships we “How’s today’s delivery coming?” have with suppliers, customers, and Elena asked. stores. How would you handle that?” “Almost done,” Kelly said. “I told “Honestly, I love making new them I’d be there this afternoon.” connections. Ideally, I’d shadow “Great. Thanks.” Elena glanced at you for a month to meet all the key the time. “Shoot—I have a call now.” contacts, and then I’d keep up with Kelly’s smile dimmed. “Another calls and visits. I’d assure them that interview for a new you?” 2 Proud Pups will be business as usual.” “Yes.” Elena sighed. “But this is a “But I can’t help wondering—will really strong candidate.” it be business as usual? Last time, She walked into her oice. On her when we discussed where you want desk was a pile of résumés from CEO to take the company in the future, you candidates who’d responded to a mentioned targeting Amazon, Chewy, Petco and PetSmart, listing she’d posted on a small-business and Petco.” which owns Chewy, are sale website. Clipped to each one, at “Well, if the idea is to put it on a major players in the pet Elena’s request, was a photo of the growth trajectory, I think we’d have to products market. But applicant’s dog. go after those big players. It would be a Amazon has more than half of online sales, according She’d spoken to all of them by multiyear strategy, and we might need to Packaged Facts—and How thorough has Elena phone, but only one seemed close to outside investment. But I think we e-commerce is projected been in her CEO search? a good it: Christine Reed, a 35-year- could accomplish it while maintaining to make up 20% of the What more could she do to old MBA whose previous experience existing distribution.” market by 2022. source candidates? included stints at a cosmetics start-up Christine paused. “But Elena, this and a global consumer products obviously works only if we’re on the company. They’d already met for same page. The deal we discussed cofee, and Elena had liked her—and would make us partners, even if you’re her bulldog, Rembrandt, who’d joined stepping down from management. them at the café. She and Christine had You’d have to trust me to take the discussed the history of 2 Proud Pups, company where it needs to go.” its inancials, and the terms under Elena felt a little queasy. Christine’s which a new CEO might join the irm. vision for the company did sound Backed by an investor with whom promising from a inancial standpoint, she’d worked before, Christine was but it just wasn’t the 2 Proud Pups that ready to take a 40% equity stake. She Elena knew. Still, she tried to hide her A company’s culture is would accept the same modest salary discomfort. “This search is all about often heavily inﬂuenced Elena had been earning and would inding someone who will bring a by its founder. How might accrue more shares each year. Elena diferent perspective to the business, a new CEO change the had hoped to divest a larger chunk of and it’s clear you can do that. But this culture at 2 Proud Pups? her holdings—she and Matthias were is a big step for me, so I hope you can keen to buy a bigger house and set up a understand if I take some time with it.” college fund for the baby—but she also “Of course,” Christine replied. “Just liked the idea of remaining the majority know that I’m ready when you are.”

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TO SELL OR NOT TO SELL? “Word gets around. Especially when Elena left her oice deep in thought. we independents are worried. You “How was the call?” Kelly asked. can’t sell to them, Elena. Their whole “It’s hard to pick your own business is designed to eliminate us.” replacement,” Elena said. “Actually, the idea is to sell all the “That’s because no one can replace products through all channels—in Should Elena be discussing you!” Kelly replied. stores and online. A merger would the potential sale with a “That’s nice of you. But maybe a mean that 2 Proud Pups would reach retailer? How much weight pregnant me—or a new-mom me—isn’t more pets. You know I want what’s should she give his and Is Elena right to feel others’ opinions? this way? what the company needs right now. best for you guys and for the animals.” Selling to a competitor actually seems “But your products are better than easier. It feels less personal.” theirs. That’s why I took a chance on “Which one?” Kelly asked warily. you way back when and stuck by you “There are a few options,” Elena when others jumped on the all-natural answered noncommittally. The truth bandwagon. Your shampoo is the was that she’d been in talks with only one my dogs will sit for. Can you Doghouse Luxe, a luxury dog food promise me that Doghouse won’t specialist, for two weeks. But its CEO, change the ingredients to cut costs?” Rajeev Gupta, an impressive guy “How are those dogs?” Elena asked, who’d been installed by the company’s trying to change the subject. private equity owners, had asked her to Pete smiled briely. “The same— keep the negotiations conidential. always getting into trouble.” Then he The Doghouse philosophy was frowned. “I guess Doghouse is better similar to 2 Proud Pups’, but its than defecting to Petco or Chewy. We business model was diferent. While certainly don’t want to carry the same Pups sold its products mainly through stuf as those soulless giants. But it still stores, Doghouse had an award- doesn’t sit right with me. We trust you, winning website and sold mostly direct Elena, and there’s nothing wrong with to consumers. Rajeev had ofered Online sales of pet staying small. Do let me know what products are expected to Elena a cash buyout and 10% of the your plans are once you make them. reach $8.2 billion in 2018, merged entity. The deal would give her I’m uneasy about this.” according to Pet Business. a cleaner break from her company and “Believe me, Pete,” she replied, What will Doghouse Luxe a much larger payout. And Rajeev’s “I know the feeling.” (and 2 Proud Pups, if the irm seemed to have a terriic track companies merge) need to do to stay competitive? rec ord of rolling up small businesses into larger, more successful ones. Still, THE BETTER OF TWO BAD OPTIONS the idea of having little or no inluence On her way home that night, Elena How likely is it that the over her brand going forward was got takeout, which she and Matthias two companies will merge tough to stomach. ate on the back porch with the dogs. smoothly? What factors Elena sat on a box, and Maggie She quickly recapped the day’s might get in the way, and padded over to lick her hand. “Where’s conversations. how should Elena prepare the delivery going again?” she asked. “And you’re sure you want to step for them? “Pete’s. I was about to head over.” down?” Matthias asked. “If both “Actually, why don’t I do it?” Elena options for the company are bumming said. “I’d like to talk to Pete.” you out, we can make it work—even Kelly hauled the boxes into the after the baby arrives.” 2 Proud Pups van, since Elena couldn’t Elena squeezed his hand with one do much heavy lifting these days. of hers while holding the other to her Pete’s Pet Shop, across town, was a city belly. “You’re sweet. But I think I’ve institution, named for its founder— given 2 Proud Pups as much as I can for a beloved curmudgeon who adored now, and I’d like to rest and be a mom animals and tolerated humans. When for a little bit. The timing feels right; it’s Elena parked at the rear and lightly just that neither option does. I guess tapped her horn, Pete appeared. you’re never excited to leave your life’s “Well, hello, Elena,” he said gru y. work behind.” “What’s this I hear about your selling to She looked down at Maggie and Doghouse Luxe?” Broccoli. “What do you think, pups? Elena grimaced. “It’s just an idea, Who’s the best person to take our little SEE COMMENTARIES ON THE Pete. How did you know?” company into the future?” NEXT PAGE

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CASE STUDY CAN I STEP BACK FROM MY START-UP?

ELENA’S BEST OPTION is to sell the company. 2 Proud Pups’ customers love about it— SHOULD ELENA Though she seems conlicted, I sense that but so could Christine. There aren’t any what she really wants is to be inished guarantees either way. APPOINT CHRISTINE with 2 Proud Pups. Her primary goal is to Rajeev is the one who already knows have more time for herself, her dogs, her the market, current trends, and probably THE NEW CEO husband, and her baby, and only one option a lot of the same customers and potential guarantees that she’ll get that time. targets. The two businesses are a good OR SELL TO Also, hiring Christine—someone who strategic it for each other. And if Elena has neither founded nor led a company can manage the transition correctly— DOGHOUSE LUXE? before—as the new CEO would involve ensuring that employees are retained, a lot of risk. Though her credentials placed in good jobs elsewhere, or given THE EXPERTS and references are impressive, she has severance, and that other stakeholders are no proven track record. Elena, as the equally well cared for—she should have RESPOND top shareholder, could ind herself still fun seeing where the merged irm goes. having to weigh in on or make a lot of When I decided to step back from my decisions. There might be personality own pet care products company, Cain & conlicts between the two women, or Able Collection, I faced a similar dilemma. between Christine and some of 2 Proud (In fact, the teaching case from which this Pups’ employees, suppliers, or existing story is drawn is based on my experience.) customers. And what if something were to Like many start-ups, the business had happen to Christine? plateaued, and we knew that ramping Even if Elena isn’t leading the company’s up would require some changes. I looked day-to-day operations, she would still be at outside investment and bringing on the hook for too much of its future. Things could get even more complicated if ELENA’S PRIMARY GOAL IS the company accepts outside investment, which would dilute her control. TO HAVE MORE TIME FOR Selling the company, however, would HERSELF, HER DOGS, HER solve almost all of Elena’s problems. HUSBAND, AND HER BABY, It would get her out of the business, AND ONLY ONE OPTION ensuring that she didn’t have to think— or worry—about it while navigating her GUARANTEES THAT SHE’LL new role as a mother. At the same time, it GET THAT TIME. would position 2 Proud Pups to lourish, because merging with Doghouse Luxe manufacturing in-house but ultimately would provide the new company with decided to merge with a friendly multiple sales channels. And it would competitor. Although I’d been happily result in a better payday for Elena, helping working 60-hour weeks for nine years, her buy that house and start that college I decided after having my irst child that fund. Plus, she would still own 10% of the I couldn’t handle that schedule anymore. business, so she could sit back, relax, and Eventually, my new partners and I chose collect money as the company grows. to sell to a larger organization, and that Like any other entrepreneur, Elena too was a relief. Like Elena, I was ready doesn’t want to watch her life’s work to move on to the next chapter of my life, disappear. But handing the reins to and after spending some time raising my Christine would be riskier than giving kids, I’ve now started a new company. them to Rajeev, who knows how The Doghouse deal is the best way to build a company. Yes, there’s for Elena to get what she wants. It’s also a chance that he and Doghouse the best way to help her company get the Luxe could change what growth it needs. CANDACE LEAK IS THE FOUNDER AND CEO OF LOANABLES.COM.

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TODD OLSON IS THE CEO AND A COFOUNDER OF PENDO.

IN MY OPINION, selling the company is But I think it’s more likely COMMENTS FROM THE giving up. That’s why Elena’s best choice is that Elena will learn from the new CEO. She HBR.ORG COMMUNITY to hire a new chief executive oicer. can pick up a lot by watching how Christine, I never get the sense that Elena has an MBA with more varied experience, runs Preserve Her Intentions truly lost her passion for 2 Proud Pups and the company. Those lessons will make her a The company grew into what it does. If she had, then yes, selling stronger leader later on. “ what it is because of might be her best move. But it sounds As an entrepreneur, I’m intimately Elena’s intense passion to to me as if she just wants a break—some familiar with decisions like this one. After create better products for time to igure out how best to balance her founding my second company, I brought in her dogs and all pets. If career and her family life. Choosing a deal an executive with more sales experience to she hands it over to a new with Doghouse Luxe will limit her future be CEO. Unfortunately, it didn’t work out. CEO and remains a partner, options; instead, she should expand her We then sold to another company, which her genuine intentions can options, by hiring a new CEO. went public, and I and all my employees help drive the company If Elena sells the company, she will stayed on through that journey. even longer. efectively be inished with it. 2 Proud I’d advise Elena to stay as involved in Sriharsha Sammeta Pups will have a new owner, and she 2 Proud Pups as I did in that situation. Of machine learning intern probably won’t be involved in any course she needs to continue the “getting Apple decision making. That would be a shame, to know you” process with Christine and because the company, created and keep her CEO search open in case someone developed with her guidance, seems even better pops up. Although her due date More Money, generally strong. Its products are good, is approaching, she should remain patient, Greater Scale its customers sound happy, and even spend lots of time with multiple candidates, Given Doghouse’s proven Pete doesn’t want her to leave. The consider what-if scenarios for each one, and ability to merge with small inancials aren’t bad either; they may have consult numerous references, including companies, it makes sense plateaued, but they aren’t shrinking, and contacts that haven’t been provided. for Elena to go for Rajeev’s the market remains vibrant. There’s still a offer. It would give her lot of room for 2 Proud Pups to grow, and substantially more money Elena should make sure that she continues HIRING A NEW CEO WILL ALLOW and help her brand go to be a part of it. ELENA TO STEP BACK WHILE beyond its current scale. As the founder, she put a lot of her STILL GUIDING THE COMPANY Vishesh Agarwal personality into the creation of her SHE CALLS HER BABY. MBA student, Indian Institute company. That will never go away, even of Management Calcutta if she does. Hiring Christine will not only Elena may be feeling tired, burned out, give her more lexibility in the future, and stressed about the new baby, but it’s but also ensure that she has the option What’s Most Important? a bad idea to make big decisions in that to return and continue to build on her Letting go is the hardest state. Selling to Doghouse Luxe may be a vision. Maybe Elena will miss running part in either scenario. move she’ll ultimately regret. Is she sure the company and serving her customers. If maintaining brand and she never wants to be involved with 2 Proud Maybe she’ll want to come back when her product control is more Pups again? Considering that she calls the child and any future siblings are in school. important to Elena, then company her baby, that doesn’t seem likely. She started 2 Proud Pups because my gut says bring in a new As a father of four who also considers my she wanted to solve a problem and had CEO. If time and financial company my baby, I would want to be part a vision for how to do it. By staying on freedom are what she’s of that baby’s future growth. I think Elena as the majority shareholder, she can looking for, sell and don’t would too. Hiring a new CEO will allow her protect that vision, her employees, and look back. to step back while still guiding the company her distributors while still pushing the Claire Lamont she founded. company toward growth. If she feels at founder and chief creative any point that Christine is leading the HBR Reprint R1805L officer, Smak business in the wrong direction, Elena Reprint Case only R1805X can reevaluate and adjust. Reprint Commentary only R1805Z

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JOHN DOERR WHAT I’M READING… Books are my friends. Favorites include I subscribe to lots of magazines (Science, Al Gore’s An Inconvenient Truth; Yes, Nature, HBR, MIT Technology Review, Time, CHAIRMAN OF And, from the Second City improv group; Fortune, Macworld/MacUser, the Atlantic, KLEINER PERKINS Meg Jay’s The Deﬁning Decade, about and Runner’s World) and newspapers (the the importance of your twenties; Andy New York Times, the Wall Street Journal, AND AUTHOR OF Grove’s High Output Management; and Financial Times, USA Today, and ones in MEASURE WHAT Harold and the Purple Crayon, because the Bay Area). I read the Washington Post MATTERS the protagonist really is an entrepreneur. online, because I can’t Recently I’ve read Tom Friedman’s get the print edition in Silicon Valley. And Thank You for Being Late and I check Axios and Politico and my Flipboard, Elisabeth Rosenthal’s An Apple News, and Google News feeds. I’d say American Sickness. I have a healthy addiction to news.

do, when you do it, and why. encouraging us to focus while her But the reality for many of us is sibling’s business is predicated on that this kind of focus is hard. Fret the neurological high of seeing a SYNTHESIS not, however; there’s a dizzying little red notiication. But I digress. array of advice promising to The antidote to Zuckerberg’s make it easier. luf might just be the updated YOU VERSUS THE CLOCK Randi Zuckerberg—the version of The Pomodoro entrepreneur, investor, and sister Technique, by Francesco Cirillo, TESTING THE LATEST TIME-MANAGEMENT of Facebook founder Mark— a longtime consultant to the ADVICE BY GRETCHEN GAVETT suggests in Pick Three that we software industry whose focus can live more-fulilling lives by is eiciency and productivity. abandoning the idea of doing it This book, irst released in 2009, all. Instead, we should choose gets us closer to Oliver’s idea of three areas of focus each day, being aggressively attuned to out of a total of ive: work, sleep, every single thing we do. Cirillo family, friends, and itness. “Yes!” suggests that we divide all tasks I exclaimed as I began to read, into 30-minute increments having already started setting with built-in breaks, measured up similar priorities in my own with a timer. (When he came life. Unfortunately, Zuckerberg’s up with this idea, in college, interesting argument becomes he used one shaped like a little insuferable at book length, tomato—hence the name of his padded heavily with proiles of technique.) If you want rules semi-celebrities. And although and formulas without a lot of she does make useful points—for excess language, this may be the ooks on time example, ofering a work expert’s approach for you. I was mostly management almost conclusion that “you’re not on board until I started to feel always quote Mary Oliver, going to feel perfectly balanced like I was being initiated into a I’ve learned. In her poem every day,” but you should “aim time cult. “Rule: A Pomodoro “Sometimes,” Oliver for a larger sense of balance in is indivisible,” Cirillo insists ofers “Instructions for your week or month”—they are repeatedly throughout. That Bliving a life: Pay attention. Be undermined by bubbly chatter said, the new edition includes astonished. Tell about it.” Part that will make your eyes roll. (“All a section on applying the of me wants to end this essay this work talk has me exhausted,” technique to teams, something here, because this is what time she writes. “Guess that’s our cue worth trying. After all, a single management really comes down to talk about sleep!”) It’s also hard interruption can bring the work to: being conscious of what you to shake the irony of Zuckerberg’s of multiple people to a halt.

The Pomodoro Technique: The Acclaimed Time-Management Pick Three: You Can Have It System That Has All (Just Not Every Day) Transformed How We Work Randi Zuckerberg Francesco Cirillo

Dey Street Books, 2018 Currency, 2018 MICROSTOCKHUB/ISTOCK PEOPLEIMAGES/ISTOCK;

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WHAT I’M WATCHING… I HAVE A BIG WHERE I’M GOING… I ﬁnd time for interesting TED talks and I hang around a bunch of industry the Sunday morning talk shows: Meet the SHELF OF BOOKS, conferences, but I really enjoy the ones Press, This Week, Face the where you can buttonhole people on topics Nation, Fareed Zakaria like artiﬁcial intelligence and transforming on CNN. I want to know AND I GIVE THEM the health care system. Stanford runs what’s happening. great events on AI. I’m also training for a I’m also quite taken AS GIFTS. half-marathon, so I go for a run every other with the drama series day. Sometimes I listen to music you might Designated Survivor. call “tropical electric/eclectic” on Spotify; It’s a way to relax. otherwise it’s NPR.

For less-cultish, more- should pick only three things to and have very little control commonsense advice, you can accomplish a day. over your schedule? And what “ COME UP WITH turn to two other recent releases: This brings me to perhaps about issues outside the oice, AN HONEST Make Time, by Jake Knapp and the most quietly radical of this such as the gender imbalance John Zeratsky of Google Ventures, selection of new books on time. in who shoulders the burden of ANSWER TO and Hyperfocus, by Chris Bailey, Laura Vanderkam’s O the Clock household chores and caregiving? THIS QUESTION: who not only studies productivity bears the subtitle Feel Less Time management is not but conducts experiments on Busy While Getting More Done. I just a problem that individuals THROUGHOUT himself (for example, limiting initially thought this would be need to address; it’s one that THE DAY, HOW his iPhone use to 60 minutes a an instructional guide or a better must be taken seriously by our day or binge-watching 296 TED version of Pick Three, and it does partners, employers, and policy FREQUENTLY DO talks in a week). Like Cirillo, emphasize the importance of makers. Some companies have YOU CHOOSE these authors recommend tracking everything you do. But it already taken positive steps. writing down exactly what you also goes beyond work activities An experiment at the Gap, for WHAT TO do, day in and day out, but their and contends with the messier, example, eliminated “on calls” FOCUS ON?” arguments are less stif. Make more philosophical aspects of and gave employees two weeks’ Chris Bailey, Hyperfocus: Time is practical and engaging, time management: What will notice of their schedules. The How to Be More Productive ofering tips on everything from we remember doing, and what stores that participated saw designing your day to the beneits will we regret not doing? How a 5% rise in labor productivity and in a World of Distraction of cutting out cable news and can we be disciplined but also yielded $2.9 million in increased eschewing plane Wi-Fi in favor of kind to ourselves when things go revenue during the study’s time away from work. Especially awry? The book also stresses the duration. But such initiatives useful for me was the guidance importance of acknowledging are still the exception. on e-mail. It turns out that being diicult times and lingering over The sheer volume of time slow to respond is a terriic way beautiful moments, even if it management advice out there to take control of your time. means we don’t “feel” productive. represents a subtle rallying cry, (Sorry, colleagues.) Vanderkam made me hopeful pushing us to overcome the Hyperfocus begins, in what but also a bit skeptical. If we discomfort of saying “no” to might be the most telling take back our time—focusing on some things, despite any feared commentary about our collective productivity but also allowing repercussions. If enough of us inability to focus, with a chapter time for gooing of—won’t we push back, maybe together we can on how to read it without being butt up against serious social establish a new normal that will distracted. Full of circle diagrams norms? If you’re expected to be make us a whole lot happier. and 2x2s, it instructs us on how on e-mail into the night for work, For me, these books have to pay attention to only one what will the consequences be mostly served to reinforce Mary GRETCHEN GAVETT is an meaningful thing at a time, and if you aren’t? What if you work Oliver’s timeless wisdom: “You associate editor at why—echoing Zuckerberg—we in a retail or service industry do not have to be good.” Harvard Business Review.

Make Time: How to Focus Hyperfocus: How to Be Oﬀ the Clock: Feel on What Matters Every Day More Productive in a World Less Busy While Getting Jake Knapp and John of Distraction More Done Zeratsky Chris Bailey Laura Vanderkam Currency, 2018 Viking, 2018 Portfolio, 2018

SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 151 РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS EXECUTIVE SUMMARIES SEPTEMBER–OCTOBER 2018

SPOTLIGHT CURIOSITY

The Business FRANCESCA GINO Professor, Harvard New research shows Business School that curiosity is vital Case for to an organization’s Curiosity performance—as are the ost of the breakthrough deeply and rationally about decisions and range of irms and industries, only about discoveries and remarkable come up with more-creative solutions. In 24% reported feeling curious in their jobs on inventions throughout history, addition, curiosity allows leaders to gain a regular basis, and about 70% said they face from lints for starting a ire to more respect from their followers and barriers to asking more questions at work. M self-driving cars, have something inspires employees to develop more- In this article I’ll elaborate on the particular ways in which in common: They are the result of curiosity. trusting and more-collaborative relation- beneits of and common barriers to The impulse to seek new information and ships with colleagues. curiosity in the workplace and then ofer experiences and explore novel possibilities Second, by making small changes to the ive strategies that can help leaders get is a basic human attribute. New research design of their organizations and the ways high returns on investments in employees’ points to three important insights about they manage their employees, leaders can curiosity and in their own. curiosity as it relates to business. First, encourage curiosity—and improve their people are curious and curiosity is much more important to companies. This is true in every industry an enterprise’s performance than was and for creative and routine work alike. THE BENEFITS OF CURIOSITY previously thought. That’s because cul- Third, although leaders might say they New research reveals a wide range of tivating it at all levels helps leaders and treasure inquisitive minds, in fact most beneits for organizations, leaders, and their employees adapt to uncertain market stile curiosity, fearing it will increase risk employees. conditions and external pressures: When and ineiciency. In a survey I conducted Fewer decision-making errors. the experiences they our curiosity is triggered, we think more of more than 3,000 employees from a wide In my research I found that when our

are exposed to. This 48 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2018 SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 49 package examines how leaders can nurture curiosity throughout their THE BUSINESS CASE FOR CURIOSITY organizations and ensure Although leaders might say they value inquisitive minds, in reality most stifle curiosity, fearing it will increase risk and inefficiency. Harvard Business School’s that it translates to success. Francesca Gino elaborates on the benefits of and common barriers to curiosity page 47 in the workplace and offers five strategies for bolstering it. Leaders should hire for curiosity, model inquisitiveness, emphasize learning goals, let workers explore and broaden their interests, and have “Why?” “What if...?” and “How might we...?” days. Doing so will help their organizations adapt to uncertain market conditions and external pressures and boost the business’s success. THE FIVE DIMENSIONS OF CURIOSITY Psychologists have come to realize that curiosity is not a monolithic trait. George Mason University’s Todd B. Kashdan, David J. Disabato, and Fallon R. Goodman, along with linguist and educational scientist Carl Naughton, break it down into five distinct dimensions: deprivation sensitivity, joyous exploration, social curiosity, stress tolerance, and thrill seeking. They explore which dimensions lead to the best outcomes and generate particular benefits in work and life. FROM CURIOUS TO COMPETENT The executive search firm Egon Zehnder has found that executives with extraordinary curiosity are usually able, with the right development, to advance to C-level roles. But that development is critical: Without it, a highly curious executive may score much lower on competence than less curious counterparts. Egon Zehnder’s Claudio Fernández-Aráoz, Andrew Roscoe, and Kentaro Aramaki describe the types of stretch assignments, job rotations, and other experiences needed to transform curiosity into competence.

THE COMPLETE SPOTLIGHT PACKAGE IS AVAILABLE IN A SINGLE REPRINT. HBR Reprint R1805B

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HOW I DID IT MANAGING YOURSELF

LEADERSHIP

HOW I DID IT MANAGING YOURSELF Although experts recommend eight hours of sleep a United Way’s SLEEP WELL, night, many of us don’t get that. A recent study of leaders LEAD BETTER across the world found that 42% average six hours of CEO on MANAGERS NEED MORE REST. HERE’S Shifting a HOW TO GET IT. BY CHRISTOPHER M. BARNES shut-eye or less. Century-Old SPREADING DAMAGE Insufficient rest leads to poor judgment, lack of self- Business control, and impaired creativity. And the author’s research WHEN LEADERS SHOW Model UP FOR WORK UNRESTED, THEY ARE MORE by Brian Gallagher LIKELY TO LOSE PATIENCE shows that sleep-deprived bosses hurt their teams WITH EMPLOYEES, ACT IN ABUSIVE WAYS, AND BE SEEN AS LESS CHARISMATIC. along with themselves: They are more likely to mistreat employees and create a workplace where people feel less engaged and may even behave less ethically. UNITED WAY’S CEO ON SLEEP WELL, LEAD BETTER Fortunately, there are ways to get more and better rest. Christopher M. Barnes | page 140 These include sticking to a regular bedtime and wake-up SHIFTING A CENTURY-OLD time; avoiding caffeine, nicotine, alcohol, and screen time before bed; tracking your sleep patterns and adjusting BUSINESS MODEL your habits accordingly; getting treatment for sleep Brian Gallagher | page 38 disorders; and napping during the workday. If you make sleep a priority, you’ll probably be a more productive—and In the 1950s the United Auto Workers inspiring—leader. HBR Reprint R1805K negotiated a plan that allowed employees at the big carmakers to donate money directly from their paychecks to the local precursors of United Way. For most of the organization’s history, it had no direct relationship with its donors. That has changed. Payroll deductions still play an important role, but United Way is moving to technology-driven engagement that allows individual donors to become more closely involved with the mission. In partnership with Salesforce, it has created a platform on which donors have their own home pages; there they can track all the gifts they’ve made and all the volunteer hours they’ve committed to causes and find We Sum it all up! content or policy news or volunteer opportunities relevant to their interests. It has found that individuals who engage with it online give more and continue Keeping up with trends is crucial for giving from year to year. Today some professionals, and reading is a powerful 25,000 people have each given more tool. But it takes valuable time. Wouldn’t it than $10,000 to United Way; more than be great if you could learn something new 600 have given $1 million; and 35 have in just a few minutes and make reading a given $10 million or more. HBR Reprint R1805A habit? With getAbstract, you can.

By Delivering the key insights of relevant non- ½FWLRQ ERRNV DUWLFOHV videos and reports in concise texts and audios, we're making millions of users the best-read experts on the business scene. РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS

EXECUTIVE SUMMARIES

TOO MANY PROJECTS WHY DESIGN NAVIGATING TALENT ALIBABA AND THE Rose Hollister and Michael D. THINKING WORKS HOT SPOTS FUTURE OF BUSINESS Watkins | page 64 Jeanne Liedtka | page 72 William Kerr | page 80 Ming Zeng | page 88 If “the essence of strategy is choosing what not to do,” as While we know a lot about practices Innovation clusters like San Alibaba is not a retailer in the Michael Porter famously wrote, that stimulate new ideas, innovation Francisco and Boston have long traditional sense. It doesn’t source then the essence of execution is teams often struggle to apply them. had an outsize impact on the global or keep stock, and logistics services truly not doing it. That may sound Why? Because people’s biases and economy, and their influence keeps are carried out by third-party simple, but most organizations entrenched behaviors get in the way. growing. In 2017, for instance, providers. Instead, Alibaba is struggle to kill initiatives, even In this article a Darden professor America’s 10 largest tech hubs what you get if you take all the those that no longer support their explains how design thinking helps accounted for 58% of U.S. patents. functions associated with retail strategy. Unaware of the cumulative people overcome this problem and Globally, cities such as Tokyo, and coordinate them online into impact or unwilling to part with unleash their creativity. Paris, Beijing, Shenzhen, and Seoul a sprawling, data-driven network pet projects or both, senior leaders Though ostensibly geared to produced a similar proportion. The of sellers, marketers, service pile on more and more, expecting understanding and molding the increased geographic concentration providers, logistics companies, teams to absorb it all. Productivity, experiences of customers, design of innovation activity poses a and manufacturers. Indeed, engagement, performance, and thinking also profoundly reshapes challenge for firms based in Alibaba does what Amazon, eBay, retention tend to suffer as a result. the experiences of the innovators suburban industrial parks. To stay PayPal, Google, FedEx, all of the In their consulting work the themselves. For example, immersive relevant, they need to tap into wholesalers, and a good portion of authors have observed several customer research helps them urban hotbeds, but setting up manufacturers in the U.S. do, with a root causes of initiative overload, set aside their own views and operations there can be extremely healthy helping of financial services including impact blindness, recognize needs customers haven’t expensive. for garnish. multiplier effects, political In his work on global talent Alibaba achieves this by logrolling, unfunded mandates, cost flows, Harvard Business School’s leveraging the new technologies myopia, and inertia. Understanding DESIGN THINKING Kerr has seen organizations of network coordination and data those causes can help leaders COULD DO FOR try three solutions: At one intelligence. It harnesses the diagnose the risks in their extreme, they can relocate their efforts of thousands of Chinese organizations and make smarter INNOVATION WHAT headquarters to a hub, as GE businesses to create an ecosystem decisions about what to keep and recently did (but make them that is faster, smarter, and more what to kill. A step-by-step process TQM DID FOR much smaller). A less expensive efficient than traditional business can guide them. Leaders should: strategy is to create an innovation infrastructures. 1. Get a true count of the current MANUFACTURING. lab or corporate outpost in a This is an emerging business initiatives across the enterprise. talent cluster, as Walmart did model that Ming Zeng, the chair 2. Assess each one, identifying with Walmart Labs. The most of Alibaba’s Academic Council, the business need, the required expressed. Carefully planned conservative strategy is to run calls smart business. Players in the budget, the head count allocation, dialogues help teams build on their executive retreats and immersions ecosystem share data and apply and the business impact. diverse ideas, not just negotiate in talent clusters—a tactic Vodafone machine-learning technology to 3. Get senior leaders working compromises when differences uses effectively. identify and better fulfill consumer together to establish priorities, arise. And experiments with new These three options aren’t needs. This article provides a in a discussion driven by the top solutions reduce all stakeholders’ mutually exclusive. Given the need framework for transforming a leadership team and informed by fear of change. to stay in touch with multiple company into a smart business. candid feedback from below. At every phase—customer clusters, companies may want to HBR Reprint R1805F 4. Establish a “sunset” clause for discovery, idea generation, and try them all. Each one involves each initiative. testing—a clear structure makes substantial risks that executives 5. In yearly planning, require people more comfortable trying must manage. But together they each initiative to reapply for funding new things, and processes offer a good playbook to firms that and other resources. increase collaboration. Because it are finding themselves outside the 6. Strongly communicate that combines practical tools and human action as the clout of a handful of stopping an initiative isn’t a sign of insight, design thinking is a social cities grows. failure. technology—one that the author HBR Reprint R1805E Organizations that learn how predicts will have an impact as large to wisely cut back can accomplish as an earlier social technology, total more in the areas that really matter. quality management. HBR Reprint R1805C HBR Reprint R1805D

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HEALTH CARE MARKETING MANAGING YOURSELF LEADERSHIP

Turning passion and perseverance THOMAS H. LEE The into performance: the view from ANGELA L. the health care industry DUCKWORTH - Good by DORIS KEARNS GOODWIN Organizational Better- Best SERENA CHEN LINCOLN Approach to RAFI and theArt of Prıcing MOHAMMED Give Grıt Yourself a Transformative Break: The LEADERSHIP Power of Self-

People in gritty organizations unite behind an D important common goal. In 1942 women in Chrysler’s Chicago bomber plant stepped into new roles to support the Allied war eﬀort. Compassion

ORGANIZATIONAL GRIT THE GOOD-BETTER-BEST GIVE YOURSELF A BREAK: LINCOLN AND THE ART Thomas H. Lee and Angela L. APPROACH TO PRICING THE POWER OF SELF- OF TRANSFORMATIVE Duckworth | page 98 Rafi Mohammed | page 106 COMPASSION LEADERSHIP Grit, a combination of passion and Serena Chen | page 116 Doris Kearns Goodwin | page 126 perseverance, predicts success in Companies often crimp profits by using discounts to attract price- many demanding fields. A perfect When we experience a setback at In her most recent book, example is health care, where sensitive customers and by failing to give high-end customers reasons work, we tend to either become Leadership in Turbulent Times, the grit of individual doctors and defensive and blame others, or Goodwin examines the careers nurses has saved many lives. But to spend more. A multitiered offering can use a stripped-down berate ourselves. Neither response of Abraham Lincoln, Theodore today providing superior care is so is helpful. Shirking responsibility Roosevelt, Franklin Roosevelt, and complex that no lone practitioner product (the “Good” option) to attract new customers, the existing by getting defensive may alleviate Lyndon Johnson, illustrating how can do it all. Great care requires the sting of failure, but it comes their skills and strengths enabled gritty teams that never stop striving product (“Better”) to keep current customers happy, and a feature- at the expense of learning. them to lead the United States for improvement and institutions Self-flagellation, on the other through periods of great upheaval. that exhibit grit across entire laden premium version (“Best”) to increase spending by customers hand, may feel warranted in the In this article she looks at Lincoln’s systems of providers. moment, but it can lead to an pivotal decision to issue the In this article Duckworth, the who want more. There’s nothing new about this inaccurately gloomy assessment of Emancipation Proclamation—which author of the best seller Grit, and one’s potential, which undermines required the support of his cabinet, Lee, a clinician and health care concept, of course—think of the different grades of fuel at any gas personal development. the army, and the American leader, describe health care’s Research shows that we people. Possessed of a powerful new model of organizational grit. station and the varying packages marketed by cable TV providers, should respond instead with emotional intelligence, he was It begins with hiring people with self-compassion. People who do able to mediate among factions grit—who love what they do, always this tend to demonstrate three and sustain the spirits of his want to get better, and are resilient A G-B-B PLAN HELPS behaviors: First, they are kind countrymen. Among the powerful in the face of setbacks. Their single- rather than judgmental about lessons Lincoln’s leadership minded determination stems from BUYERS UNDERSTAND their own failures and mistakes; embodied: Acknowledge when a clear personal-goal hierarchy, second, they recognize that failures failed policies demand a change in in which shorter-term objectives FEATURES AND THINK are a shared human experience; direction. Anticipate contending support a top-level goal that gives and third, they take a balanced viewpoints. Set an example. Refuse direction to everything they do. ABOUT WHICH ONES approach to negative emotions to let past resentments fester. To be gritty, organizations when they stumble or fall short— Protect colleagues from blame. must have a similar clarity about THEY VALUE. they allow themselves to feel bad, Establish trust. priorities, and their top-level goal but they don’t let negative emotions “In a great convergence of the and their employees’ must be take over. man and the times,” Goodwin aligned. If everyone is pursuing a to name just two examples—yet many companies and industries Self-compassion boosts writes, “Abraham Lincoln’s separate passion, a culture won’t performance by triggering the leadership imprinted a moral be gritty. The gritty health care have failed to embrace it. The author, a consultant who has “growth mindset”—the belief that purpose and meaning on the organizations the authors have seen improvement is achievable through protracted misery of the Civil War.” (such as Mayo Clinic and Cleveland helped many organizations adopt G-B-B pricing, presents a step- dedication and hard work. It also Clinic) all make “putting patients helps us connect with a more first” their overarching goal and by-step guide to devising, testing, and launching the strategy. Key authentic self. use it to guide every decision. They HBR Reprint R1805J also work to cultivate grit by, for steps include identifying “fence” example, setting high expectations; attributes that will prevent current offering the resources, support, and customers from trading down trust people need to keep learning from the existing offering; carefully and growing; and establishing choosing features and names to strong social norms that promote create clear differentiation and POSTMASTER their top-level goal. value; and setting prices using Send domestic address changes, orders, and inquiries to: Harvard Business Review, Subscription Service, feedback from in-house experts P.O. Box 37457, Boone, IA 50037. GST Registration No. 1247384345. Periodical postage paid at Boston, MA, While the objectives of and additional mailing offices. organizations in other sectors may and, when possible, drawing on differ, they can apply the principles conjoint analysis and other market Printed in the U.S.A. Harvard Business Review (ISSN 0017-8012; USPS 0236-520), published every other research. HBR Reprint R1805H month for professional managers, is an education program of Harvard Business School, Harvard University; the authors outline here to become Nitin Nohria, dean. gritty, too. HBR Reprint R1805G Published by Harvard Business School Publishing Corporation, 60 Harvard Way, Boston, MA 02163.

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For more from Trevor Noah, go to HBR.org.

LIFE’S WORK “ I TRY NOT TO LIVE TOO FAR INTO THE FUTURE TREVOR NOAH OR GET TOO STRESSED COMEDIAN ABOUT TODAY.”

As a biracial kid growing up in apartheid- decades of knowledge in a short time. I never processes that maximize your outputs and also era South Africa, Noah learned to confront thought that I knew anything coming in. I knew give you time to relax. You need to know when social injustice by poking fun at it. Now, I had a unique point of view for the late-night and how to focus on the work and when and at age 34, he brings that same sensibility space. But I didn’t take for granted that I was how to breathe. to a world-touring stand-up act and a surrounded by people who’d been making a gig hosting The Daily Show on Comedy highly successful show for a long time. So all Is it tough to make a great show Central—a role he took over from Jon I did was learn and listen and grow with the on deadline? Stewart and quickly made his own. team. I was the head of the show but in no way Yes, but it’s also liberating. It has taught me Interviewed by Alison Beard trying to be the boss. Over time, as I’ve become to focus on letting things go as much as on more comfortable, I’ve taken more of the reins, making them perfect. Think of the greatest HBR: When Comedy Central was making its and now we all guide the show together. We’re painters. Even they had to stop at some point, big succession decision, did you advocate people who enjoy comedy and commenting on you know? When the Catholic Church told for yourself? the news and sharing that process, and we try Michelangelo, “We need it by this day,” he NOAH: Not at all. Because I knew I was a dark to translate those conversations to a TV show. had to put down his brushes. And that’s really horse, there was no stress. I never believed the something: to understand that you can create job was mine, or that I deserved it, and I didn’t What do you look for in new hires? only within the time you have. So you just try anticipate getting it, which helps with any I’m trying to find people who will give us a over and over to make it as good as you can position in life. If you don’t think it’s yours, you competitive advantage and are hungry and each day and aim for consistency more than just put your best foot forward and prepare for creative. It’s nice when they at least share my anything else. the next opportunity. Luckily, I didn’t have to sense of comedy and vision of good television. wait. The Daily Show was it. But I want a room that’s diverse in thoughts, Do you do any special prep before backgrounds, and skill sets so that we protect taking the stage? Did you have doubts about taking the job? ourselves from making a show that’s one- I try to keep it casual. I’ll kick a soccer ball If you don’t have doubts about a challenge like dimensional and instead connect with as around with my crew. I’ll chat and make that, you’re extremely arrogant or extremely many different audiences as possible. jokes with my friends. I’m trying to maintain stupid. But if I’d let my doubts stop me from the same level of authenticity offstage and exploring the best opportunities, I wouldn’t The pace of production must be grueling. onstage. I don’t want to switch into a character have gotten to where I have in my life. How do you prevent burnout? or a caricature of myself. I want to perform, First, by creating an environment where yes, but also to maintain who I am. I keep it How did you manage the transition? it feels less like working and more like having as chill as possible so that when I come out, The first step was to learn as much as possible. fun with a purpose. Second, by building up people are getting as authentic a Trevor as I was lucky in that I inherited many experienced your resilience, getting used to the rhythm I can give them.

creators who could infuse my head with and intensity of the news, ﬁguring out HBR Reprint R1805M MARK PETERSON/GETTY IMAGES

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