viravision.net¾یش نمایش?path... · 48 MANAGING PEOPLE THE BUSINESS CASE FOR CURIOSITY Research shows that it leads to higher-performing, more adaptable ﬁrms. Francesca Gino

TheBusiness Case for CuriosityIT CAN IMPROVE YOUR FIRM’S ADAPTABILITY AND PERFORMANCE.Page 48

NAVIGATING TALENT HOT SPOTS William Kerr Page 80

INITIATIVE OVERLOADRose Hollister and Michael D. Watkins Page 64

LINCOLN’S TRANSFORMATIVE LEADERSHIP Doris Kearns Goodwin Page 126

HBR.ORG September–October 2018

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48 MANAGING PEOPLE

THE BUSINESS CASE FOR CURIOSITYResearch shows that it leads to higher-performing, more adaptable firms.Francesca Gino

58 PSYCHOLOGY

THE FIVE DIMENSIONS OF CURIOSITYHow are you curious?Todd B. Kashdan, David J. Disabato, Fallon R. Goodman, and Carl Naughton

61 LEADERSHIP DEVELOPMENT

FROM CURIOUS TO COMPETENTHow to move your people up the learning curveClaudio Fernández-Aráoz, Andrew Roscoe, and Kentaro Aramaki

SEPTEMBER–OCTOBER 2018

SPOTLIGHT CURIOSITY

47

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SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 7

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MANAGING ORGANIZATIONS

Too Many Projects How to deal with initiative overloadRose Hollister and Michael D. Watkins

64

INNOVATION

Why Design Thinking Works It addresses the biases and behaviors that hamper innovation.Jeanne Liedtka

72

STRATEGY

Navigating Talent Hot Spots How companies can benefit from innovation centers without necessarily relocatingWilliam Kerr

80

STRATEGY

Alibaba and the Future of Business Lessons from China’s innovative digital giantMing Zeng

88

HEALTH CARE

Organizational Grit Turning passion and perseverance into performance: the view from the health care industryThomas H. Lee and Angela L. Duckworth

98

MARKETING

The Good-Better-Best Approach to Pricing Why every company should consider a tiered modelRafi Mohammed

106

MANAGING YOURSELF

Give Yourself a Break: The Power of Self-Compassion When you have a setback at work, treat yourself as you would a friend: with kindness and understanding.Serena Chen

116

LEADERSHIP

Lincoln and the Art of Transformative Leadership Lincoln’s Emancipation Proclamation imprinted a moral purpose and meaning upon the protracted misery of the Civil War.Doris Kearns Goodwin

126

62

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8 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2018

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20 Interaction

152 Executive Summaries

22 R&D

Reevaluating Incremental InnovationSwinging for the fences can yield lower returns. plus A roundup of the latest management research and ideas

36 DEFEND YOUR RESEARCH

Men Buy More from Manly MenGetting Tom Brady to promote your brand is an excellent idea, new research suggests.

HOW I DID ITUnited Way’s CEO on Shifting a Century-Old Business ModelTechnology has enabled the charity to make strong connections with individual donors.Brian Gallagher

38

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140 MANAGING YOURSELF

Sleep Well, Lead BetterManagers need more rest. Here’s how to get it.Christopher M. Barnes

145 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.David R. Dixon

150 SYNTHESIS

You Versus the ClockTesting the latest time-management adviceGretchen Gavett

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FROM THE EDITOR

CULTIVATE CURIOSITY

Curiosity, we all know, is the spark that can lead to

breakthrough innovation. And it turns out that it

helps produce more than new ideas. Recent research

by Francesca Gino at Harvard Business School points

to several surprisingly practical beneits for business:

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

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

AN

DR

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Senior associate editor Susan Francis and Adi Ignatius


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CONTRIBUTORS

126 FEATURE Lincoln and the Art of Transformative Leadership

In her new book, Leadership in

Turbulent Times, Doris Kearns

Goodwin explores the nature of

leadership—something she’s been

turning over in her mind since her

graduate school days at Harvard.

“I spent my career living with

‘dead’ presidents,” she says, “but

studying them through the lens

of leadership, I felt I was meeting

them anew. I hope that in these

times of fracture and fear these

stories will provide perspective

on today’s dilemmas and stir us to

thought and action in our private

and public lives.”

98 FEATURE Organizational Grit

140 MANAGING YOURSELF Sleep Well, Lead Better

80 FEATURE Navigating Talent Hot Spots

64 FEATURE Too Many Projects

Angela Duckworth grew up hearing all about the accomplishments of her older cousins, including her coauthor Thomas Lee. Even so, in-person encounters with Tom were few and far between. It was not until recently that their paths crossed professionally, when Tom called with a question: Could Angela’s research on “gritty” high achievers explain how the toughest doctors avoided burnout? That led to a year of discussions and a new framework that extends Angela’s model of grit in individuals to health care teams and organizations, the subject of their article in this issue.

Christopher M. Barnes first became interested in sleep deprivation while struggling to stay alert through Air Force Officer Training School. There, he observed classmates having the same problem, and he started to wonder how much they were all actually learning under the highly taxing conditions. He went on to manage research in the Fatigue Countermeasures Branch of the Air Force Research Laboratory, which focused on understanding and managing the effects of sleep deprivation on military operations. Now an associate professor at the University of Washington’s Foster School of Business, he examines the relationship between sleep and work. He is the first business school professor to make sleep his primary research interest.

During the launch of a wireless data venture in the late 1990s, William Kerr found himself traveling constantly between Seoul, Silicon Valley, and Hong Kong. He needed to bring together technologies from those global talent clusters, but they were not always easy to access—at one point, Kerr was deported from Korea for a visa snafu. Twenty years later, he is now a professor at Harvard Business School, where his research examines how companies can tap into global talent hot spots—the topic of his article in this issue.

Alain Delorme, a photographer based in Paris, is particularly interested in the theme of accumulation. While spending time in Shanghai in 2009, Delorme noticed that “the streets seemed to bristle with moving ‘totems,’ precarious assemblages of ordinary, identical objects.” Delorme was captivated by the excess and used his skills as a “pixel surgeon” to question contemporary norms.


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THE LEADER’S CALENDARHBR ARTICLE BY MICHAEL E. PORTER AND NITIN NOHRIA, JULY–AUGUST

Chief executives have tremendous resources at their disposal, but they face an acute scarcity in one critical area: time. Drawing on an in-depth 12-year study, this Spotlight package examines the unique time-management challenges of CEOs and the best strategies for conquering them.

I run a small company with just 55 employees,

but we do business globally in a very

competitive space. Although this article

is about CEOs of big companies, it also

applies to CEOs of small companies like

mine. The authors’ findings are very relevant

and the CEOs’ experiences are surprisingly

similar to my own. I’m glad to see that many

leaders face the same challenges and think

they can draw on the same strategies.

John Sorensen, owner, Couples Resort

These findings are interesting but aren’t

enough for the average reader to make

practical behavioral changes. I imagine time-

use averages mean little once common factors

such as industry, geography, and culture are

taken into consideration.

Francis Wade, president, 2Time Labs and

Framework Consulting

The subdivisions of time illustrated in this

article will be familiar to most readers,

but to see them quantified is really useful.

Similarly, the discussion of the relative merits

of each activity, and where to reclaim time,

of something big, but at the end of

the day if they do not feel recognized

for their hard work and effort,

greater company purpose will be

irrelevant.

Anastasiia Harkusha-Ibrakhim,

market research specialist,

HR research, Unleash

Very inspiring, energizing, and

actionable! After reading this,

I noticed I was connecting with

my colleagues at a deeper level,

with more energy and enthusiasm.

And ideas for applying this at my

organization keep popping up!

These concepts and methods are

so empowering.

David Fessell, professor of radiology,

University of Michigan

COLLABORATIVE INTELLIGENCE: HUMANS AND AI ARE JOINING FORCES

HBR ARTICLE BY H. JAMES WILSON AND PAUL R. DAUGHERTY, JULY–AUGUST

Artiicial intelligence is transforming every economic sector, but there’s no reason to fear that robots will replace all human employees. In fact, companies that automate operations mainly to cut head count will see only short-term productivity gains, say Wilson and Daugherty. Their research, involving 1,500 irms in a range of industries, shows that the biggest performance improvements come when humans and smart machines work together, enhancing each other’s strengths.

I’m most interested in how people

make decisions at work. Decision

making is not a strictly rational

process. The decision itself is a

subjective act, a personal judgment

based on analysis of what is

important. Artificial intelligence

will provide us with far better

analyses and knowledge, improving

our judgment and helping us make

is very helpful. I suspect most of

us codify entries in digital calendar

applications; wouldn’t it be great

if those applications could give us

similar data for every week, month,

and year?

Peter Lees, chief executive and medical

director, Faculty of Medical Leadership

and Management

CREATING A PURPOSE-DRIVEN ORGANIZATIONHBR ARTICLE BY ROBERT E. QUINN AND ANJAN V. THAKOR, JULY–AUGUST

When employees are disengaged and underperforming, the reaction of many managers is to try new incentives and ratchet up oversight and control. Yet often nothing improves. But there is another way, say Quinn and Thakor: Rally the organization behind an authentic higher purpose—an aspirational mission that explains how employees are making a di�erence and gives them a sense of meaning. If you do that, your people will try new things, move into deep learning, and make surprising contributions. The workforce will become energized and committed, and performance will climb.

Instilling a purpose isn’t easy. Many

companies fail because they don’t

successfully connect their purpose

with employees’ day-to-day tasks

and activities. People like to be part

INTERACTION

INTERACT WITH US

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

“The arrival of AI raises the question: How much individuality or humanity is required in jobs right now?”—GARY E. RICCIO

20 HARVARD BUSINESS REVIEW SEPTEMBER-OCTOBER 2018

better decisions—throughout all

the ranks in a workplace.

Frans Beerling, partner, CaC

Management

The authors provide a nice

foundation for the kinds of

discussions we now have about

AI in business. The reimagining

of business processes that the

authors prioritize can and should

be informed by science and the

humanities. Those disciplines have

a lot to say about how we would like

people to behave in organizations.

The arrival of AI raises the question:

How much individuality or humanity

is required in jobs right now? The

answer will surely vary considerably

across organizations and job

functions and is also likely to shape

different expectations about AI in

businesses.

Gary E. Riccio, founder, Nascent

Science & Technology

My only addition to the authors’

list would be the ability to succeed

by delegating. In addition to

augmenting and enhancing the work

of humans, AI can also identify and

take on boring, onerous tasks (such

as negotiating mutually beneficial

meeting times and places).

Warren Johnson, principal program

manager, Microsoft

BECOME A MORE PRODUCTIVE LEARNERHBR.ORG ARTICLE BY MATT PLUMMER AND JO WILSON, JUNE 5

Today we consume more information than ever—but seem to retain less of it. To become a more productive

learner, you can try four things, say Plummer and Wilson. First, focus on a single topic for several months, doing a deep dive instead of spreading your attention over a variety of topics. Second, put what you’re learning into frameworks. Organizing it into a structure will help you understand it more deeply. Third, regularly synthesize what you’ve learned. When you inish reading something, for example, ask yourself, “What are the key takeaways here?” And last, cycle between information feasting and information fasting. It’s important that you have seasons when you limit your consumption of information so that you can review, consider, and apply what you’ve already consumed.

The key to retaining information

is to apply what I call a relevance

filter. For example, there are entire

websites devoted to teaching

keyboard shortcuts for software.

I have at some stage learned about

60 by heart. But I use only about

nine or 10; because the rest aren’t

relevant, I’ve not implemented

the learning. The ones I do use,

I use at least hourly (copy/paste,

undo, open start menu, open

Windows Explorer, and so on).

There is no shortcut to learning.

It needs to be intentional, it takes

active concentration, and it must

be relevant to your needs—and

therefore quickly implemented.

Matthew MacLachlan, head of

intercultural training, Learnlight

I’m a coach and prescribe group

coaching after training sessions

to make sure behavioral change

happens as a result of the training.

I’ve also always believed that

taking time to reflect on and record

learning in a journal helps cement

lessons. I’ll certainly add the four

strategies listed in this article to my

coaching framework.

Libby Dishner, principal, Cresco

Strategy and Cresco Coaching &

Consulting

THE INDUSTRIAL ERA ENDED, AND SO WILL THE DIGITAL ERA

HBR.ORG ARTICLE BY GREG SATELL, JULY 11

Digital technology has transformed our world, but if you look closely, you can see the contours of its inevitable descent into the mundane. As digital applications mature, we need to push the frontiers of discovery. We need to prepare for a new era of innovation, one in which technologies such as genomics, materials science, and robotics rise to the fore.

I take the author’s point that the

skill level required to work with

digital technology is falling and

that digital applications are

becoming fairly mature. However,

in the new era of innovation, I don’t

think we can slow down or lose the

agility we’ve developed. I think we

need to spark the pioneering spirit.

The problems of the future may

be more grand, so we’ll need to

develop solutions quickly.

Anthony Downs, senior manager,

technical services, Rio Tinto

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SEPTEMBER-OCTOBER 2018 HARVARD BUSINESS REVIEW 21

In Theory

REEVALUATING INCREMENTAL INNOVATION Swinging for the fences can yield lower returns.

A decade ago INSEAD marketing professor Marcel Corstjens was consulting with employees at a multinational consumer packaged

goods company about ways to rejuvenate one of its biggest brands. During three days of meetings, he found a one-hour presentation by the company’s R&D team deeply fascinating. But no one else did. “There were many ideas that could have been developed,” he says, “but at the end of the R&D session everyone said, ‘OK, let’s get back to the communications and advertising issues,’ and nobody ever talked about the R&D again.” It’s no secret that large CPG companies are marketing powerhouses, but this apparent disregard for R&D insights stuck with him. Although CPG companies rank far behind high-tech and health care

companies in R&D spending, some do devote more than $1 billion a year to R&D. Corstjens wondered: What kinds of returns are they getting?

To ind out, he and two colleagues conducted a statistical analysis of R&D spending and growth, using data on the world’s top 2,500 irms. After excluding companies with less than $1 billion in revenue, they examined the relationship between sales and a number of variables: R&D spending, labor costs, capital expenditures, and marketing spending (using selling, general, and administrative expenses as a proxy). They then calculated each variable’s efect on sales growth. They conducted their analysis irst by industry, focusing on pharmaceuticals, food, and CPG, and then by company.

The industry analysis showed that in the CPG irms, R&D spending did not drive 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 marketing spending.

Turning to individual CPG companies, the researchers discovered a distinction between those with relatively large R&D budgets and those with smaller ones. The former (including Procter & Gamble, whose $2 billion R&D budget is the world’s largest) saw no measurable relationship between that investment and sales. The latter (including Henkel, L’Oréal, Beiersdorf, and Reckitt Benckiser) did see a correlation.

After studying the pattern and interviewing experienced R&D executives, the researchers concluded that companies 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 the bulk of R&D funding. The problem with this high-risk, high-reward strategy is that it may not pay of. “Despite spending on average $2 billion per year on R&D for the past 15 years, P&G has had far more failures than hits,” the researchers write. “Simply put: The company has bet big and lost big.”

The researchers found that, in contrast, Reckitt Benckiser—the British irm whose brands include Clearasil, Lysol, and Woolite—exempliies a more proitable strategy of pursuing less ambitious innovations that, without fanfare, drive sales higher. They call this the Lorenzian strategy, after the MIT mathematician Edward Lorenz, who described how a small action (such as a butterly’s lapping its wings) can lead to an improbably

New Thinking, Research in Progress


Illustrations by Will Haywood

large event (such as a tornado). “[Reckitt Benckiser] doesn’t have the deep pockets to spend on big-bang innovation,” they write. “So it opts for a diferent approach: spend small, but focus that investment on marginal improvements in their most valuable brands, aimed at solving real consumer problems, that consumers value and would pay a little more for.” They cite the company’s Finish brand of dishwasher detergent. Decades after the original product’s launch, Reckitt Benckiser added a rinse agent and changed the name to

Finish 2-in-1. A few years later it added a salt component and renamed the detergent Finish 3-in-1. Today the product is Finish All-in-1, owing to the addition of a glaze-protection agent. With each incremental improvement, sales and proits grew.

Other successful small-scale innovations involve packaging. In 2004, when McDonald’s changed how it sold its milk, going from cardboard boxes to translucent plastic jugs resembling old-fashioned milk bottles, sales tripled in just a year. Heinz has grown sales of ketchup

by introducing new packaging, including bottles that are stored upside down (to facilitate easy pouring) and fast-food dipping trays that make it less messy to eat ketchup with fries.

On the basis of their interviews with R&D employees, Corstjens and Northwestern professor Gregory Carpenter conclude that companies placing bigger bets on R&D do see some returns on those investments, but they may not be obvious, top-line payofs. For instance, he says, R&D can help a company reduce

CONTINUED ON NEXT PAGE


Sanjay Khosla spent more than 30 years

as an executive at Unilever and Kraft,

and now, as a senior adviser at Boston

Consulting Group and a professor at

Northwestern’s Kellogg School, he helps

companies find ways to increase organic

growth and improve their innovation

process. He spoke with HBR about

balancing the pursuit of incremental

innovations with more-ambitious

projects. Edited excerpts follow.

What’s the main takeaway from this

research? That companies that are

successful at innovation build on what’s

working. They look for what I call the 3Ms:

areas with good profit margins, momentum,

and the potential to make a material

financial impact. They try to find a balance

between quick wins and medium- and

long-term projects. It can’t be just about

blockbusters, because it’s very risky to bet

only on blockbusters.

When you ran Kraft’s developing

markets businesses, what kinds of

innovations were most successful at

driving growth? Tang is an example. By

2007 its sales outside the United States had

plateaued at about $500 million and begun

to slide. So we created a cross-functional

team on which R&D and marketing and

supply chain experts worked together

and asked it to push sales to $700 million

within five years. We gave it a blank

check—lots of resources and autonomy,

and encouragement to experiment and

fail fast. It came up with new flavors,

such as mango in the Philippines and

pineapple in the Middle East. It became

entrepreneurial and nimble and looked

not only at product innovations but also

at design and packaging innovations,

supply chain innovations, and business

model innovations. Within five years

sales were above $1 billion. Following a

similar approach, Oreo went from sales of

$200 million to sales of $1 billion outside

North America in six years.

How much are returns from innovation

limited by the culture inside large

CPG firms? The biggest issue is not how

much firms spend or how they spend it; it’s

about the connections between functions.

At too many companies, R&D is looking

in the mirror at itself instead of looking out

the window at consumers. The scientists

are doing their own thing, without a focus

on achieving commercial value. That’s

one reason small companies are winning

market share. Big companies can still grow,

but they need to focus on categories where

they can win, create cross-functional,

entrepreneurial teams, and become far

more agile in their execution.

How is innovation changing inside

big CPG firms that, like Kraft Heinz,

have been bought by private equity

firms? In the case of Kraft Heinz, the buyer,

3G Capital, has a very different philosophy

and culture than most companies, so there

are a lot of changes. Many PE firms are

highly successful at buying companies,

cutting costs, and improving profitability.

I think the jury is still out as to whether

they can drive organic growth.

costs, thereby increasing proits without generating additional revenue. He points to one company where researchers focused on ways to increase food products’ shelf life. Still, he observes that companies operate under two distinctly diferent philosophies depending on the size of their R&D budgets. “The motto of companies with big R&D budgets is ‘bigger, better, faster,’” he says, whereas companies with smaller R&D budgets “seem to do extremely well by tweaking and improving things in their brands and creating a lot more sales.”

The tension between the pursuit of ambitious R&D eforts and more-incremental innovation isn’t new. In a classic 2007 HBR article (“Is It Real? Can We Win? Is It Worth Doing?: Managing Risk and Reward in an Innovation Portfolio”), Wharton professor George Day describes various methods companies can use to ensure the right balance of high-risk, high-reward innovations and safer, targeted ones. (He calls the two types Big I and Little I innovations.) Interestingly, when he surveyed the landscape a decade ago, he reached a conclusion opposite to the one in the new research: that most companies were overinvesting in Little I innovations and needed to pay more attention to potential game changers.

Corstjens’s team notes that the diferent approaches to R&D are not only a function of budget size; they also stem from culture. Among the irms in the study that favor smaller innovations, some have roots in the chemical or pharmaceutical industries, where the R&D function typically enjoys more power and respect than at CPG irms. The researchers believe that in the latter, R&D is often overshadowed by marketing, reducing the likelihood that spending on it will translate to sales. “When R&D has a respected voice and collaborates with marketing, irms have more success with innovation,” they write.

HBR Reprint F1805A

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)

CONTINUED FROM PREVIOUS PAGE

In PracticeSANJAY KHOSLA

“It’s very risky to bet only on blockbusters”


Photography by Jon Enoch SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 25

unit and the national government. Some were given language-based prompts—asked to choose words that relected certain attributes of a successful vision statement, such as speciicity and achievability. Others were asked to project themselves into the future and take an imaginary photograph. Still others served as a control group. Those in the “time travel” group used signiicantly more imagery than the other participants did. “The vast majority of experts assume leaders are best positioned to improve vision communication by carefully scrutinizing the words they choose,” the researchers write. “Our indings upend this assumption. Leaders who averted their immediate attention from the words they use and instead employed mental time travel…communicated visions that possessed greater imagery while not altering…the other features of vision quality (achievability, speciicity, and values).” Indeed, the study shows that asking people to imagine the future results in more vivid imagery than does directly instructing them to use vivid images. The technique might also be helpful to managers giving employees feedback and leaders instructing others in how to perform tasks, the researchers say. ■

ABOUT THE RESEARCH “How Can Leaders Overcome the Blurry Vision Bias?

Identifying an Antidote to the Paradox of Vision Communication,” by Andrew M. Carton and Brian J. Lucas (Academy of Management Journal, forthcoming)

Communication Creating a Vivid VisionFrom “a chicken in every pot” to “a computer in every home,” concrete images have long been used to convey a sense of purpose and galvanize action. Yet when articulating visions, leaders overwhelmingly gravitate to mushier, abstract language. Studies have found that they use three to 15 times as much conceptual rhetoric as image-based rhetoric, issuing lofty pronouncements about “changing the world” or “serving the community”—phrases that invite people to merely consider the future, not actually envision it. New research tests a remedy for the so-called blurry vision bias: using “mental time travel” to help leaders imagine how events will be perceived by the ive senses instead of focusing on what those events mean.

In a series of lab experiments, researchers divided participants into several groups that received diferent prompts and asked them to write a vision statement. In one experiment, conducted the day after the UK voted to exit the European Union, 166 British government oicials were asked to craft a vision relevant to both their individual agency or

Risk Materialistic CEOs Take More ChancesPeople 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 176 nonmaterialistic executives.

The researchers found that banks with materialistic CEOs had higher outstanding loans, more noninterest income (which might relect greater trading activity), and more mortgage-backed securities (well-known for their riskiness) as a proportion of assets. Those institutions also had larger stock market gains and losses during the most volatile trading days. When the researchers measured each bank’s risk management practices, using a standard index that includes factors such as whether the irm had a chief risk oicer, they found that banks with materialistic CEOs had weaker risk management. Finally, the researchers looked at indicators of culture, such as whether non-CEO insiders’ trading of company stock led to abnormally high returns during the bank bailouts of the Great Recession—and again found that materialistic CEOs were more likely to lead a lax culture, with less oversight. “We follow a growing literature that provides evidence linking executives’ of-the-job behavior to corporate behavior,” the researchers write, adding, “While materialistic individuals expose a bank to higher downside risk, they also help the bank earn higher upside rewards.” ■

ABOUT THE RESEARCH “Bank CEO Materialism: Risk Controls, Culture and Tail

Risk,” by Robert M. Bushman et al. (Journal of Accounting and Economics, 2018)

IDEA WATCH CREATING A VIVID VISION


Shoppers purchasing clothing and shoes online buy 25% more per “trip,” on average, than those shopping in a store, driven by minimum purchase requirements for free shipping and by deeper inventories.“5 Surprising Findings About How People Actually Buy Clothes and Shoes,” by Jeremy Sporn and Stephanie Tuttle

Travel The Road Exacts a TollAmericans took more than 500 million domestic business trips in 2016. And although many workplace health programs for business travel provide immunizations, information about avoiding food-borne illnesses, and alerts about civil or political unrest, few focus on a more common threat: the stress, interrupted sleep, unhealthful eating and drinking, and lack of exercise that are frequent side efects of being on the road. To understand the health implications of extensive travel, researchers used data from preventive medical exams, health screenings, and wellness plans. The chart below shows how the risks faced by extensive travelers—who spend 21 or more nights a month away on business—compare with those encountered by businesspeople who travel one to six nights monthly. ■

Management Busy Bosses Often Seem UnfairEmployees who feel fairly treated are better performers, more helpful to colleagues, more committed to their teams and organizations, and less likely to steal or be rude. But one factor gets in the way of fair treatment: overburdened managers who don’t take the time to convey fairness in decision making. Researchers conducted three studies to investigate the phenomenon. The irst, using twice-daily surveys of managers, determined that on days when managers had heavier workloads, they prioritized technical tasks and behaved in ways that workers often perceived as unfair. The second, which surveyed managers and their direct reports, found that managers who consistently had heavier workloads engaged in fewer behaviors that typically lead to perceptions of fairness. The third was a lab experiment in which subjects had to choose between completing a technical task and writing a memo explaining why someone wasn’t being promoted; subjects who were given 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 attention,” the researchers say. They advise managers and organizations to be conscious of the trade-of and to schedule time with employees so that deadlines don’t encroach on that responsibility. ■

ABOUT THE RESEARCH “Too Busy to Be Fair? The Effect of Workload and Rewards on

Managers’ Justice Rule Adherence,” by Elad N. Sherf, Vijaya Venkataramani, and Ravi S. Gajendran (Academy of Management Journal, pending)

37%

127%

104%

69%

Trouble sleeping

Depression

Alcohol dependence

Anxiety

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)

And they exceed clinical thresholds by these percentages when it comes to:

Smoking 274%

95%

79%

Lack of exercise

Obesity

Extensive business travelers experience the risks below more often than moderate travelers do, by these percentages:


IDEA WATCH BUSY BOSSES OFTEN SEEM UNFAIR

“The answer we were pursuing was right here inside my body.”

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People primed to feel busy—which typically boosts one’s sense of importance—were less likely to choose a brownie over an apple than people primed to feel busy but decidedly not important, with 23 percentage points separating the two groups.

“Feel Busy All the Time? There’s an Upside to That,” by Amitava Chattopadhyay, Monica Wadhwa, and Jeehye Christine Kim

Advice Confidence Matters More Than CertaintyResearch 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 to choose between two advisers, one providing certain advice and the other providing uncertain advice, subjects preferred the latter. The study shows that people do distinguish communication style from substance and suggests there is no penalty for declining to inlate one’s level of certitude. “Our results challenge the belief that advisors need to provide false certainty for their advice to be heeded,” the researchers write. ■

ABOUT THE RESEARCH “Do People Inherently Dislike Uncertain Advice?” by Celia Gaertig and

Joseph P. Simmons (Psychological Science, 2018)

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


IDEA WATCH CONFIDENCE MATTERS MORE THAN CERTAINTY

Geneva Zurich Luxembourg London Amsterdam

Brussels Paris Stuttgart Frankfurt Madrid Milan Dubai

Montreal Hong Kong Singapore Taipei Osaka Tokyo

assetmanagement.pictet

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.

Workplace The Flexibility GapEmployers know that employees want lexibility, and many companies say they ofer it. 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, 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. ■

Marketing The Upside to Gaining Customers Via ReferralCompanies enjoy getting new customers through referrals by existing ones for obvious reasons: Among other things, it reduces marketing costs. And previous research has shown that customers acquired in this way deliver higher margins and retention rates than others, yielding as much as a 25% boost in lifetime customer value. Marketers have theorized that referred customers are better customers for two reasons: They’re a better match for the brand’s products or services (because the person making the referral knows both the 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)

1000% 25 50 75

Source: “The Future Is Flexible: The Importance of Flexibility in the Modern Workplace,” werk.co/research, 2018

Adapt location as needed

Flex type

Share of workers who...

Have flexibility

Adapt schedule as needed

Regularly work remotely

Regularly work a shifted schedule

Travel minimally

Work part-time

Need flexibility


IDEA WATCH THE FLEXIBILITY GAP

V I E T N AM

SEE M O R EW I T H T H E A I R L I N E T H A T F L I E S T O

M O R E C O U N T R I E S T H A N A N Y O T H E R

23% of U.S. full-time workers today are in a profession that requires a license, compared with just 5% in the 1950s. Regulations vary widely from state to state: For instance, opticians must be 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.

Compensation What Would Happen If You Cut Workers’ Pay?When times are tight and managers have to rein in costs, they almost always target head count rather than wages, but the reasons for that preference are theoretical and poorly understood: Surveys point to concern that pay cuts would fuel turnover among top workers, while lab studies suggest that they would lead employees to decrease their efort. A new study examines the phenomenon in the real world. Researchers followed 2,033 reps at an inbound-sales call center for 61 weeks before and after the irm cut commissions, reducing take-home pay by an average of 7%. As expected, many high performers jumped ship; attrition among this group was 28% above normal, causing revenue to decline by 6%. Surprisingly, though, there was no meaningful drop in productivity—in fact, many reps increased their eforts, perhaps in an attempt to regain their former wage levels. “Understanding which of the two efects dominates has numerous implications,” the researchers write. Their indings suggest that managerial fears about shirking in the wake of pay cuts may be unfounded, but “compensation reductions will result in the permanent loss of irm-speciic assets.” ■

ABOUT THE RESEARCH “Analyzing the Aftermath of a Compensation Reduction,”

Jason Sandvik et al. (working paper)

Retail Testosterone Can Fuel High-Status PurchasesMany people associate the hormone testosterone with competitive behavior, and studies have conirmed that link—but new research suggests a surprising connection between testosterone and the urge to shop. Speciically, men who experience a surge in testosterone see a spike in their desire for conspicuously branded “positional” goods—ones that signify high social status. Researchers had 243 men provide saliva samples and measured their baseline T level before giving them either testosterone or a placebo via topical gel and then asking them to complete two tasks (T levels were also measured during and after the experiment, as a check). In the irst task, participants rated their preference for high-status brands, such as Calvin Klein, versus everyday brands, such as Levi’s. Those dosed with testosterone were signiicantly more likely than the others to opt for the high-status goods. The second task was aimed at determining the speciic driver of that preference. The researchers composed three ads for each of six products, variously emphasizing quality (“extreme robustness, high precision, technology and comfort”), power “(indestructibility, sport, power and conidence”), or high status (“prestige, artisanal spirit, luxury and attention to detail”). Each participant saw one ad per product and reported his attitude and

hypothetical purchase intention toward each item. The two groups of subjects reacted similarly when items were advertised as either high quality or power enhancing, but items presented as high status were far more attractive to the high-T subjects than to the placebo group.

Prior research shows that certain experiences, such as sporting events, can boost testosterone levels; this research suggests that retailers could capitalize on those temporary hormone lows. “In such contexts, male consumers might be more likely to engage in positional consumption, and might ind status-related brand communications more appealing,” the researchers write. ■

ABOUT THE RESEARCH “Single-Dose Testosterone Administration Increases Men’s

Preference for Status Goods,” by Gideon Nave et al. (Nature Communications, 2018)


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

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OTTERBRING: The presence of this physically imposing guy in a store uniform as soon as people walked in the door did seem to change the way that men shopped. When he was there, the average bill for male shoppers came to about $165—more than double the average of $72 that women spent during those times and much higher than what either men or women spent when the employee was absent, which was $92 for men and $97 for women. The average price per item men paid was also higher—$18, versus about $10 when the employee wasn’t at the door, which was also the same amount women paid per item at any time.

My coauthors and I did this study in conjunction with the Service Research Center, CTF, at Karlstad University. Interestingly, in later research we found

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 MenProfessor Otterbring, defend your research

DEFEND YOUR RESEARCH

that the efect was even greater for male customers of short stature. We think this is because the physically it male we used activated the classic male competitive instinct. We know that tall, athletic-looking men typically have greater success in economic and mating markets. So when male shoppers saw him, we suspect, they sensed a rival and responded by signaling their own status: They opened their wallets.

HBR: And female employees—or less imposing male ones—wouldn’t inspire the same reaction? Previous research has shown that men are indeed more inclined to try to prove their superiority when exposed to physically attractive women. We wanted to explore intrasexual

competitive behavior instead. There were, of course, other store employees around during

our ield study. But we only compared purchases made when

this particular male employee was pres ent against those made when he was absent. We suspected that smaller male employees wouldn’t elicit the same efect and found support for that theory in a series of later lab studies. Shorter men just don’t seem to trigger the same evolutionary urge to show of.

Why wouldn’t the women also spend more money in the presence of a physically dominant guy? In an evolutionary sense, it’s been more advantageous for women to play up their beauty and health than to highlight their

MEN SPENT TWICE AS MUCH AS WOMEN

DID WHEN THE FIT MALE EMPLOYEE WAS PRESENT.


IDEA WATCH

status and wealth. Maybe if we’d conducted our ield study in a cosmetics store, we’d have obtained diferent results. At the same time, research has shown that women respond to intrasexual competition, too. For example, after looking at pictures of attractive women, they’re more likely to favor weight loss pills, extreme exercise, excessive suntanning, and other beautiication behaviors.

Could it be the timing of the employee’s shift that mattered instead? Men spend more in the afternoon than they do in the morning? We controlled for that by having the employee work after lunch on Saturday and before lunch on Sunday, so he was pres ent at diferent times on diferent days.

What exactly did he look like? How tall is tall? How muscular is muscular? He was taller than 95% of the American male population, which is also tall in Sweden, and had recently inished competing as a professional track-and-ield athlete, so he was perceived as signiicantly more physically dominant than an average man. And in our follow-up lab experiments, which involved manipulating photos of men to appear either more it or not, we found that seeing the images of stronger-looking guys caused men (but not women) to prefer larger logos on their clothing. We later determined that this efect was driven by the shorter male study participants, not the taller ones.

How does all of this play out for male shoppers who are gay? We didn’t measure or control for sexual orientation in our studies. But given the random assignment of study subjects in the settings we used, we would expect that the number of gay men would be evenly distributed across our experimental groups, and so shouldn’t have strongly inluenced the results. I can’t say for sure, but I’d think that gay men could feel the same sense of rivalry as straight men, even if they’re competing for diferent types of mates.

Should retailers that want more business from men change their hiring criteria then? Only “The Rock” look-

alikes need apply? If you’re a company selling status-signaling

luxury goods—like cars, watches, and clothes—it’s certainly an idea to consider. You probably wouldn’t see the same efect in stores selling more-functional, utilitarian items, however. I’d also note that the big, tall person doesn’t have to be an employee or even physically pres ent, as our lab studies on logo preferences, which used photos of men in both uniforms and street clothes, showed. So we see implications for not just retail hiring but also advertising and marketing.

You mean companies can drop the slim male models and short male actors and hire more NBA or NFL stars to sell cars and clothes? You already see some of this: Tom Brady in ads for Movado, Aston Martin, and Ugg; Roger Federer for Rolex and Credit Suisse.

But isn’t there something a little amoral about hiring spokesmen or staff whose main role is to make customers feel bad about themselves so that they spend more? Well, I’d say that the psychological mechanism is an increased drive to compete with people of the same gender, not decreased feelings of self-conidence. But retailers will have to decide for themselves whether it’s a good strategic move to, say, assign a taller male employee to handle the account

of a shorter male customer. Maybe that would drive more sales in

the short run. But it might also cause the short man to leave the store feeling unhappy and not come back, which wouldn’t be good for business.

Personally, I would never encourage any organization to

hire staf members simply on the basis of looks. But that doesn’t mean we shouldn’t be aware of these supericial biases and understand how heavily they can inluence consumption.

Interview by Alison BeardHBR Reprint F1805B

MANLY MEN APPEAR TO

INFLUENCE SHORT MALE SHOPPERS

THE MOST.

IMAGES OF STRONGER-LOOKING GUYS CAUSED MEN (BUT NOT WOMEN) TO PREFER LARGER

LOGOS ON THEIR CLOTHING.

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HOW I DID IT

United Way’s CEO on Shifting a Century-Old Business Modelby Brian Gallagher

SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 39 Photography by Stephen Voss

As the leader of a nonproit, I ask people for money as a big part of my job—and I love doing it. Making the ask isn’t as hard as you might think. The most efective leaders I’ve seen in any setting—business, government, nonproit—are driven by purpose, mission,

and the sense that their work is making the world a better place. If you approach donors from that stand-point, you’re really just having a conversation about mission and purpose and then asking them to join you. You simply have to blurt out the number and not worry about how many zeros it has at the end. The most I have ever asked an individual to give is $250 million. That particular person said no, but I’m pretty sure he has made a generous bequest to us in his will. What’s striking about these big donation asks is that for most of its history, United Way had no direct relationship with its donors. In fact, in most instances we didn’t even know their names.

Our organizational roots go back to the 1880s, in Colorado. Industrialization was under way, and peo-ple were moving from rural areas into the city. In small towns there’s a sense of community, which creates an economic safety net—people know one another, so they help those in need. Urban areas have less sense of community, so as people moved to cities, they lost the safety net. Local business leaders wanted to do something to help, so they created a way to pool em-ployee contributions, which were then distributed to local charities. In the 1950s the United Auto Workers negotiated a plan that allowed employees at the big carmakers to donate money directly from their pay-checks, and over the next few decades most of our donations came from payroll deductions. Back then, the local fundraising entities were known by various

names, including Crusade of Mercy, United Fund, and Community Chest. In 1970, to better organize and brand these eforts, we became known as United Way.

CREATING A DIRECT RELATIONSHIPI joined United Way in 1981, straight out of college, as a management trainee in the Winston-Salem, North Carolina, oice. At the time, a company’s donations would arrive in a big envelope. It would contain some cash, some personal checks, and a summary sheet stating that, for example, 1,200 employees had agreed to payroll deductions, which would total however many dollars every other week. Companies didn’t tell us who the individual donors were, because they were concerned about preserving people’s privacy.

Over the past few years we’ve worked to change that model—to transform from a primarily business- 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 platform. This new model increases our interactions with donors and allows them to become more closely involved in our mission.

This shift has been in the making since the early 1990s. United Way suffered a scandal involving the longtime CEO, who was convicted in 1995 of fraud and conspiracy and sentenced to federal prison. Much of the decade was spent recovering from that by revamp-ing our governance and operations, writing a new code of ethics, and tightening up our brand management. 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 big-ger part of the mix. Today more than 25,000 people have each given more than $10,000 to United Way; more than 600 have given $1 million; and 35 have given $10 million or more.

Even as direct donations from individuals grew more important, we tried to increase our engage-ment with donors from inside our employer-partners. In the mid-1990s I was the head of fundraising and marketing for our Atlanta organization. We decided to send our biggest companies—Coca-Cola, Home Depot, and Georgia-Paciic—surveys to help us bet-ter understand the wishes and interests of employees who were donating via payroll deduction. Among the many questions we asked was “What do you think the most important social issues are in Atlanta?” We re-ceived 186,000 responses. We ranked the responses and reported them back to everyone. It was a simple

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.


IDEA WATCH HOW I DID IT

interaction, and we still didn’t have donors’ personal information, but every metric we measured—giving, volunteering, public opinion—went up. It was very clear that to be more successful, we had to ind ways to get people more involved. They don’t want to just give a check. They want to help with strategy, they want to be advocates, and they want to know what’s happening with their money.

EVOLVING TO DIGITALI became the CEO of United Way America in 2002, and a few years later I led our merger with United Way International. By then we had converted United 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 revenue. We promote the brand, provide infrastruc-ture, and guide the strategy. Over the past decade a key piece of that strategy has been a digital transformation.

An important moment in the evolution of our dig-ital strategy took place about six years ago. I was at the World Economic Forum in Davos on a panel with Marc Beniof, the CEO of Salesforce. We were talking about how organizations can more deeply engage cus-tomers and other stakeholders. He told a story about Starbucks that stuck with me. In 2008 Howard Schultz returned to Starbucks as CEO, after being out of that 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 be improved. The company consolidated the top 10 responses and put them to a consumer vote. Then it implemented the top ive ixes. The process engaged customers in the turnaround and helped restore reve-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. Digital technology is the best way to do that at scale.

By 2015 we had created a digital services operat-ing group inside our organization. We worked with 11 of our local United Ways and created a website where donors could establish fun, interactive online pro-iles. That allowed us to curate content we thought would interest them—such as relevant articles or volunteer activities and opportunities. We were able to put together a donor database of more than one million people, who together represented more than half a billion dollars in giving.

Then we began measuring behaviors. We found that donors who engaged with us online—just like those who’d taken the paper surveys 20 years earlier—gave more and continued giving from year to year. The local organizations that joined the online efort increased

average annual giving per donor by 6.5%. Through digital advertising we gained more than 70,000 new leads on donors. Shifting to online interactions also reduced costs: Participating local United Ways saw their marketing costs go down by more than $1 million.

PARTNERING WITH SALESFORCEIn 2017 I saw Marc Beniof at Davos again. We talked about the potential of digital tools to help organiza-tions like United Way engage with donors. Salesforce’s expertise in customer relationship management soft-ware, which collects information about individual re-lationships to make interactions between people eas-ier, addressed this need. Marc said that his company was already working on an app that would do much of what we hoped to do. Originally we imagined this as a vendor relationship, whereby United Way would pay Salesforce for its efforts, but we quickly agreed that it should be a partnership: We would work with the company to create a platform that could be used across nonprofits. United Way doesn’t want to get into the technology business, so we needed a partner. Salesforce was perfect, because its software is already

Source: United Way

0

1

2

3

$4B

15%28%

85% 72%

2016’14’12’10’08’06’042002

Since Brian Gallagher became United Way’s CEO, overall contributions have ebbed and flowed, owing to the lingering effects of the Great Recession. But the organization has become less dependent on employee and corporate contributions and has created stronger relationships with individual donors.

Employee and corporate Individual

Building Direct Relationships

Contributions by year in US$ billions


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

12:56 pm



3:33 pm

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


known and used by many of our corporate partners. By the end of 2017 we had signed up several compa-nies to pilot the system, including Anheuser-Busch.

It works like this: When you log in, you see your individual home page, with your proile and photo. It tracks all the gifts you’ve made and all the volun-teer hours you’ve committed to causes. It shows con-tent chosen by you, United Way, or your company. The platform uses Salesforce’s Einstein artiicial in-telligence functionality, so the more you use it, the smarter it gets. If your behavior within the platform suggests that you’re especially interested in breast cancer awareness, or early childhood education, or low-income housing, the platform will begin high-lighting content or policy news or volunteer oppor-tunities relevant to that cause. One of the advantages of working with a company like Salesforce is that it has the resources to update the platform every three months, so the functionality keeps getting better. And even though people create their initial proiles in the workplace, they keep the same ones if they change companies or decide to work for themselves. That’s crucial in an economy where people are changing jobs more frequently.

Our new approach has some risks. One of them is that it allows donors to earmark their money for cer-tain causes. For most of its history United Way took in donations and then distributed them to commu-nity organizations as local leaders saw it. So although we can raise a lot more money under this system, we have less control over how it’s spent. But the risk that donors will shift to fund causes directly has always existed. Since I became CEO, I’ve said that our mis-sion isn’t to raise funds but to create social change. To do that, we need to create content and educate peo-ple about the policies we’re targeting—and the data shows that we’re succeeding. Over the past decade

our focal issues have included health, education, and inancial stability for every person in every commu-nity, and there’s a lot of evidence that our work has made a diference.

Another risk is the inertia in a 130-year-old orga-nization. We need to show success fast to get more adoption of digital by local United Ways. We expect that once more of them are using the system and do-ing well with it, even more will sign on. That’s one of the beneits of a franchise system: When one member experiences success, others want to follow. The down-side of a franchise system when you’re trying to drive transformations is that they often fail because organi-zations give up on them too soon. So you have to be careful to build and maintain momentum.

BENCHMARKING OUR APPROACHWe’ve continued to pilot the program in 2018, and the results are very good. In general, when people stop do-nating to United Way, it’s not because they decided to do so; it’s because they changed employers or we lost track of them and stopped asking. The digital strategy reduces instances of that, lowering churn rates and helping us recapture lapsed donors.

We’re especially encouraged when we benchmark our approach against that of other nonprofits. Two examples are Greenpeace and AARP. Not very many years ago, Greenpeace was best known for protesting at World Trade Organization events. It has shifted to-ward a direct-to-consumer advocacy model, creating an ecosystem that helps individuals ind ways to make their voices heard. We’ve adopted some of that think-ing. We also admire how AARP has shifted its model, establishing commercial relationships that create real value for its members. That helps it gain the revenue it needs to exert inluence on policy matters important to its members. AARP moved from a pure service mentality—What can we do for our members?—to a model built on commercial partnerships.

The global economy is changing. More people now live outside their country of birth than ever before, and migration is increasing. The Baby Boomers who led the expansion of the United Way brand are retir-ing, and the Millennials replacing them have diferent relationships with their employers. Meanwhile, digital technology is blowing apart business models.

As that happens, we need new ways to bring peo-ple together and build community. This isn’t rocket science. It’s a 21st-century version of what I did with paper surveys so long ago. Ask people what they care about. Engage with them. Share information they are interested in. Then ask them to give—and there’s a good chance they will.

HBR Reprint R1805A

THIS ISN’T ROCKET SCIENCE. IT’S A 21ST-CENTURY VERSION OF WHAT I DID WITH PAPER SURVEYS SO LONG AGO. ASK PEOPLE WHAT THEY CARE ABOUT. ENGAGE WITH THEM. SHARE INFORMATION THEY ARE INTERESTED IN. THEN ASK THEM TO GIVE.



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THE BUSINESS CASE FOR CURIOSITY 48Research shows that it leads to higher-

performing, more adaptable firms.

THE FIVE DIMENSIONS OF CURIOSITY 58How are you curious?

FROM CURIOUS TO COMPETENT 61How to move your people up the learning curve

Photography by Christina Gandolfo SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 47

The Business Case for Curiosity

FRANCESCA GINO

Professor, Harvard

Business School

Most of the breakthrough discoveries and remarkable inventions throughout history, from lints for starting a ire to self-driving cars, have something

in common: They are the result of curiosity. The impulse to seek new information and experiences and explore novel possibilities is a basic human attri bute. New research points to three important insights about curiosity as it relates to business. First, curiosity is much more important to an enterprise’s performance than was previously thought. That’s because cul-tivating it at all levels helps leaders and their employees adapt to uncertain market conditions and external pressures: When our curiosity is triggered, we think more

deeply and rationally about decisions and come up with more-creative solutions. In addition, curiosity allows leaders to gain more respect from their followers and inspires employees to develop more- trusting and more-collaborative relation-ships with colleagues.

Second, by making small changes to the design of their organizations and the ways they manage their employees, leaders can encourage curiosity—and improve their companies. This is true in every industry and for creative and routine work alike.

Third, although leaders might say they treasure inquisitive minds, in fact most stile curiosity, fearing it will increase risk and ineiciency. In a survey I conducted of more than 3,000 employees from a wide

range of irms and industries, only about 24% reported feeling curious in their jobs on a regular basis, and about 70% said they face barriers to asking more questions at work.

In this article I’ll elaborate on the beneits of and common barriers to curiosity in the workplace and then ofer ive strategies that can help leaders get high returns on investments in employees’ curiosity and in their own.

THE BENEFITS OF CURIOSITYNew research reveals a wide range of beneits for organizations, leaders, and employees.

Fewer decision-making errors. In my research I found that when our



curiosity is triggered, we are less likely to fall prey to conirmation bias (looking for information that supports our beliefs rather than for evidence suggesting we are wrong) and to stereotyping people (making broad judgments, such as that women or minorities don’t make good leaders). Curiosity has these positive efects because it leads us to generate alternatives.

More innovation and positive changes in both creative and noncreative jobs. Consider this example: In a ield study INSEAD’s Spencer Harrison and colleagues asked artisans selling their goods through an e-commerce website several questions aimed at assessing the curiosity they experience at work. After that, the participants’ creativity was measured by the number of items they created and listed over a two-week period. A one-unit increase in curiosity (for instance, a score of 6 rather than 5 on a 7-point scale) was associated with 34% greater creativity.

In a separate study, Harrison and his colleagues focused on call centers, where jobs tend to be highly structured and turnover is generally high. They asked incoming hires at 10 organizations to complete a survey that, among other things, measured their curiosity before they began their new jobs. Four weeks in, the employees were surveyed about various aspects of their work. The results showed that the most curious employees sought the most information from

coworkers, and the information helped them in their jobs—for instance, it boosted their creativity in addressing customers’ concerns.

My own research conirms that encouraging people to be curious generates workplace improvements. For one study I recruited about 200 employees working in various companies and industries. Twice a week for four weeks, half of them received a text message at the start of their workday that read, “What is one topic or activity you are curious about today? What is one thing you usually take for granted that you want to ask about? Please make sure you ask a few ‘Why questions’ as you engage in your work throughout the day. Please set aside a few minutes to identify how you’ll approach your work today with these questions in mind.”

The other half (the control group) received a message designed to trigger relection but not raise their curiosity: “What is one topic or activity you’ll engage in today? What is one thing you usually work on or do that you’ll also complete today? Please make sure you think about this as you engage in your work throughout the day. Please set aside a few minutes to identify how you’ll approach your work today with these questions in mind.”

After four weeks, the participants in the irst group scored higher than the others on questions assessing their innovative

behaviors at work, such as whether they had made constructive suggestions for implementing solutions to pressing organizational problems.

When we are curious, we view tough situations more creatively. Studies have found that curiosity is associated with less defensive reactions to stress and less aggressive reactions to provocation. We also perform better when we’re curious. In a study of 120 employees I found that natural curiosity was associated with better job performance, as evaluated by their direct bosses.

Reduced group conflict. My research found that curiosity encourages members of a group to put themselves in one another’s shoes and take an interest in one another’s ideas rather than focus only on their own perspective. That causes them to work together more efectively and smoothly: Conlicts are less heated, and groups achieve better results.

More-open communication and better team performance. Working with executives in a leadership program at Harvard Kennedy School, my colleagues and I divided participants into groups of ive or six, had some groups participate in a task that heightened their curiosity, and then asked all the groups to engage in a simula-tion that tracked performance. The groups whose curiosity had been heightened performed better than the control groups because they shared information more openly and listened more carefully.

TWO BARRIERS TO CURIOSITYDespite the well-established beneits of curiosity, organizations often discourage it. This is not because leaders don’t see its value. On the contrary, both leaders and employees understand that curios-ity creates positive outcomes for their companies. In the survey of more than 3,000 employees mentioned earlier, 92%

► Idea In Brief

► THE PROBLEM

Leaders say they value employees who question or explore things, but research shows that they largely suppress curiosity, out of fear that it will increase risk and undermine efficiency.

► WHY THIS MATTERS

Curiosity improves engagement and collaboration. Curious people make better choices, improve their company’s performance, and help their company adapt to uncertain market conditions and external pressures.

► THE REMEDY

Leaders should encourage curiosity in themselves and others by making small changes to the design of their organization and the ways they manage their employees. Five strategies can guide them.


SPOTLIGHT THE BUSINESS CASE FOR CURIOSITY

credited curious people with bringing new ideas into teams and organizations and viewed curiosity as a catalyst for job satisfaction, motivation, innovation, and high performance.

Yet executives’ actions often tell a diferent story. True, some organizations, including 3M and Facebook, give employees free time to pursue their interests, but they are rare. And even in such organizations, employees often have challenging short-term performance goals (such as meeting a quarterly sales target or launching a new product by a certain date) that consume the “free time” they could have spent exploring alternative approaches to their work or coming up with innovative ideas.

Two tendencies restrain leaders from encouraging curiosity:

They have the wrong mindset about exploration. Leaders often think that letting employees follow their curiosity will lead to a costly mess. In a recent survey I conducted of 520 chief learning oicers and chief talent development oicers, I found that they often shy away from encouraging curiosity because they believe the company would be harder to manage if people were allowed to explore their own interests. They also believe that disagreements would arise and making and executing decisions would slow down, raising the cost of doing business. Research inds that although people list creativity as a goal, they frequently reject creative ideas when actually presented with them. That’s understandable: Exploration often involves questioning the status quo and doesn’t always produce useful information. But it also means not settling for the irst possible solution—and so it often yields better remedies.

They seek efficiency to the detriment of exploration. In the early 1900s Henry Ford focused all his eforts on one goal: reducing production costs to create a car

In 2004 an anonymous billboard appeared on Highway 101, in the heart of Silicon Valley, posing this puzzle: “{irst 10-digit prime found in consecutive digits of e}.com.” The answer, 7427466391.com, led the curious online, where they found another equation to solve. The handful of people who did so were invited to submit a résumé to Google. The company took this unusual approach to inding job candidates because it places a premium on curiosity. (People didn’t even need to be engineers!) As Eric Schmidt, Google’s CEO from 2001 to 2011, has said, “We run this company on questions, not answers.”

Google also identiies naturally curious people through interview questions such as these: “Have you ever found yourself unable to stop learning something you’ve never encountered before? Why? What kept you persistent?” The answers usually highlight either a speciic purpose driving the candidate’s inquiry (“It was my job to ind the answer”) or genuine curiosity (“I just had to igure out the answer”).

IDEO, the design and consulting company, seeks to hire “T-shaped” employees: people with deep skills that allow them to contribute to the creative process (the vertical stroke of the T) and a predisposition for collaboration across disciplines, a quality requiring empathy and curiosity (the horizontal stroke of the T). The irm understands that empathy and curiosity are related: Empathy allows employees to listen thoughtfully and see problems or decisions from another person’s perspective, while curiosity extends to interest in other people’s disciplines, so much so that one may start to practice them. And it recognizes that most people perform at their best not because they’re specialists but because their deep skill is accompanied by an intellectual curiosity that leads them to ask questions, explore, and collaborate.

for the masses. By 1908 he had realized that vision with the introduction of the Model T. Demand grew so high that by 1921 the company was producing 56% of all passenger cars in the United States—a remarkable success made possible primarily by the irm’s eiciency-centered model of work. But in the late 1920s, as the U.S. economy rose to new heights, consumers started wanting greater variety in their cars. While Ford remained ixated on improving the Model T, competitors such as General Motors started producing an array of models and soon captured the main share of the market. Owing to its single-minded focus on eiciency, Ford stopped experimenting and innovating and fell behind.

These leadership tendencies help explain why our curiosity usually declines the longer we’re in a job. In one survey, I asked about 250 people who had recently started working for various companies a series of questions designed to measure curiosity; six months later I administered a follow-up survey. Although initial levels of curiosity varied, after six months everyone’s curiosity had dropped, with the average decline exceeding 20%. Because people were under pressure to complete their work quickly, they had little time to ask questions about broad processes or overall goals.

FIVE WAYS TO BOLSTER CURIOSITYIt takes thought and discipline to stop stiling curiosity and start fostering it. Here are ive strategies leaders can employ.

1Hire for curiosity.

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



To identify potential employees who are T-shaped, IDEO pays attention to how candidates talk about past projects. Someone who focuses only on his or her own contributions may lack the breadth to appreciate collaboration. T-shaped candidates are more likely to talk about how they succeeded with the help of others and to express interest in working collaboratively on future projects.

To assess curiosity, employers can also ask candidates about their interests outside of work. Reading books unrelated to one’s own ield and exploring questions just for the sake of knowing the answers are indications of curiosity. And companies can administer curiosity assessments, which have been validated in a myriad of studies. These generally measure whether people explore things they don’t know, analyze data to uncover new ideas, read widely beyond their ield, have diverse interests outside work, and are excited by learning opportunities.

It’s also important to remember that the questions candidates ask—not just the answers they provide—can signal curiosity. For instance, people who want to know about aspects of the organization that aren’t directly related to the job at hand probably have more natural curiosity than people who ask only about the role they would perform.

2Model inquisitiveness.Leaders can encourage curiosity through-out their organizations by being inquisi-tive themselves. In 2000, when Greg Dyke had been named director general of the BBC but hadn’t yet assumed the position, he spent ive months visiting the BBC’s

major locations, assembling the staf at each stop. Employees expected a long presentation but instead got a simple question: “What is the one thing I should do to make things better for you?” Dyke would listen carefully and then ask, “What is the one thing I should do to make things better for our viewers and listeners?”

The BBC’s employees respected their new boss for taking the time to ask questions and listen. Dyke used their responses to inform his thinking about the changes needed to solve problems facing the BBC and to identify what to work on irst. After oicially taking the reins, he gave a speech to the staf that relected what he had learned and showed employees that he had been truly interested in what they said.

By asking questions and genuinely listening to the responses, Dyke modeled the importance of those behaviors. He also highlighted the fact that when we are exploring new terrain, listening is as important as talking: It helps us ill gaps in our knowledge and identify other questions to investigate.

That may seem intuitive, but my research shows that we often prefer to talk rather than to listen with curiosity. For instance, when I asked some 230 high-level leaders in executive education classes what they would do if confronted with an organizational crisis stemming from both inancial and cultural issues, most said they would take action: move to stop the inancial bleeding and introduce initiatives to refresh the culture. Only a few said they would ask questions rather than simply impose their ideas on others. Management books commonly encourage leaders assuming new positions to communicate their vision from the start rather than ask employees how they can be most helpful. It’s bad advice.

Why do we refrain from asking questions? Because we fear we’ll be judged incompetent, indecisive, or unintelligent. Plus, time is precious, and we don’t want to bother people. Experience and expertise exacerbate the problem: As people climb the organizational ladder, they think they have less to learn. Leaders also tend to believe they’re expected to talk and provide answers, not ask questions.

Such fears and beliefs are misplaced, my recent research shows. When we demonstrate curiosity about others by asking questions, people like us more and view us as more competent, and the heightened trust makes our relationships more interesting and intimate. By asking questions, we promote more-meaningful connections and more-creative outcomes.

Another way leaders can model curiosity is by acknowledging when they don’t know the answer; that makes it clear that it’s OK to be guided by curiosity. Patricia Fili-Krushel told me that when she joined WebMD Health as chief executive, she met with a group of male engineers in Silicon Valley. They were doubtful that she could add value to their work and, right of the bat, asked what she knew about engineering. Without hesitation, Fili-Krushel made a zero with her ingers. “This is how much I know about engineering,” she told them. “However, I do know how to run businesses, and I’m hoping you can teach me what I need to know about your world.” When leaders concede that they don’t have the answer to a question, they show that they value the process of looking for answers and motivate others to explore as well.

New hires at Pixar Animation Studios are often hesitant to question the status quo, given the company’s track rec ord of hit movies and the brilliant work of those who have been there for years. To combat that tendency, Ed Catmull, the cofounder and


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 pres ent. 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.



3Emphasize learning goals.When I asked Captain Chesley “Sully” Sullenberger how he was able to land a commercial aircraft safely in the Hudson River, he described his passion for contin-uous learning. Although commercial lights are almost always routine, every time his plane pushed back from the gate he would remind himself that he needed to be prepared for the unexpected. “What can I learn?” he would think. When the unexpected came to pass, on a cold

January day in 2009, Sully was able to ask himself what he could do, given the available options, and come up with a creative solution. He successfully fought the tendency to grasp for the most obvious option (landing at the nearest airport). Especially when under pressure, we narrow in on what immediately seems the best course of action. But those who are passionate about continuous learning contemplate a wide range of options and perspectives. As the accident report shows, Sully carefully considered several alternatives in the 208 seconds between his discovery that the aircraft’s engines lacked thrust and his landing of the plane in the Hudson.

It’s natural to concentrate on results, especially in the face of tough challenges. But focusing on learning is generally more beneicial to us and our organizations, as some landmark studies show. For example, when U.S. Air Force personnel were given a demanding goal for the number of planes to be landed in a set time frame, their performance decreased. Similarly, in a study led by Southern Methodist University’s Don VandeWalle, sales professionals who were naturally focused on performance goals, such as meeting their targets and being seen by colleagues as good at their jobs, did worse during a promotion of a product (a piece of medical equipment priced at about $5,400) than reps who were naturally


focused on learning goals, such as exploring how to be a better salesperson. That cost them, because the company awarded a bonus of $300 for each unit sold.

A body of research demonstrates that framing work around learning goals (developing competence, acquiring skills, mastering new situations, and so on) rather than performance goals (hitting targets, proving our competence, impressing others) boosts motivation. And when motivated by learning goals, we acquire more-diverse skills, do better at work, get higher grades in college, do better on problem-solving tasks, and receive higher ratings after training. Unfortunately, organizations often prioritize performance goals.

Leaders can help employees adopt a learning mindset by communicating the importance of learning and by rewarding people not only for their performance but for the learning needed to get there. Deloitte took this path: In 2013 it replaced its performance management system with one that tracks both learning and performance. Employees meet regularly with a coach to discuss their development and learning along with the support they need to continually grow.

Leaders can also stress the value of learning by reacting positively to ideas that may be mediocre in themselves but could be springboards to better ones. Writers and directors at Pixar are trained in a technique called “plussing,” which involves building on ideas without using judgmental lang uage. Instead of rejecting a sketch, for example, a director might ind a starting point by saying, “I like Woody’s eyes, and what if we...?” Someone else might jump in with another “plus.” This technique allows people to remain curious, listen actively, respect the ideas of others, and contribute their own. By promoting a process that allows all sorts of ideas to be explored, leaders send a clear message that learning is a key goal even if it doesn’t always lead to success.

in the importance of curious employees. “It’s better to train and have them leave than not to train and have them stay,” she told me. But according to the Society for Human Resource Management’s 2017 employee beneits report, only 44% of organizations provide or support cross-training to develop skills not directly related to workers’ jobs.

Leaders might provide opportunities for employees to travel to unfamiliar locales. When we have chances to expand our interests, research has found, we not only remain curious but also become more conident about what we can accomplish and more successful at work. Employees can “travel” to other roles and areas of the organization to gain a broader perspective. At Pixar, employees across the organization can provide “notes”—questions and advice—that help directors consider all sorts of possibilities for the movies they are working on.

Employees can also broaden their interests by broadening their networks. Curious people often end up being star performers thanks to their diverse networks, my research with the University of Toronto’s Tiziana Casciaro, Bill McEvily, and Evelyn Zhang inds. Because they’re more comfortable than others asking questions, such people more easily create and nurture ties at work—and those ties are critical to their career development and success. The organization beneits when employees are connected to people who can help them with challenges and motivate them to go the extra mile. MIT’s Bob Langer works to raise curiosity in his students by introducing them to experts in his network. Similarly, by connecting people across organizational departments and units, leaders can encourage employees to be curious about their colleagues’ work and ways of doing business.

Deliberate thinking about workspaces can broaden networks and encourage the

4Let employees explore and broaden their interests.Organizations can foster curiosity by giving employees time and resources to explore their interests. One of my favorite examples comes from my native country. It involves Italy’s irst typewriter factory, Olivetti, founded in 1908 in the foothills of the Italian Alps. In the 1930s some employees caught a coworker leaving the factory with a bag full of iron pieces and machinery. They accused him of stealing and asked the company to ire him. The worker told the CEO, Adriano Olivetti, that he was taking the parts home to work on a new machine over the weekend because he didn’t have time while performing his regular job. Instead of iring him, Olivetti gave him time to create the machine and charged him with overseeing its production. The result was Divisumma, the irst electronic calculator. Divisumma sold well worldwide in the 1950s and 1960s, and Olivetti promoted the worker to technical director. Unlike leaders who would have shown him the door, Olivetti gave him the space to explore his curiosity, with remarkable results.

Some organizations provide resources to support employees’ outside interests. Since 1996 the manufacturing conglomerate United Technologies (UTC) has given as much as $12,000 in tuition annually to any employee seeking a degree part-time—no strings attached. Leaders often don’t want to invest in training employees for fear that they will jump to a competitor and take their expensively acquired skills with them. Even though UTC hasn’t tried to quantify the beneits of its tuition reimbursement program, Gail Jackson, the vice president of human resources when we spoke, believes



cross-pollination of ideas. In the 1990s, when Pixar was designing a new home for itself in Emeryville, across the bay from San Francisco, the initial plans called for a separate building for each department. But then-owner Steve Jobs had concerns about isolating the various departments and decided to build a single structure with a large atrium in the center, containing employee mailboxes, a café, a gift shop, and screening rooms. Forcing employees to interact, he reasoned, would expose them to one another’s work and ideas.

Leaders can also boost employees’ curiosity by carefully designing their teams. Consider Massimo Bottura, the owner of Osteria Francescana, a three-Michelin-star restaurant in Modena, Italy, that was rated the Best Restaurant in the World in 2016 and 2018. His sous chefs are Davide di Fabio, from Italy, and Kondo Takahiko, from Japan. The two difer not only in their origins but also in their strengths: Di Fabio is more comfortable with improvisation, while Takahiko is obsessed with precision. Such “collisions” make the kitchen more innovative, Bottura believes, and inspire curiosity in other workers.

5Have “Why?” “What if…?” and “How might we…?” days.The inspiration for the Polaroid instant camera was a three-year-old’s question. Inventor Edwin Land’s daughter was impatient to see a photo her father had just snapped. When he explained that the ilm had to be processed, she wondered aloud, “Why do we have to wait for the picture?”

As every parent knows, Why? is ubiqui-tous in the vocabulary of young children, who have an insatiable need to understand the world around them. They aren’t afraid to

ask questions, and they don’t worry about whether others believe they should already know the answers. But as children grow older, self-consciousness creeps in, along with the desire to appear conident and demonstrate expertise. By the time we’re adults, we often suppress our curiosity.

Leaders can help draw out our innate curiosity. One company I visited asked all employees for “What if…?” and “How might we…?” questions about the irm’s goals and plans. They came up with all sorts of things, which were discussed and evaluated. As a concrete sign that questioning was supported and rewarded, the best questions were displayed on banners hung on the walls. Some of the questions led employees to suggest ideas for how to work more efectively. (For more on the importance of asking good questions before seeking solutions, see “Better Brainstorming,” HBR, March–April 2018.)

In one study, my colleagues and I asked adults working in a wide range of jobs and industries to read one of two sets of materials on three organizational elements: goals, roles, and how organizations as a whole work together. For half the workers, the information was presented as the “grow method”—our version of a control condition. We encouraged that group to view those elements as immutable, and we stressed the importance of following existing processes that managers had already deined. For the other half, the information was presented as the “go back method.” We encouraged those employees to see the elements as luid and to “go back” and rethink them. A week later we found that the workers who’d read about the “go back method” showed more creativity in tasks than the workers in the “grow method” group. They were more open to others’ ideas and worked more efectively with one another.

To encourage curiosity, leaders should also teach employees how to ask good

questions. Bob Langer has said he wants to “help people make the transition from giving good answers to asking good questions” (see “The Edison of Medicine,” HBR, March–April 2017). He also tells his students that they could change the world, thus boosting the curiosity they need to tackle challenging problems.

Organizing “Why?” days, when employ ees are encouraged to ask that question if facing a challenge, can go a long way toward fostering curiosity. Intellectual Ventures, a company that generates inventions and buys and licenses patents, organizes “invention sessions” in which people from diferent disciplines, backgrounds, and levels of expertise come together to discuss potential solutions to tough problems, which helps them consider issues from various angles (see “Funding Eureka!” HBR, March 2010). Similarly, under Toyota’s 5 Whys approach, employees are asked to investigate problems by asking Why? After coming up with an answer, they are to ask why that’s the case, and so on until they have asked the question ive times. This mindset can help employees innovate by challenging existing perspectives.

IN MOST ORGANIZATIONS, leaders and em ployees alike receive the implicit mes-sage that asking questions is an unwanted challenge to authority. They are trained to focus on their work without looking closely at the process or their overall goals. But maintaining a sense of wonder is crucial to creativity and innovation. The most efec-tive leaders look for ways to nurture their employees’ curiosity to fuel learning and discovery. HBR Reprint R1805B

FRANCESCA GINO is the Tandon Family Professor of Business Administration at Harvard Business

School and the author of the books Rebel Talent: Why It Pays to Break the Rules at Work and in Life and Sidetracked: Why Our Decisions Get Derailed, and How We Can Stick to the Plan.

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


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


SPOTLIGHT THE FIVE DIMENSIONS OF CURIOSITY

sychologists have compiled a large body of research on the many beneits of curiosity. It enhances intelligence: In one study, highly curious children aged three to 11 improved their

intelligence test scores by 12 points more than their least-curious counterparts did. It increases perseverance, or grit: Merely describing a day when you felt curious has been shown to boost mental and physical energy by 20% more than recounting a time of profound happiness. And curiosity propels us toward deeper engagement, superior performance, and more-meaningful goals: Psychology students who felt more curious than others during their irst class enjoyed lectures more, got higher inal grades, and subsequently enrolled in more courses in the discipline.

But another stream of research on curiosity is equally important, in our view. Since the 1950s psychologists have ofered competing theories about what makes one person more curious than another. Rather than regard curiosity as a single trait, we can now break it down into ive distinct dimensions. Instead of asking, “How curious are you?” we can ask, “How are you curious?”

A BRIEF HISTORYIn the 1950s Daniel Berlyne was one of the irst psychologists to ofer a comprehensive model of curiosity. He argued that we all seek the sweet spot between two deeply uncomfortable states: understimulation (coping with tasks, people, or situations that lack suicient novelty, complexity, uncertainty, or conlict) and overstimulation. To that end we use either what Berlyne called “diversive curiosity” (as when a bored person searches for something—anything—to boost arousal) or what he called “speciic curiosity” (as when a hyperstimulated person tries to understand what’s happening in order to reduce arousal to a more manageable level.)

Building on Berlyne’s insights, in 1994 George Loewenstein, of Carnegie Mellon University, proposed the “information gap” theory. He posited that people become curious upon realizing that they lack desired knowledge; this creates an aversive feeling of uncertainty, which compels them to uncover the missing information.

Use this scale to indicate the degree to which the following statements describe you:1. Does not describe me at all. 2. Barely describes me. 3. Somewhat describes me. 4. Neutral. 5. Generally describes me. 6. Mostly describes me. 7. Completely describes me.

Scoring instructions: Compute the average score for each dimension (reverse score the items under stress tolerance). By comparing your results with those of a nationally representative sample of people in the United States, you can determine whether you are low, medium, or high on each dimension. See the next page to interpret your scores.

P DEPRIVATION SENSITIVITY

Thinking about solutions to difficult conceptual problems can keep me awake at night.

I can spend hours on a single problem because I just can’t rest without knowing the answer.

I feel frustrated if I can’t figure out the solution to a problem, so I work even harder to solve it.

I work relentlessly at problems that I feel must be solved.

It frustrates me to not have all the information I need.

TOTAL

JOYOUS EXPLORATION

I view challenging situations as an opportunity to grow and learn.

I am always looking for experiences that challenge how I think about myself and the world.

I seek out situations where it is likely that I will have to think in depth about something.

I enjoy learning about subjects that are unfamiliar to me.

I find it fascinating to learn new information.

TOTAL

SOCIAL CURIOSITY

I like to learn about the habits of others.

I like finding out why people behave the way they do.

When other people are having a conversation, I like to find out what it’s about.

When around other people, I like listening to their conversations.

When people quarrel, I like to know what’s going on.

TOTAL

STRESS TOLERANCE

The smallest doubt can stop me from seeking out new experiences.

I cannot handle the stress that comes from entering uncertain situations.

I find it hard to explore new places when I lack confidence in my abilities.

I cannot function well if I am unsure whether a new experience is safe.

It is difficult to concentrate when there is a possibility that I will be taken by surprise.

TOTAL

THRILL SEEKING

The anxiety of doing something new makes me feel excited and alive.

Risk taking is exciting to me.

When I have free time, I want to do things that are a little scary.

Creating an adventure as I go is much more appealing than a planned adventure.

I prefer friends who are excitingly unpredictable.

TOTAL

How Are You Curious?


But these theories, focused on our inherent desire to reduce tension, don’t explain other expressions of curiosity: tourists strolling through a museum, entrepreneurs poring over feedback from beta testing, people engrossed in a book. The University of Rochester’s Edward Deci addressed those in the 1970s, arguing that curiosity also relects our intrinsic motivation “to seek out novelty and challenges, to extend and exercise one’s capacities, to explore, and to learn.” We use it not just to avoid discomfort but to generate positive experiences.

In another body of work, the University of Delaware psychologist Marvin Zuckerman spent ive decades (from the 1960s to the 2000s) studying sensation seeking, or the willingness to take risks to acquire varied, novel, and intense experiences. And in 2006 the psychologist Britta Renner, of the University of Konstanz, initiated the study of social curiosity, or people’s interest in how other individuals think, feel, and behave.

THE FIVE-DIMENSIONAL MODELSynthesizing this and other important research, and in conjunction with our George Mason colleague Patrick McKnight, we created a ive-dimensional model of curiosity. The irst dimension, derived from Berlyne and Loewenstein’s work, is deprivation sensitivity—recognizing a gap in knowledge the illing of which ofers relief. This type of curiosity doesn’t necessarily feel good, but people who experience it work relentlessly to solve problems.

The second dimension, inluenced by Deci’s research, is joyous exploration—being consumed with wonder about the fascinating features of the world. This is

With Merck KGaA we have explored attitudes toward and expressions of work-related curiosity. In a survey of 3,000 workers in China, Germany, and the United States, we found that 84% believe that curiosity catalyzes new ideas, 74% think it inspires unique, valuable talents, and 63% think it helps one get promoted. In other studies across diverse units and geographies, we have found evidence that four of the dimensions—joyous exploration, deprivation sensitivity, stress tolerance, and social curiosity—improve work outcomes. The latter two seem to be particularly important: Without the ability to tolerate stress, employees are less likely to seek challenges and resources and to voice dissent and are more likely to feel enervated and to disengage. And socially curious employees are better than others at resolving conlicts with colleagues, more likely to receive social support, and more efective at building connections, trust, and commitment on their teams. People or groups high in both dimensions are more innovative and creative.

A monolithic view of curiosity is insuicient to understand how that quality drives success and fulillment in work and life. To discover and leverage talent and to form groups that are greater than the sum of their parts, a more nuanced approach is needed. HBR Reprint R1805B

TODD B. KASHDAN is a professor of psychology and a senior scientist at the Center for the

Advancement of Well-Being at George Mason University. DAVID J. DISABATO and FALLON R. GOODMAN are doctoral students in clinical psychology at George Mason University. CARL NAUGHTON is a linguist and an educational scientist. The first three authors consult with Time Inc., and all four consult with Merck KGaA.

a pleasurable state; people in it seem to possess a joie de vivre.

The third dimension, stemming from Renner’s research, is social curiosity—talking, listening, and observing others to learn what they are thinking and doing. Human beings are inherently social animals, and the most efective and eicient way to determine whether someone is friend or foe is to gain information. Some may even snoop, eavesdrop, or gossip to do so.

The fourth dimension, which builds on recent work by Paul Silvia, a psychologist at the University of North Carolina at Greensboro, is stress tolerance—a willing-ness to accept and even harness the anxiety associated with novelty. People lacking this ability see information gaps, experience wonder, and are interested in others but are unlikely to step forward and explore.

The ifth dimension, inspired by Zuckerman, is thrill seeking—being willing to take physical, social, and inancial risks to acquire varied, complex, and intense experiences. For people with this capacity, the anxiety of confronting novelty is something to be ampliied, not reduced.

We have been testing this model in several ways. With Time Inc. we conducted surveys across the United States to discover which of the dimensions lead to the best outcomes and generate particular beneits. For instance, joyous exploration has the strongest link with the experience of intense positive emotions. Stress tolerance has the strongest link with satisfying the need to feel competent, autonomous, and that one belongs. Social curiosity has the strongest link with being a kind, generous, modest person.

Deprivation SensitivityLOW <3.7MEDIUM +/−4.9HIGH >6.0

Joyous ExplorationLOW <4.1MEDIUM +/−5.2HIGH >6.3

Social CuriosityLOW <3.0

MEDIUM +/−4.4

HIGH >5.8

Stress ToleranceLOW <3.1MEDIUM +/−4.4HIGH >5.8

Thrill SeekingLOW <2.6MEDIUM +/−3.9HIGH >5.2

WHAT YOUR SCORE MEANS


SPOTLIGHT THE FIVE DIMENSIONS OF CURIOSITY

FROM CURIOUS TO COMPETENT

or 30 years our executive search irm has been in the business of assessing leaders along two broad dimensions: potential and competence. One key conclusion? You can’t have either without curiosity.

Although we have found that high potentials also need insight, engagement, and determination, curiosity—deined as a penchant for seeking new experiences, knowledge, and feedback and an openness to change—is perhaps most important. In fact, in analyzing exactly how leaders develop, we’ve found that curiosity—which we assess on a four-point scale, from emer-ging to extraordinary, using interviews and reference checks—is the best predictor of strength in all seven of the leadership com-petencies we measure (results orientation, strategic orientation, collaboration and inluence, team leadership, developing organizational capabilities, change leader-ship, and market understanding).

We’ve also found that executives with extraordinary curiosity are usually able, with the right development, to advance to C-level roles. However, that development is critical.

Although a strong positive correlation exists between curiosity and competence, there is a signiicant spread—and a highly curious executive may score much lower on competence than less curious counterparts.

How can organizations help people make the leap from curious to competent? Studying our global database of information on executives’ backgrounds, experiences, potential, and competence, we came up with an answer: by providing the right types of stretch assignments and job rotations.

Consider the cases of 20 actual general managers. All were rated as extraordinarily curious, yet only half reached the top level of competence; the other half were at the bottom. What separated the two groups was the complexity and breadth of the oppor-tunities they’d been given, as shown in the irst graph below. The top 10 executives had worked for more companies, been exposed to more diverse customers, worked abroad or with colleagues from other cultures, dealt with more business scenarios (start-ups, rapid growth, M&A, integration, downsiz-ing, turnarounds), and managed more peo-ple. When curious people are given these experiences, they shine. When they aren’t,

they either stagnate or jump ship. While most of the low-competence managers had worked for just one company, the outstand-ing ones had worked for more than three.

Note, too, that although our potential and competence models hold true around the world, not all cultures achieve the same competence return on curiosity, as depicted in the second graph below. For example, al-though the Japanese have lots of curiosity, their competence scores are barely average. The British, by contrast, are less curious but more competent. Why these diferences? We believe that Japan’s cultural norms limit people’s development by rewarding tenure above all and by discouraging big job moves. Meanwhile, British irms embrace company and role changes along with coaching. This is yet more evidence that although curiosity is a necessary ingredient for executive success, in itself it’s not enough.

HBR Reprint R1805B

CLAUDIO FERNÁNDEZ-ARÁOZ is a senior adviser at Egon Zehnder and the author of It’s Not the

How or the What but the Who (Harvard Business Review Press, 2014). ANDREW ROSCOE is the former leader of Egon Zehnder’s Executive Assessment and Development Practice, and KENTARO ARAMAKI is the leader of that practice in Japan.

FCLAUDIO FERNÁNDEZ-ARÁOZ | ANDREW ROSCOE | KENTARO ARAMAKI

Experiences That Transform Curiosity into Competence The Curiosity-Competence Link Across Six National Cultures

Worked for more companies

Worked abroad or on a multicultural team

Served more diverse customers

Experienced more business scenarios

Note: Egon Zehnder selected these countries because they were the only ones in its database with a statistically significant sample set.

CO

MP

ET

EN

CE

In many countries, executives’ average scores on curiosity (measured on a scale of one to four) and competence (one to seven) come in at similar levels. But Japan and the UK are outliers. In the former, high 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.

1 2 3 4 5

Managed larger teams

Consider 20 leaders, all rated as extraordinarily curious. Ten leveraged that into high competence scores (represented by blue bars); 10 did not (gray bars). What made the difference? The extent to which they were given the opportunities below.

CURIOSITY

Brazil

United StatesJapan

United Kingdom

GermanyIndia

2.7 2.8 2.9 3.03.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.1 3.2 3.3 3.4 3.5 3.6 3.7

The top 10 had:

EXPERIENCE


TOO MANY PROJECTS 64How to deal with initiative overload

WHY DESIGN THINKING WORKS 72It addresses the biases and behaviors that

hamper innovation.

NAVIGATING TALENT HOT SPOTS 80How companies can benefit from innovation

centers without necessarily relocating

ALIBABA AND THE FUTURE OF BUSINESS 88Lessons from China’s innovative digital giant

ORGANIZATIONAL GRIT 98Turning passion and perseverance into performance:

the view from the health care industry

THE GOOD-BETTER-BEST APPROACH TO PRICING 106Why every company should consider a tiered model

GIVE YOURSELF A BREAK: THE POWER OF SELF-COMPASSION 116When you have a setback at work, treat yourself

as you would a friend: with kindness and

understanding.

LINCOLN AND THE ART OF TRANSFORMATIVE LEADERSHIP 126Lincoln’s Emancipation Proclamation imprinted a

moral purpose and meaning upon the protracted

misery of the Civil War.



Photography by Alain Delorme SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 63

Art by Alain Delorme64 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2018

1 2 3 4 5 6 7 8

How to deal with initiative overload

ROSE HOLLISTERExecutive coach and consultant,

Genesis Advisers

MICHAEL D. WATKINSCofounder, Genesis Advisers, and

professor, IMD


Sometimes leaders are unaware of all the initiatives under way and their impact on the organization. In other cases organizational politics conspires to let initiatives continue long after they should have run their course. Either way, overload can result in costly productivity and quality prob-lems and employee burnout. With record low unemployment, companies that do not adjust the workload are also at risk of losing valuable talent. One leader who used to head up talent consulting at a human capital irm told us in an interview, “While I enjoyed and respected my team and found the work motivating, the pace was unsustainable. I chose to leave before I had a heart attack.”

In many organizations, the alarm bells for initiative overload ring when engagement survey results drop or turnover levels rise—or both. At one Fortune 500 retail company, for example, internal studies showed that store managers had more duties than they could accomplish in a standard workweek. Instead of moderating the demands of the job, their bosses expected them to prioritize and juggle. Yet with business results faltering and customer service scores declining, the senior executive team realized that a new approach was needed and recommended that a task force of high-potential leaders assess the impact of initiatives on frontline store managers.

The task force found that many departments were simul-taneously launching initiatives that required store managers’ attention, in areas such as product launches, training, cus-tomer service, and IT. A comprehensive review revealed that more than 90 distinct initiatives had gotten under way in the previous six months. Store managers were expected to absorb and act on them while dealing with high customer volume and managing the staf. All these demands took their toll. Some outlets failed to meet company expectations and forecasts,

and adoption rates for new initiatives dropped, because the organization just couldn’t process them all.

When company leaders received the report, they realized that they had to be more disciplined about setting limits and priorities, rather than expect store managers to keep shouldering everything. The country president assigned a senior leader to act as the gatekeeper between functional departments and store managers. Departments could no longer reach out directly to managers with new work expec tations—those were funneled through the leader, who assessed priorities and protected the managers from impossible work demands. This change allowed store man-agers to focus; doing less yielded better results on the key initiatives and priorities.

In our consulting work with dozens of businesses, we’ve seen the consequences of overload play out again and again across a range of industries. In conversations and interviews in a wide variety of organizations, capacity is a frequent topic: Leaders feel pressured to do more with fewer resources. We’ve identiied several root causes, which we’ll discuss here so that you can spot the risks in your company. Organizations tend to rely on lawed ixes, so we’ll also explain why those typically fail and what works better.

The Roots of the ProblemWhy does initiative overload happen? We have observed seven causes:

Impact blindness. As the Fortune 500 retailer learned, executive teams can be oblivious to the number and cumu-lative impact of the initiatives they have in progress. Many 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-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 making it happen.

Multiplier effects. Most senior leaders have a line of sight into their own groups’ initiatives and priorities but a limited view of other groups’ activities. Because functions and units often set their priorities and launch initiatives in isolation, they may not understand the impact on neighboring functions and units. Suppose, for example, that an organization consists of ive units. If each one undertakes three initiatives, each of which requires some resources from two other units, then frontline managers in each unit are efectively juggling nine initiatives. And this assumes an even distribution of impact;

► THE PROBLEM

Most organizations struggle to kill initiatives, even those that no longer support their strategy. Unaware of the cumulative impact or unwilling to part with pet projects or both, senior leaders pile on more and more, expecting managers and their teams to absorb it all.

► THE

CONSEQUENCES

Failing to cut projects that don’t pull their weight and to establish clear priorities for those that remain can lead to severe overload. Productivity, engagement, performance, and retention tend to suffer as a result.

► THE SOLUTION

By understanding the root causes of initiative overload, leaders can better diagnose the risks in their organizations, make smarter decisions about what to keep and what to kill, and follow through by allocating talent and other resources with discipline.

► Idea in Brief


if some units have particularly critical or scarce resources, their load could be far greater.

Political logrolling. Executives tend to be strongly invested in some “signature” projects and may garner resources for them through implicit agreements with their peers: “I will support your initiatives if you support mine.” In the world of legislative politics, this is known as logrolling, a term report-edly coined in 1835 by U.S. Congressman Davy Crockett as a metaphor derived from the old custom of neighbors’ assisting one another with the moving of logs. In organizations it leads to a pileup of promises to fulill—and projects that just

won’t die. This can happen even after funding has been oi-cially cut, because leaders may have their own deep pockets of funding and the decision-making power to keep their initiatives moving forward.

Unfunded mandates. In the world of politics this term is used when legislatures pass laws that require certain things to happen but don’t provide funding for implementation. Similarly, in business, executive teams often task their organi-zations with meeting important goals without giving man-agers and their teams the necessary resources to accomplish them. In one major acquisition in which we were involved, the


Do leaders often talk about

the need to cut back on the

number of new initiatives?

Yes/No

Does a significant amount

of work and team time

revolve around launching

and supporting initiatives?

Yes/No

Does the organization lack

a central group that reviews

all current initiatives?

Yes/No

Does the organization lack

processes for quantifying

impact and prioritizing

initiatives?

Yes/No

Are multiple initiatives being

launched simultaneously?

Yes/No

Are initiatives often launched

without coordination across

units and functions?

Yes/No

Are initiatives launched

without business cases?

Yes/No


without success metrics?

Yes/No

Does the current number of

initiatives have a negative

impact on productivity and

prioritization?

Yes/No

Are initiatives often started

mid-cycle in response to

new external or internal

demands?

Yes/No

Is stopping or slowing down

initiatives countercultural?

Yes/No

Are legacy projects

renewed without a regular

assessment of current need

or effectiveness?

Yes/No

Are initiatives launched even

when resources are already

stretched?

Yes/No

Are people expected to

absorb new demands

without stopping past

projects?

Yes/No

Are projects launched

without a full analysis of

ongoing support needs?

Yes/No


without a “sunset,” or

stopping, process having

been identified?

Yes/No

Is the success of an initiative

evaluated primarily by the

leaders who launched and

own the project?

Yes/No

executive team spent tens of millions of dollars on consulting to design the new, combined organization’s strategy, struc-ture, systems, and staing but provided no funding to support the critical work of transition and integration. Largely as a result of conlicts between “us” and “them,” the acquiring company lost most of the acquired entity’s best talent—the retention of which had been a core goal. This is not an iso-lated example: Initiatives are often launched without having resources dedicated to them.

Band-Aid initiatives. When projects are launched to provide limited ixes to signiicant problems, the result can be a proliferation of initiatives, none of which may adequately deal with root causes. We have seen companies make substantial investments in training programs in response to supericial assessments of the skills required, or provide limited support for integrating the new skills into day-to-day practice.

Cost myopia. Another partial ix that can exacerbate overload is cutting people without cutting the related work. This happens when organizations ixate on lowering head count (an obvious way to rein in human capital costs) but overlook the price they might pay—in employee burnout, per-formance strain, and turnover—for expecting the remaining people to take on the tasks of those who have left. A leader at a consumer products irm described the problem in an inter-view: “We had planned to reengineer our processes, but it did not happen. The impact is that our people are working harder with fewer resources.”

Initiative inertia. Finally, companies often lack the means (and the will) to stop existing initiatives. Sometimes that’s because they have no “sunset” process for determining when to close things down. A project might have been vital for the business when it launched, but later the rationale no longer exists—and yet the funding and the work continue. For example, for decades many organizations used so-called mystery shoppers to gather customer feedback and evaluate customer service. With the internet, companies can now gather feedback and data directly from their customers. But many have been slow to make the shift, because parting with a well-oiled machine—even one that is clearly dated—means switching to less-tested systems that require all-new competencies. The habits and the infrastructure for mystery shoppers are already built. Capturing, understanding, and valuing customer data gathered online requires time and diferent skill sets. So, many traditional companies follow the lead of upstarts, which do not have to unlearn old, comfort-able approaches: They hire new leaders with the right skills to help make the transition.

Does Your Organization Have a Problem?

The first step in dealing with initiative overload is to honestly

assess and acknowledge the problem. Ask yourself the

questions below to gauge whether your organization is at

risk. Then total up the yesses—those are red flags. If you have

more than four, you may need to better manage the number

or timing of initiatives.


What Doesn’t WorkRecognizing initiative overload is an important irst step—but leaders must then take meaningful action. Too often, though, they resort to strategies that either have no impact or make the problem worse. For instance:

Prioritizing by function or department. Leaders are most comfortable setting priorities within their own area, because they know that territory best, but this does not allow them to recognize the cumulative impact of initiatives across groups. For example, a top goal for inance might be to adopt a new expense program across the enterprise. Even if it’s the right decision for the company, learning the new system by trial and error or through training places extra demands on leaders out-side the inance function. Designated “superusers” put in even more time than most, coaching their colleagues on day-to-day use and ielding questions as they arise, and that eats into the time they can spend on their own teams’ projects. Of course, all those demands butt up against recurring processes that consume everyone’s time across the organization: Managers must create and manage budgets for inance, document indi-vidual and team performance for HR, undergo ethics or sexual harassment training for legal, and so on.

So priorities can’t be set in a vacuum. Senior leaders need to encourage transparent conversations across functions about work volume, initiative demands, and resources—this top-down message is critical. But they must also be receptive to constructive feedback from bottom-up conversations, and too 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 to their careers, so they keep mum. And without that input, leaders lack a full view of demands across the enterprise and can’t prioritize accordingly.

Establishing overall priorities without deciding what to cut. Leadership teams often engage in prioritization exercises that deine and communicate where people should focus their energy. However, they undermine those eforts 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 company we worked with, the leadership team decided to simultaneously launch more than a dozen initiatives. Project 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

Analyzing the project

→ What problem is this initiative meant to fix?

→ What data or other evidence tells us that this initiative will have the desired impact?

Assessing resources

→ What is the true human capital demand?

1. What resources (time, budget, and head count) are needed to design and launch the initiative?

2. In addition to the department that owns the initiative, what departments or functions will be tasked with supporting it?

3. What time commitments will be asked of leaders and staff members to attend meetings or develop the skills needed to understand or implement the initiative?

4. What resources will be needed to sustain it?

→ How does the human capital demand compare with the potential business impact? Does the cost outweigh the benefit?

→ How will the organization determine whether it has the capacity to take on the initiative?

Sizing up stakeholder support

→ Who are the key stakeholders?

→ What actions will be required to support the initiative?

→ How fully is that support in place?

Setting limits

→ What trade-offs are we willing to make? In other words, if we do this, what won’t get done?

→ What’s the sunset schedule and process?

Questions to Ask Before You Launch an Initiative


initiatives by a given amount—say, 10% to 20%—each group inds its own way to comply. However, this approach to re-duction doesn’t take into consideration overall organizational priorities and interdependencies. As a result, cuts to projects in one function, such as IT or marketing, can undermine the ability of other functions to deliver critical projects. For example, as part of overall cost containment, the IT depart-ment at a hospitality company had to cut costs by 20%. So it moved to a model based on self-service and outsourcing and eliminated on-site, in-person computer support. Although IT achieved its cuts, all the other functions spent more time resolving their IT issues.

What Does WorkWhile challenging, it is possible to ight initiative overload and concentrate organizational resources on strategically essential projects. For example, CBIZ, a growing business-services com-pany, has become much stricter about deciding which projects can move forward. Marina Davis, the company’s director of organization and talent development, told us in an interview, “We look at each initiative through two lenses: One, does it have a positive impact on the business? And two, does it have a positive impact on the culture? As we continue to gain speed, we are being very careful about choosing what we will and will not take on at this time.”

Similarly, senior leaders at the real estate irm mentioned earlier—the one that launched so many initiatives at once— began to see a need for change. Although they had pushed for business transformation that year, they didn’t want that pace to become the new normal. So they watched for signs of that in the next year and were surprised at the sheer volume of budget dollars being requested for even more initiatives, most of them internal—all-staf meetings, leadership development events, planning meetings, IT launches, and HR training. Although the company inancials were strong enough to support the requests, the irm needed to focus more intently on hands-on sales, and the executive team worried that the other pro-posed initiatives could get in the way. To assess that concern, they asked functional leaders to break down travel budgets and time spent in and out of the oice, along with develop-ment funding and facility and food costs, for each requested initiative. The human capital implications then became clear: Together, the internal meetings and events would demand more than 30% of managers’ time. After discussing the matter with the senior team and targeting a lower percentage of time away from customers, the CEO and the CFO decided which initiatives to keep and which to cut, favoring those that were important to generating business. The following year

managers spent more time in the ield and less in training and planning sessions, and the demands on their time became more manageable.

As these examples show, ighting initiative overload requires the will and the discipline to make and enforce hard choices. Here’s a step-by-step process that can guide you.

1. Get a true count of current initiatives across the enterprise, to see if your organization is sufering from overload. (See the sidebar “Does Your Organization Have a Problem?”)

2. Assess all the initiatives currently under way. For each 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 in an integrated way. The discussion must be driven by the top leadership team and informed by candid feedback from below to ensure suicient decreases in initiatives.

4. Put in place a sunset clause for each initiative, identifying an end date for funding and a head count allocation, so that projects do not consume resources year after year unless they are making a signiicant business impact.

5. In subsequent yearly planning, require each initiative to reapply for funding and other resources. Mandated business cases should demonstrate the value to the organization.

6. Strongly communicate to the rest of the organization that stopping an initiative doesn’t mean that it was a failure or lacked merit. Emphasize that there’s simply a limit to how many great ideas the company can launch.

Of course, the best way to avoid initiative overload is to not allow it in the irst place. That means building in rigorous re-views to impose discipline on when and how the organization launches initiatives—and keeping close tabs on whose time they consume, and how much. (See the sidebar “Questions to Ask Before You Launch an Initiative.”)

For companies already experiencing initiative overload, focusing on the beneits of cutting back can make the path for-ward somewhat easier. Organizations are at a great advantage when they learn how to say no, as Steve Jobs once put it, to the “hundred other good ideas that there are.” They can then use their creative and productive energy more wisely, foster greater employee commitment and loyalty, and accomplish more in the areas that really matter.

HBR Reprint R1805C

ROSE HOLLISTER is an executive coach and a consultant at Genesis Advisers. She teaches courses on global leadership and change

at Northwestern University, and she led the Leadership Institute at McDonald’s from 2010 to 2017. MICHAEL D. WATKINS is a cofounder of Genesis Advisers, a professor at IMD Business School, and the author of The First 90 Days (Harvard Business Review Press, 2013).


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It addresses the biases and behaviors that hamper innovation.

ccasionally, a new way of orga-nizing work leads to extraordi-

nary improvements. Total quality management did that in manu-facturing 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

Why Desıgn ThinkingWorks

JEANNE LIEDTKAProfessor, Darden

School of Business

Illustrations by Marcos Chin72 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2018

► Idea in Brief

It’s also widely accepted that solutions are much better when they incorporate user-driven criteria. Market research can help companies understand those criteria, but the hurdle here is that it’s hard for customers to know they want some-thing that doesn’t yet exist.

Finally, bringing diverse voices into the process is also known to improve solutions. This can be diicult to manage, however, if conversations among people with opposing views deteriorate into divisive debates.

Lower risks and costs. Uncertainty is unavoidable in inno-vation. That’s why innovators often build a portfolio of options. The trade-of is that too many ideas dilute focus and resources. To manage this tension, innovators must be willing to let go of bad ideas—to “call the baby ugly,” as a manager in one of my studies described it. Unfortunately, people often ind it easier to kill the creative (and arguably riskier) ideas than to kill the incremental ones.

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 generating ideas. The danger is that the involvement of many people with diferent perspectives will create chaos and incoherence.

Underlying the trade-ofs associated with achieving these outcomes is a more fundamental tension. In a stable environ-ment, eiciency is achieved by driving variation out of the organization. But in an unstable world, variation becomes the organization’s friend, because it opens new paths to success. However, who can blame leaders who must meet quarterly targets for doubling down on eiciency, rationality, and cen-tralized control ?

To manage all the trade-ofs, organizations need a social technology that addresses these behavioral obstacles as well as the counterproductive biases of human beings. And as I’ll explain next, design thinking its that bill.

The Beauty of StructureExperienced designers often complain that design thinking is too structured and linear. And for them, that’s certainly true. But managers on innovation teams generally are not design-ers and also aren’t used to doing face-to-face research with customers, getting deeply immersed in their perspectives, co-creating with stakeholders, and designing and executing experiments. Structure and linearity help managers try and adjust to these new behaviors.

As Kaaren Hanson, formerly the head of design innovation at Intuit and now Facebook’s design product director, has explained: “Anytime you’re trying to change people’s behavior,

social services, I have seen that another social technology, design thinking, has the potential to do for innovation exactly what TQM did for manufacturing: unleash people’s full cre-ative energies, win their commitment, and radically improve processes. By now most executives have at least heard about design thinking’s tools—ethnographic research, an empha-sis on reframing problems and experimentation, the use of diverse teams, and so on—if not tried them. But what people may not understand is the subtler way that design thinking gets around the human biases (for example, rootedness in the status quo) or attachments to speciic behavioral norms (“That’s how we do things here”) that time and again block the exercise of imagination.

In this article I’ll explore a variety of human tendencies that get in the way of innovation and describe how design thinking’s tools and clear process steps help teams break free of them. Let’s begin by looking at what organizations need from innovation—and at why their eforts to obtain it often fall short.

The Challenges of InnovationTo be successful, an innovation process must deliver three things: superior solutions, lower risks and costs of change, and employee buy-in. Over the years businesspeople have devel-oped useful tactics for achieving those outcomes. But when trying to apply them, organizations frequently encounter new obstacles and trade-ofs.

Superior solutions. Deining problems in obvious, conventional ways, not surprisingly, often leads to obvious, conventional solutions. Asking a more interesting question can help teams discover more-original ideas. The risk is that some teams may get indeinitely hung up exploring a problem, while action-oriented managers may be too impatient to take the time to igure out what question they should be asking.

► THE PROBLEMWhile we know a lot about what practices stimulate new ideas and creative solutions, most innovation teams struggle to realize their benefits.

► THE CAUSEPeople’s intrinsic biases and behavioral habits inhibit the exercise of the imagination and protect unspoken assumptions about what will or will not work.

► THE SOLUTIONDesign thinking provides a structured process that helps innovators break free of counterproductive tendencies that thwart innovation. Like TQM, it is a social technology that blends practical tools with insights into human nature.


you need to start them of with a lot of structure, so they don’t have to think. A lot of what we do is habit, and it’s hard to change those habits, but having very clear guardrails can help us.”

Organized processes keep people on track and curb the ten-dency to spend too long exploring a problem or to impatiently skip ahead. They also instill conidence. Most humans are driven by a fear of mistakes, so they focus more on preventing errors than on seizing opportunities. They opt for inaction rather than action when a choice risks failure. But there is no innovation without action—so psychological safety is essen-tial. The physical props and highly formatted tools of design thinking deliver that sense of security, helping would-be innovators move more assuredly through the discovery of customer needs, idea generation, and idea testing.

In most organizations the application of design thinking involves seven activities. Each generates a clear output that the next activity converts to another output until the organi-zation arrives at an implementable innovation. But at a deeper level, something else is happening—something that executives

generally are not aware of. Though ostensibly geared to un-derstanding and molding the experiences of customers, each design-thinking activity also reshapes the experiences of the innovators themselves in profound ways.

Customer Discovery Many of the best-known methods of the design-thinking discovery process relate to identifying the “job to be done.” Adapted from the ields of ethnography and sociology, these methods concentrate on examining what makes for a meaning-ful customer journey rather than on the collection and analysis of data. This exploration entails three sets of activities:

Immersion. Traditionally, customer research has been an impersonal exercise. An expert, who may well have preexisting theories about customer preferences, reviews feedback from focus groups, surveys, and, if available, data on current be-havior, and draws inferences about needs. The better the data, the better the inferences. The trouble is, this grounds people in the already articulated needs that the data relects. They see


the data through the lens of their own biases. And they don’t recognize needs people have not expressed.

Design thinking takes a diferent approach: Identify hidden needs by having the innovator live the customer’s experi-ence. Consider what happened at the Kingwood Trust, a UK charity helping adults with autism and Asperger’s syndrome. One design team member, Katie Gaudion, got to know Pete, a nonverbal adult with autism. The irst time she observed him at his home, she saw him engaged in seemingly damaging acts—like picking at a leather sofa and rubbing indents in a wall. She started by documenting Pete’s behavior and deined the problem as how to prevent such destructiveness.

But on her second visit to Pete’s home, she asked herself: What if Pete’s actions were motivated by something other than a destructive impulse? Putting her personal perspective aside, she mirrored his behavior and discovered how satisfy-ing his activities actually felt. “Instead of a ruined sofa, I now perceived Pete’s sofa as an object wrapped in fabric that is fun to pick,” she explained. “Pressing my ear against the wall and feeling the vibrations of the music above, I felt a slight tickle in my ear whilst rubbing the smooth and beautiful indentation…So instead of a damaged wall, I perceived it as a pleasant and relaxing audio-tactile experience.”

Katie’s immersion in Pete’s world not only produced a deeper understanding of his challenges but called into question an unexamined bias about the residents, who had been perceived as disability suferers that needed to be kept safe. Her experience caused her to ask herself another new question: Instead of designing just for residents’ disabilities and safety, how could the innovation team design for their strengths and pleasures? That led to the creation of living spaces, gardens, and new activities aimed at enabling people with autism to live fuller and more pleasurable lives.

Sense making. Immersion in user experiences provides raw material for deeper insights. But inding patterns and mak-ing sense of the mass of qualitative data collected is a daunting challenge. Time and again, I have seen initial enthusiasm about the results of ethnographic tools fade as nondesigners become overwhelmed by the volume of information and the messiness of searching for deeper insights. It is here that the structure of design thinking really comes into its own.

One of the most efective ways to make sense of the knowl-edge generated by immersion is a design-thinking exercise called the Gallery Walk. In it the core innovation team selects the most important data gathered during the discovery pro-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

PROBLEMDESIGN THINKING

IMPROVED OUTCOME

Innovators are:

Trapped in their own expertise and experience

Provides immersion in the user’s experience, shifting an innovator’s mindset toward…

A better understanding of those being designed for

Overwhelmed by the volume and messiness of qualitative data

Makes sense of data by organizing it into themes and patterns, pointing the innovator toward…

New insights and possibilities

Divided by differences in team members’ perspectives

Builds alignment as insights are translated into design criteria, moving an innovation team toward…

Convergence around what really matters to users

Confronted by too many disparate but familiar ideas

Encourages the emergence of fresh ideas through a focused inquiry, shifting team members toward…

A limited but diverse set of potential new solutions

Constrained by existing biases about what does or doesn’t work

Fosters articulation of the conditions necessary to each idea’s success and transitions a team toward…

Clarity on make-or-break assumptions that enables the design of meaningful experiments

Lacking a shared understanding of new ideas and often unable to get good feedback from users

Offers pre-experiences to users through very rough prototypes that help innovators get…

Accurate feedback at low cost and an understanding of potential solutions’ true value

Afraid of change and ambiguity surrounding the new future

Delivers learning in action as experiments engage staff and users, helping them build…

A shared commitment and confidence in the new product or strategy

Shaping the Innovator’s Journey

What makes design thinking a social technology is its ability to

counteract the biases of innovators and change the way they

engage in the innovation process.


Idea GenerationOnce they understand customers’ needs, innovators move on to identify and winnow down speciic solutions that conform to the criteria they’ve identiied.

Emergence. The irst step here is to set up a dialogue about potential solutions, carefully planning who will participate, what challenge they will be given, and how the conversation will be structured. After using the design criteria to do some individual brainstorming, participants gather to share ideas and build on them creatively—as opposed to simply negotiat-ing compromises when diferences arise.

When Children’s Health System of Texas, the sixth-largest pediatric medical center in the United States, identiied the need for a new strategy, the organization, led by the vice president of population health, Peter Roberts, applied design thinking to reimagine its business model. During the discovery process, clinicians set aside their bias that what mattered most was medical intervention. They came to understand that inter-vention alone wouldn’t work if the local population in Dallas didn’t have the time or ability to seek out medical knowledge and didn’t have strong support networks—something few families in the area enjoyed. The clinicians also realized that the medical center couldn’t successfully address problems on its own; the community would need to be central to any solution. So Children’s Health invited its community partners to codesign a new wellness ecosystem whose boundaries (and resources) would stretch far beyond the medical center. Deciding to start small and tackle a single condition, the team gathered to create a new model for managing asthma.

The session brought together hospital administrators, physicians, nurses, social workers, parents of patients, and staf from Dallas’s school districts, housing authority, YMCA, and faith-based organizations. First, the core innovation team shared learning from the discovery process. Next, each attendee thought independently about the capabilities that his or her institution might contribute toward addressing the chil-dren’s problems, jotting down ideas on sticky notes. Then each attendee was invited to join a small group at one of ive tables, where the participants shared individual ideas, grouped them into common themes, and envisioned what an ideal experi-ence would look like for the young patients and their families.

Champions of change usually emerge from these kinds of conversations, which greatly improves the chances of success-ful implementation. (All too often, good ideas die on the vine in the absence of people with a personal commitment to mak-ing them happen.) At Children’s Health, the partners invited into the project galvanized the community to act and forged and maintained the relationships in their institutions required to realize the new vision. Housing authority representatives

invited to tour this gallery and write down on Post-it notes the bits of data they consider essential to new designs. The stake-holders then form small teams, and in a carefully orchestrated process, their Post-it observations are shared, combined, and sorted by theme into clusters that the group mines for insights. This process overcomes the danger that innovators will be unduly inluenced by their own biases and see only what they want to see, because it makes the people who were inter-viewed feel vivid and real to those browsing the gallery. It cre-ates a common database and facilitates collaborators’ ability to interact, reach shared insights together, and challenge one another’s individual takeaways—another critical guard against biased interpretations.

Alignment. The inal stage in the discovery process is a series of workshops and seminar discussions that ask in some form the question, If anything were possible, what job would the design do well? The focus on possibilities, rather than on the constraints imposed by the status quo, helps diverse teams have more-collaborative and creative discussions about the design criteria, or the set of key features that an ideal inno-vation should have. Establishing a spirit of inquiry deepens dissatisfaction with the status quo and makes it easier for teams to reach consensus throughout the innovation process. And down the road, when the portfolio of ideas is winnowed, agreement on the design criteria will give novel ideas a ighting chance against safer incremental ones.

Consider what happened at Monash Health, an integrated hospital and health care system in Melbourne, Australia. Mental health clinicians there had long been concerned about the frequency of patient relapses—usually in the form of drug overdoses and suicide attempts—but consensus on how to ad-dress this problem eluded them. In an efort to get to the bot-tom of it, clinicians traced the experiences of speciic patients through the treatment process. One patient, Tom, emerged as emblematic in their study. His experience included three face-to-face visits with diferent clinicians, 70 touchpoints, 13 diferent case managers, and 18 handofs during the interval between his initial visit and his relapse.

The team members held a series of workshops in which they asked clinicians this question: Did Tom’s current care exemplify why they had entered health care? As people discussed their motivations for becoming doctors and nurses, they came to realize that improving Tom’s outcome might depend as much on their sense of duty to Tom himself as it did on their clinical activity. Everyone bought into this conclusion, which made designing a new treatment process—centered on the patient’s needs rather than perceived best practices— proceed smoothly and successfully. After its implementation, patient-relapse rates fell by 60%.


drove changes in housing codes, charging inspectors with incorporating children’s health issues (like the presence of mold) into their assessments. Local pediatricians adopted a set of standard asthma protocols, and parents of children with asthma took on a signiicant role as peer counselors providing intensive education to other families through home visits.

Articulation. Typically, emergence activities generate a number of competing ideas, more or less attractive and more or less feasible. In the next step, articulation, innovators surface and question their implicit assumptions. Managers are often bad at this, because of many behavioral biases, such as overoptimism, conirmation bias, and ixation on irst solutions. When assumptions aren’t challenged, discussions around what will or won’t work become deadlocked, with each person advocating from his or her own understanding of how the world works.

In contrast, design thinking frames the discussion as an inquiry into what would have to be true about the world for an idea to be feasible. (See “Management Is Much More Than a Science,” by Roger L. Martin and Tony Golsby-Smith, HBR, September–October 2017.) An example of this comes from the Ignite Accelerator program of the U.S. Department of Health and Human Services. At the Whiteriver Indian reservation hospital in Arizona, a team led by Marliza Rivera, a young quality control oicer, sought to reduce wait times in the hospital’s emergency room, which were sometimes as long as six hours.

The team’s initial concept, borrowed from Johns Hopkins Hospital in Baltimore, was to install an electronic kiosk for check-in. As team members began to apply design thinking, however, they were asked to surface their assumptions about why the idea would work. It was only then that they realized that their patients, many of whom were elderly Apache speakers, were unlikely to be comfortable with computer tech-nology. Approaches that worked in urban Baltimore would not work in Whiteriver, so this idea could be safely set aside.

At the end of the idea generation process, innovators will have a portfolio of well-thought-through, though possibly quite diferent, ideas. The assumptions underlying them will have been carefully vetted, and the conditions necessary for their success will be achievable. The ideas will also have the support of committed teams, who will be prepared to take on the responsibility of bringing them to market.

The Testing ExperienceCompanies often regard prototyping as a process of ine- tuning a product or service that has already largely been developed. But in design thinking, prototyping is carried out on far-from-inished products. It’s about users’ iterative

experiences with a work in progress. This means that quite radical changes—including complete redesigns—can occur along the way.

Pre-experience. Neuroscience research indicates that helping people “pre-experience” something novel—or to put it another way, imagine it incredibly vividly—results in more- accurate assessments of the novelty’s value. That’s why design thinking calls for the creation of basic, low-cost artifacts that will capture the essential features of the proposed user experience. These are not literal prototypes—and they are often much rougher than the “minimum viable products” that lean start-ups test with customers. But what these artifacts lose in idelity, they gain in lexibility, because they can easily be altered in response to what’s learned by exposing users to them. And their incompleteness invites interaction.

Such artifacts can take many forms. The layout of a new medical oice building at Kaiser Permanente, for example, was tested by hanging bedsheets from the ceiling to mark future walls. Nurses and physicians were invited to interact with stafers who were playing the role of patients and to suggest how spaces could be adjusted to better facilitate treatment. At Monash Health, a program called Monash Watch—aimed at using telemedicine to keep vulnerable populations healthy at home and reduce their hospitalization rates—used detailed storyboards to help hospital administrators and government policy makers envision this new approach in practice, without building a digital prototype.

Learning in action. Real-world experiments are an essen-tial way to assess new ideas and identify the changes needed to make them workable. But such tests ofer another, less obvious kind of value: They help reduce employees’ and customers’ quite normal fear of change.

Consider an idea proposed by Don Campbell, a professor of medicine, and Keith Stockman, a manager of operations research at Monash Health. As part of Monash Watch, they suggested hiring laypeople to be “telecare” guides who would act as “professional neighbors,” keeping in frequent tele-phone contact with patients at high risk of multiple hospital admissions. Campbell and Stockman hypothesized that lower-wage laypeople who were carefully selected, trained in health literacy and empathy skills, and backed by a decision support system and professional coaches they could involve as needed could help keep the at-risk patients healthy at home.

Their proposal was met with skepticism. Many of their colleagues held a strong bias against letting anyone besides a health professional perform such a service for patients with complex issues, but using health professionals in the role would have been unafordable. Rather than debating this


point, however, the innovation team members acknowledged the concerns and engaged their colleagues in the codesign of an experiment testing that assumption. Three hundred patients later, the results were in: Overwhelmingly positive patient feedback and a demonstrated reduction in bed use and emergency room visits, corroborated by independent consultants, quelled the fears of the skeptics.

AS WE HAVE SEEN, the structure of design thinking creates a natural low from research to rollout. Immersion in the cus-tomer experience produces data, which is transformed into insights, which help teams agree on design criteria they use to brainstorm solutions. Assumptions about what’s critical to the success of those solutions are examined and then tested with rough prototypes that help teams further develop innovations and prepare them for real-world experiments.

Along the way, design-thinking processes counteract human biases that thwart creativity while addressing the

challenges typically faced in reaching superior solutions, lowered costs and risks, and employee buy-in. Recognizing organizations as collections of human beings who are moti-vated by varying perspectives and emotions, design thinking emphasizes engagement, dialogue, and learning. By involving customers and other stakeholders in the deinition of the prob-lem and the development of solutions, design thinking garners a broad commitment to change. And by supplying a structure to the innovation process, design thinking helps innovators collaborate and agree on what is essential to the outcome at every phase. It does this not only by overcoming workplace politics but by shaping the experiences of the innovators, and of their key stakeholders and implementers, at every step. That is social technology at work.

HBR Reprint R1805D

JEANNE LIEDTKA is a professor at the University of Virginia’s Darden School of Business.


Navigating Talent Hot

SPOTS

Art by Eddie Guy

How companies can benefit from innovation centers without necessarily relocating

WILLIAM KERR

Professor, Harvard

Business School

1 2 3 4 5 6 7


The three options are not mutually exclusive—especially since companies often need to keep in touch with several clusters—and each one involves substantial risks. But as the inluence of a handful of global cities continues to grow, these approaches ofer a playbook to companies that ind themselves outside the action in today’s concentrated innovation geography.

Option #1Headquarters Moves While we tend to associate innovation hubs with entrepre-neurs and start-ups, increasingly they’re the domain of incumbents, too. Twenty years ago inventors working in the top 10 cities for patenting activity accounted for fewer than half the patents iled by America’s 50 largest companies; their innovations were developed mostly in corporate labs in smaller cities. In 2017, by contrast, inventors working in the top 10 cities accounted for almost 70% of the Fortune 50’s patent ilings. Corporations have gone from being underrepresented in tech hubs to exceeding the national average.

To some extent, this shift relects the displacement of legacy companies in the Fortune 50 by innovative irms such as Alphabet and Amazon. But other incumbents besides GE are moving resources to tech hubs. In 2016 packaged foods manufacturer Conagra, for instance, relocated its headquarters from Omaha, Nebraska, to Chicago in order to attract more Millennials and recruit senior talent with experience in con-sumer brands. While he praised Omaha, CEO Sean Connolly told the Omaha World-Herald, “Chicago is an environment that ofers us access to innovation and brand-building talent.”

Though cross-state moves grab headlines, companies are also migrating out of less-dense areas surrounding talent clusters and into urban centers. In Boston, organizations relo-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 hires in the metropolitan area, compared with just 5% two de-cades ago. Conagra closed a suburban Chicago facility so that it could move more of its executive team into its downtown HQ. McDonald’s, Motorola Solutions, Kraft Heinz, and some 50 other companies have also relocated to downtown Chicago from nearby suburbs. Greg Brown, the CEO of Motorola, noted that its HQ move would accelerate cultural change in the company and make recruiting software developers and data scientists easier.

The increased access to talent can be substantial, since the share of the local college-educated workforce engaged

General Electric announced that it was moving its longtime corporate headquarters from suburban Fairield, Connecticut, to downtown Boston. The company felt it needed to plug in to Boston’s high-tech young ventures and talent to become 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 to the Wall Street Journal this way: “I can walk out my door and visit four start-ups. In Fairield I couldn’t even walk out my door and get a sandwich.”

Leading cities have long had an outsize inluence on the global economy, but today the impact that top talent clusters like Boston and San Francisco have on innovation is especially pronounced. In 2017, America’s 10 largest tech hubs accounted for 58% of U.S. patents. Globally, cities such as Tokyo, Paris, Beijing, Shenzhen, and Seoul produced a similarly large proportion. The increased clout of these hubs poses a dilemma for companies that have historically located their leadership and talent in suburban industrial parks. Having a presence in innovation hotbeds is crucial, but it’s also extraordinarily expensive—especially in the narrow innovation districts within cities where most of the high- tech activity takes place.

How can companies most efectively harness the beneits of these urban pools of knowledge and skills? In my work on global talent lows, I’ve seen corporations take three core approaches: At one extreme, they relocate their headquarters, just as GE did. A less expensive and more easily reversible way to establish a brick-and-mortar foothold is to set up an innovation lab or corporate outpost in a talent cluster. The most conservative option is to organize executive retreats and immersive visits there.

► THE SHIFT

Leading cities have long had an outsize influence on the global economy, but today the impact that top talent clusters such as Boston and San Francisco have on innovation is especially pronounced.

► THE CHALLENGE

Urban innovation hubs are extraordinarily expensive. How can companies harness the benefits of their dense pools of knowledge and skills in the most effective manner?

► THE SOLUTION

Companies have three options: Relocate their headquarters to hubs; set up innovation labs or corporate outposts there; or run executive retreats and immersions there.

► Idea in Brief

In 2016,


in digital ields in hub cities is typically two to three times as high as the national average. Moreover, many talented young people want to work in hip downtown locations with sleek new oices, not aging suburban complexes with lots of parking.

But a headquarters relocation poses several risks. For large incumbents it can be incredibly diicult, time-consuming, and expensive. The need to uproot an existing workforce, change legacy customer locations, and establish new local political connections and responsibilities means that any relocation will be disruptive, ofsetting the advantages a talent cluster might ofer. What’s more, HQ moves are hard to reverse. Because talent hot spots can rise and fall—in the 1950s, Silicon Valley was barely a dot on the economic map, and Detroit was the epicenter of rapidly growing industry— corporations may end up overinvesting in a temporary competitive advantage.

One way to mitigate that risk is to build smaller headquar-ters that are focused on innovation and the key needs of top decision makers. GE is moving fewer than 800 people (out of a workforce of more than 300,000) to Boston; only those who are especially focused on innovation and digitization are being relocated. At some incumbents the top leaders already work mostly remotely, especially if they have heavy travel sched-ules. New corporate HQs are starting to look and operate more like the oices of unicorn start-ups than of industrial giants. Communication technologies and connectivity allow corpo-rate leadership to oversee operations with ever greater scope and scale from a small command post.

This points to the second broad risk with headquarters moves: that ideas generated within the talent hub may fail to spread to the rest of the organization. Cutting-edge concepts picked up in Boston or Berlin will beneit a global company only if they improve the productivity of operations around the world. Moving key executives to talent clusters may distance leaders from other employees in the irm, whereas the older corporate HQs in suburban oice parks tended to minimize internal distances. As a result, careful thought will have to go into difusing acquired knowledge throughout the organization’s facilities.

Talent rotations can mitigate this risk. A study of an Indian 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 return home, because they had gained technical knowledge and formed tighter personal relationships with leaders at headquarters and were better able to match people’s skills to assignments. And as more companies are learning, commu-nication technology is not a substitute for people lows but a complement. Yes, great videoconferencing technology helps,

but there’s no better way than meeting in person to kick of or renew a relationship.

A third risk is negative press and the loss of political capital. No city wants a leading irm to leave, but the potential for ill will extends to new locations, too. Many companies seek tax breaks and other incentives for their new headquarters; it’s a delicate balancing act to secure preferential treatment but also be perceived as a partner in the new home city. Amazon has been criticized for the multiround bidding contest it held and the incentives it sought when scouting sites for its second North American headquarters. As Apple began its search for the site of a fourth U.S. campus, CEO Tim Cook remarked that his company would not hold a beauty pageant like Amazon’s. “That’s not Apple,” he told Recode.

Headquarters moves must also deliver on high expecta-tions. They must weather any changes in corporate lead-ership and the ups and downs of company performance. Shortly after John Flannery took over as CEO of GE, in 2017, the company announced that it would delay construction on its new $200 million building in Boston. And after GE announced job cuts, some of which would afect Boston workers, last fall, a local newspaper columnist wondered, “Was Boston sold a lemon?” GE remains committed to its new HQ but is also rethinking the role of the HQ as it works to realign itself.

A fourth risk that companies must guard against is a “leaky bucket.” Although they can recruit more easily in hubs, they can see ideas and talent low out, too. In top clusters being an attractive local employer often means stacking up well against an Apple or a Spotify with competitive salaries and beneits.

Finally, there’s a risk of unintended and unforeseen con-sequences. Research shows that companies are more likely to close plants that are distant from HQs than plants close by, for instance. Headquarters moves permanently shift the internal workings of a irm in material ways. The company will also adopt more of the culture of the new home base—which was often the point of the move, after all—and executives will have a new peer group going forward. But for executives and directors looking to deeply transform their organizations, all those risks may be warranted.

Option #2Creating Outposts and Innovation LabsAt many companies, moving the headquarters is not up for discussion. In September 2017, the same month that Amazon began its search for a second North American headquarters,

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.


Walmart announced the construction of a new head oice in its longtime home of Bentonville, Arkansas. But even if Walmart remains forever rooted in Arkansas, it has no inten-tion of ceding the battle for the insights of talent clusters to the likes of Amazon (Seattle) and Alibaba (Hangzhou). Walmart Labs, opened in 2011 in Silicon Valley, focuses on making advances, ranging from voice-enabled shopping to crowd-sourced delivery, on the frontiers of e-commerce.

Many companies a small fraction of Walmart’s size have opened similar corporate outposts in order to access important talent clusters in their industries. Such oices can serve a range of functions. Some simply house a small team that listens to what’s going on locally and scouts out business development opportunities. Some establish an innovation lab like Walmart’s that works on new technology development. At others, com-panies focus on corporate venturing—partly to make a inan-cial return on investments, but more to have a better vantage point on new advances.

Companies beneit most from innovation when they ac-quire the best ideas, not when their average ideas are better. A physical presence in leading clusters helps companies con-nect 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 efec-tively buy one by acquiring a young tech start-up. An import-ant 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 mat-ters 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 proj ect 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

Follow the MoneyWhere 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 greatest VC investment (since 2009)

Source: Calculations from Thomson One data on venture capital funding

Source: Calculations from CB Insights data

1. SAN FRANCISCO

2. BEIJING

3. SHANGHAI

4. NEW YORK

5. BOSTON

6. LOS ANGELES

7. LONDON

8. SHENZHEN

9. SAN DIEGO

10. SEATTLE

Metro areas with the most unicorns (since 2009)

1. SAN FRANCISCO

2. BEIJING

3. NEW YORK

4. LOS ANGELES

5. SHANGHAI

6. BOSTON

7. LONDON

8. SEATTLE

9. HANGZHOU

10. CHICAGO


entirely when two irms are more than half a mile apart. To successfully tap into the market, an ad agency requires not only a New York address but an address within a few city blocks of Madison Avenue.

The good news is that real estate vendors that make it less costly for companies to launch outposts are emerging. The coworking company CIC, for example, located in the heart of Kendall Square in Cambridge, Massachusetts, ofers high-end, lexible oice space on a month-to-month basis. CIC has created packages suitable for the innovation outposts of large companies, and its clients have included Amazon, Bayer, PwC, and Royal Dutch Shell. CIC even houses a “Captains of Innovation” program that links corporations to local innovators.

An advantage of outposts is that companies can experi-ment and start with a small team—keeping the option open for investment down the road. Five years before announcing its move to Boston, GE launched an outpost in Silicon Valley to accelerate its digital innovation eforts. The one-person oice initially housed just Bill Ruh, an executive recruited from Cisco to lead a new lab. Over the next three years, he grew the oice to 150 people, hiring Silicon Valley talent almost exclusively. The launch strategy kept initial needs small and allowed Ruh to shape the efort to Silicon Valley’s practices rather than being restricted by GE’s typical playbook. His group would 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 reversibility carries its own risk. Companies often pull the plug too quickly, believing an operation is failing because they have unrealistic expectations about how quickly they’ll see results. Leaders must understand that it takes time to build relation-ships; three to six months is rarely suicient. What makes talent clusters special is an enormous volume and diversity of activity. The investment in start-ups housed within CIC’s coworking space alone exceeds the venture investment made in most U.S. states, for instance. There is much to learn before a new outpost can be efective, and discovery processes take time. This is especially true when organizations invest in a cluster far from home.

Another risk is that small teams away from the corporate center will be viewed as impotent, rendering outpost execu-tives less interesting to local entrepreneurs and innovators. Empowering the local staf to make modest deals on behalf of the company goes a long way toward boosting the stature of an outpost’s leaders at the watercooler.

Perhaps most critical is the choice of initial outpost direc-tors. These executives lend their personal credibility both internally to the corporation and externally to the cluster. One approach is to seek a “best of both worlds” launch team

by combining a relocating executive from the parent’s HQ with a star already working in the cluster. When a foreign company enters the United States, this local talent is often an ex-pat of the same nationality as the parent organization.

A inal risk with innovation outposts is that the best ideas and innovations will not low back to the parent company efectively. Studies of patent data show that poor internal transfer is especially pronounced in cross-border settings. This may explain why many irms are disappointed with the returns from overseas innovation work—if the right conditions aren’t set, the output tends to be isolated.

One efective countermeasure is to promote international knowledge transfer by distributing collaborative teams across locations. That way, a company’s innovations are more likely to build on the patents iled in several locations. This ap-proach is used extensively when companies irst open new international facilities, either as a deliberate hedge to protect intellectual property or simply as a needed prop for the ledgling operations. Cross-border collaborative teams now account for 13% of the patents of large U.S. companies, up from just 1% in 1975. Though these global teams need to be carefully managed (see Tsedal Neeley’s HBR article “Global Teams That Work,” October 2015), they’re likely to grow in importance as companies seek more access to talent clusters.

Option #3Executive Retreats and ImmersionsExecutive visits to top talent clusters can be a cost-efective way to increase awareness and excitement about eforts to accelerate innovation and reshape business models and man-agement approaches. Though a weeklong trip rarely provides the missing piece to a company’s innovation puzzle, it can help executives build a grounded understanding of what’s happen-ing at the frontier and how their companies may need to react.

In 2014 executives at the large European bank ING Netherlands felt that their organization, while proitable and seemingly stable, was not realizing its full potential in a inancial services sector that was rapidly being revolutionized. So they embarked on visits to Spotify, Google, Netlix, Zappos, and other innovative companies to explore new possibilities.

Those trips led the executives to reimagine ING Netherlands as a smaller, nimbler organization with a stronger customer focus. To fulill that new vision, the company would adopt agile team methodology throughout the organization, reduce head count at its Dutch headquarters by 25%, and redesign its facilities to have open loor plans without oices (even for the


CEO) in order to foster new team interactions. Every person at headquarters had to reapply for a job, and all positions would be quite diferent under the new system. The transformation went live in 2015. CEO Vincent van den Boogert has been very pleased with the gains ING Netherlands has made since then in product innovation, customer satisfaction, and digital talent acquisition.

The global telecom giant Vodafone has also made execu-tive immersions part of its innovation strategy. The company is based in London, a premier talent cluster, but outgoing CEO Vittorio Colao strongly feels that Vodafone must tap into other clusters to stay on the cutting edge in communication technologies and other advanced technologies that afect irm operations. Every year the top 50 Vodafone executives take a weeklong trip to Silicon Valley together to broaden their perspectives. Many other companies organize similar visits to New York, London, Boston, Shanghai, and other clusters for their executives or board members. (I myself have organized corporate immersions in Boston, and this article draws on those experiences. None of the companies mentioned in this article have been my clients, however.)

But many irms underinvest in immersions, for two reasons: Executives view the trip as a semi-vacation or, at the other extreme, can’t extract themselves from e-mails about daily operations to the team back home. The CEO must emphasize immersions’ high price—especially the opportunity costs related to executive time—to all participants. Mandates from the CEO regarding prework for the trip will set the tone, and nothing keeps executives of their smartphones the way the CEO’s mindful eye and visible passion do. An all-in mental-ity for leaders makes the immersion a success, and trips should be planned at times when that kind of dedication is realistic for the executive team.

A second risk is that participants in immersions won’t dig deep enough. Visits to local companies can be informative and inspiring, but not if they don’t get past preset professional tours. ING’s visit to Spotify became much more efective, for instance, when people at the Swedish music company began to relate the costs and challenges of adopting agile methodology, not just the beneits.

One (rare) route to deep immersion is to park the leader-ship team abroad for an extended time. To obtain insights on innovative technology and services in emerging regions, Starwood Hotels has moved its entire corporate headquarters from America to China, India, and the United Arab Emirates for monthlong immersions. With shorter trips, visiting companies need to organize tailored sessions with local experts (such as business leaders and university faculty members) to achieve greater learning.

Companies also must ensure that the insights gathered are acted on back home. A one-of immersion may deliver short-term change while it’s top of mind for executives, but its lessons may soon get crowded out by other priorities. Tying immer-sions to a regular strategy or leadership-building process is a good way to capture their beneits. Immersions that have clear links to important corporate work before and after the retreat will have the strongest power, and executives should spend time on the trip itself debating and applying insights.

Vodafone ofers a good example of how to leverage an immersion’s insights back home. The company invites its top 250 employees to London for three-day training sessions on the advanced technologies its top 50 leaders have studied. This program—which includes exercises like building a rudimentary chatbot for ordering cofee—pushes familiarity with the technologies into the organization’s second tier of leadership. To spread the insights throughout its vast organization, the company incorporates the emerging technology trends it has identiied into personalized learn-ing programs on its digital Vodafone University platform. (Vodafone also pairs leaders with young “digital ninjas” to provide ongoing upward mentoring on emerging technology trends and applications.)

A inal risk is that executives will bring the wrong insights home with them. Clusters excel when the local community buys into the same priorities and perspectives, such as the deep respect given in Silicon Valley to people who launch game-changing companies. But any tightly knit place can also sufer from groupthink. Silicon Valley’s “move fast and break things” ethos has arguably left many tech giants blind to a backlash on issues like privacy, data security, and surveillance. Executives participating in immersions may be dazzled by the wrong things, when they should be listening carefully and asking questions.

A STRIKING FEATURE of today’s business landscape is the grow-ing concentration of innovation activity—and the exceptional talent associated with it—into a small number of geographic clusters. As new technologies continue to disrupt industries, the fate of corporations will increasingly be determined in these hot spots. By taking one or more of the approaches I’ve outlined here, companies can access the intelligence in these key locations and keep up with the fast pace of change.

HBR Reprint R1805E

WILLIAM KERR is the Dimitri V. D’Arbeloff–MBA Class of 1955 Professor of

Business Administration at Harvard Business School and the author

of The Gift of Global Talent: How Migration Shapes Business, Economy &

Society (forthcoming from Stanford University Press).

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


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Alibaba and

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 manage-ment team, which I had joined full-time the year before, met for a strategy of-site at a drab seaside hotel in Ningbo, Zhejiang province. Over the course of the meeting,

Lessons from China’s innovative digital giantMING ZENG Chairman, Academic Council

of the Alibaba Group

Art by Harry Campbell

A


the Future of Business

our disjointed observations and ideas about e-commerce trends began to coalesce into a larger view of the future, and by the end, we had agreed on a vision. We would “foster the development of an open, coordinated, prosperous e- commerce ecosystem.” That’s when Alibaba’s journey really began.

Alibaba’s special innovation, we realized, was that we were truly building an ecosystem: a community of organisms (businesses and consumers of many types) interacting with one another and the environment (the online platform and the larger of-line physical elements). Our strategic imperative was to make sure that the platform provided all the resources, or access to the resources, that an online business would need to succeed, and hence supported the evolution of the ecosystem.

The ecosystem we built was simple at irst: We linked buyers and sellers of goods. As technology advanced, more business functions moved online—including established

1 2 3 4 5 6 7 8 9

ones, such as advertising, marketing, logistics, and inance, and emerging ones, such as ailiate marketing, product recommenders, and social media inluencers. And as we expanded our ecosystem to accommodate these innovations, we helped create new types of online businesses, completely reinventing China’s retail sector along the way.

Alibaba today is not just an online commerce company. It is what you get if you take all functions associated with retail and coordinate them online into a sprawling, data-driven network of sellers, marketers, service providers, logistics 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

A NEW BUSINESS MODEL

Alibaba is an example of

tomorrow’s “smart business”:

a tech-enabled platform that

coordinates multiple business

players in an ecosystem.

► HOW IT WORKS

Players in the ecosystem share

data and apply machine-learning

technology to identify and better

fulfill consumer needs.

► HOW TO BUILD IT

Automate decision making by:

• making sure every interaction

yields as much data as possible

• ensuring that all business

activities are mediated by

software

• using APIs and other interface

protocols to ensure smooth

interaction among software

systems

• applying machine learning to

make sense of data in real time

► Idea in Brief

dynamically and rapidly to changing market conditions and customer preferences, gaining tremendous competitive advantage over traditional businesses.

Ample computing power and digital data are the fuel for machine learning, of course. The more data and the more iterations the algorithmic engine goes through, the better its output gets. Data scientists come up with probabilistic prediction models for speciic actions, and then the algorithm churns through loads of data to produce better decisions in real time with every iteration. These prediction models become the basis for most business decisions. Thus machine learning is more than a technological innovation; it will transform the way business is conducted as human decision making is increasingly replaced by algorithmic output.

Ant Microloans provides a striking example of what this future will look like. When Alibaba launched Ant, in 2012, the typical loan given by large banks in China was in the millions of dollars. The minimum loan amount—about 6 million RMB or just under $1 million—was well above the amounts needed by most small and medium-size enterprises (SMEs). Banks were reluctant to service companies that lacked any kind of credit history or even adequate documentation of their business activities. As a consequence, tens of millions of businesses in China were having real diiculties securing the money necessary to grow their operations.

At Alibaba, we realized we had the ingredient for creating a high functioning, scalable, and proitable SME lending business: the huge amount of transaction data generated by the many small businesses using our platform. So in 2010 we launched a pioneering data-driven microloan business to ofer loans to businesses in amounts no larger than 1 million RMB (about $160,000). In seven years of operation, the business has lent more than 87 billion RMB $13.4 billion) to nearly three million SMEs. The average loan size is 8,000 RMB, or about

$1,200. In 2012, we bundled this lending operation together with Alipay, our very successful payments business, to create Ant Financial Services. We gave the new venture that name to capture the idea that we were empowering all the little but industrious, antlike companies.

Today, Ant can easily process loans as small as several hundred RMB (around $50) in a few minutes. How is this possible? When faced with potential borrowers, lending institutions need answer only three basic questions: Should we lend to them, how much should we lend, and at what interest rate? Once sellers on our platforms gave us authorization to analyze their data, we were well positioned to answer those questions. Our algorithms can look at transaction data to assess how well a business is doing, how competitive its oferings are in the market, whether its partners have high credit ratings, and so on.

Ant uses that data to compare good borrowers (those who repay on time) with bad ones (those who do not) to isolate traits common in both groups. Those traits are then used to calculate credit scores. All lending institutions do this in some fashion, of course, but at Ant the analysis is done automatically on all borrowers and on all their behavioral data in real time. Every transaction, every communication between seller and buyer, every connection with other services available at Alibaba, indeed every action taken on our platform, afects a business’s credit score. At the same time, the algorithms that calculate the scores are themselves evolving in real time, improving the quality of decision making with each iteration.

Determining how much to lend and how much interest to charge requires analysis of many types of data generated inside the Alibaba network, such as gross proit margins and inventory turnover, along with less mathematically precise information such as product life cycles and the quality of a seller’s social and business relationships. The algorithms

might, for example, analyze the frequency, length, and type of communications (instant messaging, e-mail, or other methods common in China) to assess relationship quality.

Alibaba’s data scientists are essential in identifying and testing which data points provide the insights they seek and then engineering algorithms to mine the data. This work requires both a deep understanding of the business and expertise in machine-learning algorithms. Consider again Ant Financial. If a seller deemed to have poor credit pays back its loan on time or a seller with excellent credit catastrophically defaults, the algorithm clearly needs tweaking. Engineers can quickly and easily check their assumptions. Which parameters should be added or removed? Which kinds of user behavior should be given more weight?

As the recalibrated algorithms produce increasingly accurate predictions, Ant’s risk and costs steadily decrease, and borrowers get the money they need, when they need it, at an interest rate they can aford. The result is a highly successful business: The microlending operation has a default rate of about 1%, far below the World Bank’s 2016 estimate of an average of 4% worldwide.

So how do you create that kind of business?

AUTOMATE ALL OPERATING DECISIONSTo become a smart business, your irm must enable as many operating decisions as possible to be made by machines fueled by live data rather than by humans supported by their own data analysis. Transforming decision making in this way is a four-step process.

Step 1: “Datafy” every customer exchange. Ant was fortunate to 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.

Alibaba’s Major Businesses at a Glance

CHINESE RETAIL MARKETPLACES

Taobao Marketplace

Tmall

Rural Taobao

CROSS-BORDER AND GLOBAL MARKETPLACES

AliExpress

Tmall Global

Lazada

WHOLESALE COMMERCE

1688.com (China)

Alibaba.com (global)

DIGITAL MEDIA AND ENTERTAINMENT*

Youku Tudou (online video)

Alibaba Pictures

Alibaba Music

Alibaba Sports

UC (mobile browser)

OTHER SERVICES*

AutoNavi (mapping and navigation)

Koubei (local services)

Ele.me (delivery)

FINANCE*

Ant Financial (includes Alipay)

MYbank

LOGISTICS*

Cainiao Network

CLOUD COMPUTING*

Alibaba Cloud

* Major investee companies and cooperative partners of Alibaba Group

Consider the bike rental business. Start-ups in China have leveraged mobile telephony, the internet of things (in the form of smart bike locks), and existing mobile payment and credit systems to datafy the entire rental process.

Renting a bike traditionally involved going to a rental location, leaving a deposit, having someone give you a bike, using the bike, returning it, and then paying for the rental by cash or credit card. Several rival Chinese companies put all 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 checkout process. By opening the bike-sharing app, a rider can see available bicycles and reserve one nearby. Once the rider arrives at the bicycle, he or she uses the app to scan a QR code on the bicycle. Assuming that the person has money in his or her account and meets the rental criteria, the QR code will open the electronic bike lock. The app can even verify the person’s credit history through Sesame Credit, Ant Financial’s new online product for consumer credit ratings, allowing the rider to skip paying a deposit, further expediting the process. When the bike is returned, closing the lock completes the transaction. The process is simple, intuitive, and usually takes only several seconds.

Datafying the rental process greatly improves the consumer 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.

Most businesses that seek to be more data-driven typically collect and analyze information in order to create a causal model. The model then isolates the critical data points from the mass of information available. That is not how smart businesses use data. Instead, they capture all information generated during exchanges and communications with customers and other network members as the business operates and then let the algorithms igure out what data is relevant.

Step 2: “Software” every activity. In a smart business, all activities—not just knowledge management and customer relations—are conigured using software so that decisions afecting them can be automated. This does not mean that a irm needs to buy or build ERP software or its equivalent to manage its business—quite the opposite. Traditional software makes processes and decision lows more rigid and often becomes a straitjacket. In contrast, the dominant logic for smart business is reactivity in real time. The irst step is to build a model of how humans currently make decisions and ind ways to replicate the simpler elements of that process using software—which is not always easy, given that many human decisions are built on common sense or even subconscious neurological activity.

The growth of Taobao, the domestic retailing website of Alibaba Group, is driven by continuous softwaring of the retailing process. One of the irst major software tools built on Taobao was an instant message tool called Wangwang, through which buyers and sellers can talk to each other easily. Using the tool, the sellers greet buyers, introduce products, negotiate prices, and so on, just as people do in a traditional retail shop. Alibaba also developed a set of software tools that help sellers design and launch a variety of sophisticated online shop fronts. Once online shops are up and running, sellers can access other software products to issue coupons, ofer discounts, run loyalty programs, and conduct other customer relationship activities, all of which are coordinated with one another.

Because most software today is run online as a service, an important advantage of softwaring a business activity is that live data can be collected naturally as part of the business process, building the foundation for the application of machine-learning technologies.

Step 3: Get data flowing. In ecosystems with many interconnected players, business decisions require complex coordination. Taobao’s recommendation engines, for example, need to work with the inventory management systems of sellers and with the consumer-proiling systems of various social media platforms. Its transaction systems need to work with discount ofers and loyalty programs, as well as feed into our logistics network.

Communication standards, such as TCP/IP, and application programming interfaces (APIs) are critical in getting the data lowing among multiple players while ensuring strict control of who can access and edit data throughout the ecosystem. APIs, a set of tools that allow diferent software systems to “talk” and coordinate with one another online, have been central to Taobao’s development. As the platform grew from a forum where buyers and sellers could meet and sell goods to become China’s dominant e-commerce website, merchants on the site needed more and more support from third-party developers. New

software had to be broadly interoperable with all other software on the platform to be of any value. So in 2009, Taobao began developing APIs for use by independent software suppliers. Today, merchants on Taobao subscribe to more than 100 software modules, on average, and the live data services they enable drastically decrease the merchants’ cost of doing business.

Getting the technical infrastructure right is just the beginning. It took tremendous efort for us to build a common standard so that data could be used and interpreted in the same way across all of Alibaba’s business units. Additionally, iguring out the right incentive structures to persuade companies to share the data they have is an important and ongoing challenge. Much more work is needed. Of course, the degree to which companies can innovate in this area will depend in part on the rules governing data sharing in the countries they’re operating in. But the direction is very clear: The more data lows across the network, the smarter the business becomes, and the more value the ecosystem creates.

Step 4: Apply the algorithms. Once a business has all its operations online, it will experience a deluge of data. To assimilate, interpret, and use the data to its advantage, the irm must create models and algorithms that make explicit the underlying product logic or market dynamics that the business is trying to optimize. This is a huge creative undertaking that requires many new skills, hence the enormous demand for data scientists and economists. Their challenge is to specify what job they want the machine to do, and they have to be very clear about what constitutes a job well done in a particular business setting.

From very early on, our goal for Taobao was to tailor it to each individual’s needs. This would have been impossible without advances in machine learning. Today, when customers log on, they see a customized webpage with a selection of products curated from the billions ofered by our millions of sellers. The selection is generated automatically by Taobao’s powerful recommendation engine. Its algorithms, which are designed to optimize the conversion rate of each


visit, churn data generated across Taobao’s platform, from operations to customer service to security.

A milestone in Taobao’s growth, in 2009, was the upgrade from simple browsing, which worked reasonably well when the platform had many fewer visits and products to handle, to a search engine powered by machine-learning algorithms and capable of processing huge volumes of inquiries. Taobao has also been experimenting with optical-recognition search algorithms that can take a photo of a desired item supplied by the customer and match it to available products on the platform. While we are still in the early stages of using this technology to drive sales, the function has proved very popular with customers, boasting 10 million unique visits daily.

In 2016, Alibaba introduced an AI-powered chatbot to help ield customer queries. It is diferent from the mechanical service providers familiar to most people that are programmed to match customer queries with answers in their repertoire. Alibaba’s chatbots are “trained” by experienced representatives of Taobao merchants. They know all about 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 questions customers ask. Using a variety of machine-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 represen-tatives to deal with complicated or personal issues, but the ability to handle routine queries via a chatbot is very useful, 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 chat-bot 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 of data the business uses to become smarter; software the business to put worklows and essential actors online; institute standards and APIs to enable real-time data low

Alibaba by the Numbers

The Alibaba Group went public in the United States in

September 2014 and has grown at a blistering pace,

now boasting a market cap of more than $500 billion.

The group’s e-commerce platforms now have more

than 550 million annual active consumers. These

numbers don’t include Ant Financial, which reports

financial results separately.

In the fiscal year ending March 2017, Alibaba

Group reported profits of more than $15 billion on

nearly $40 billion in revenue. Ant reported profits of

$814 million on revenue of $8.9 billion and is currently

valued at over $100 billion. Ant pays Alibaba

royalties, which amounted to $332 million in 2017.

$8.4

$39.9

Revenue (in US$ billions)

2014 2015 2016 2017 2018

$15.5

EBITDA

Source: Alibaba Group

$4.9


and coordination; and apply machine-learning algorithms to generate “smart” business decisions. All the activities involved in the four steps are important new competencies that require a new kind of leadership.

THE LEADER’S ROLEIn my course on smart business at Hupan School of Entrepreneurship, I show a slide of 10 business leaders and ask the students to identify them. They can easily pick out Jack Ma, Elon Musk, and Steve Jobs. But virtually no one can identify the CEO of CitiGroup or Toyota or General Electric.

There is a reason for this. Unlike GE, Toyota, and CitiGroup, which deliver products or services through optimized supply chains, digital companies must mobilize a network to realize their vision. To do that, their leaders have to inspire the employees, partners, and customers who make up that network. They must be visionaries and evangelists, outspoken in a way that the leaders of traditional companies do not have to be.

At the highest level, the digital evangelists must understand what the future will look like and how their industries will evolve in response to societal, economic, and technological changes. They cannot describe concrete steps to realize their companies’ goals because the environment is too luid and the capabilities they will require are unknowable. Instead, they must deine what the irm seeks to achieve and create an environment in which workers can quickly string together experimental products and services, test the market, and scale the ideas that elicit a positive response. Digital leaders no longer manage; rather, they enable workers to innovate and facilitate the core feedback loop of user responses to irm decisions and execution.

In the smart business model, machine-learning algorithms take on much of the burden of incremental improvement by 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.

DIGITAL-NATIVE COMPANIES such as Alibaba have the advantage of being born online and data-ready, so their transformation to smart business is quite natural. Now that they have proven the model works and are transforming the old industrial economy, it is time for all companies to understand and apply this new business logic. That may look technologically intimidating, but it is becoming more and more feasible. The commercialization of cloud computing and artiicial intelligence technologies has made large-scale computational power and analytic capabilities accessible to anyone. Indeed, the cost of storing and computing large quantities of data has dropped dramatically over the past decade. This means that

real-time applications of machine learning are now possible and afordable in more and more environments. The rapid development of internet-of-things technology will further digitize our physical surroundings, providing ever more data. As these innovations accumulate in the coming decades, the winners will be companies that get smart faster than the competition. HBR Reprint R1805F

MING ZENG is the chairman of the Academic Council of the Alibaba Group, an e-commerce, retail, and technology conglomerate, based

in Hangzhou, China, and the author of Smart Business: What Alibaba’s Success Reveals About the Future of Strategy (Harvard Business Review Press, September 2018). He is also the dean of Hupan School of Entrepreneurship, a private business school founded by Alibaba chairman Jack Ma and other leading Chinese entrepreneurs in Hangzhou.

HBR ARTICLES ON STRATEGY FOR PLATFORM BUSINESSES

Finding the Platform in Your ProductAndrei Hagiu and Elizabeth J. Altman

Network Effects Aren’t EnoughAndrei Hagiu and Simon Rothman

Strategies for Two-Sided MarketsThomas R. Eisenmann, Geoffrey G. Parker, and Marshall W. Van Alstyne

Pipelines, Platforms, and the New Rules of StrategyMarshall W. Van Alstyne, Geoffrey G. Parker, and Sangeet Paul Choudary

How to Launch Your Digital PlatformBenjamin Edelman

ON ARTIFICIAL INTELLIGENCE AND MACHINE LEARNING

Algorithms Need Managers, TooMichael Luca, Jon Kleinberg, and Sendhil Mullainathan

The Simple Economics of Machine IntelligenceAjay Agrawal, Joshua Gans, and Avi Goldfarb

Deep Learning Will Radically Change the Ways We Interact with TechnologyAditya Singh

Fixing Discrimination in Online MarketplacesRay Fisman and Michael Luca

HBR.org

Further Reading


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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 remain 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

Turning passion and perseverance into performance: the view from the health care industry

THOMAS H. LEEChief medical officer,

Press Ganey

ANGELA L. DUCKWORTHPsychology professor,

University of Pennsylvania

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.

GrıtOrganizational

►


low-level goals are a means to an end, helping the cardiologist accomplish mid-level goals, such as coordinating patients’ care with other specialists and team members. At the top would be a goal that is abstract, broad, and important—such as increas-ing patients’ quality and length of life. This overarching goal gives meaning and direction to everything a gritty individual does. (See the exhibit “A Cardiologist’s Goal Hierarchy.”) Less gritty people, in contrast, have less coherent goal hierarchies—and often, numerous conlicts among goals at every level.

A Cardiologist’s Goal Hierarchy

In this simplified illustration, immediate, concrete goals sit at the bottom. These support broader goals at the next level, which in turn support an overarching primary goal that provides meaning and direction.

It’s important to note that assembling a group of gritty 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 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 top-level goal of putting patients’ needs above all else. It lays out that goal in its mission statement and diligently reinforces it when recruiting. Mayo observes outside job candidates for two to three days as they practice and teach, evaluating not just their skills but also their values—speciically, whether they have a patient-centric mission. Once hired, new doctors undergo a three-year evaluation period. Only after they’ve demonstrated the needed talent, grit, and goal alignment are they considered for permanent appointment.

How can you hire for grit? Questionnaires are useful for research and self-relection (see the sidebar “Gauging Your

► THE PROBLEMHealth care has longdepended on the passionand perseverance of individual doctorsand nurses. But with the advent of modernmedicine, providing superior care hasbecome so complex that no lone caregiver, no matter how gritty, can do it all.

► THE SOLUTIONHospitals and health systems must develop grit at the individual, team, and organizational levels. That requires ensuring that all participants are committed to pursuing a shared high-level goal. Putting patients first is a common and effective objective.

► HOW IT WORKSSustaining a gritty organizational culture requires clear communication of values by leadership, programs that celebrate successes, and the promotion of a “growth mindset” that embraces continuous improvement and learning from setbacks.

collaboration—gritty teams of clinicians who all relentlessly push for improvement. Yet it takes more than that: Health care institutions must exhibit grit across the entire provider system.

In this article, drawing on Tom’s decades of experience as a clinician and health care leader and Angela’s foundational studies on grit, we’ve integrated psychological research at the individual level with contemporary perspectives on organizational and health care cultures. As we’ll show, in the new model of grit in health care—exempliied by leading institutions like Mayo Clinic and Cleveland Clinic—passion for patient well-being and perseverance in the pursuit of that goal become social norms at the individual, team, and institutional levels. Health care, because it attracts so many elite performers 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.

Developing IndividualsFor leaders, building a gritty culture begins with selecting and developing gritty individuals. What should organizations look for? The two critical components of grit are passion and 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 form of resilience in the face of adversity as well as unwavering devotion to continuous improvement.

The kind of single-minded determination that character-izes the grittiest individuals requires a clearly aligned hierar-chy of goals. Consider what such a hierarchy might look like for a cardiologist: At the bottom would be speciic tasks on her short-term to-do list, such as meetings to review cases. These

► Idea in Brief

Improve cardiac patients’ quality and length of life

Encourage exercise

Prevent cardiac conditions

Treat cardiac conditions

Coordinate care

Encourage healthy eating

Prescribe therapy as needed

Schedule checkups

Meet to review cases

Track relevant conditions

Lower-level goals

Mid-level goals

Top-level goal


Grit”), but because they’re easy to game, we don’t recommend using them as hiring tools. Instead, we recommend carefully reviewing an applicant’s track rec ord. In particular, look for multiyear commitments and objective evidence of advance-ment and achievement, as opposed to frequent lateral moves, such as shifts from one specialty to another. When checking references, listen for evidence that candidates have bounced back from failure in the past, demonstrated lexibility in dealing with unexpected obstacles, and sustained a habit of continuous self-improvement. Most of all, look for signs that people are driven by a purpose bigger than themselves, one that resonates with the mission of your organization.

Mayo, like many gritty organizations, develops most of its own talent. More than half the physicians hired at its main campus in Rochester, Minnesota, for example, come from its medical school or training programs. One leader there told us those programs are seen as “an eight-year job interview.” When expanding to other regions, both Mayo and Cleveland Clinic prefer to transfer physicians trained within their systems rather than hire local doctors who may not it their culture.

Creating the right environment can help organizations de-velop employees with grit. (The idea of cultivating passion and perseverance in adults may seem naive, but abundant research shows that character continues to evolve over a lifetime.) The optimal environment will be both demanding and supportive. People will be asked to meet high expectations, which will be clearly deined and feasible though challenging. But they’ll also be ofered the psychological safety and trust, plus tangible resources, that they need to take risks, make mistakes, and keep learning and growing.

At Cleveland Clinic, physicians are on one-year contracts, which are renewed—or not—on the basis of their annual professional reviews (APRs). These include a formal discus-sion of career goals. Before an APR, each of the clinic’s 3,600 physicians completes an online assessment, relects on his or her prog ress over the past year, and proposes new objectives for the year ahead. At the meetings, physicians and their supervisors agree on speciic goals, such as improving com-munication skills or learning new techniques. The clinic then ofers relevant courses or training along with the inancial support and “protected time” the physicians might need to complete it. Improvement is encouraged not by performance bonuses but by giving people detailed feedback about how they’re doing on a host of metrics, including eiciency at speciic procedures and patient experience. The underlying assumption is that clinicians want to improve and that the or-ganization, and their supervisors in particular, fully backs their eforts to reach targets that may take a year or more to reach.

Building TeamsGritty teams collectively have the same traits that gritty individuals do: a desire to work hard, learn, and improve; resilience in the face of setbacks; and a strong sense of priorities and purpose.

In health care, teams are often deined by the population they serve (say, patients with breast cancer) or the site where they work (the coronary care unit). Gritty team members may have their own professional goal hierarchies, but each will em-brace the team’s high-level goal—typically, a team-speciic ob-jective, such as “improve our breast cancer patients’ outcomes,” that in turn supports the organization’s overarching goal.

Many people in health care associate commitment to a team with the loss of autonomy—a negative—but gritty people view it as an opportunity to provide better care for their patients. They see the whole as greater than the sum of its parts, recog-nizing that they can achieve more as a team than as individuals.

In business, teams are increasingly dispersed and virtual, but the grittiest health care teams we’ve seen emphasize face-to-face interaction. Members meet frequently to review cases, set targets for improvement, and track prog ress. In many instances the entire team discusses each new patient. These meetings reinforce the sense of shared purpose and commit-ment and help members get to know one another and build trust—another characteristic of efective teams.

That’s an insight that many health care leaders have come to by studying the description of the legendary six-month Navy SEAL training in Team of Teams, by General Stanley McChrystal. As he notes, the training’s purpose is “not to pro-duce supersoldiers. It is to build superteams.” He writes, “Few tasks are tackled alone… The formation of SEAL teams is less about preparing people to follow precise orders than it is about developing trust and the ability to adapt within a small group.” Such a culture allows teams to perform at consistently high levels, even in the face of unpredictable challenges.

Commitment to a shared purpose, a focus on constant improvement, and mutual trust are all hallmarks of integrated practice units (IPUs)—the gold standard in team health care. These multidisciplinary units provide the full cycle of care for a group of patients, usually those with the same condition or closely related conditions. Because IPUs focus on well-deined segments of patients with similar needs, meaningful data can be collected on their costs and outcomes. That means that the value a unit creates can be measured, optimized, and rewarded. In other words, IPUs can gather the feedback they need to keep getting better.

UCLA’s kidney transplant IPU is a prime example. Two years after the 1984 passage of the National Organ Transplant


Aligning Organizational Objectives

Gritty health care institutions have clear goal hierarchies, like the hypothetical 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 or mission.

Of course, even when the high-level goal is clear and appro-priate, rhetoric alone won’t suice to promote it—and can even backire. If an organization’s leaders don’t use the goal to make decisions, it will undermine their credibility.

Consider how Cleveland Clinic responded when it learned that a delayed appointment had caused hours of sufering for a patient with diiculty urinating. The clinic began asking everyone requesting an appointment whether he or she 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

Act, which required organ transplant programs to collect and report data on outcomes such as one-year success rates, Kaiser Permanente approached UCLA about contracting for kidney transplantation. This dominant HMO would increase its referrals to UCLA if UCLA would accept a ixed price for the 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 (or risk losing money under the bundled payment contract).

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 OrganizationsIf gritty individuals and teams are to thrive, organizations need to develop cultures that make them, in turn, macrocosms of their best teams and people.

So organizations beneit from making their goal hierar-chies 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 growth in market share the top priority is unlikely to resonate with caregivers whose passion is improving outcomes that matter to patients.

In our experience, every gritty health care organization has a primary goal of putting patients irst. In fact, we be-lieve a health care organization can’t be gritty if it doesn’t put that goal before everything else. (See the exhibit “Aligning Organizational Objectives.”) Though it’s challenging to suggest that other needs (such as those of doctors or researchers) come second or third, if patients’ needs are not foremost, decisions tend to be based on politics rather than strategy as stakehold-ers jockey for resources. This doesn’t mean an organization can’t have other goals; Mayo, for instance, also values research, education, and public health. But those things are subordinate to patient care.

Launch disease- focused institutes

Lower-level goals

Mid-level goals

Top-level goal

Provide empathy training

Improve care quality Reduce costs

Put patients first

Promote wellness

Invest in innovation

Create care paths

Implement electronic health records

Cut supply costs

Provide lifestyle programs

Educate patients

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

►


demonstrates that when clinicians and other employees em-brace their organization’s commitment to quality and safety, and when those goals relect their own, it leads not only to better care but also to better business results.

But how can leaders help translate the top-level organizational goal into practical activities for teams and individuals? Seven years ago Cleveland Clinic took an import-ant step that helped deine its culture and direction. Toby Cosgrove, the CEO at the time, had all employees engage in a half-day “appreciative inquiry” program, in which personnel in various roles sat at tables of about 10 and discussed cases in which the care a patient received had made them proud. The perspectives of physicians, nurses, janitors, and administrative staf were intertwined, and the focus was on positive real-life examples that captured Cleveland Clinic at its best.

The question posed was, What made the care great in this instance, and how could Cleveland Clinic make that greatness happen every time? The cost for taking its personnel of-line for these exercises was estimated to be $11 million, but Cosgrove considers it one of the most powerful ways he helped the organization align around its mission.

Another tactic is to establish social norms that support the top-level goal. At Mayo Clinic the social norm for clinicians is to respond to pages about patients immediately. They don’t inish driving to their destination; they pull of the road and call in. They don’t inish writing an e-mail or conclude a con-versation, even with a patient. They excuse themselves and answer the page.

“What happens if you don’t answer your beeper right away?” we asked several people at Mayo. “You won’t do well

here,” several told us. Another joked, “The earth will open up and swallow you.” A third said, “The last thing you want is to have people say, ‘He’s the kind of guy who doesn’t answer his page.’” It’s part of a bigger picture. There is more to “the Mayo Way” than a dress code (and there is a dress code). It includes answering your beeper, working in teams, and putting patients’ needs irst.

Another fundamental characteristic of gritty organizations is restlessness with the status quo and an unrelenting drive to improve. Fostering that restlessness in a health care organization is a real test of leadership, because health care is full of people who are well trained and work hard—but often are not receptive to hearing that change is needed. However, a goal of “preserving our greatness” is not a compelling argument for change or an attraction for gritty employees. The focus instead should be on health care’s true customers, patients—not just on providing pleasant “service” but on the endless quest to meet their medical and emotional needs.

It also helps to promote inside the organization something Stanford psychologist Carol Dweck calls a “growth mind-set”—a belief that abilities can be developed through hard work and feedback, and that major challenges and setbacks provide an opportunity to learn. That, of course, requires lead-ership to accept, and even publicly communicate, complica-tions and errors—something that doesn’t always come easily in health care. But leaders that are explicit about the need for calculated risk taking, reducing mistakes, and continual learning tend to be the ones who actually inspire real growth in their organizations.F

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Gauging Your Grit

To see how gritty you are compared with a pool of more than

5,000 American adults, answer the questions below, tally your

score, and divide by 10. Don’t overthink your answers or try to

guess the “right” answer. The more honestly you respond, the more

accurate the results. (To take an online version of the test and get

an instant score, go to angeladuckworth.com/grit-scale/.)

1. New ideas and projects sometimes distract me from previous ones.

2. Setbacks don’t discourage me. I don’t give up easily.

3. I often set a goal but later choose to pursue a different one.

4. I am a hard worker.

5. I have difficulty maintaining my focus on projects that take more than a few months to complete.

6. I finish whatever I begin.

7. My interests change from year to year.

8. I am diligent. I never give up.

9. I have been obsessed with a certain idea or project for a short time but later lost interest.

10. I have overcome setbacks to conquer an important challenge.

5 4 3 2 1

Grit Score 2.5 3.0 3.3 3.5 3.8 3.9 4.1 4.3 4.5 4.7 4.9

Percentile 10% 20% 30% 40% 50% 60% 70% 80% 90% 95% 99%

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.

Very much

like meNot at all like me

Crises ofer special opportunities for growth—and in partic-ular to strengthen culture. Organizations that have provided care after natural disasters or terrorist attacks have found that the experience leads to powerful bonding, a reinforced sense of purpose, the desire to excel, and a renewed commitment to organizational goals.

For example, when Hurricane Katrina hit New Orleans, in 2005, a local hospital ailiated with Ochsner Health System faced a series of incredible challenges, including power outages, looding, overcrowding, and inadequate food and supplies. But throughout, morale remained high, because the 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 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 respect and trust for one another.”

Responding to self-generated crises can be a little trickier, however. But here, patient stories can be powerful drivers of improvement—especially if the stories are mortifying and involve “one of our own.” At Henry Ford Health System, for example, every new employee watches a video depicting the experience of a physician in the system’s intensive care unit, Rana Awdish, who nearly bled to death in the ICU in 2008 when a tumor in her liver suddenly ruptured. She was 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 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 colleagues realize that her doctors were focused on the problem but not on her as a human being, and that this probably was happening a lot within Henry Ford. The crisis led leadership to commit to the goal of treating every patient with empathy all the time. Today every employee at Henry Ford has seen the video, and the goal of being reliably empathic is clearly understood. Sharing Awdish’s story is just one of the interventions that has 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.

The Gritty LeaderRalph Waldo Emerson observed that organizations are the lengthened shadows of their leaders. To attract employ-ees, build teams, and develop an organizational culture that all have grit, leaders should personify passion and


perseverance—providing a visible, authoritative role model for every other person in the organization. And in their personal interactions, they too must be both demanding—keeping stan-dards high—and supportive.

Consider Toby Cosgrove. He was a diligent student but, because he had dyslexia that was undiagnosed until his mid-thirties, his academic rec ord was lackluster. Nevertheless, he set his sights on medical school, applying to 13. Just one, the University of Virginia, accepted him. In retrospect, “the dys-lexia reinforced my determination and persistence,” Cosgrove told us, “because I had to work more hours than anybody else to get the same result.”

In 1968, Cosgrove’s surgical residency was interrupted when he was drafted. He served a two-year tour as a U.S. Air Force sur-geon in Vietnam. Upon his return home, he completed his resi-dency and then joined Cleveland Clinic in 1975. “Everybody told me not to become a heart surgeon,” he said. “I did it anyway.” Indeed, Cosgrove performed more cardiac surgeries (about 22,000) than any of his contemporaries. He pioneered several technologies and innovations, including minimally invasive mitral valve surgery, earning more than 30 patents.

Cosgrove’s development as a world-class surgeon is a case study in grit. “I was informed that I was the least talented indi-vidual in my residency. But failure is a great teacher. I worked and worked and worked at reining the craft,” he told us. “I changed the way I did things over time. I used to take what I called ‘innovation trips’—trips all over the world to watch other surgeons and their techniques. I’d pick things up from them and incorporate them in my practice. I was on a constant quest to ind ways to do things better.”

Cosgrove was named CEO of Cleveland Clinic in 2004. The passion and perseverance that made him great as a surgeon and as the head of a cardiac care team would soon be tested in his new role as leader of more than 43,000 employees. “I decided I had to become a student of leadership,” Cosgrove recalls. “I had stacks of books on leadership, and every night when I came home, I would go up to my little oice and read. And then I called up Harvard Business School professor Michael Porter.” Porter, widely considered the father of the modern ield of strategy, invited Cosgrove to visit. “He talked with me for two hours. After that, I got him to come to Cleveland. Since then, we’ve been sharing ideas,” Cosgrove says. Porter helped him understand that as CEO he needed to be more than a renowned surgeon and an enthusiastic leader. He needed to evolve the organization’s strategy, focusing on how to create value for patients and achieve competitive diferentiation in the process.

Cosgrove scrutinized Cleveland Clinic’s quality data, and while its mortality statistics were similar to those of other leading institutions, performance on other metrics—especially

patient experience—left much to be desired. “People respected us,” he says, “but they sure didn’t like us.” In 2009 he hired Jim Merlino, a young physician who had left the clinic unhappily after the death of his father there, and made him chief experi-ence oicer. Cosgrove asked Merlino to ix the things that had driven him away.

Cosgrove supported Merlino’s many innovative ideas, including having all employees go through the appreciative inquiry exercise, and making an internal training ilm, an “empathy video” that is so powerful it has been watched by many outside the clinic, getting more than 4 million views on YouTube. As a result of these eforts and many others, Cleveland Clinic moved from the bottom quartile in patient experience to the top.

The institutional changes Cosgrove and his team have accomplished are too numerous to catalog, but here are a few: Swapping parking spaces so that patients, not doctors, are clos-est to the clinic’s entrances. Moving medical records from hard copy to electronic storage. Developing standard care paths to ensure consistency and optimize the quality of care. Refusing to hire smokers and, recently, in response to the national opioid crisis, doing random drug testing of all Cleveland Clinic staf, including physicians and executives.

These changes weren’t always popular when they were introduced. But when he knows he’s right, Cosgrove stays the course. A placard he keeps on his desk reminds him “What can be conceived can be created.”

It’s hard to argue with the results achieved during his 13-year tenure as CEO. In addition to the improvements in patient experience, revenue grew from $3.7 billion in 2004 to $8.5 billion in 2016, and total annual visits increased from 2.8 million to 7.1 million. Quality on virtually every available metric has risen to the top tier of U.S. health care.

When Cosgrove gave his irst big speech as CEO, he gave out 40,000 lapel buttons that said, “Patients First.” We asked if some of his colleagues rolled their eyes. “Yes, a lot of them did,” he said. “But I made the decision that I was going to pretend I didn’t see them.”

Cosgrove showed grit. And led an organization that has become his relection.

HBR Reprint R1805G

THOMAS H. LEE is the chief medical officer of Press Ganey. He is a practicing internist and a professor (part time) of medicine

at Harvard Medical School and a professor of health policy and management at the Harvard T.H. Chan School of Public Health. ANGELA L. DUCKWORTH is the Christopher H. Browne Distinguished Professor of Psychology at the University of Pennsylvania and the founder and CEO of Character Lab. She is the author of Grit: The Power of Passion and Perseverance (Scribner, 2016).


Approach toPrıcing RAFI

MOHAMMEDFounder, 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 for-giveness. A new Gold plan, priced 5% to 7% above Standard,

Art by Dan Saelinger

Better-Best

Good-The


1 2 3 4 5 6 7 98 10


ofered immediate forgiveness (no ive-year wait) along with a deductible rewards feature in which repair costs borne by the driver would decline by $100 for every year of accident-free driving. And at the highest end, a new Platinum plan (15% above Standard) also included forgiveness for multiple crashes and a safe-driving bonus under which credits were issued for each accident-free six months.

Consumers were enthusiastic: By 2008 Allstate had sold 3.9 million Your Choice policies and was selling 100,000 new ones each month. A decade later the pricing plan remains attractive: In 2017, 10% of customers chose the Value plan, and 23% chose Gold or Platinum. The company has no doubt that Your Choice drove signiicant incremental growth. “There were a lot of skeptical people in the company,” recalls Floyd Yager, one of Allstate’s 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 (G-B-B) pricing. There’s nothing new about the concept of adding or subtracting product features to create variably priced bundles targeted to customers of varying economic means or those who value features diferently. It’s been nearly 100 years since Alfred Sloan introduced a “price ladder” to diferentiate Chevrolets and Buicks from Oldsmobiles and Cadillacs, creat-ing “a car for every purse and purpose” and powering General Motors to overtake Ford. In the modern era, G-B-B pricing is evident in many product categories. Gas stations sell regular, plus, and super fuel. American Express ofers a range of credit cards, including green, gold, platinum, and black, with varying beneits and annual fees. Cable TV providers market basic, extended, and premium packages. Car washes typically ofer several options, separated by services such as waxing and undercoating.

Yet many companies and industries haven’t adopted tiered pricing—and there’s little rhyme or reason to which have, which haven’t, and why. G-B-B is a strategy every company should consider. In my consulting work, I routinely see it used to simultaneously attract new high-spending customers and price- conscious ones, dramatically boosting revenue and proits. (Disclosure: Among my clients is Harvard Business Publishing, the publisher of this magazine.)

Although G-B-B is conceptually simple, implementation can be tricky. If new oferings aren’t constructed and priced correctly, existing customers will trade down, hurting proits. In this article I outline why G-B-B can beneit many irms. Then I present a step-by-step guide to devising, testing, and launching the strategy in a way that boosts proits and reduces the threat of cannibalization.

Capitalizing on G-B-BG-B-B’s beneits come from three approaches: ofensive plays aimed at generating new growth and revenue, defensive plays meant to counter or forestall moves by competitors, and behavioral plays that draw on principles of consumer psychology, whatever the competitive landscape.

Going on the offensive. Ofensive plays can help brands grow revenue in at least four ways. First, companies can dra-matically lift margins by creating a high-end Best version that persuades existing customers to spend more or attracts a new cohort of high spenders. In my work with companies, managers consistently underestimate customers’ willingness to spend and the number of customers who might upgrade to Best, even at prices that were previously unthinkable. Across a range of industries, it’s not unusual to observe up to 40% of sales landing 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 options to the standard admission ticket, with prices varying by day and location) to bypass lines and thus enjoy more rides. The Gold Pass, which costs as much as $80 a day on popular week-ends, reduces waits by up to 50%; the Platinum Pass, which can reach $135, reduces them by up to 90%. “It’s amazing, actually, how many people pay for this,” then-CFO John Dufey told ana-lysts shortly after the new passes were rolled out, in 2011. Many Flash Pass purchasers are existing customers who decide to upgrade, but some are new customers who had previously been put of by the notoriously long lines for rides.

Second, and at the other end of the spectrum, a low-priced Good ofering can make a product accessible to price- sensitive or dormant customers for whom the existing product line (which typically then becomes a Better ofering) is out of reach. And it can limit the need for discounts or sales on the existing


► THE PROBLEM

Companies often crimp profits by using discounts to attract price-sensitive consumers and by failing to give high-end customers reasons to spend more.

► THE SOLUTION

A multitiered offering (typically with three options) can use a stripped-down product to attract new customers, the existing product to keep current customers happy, and a feature-laden premium version to increase spending by customers who want more.

► THE IMPLEMENTATION

Key steps include identifying “fence” attributes that will prevent current customers from trading down from the existing offering; carefully choosing features and names to create clear differentiation and value; and setting prices using feedback from in-house experts and, when possible, drawing on market research.

► Idea in Brief

product or service—a crucial advantage, because frequent sales can erode long-term pricing power.

Uber has shown continued creativity and success with its Good versions. The company began in 2010 as a black-car luxury service, and it still ofers several high-end options. But in 2014, hoping to lure price-sensitive riders, it launched uberPOOL, in which riders share a car with strangers going in the same general direction. Unlike the traditional uberX service (in which riders have a midsize sedan to themselves and go directly to their destination), uberPOOL trips involve multiple pickups and drop-ofs of other passengers, so there’s additional travel time; in exchange, the service is priced as much as 50% below uberX. UberPOOL now accounts for 20% of all Uber rides—and in some cities it accounts for more than half of all trips. The company has begun experimenting with Express POOL, which costs 30% to 50% less than uberPOOL and requires riders to walk a few blocks to a central pickup location. Uber’s story shows that even after implementing a G-B-B strategy, companies should continue exploring innovations that might lead to new, lower-priced versions of Good.

A third way that G-B-B can increase revenue is through a new Best ofering that boosts the entire brand. In 2015 Patrón Spirits debuted a line of Roca Patrón tequilas made by the tahona process, which uses a two-ton wheel hand-cut from volcanic stone to extract juice from cooked agave. The result is a sweeter, earthier, more complex spirit than tequila produced by automated means. Even at $69-plus a bottle, Roca Patrón has exceeded sales expectations: It is projected to sell 60,000 cases in 2018, which would make it the world’s seventh-best-selling premium tequila brand.

And the beneits go beyond that revenue: Sales of lower- priced Patrón tequilas have risen sharply. Lee Applbaum, Patrón’s chief marketing oicer, cites research showing that Roca has boosted perceptions of the overall Patrón line as artisan- crafted (from 60% of consumers surveyed to 64%), made by a small-batch producer (47% to 58%), and itting an image people want to convey (59% to 65%). “The details of the expensive and laborious way that Roca Patrón tequilas are manufactured create a brand halo that reinforces important attributes…for the entire Patrón line,” he says.

Fourth, a lower-priced Good version can spark ancillary revenue from related or complementary goods and services. Consider Apple’s SE phone, which sells for just $349 (roughly a third as much as the iPhone X). Every SE sale stimulates addi-tional revenue through purchases on iTunes and the App Store, payments for iCloud storage space, and sales of cases, chargers, and other accessories.

Playing defense. Sometimes G-B-B isn’t about aggressively seeking new revenue—it’s about protecting a brand’s exposed

lank. When faced with a low-cost rival, many companies’ knee-jerk response is to drop prices, but that’s often a mistake. When the price holds irm, 15% of sales, say, might be lost to a low-cost competitor, but 85% of customers are still paying full price—whereas if the price is cut, 100% of customers will be paying less. Another common response to cheaper rivals is to launch a “ighter brand”—a discounted product with entirely new branding. Classic examples include Procter & Gamble’s Luvs diapers and Intel’s Celeron computer chip. (See “Should You Launch a Fighter Brand?” HBR, October 2009.) That may work well, but the resources needed to create a new brand can be enormous.

In many cases, creating a new Good product is a better defensive strategy. Two of my B2B clients (in inancial services and industrial parts) held signiicant market share and enjoyed healthy proit margins when new entrants began ofering inferior products at rock-bottom prices. Customers seized on the disruptive entry as an invitation to negotiate, threatening to defect from my clients unless granted a discount. Although reluctant to lose any market share, both clients resisted the impulse to discount their core ofering. Instead, they quickly rolled out cheaper Good versions that closely matched the new entrants’ stripped-down products. When ofered those op-tions, most customers backed of their demands for a discount and continued buying their existing ofering at full price; they had been bluing and weren’t actually willing to trade down to a lesser product. Implementing a Good version calls such blufs—something a straight discount can’t do.

A caveat: This defensive maneuver can have mixed results. In 2015 Town Sports International, a chain of itness centers whose memberships averaged $40 to $90 a month, began losing custom-ers to competitors such as Planet Fitness, whose monthly fees are as low as $10. To ight back, TSI retained its existing membership plan and prices while launching a new plan—priced as low as $19.99 a month—that excluded or restricted some beneits, such as towel service and access to itness classes. This staunched the membership decline: TSI gained 64,000 new customers in 2015. But the stock price plummeted, same-club revenues fell, and the CEO resigned. Still, the new Good membership may have been the best possible response in a tough environment. By steering clear of a simple discount or a price war, TSI ensured that many members continued to pay their existing monthly fees, and the company avoided a devaluation of its primary ofering.

Drawing on consumer psychology. Some G-B-B strategies aren’t speciically aimed at luring new customers or defending against competitive threats; they’re more-general responses to consumer psychology.

For instance, companies often jam multiple features and attributes into a single product, but this can confuse and over-whelm customers. A G-B-B plan helps potential buyers focus

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.


on and understand features and think about which ones they value—and how much they’re willing to pay for them. (See the exhibit “Helping Customers Understand Good-Better-Best.”) An educational software company I worked with found that 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 plus new electronic exercises), and a Best one (the core software and exercises plus one-on-one tutoring). Customer research showed that the three-tiered model helped people diferenti-ate the company from competitors—and indicated that half of potential customers would pay a premium for Better or Best. (Because of a sudden leadership change, however, the G-B-B model was never implemented.)

G-B-B can also shift customers from a binary “buy/don’t buy” mentality to consideration of incremental value and spend-ing. This can work in two ways. First, customers prefer having choices to feeling under an ultimatum, so three diferently priced options can give them a sense of empowerment. Allstate CEO Thomas Wilson has identiied this as a key beneit of the Your Choice policies, explaining that they moved people away from simply comparing Allstate’s prices with those of competi-tors. “If people [have] a choice in the conversation, they are not likely to switch [to a competitor] for $25 or $50,” he said in a July 2005 quarterly call.

Second, when faced with multiple options, customers tend to decide more quickly whether they are going to buy some-thing, using their remaining time to focus on what. Having made that mental shift, they typically treat the Good version as a sunk cost, which makes them more amenable to upgrading. Salespeople exploit this tendency all the time: For example, instead of detailing all the features of a $1,200 appliance, they emphasize that “for only $200 more” than the entry-level $1,000 unit, a buyer gets lots of extra bells and whistles. Rental car companies highlight the full-size sedan you could be driving for $12 a day more than the price of a subcompact.

Companies can also use G-B-B to exploit the so-called Goldilocks efect: people’s propensity to choose the middle op-tion in a set of three. In his book Priceless, William Poundstone recounts how Williams-Sonoma reaped unexpected beneits after launching a fancy bread machine priced at $429. That high-end model lopped—but sales of the $279 model (previously the highest-priced unit) nearly doubled.

A inal argument for considering G-B-B relates to the real-politik of instituting change. The simplicity of the G-B-B strategy makes it highly compelling to senior executives. For change to occur at any organization, top management must be committed, deploying political capital to sell others on the shift. Because managers have experienced G-B-B as consumers, they can

quickly understand its appeal. In my consulting work, I often suggest other pricing strategies but wind up helping implement G-B-B because it’s the option managers ind the easiest to under-stand, explain, and get behind.

Brainstorming About Tiers and FeaturesWhen considering a G-B-B pricing structure, the irst step is to decide how many product versions to ofer. As the name implies, the most common approach is three. In general, companies with a single existing product will designate it (or something close to it) as Better, adding features to create Best and subtracting them for Good. But if taking away features to create a Good ofering isn’t feasible, companies can forgo that option and simply ofer Better and Best.

Companies with complex products or a long buying cycle may be able to justify more versions. But too much choice is risky. In a well-documented study by Sheena Iyengar and Mark Lepper, researchers ofered samples of jam to shoppers in an upscale grocery store. When presented with six lavors, 30% of tasters made a purchase. When 24 options were on the table, only 3% opted to buy. Researchers believe that when consumers have too many options, they become confused or paralyzed with indecision—a phenomenon the psychologist Barry Schwartz explored in The Paradox of Choice.

If a company is set on many oferings, it can be useful to group them in a way that turns consumers’ decision making into a two-step process. New York’s Metropolitan Museum of Art ofers seven memberships. To minimize confusion, it divides them into two categories: Members Count plans ($80 to $600) for people joining primarily because they want to visit the museum, and Patron Circle memberships ($1,500 to $25,000) for those whose primary goal is philanthropic. Grouping member-ships in such a way guides people toward a general category; once there, they can examine the G-B-B options in each.

After a company has gotten a sense of how many tiers to ofer, managers can brainstorm about the features to include in each. Sometimes the decisions are obvious, but many of the best G-B-B plans draw on unexpected features, as Six Flags did when manipulating wait times to create a consumer beneit for its Flash Passes.

To help companies consider a wide array of potential features and beneits, I use a tool called the Value Barometer, which lists 13 common product attributes that can be added, dropped, or varied to create diferent perceptions of value. (See the exhibit “Pump Up the Value.”) Companies typically begin by identifying features of the current ofering that vary or would be easy to


vary, but the tool’s real power is its ability to help irms come up with out-of-the-box options that could be increased, decreased, or tweaked.

Once the brainstorming is complete, a company can begin analyzing the potential features it has identiied. Three ques-tions are key: Does the feature have mass appeal or low appeal? How would adding or subtracting it afect the cost of producing the good or ofering the service? And is it a “fence” attribute—one that constitutes a barrier preventing existing customers from crossing over to something cheaper?

Many managers start by focusing on the Best option, be-cause of its obvious potential for revenue growth (and because imagining new high-end features is fun). But they should begin by identifying and analyzing fence attributes—often the most challenging task in G-B-B implementation.

The goal of adding a Good ofering is to pick up new budget- minded customers without losing revenue from existing ones. (In a perfect world, not a single customer would move from Better to Good.) Indeed, one of the biggest risks of shifting to G-B-B is that existing customers will migrate to the new lower- priced ofering, cannibalizing revenue and margins. Fence attributes prevent this, by making the downgrade a diicult, unpleasant, or painful choice.

Examples of fence attributes abound. In cable television, ESPN, CNN, and HGTV are always included in “extended basic” (the Better ofering) because many existing viewers highly value at least one of those channels, and losing access makes the idea of trading down to basic (the Good ofering) anathema. Hotels ofer discounted “no cancellation” reservations; the lack of lexi-bility creates a fence for many travelers. During a recent tour,

A crucial step in devising Good-Better-Best bundles

is choosing attributes to add, drop, or vary to create

different perceptions of value. Adding and dropping are

straightforward; the creativity is in varying attributes that

span your G-B-B offerings. The chart below can help you

find nonobvious ways to create Good and Best variations

on an existing (Better) offering.

Examples

Volume: Netflix prices its streaming service according to the number of devices on which content can be simultaneously viewed.

Service: The Princeton Review offers three SAT prep options, ranging from “self-paced” (primarily do-it-yourself online exercises) to private tutoring.

Experience: The band Earth, Wind & Fire offers a “fantasy” package that gives concertgoers a personal meet-and-greet and photo ops with the musicians.

Time period: Season passes at Sundance Mountain Resort come in two versions: unlimited and discounted midweek.

Waiting time: Massachusetts General Hospital offers a concierge option that provides 24/7 phone access to doctors; many concierge practices also guarantee same- or next-day appointments.

Speed: Federal Express offers a variety of next-day delivery options in 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 under its own label, without revealing the wineries’ names.

Warranty: DieHard auto batteries have warranties ranging from 18 months (gold) to 4 years (platinum).

Number of restrictions: Many airlines offer “basic economy” tickets that are nonrefundable and allow no advance seat assignments.

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.

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.

Flexibility: TV networks typically sell up to 85% of their ad spots in advance, reserving the rest for advertisers, such as movie studios, willing to pay a premium for last-minute availability.

Skill level: Equinox Fitness rates and prices its personal trainers according to how far they have advanced in its training institute.

G-B-B Value Barometer

ATTRIBUTE GOOD BEST

Volume Low Unlimited

Service Basic High-end

Experience Regular Over-the-top

Time period Off-peak Peak

Waiting time Standard None

Speed Slow Fast

Brand Generic Differentiated

Warranty Limited Extended

Number of restrictions

High None

Relationship Distant Close

Certainty Low Guaranteed

Flexibility Low High

Skill level Basic Experienced

Pump Up the Value


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 BundlesTo 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



predictably. But some products, such as tutoring services and weight loss programs, require customer involvement to achieve success. Because of that uncertainty, companies generally aren’t willing to guarantee them, even as part of Best packages and even if consumers would highly value guarantees.

When devising Best bundles, companies need to be realistic about the attributes they can include. During brainstorming, it’s natural to dream big—but as dreaming turns to planning, vigi-lance is needed to weed out features that may be diicult to exe-cute well or that could delay the launch. It’s also important to be judicious about the number of attributes. It’s tempting to throw all the latest and greatest features into Best, but this can result in unnecessary complexity and an unrealistically high price.

After completing the cost-beneit analysis of the various features, it’s time to design and assign tentative prices to the G-B-B bundles. Two rules of thumb for design: To ensure sharp distinctions between oferings, no more than four attributes

should difer between Good and Better and between Better and Best. And it’s important to maintain a consistent progression of beneits from Good to Better to Best—beneicial features in Good should be retained in the higher-priced oferings so that every step up the ladder is a clear improvement.

Some rules of thumb can similarly help with pricing. Companies should pay close attention to the price gaps between Good and Better and between Better and Best. In my consulting, I strongly advise against setting a Good price that’s more than 25% below Better, and I recommend that the Best price should not exceed Better by more than 50%. Although customers’ perceived value must be the North Star, companies must also consider how many customers might opt for Good, Better, and Best and what the margins of each package will be. As a starting point—before conducting customer research—many companies estimate that 10% to 20% of revenue will come from Good, 25% to 50% from Better, and 30% to 60% from Best. The actual mix


Helping Customers Understand Good-Better-Best

Once a company has

created a multitiered

offering, it needs to help

customers understand

the various options. This

comparison grid, from a

website design and hosting

firm, is effective for three

reasons, as described in the

following annotations.

1. Limiting the use of features available with the Good option (pages, bandwidth, and storage) creates a “fence” separating the truly price-sensitive from those willing to pay more.

2. There’s a nice consistency and progression between packages: Customers don’t lose anything as they move up in price, and each level has three or four key differentiators.

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 that package and “Advanced” signals the company’s belief that business customers—who typically have greater needs and are less price-sensitive—will be willing to pay significantly more.

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will depend on how many attributes vary between versions, the degree of diferentiation achieved, and the price spread.

It’s never too early to think about names for the G-B-B options; those are essential in helping consumers quickly identify which version best meets their needs. Lisa Krassner, the chief member and visitor services oicer at the Metropolitan Museum of Art, says that the very clear names of the three Members Count options, each delineating a particular beneit—With Early Views, With Evening Hours, and With Opening Nights—have been key to the oferings’ success.

Bringing in ResearchMany companies conduct formal research to see whether their intuitive sense of what customers want is on target. The timing and scope will depend partly on organizational culture: Some data-driven companies do several rounds of testing, starting soon after the brainstorming step, while other companies wait until they’ve created tentative G-B-B bundles and prices. (Still others proceed without any formal research.) Regardless of timing, companies can draw on three sources of data:

Expert judgment. Experienced executives, salespeople, and other frontline employees have a good understanding of cus-tomers and their needs. They’ve watched people balk at prices, and they often have a sense of when customers would pay more. When setting G-B-B prices, companies should collect and factor in the views of these in-house experts. Although that may feel unscientiic, my experience with clients shows that in-house expert judgments often reliably predict data gathered during more-formal testing—and many companies design and imple-ment efective G-B-B strategies using only those judgments to drive bundle and pricing decisions.

General market research. Basic insights can be gained by asking customers to respond to potential features and prices in quantitative or qualitative surveys (the questions can be added to existing post-purchase satisfaction surveys). Simplicity is crucial: A survey item might say, “We’re excited to roll out this premium feature for $79. Would you be interested in making this purchase, and why or why not?” Modifying the questions to test customers’ interest in a discounted Good product instead can yield insights into fence attributes and the risk of cannibalization.

Conjoint analysis. This common research technique involves giving subjects a series of binary product choices, each with diferent features and prices, and asking which they prefer. It can be a powerful tool: If the choices are constructed well and enough data is gathered, researchers can gain a clear sense of which attributes or features customers want, how much they will pay for each, and which are fence attributes. It isn’t foolproof: As with any market research, results can be lawed or

biased, particularly by the composition of the customer sample that responds. Still, especially for companies desiring strong quantitative evidence before bringing a G-B-B strategy to market, positive results from a well-designed conjoint analysis can provide comfort and airmation.

Once research has helped a company inalize feature and pricing decisions, it’s time to launch the G-B-B oferings. Early results should be watched carefully and adjustments made as needed. Compared with other product attributes, pricing is often easy to alter on the ly.

MOST COMPANIES COULD implement some form of G-B-B. Every company already ofers the equivalent of a Better ofering, and even if some irms can’t implement both Good and Best, many could gain new customers, additional revenue, or both by adding either a Good or a Best to their lineup.

The companies with the biggest challenges in designing a full G-B-B lineup are those whose products have few distinct features and/or features that can’t easily be modiied, making it hard to identify efective fence attributes and move down mar-ket with a Good bundle. In other cases, executives may be too fearful of cannibalization (or skeptical about the efectiveness of fences to limit it) to sign of on a Good ofering. (Some B2B companies that decide against explicitly marketing a Good prod-uct may devise a compromise: quietly ofering a Good version to budget-constrained clients on a case-by-case basis, with the goal of establishing new customers or saving existing ones and upselling them in the future.) Even if a Good option is not viable in any form, exploring a G-B-B strategy may prompt companies to introduce a Best ofering, which can deliver new revenue.

As strategies go, shifting to G-B-B pricing may seem simplis-tic, but many companies have discovered that it’s more powerful than it appears at irst blush. Jim Roth, a senior vice president at Dell EMC, was in a fast-food restaurant at Chicago’s O’Hare air-port when he realized that the bundled value meals on the menu board made it easier for him to order. That caused him to relect on his own company’s pricing and bundles. Dell EMC ultimately created Good, Better, and Best versions of its deployment support for B2B customers—and found that customers buying those bundles generally spent three times as much as they had previously spent on that type of after-purchase support. Dell EMC thus joined the many other irms who have recognized that G-B-B could help them serve their customers better—and boost their bottom line. HBR Reprint R1805H

RAFI MOHAMMED is the founder of Culture of Profit, a consultancy that helps companies develop and improve their pricing strategies, and the

author of The Art of Pricing: How to Find the Hidden Profits to Grow Your Business (Crown Business, 2005) and The 1% Windfall: How Successful Companies Use Price to Profit and Grow (HarperBusiness, 2010).



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Give Yourself a Break: The Power of Self-Compassion

SERENA CHENProfessor, University

of California, Berkeley

SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 117 Illustration by blindSALIDA

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.

take a balanced approach to negative emotions when they stumble or fall short—they allow themselves to feel bad, but they don’t let negative emotions take over.

Kristin Nef, a professor at the University of Texas, Austin, has developed a survey tool that assesses the three components of self-compassion. Researchers and practitioners have used the tool to shed light on what personality traits and behaviors are associated with self-compassion and have found, among other things, that people who score high typically have greater motivation to improve themselves and are more likely to report strong feelings of authenticity—the sense of being true to the self. Both are important contributors to a successful career. The good news is that both of these traits can be cultivated and enhanced through self-compassion.

A Growth MindsetMost organizations and people want to improve—and self-compassion is crucial for that. We tend to associate personal growth with determination, persistence, and hard work, but the process often starts with relection. One of the key requirements for self-improvement is having a realistic

What if instead we were to treat ourselves as we would a friend in a similar situation? More likely than not, we’d be kind, understanding, and encouraging. Directing that type of response internally, toward ourselves, is known as self-compassion, and it’s been the focus of a good deal of research in recent years. Psychologists are discovering that self-compassion is a useful tool for enhancing performance in a variety of settings, from healthy aging to athletics. I and other researchers have begun focusing on how self-compassion also enhances professional growth.

For nonacademics, self-compassion is a less familiar concept than self-esteem or self-conidence. Although it’s true that people who engage in self-compassion tend to have higher self-esteem, the two concepts are distinct. Self-esteem tends to involve evaluating oneself in comparison with others. 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 well-being and recovery after a setback.

People with high levels of self-compassion demonstrate three behaviors: First, they are kind rather than judgmental about their own failures and mistakes; second, they recognize that failures are a shared human experience; and third, they


► 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.

► Idea in Brief



assessment of where we stand—of our strengths and our limitations. Convincing ourselves that we are better than we are leads to complacency, and thinking we’re worse than we are leads to defeatism. When people treat themselves with compassion, they are better able to arrive at realistic self-appraisals, which is the foundation for improvement. They are also more motivated to work on their weaknesses rather than think “What’s the point?” and to summon the grit required to enhance skills and change bad habits.

My colleagues Juliana Breines (at the University of Rhode Island) and Jia Wei Zhang (at the University of Memphis) and I demonstrated this in a series of studies in which participants were nudged to treat themselves either with self-compassion or in a self-esteem-boosting manner. Then we assessed their desire for self-improvement. In one study, we asked participants to recall a time when they did something they felt was wrong and as a result experienced guilt, remorse, and regret. The majority of participants’ transgressions involved romantic inidelity, academic misconduct, dishonesty, betrayal of trust, or hurting someone they cared about. We then randomly assigned them to one of three conditions: self-compassion, self-esteem, or a control group. The self-compassion participants were asked to write a paragraph to themselves expressing kindness and understanding regarding the transgression. The self-esteem people were asked to write a paragraph describing their positive qualities. Participants in the control group were asked to write about a hobby they enjoyed. All participants then illed out a questionnaire assessing their desire to make amends and their commitment not to repeat the transgression in the future. We found that those who were encouraged to treat themselves with compassion reported being more motivated to make amends and to never repeat the transgression than participants who were encouraged to respond to the transgression in a self-esteem-boosting manner and those in the control group. In other research, we found that self-compassion increased the resolve of people who said they had been responsible for a romantic breakup to be better partners in future relationships, compared with participants in the other two conditions.

Self-compassion does more than help people recover from failure or setbacks. It also supports what Carol Dweck, a psychology professor at Stanford University, has called a “growth mindset.” Dweck has documented the beneits of adopting a growth rather than “ixed” approach to performance, whether it be in launching a successful start-up, parenting, or running a marathon. People with a ixed mindset see personality traits and abilities, including their own, as set in stone. They believe that who we are today

is essentially who we’ll be ive years from now. People who have a growth mindset, in contrast, view personality traits and abilities as malleable. They see the potential for growth and thus are more likely to try to improve—to put in efort and practice and to stay positive and optimistic.

My research suggests that self-compassion triggers people to adopt a growth mindset. In one study I conducted with Juliana Breines, participants were asked to identify what they considered to be their biggest weakness—most involved social diiculties such as lack of conidence, anxiety, shyness, and insecurity in relationships—after which they were randomly assigned to one of three groups. Participants in the self-compassion group were asked to write a response to this prompt: “Imagine that you are talking to yourself about this weakness from a compassionate and understanding perspective. What would you say?” People in the self-esteem group were asked to write in response to: “Imagine that you are talking to yourself about this weakness from a perspective of validating your positive (rather than negative) qualities.” The inal group was not asked to write anything.

Next, participants completed a set of measures about whether they felt content, sad, or upset and then were asked to spend ive minutes describing whether they’ve ever done anything to change their weakness and where they thought their weakness came from. Independent coders rated participants’ responses based on the degree to which they conveyed a growth or a ixed mindset (“It’s just inborn—there’s nothing I can do” versus “With hard work I know I can change”). Participants in the self-compassion condition expressed signiicantly more thoughts associated with a growth mindset than participants in the other two conditions.

But what about actual behavior? How do we know that self-compassion—and the resulting growth mindset—will lead people to work harder to improve themselves? According to the scientiic literature on ixed and growth mindsets, one of the most compelling signs that a person has a growth mindset is his or her willingness to keep trying to do better after receiving negative feedback. After all, if you believe your abilities are ixed, there’s no point in making the efort. But if you view abilities as changeable, getting negative feedback shouldn’t deter you in trying to improve.

We tested this reasoning in a study in which participants (all students at a highly ranked university) irst took a very diicult vocabulary test and received feedback that they had performed poorly. The participants were then randomly assigned to two groups. The experimenter remarked to the irst group—the self-compassion condition—“If you had diiculty with the test you just took, you’re not alone. It’s common for students to have diiculty with tests like this.

Self-compassion triggers people to adopt a growth mindset.


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 SelfSelf-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


authenticity. On days when participants reported being more compassionate toward themselves relative to their average level, they also reported greater feelings of authenticity.

These correlational indings were strengthened by experimental evidence from another study in which we randomly assigned participants to respond to a personal weakness from a self-compassionate perspective, a self-esteem-boosting perspective, or neither. Immediately afterward, they completed questionnaires that measured how authentic they felt. Participants who were instructed to be self-compassionate about their weakness reported signiicantly higher feelings of authenticity than participants in the other two conditions did.

What’s happening here? Treating oneself with kindness, understanding, and without judgment alleviates fears about social disapproval, paving the way for authenticity. Optimism also seems to play a role. Having a positive 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 things about themselves—such as distressing experiences they’ve endured or diicult medical challenges they face. In efect, optimism increases people’s inclination to be authentic, despite the potential risks involved. I believe that the relative emotional calm and the balanced perspective that come with being self-compassionate can help people approach diicult experiences with a positive attitude.

Turbocharged LeadershipA self-compassionate mindset produces beneits that spread to others, too. This is especially the case for people in leadership roles. That’s because self-compassion and compassion for others are linked: Practicing one boosts the other. Being kind and nonjudgmental toward the self is good practice for treating others compassionately, just as compassion for others can increase how compassionate people are toward themselves, creating an upward cycle of compassion—and an antidote to “incivility spirals” that too often plague work environments.

The fact that self-compassion encourages a growth mindset is also relevant here. Research shows that when leaders adopt a growth mindset (that is, believe that change is possible), they’re more likely to pay attention to changes in subordinates’ performance and to give useful feedback on how to improve. Subordinates, in turn, can discern when their leaders have growth mindsets, which makes them more motivated and satisied, not to mention more likely to

adopt growth mindsets themselves. The old adage “lead by example” applies to self-compassion and the growth mindset it encourages.

A similar link between leader and subordinates exists for authenticity, too. People can sense authenticity in others, and when leaders are seen as being true to themselves, it creates an atmosphere of authenticity throughout the workplace. There’s also substantial evidence that stronger relationships are forged when people feel authentic in their interactions with others.

When leaders respond to failures and setbacks with a self-compassionate attitude, they themselves beneit, being more likely to exhibit psychological and behavioral tendencies that bode well for their own professional development and success. And the beneits can trickle down to subordinates, making the practice of self-compassion a win-win for leaders and those they lead.

Fostering Self-CompassionFostering self-compassion is not complicated or diicult. It’s a skill that can be learned and enhanced. For the analytically minded, I suggest using psychologists’ deinition of self-compassion as a three-point checklist: Am I being kind and understanding to myself? Do I acknowledge shortcomings and failure as experiences shared by everyone? Am I keeping my negative feelings 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 are better at being a good friend to other people than to ourselves, so this can help avoid spirals of defensiveness or self-lagellation.

The business community at large has done a good job of removing the stigma around failure in recent years at the organizational level—it’s a natural byproduct of experimentation and, ultimately, innovation. But too many of us are not harnessing the redemptive power of failure in our own work lives. As more and more industries are disrupted and people’s work lives are thrown into upheaval, this skill will become more important.

If you’re struggling to foster self-compassion in your professional and personal life, don’t beat yourself up about it. With a little practice, you can do better.

HBR Reprint R1805J

SERENA CHEN is a professor of psychology and the Marian E. and Daniel E. Koshland Jr. Distinguished Chair for Innovative Teaching

and Research at the University of California, Berkeley.

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.


Our roots go deep.

For over 20 years, we’ve been creating and curating ideas that make a difference.

Learn more at qf.org.qa

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 have been studying in a city where the iconic landmarks are some of the world’s top universities from New York, Paris, Chicago, London, Washington, DC, and more.

What started with a single school has transformed into Qatar Foundation’s (QF’s) ‘Education City,’ a 3,000-acre urban development housing various education and research institutes.

This model was created when QF’s founders developed a plan for Qatar’s future that would provide a greater choice in education, research, and community development. The organization partnered with Georgetown, Cornell, Carnegie Mellon, Northwestern, Texas A&M, Virginia Commonwealth, HEC Paris, and University College London to offer their flagship programs in Doha.

In 2010, QF established Hamad Bin Khalifa University, a homegrown research university that offers customized programs catered to the needs of the region. While they are supported by QF, all the universities enjoy complete academic freedom and authority over their curricula and the recruitment of students, faculty, and staff.

At Education City, students have a chance to experience multiple universities during their academic journey. “One of the best parts of being with QF is that they always urge us to be experimental. They want us to do things that we might not be able to do on our Washington

campus,” said Brendan Hill, Senior Associate Dean for Students at Georgetown University in Qatar. One example: Georgetown’s partnership with Northwestern on a combined minor in Media and Politics, capitalizing on the respective strengths of each school.

Such joint programs are only one aspect of this unique model. Enrolled students can cross-register at other schools, conduct research with their faculty members, or even start entrepreneurial initiatives with them.

They can also study abroad at their respective university’s main campus or participate in fully funded learning trips and residencies in all corners of the globe.

“When Education City was first conceived, its vision was to provide world-class education to the people of Qatar. But over the past 23 years, this project has achieved beyond that goal, and the result is an academic hub with unique opportunities and initiatives,” said Omran Al-Kuwari, Executive Director of the CEO Office at QF. “Collaborations between some of the world’s best institutions are happening right here in Doha.”

Education City universities are within walking distance of one another and cater to more than 3,000 students every year. Housed in built-for-purpose campuses, they offer programs in media, international affairs, business, computer science, medicine, engineering, cultural heritage, knowledge management, and arts.

While studying at QF, students can take advantage of QF’s offerings in research and community development. “Education is an integral part of our mission, but, for us, it’s the first step to help us develop the country’s full potential,” says Dr Richard O’Kennedy, QF’s Vice President for Research, Development and Innovation (RDI). “These students are part of a larger ecosystem at QF that includes scholars, researchers, and innovators generating significant achievements in key areas including the social sciences, healthcare, IT, the environment, and food security with associated commercial opportunities.”

Some of those opportunities for students include the chance to turn their entrepreneurial ideas into businesses through QF’s technology hub, Qatar Science & Technology Park, or turn their curiosities into fully funded research projects via any of the institutes based in Education City. Moreover, students get to participate in some of the world’s leading conferences, such as the World Innovation Summit for Education (WISE) and the World Innovation Summit for Health (WISH).

As Qatar continues to fast track large-scale developments and prepare for its future needs, QF is continuing to expand the offerings at Education City. To learn more about the work being done at QF and explore its other initiatives, visit qf.org.qa.

Advertisement

LINCOLN and the Art of

TransformativeLEADERSHIP

by

DORIS KEARNS GOODWIN

Do the times make the leader, or does the leader shape the times? How can a leader infuse people’s lives with a sense of purpose and meaning?

These are among the questions that Doris Kearns Goodwin explores in her

new book, Leadership in Turbulent Times, which examines four singular styles of leadership: transformative, crisis management, turnaround, and visionary. She follows the course of leadership development in the careers of Abraham Lincoln, Theodore Roosevelt, Franklin Roosevelt, and Lyndon Johnson,

providing case histories that illustrate the skills and strengths that enabled these four men to lead the United States through periods of great upheaval.

The article that follows is excerpted from her case study of Lincoln’s pivotal decision to issue and guide to fruition the Emancipation Proclamation—a purpose that required the support of the cabinet, the army, and, ultimately, the American people. Rarely, Goodwin notes, was a leader better suited to the challenge of the fractured historical moment. Strugle had been his birthright; resilience his keystone strength. Possessed of a powerful emotional intelligence, Lincoln was both merciful

Art by Piotr Lesniak

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and merciless, conident and humble, patient and persistent—able to mediate among factions and sustain the spirits of his countrymen. He displayed an extraordinary ability to absorb the conlicting wills of a divided people and relect back to them an unbending faith in a uniied future.

On July 22, 1862, President Abraham Lincoln convened a special session of his cabinet to reveal—not to debate—his preliminary draft of the Emancipation Proclamation. At the outset, Navy Secretary Gideon Welles recalled, Lincoln declared that he fully

appreciated that there were “diferences in the Cabinet on the slavery question” and welcomed suggestions following the conidential reading. However, he “wished it to be understood that the question was settled in his own mind” and that “the responsibility of the measure was his.” The time for bold action had arrived.

What enabled Lincoln to determine that the time was right for this fundamental transformation in how the war was waged and what the Union was ighting for? And how did he persuade his fractious cabinet, a skeptical army, and his divided countrymen in the North to go along with him?

Certainly, the dire situation of the war and Lincoln’s long-held conviction that “the institution of slavery is founded on both injustice and bad policy” were vital elements. He had always believed, he later said, that “if slavery is not wrong, nothing is wrong.” But underlying all was the steadfast force of his emotional intelligence: his empathy, humility, consistency, self-awareness, self-discipline, and generosity of spirit. These qualities proved indispensable to uniting a divided nation and utterly transforming it, and they provide powerful lessons for leaders at every level.

Acknowledge when failed policies demand a change in direction. In the last week of June 1862, Union General George B. McClellan’s Army of the Potomac had sufered a crushing defeat in its irst major ofensive. In a series of brutal battles, General Robert E. Lee’s forces had repulsed McClellan’s advance up the Virginia Peninsula toward the Confederate capital at Richmond, driving the Union army into retreat, decimating its ranks, and leaving nearly 16,000 dead, captured, or wounded. At one point the capitulation of McClellan’s entire force had seemed possible. Northern morale was at its nadir—lower even than in the aftermath of Bull Run. “Things had gone from bad to worse,” Lincoln recalled of that summer, “until I felt that we had reached the end of our rope on the plan of operations we had been pursuing; that we had played our last card and must change our tactics.”

So the situation stood on July 22, when the president gathered the cabinet to read his proclamation. He enumerated the various congressional acts regarding coniscation of rebel property, repeated his recommendation for compensated emancipation, and reiterated his goal of preserving the Union. And then he read the single sentence that would change the course of history:

As a it and necessary military measure for efecting this object [preservation of the Union], I, as Commander-in-Chief of the Army and Navy of the United States, do order and declare that on the irst day of January in the year of our Lord 1863, all persons held as slaves within any state or states, wherein the constitutional authority of the United States shall not then be practically recognized, submitted to, and maintained, shall then, thenceforward and forever, be free.

The scope of the proclamation was stunning. For the irst time, the president yoked the Union and the abolition of slavery in a single transformative moral force. Some 3.5 million blacks in the South, where generations had lived enslaved, were promised freedom. Seventy-eight words in one sentence would supplant legislation on property rights and slavery that had governed policy in the House and the Senate for nearly three-quarters of a century. By postponing for six months the date the proclamation would take efect, however, Lincoln ofered the rebellious states a last chance to end the war and return to the Union before permanently forfeiting their slaves.

Anticipate contending viewpoints. Though Lincoln had signaled before reading the proclamation that his mind was already made up, he welcomed reactions from his cabinet—his “team of rivals”—whether for or against. So clearly did he know each of the members, so thoroughly had he anticipated their responses, that he was prepared to answer whatever objections they might raise. He had deliberately built a team of men who represented the major geographical, political, and ideological factions of the Union. For months he had listened intently as they wrestled among themselves about how best to preserve this Union. At various junctures diverse members had assailed Lincoln as too radical, too conservative, brazenly dictatorial, or dangerously feckless. He had welcomed the wide range of opinions they provided as he turned the subject over in his mind, debating “irst the one side and then the other of every question arising” until, through hard mental work, his own position had emerged. His process of decision making, born of a characteristic ability to entertain a full carousel of vantage points at a single time, seemed to some


laborious; but once he had inally determined to act, it was no longer a question of what—only when.

Secretary of War Edwin Stanton and Attorney General Edward Bates—the most radical and the most conservative of Lincoln’s team—were the only two who expressed strong support for the proclamation. That Stanton recommended its “immediate promulgation” was understandable. More intimately aware than any of his colleagues of the condition of the hard-pressed army, he instantly grasped the massive military boost emancipation would confer: Slave labor kept farms and plantations in operation; the toil of slaves liberated Confederate soldiers to ight. As for the constitutionalist Bates,

he unexpectedly and wholeheartedly concurred—albeit with the condition that emancipated slaves be deported someplace in Central America or Africa.

Welles kept silent, later admitting that the proclamation’s “magnitude and its uncertain results,” its “solemnity and weight,” mightily oppressed him. Not only did he worry about “an extreme exercise of War powers,” but he feared that “desperation on the part of the slave-owners” would most likely lengthen the war and raise the struggle to new heights of ferocity. Interior Secretary Caleb Smith, a conservative Whig from Indiana, remained silent as well, though he later conided to his assistant secretary that should Lincoln actually issue the F

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Lincoln and his cabinet with the Emancipation Proclamation Lithograph by Currier & Ives, 1876

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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 he issued an order freeing the slaves within the territory of his command, which encompassed South Carolina, Georgia, and Florida. Although Chase and his fellow abolitionists had been sorely tried when Lincoln summarily annulled Hunter’s order, Lincoln had held irm: “No commanding general shall do such a thing, upon my responsibility,” he had said. He would not “feel justiied” in leaving such a complex issue “to the decision of commanders in the ield.” A comprehensive policy was precisely what executive leadership entailed.

Secretary of State William Seward had an internationalist perspective and, consequently, transatlantic anxieties. If the proclamation provoked a racial war that interrupted the production of cotton, the ruling classes in England and France, dependent on American cotton to feed their textile mills, might intervene in behalf of the Confederacy. Lincoln had weighed the force of this argument, too, but was convinced that the masses in England and France, who had earlier pressured their governments to abolish slavery, would never be maneuvered into supporting the Confederacy once the Union truly committed itself to emancipation.

Know when to hold back and when to move forward. Despite the cacophony of ideas and contending voices, Lincoln remained ixed upon his course of action. Before the meeting came to an end, Seward raised the sensitive question of timing. “The depression of the public mind, consequent upon

our repeated reversals is so great,” Seward argued, that the proclamation might be seen as “our last shriek, on the retreat.” Far preferable to wait “until the eagle of victory takes its light” and then “hang your proclamation around its neck.”

“It was an aspect of the case that, in all my thought upon the subject, I had entirely overlooked,” Lincoln said afterward. “The result was that I put the draft of the proclamation aside.” For two months he bided his time, awaiting word from the battleield that the “eagle of victory” had taken light. At last the tide turned with the retreat of Lee’s army from Maryland and Pennsylvania. The battle at Antietam, with some 23,000 dead, was the bloodiest single day of combat in American history. Overwhelming carnage left both sides in a paralytic stupor. This nightmare was not the resounding victory Lincoln had hoped and prayed for, but it proved suicient to set his plan in motion. No sooner had the news of Antietam reached him than he revised the preliminary draft of the proclamation. Only ive days after the “victory,” on Monday, September 22, he once again convened the cabinet.

The moment had come for taking the action he had postponed in July. “I wish it were a better time,” he said, abruptly launching into the grave matter of emancipation. “I wish that we were in a better condition.” However, he divulged, as witnessed by Chase and recorded in his diary, “I made the promise to myself and (hesitating a little) to my Maker” that if Lee’s army were “driven out” of Maryland,

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

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the proclamation would be issued. The decision was “ixed and unalterable,” Lincoln declared. “The act and all its responsibilities were his alone.” He had “pondered over it for weeks, and been more conirmed in the rectitude of the measure as time passed on.” That clearly established, Lincoln read his slightly amended version of the proclamation.

If the members of this most unusual team—a microcosm of the disparate factions within the Union itself—were unable to coalesce at this critical juncture, there would be small chance of binding the country at large.

Set an example. How was it possible to coordinate these inordinately prideful, ambitious, quarrelsome, jealous, supremely gifted men to support a fundamental shift in the purpose of the war? The best answer can be found in Lincoln’s compassion, self-awareness, and humility. He never allowed his ambition to consume his kindheartedness. “So long as I have been here,” Lincoln maintained, “I have not willingly planted a thorn in any man’s bosom.”

In his everyday interactions with the team, there was no room for mean-spirited behavior, for grudges or personal resentments. He welcomed arguments within the cabinet but would be “greatly pained,” he warned his colleagues, if he found them attacking one another in public. Such sniping “would be a wrong to me; and much worse, a wrong to the country.” The standards of decorum he demanded were based on the understanding that they were all involved in a challenge “too vast for malicious dealing.” This sense of common purpose had guided the formation of the cabinet and would now sustain its survival.

Understand the emotional needs of the team. An ongoing attentiveness to the multiple needs of the complex individuals in his cabinet shaped Lincoln’s team leadership. From the start Lincoln recognized that Seward, with his commanding national and international reputation, merited the preeminent position of secretary of state and required special treatment. Not only attracted by Seward’s cosmopolitan glamour and the pleasure of his sophisticated company but also sensitive to his colleague’s hurt pride in losing the Republican presidential nomination that had widely been expected to be his, Lincoln frequently crossed the street to pay a visit to Seward’s townhouse at Lafayette Park. There the two men spent long evenings before a blazing ire, talking, laughing, telling stories, developing a mutually bolstering camaraderie. Lincoln formed an equally intimate, though less convivial, bond with the high-strung, abrasive Stanton. “The pressure on him is immeasurable,” Lincoln said of “Mars,” as he afectionately nicknamed his war secretary. Lincoln was willing to do anything he could to assuage that stress, if only by sitting with Stanton in the telegraph oice,

holding his hand as they anxiously awaited bulletins from the battleield.

Reliant above all on Seward and Stanton, Lincoln was aware of the jealousy engendered by the specter of favoritism. Accordingly, he found exclusive time for each team member—whether lagging down Welles on the pathway leading from the White House to the Navy Department, suddenly dropping in at Chase’s stately mansion, dining with the entire Blair clan, or inviting Bates and Smith for conversation on late-afternoon carriage rides.

“Every one likes a compliment,” Lincoln observed; people need praise for the work they do. He frequently penned notes to his colleagues, expressing his gratitude for their actions. He publicly acknowledged that Seward’s suggestion to await a military victory before issuing the proclamation was an original and useful contribution. When he had to issue an order to Welles, he assured his “Neptune” that it was not his intention to insinuate “that you have been remiss in the performance of the arduous and responsible duties of your Department, which I take pleasure in airming had, in your hands, been conducted with admirable success.” When compelled to remove one of Chase’s appointees, he understood that the prickly Chase might well be resentful. Not wanting the situation to deteriorate, he called on Chase that evening. Placing his long arms on Chase’s shoulders, he patiently explained why the decision was necessary. Though the ambitious Chase often chafed under Lincoln’s authority, he acknowledged that “the President has always treated me with such personal kindness and has always manifested such fairness and integrity of purpose, that I have not found myself free to throw up my trust…so I still work on.”

Refuse to let past resentments fester. Lincoln never selected members of his team “by his like, or dislike of them,” his old friend Leonard Swett observed. He insisted that he did not care if someone had done wrong in the past; “it is enough if the man does no wrong hereafter.” Lincoln’s adherence to this rule opened the door to Stanton’s appointment as secretary of war, despite a troubled early history between the two men. They had irst crossed paths on a major patent case in Cincinnati. Stanton, a brilliant and hard-driving lawyer, had already earned a national reputation; Lincoln was an emerging igure only in Illinois. One look at Lincoln—hair askew, shirt stained, coat sleeves and trousers too short to it his long arms and legs—and Stanton turned to his partner, George Harding: “Why did you bring that d—d long armed Ape here…he does not know anything and can do you no good.” And with that, Stanton dismissed the prairie lawyer. He never opened the brief Lincoln had meticulously prepared, never consulted him, didn’t even speak a word with him.


Out of that humiliation, however, came a powerful self-scrutiny on Lincoln’s part, a savage desire to improve himself. He remained in the courtroom the entire week, intently studying Stanton’s legal performance. He had never before “seen anything so inished and elaborated, and so thoroughly prepared.” Stanton’s partner recalled that although Lincoln never forgot the sting of that episode, “when convinced that the interest of the nation would be best served by bringing Stanton into his cabinet, he suppressed his personal resentment, as not many men would have done, and made the appointment.”

“No two men were ever more utterly and irreconcilably unlike,” Stanton’s private secretary observed. Whereas Lincoln would give “a wayward subordinate” too many chances “to repair his errors,” Stanton “was for forcing him to obey or cutting of his head.” Whereas Lincoln was compassionate, patient, and transparent, Stanton was blunt, intense, and secretive. “They supplemented each other’s nature, and they fully recognized that they were a necessity to each other.” Before the end of their partnership, Stanton not only revered Lincoln; he loved him.

Control angry impulses. When infuriated by a colleague, Lincoln would ling of what he called a “hot” letter, releasing all his pent wrath. He would then put the letter aside until he had cooled down and could attend to the matter with a clearer eye. When his papers were opened at the beginning of the 20th century, historians discovered a raft of such letters, with Lincoln’s notation underneath: “never sent and never signed.”

Such forbearance set an example for the team. One evening Lincoln listened as Stanton worked himself into a fury against one of the generals. “I would like to tell him what I think of him,” Stanton stormed. “Why don’t you?” suggested Lincoln. “Write it all down.”

When Stanton inished the letter, he returned and read it to the president. “Capital,” Lincoln said. “Now, Stanton, what are you going to do about it?”

“Why, send it, of course!” “I wouldn’t,” said the president. “Throw it in the waste-

paper basket.” “But it took me two days to write.” “Yes, yes, and it did you ever so much good,” Lincoln said.

“You feel better now. That is all that is necessary. Just throw it in the basket.” And after some additional grumbling, Stanton did just that.

Not only would Lincoln hold back until his anger subsided and counsel others to do likewise; he would readily forgive intemperate public attacks on himself. When an unlattering letter Blair had written about Lincoln in the early days of the war unexpectedly surfaced in the press months later, the embarrassed Blair carried the letter to the White House and

ofered to resign. Lincoln told him he had no intention of reading it, nor any desire to exact retribution. “Forget it,” he said, “and never mention or think of it again.”

Protect colleagues from blame. Time and again, Welles marveled, Lincoln “declared that he, and not his Cabinet, was in fault for errors imputed to them.” His refusal to let a subordinate take the blame for his decisions was never more apparent than in his public defense of Stanton after McClellan attributed the Peninsula disaster to the War Department’s failure to send suicient troops. A vicious public assault upon Stanton ensued, with subsequent calls for his resignation.

To create a dramatic backdrop that would garner extensive newspaper coverage, Lincoln issued an order to close down all the government departments at one o’clock so that everyone might attend a massive Union rally on the Capitol steps. There Lincoln directly countered McClellan’s charge. He insisted that every possible soldier available had been sent to reinforce the general. “The Secretary of War is not to blame for not giving what he had none to give.” Then, as the applause mounted, Lincoln continued: “I believe [Stanton] is a brave and able man, and I stand here, as justice requires me to do, to take upon myself what has been charged on the Secretary of War.” Lincoln’s robust and dramatic defense of his beleaguered secretary summarily extinguished the campaign against Stanton.

In the end it was Lincoln’s character—his consistent sensitivity, patience, prudence, and empathy—that inspired and transformed every member of his oicial family. In this paradigm of team leadership, greatness was irmly grounded in goodness. And yet, beneath Lincoln’s tenderness and kindness, he was without question the most complex, ambitious, willful, and implacable leader of them all. His team members could trumpet self-serving ambitions; they could criticize Lincoln, mock him, irritate him, infuriate him, exacerbate the pressure upon him. Everything would be tolerated so long as they pursued their jobs with passion and skill, so long as they were headed in the direction he had deined for them.

Certainly there was no perfect unanimity on September 22, 1862, when Lincoln told the cabinet he was ready to publish his preliminary proclamation. Diferences of opinion and reservations persisted. Welles remained vexed, but if the president was willing to take the full weight of responsibility, he was ready to assent. “Fully satisied” that the president had accorded every argument a “kind and considerate consideration,” Chase came aboard. Smith abandoned his threat to resign, and Blair never took up Lincoln’s invitation to ile written objections. When the proclamation appeared in newspapers the following day, the entire cabinet, unlikely


as it had irst appeared, stood behind the president. When it counted most, they presented a united front.

WINNING OVER THE skeptics in his own cabinet was but an early step in the journey to reunite the nation. A hundred days remained between the publication of the Emancipation Proclamation and its intended activation, on January 1, 1863. They were not to be tranquil ones. This distressing period would provide a critical test of Lincoln’s leadership. As Blair had predicted, conservative resentment against the proclamation produced withering results for Republicans in the midterms. “We have lost almost everything,” Lincoln’s secretary, John Nicolay, lamented. In December the Union army fell into the trap of “a slaughter pen” at Fredericksburg, leaving 13,000 Union soldiers dead or wounded. A blizzard of recriminations beset the president from all sides.

Keep your word. As the irst of January drew near, the public displayed a “general air of doubt” as to whether the president would follow through on his pledge to put the proclamation into efect on that day. Critics predicted that its enactment would foment race wars in the South, cause Union oicers to resign their commands, and prompt 100,000 men to lay down their arms. The prospect of emancipation threatened to fracture the brittle coalition that had held Republicans and Union Democrats together.

“Will Lincoln’s backbone carry him through?” wondered a skeptical New Yorker. Those who knew Abraham Lincoln best would not have posed that question. All through his life, the honor and weight of his word had been ballast to his character. “My word is out,” Lincoln told a Massachusetts congressman, “and I can’t take it back.”

Though often frustrated by Lincoln’s slowness in issuing the proclamation, the abolitionist leader Frederick Douglass had come to believe that Lincoln was not a man “to reconsider, retract, and contradict words and purposes solemnly pro-claimed.” Correctly, he judged that Lincoln would “take no step backward,” that “if he has taught us to conide in nothing else, he has taught us to conide in his word.”

Gauge sentiment. The day before the New Year, Lincoln convened his cabinet a third time for a inal reading of the proclamation. The version he presented difered in one major respect from the one published in September. For months, abolitionists had argued for enlisting blacks in the armed services. Lincoln had hesitated, regarding such a radical step as premature and hazardous for his fragile coalition.

Now, however, he decided the time had come. “The dogmas of the quiet past are inadequate to the stormy present,” he told Congress. “As our case is new, so we must think anew, and act anew.” A new clause declaring that the army would commence

with the recruitment of blacks had been inserted in the proclamation, along with a humble closing appeal, suggested by Secretary Chase, for “the considerate judgment of mankind, and the gracious favor of Almighty God.”

Across New England reaction to the proclamation was “wild and grand,” with “Joy and gladness,” “sobs and tears,” according to Douglass. That jubilation, however, was not shared in the border states or, for that matter, in much of the rest of the North. If a marginal victory at Antietam had muted opposition to emancipation, the humiliating defeat at Fredericksburg and the ensuing winter stalemate had raised anger to full volume. In Congress, “Peace Democrats,” popularly known as Copperheads, capitalizing on the protracted slough of morale, opposed the new conscription laws and even went so far as to openly encourage soldiers to desert. Anecdotal reports from the army camps suggested that emancipation was having a negative efect on the soldiers, numbers of whom claimed they had been deceived—they had signed up to ight for the Union, not for the Negro.

But Lincoln knew how to read the public’s mood. When his old friend Orville Browning raised the specter of the North’s uniting behind the Democrats in their “clamor for compromise,” Lincoln predicted that if the Democrats moved toward concessions, “the people would leave them.” Nor was he worried that emancipation would splinter the army. While he conceded that wavering morale had inlamed tensions over emancipation and might lead to desertions, he did not believe that “the number would materially afect the army.” On the contrary, those inspired by emancipation to volunteer would more than make up for those who left. Lincoln was certain, he told the swarm of doubters, that the timing was right for this repurposing of the war.

Indeed, nowhere was the efect of Abraham Lincoln’s transformative leadership illustrated more sharply than in soldiers’ changed attitudes toward emancipation. During the irst 18 months of the war, only three out of 10 soldiers professed a willingness to risk their lives for emancipation. The majority were ighting solely to preserve the Union. That ratio shifted in the wake of the Emancipation Proclamation. Following Lincoln’s lead, an overwhelming majority of soldiers came to view emancipation and the restoration of the Union as inseparably linked. How had Lincoln transferred his purpose to those men?

Establish trust. The response of the troops was grounded in the deep trust and loyalty Lincoln had earned among rank-and-ile soldiers from the very beginning of the war. In letters they wrote home, accounts of his empathy, responsibility, kindness, accessibility, and fatherly compassion for his extended family were commonplace. They spoke of him as one of their own;

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.”


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

himself pointed out, “With public sentiment, nothing can fail; without it, nothing can succeed.”

AT A TIME when the spirits of the people were depleted and war fatigue was widespread, Lincoln had gotten a powerful second wind. Where others saw the apocalyptic demise of the Founders’ experiment, he saw the birth of a new freedom.

“Fellow citizens, we cannot escape history,” he told Congress a month before he put the Emancipation Proclamation into efect. “The iery trial through which we pass, will light us down, in honor or dishonor, to the latest generation….In giving freedom to the slave, we assure freedom to the free—honorable alike in what we give and what we preserve. We shall nobly save, or meanly lose, the last best hope of earth.”

In a great convergence of the man and the times, Abraham Lincoln’s leadership imprinted a moral purpose and meaning on the protracted misery of the Civil War.

DORIS KEARNS GOODWIN is a historian and the Pulitzer Prize–winning author of several biographies of U.S. presidents, including No

Ordinary Time, Team of Rivals, The Bully Pulpit, and Lyndon Johnson and the American Dream. Her newest book is Leadership in Turbulent Times (Simon & Schuster, September 2018).

they carried his picture into battle. Such was the credibility that Lincoln had established with them that it was no longer a question of ighting solely for the Union. “If he says all Slaves are hereafter Forever Free,” wrote one soldier, “Amen.” Another confessed that he had “never been in favor of the abolition of slavery” but was now “ready and willing” to ight for emancipation. A new direction had been set and accepted.

Nothing would drive home the transformative power of the Emancipation Proclamation more powerfully than the recruitment and enlistment of black soldiers. Blacks responded fervently to the enlistment call. Not only did they sign up in record numbers—adding nearly 200,000 troops to the Union war efort—but, according to oicial testimony, they fought with striking gallantry. “I never saw such ighting as was done by the negro regiment,” General James G. Blunt wrote after one early engagement. “They fought like veterans with a coolness and valor that is unsurpassed.” After the battle at Port Hudson, a white oicer openly confessed, “You have no idea how my prejudices with regard to negro troops have been dispelled by the battle the other day. The brigade of negroes behaved magniicently and fought splendidly; could not have done better.” Even commanders formerly opposed to his proclamation, Lincoln stressed, now “believe the

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.

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MANAGING YOURSELF 140Sleep Well, Lead Better

CASE STUDY 145Can I Step Back

from My Start-Up?

SYNTHESIS 150You Versus the Clock

LIFE’S WORK 156Trevor Noah



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 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 are diminished too.

So how can we turn this knowledge into sustained behavior change? A irst step for sleep-deprived leaders is to come to terms 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 that you get better rest, perform to your potential, and bring out the best in the people around you.

SPREADING DAMAGEHistorically, scholars have depicted supervision as stable over time—some bosses are just bad, and others aren’t. But recent research indicates that individual behavior can vary dramatically from day to day and week to week—and much of this variance can be explained by the quality of a manager’s sleep. Indeed, studies have found that when leaders show up for work unrested, they are more likely to lose patience with employees, act in abusive ways, and be seen as less charismatic. There is also a greater likelihood that their subordinates will themselves sufer from sleep deprivation—and even behave unethically.

In a recent study, Cristiano Guarana and I measured the sleep of 40 managers and their 120 direct reports during the irst three months of their assigned time working together, along with the quality of these boss-employee relationships. We found that sleep-deprived leaders were more impatient, irritable, and antagonistic, which resulted in worse relationships. We expected that this efect would diminish over time as people got to know each other, but it did not. Sleep deprivation was just as

SLEEP WELL, LEAD BETTERMANAGERS NEED MORE REST. HERE’S HOW TO GET IT. BY CHRISTOPHER M. BARNES

HOW MUCH SLEEP do you get each night? Most of us know that eight hours is the recommended amount, but with work, family, and social commitments often consuming more than 16 hours of the day, it can seem impossible to make the math work. Perhaps you feel that you operate just ine on four or ive hours a night. Maybe you’ve grown accustomed to red-eye lights, time zone changes, and the occasional all-nighter. You might even wear your sleep deprivation like a badge of honor.

If this sounds familiar, you’re not alone. Although the ranks of sleep advocates are no doubt growing—led by the likes of Arianna Huington and Jef Bezos— a signiicant percentage of people, and U.S. executives in particular, don’t seem to be getting the sleep they need. According to the most recent data from the National Health Interview Survey, the proportion of Americans getting no more than six hours a night (the minimum for a good night’s rest for most people) rose from 22% in 1985 to 29% in 2012. An international study conducted in 2017 by the Center for Creative Leadership found that among leaders, the problem is even worse: 42% get six or fewer hours of shut-eye a night.

You probably already have some understanding of the beneits of rest— and the costs of not getting it. Sleep allows us to consolidate and store memories, process emotional experiences, replenish


MANAGING YOURSELF

received scores 13% lower than those in the control group. Why? Previous

research has shown that when leaders evince positive emotion, subordinates feel good and therefore perceive the bosses as charismatic. If we don’t get enough sleep, we’re less likely to feel positive and less able to manage or fake our moods; it’s very diicult to pull ourselves out of an insomnia-induced funk.

Furthermore, leaders who discount the value of sleep can negatively impact not just emotions but also behaviors on their teams. Lorenzo Lucianetti, Eli Awtrey, Gretchen Spreitzer, and I conducted a series of studies of what we termed “sleep devaluation”—scenarios in which leaders communicate to subordinates that sleep is unimportant. They may do so by setting an example (for instance, boasting about sleeping only four hours or sending work e-mails at 3 AM), or they may directly shape employees’ habits by encouraging people to work during typical sleep hours (perhaps criticizing subordinates for not responding to those 3 AM e-mails, or praising individuals who regularly work late into the night). In our studies, we found that

WHEN LEADERS SHOW UP FOR WORK UNRESTED, THEY ARE MORE LIKELY TO LOSE PATIENCE WITH EMPLOYEES, ACT IN ABUSIVE WAYS, AND BE SEEN AS LESS CHARISMATIC.

damaging at the end of the three months as it was at the beginning. However, the leaders were completely unaware of the negative dynamic.

Lorenzo Lucianetti, Devasheesh Bhave, Michael Christian, and I found similar results when we asked 88 leaders and their subordinates to complete daily surveys for two weeks: When bosses slept poorly, they were more likely to exhibit abusive behavior the next day, which resulted in lower levels of engagement among subordinates. When the boss doesn’t feel rested, the whole unit pays a price.

Sleep also afects managers’ ability to inspire and motivate those around them. In a 2016 experiment, Cristiano Guarana, Shazia Nauman, Dejun Tony Kong, and I manipulated the sleep of a sample of students: Some were allowed to get a normal night’s worth, while others were randomly assigned to a sleep-deprived condition in which they were awake about two hours longer. We then asked each participant to give a speech on the role of a leader, recorded those talks, and had third parties evaluate the speakers for charisma. Those who were sleep-deprived


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 SolutionsFortunately, 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 (especially blue light from screens) suppresses its natural production. In research focused on middle managers, Klodiana Lanaj, Russell Johnson, and I found that time spent using smartphones after 9 PM came at the expense of sleep, which undermined work engagement the next day. The simple advice is to stop looking at your devices at night. If that’s

electronic trackers. But beware: Most sleep trackers have not gone through rigorous validation for accuracy. (Your Fitbit can do many things, but it is not especially good at measuring sleep.) Many phone apps in particular make unsupported claims—for example, that they can track which stage of sleep you’re in. However, some devices, such as ActiGraph monitors, are very accurate and can help you determine

not practical, you might try glasses that ilter out blue light. Some researchers have found that these can mitigate the efect on melatonin production, thus helping people fall asleep more easily; I’m now in the very early stages of a study examining how this may improve work outcomes as well.

Savvy leaders are also starting to track their sleep, through either diaries or


MANAGING YOURSELF SLEEP WELL, LEAD BETTER

whether you’re overestimating your sleep (we often forget about periods of wakefulness in the night) and whether there are patterns you can change. For example, you might ind that although you’re in bed for seven hours a night, you’re getting only ive hours of sleep, fragmented into small segments. Or perhaps you notice that your bedtime drifts later on the weekend, leading to “social jet lag” on Monday, when you have to return to your earlier waking time. With this information, you can make adjustments, such as taking a relaxing bath before bed in hopes of getting more sustained rest, or hitting the sack earlier on Saturday and Sunday nights.

Leaders often overlook two other tools. The irst is treatment for sleep disorders. By some estimates, up to 30% of Americans experience insomnia, and more than 5% sufer from sleep apnea. A large majority of people with these issues are never diagnosed or treated. If you are overweight, have a thick neck, snore, and spend adequate time in bed at night but still feel tired, you may have sleep apnea. Partners or spouses are often the irst to notice the symptoms, but oicial diagnoses are typically made after a sleep study that measures oxygen levels and brain waves. You might then be prescribed a continuous positive airway pressure (CPAP) mask to wear at night; by keeping nasal and throat airways open, these devices greatly help sleep apnea patients.

As for insomnia suferers, they’re typically aware of the problem but may not know how to ix it. Jared Miller, Sophie Bostock, and I examined an online program that uses cognitive behavioral therapy to combat this disorder. We found that participants who were randomly assigned to the program experienced improved sleep, more self-control, better moods, and higher job satisfaction, and they became more helpful toward colleagues. The treatment cost only a few hundred dollars per participant, indicating a substantial return on investment. I’m currently in the early stages of another study that will measure the efects of this treatment on leader behaviors and follower outcomes, and I expect similarly beneicial efects.

embrace this form of rest. Tony Hsieh, the CEO of Zappos, is a nap proponent, and organizations such as Google and PriceWaterhouseCoopers have nap pods for employees, understanding that 20 minutes of downtime can make people more efective and productive for many more hours that day.

As a leader, even if you fail to get enough sleep yourself, you should be careful to promote good sleeping behavior. Your employees are watching you for cues about what is important. Avoid bragging about your own lack of sleep, lest you signal to your subordinates that they, too, should deprioritize sleep. If you absolutely must compose an e-mail at 3 AM, use a delayed-delivery option so that the message isn’t sent until 8 AM. If you must pull an all-nighter on a proj ect, don’t hold that up as exemplary behavior.

For pro-sleep role models, look to CEOs such as Ryan Holmes of Hootsuite (“It’s not worth depriving yourself of sleep for an extended period of time, no matter how pressing things may seem”); Amazon’s Bezos (“Eight hours of sleep makes a big diference for me, and I try hard to make that a priority”); and Huington, the CEO of Thrive Global, who wrote a whole book on the subject.

It is clear that you can squeeze in more work hours if you sleep less. But remember that the quality of your work—and your leadership—inevitably declines as you do so, often in ways that are invisible to you. As Bezos says, “Making a small number of key decisions well is more important than making a large number of decisions. If you shortchange your sleep, you might get a couple of extra ‘productive’ hours, but that productivity might be an illusion.” Even worse, as my research highlights, you’ll negatively afect your subordinates.

If instead you make sleep a priority, you will be a more successful leader who inspires better work in your employees. Don’t handicap yourself or your team by failing to get enough rest.

HBR Reprint R1805K

CHRISTOPHER M. BARNES is an associate professor of management at the University of

Washington’s Foster School of Business.

ORGANIZATIONS SUCH AS GOOGLE HAVE NAP PODS FOR EMPLOYEES, UNDERSTANDING THAT 20 MINUTES OF DOWNTIME CAN MAKE PEOPLE MORE PRODUCTIVE.

The other overlooked tool for getting more rest is napping. Too often, leaders view nap breaks as time spent loaing instead of working. However, research clearly indicates that dozing for even 20 minutes can lead to meaningful restoration that improves the quality of work. A brief nap can speed up cognitive processing, decrease errors, and increase stamina for sustained attention to diicult tasks later in the day. One study found that as little as eight minutes of sleep during the day was enough to signiicantly improve memory.

Many cultures outside the United States have embraced naps as a normal and desirable activity. In Japan, inemuri, or napping at work, is typically viewed positively. Midday siestas have long been part of work life in Spain. Now some American leaders are beginning to


THE BIG IDEA

MAY 2018

THE END OF CYBERSECURITYAndy Bochman

NO AMOUNT of investment in digital defenses can protect critical systems from hackers. It’s time for a new strategy.

JULY 2018

REALITY WARSSinan Aral

NOVEMBER 2017

THE GOOD JOBS SOLUTIONZeynep Ton

JANUARY 2018

MANAGING #METOOJoan C. Williams and Suzanne Lebsock

MARCH 2018

CEO ACTIVISTSAaron K. Chatterji and Michael W. Toffel

FALSE NEWS travels further, faster, and deeper online than accurate news does. That’s a big problem for any company.

GOOD PAY. Good benefits. Good opportunities. The retail revolution that’s good for companies, the economy, and workers

MOVING BEYOND hashtags to effect real cultural change in the business world

BUSINESS LEADERS are taking stands on divisive political issues—and betting on their customers to support them.

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.

TRACKEDBY 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

hbr.org/falsenewshbr.org/goodjobs hbr.org/aftermetoo hbr.org/activism hbr.org/infosec


work for the morning, but as the founder and CEO of 2 Proud Pups, a maker of all-natural dog care products, she didn’t have much free time. She decided to ignore e-mail for a few more minutes. This was a rare outing with her pets, and she wanted to enjoy it.

Maggie, a yellow lab, was rolling on the ground. Broccoli, a black shepherd-husky mix, was sniing a few other dogs. Elena smiled. 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 she couldn’t ind any high-quality shampoos for them on the market.

Existing products had touted their cleaning power, but their ingredient lists were long and full of nasty-sounding chemicals that irritated the dogs’ skin. So Elena had invested her savings to hire a chemist and create something better. They had mixed early batches in her kitchen, and she’d tested the solutions on herself irst.

When the shampoo was ready, she’d started selling it to local retailers and developed a loyal customer base. Over the next six years she’d hired a few stafers and added several more all-natural products, such 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 money in the business. But she felt at a crossroads. Although her products were selling well, revenues had plateaued at about $1 million annually. She didn’t think she could take 2 Proud Pups any further, and now she had a real baby on the way. Seven months pregnant and feeling

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

DAVID R. DIXON is a major in the U.S. Marine

Corps, an Iraq War veteran, and a 2017 Presidential Leadership Scholar. He is the author of Call in the Air and the children’s book Goodnight Marines.

HBR’s fictionalized case studies pres ent problems faced by leaders in real companies and offer solutions from experts. This one is based on “Cain & Able Collection: Every Dog Has Its Day Spa” (Stanford Business School case no. E412), by David R. Dixon and J.D. Schramm, which is available at HBR.org.

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

CASE STUDY CLASSROOM NOTESMore than 60 million U.S. households own a dog, up from 34.5 million in 2002. In 2017 pet supplies were a $15 billion industry, according to the American Pet Products Association.

Founding a company and leading it as CEO require different skill sets. How might they differ, and when might a founder make a good CEO?


a little burned out from years of 24/7 work, she needed—and wanted—a change. She was ready to step down as CEO and possibly to sell the company. But after months of research and meetings, she still hadn’t found the right successor or buyer.

Bzzt. Elena looked at her phone again: three more e-mails and texts. It was time to get back to the oice. She eased onto her feet and whistled to the dogs. “Broccoli! Maggie! Time to go!”

NEW CEO, NEW COMPANY?Walking into the 2 Proud Pups oice, Elena unleashed her dogs and greeted Kelly, an employee of three years. “How’s today’s delivery coming?” Elena asked.

“Almost done,” Kelly said. “I told them I’d be there this afternoon.”

“Great. Thanks.” Elena glanced at the time. “Shoot—I have a call now.”

Kelly’s smile dimmed. “Another interview for a new you?”

“Yes.” Elena sighed. “But this is a really strong candidate.”

She walked into her oice. On her desk was a pile of résumés from CEO candidates who’d responded to a listing she’d posted on a small-business sale website. Clipped to each one, at Elena’s request, was a photo of the applicant’s dog.

She’d spoken to all of them by phone, but only one seemed close to a good it: Christine Reed, a 35-year-old MBA whose previous experience included stints at a cosmetics start-up and a global consumer products company. They’d already met for cofee, and Elena had liked her—and her bulldog, Rembrandt, who’d joined them at the café. She and Christine had discussed the history of 2 Proud Pups, its inancials, and the terms under which a new CEO might join the irm.

Backed by an investor with whom she’d worked before, Christine was ready to take a 40% equity stake. She would accept the same modest salary Elena had been earning and would accrue more shares each year. Elena had hoped to divest a larger chunk of her holdings—she and Matthias were keen to buy a bigger house and set up a college fund for the baby—but she also liked the idea of remaining the majority

shareholder in the company even as she ceded day-to-day control.

It made sense on paper. Christine was smart and dynamic and seemed passionate about 2 Proud Pups. Her references had raved about her. But Elena couldn’t help feeling that something was missing—hence the follow-up call.

“Thanks for taking the time to chat with me again,” Elena said.

“Happy to!” Christine replied. “I’m excited about this opportunity.”

“That’s good to hear,” Elena said. “As you can probably tell, I feel really protective of the 2 Proud Pups brand. One challenge with a new CEO would be maintaining all the relationships we have with suppliers, customers, and stores. How would you handle that?”

“Honestly, I love making new connections. Ideally, I’d shadow you for a month to meet all the key contacts, and then I’d keep up with calls and visits. I’d assure them that 2 Proud Pups will be business as usual.”

“But I can’t help wondering—will it be business as usual? Last time, when we discussed where you want to take the company in the future, you mentioned targeting Amazon, Chewy, and Petco.”

“Well, if the idea is to put it on a growth trajectory, I think we’d have to go after those big players. It would be a multiyear strategy, and we might need outside investment. But I think we could accomplish it while maintaining existing distribution.”

Christine paused. “But Elena, this obviously works only if we’re on the same page. The deal we discussed would make us partners, even if you’re stepping down from management. You’d have to trust me to take the company where it needs to go.”

Elena felt a little queasy. Christine’s vision for the company did sound promising from a inancial standpoint, but it just wasn’t the 2 Proud Pups that Elena knew. Still, she tried to hide her discomfort. “This search is all about inding someone who will bring a diferent perspective to the business, and it’s clear you can do that. But this is a big step for me, so I hope you can understand if I take some time with it.”

“Of course,” Christine replied. “Just know that I’m ready when you are.”

How difficult will it be for Elena to strike this balance? Is such an arrangement feasible?

A company’s culture is often heavily influenced by its founder. How might a new CEO change the culture at 2 Proud Pups?

Petco and PetSmart, which owns Chewy, are major players in the pet products market. But Amazon has more than half of online sales, according to Packaged Facts—and e-commerce is projected to make up 20% of the market by 2022.

How thorough has Elena been in her CEO search? What more could she do to source candidates?

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


TO SELL OR NOT TO SELL?Elena left her oice deep in thought.

“How was the call?” Kelly asked.“It’s hard to pick your own

replacement,” Elena said.“That’s because no one can replace

you!” Kelly replied.“That’s nice of you. But maybe a

pregnant me—or a new-mom me—isn’t what the company needs right now. Selling to a competitor actually seems easier. It feels less personal.”

“Which one?” Kelly asked warily.“There are a few options,” Elena

answered noncommittally. The truth was that she’d been in talks with Doghouse Luxe, a luxury dog food specialist, for two weeks. But its CEO, Rajeev Gupta, an impressive guy who’d been installed by the company’s private equity owners, had asked her to keep the negotiations conidential.

The Doghouse philosophy was similar to 2 Proud Pups’, but its business model was diferent. While Pups sold its products mainly through stores, Doghouse had an award-winning website and sold mostly direct to consumers. Rajeev had ofered Elena a cash buyout and 10% of the merged entity. The deal would give her a cleaner break from her company and a much larger payout. And Rajeev’s irm seemed to have a terriic track rec ord of rolling up small businesses into larger, more successful ones. Still, the idea of having little or no inluence over her brand going forward was tough to stomach.

Elena sat on a box, and Maggie padded over to lick her hand. “Where’s the delivery going again?” she asked.

“Pete’s. I was about to head over.”“Actually, why don’t I do it?” Elena

said. “I’d like to talk to Pete.”Kelly hauled the boxes into the

2 Proud Pups van, since Elena couldn’t do much heavy lifting these days. Pete’s Pet Shop, across town, was a city institution, named for its founder— a beloved curmudgeon who adored animals and tolerated humans. When Elena parked at the rear and lightly tapped her horn, Pete appeared.

“Well, hello, Elena,” he said gru�y. “What’s this I hear about your selling to Doghouse Luxe?”

Elena grimaced. “It’s just an idea, Pete. How did you know?”

“Word gets around. Especially when we independents are worried. You can’t sell to them, Elena. Their whole business is designed to eliminate us.”

“Actually, the idea is to sell all the products through all channels—in stores and online. A merger would mean that 2 Proud Pups would reach more pets. You know I want what’s best for you guys and for the animals.”

“But your products are better than theirs. That’s why I took a chance on you way back when and stuck by you when others jumped on the all-natural bandwagon. Your shampoo is the only one my dogs will sit for. Can you promise me that Doghouse won’t change the ingredients to cut costs?”

“How are those dogs?” Elena asked, trying to change the subject.

Pete smiled briely. “The same—always getting into trouble.” Then he frowned. “I guess Doghouse is better than defecting to Petco or Chewy. We certainly don’t want to carry the same stuf as those soulless giants. But it still doesn’t sit right with me. We trust you, Elena, and there’s nothing wrong with staying small. Do let me know what your plans are once you make them. I’m uneasy about this.”

“Believe me, Pete,” she replied, “I know the feeling.”

THE BETTER OF TWO BAD OPTIONSOn her way home that night, Elena got takeout, which she and Matthias ate on the back porch with the dogs. She quickly recapped the day’s conversations.

“And you’re sure you want to step down?” Matthias asked. “If both options for the company are bumming you out, we can make it work—even after the baby arrives.”

Elena squeezed his hand with one of hers while holding the other to her belly. “You’re sweet. But I think I’ve given 2 Proud Pups as much as I can for now, and I’d like to rest and be a mom for a little bit. The timing feels right; it’s just that neither option does. I guess you’re never excited to leave your life’s work behind.”

She looked down at Maggie and Broccoli. “What do you think, pups? Who’s the best person to take our little company into the future?”

Should Elena be discussing the potential sale with a retailer? How much weight should she give his and others’ opinions?Is Elena right to feel

this way?

SEE COMMENTARIES ON THE NEXT PAGE

Online sales of pet products are expected to reach $8.2 billion in 2018, according to Pet Business. What will Doghouse Luxe (and 2 Proud Pups, if the companies merge) need to do to stay competitive?

How likely is it that the two companies will merge smoothly? What factors might get in the way, and how should Elena prepare for them?


ELENA’S BEST OPTION is to sell the company. Though she seems conlicted, I sense that what she really wants is to be inished with 2 Proud Pups. Her primary goal is to have more time for herself, her dogs, her husband, and her baby, and only one option guarantees that she’ll get that time.

Also, hiring Christine—someone who has neither founded nor led a company before—as the new CEO would involve a lot of risk. Though her credentials and references are impressive, she has no proven track rec ord. Elena, as the top shareholder, could ind herself still having to weigh in on or make a lot of decisions. There might be personality conlicts between the two women, or between Christine and some of 2 Proud Pups’ employees, suppliers, or existing customers. And what if something were to happen to Christine?

Even if Elena isn’t leading the company’s day-to-day operations, she would still be on the hook for too much of its future. Things could get even more complicated if the company accepts outside investment, which would dilute her control.

Selling the company, however, would solve almost all of Elena’s problems. It would get her out of the business, ensuring that she didn’t have to think— or worry—about it while navigating her new role as a mother. At the same time, it would position 2 Proud Pups to lourish, because merging with Doghouse Luxe would provide the new company with multiple sales channels. And it would result in a better payday for Elena, helping her buy that house and start that college fund. Plus, she would still own 10% of the business, so she could sit back, relax, and collect money as the company grows.

Like any other entrepreneur, Elena doesn’t want to watch her life’s work disappear. But handing the reins to

Christine would be riskier than giving them to Rajeev, who knows how

to build a company. Yes, there’s a chance that he and Doghouse

Luxe could change what

2 Proud Pups’ customers love about it—but so could Christine. There aren’t any guarantees either way.

Rajeev is the one who already knows the market, current trends, and probably a lot of the same customers and potential targets. The two businesses are a good strategic it for each other. And if Elena can manage the transition correctly—ensuring that employees are retained, placed in good jobs elsewhere, or given severance, and that other stakeholders are equally well cared for—she should have fun seeing where the merged irm goes.

When I decided to step back from my own pet care products company, Cain & Able Collection, I faced a similar dilemma. (In fact, the teaching case from which this story is drawn is based on my experience.) Like many start-ups, the business had plateaued, and we knew that ramping up would require some changes. I looked at outside investment and bringing

manufacturing in-house but ultimately decided to merge with a friendly competitor. Although I’d been happily working 60-hour weeks for nine years, I decided after having my irst child that I couldn’t handle that schedule anymore. Eventually, my new partners and I chose to sell to a larger organization, and that too was a relief. Like Elena, I was ready to move on to the next chapter of my life, and after spending some time raising my kids, I’ve now started a new company.

The Doghouse deal is the best way for Elena to get what she wants. It’s also the best way to help her company get the growth it needs.

SHOULD ELENA APPOINT CHRISTINE

THE NEW CEO OR SELL TO

DOGHOUSE LUXE?THE EXPERTS

RESPOND

CANDACE LEAK IS THE FOUNDER AND CEO OF

LOANABLES.COM.

ELENA’S PRIMARY GOAL IS TO HAVE MORE TIME FOR HERSELF, HER DOGS, HER HUSBAND, AND HER BABY, AND ONLY ONE OPTION GUARANTEES THAT SHE’LL GET THAT TIME.

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


IN MY OPINION, selling the company is giving up. That’s why Elena’s best choice is to hire a new chief executive oicer.

I never get the sense that Elena has truly lost her passion for 2 Proud Pups and what it does. If she had, then yes, selling might be her best move. But it sounds to me as if she just wants a break—some time to igure out how best to balance her career and her family life. Choosing a deal with Doghouse Luxe will limit her future options; instead, she should expand her options, by hiring a new CEO.

If Elena sells the company, she will efectively be inished with it. 2 Proud Pups will have a new owner, and she probably won’t be involved in any decision making. That would be a shame, because the company, created and developed with her guidance, seems generally strong. Its products are good, its customers sound happy, and even Pete doesn’t want her to leave. The inancials aren’t bad either; they may have plateaued, but they aren’t shrinking, and the market remains vibrant. There’s still a lot of room for 2 Proud Pups to grow, and Elena should make sure that she continues to be a part of it.

As the founder, she put a lot of her personality into the creation of her company. That will never go away, even if she does. Hiring Christine will not only give her more lexibility in the future, but also ensure that she has the option to return and continue to build on her vision. Maybe Elena will miss running the company and serving her customers. Maybe she’ll want to come back when her child and any future siblings are in school.

She started 2 Proud Pups because she wanted to solve a problem and had a vision for how to do it. By staying on as the majority shareholder, she can protect that vision, her employees, and her distributors while still pushing the company toward growth. If she feels at any point that Christine is leading the business in the wrong direction, Elena can reevaluate and adjust.

But I think it’s more likely that Elena will learn from the new CEO. She can pick up a lot by watching how Christine, an MBA with more varied experience, runs the company. Those lessons will make her a stronger leader later on.

As an entrepreneur, I’m intimately familiar with decisions like this one. After founding my second company, I brought in an executive with more sales experience to be CEO. Unfortunately, it didn’t work out. We then sold to another company, which went public, and I and all my employees stayed on through that journey.

I’d advise Elena to stay as involved in 2 Proud Pups as I did in that situation. Of course she needs to continue the “getting to know you” process with Christine and keep her CEO search open in case someone even better pops up. Although her due date is approaching, she should remain patient, spend lots of time with multiple candidates, consider what-if scenarios for each one, and consult numerous references, including contacts that haven’t been provided.

Elena may be feeling tired, burned out, and stressed about the new baby, but it’s a bad idea to make big decisions in that state. Selling to Doghouse Luxe may be a move she’ll ultimately regret. Is she sure she never wants to be involved with 2 Proud Pups again? Considering that she calls the company her baby, that doesn’t seem likely. As a father of four who also considers my company my baby, I would want to be part of that baby’s future growth. I think Elena would too. Hiring a new CEO will allow her to step back while still guiding the company she founded.

HIRING A NEW CEO WILL ALLOW ELENA TO STEP BACK WHILE STILL GUIDING THE COMPANY SHE CALLS HER BABY.

TODD OLSON IS THE CEO AND A COFOUNDER

OF PENDO.

“COMMENTS FROM THE HBR.ORG COMMUNITYPreserve Her IntentionsThe company grew into

what it is because of

Elena’s intense passion to

create better products for

her dogs and all pets. If

she hands it over to a new

CEO and remains a partner,

her genuine intentions can

help drive the company

even longer.

Sriharsha Sammeta

machine learning intern

Apple

More Money, Greater ScaleGiven Doghouse’s proven

ability to merge with small

companies, it makes sense

for Elena to go for Rajeev’s

offer. It would give her

substantially more money

and help her brand go

beyond its current scale.

Vishesh Agarwal MBA student, Indian Institute

of Management Calcutta

What’s Most Important?Letting go is the hardest

part in either scenario.

If maintaining brand and

product control is more

important to Elena, then

my gut says bring in a new

CEO. If time and financial

freedom are what she’s

looking for, sell and don’t

look back.

Claire Lamont

founder and chief creative

officer, SmakHBR Reprint R1805L

Reprint Case only R1805X

Reprint Commentary only R1805Z


SYNTHESIS YOU VERSUS THE CLOCKTESTING THE LATEST TIME-MANAGEMENT ADVICE BY GRETCHEN GAVETT

encouraging us to focus while her sibling’s business is predicated on the neurological high of seeing a little red notiication. But I digress.

The antidote to Zuckerberg’s luf might just be the updated version of The Pomodoro Technique, by Francesco Cirillo, a longtime consultant to the software industry whose focus is eiciency and productivity. This book, irst released in 2009, gets us closer to Oliver’s idea of being aggressively attuned to every single thing we do. Cirillo suggests that we divide all tasks into 30-minute increments with built-in breaks, measured with a timer. (When he came up with this idea, in college, he used one shaped like a little tomato—hence the name of his technique.) If you want rules and formulas without a lot of excess language, this may be the approach for you. I was mostly on board until I started to feel like I was being initiated into a time cult. “Rule: A Pomodoro is indivisible,” Cirillo insists repeatedly throughout. That said, the new edition includes a section on applying the technique to teams, something worth trying. After all, a single interruption can bring the work of multiple people to a halt.

do, when you do it, and why. But the reality for many of us is that this kind of focus is hard. Fret not, however; there’s a dizzying array of advice promising to make it easier.

Randi Zuckerberg—the entrepreneur, investor, and sister of Facebook founder Mark—suggests in Pick Three that we can live more-fulilling lives by abandoning the idea of doing it all. Instead, we should choose three areas of focus each day, out of a total of ive: work, sleep, family, friends, and itness. “Yes!” I exclaimed as I began to read, having already started setting up similar priorities in my own life. Unfortunately, Zuckerberg’s interesting argument becomes insuferable at book length, padded heavily with proiles of semi-celebrities. And although she does make useful points—for example, ofering a work expert’s conclusion that “you’re not going to feel perfectly balanced every day,” but you should “aim for a larger sense of balance in your week or month”—they are undermined by bubbly chatter that will make your eyes roll. (“All this work talk has me exhausted,” she writes. “Guess that’s our cue to talk about sleep!”) It’s also hard to shake the irony of Zuckerberg’s

Pick Three: You Can Have It All (Just Not Every Day)Randi ZuckerbergDey Street Books, 2018

The Pomodoro Technique: The Acclaimed Time-Management System That Has Transformed How We WorkFrancesco CirilloCurrency, 2018

JOHN DOERR WHAT I’M READING…

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CHAIRMAN OF KLEINER PERKINS AND AUTHOR OF MEASURE WHAT

MATTERS

Books are my friends. Favorites include

Al Gore’s An Inconvenient Truth; Yes,

And, from the Second City improv group;

Meg Jay’s The Defining Decade, about

the importance of your twenties; Andy

Grove’s High Output Management; and

Harold and the Purple Crayon, because

the protagonist really is an entrepreneur.

Recently I’ve read Tom Friedman’s

Thank You for Being Late and

Elisabeth Rosenthal’s An

American Sickness.

I subscribe to lots of magazines (Science,

Nature, HBR, MIT Technology Review, Time,

Fortune, Macworld/MacUser, the Atlantic,

and Runner’s World) and newspapers (the

New York Times, the Wall Street Journal,

Financial Times, USA Today, and ones in

the Bay Area). I read the Washington Post

online, because I can’t

get the print edition in Silicon Valley. And

I check Axios and Politico and my Flipboard,

Apple News, and Google News feeds. I’d say

I have a healthy addiction to news.

Books on time management almost always quote Mary Oliver, I’ve learned. In her poem “Sometimes,” Oliver ofers “Instructions for

living a life: Pay attention. Be astonished. Tell about it.” Part of me wants to end this essay here, because this is what time management really comes down to: being conscious of what you


“COME UP WITH AN HONEST ANSWER TO THIS QUESTION: THROUGHOUT THE DAY, HOW FREQUENTLY DO YOU CHOOSE

WHAT TO FOCUS ON?” Chris Bailey, Hyperfocus: How to Be More Productive in a World of Distraction

For less-cultish, more-commonsense advice, you can turn to two other recent releases: Make Time, by Jake Knapp and John Zeratsky of Google Ventures, and Hyperfocus, by Chris Bailey, who not only studies productivity but conducts experiments on himself (for example, limiting his iPhone use to 60 minutes a day or binge-watching 296 TED talks in a week). Like Cirillo, these authors recommend writing down exactly what you do, day in and day out, but their arguments are less stif. Make Time is practical and engaging, ofering tips on everything from designing your day to the beneits of cutting out cable news and eschewing plane Wi-Fi in favor of time away from work. Especially useful for me was the guidance on e-mail. It turns out that being slow to respond is a terriic way to take control of your time. (Sorry, colleagues.)

Hyperfocus begins, in what might be the most telling commentary about our collective inability to focus, with a chapter on how to read it without being distracted. Full of circle diagrams and 2x2s, it instructs us on how to pay attention to only one meaningful thing at a time, and why—echoing Zuckerberg—we

should pick only three things to accomplish a day.

This brings me to perhaps the most quietly radical of this selection of new books on time. Laura Vanderkam’s O� the Clock bears the subtitle Feel Less Busy While Getting More Done. I initially thought this would be an instructional guide or a better version of Pick Three, and it does emphasize the importance of tracking everything you do. But it also goes beyond work activities and contends with the messier, more philosophical aspects of time management: What will we remember doing, and what will we regret not doing? How can we be disciplined but also kind to ourselves when things go awry? The book also stresses the importance of acknowledging diicult times and lingering over beautiful moments, even if it means we don’t “feel” productive.

Vanderkam made me hopeful but also a bit skeptical. If we take back our time—focusing on productivity but also allowing time for gooing of—won’t we butt up against serious social norms? If you’re expected to be on e-mail into the night for work, what will the consequences be if you aren’t? What if you work in a retail or service industry

and have very little control over your schedule? And what about issues outside the oice, such as the gender imbalance in who shoulders the burden of household chores and caregiving?

Time management is not just a problem that individuals need to address; it’s one that must be taken seriously by our partners, employers, and policy makers. Some companies have already taken positive steps. An experiment at the Gap, for example, eliminated “on calls” and gave employees two weeks’ notice of their schedules. The stores that participated saw a 5% rise in labor productivity and yielded $2.9 million in increased revenue during the study’s duration. But such initiatives are still the exception.

The sheer volume of time management advice out there represents a subtle rallying cry, pushing us to overcome the discomfort of saying “no” to some things, despite any feared repercussions. If enough of us push back, maybe together we can establish a new normal that will make us a whole lot happier.

For me, these books have mostly served to reinforce Mary Oliver’s timeless wisdom: “You do not have to be good.”

GRETCHEN GAVETT is an associate editor at

Harvard Business Review.

Make Time: How to Focus on What Matters Every DayJake Knapp and John ZeratskyCurrency, 2018

Hyperfocus: How to Be More Productive in a World of DistractionChris Bailey Viking, 2018

WHAT I’M WATCHING…I find time for interesting TED talks and

the Sunday morning talk shows: Meet the

Press, This Week, Face the

Nation, Fareed Zakaria

on CNN. I want to know

what’s happening.

I’m also quite taken

with the drama series

Designated Survivor.

It’s a way to relax.

WHERE I’M GOING…I hang around a bunch of industry

conferences, but I really enjoy the ones

where you can buttonhole people on topics

like artificial intelligence and transforming

the health care system. Stanford runs

great events on AI. I’m also training for a

half-marathon, so I go for a run every other

day. Sometimes I listen to music you might

call “tropical electric/eclectic” on Spotify;

otherwise it’s NPR.

Off the Clock: Feel Less Busy While Getting More DoneLaura VanderkamPortfolio, 2018

I HAVE A BIG SHELF OF BOOKS, AND I GIVE THEM AS GIFTS.


THE BUSINESS CASE FOR CURIOSITYAlthough leaders might say they value inquisitive minds, in reality most stifle

curiosity, fearing it will increase risk and inefficiency. Harvard Business School’s

Francesca Gino elaborates on the benefits of and common barriers to curiosity

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 CURIOSITYPsychologists 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 COMPETENTThe 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.

CURIOSITY

New research shows that curiosity is vital to an organization’s performance—as are the particular ways in which people are curious and the experiences they are exposed to. This package examines how leaders can nurture curiosity throughout their organizations and ensure that it translates to success.page 47

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

The Business Case for Curiosity

FRANCESCA GINO

Professor, Harvard

Business School

Most of the breakthrough discoveries and remarkable inventions throughout history, from lints for starting a ire to self-driving cars, have something

in common: They are the result of curiosity. The impulse to seek new information and experiences and explore novel possibilities is a basic human attri bute. New research points to three important insights about curiosity as it relates to business. First, curiosity is much more important to an enterprise’s performance than was previously thought. That’s because cul-tivating it at all levels helps leaders and their employees adapt to uncertain market conditions and external pressures: When our curiosity is triggered, we think more

deeply and rationally about decisions and come up with more-creative solutions. In addition, curiosity allows leaders to gain more respect from their followers and inspires employees to develop more- trusting and more-collaborative relation-ships with colleagues.

Second, by making small changes to the design of their organizations and the ways they manage their employees, leaders can encourage curiosity—and improve their companies. This is true in every industry and for creative and routine work alike.

Third, although leaders might say they treasure inquisitive minds, in fact most stile curiosity, fearing it will increase risk and ineiciency. In a survey I conducted of more than 3,000 employees from a wide

range of irms and industries, only about 24% reported feeling curious in their jobs on a regular basis, and about 70% said they face barriers to asking more questions at work.

In this article I’ll elaborate on the beneits of and common barriers to curiosity in the workplace and then ofer ive strategies that can help leaders get high returns on investments in employees’ curiosity and in their own.

THE BENEFITS OF CURIOSITYNew research reveals a wide range of beneits for organizations, leaders, and employees.

Fewer decision-making errors. In my research I found that when our

48 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2018 SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 49


EXECUTIVE SUMMARIES SEPTEMBER–OCTOBER 2018

SPOTLIGHT

Although experts recommend eight hours of sleep a night, many of us don’t get that. A recent study of leaders across the world found that 42% average six hours of shut-eye or less.

Insufficient rest leads to poor judgment, lack of self-control, and impaired creativity. And the author’s research shows that sleep-deprived bosses hurt their teams 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.

Fortunately, there are ways to get more and better rest. These include sticking to a regular bedtime and wake-up time; avoiding caffeine, nicotine, alcohol, and screen time before bed; tracking your sleep patterns and adjusting your habits accordingly; getting treatment for sleep disorders; and napping during the workday. If you make sleep a priority, you’ll probably be a more productive—and inspiring—leader. HBR Reprint R1805K

SLEEP WELL, LEAD BETTERChristopher M. Barnes | page 140

MANAGING YOURSELFHOW I DID IT

LEADERSHIP

UNITED WAY’S CEO ON SHIFTING A CENTURY-OLD BUSINESS MODELBrian Gallagher | page 38

In the 1950s the United Auto Workers 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 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 giving from year to year. Today some 25,000 people have each given more than $10,000 to United Way; more than 600 have given $1 million; and 35 have given $10 million or more.

HBR Reprint R1805A

HOW I DID IT

United Way’s CEO on Shifting a Century-Old Business Modelby Brian Gallagher

SPREADING DAMAGE

WHEN LEADERS SHOW UP FOR WORK UNRESTED, THEY ARE MORE LIKELY TO LOSE PATIENCE WITH EMPLOYEES, ACT IN ABUSIVE WAYS, AND BE SEEN AS LESS CHARISMATIC.

SLEEP WELL, LEAD BETTERMANAGERS NEED MORE REST. HERE’S HOW TO GET IT. BY CHRISTOPHER M. BARNES

MANAGING YOURSELF

Keeping up with trends is crucial for

professionals, and reading is a powerful

tool. But it takes valuable time. Wouldn’t it

be great if you could learn something new

in just a few minutes and make reading a

habit? With getAbstract, you can.

By Delivering the key

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TOO MANY PROJECTSRose Hollister and Michael D. Watkins | page 64

If “the essence of strategy is choosing what not to do,” as Michael Porter famously wrote, then the essence of execution is truly not doing it. That may sound simple, but most organizations struggle to kill initiatives, even those that no longer support their strategy. Unaware of the cumulative impact or unwilling to part with pet projects or both, senior leaders pile on more and more, expecting teams to absorb it all. Productivity, engagement, performance, and retention tend to suffer as a result.

In their consulting work the authors have observed several root causes of initiative overload, including impact blindness, multiplier effects, political logrolling, unfunded mandates, cost myopia, and inertia. Understanding those causes can help leaders diagnose the risks in their organizations and make smarter decisions about what to keep and what to kill. A step-by-step process can guide them. Leaders should:

1. Get a true count of the current initiatives across the enterprise.

2. Assess each one, identifying the business need, the required budget, the head count allocation, and the business impact.

3. Get senior leaders working together to establish priorities, in a discussion driven by the top leadership team and informed by candid feedback from below.

4. Establish a “sunset” clause for each initiative.

5. In yearly planning, require each initiative to reapply for funding and other resources.

6. Strongly communicate that stopping an initiative isn’t a sign of failure.

Organizations that learn how to wisely cut back can accomplish more in the areas that really matter.

HBR Reprint R1805C

NAVIGATING TALENT HOT SPOTSWilliam Kerr | page 80

Innovation clusters like San Francisco and Boston have long had an outsize impact on the global economy, and their influence keeps growing. In 2017, for instance, America’s 10 largest tech hubs accounted for 58% of U.S. patents. Globally, cities such as Tokyo, Paris, Beijing, Shenzhen, and Seoul produced a similar proportion. The increased geographic concentration of innovation activity poses a challenge for firms based in suburban industrial parks. To stay relevant, they need to tap into urban hotbeds, but setting up operations there can be extremely expensive.

In his work on global talent flows, Harvard Business School’s Kerr has seen organizations try three solutions: At one extreme, they can relocate their headquarters to a hub, as GE recently did (but make them much smaller). A less expensive strategy is to create an innovation lab or corporate outpost in a talent cluster, as Walmart did with Walmart Labs. The most conservative strategy is to run executive retreats and immersions in talent clusters—a tactic Vodafone uses effectively.

These three options aren’t mutually exclusive. Given the need to stay in touch with multiple clusters, companies may want to try them all. Each one involves substantial risks that executives must manage. But together they offer a good playbook to firms that are finding themselves outside the action as the clout of a handful of cities grows.

HBR Reprint R1805E

ALIBABA AND THE FUTURE OF BUSINESSMing Zeng | page 88

Alibaba is not a retailer in the traditional sense. It doesn’t source or keep stock, and logistics services are carried out by third-party providers. Instead, Alibaba is what you get if you take all the functions associated with retail and coordinate them online into a sprawling, data-driven network of sellers, marketers, service providers, logistics companies, and manufacturers. Indeed, Alibaba does what Amazon, eBay, PayPal, Google, FedEx, all of the wholesalers, and a good portion of manufacturers in the U.S. do, with a healthy helping of financial services for garnish.

Alibaba achieves this by leveraging the new technologies of network coordination and data intelligence. It harnesses the efforts of thousands of Chinese businesses to create an ecosystem that is faster, smarter, and more efficient than traditional business infrastructures.

This is an emerging business model that Ming Zeng, the chair of Alibaba’s Academic Council, calls smart business. Players in the ecosystem share data and apply machine-learning technology to identify and better fulfill consumer needs. This article provides a framework for transforming a company into a smart business.

HBR Reprint R1805F

WHY DESIGN THINKING WORKSJeanne Liedtka | page 72

While we know a lot about practices that stimulate new ideas, innovation teams often struggle to apply them. Why? Because people’s biases and entrenched behaviors get in the way. In this article a Darden professor explains how design thinking helps people overcome this problem and unleash their creativity.

Though ostensibly geared to understanding and molding the experiences of customers, design thinking also profoundly reshapes the experiences of the innovators themselves. For example, immersive customer research helps them set aside their own views and recognize needs customers haven’t

expressed. Carefully planned dialogues help teams build on their diverse ideas, not just negotiate compromises when differences arise. And experiments with new solutions reduce all stakeholders’ fear of change.

At every phase—customer discovery, idea generation, and testing—a clear structure makes people more comfortable trying new things, and processes increase collaboration. Because it combines practical tools and human insight, design thinking is a social technology—one that the author predicts will have an impact as large as an earlier social technology, total quality management.

HBR Reprint R1805D

DESIGN THINKING COULD DO FOR INNOVATION WHAT TQM DID FOR MANUFACTURING.

EXECUTIVE SUMMARIES


ORGANIZATIONAL GRITThomas H. Lee and Angela L. Duckworth | page 98

Grit, a combination of passion and perseverance, predicts success in many demanding fields. A perfect example is health care, where the grit of individual doctors and nurses has saved many lives. But today providing superior care is so complex that no lone practitioner can do it all. Great care requires gritty teams that never stop striving for improvement and institutions that exhibit grit across entire systems of providers.

In this article Duckworth, the author of the best seller Grit, and Lee, a clinician and health care leader, describe health care’s new model of organizational grit. It begins with hiring people with grit—who love what they do, always want to get better, and are resilient in the face of setbacks. Their single-minded determination stems from a clear personal-goal hierarchy, in which shorter-term objectives support a top-level goal that gives direction to everything they do.

To be gritty, organizations must have a similar clarity about priorities, and their top-level goal and their employees’ must be aligned. If everyone is pursuing a separate passion, a culture won’t be gritty. The gritty health care organizations the authors have seen (such as Mayo Clinic and Cleveland Clinic) all make “putting patients first” their overarching goal and use it to guide every decision. They also work to cultivate grit by, for example, setting high expectations; offering the resources, support, and trust people need to keep learning and growing; and establishing strong social norms that promote their top-level goal.

While the objectives of organizations in other sectors may differ, they can apply the principles the authors outline here to become gritty, too. HBR Reprint R1805G

HEALTH CARE

THE GOOD-BETTER-BEST APPROACH TO PRICINGRafi Mohammed | page 106

Companies often crimp profits by using discounts to attract price-sensitive customers and by failing to give high-end customers reasons to spend more. A multitiered offering can use a stripped-down product (the “Good” option) to attract new customers, the existing product (“Better”) to keep current customers happy, and a feature-laden premium version (“Best”) to increase spending by customers who want more.

There’s nothing new about this concept, of course—think of the different grades of fuel at any gas station and the varying packages marketed by cable TV providers,

to name just two examples—yet many companies and industries have failed to embrace it. The author, a consultant who has helped many organizations adopt G-B-B pricing, presents a step-by-step guide to devising, testing, and launching the strategy. Key steps include identifying “fence” attributes that will prevent current customers from trading down from the existing offering; carefully choosing features and names to create clear differentiation and value; and setting prices using feedback from in-house experts and, when possible, drawing on conjoint analysis and other market research. HBR Reprint R1805H

MARKETING

A G-B-B PLAN HELPS BUYERS UNDERSTAND FEATURES AND THINK ABOUT WHICH ONES THEY VALUE.

Approach toPrıcing RAFI

MOHAMMED

Better-Best

Good-The

Turning passion and perseverance into performance: the view from the health care industry

THOMAS H. LEE

ANGELA L. DUCKWORTH

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.

GrıtOrganizational

GIVE YOURSELF A BREAK: THE POWER OF SELF-COMPASSIONSerena Chen | page 116

When we experience a setback at work, we tend to either become defensive and blame others, or berate ourselves. Neither response is 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.

Research shows that we should respond instead with self-compassion. People who do this tend to demonstrate three behaviors: First, they are kind rather than judgmental about their own failures and mistakes; second, they recognize that failures are a shared human experience; and third, they take a balanced approach to negative emotions when they stumble or fall short—they allow themselves to feel bad, but they don’t let negative emotions take over.

Self-compassion boosts performance by triggering the “growth mindset”—the belief that improvement is achievable through dedication and hard work. It also helps us connect with a more authentic self.

HBR Reprint R1805J

LINCOLN AND THE ART OF TRANSFORMATIVE LEADERSHIPDoris Kearns Goodwin | page 126

In her most recent book, Leadership in Turbulent Times, Goodwin examines the careers of Abraham Lincoln, Theodore Roosevelt, Franklin Roosevelt, and Lyndon Johnson, illustrating how their skills and strengths enabled them to lead the United States through periods of great upheaval. In this article she looks at Lincoln’s pivotal decision to issue the Emancipation Proclamation—which required the support of his cabinet, the army, and the American people. Possessed of a powerful emotional intelligence, he was able to mediate among factions and sustain the spirits of his countrymen. Among the powerful lessons Lincoln’s leadership embodied: Acknowledge when failed policies demand a change in direction. Anticipate contending viewpoints. Set an example. Refuse to let past resentments fester. Protect colleagues from blame. Establish trust.

“In a great convergence of the man and the times,” Goodwin writes, “Abraham Lincoln’s leadership imprinted a moral purpose and meaning on the protracted misery of the Civil War.”

MANAGING YOURSELF LEADERSHIP

Give Yourself a Break: The Power of Self-Compassion

SERENA CHEN LINCOLN and the Art of

TransformativeLEADERSHIP

by

DORIS KEARNS GOODWIN

D

POSTMASTERSend domestic address changes, orders, and inquiries to: Harvard Business Review, Subscription Service, P.O. Box 37457, Boone, IA 50037. GST Registration No. 1247384345. Periodical postage paid at Boston, MA, and additional mailing offices.

Printed in the U.S.A. Harvard Business Review (ISSN 0017-8012; USPS 0236-520), published every other month for professional managers, is an education program of Harvard Business School, Harvard University; Nitin Nohria, dean.

Published by Harvard Business School Publishing Corporation, 60 Harvard Way, Boston, MA 02163.


As a biracial kid growing up in apartheid-

era South Africa, Noah learned to confront

social injustice by poking fun at it. Now,

at age 34, he brings that same sensibility

to a world-touring stand-up act and a

gig hosting The Daily Show on Comedy

Central—a role he took over from Jon

Stewart and quickly made his own.

Interviewed by Alison Beard

HBR: When Comedy Central was making its

big succession decision, did you advocate

for yourself?

NOAH: Not at all. Because I knew I was a dark

horse, there was no stress. I never believed the

job was mine, or that I deserved it, and I didn’t

anticipate getting it, which helps with any

position in life. If you don’t think it’s yours, you

just put your best foot forward and prepare for

the next opportunity. Luckily, I didn’t have to

wait. The Daily Show was it.

Did you have doubts about taking the job?

If you don’t have doubts about a challenge like

that, you’re extremely arrogant or extremely

stupid. But if I’d let my doubts stop me from

exploring the best opportunities, I wouldn’t

have gotten to where I have in my life.

How did you manage the transition?

The first step was to learn as much as possible.

I was lucky in that I inherited many experienced

creators who could infuse my head with

decades of knowledge in a short time. I never

thought that I knew anything coming in. I knew

I had a unique point of view for the late-night

space. But I didn’t take for granted that I was

surrounded by people who’d been making a

highly successful show for a long time. So all

I did was learn and listen and grow with the

team. I was the head of the show but in no way

trying to be the boss. Over time, as I’ve become

more comfortable, I’ve taken more of the reins,

and now we all guide the show together. We’re

people who enjoy comedy and commenting on

the news and sharing that process, and we try

to translate those conversations to a TV show.

What do you look for in new hires?

I’m trying to find people who will give us a

competitive advantage and are hungry and

creative. It’s nice when they at least share my

sense of comedy and vision of good television.

But I want a room that’s diverse in thoughts,

backgrounds, and skill sets so that we protect

ourselves from making a show that’s one-

dimensional and instead connect with as

many different audiences as possible.

The pace of production must be grueling.

How do you prevent burnout?

First, by creating an environment where

it feels less like working and more like having

fun with a purpose. Second, by building up

your resilience, getting used to the rhythm

and intensity of the news, figuring out

“I TRY NOT TO LIVE TOO FAR INTO THE FUTURE OR GET TOO STRESSED ABOUT TODAY.”

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LIFE’S WORK TREVOR NOAH COMEDIAN

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

processes that maximize your outputs and also

give you time to relax. You need to know when

and how to focus on the work and when and

how to breathe.

Is it tough to make a great show

on deadline?

Yes, but it’s also liberating. It has taught me

to focus on letting things go as much as on

making them perfect. Think of the greatest

painters. Even they had to stop at some point,

you know? When the Catholic Church told

Michelangelo, “We need it by this day,” he

had to put down his brushes. And that’s really

something: to understand that you can create

only within the time you have. So you just try

over and over to make it as good as you can

each day and aim for consistency more than

anything else.

Do you do any special prep before

taking the stage?

I try to keep it casual. I’ll kick a soccer ball

around with my crew. I’ll chat and make

jokes with my friends. I’m trying to maintain

the same level of authenticity offstage and

onstage. I don’t want to switch into a character

or a caricature of myself. I want to perform,

yes, but also to maintain who I am. I keep it

as chill as possible so that when I come out,

people are getting as authentic a Trevor as

I can give them.

HBR Reprint R1805M


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viravision.net¾یش نمایش?path... · 48 MANAGING PEOPLE THE BUSINESS CASE FOR CURIOSITY Research shows that it leads to higher-performing, more adaptable ﬁrms. Francesca Gino