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ISSUE 61 WINTER 2010 strategy +business REPRINT 10409 2010 Best Business Books BY DAVID WARSH, WALTER KIECHEL III, KRISZTINA “Z” HOLLY, SHERIDAN PRASSO, SALLY HELGESEN, JUDITH E. GLASER, DAVID K. HURST, AND JAMES O’TOOLE

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Page 1: s+b-Best Business Books 2010

ISSUE 61 WINTER 2010

strategy+business

REPRINT 10409

2010 BestBusiness Books

BY DAVID WARSH, WALTER KIECHEL III, KRISZTINA “Z” HOLLY,

SHERIDAN PRASSO, SALLY HELGESEN, JUDITH E. GLASER,

DAVID K. HURST, AND JAMES O’TOOLE

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TWO YEARS AFTER THE FINANCIAL COLLAPSE, THE IDEA

of hunkering down and waiting for a return to busi-ness as usual — as people did in previous recessions —seems a less and less viable strategy. But what shouldyou do instead?In this edition of our annual review of the year’s

best business books, you will find a reading list thatoffers intriguing and compelling answers to this ques-tion. The list, assembled by a distinguished team ofexperts, starts with a select guide to the year’s talleststack: titles that parsethe recession of 2007–09 for lessons in pre-venting another col-lapse. The reviewer isDavid Warsh, who cov-ered economics for theBoston Globe for morethan two decades andwon financial journal-ism’s Gerald LoebAward twice.Next up is Walter

Kiechel III’s essay onthe best business bookson leadership — in ayear when the spotlightrevealed an unflatteringview of too many of ourleaders. Kiechel, whosecareer included stints asthe managing editor ofFortune and the edito-rial director of HarvardBusiness Publishing, re-views a handful ofbooks that confront“traditional notions ofleadership with new circumstances,” including the riseof social networking. (We didn’t cover the topic ofstrategy this year, but Kiechel’s engaging book TheLords of Strategy: The Secret Intellectual History of theNew Corporate World [Harvard Business Press, 2010]is featured in “The Right to Win,” by CesareMainardi with Art Kleiner, s+b, Winter 2010.)The ramifications of technologically enabled soci-

eties play a starring role this year in University ofSouthern California Stevens Institute executive direc-tor Krisztina “Z” Holly’s review of the best books on

innovation, and a supporting role in journalist Sheri-dan Prasso’s choices for the best books about China,now the world’s second-largest economy. Both areespecially timely as organic growth becomes a top pri-ority at many companies.In the doing-more-with-less theme, strategy+

business contributing editor Sally Helgesen returnswith a selection of titles that call into questionthe “star” system of talent (a factor in the recent reces-sion) and argue for a far more inclusive definition of

human capital. In acomplement to Helge-sen’s essay, neuroscienceauthor Judith E. Glaserexamines the year’s bestbooks on the humanmind, which offer exec-utives the means toimprove their decisionmaking and galvanizetheir workforce.David K. Hurst,

our longtime Books inBrief reviewer, findsthat the Great Re-cession has not onlyemphasized the short-comings of the mana-gerial status quo, butalso yielded a numberof books that offeralternatives in its artand practice. Finally,University of DenverDaniels College ofBusiness professor JamesO’Toole returns withhis ninth consecutive

annual best business books essay, which plumbs biog-raphies and histories on subjects as diverse as HenryLuce and Chinese tea for business lessons that are asrelevant as today’s headlines.In a time of halting recovery, frugal consumers,

tight money, and increasing government activism,companies urgently need winning strategies. For exec-utives charged with creating and executing thosestrategies, this year’s best business books are a valuablesource of insight and inspiration.

— Theodore Kinni

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THE ECONOMYGary B. Gorton,Slapped by the InvisibleHand: The Panic of 2007(Oxford University Press,2010)

LEADERSHIPManfred F.R. Kets de Vries,Reflections on Leadershipand Career Development:On the Couch withManfred Kets de Vries(Jossey-Bass, 2010)

INNOVATIONSteven Johnson,Where Good IdeasCome From: The NaturalHistory of Innovation(Riverhead, 2010)

CHINAPeter Hessler,Country Driving:A Journey through Chinafrom Farm to Factory(Harper, 2010)

HUMAN CAPITALBoris Groysberg,Chasing Stars: The Myth ofTalent and the Portabilityof Performance(Princeton UniversityPress, 2010)

THE HUMAN MINDRichard S. Tedlow,Denial: Why BusinessLeaders Fail to LookFacts in the Face —and What to Do about It(Portfolio, 2010)

MANAGEMENTRichard T. Pascale, JerrySternin, and Monique Sternin,The Power of PositiveDeviance: How UnlikelyInnovators Solve theWorld’sToughest Problems (HarvardBusiness Press, 2010)

BIOGRAPHY ANDHISTORYDaniel Okrent,Last Call: The Rise andFall of Prohibition(Scribner, 2010)

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THE ECONOMY

The Fog of PanicDavid Warsh

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LEADERSHIP

Highlights in aLow YearWalter Kiechel III

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INNOVATION

Innovation as aSocial ActKrisztina “Z” Holly

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CHINA

Probing China’sInfrastructureSheridan Prasso

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HUMAN CAPITAL

Talent RedefinedSally Helgesen

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THE HUMAN MIND

You Are WhatYou ThinkJudith E. Glaser

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MANAGEMENT

The Chorus Takesa BowDavid K. Hurst

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BIOGRAPHY AND

HISTORY

True Tales ofFortuneJames O’Toole

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THE Fog OF Panicby David Warsh

he great uncertainty of all data in war is apeculiar difficulty, because all action must, toa certain extent, be planned in a mere twi-light, which in addition not infrequently —

like the effect of a fog or moonshine — gives to thingsexaggerated dimensions and unnatural appearance.

— Carl von Clausewitz

Something happened to us during these last three years,a momentous event, perhaps even a turning point in thehistory of global capitalism. But what, exactly? Everyoneremembers the apex of the crisis, when LehmanBrothers perished, Bank of America bought MerrillLynch, the Fed bailed out American InternationalGroup, and the U.S. Treasury Department took controlof the U.S. government–sponsored loan companiesFannie Mae and Freddie Mac. In the time that haselapsed since a brief but heart-stopping paralysis behindthe scenes in August 2007 set the stage for the later pub-lic event, a certain amount of sorting out has occurred.

An avalanche of good writing, much of it publishedthis year, has been devoted to trying to decipher thechain reaction that took place between August 2007 andSeptember 2008. These accounts may be divided into afew broad categories. There are narratives of the crisisitself, the analyses and prescriptions of economists, ori-gin stories focused on various participants in the drama(the shorts, the quants, the hedge funds), and, of course,any number of corporate obituaries.

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Gary B. Gorton, Slapped bythe Invisible Hand: The Panicof 2007 (Oxford UniversityPress, 2010)

Henry M. Paulson Jr., On theBrink: Inside the Race to Stopthe Collapse of the GlobalFinancial System (BusinessPlus, 2010)

Gregory Zuckerman, TheGreatest Trade Ever: TheBehind-the-Scenes Story ofHow John Paulson DefiedWall Street and MadeFinancial History (BroadwayBooks, 2009)

Sebastian Mallaby, MoreMoney than God: Hedge Fundsand the Making of a New Elite(Penguin Press, 2010)

Raghuram G. Rajan, FaultLines: How Hidden FracturesStill Threaten the WorldEconomy (Princeton UniversityPress, 2010)

Simon Johnson and JamesKwak, 13 Bankers: The WallStreet Takeover and the NextFinancial Meltdown (PantheonBooks, 2010)

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THE ECONOMY

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None of these books fully answer the question ofwhat to expect as a long-term result of the crisis, butseveral of them, and one in particular, seem to go tothe heart of the puzzle of what exactly happened to getit started.

The Narrative FramedIn the best business book of the year on the economy,Slapped by the Invisible Hand: The Panic of 2007, GaryB. Gorton of Yale University’s School of Managementexplains in some detail how in August 2007, the finan-cial markets found themselves in the grip of a phenom-enon thought to have been rendered impossible by var-ious safeguards: a banking panic of the sort that rockedglobal capitalism a dozen times between 1837 and 1907.This time, however, the spectacle did not consist of indi-vidual depositors lined up outsidethe locked doors of retail banks, butrather firms creating runs on otherfirms. Instead of some familiar phys-ical address, this occurred at theintersection of the securitizationbusiness and the shadow banking sys-tem, two enormous industries thathad barely existed 25 years earlier.

The story of how a long “quietperiod” in American banking —roughly 75 years without a singlepanic — gave way to a seismic near-collapse after years of tumultuousbehind-the-scenes change makes forfascinating reading.The implicationsfor how the authorities might have acted differently iseven more interesting. After all, if the meltdown wasmainly an old-fashioned banking panic at a higher levelof abstraction, it should have been easier to fix.

The great virtue of Slapped by the Invisible Hand isthat it was written in real time, as the crisis unfolded.The book consists primarily of two essays that Gortonwrote for a pair of Federal Reserve conferences. The firstwas at Jackson Hole, Wyo., in August 2008, on the eveof the public crisis; the second was a session ninemonths later, on Jekyll Island, Ga. (where plans for theFederal Reserve System had been drawn up a hundredyears before). It also includes a third paper, written 15years earlier when the shadow banking system was justemerging, which provides historical perspective, and acoda, titled “A Note to Those Reading This in 2107,”which makes it clear why the Dodd-Frank Wall Street

Reform and Consumer Pro-tection Act of 2010 probably willnot on its own be enough to stop the next panic.

What happened, according to Gorton, was a classicpanic, not all that different from the E. coli spinachrecall in 2006 or the fear of mad cow disease that shutdown British butcher shops a few years back — exceptthat in this case, it was the pervasive fear of “toxic assets”that shut down the world economy for a time. Otherobservers are now reaching the same conclusion, in eco-nomics textbooks and journals, and, in all likelihood —since Gorton was among the first witnesses called to tes-tify — in the December 2010 report of the FinancialCrisis Inquiry Commission, chaired by former Cali-fornia state treasurer Phil Angelides. In other words, aconsensus is emerging. But with Gorton’s book, you are

there as the fog first begins to lift.You see how and when the narrativewas framed. Moreover, Slapped bythe Invisible Hand is tightly focusedon prevention. You get a sense ofhow it could have turned out differ-ently, if only the proper diagnosishad been widely shared among regu-lators at the time.

Why the star turn here? Gortonis not an ordinary economist. He hasa master’s degree in Chinese litera-ture, and earned an economics Ph.D.at the University of Rochester in1983 with a dissertation on bankingpanics in the 19th century, which

was highly unfashionable for the academic tastes of thetimes. After several years at the Federal Reserve Bankof Philadelphia, he moved to theWharton School of theUniversity of Pennsylvania and, eventually, to Yale. Hismost salient experience, however, was as a consultant toAIG Financial Products, where for more than a decade(beginning in 1996), he modeled markets for exoticfinancial products for the giant insurance conglomerate.Having knowledge of both policy history and currentpractice provided him with a privileged position fromwhich to observe the events of 2007 and 2008.

At Jackson Hole, Gorton reminded his listeners ofhistory that had been forgotten — that half a dozenpanics had occurred in the era of national banking,which spanned the 50 years from 1863 (when Congressauthorized national bank charters and established a uni-form currency) to the creation of the Federal Reserve in

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1913. They usually happened near business-cycle peaks,when people worried about losing their savings in abank failure. Some unexpected piece of news wouldsend depositors rushing to demand their money and,sure enough, since most of the money had been loanedout, the bank would fail, even if it was competentlymanaged. (This is the situation everyone knows fromFrank Capra’s film It’s aWonderful Life.) Privately ownedclearinghouses evolved to squelch rumors about mem-ber banks when they arose — sometimes squelchingthem successfully, sometimes not.

The Federal Reserve Board was created to deal withpanics by imitating the Bank of England as “lender oflast resort” to threatened banks. (J.P.Morgan had demon-strated the efficacy of this approach by single-handedlystanching the Panic of 1907.) But then the Fed itselfpanicked after the stock market crash in 1929 and per-mitted hundreds of banks to fail. So Congress created anumber of safeguards of its own: insuring deposits, care-fully defining banking, and restricting entry into the

business. Depositors were reassured that they didn’t haveto worry. And for the next seven decades, banking pan-ics simply disappeared in the United States.

In the 1970s, however, two far-reaching changes inthe system began to take hold, both of them describedwith considerable economy in Slapped by the InvisibleHand. Financial deregulation commenced when WallStreet ended fixed commissions on May Day 1975. Theold partitions began crumbling. Money market mutualfunds began accepting deposits. Junk bond underwritersentered the highly profitable lending business that hadpreviously belonged mainly to the banks. Banks re-sponded with innovations of their own, securitizationchief among them. For centuries, banks held the mort-gage loans they made to maturity. Now they learned toassemble mortgages into large pools, to slice and pack-age the anticipated payment streams into “tranches”according to the seniority of the claim, and to sellthe strange new securities that resulted to fast-growinginstitutional investors looking for a safe, steady return.

This was the “originate to dis-tribute” system.

Deregulation, securitization, and financial innova-tion became the foundation for the shadow banking sys-tem — though today it is probably better to call it thefinancial intermediation industry, since it is bankinggrown far out of its boots. Its lifeblood had become“repos” (sale and repurchase agreements), meaning thecash on hand of pension funds, investment houses,insurance companies, money market mutual funds,banks, corporations, governments, and every other kindof organization under the sun. Repos were the institu-tional equivalent of demand deposits.

But there could be no government insurance forsums like these. Collateral was required to make thisshort-term borrowing work. Along with a promise toreturn the principal on demand, repo lenders received aclaim on bonds, often in the form of asset-backed secu-rities, sometimes held by a third party. Thus did giantfinancial-services firms learn to finance themselves in theage of Fannie Mae, subprime borrowing, and Walmart.Gorton compares the money grid to the electricity grid.

Everyone takes it for granted — writing checks, invest-ing in AAA securitized products, etc. — until somethinggoes wrong. Then, he says, the inner workings of thefinancial system turn out to be very complicated, justlike the network that supplies electricity.

The shock that triggered the panic came in thesummer of 2007, a few months after a new market forcredit default swaps — the ABX index — was intro-duced, permitting arbitrageurs to take sides for the firsttime on the future of the subprime mortgage market.For seven days in August, quantitative funds, especiallythose in the high-flying subprime market, found them-selves in a vertiginous twist. The Fed staved off the panicwith a half-point cut in its discount rate.

By then, however, the smart money had been puton notice: Something had gone badly wrong with mort-gage lending. For the next 13 months, the authorities inWashington tiptoed around the problem while bankssought to raise capital and confidence waned. Whatmight have prevented the meltdown from occurring? Afrank recognition of the problem and a guaranteed flooron the value of subprime mortgages in late 2007 or earlyBEST10BOOKS

Gorton compares the money grid to theelectricity grid. Everyone takes it for granted

until something goes wrong.

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2008 might have done it, says Gorton.Even at Jackson Hole, crucial aspects of the situa-

tion remained unclear to central bankers and their eco-nomic advisors. Only after an exchange between Gortonand another participant, Bengt Holmström of theMassachusetts Institute of Technology, did economistsbegin to zero in on the significance of all the tranches ofasset-backed securities. Debt value is supposed to beimmune to most information about it, just as US$100bills are supposed to be difficult to counterfeit. In nor-mal times, the complexity of collateral didn’t matter.When it became clear that greater scrutiny was required,transactions slowed down. In the case of repos, theystopped altogether for a time.

Slapped by the Invisible Hand is not an easy book,but that’s mainly because much of the material is unfa-miliar, and some of it is abstruse. It contains enoughtables and diagrams to help readers follow the argumentwhere it leads (to some equations, naturally), along witha timeline to help readers reconstruct what they knew inthe past three years and when they understood its signif-icance. It’s possible to skip the hard parts and still mas-ter the frame. If you do, this is the book that, some yearsfrom now, you will be most glad to have read.

A Pair of PaulsonsGary Gorton’s book has become the framework throughwhich I view almost every other book I have read aboutthe crisis, especially those that fill in parts of the crisismap that might otherwise be labeled “Here There BeTygers.” The first of these, On the Brink: Inside theRace to Stop the Collapse of the Global Financial System, isfrom former U.S. secretary of the Treasury Henry M.Paulson Jr.

Paulson is a lovely person: an Eagle Scout, collegefootball star, and devoted family man who made his wayvia mergers and acquisitions to the top job at GoldmanSachs. But he will probably become the crisis fall guy.Whereas Ben Bernanke had studied all his life for histask as central banker, a reluctant Paulson was thrustinto the job and at first had little grasp of the situationhe faced. He favored measures that might have beengood for a firm—mark-to-market accounting in partic-ular — but that were not suitable to a fire sale. Andhe focused on the wrong problem: Fannie Mae andFreddie Mac. When he ousted their managers, hethought he had saved the world. Lehman began to col-lapse the next day.

What, then, makes On the Brink so worth reading?

In a word, candor. Paulson con-veys the experience of the fog ofwar, one surprise after another, as his team pieces thingstogether and the impending collapse is finally, expen-sively, halted. The Treasury’s “Break the Glass” bankrecapitalization plan gradually evolves behind the scenesinto the Troubled Asset Relief Program (TARP) as thesituation deteriorates. “What we did not realize then,and later understood all too well, was how changesin the way mortgages were made and sold, combinedwith a reshaped financial system, had vastly amplifiedthe potential damage to banks and nonbank financialcompanies,” writes Paulson. That about sums it up.The Bush administration may have been a little lateto the party, but, thanks to Bernanke and Paulson, itfinally arrived.

The Paulson from the economic events of 2007–09who will be remembered longest, however, will probablybe John rather than Henry. John Paulson is the hedgefund proprietor who learned how to use credit defaultswaps to short the subprime market with almost none ofthe downside risk associated with traditional short sell-ing, and who then made exactly the right series of bets.In The Greatest Trade Ever: The Behind-the-Scenes Storyof How John Paulson Defied Wall Street and MadeFinancial History, Wall Street Journal reporter GregoryZuckerman, with exemplary clarity, explains how JohnPaulson groped until he understood the developing sit-uation better than anyone else and, by trading the ABXindex in the summer of 2007, made $16 billion for hisinvestors and $4 billion for himself.

The Greatest Trade has been overshadowed in book-shops by The Big Short: Inside the Doomsday Machine(W.W. Norton, 2010), in which Michael Lewis, thebest-selling author of Liar’s Poker: Rising through theWreckage on Wall Street (W.W. Norton, 1989) andMoneyball: The Art of Winning an Unfair Game (W.W.Norton, 2003), covers much of the same subprime ter-ritory — but without Paulson, who was telling his storyto reporter Zuckerman. Lewis is, I suppose, the moregifted storyteller, and he mobilizes a colorful cast ofcharacters. But the subprime scandal without Paulson isHamletwithout the prince. The Greatest Trade Ever is theperfect companion to Slapped by the Invisible Hand,which, it should be noted, is so antiseptic in its determi-nation to stick to banking and economic issues that itcontains not so much as an anecdote. Zuckerman, onthe other hand, turns the bubble and its highly prof-itable pricking into an adventure story.

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Risky BusinessYou get a glimpse of what the secretive hedge fund busi-ness is about from John Paulson’s story, but if you want toknow more about how the industry mushroomed in the1990s, the book to read is More Money than God: HedgeFunds and the Making of a New Elite. Author SebastianMallaby was for many years a correspondent for theEconomist. He had plenty of access to many of the ordi-narily reclusive money managers who populate this rela-tively new niche in the asset management business.

George Soros was the hedge funds’ only well-known name in 1990, when they managed $39 billionin assets. But by the peak in early 2008, the figure was$1.93 trillion, thanks to such pioneers as MichaelSteinhardt, Helmut Weymar, Julian Robertson, PaulTudor Jones, Bruce Kovner, Stanley Druckenmiller,Thomas Steyer, James Simons, andDavid Shaw, all of whom populatethe book. (In contrast, the four big-gest banks in the U.S. had $7.7 tril-lion in loans and other assets earlierthis year, more than twice as much asthe next 46 banks put together.)

Hedge funds avoid regulation byaccepting investments only from in-stitutions and wealthy individuals,and by not advertising. Mallabythinks that is as it should be, becausefund managers have an outsized ap-petite for risk. They make money bybetting against central bankers whodefend unwise government policies,lending to institutions in need of liquidity, and scoutingout mispricings. They are useful discoverers of bad news.They are small enough to fail — which they regularly do— without jeopardizing the financial system.

Mallaby thinks hedge funds may be the new mer-chant banks, and he likens them to the top investmentbanks — the Goldman Sachses and Morgan Stanleys of50 years ago. If he is correct, it would have been nice tosee him put in a word for the various proposals forquick-response investigations aimed at figuring outwhat happened whenever one of them blows up. Afterall, it is what we do when an airplane crashes.

The IMF PlaywrightsJournalists write the playbills, but economists write the

plays. Few positions offer a betterview of the unfolding drama

than that of chief economist of the InternationalMonetary Fund. It is not surprising, therefore, that allthree holders of the job in the last 10 years have writtencogent, journalistic books on the dangers ahead.

Last year, Kenneth S. Rogoff of Harvard University,in collaboration with Carmen M. Reinhart of theUniversity of Maryland, wrote the well-received ThisTime Is Different: Eight Centuries of Financial Folly(Princeton University Press). This year, Simon Johnson,who returned from Washington to MIT’s Sloan Schoolof Management, published 13 Bankers: The Wall StreetTakeover and the Next Financial Meltdown (with co-author James Kwak), and Raghuram G. Rajan, back atthe University of Chicago’s Booth School of Business,delivered Fault Lines: How Hidden Fractures StillThreaten the World Economy.

Rajan, who now serves as aneconomic advisor to the prime min-ister of India, writes with the revi-sionist authority of someone whohas come to see the last 30 yearswith fresh eyes. Flying into Moscow,he reflects on how far we have come:The highways are clogged with cars(which, of course, bring new prob-lems). Returning to Washington, henotes that since the mid-1970s,nearly 60 cents of every dollar of realincome growth has gone to the top1 percent of households. The riftsthat worry him are not just theimbalances in financial flows among

nations; the inequalities that exist within the industrialdemocracies are just as dangerous.

Johnson, who thunders away against the politicalinfluence of the financial industry on the influentialwebsite the Baseline Scenario, spent only 18 months atthe IMF before leaving in August 2008 to denounce thepolitical power of the banks — first in an article in theAtlantic (“The Quiet Coup”), then on his blog, andfinally in 13 Bankers. The big financial firms havebecome an oligarchy, Johnson argues, comparable tothose in, say, Argentina, Indonesia, or Russia — a self-perpetuating elite able to use its economic power to dic-tate government policy even in the midst of a meltdown.Only a bust-up of the biggest banks, based on antitrustprinciples, would curb their power. With the passage ofthe financial reform act, Johnson lost the battle, at leastfor now.BEST10BOOKS

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Does the debate sound familiar? It is reminiscent ofthe climate of opinion in the United States in 1912, inthe aftermath of the Panic of 1907. Expert opinionthen, too, was bitterly divided about what to do aboutthe “money trust.” In a four-way presidential race —Republican William Howard Taft, “Bull Moose” trust-buster Theodore Roosevelt, Socialist Eugene Debs, andDemocrat Woodrow Wilson — the centrist Wilsonwon. The Federal Reserve System was established, butotherwise banking continued its familiar patterns.

But we haven’t seen a panic like the one that beganin 2007 before. That is why, in my view, Gary Gorton’sSlapped by the Invisible Hand stands out clearly as thebest business book of the year on the economy. He tellsus what happened, and we will be quicker to understandthe next mania, panic, and crash because of it.

A hundred years ago, political scientist Theodore bestbooks2010

leadership

Marburg noted that every panicbrought something new to light.“Accumulating experience should in time enable us toprolong the interval of recurrence,” he wrote, “if noteventually to prevent the recurrence entirely, just as epi-demics of disease, formerly thought inevitable, are nowprevented.” It took a while, but he was right. Once wegot the hang of it, the quiet period lasted three-quartersof a century. +

BEST10BOOKS

Manfred F.R. Kets de Vries,Reflections on Leadershipand Career Development: Onthe Couch with Manfred Ketsde Vries (Jossey-Bass, 2010)

Charlene Li, Open Leadership:How Social Technology CanTransform the Way You Lead(Jossey-Bass, 2010)

Howard Kunreuther andMichael Useem, eds.,Learning from Catastrophes:Strategies for Reaction andResponse (Wharton SchoolPublishing, 2010)

Robert I. Sutton, Good Boss,Bad Boss: How to Be theBest...and Learn from theWorst (Business Plus, 2010)

Highlights IN A

Low Yearby Walter Kiechel III

t hasn’t been a good year for leaders, or for books onleadership. Can you think of a political honcho, withthe possible exception of Brazilian president Lula daSilva, who hasn’t been battered by anti-incumbent

anger? Corporate chiefs fared little better, the heads ofBP and Goldman Sachs being only the most brightlypainted targets.

Although most of the leadership books publishedthis year were not whipped up in a few months’ time —to be sure, some read as though they might have been—

I

David Warsh ([email protected]) is the proprietor ofEconomicPrincipals.com, an independent economics journalismsite. He covered economics for the Boston Globe for 22 years andis a two-time winner of financial journalism’s Gerald Loeb Award.

LEADERSHIP

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the sourness of this low, mean year seems to have infect-ed even those that took a long time to create. Don’t lookto the current crop for a paradigm-shifting new way tothink about what leaders do or who they are. Expect tobe trotted through lots of overly familiar ideas and pre-cepts: Self-awareness is critical to a good leader, forexample (who knew?), and the right kind of leadershipcan make a whopping difference to the productivity ofthe team.

The books that break through the prevailing torpordo so mostly by confronting traditional notions of lead-ership with new circumstances, slap-in-the-face chal-lenges almost “ripped from the headlines” (though bynow even that phrase seems pretty old). How do youlead in a world where everyone under 40 appears to beFacebooking and tweeting? What can you do to prepareyourself and your organization for those supposedlyonce-in-a-generation disasters that seem to be occurringevery other month — a market-freezing global financialcrisis today, a region-crippling oil spill tomorrow? Andinstead of wasting time debating the finer points ofleader versus manager, what if we should just be think-ing about “bosses”?

Head ShrinkingWith a twist appropriate to this topsy-turvy year, thevery best book on leadership represents a return to, ormaybe a retreat into, a form of classicism. Reflections onLeadership and Career Development, by Manfred F.R.Kets de Vries, collects and updates articles written overthe past three decades by one of the foremost propo-nents of what might be termed — though probably notby its practitioners — the psychoanalytic school of leader-ship. It’s the second in a trilogy whose not completelyfelicitous subtitle gives away the author’s bias: “On theCouch with Manfred Kets de Vries.”

The psychoanalytic school fielded some intellectualpowerhouses in its time: Elliott Jaques, who first identi-fied and labeled the “midlife crisis,” as well as AbrahamZaleznik at Harvard Business School and Harry Lev-inson at Harvard Medical School. But of late, it hasn’tbeen heard from much. Indeed, Kets de Vries, at age 68,strikes me as the only big name still in the fray. Dutchby birth and educated in Amsterdam, at Harvard (hewas a doctoral student of Zaleznik), and in Montreal,today he operates from multiple bases, including a pro-fessorship at INSEAD, a leadership coaching center

he established there, and hisown consulting firm. He is the

author, coauthor, or editor of some 30 books. (See“Manfred F.R. Kets de Vries: The Thought LeaderInterview,” by Art Kleiner, s+b, Summer 2010.)

As a mode of therapy, psychoanalysis has been over-shadowed by the rise of new treatments (cognitivebehavioral therapy, for one), new drugs (Prozac andother serotonin-manipulating antidepressants), andskepticism about the scientific underpinnings of Freud’stheories. But if you’re prepared to accede to a few seem-ingly commonsense generalizations — that our pastshapes the kind of individuals we become, that ourbehavior often unfolds in repetitive patterns — you canstill find in the psychoanalytic viewpoint a trove ofinsights that are helpful or at least provocative. Kets deVries mines this vein for all it’s worth. To be sure, he’dprobably say his work is rooted in psychology ratherthan in a narrow Freudianism, but it’s squarely in thetradition of the (arguably) good doctor and his intellec-tual heirs.

As is the case with most collections of pieces thatwere previously published separately, the individualessays assembled here don’t always fit obviously into thethree buckets into which Kets de Vries sorts them: theorigins of leadership, leadership and personality, andleadership and career development. My advice would beto forget the organizing architecture— the book is moremosaic than unfolding argument — and just plungeinto the chapters whose titles catch your eye, whetherit’s “Leadership Archetypes: A New OrganizationalConstellation,” “The CEO Life Cycle,” or “Listeningwith the Third Ear.”

You will be rewarded with sharp-edged observationscouched in pithy phrases that open up explanations ofhow particular, recognizable types of executives behave.Backing these up are sketches of the inner forces thatshape behavior and descriptions of how these often traceback to childhood. This is the beauty of the psycho-analytic school: More than any other approach, it at-tempts to get at the “why” of leadership. What makessome individuals more inspiring than others? Whatwishes, hopes, and fears, maybe not all of them availableto our consciousness, propel us into the role of leader, orof follower?

Consider, for example, Kets de Vries’s first chapter,“Narcissism and Leadership.” His starting point that“Narcissists live with the assumption that they cannotreliably depend on anyone’s love or loyalty” may be thesingle best one-sentence summary of what you needto know about such characters. After a quick marchBEST10BOOKS

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through the clinically recognized symptoms of narcissis-tic behavior, he takes us on a quick exposition of threevarieties and their family backgrounds. The “reactives”work so hard and so anxiously to maintain their inflatedsense of themselves that they’ll distort reality beforeadmitting anything is wrong. The unending quest of the“self-deceptives” to live up to exaggerated parentalexpectations leaves them with little emotional energy toshare with others. And the “constructives” remind usthat we can all use a touch of narcissism if we’re to bebold, thoughtful, and even introspective.

Such analysis isn’t mere theory-spinning. For me,the careful diagnosis and the etiology make the adviceKets de Vries offers all the more credible. For instance,don’t expect to change a narcissistic personality — boy,has that proved true in my managerial experience— butknow that devices like 360-degreefeedback may let subordinates alertthe organization to one gatheringsteam. And whatever you do, don’tassign credulous, insecure, and inex-perienced people to work for El LocoGrande; they’ll only feed a disaster inthe making.

The delights and rewards ofReflections on Leadership and CareerDevelopment extend beyond puttingparticular types on the couch. You’llencounter an elegant model of howyour “inner theater” — your needs,temperament, even place in the birthorder— shape the competencies youdevelop and your leadership style. There’s also a fullmeasure of the cool, reflective wisdom that a readerwould hope for from an author who has spent yearscounseling executives. Learn why no CEO should spendmore than 10 years in the post (and why Kets de Vriesthinks eight an even better limit). The author’s thoughtson retirement are in themselves worth a few long walkson the beach: “It has often been said that as we grow old,we have to give up certain things. I prefer to reframe thestatement and say we grow old if we fail to give up cer-tain things.”

Getting Out ThereNo one would use the word ruminative to describeCharlene Li’s Open Leadership: How Social TechnologyCan Transform the Way You Lead. Her book is perky,buzzy, and full of action recommendations and self-

audits that leaders can use togauge how their organizationsare doing on various dimensions of openness. You cantell that the author has been doing a lot of presentationssince she coauthored Groundswell: Winning in a WorldTransformed by Social Technologies (with Josh Bernoff;Harvard Business Press, 2008), which discussed the riseof social technologies such as Facebook, Twitter, andYouTube. That volume was called out as a best businessbook in our 2008 roundup.

With lots of real-world examples, some better di-gested than others, Li explores the effect of these newconnective technologies on leadership. She considersthem in two not always carefully distinguished senses:What does it take to be a leading company in thisemerging era of hyper-openness? And what’s required of

a leader in the face of these demand-ing new realities? One executive shequotes, Ron Ricci of Cisco Systems,provides an elegant summary of theunderlying challenge: “Shared goalsrequire trust. Trust requires behavior.And guess what technology does? Itexposes behavior.”

To her credit, Li tackles head-onthe biggest fear that companies regis-ter at the prospect of their peopleblogging, tweeting, or responding tothose who do: “Aren’t we going to”— sharp intake of breath here —“lose control of what is said aboutus, on our behalf, or of what we let

our customers or competitors know?” Li sensibly pointsout that embracing social technology doesn’t automati-cally mean “letting it all hang out,” as a pre-Facebookgeneration used to put it. No, a company still gets tomake choices, as for example Apple does in being openabout a few things, such as its platform, but mostlyclammed-up about everything else. (The author doesallow that you may have to be as successful as Apple toget away with clamming up in the brave new world.)

As for what the new transparency means to individ-ual executives, Li builds on the work of others, such asWarren Bennis’s observation that to be a leader youhave to display qualities that cause people to trust you.“You may be comfortable being authentic and transpar-ent with people within physical shouting distance, butthat’s not sufficient in this new environment,” Li argues.“To develop new open relationships, you’ll have to scale

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your authenticity and transparency.” A necessary firststep is learning to use the technologies yourself. If youfind your skin crawling at the prospect of sharing a fewinner thoughts with anonymous legions out there in theelectronic ether, you may need to look for a differentline of work.

For decades now, firebrands like Tom Peters andHenry Mintzberg have been preaching that leadershipshould be demystified and parceled out within organiza-tions. With the rise of the celebrity CEO, not to men-tion the installation of employee relationship manage-ment software, it has sometimes seemed that they weregetting nowhere. Li’s book inspired me with the happythought that the likes of Facebook and Twitter justmight end up forcing the change that some of us havebeen waiting for all these years. To survive the transition,high-ranking corporate types will have to pick up thesubtlety ascribed to one of Li’s heroes, Om Bhatt, whoas chairman helped revolutionize the State Bank ofIndia, in part through online communication. “Bhatt

did not give up control,” an admirer observed. “He letgo of control.”

Contemplating CatastropheAs recent events have made clear, there may be one areain which you will want to ratchet up the control level.This would be in anticipating and if possible avertingdisaster. For any executive worried that his or her orga-nization might be overtaken by low-probability, high-consequence events, like a credit default swap implosionor a deepwater drilling fiasco, Learning from Catas-trophes: Strategies for Reaction and Response could be thefirst step toward sleeping better at night.

This book is hardly beach reading (unless perhapsyou’re standing on a beach wondering what to do abouta huge oil spill). It’s a collection of 15 scholarly mono-graphs bearing titles such as “Acting in Time againstDisasters: A Comprehensive Risk-Management Frame-work” and “Dealing with Pandemics: Global Security,Risk Analysis, and Science Policy.” The tome’s editors,

Wharton professors HowardKunreuther and Michael Useem,

contribute essays at the beginning and end to frame thediscussion and bring it squarely into the province ofleadership studies.

Thinking about risk isn’t as much fun as, say, forg-ing strategy or concocting a vision of the corporatefuture for everyone to rally around. But trying to imag-ine the almost unimaginable and provide against it maybe the highest form of leaderly stewardship. And whowould say that most corporate leaders have been doinga good job on this front of late?

Don’t read Learning from Catastrophes as you wouldmost other business books — at a brisk clip, looking forthe argument to build, expecting to be handed ready-packaged takeaways. (You’d be driven insane trying.)Experience it instead as the occasion for a series of exec-utive meditations, thought exercises whose benefits willcome at you obliquely. You’re probably not that interest-ed for its own sake in how the Chinese rebuilt theiremergency management system, but in reading aboutthe process you’ll likely find thoughts bubbling up about

your own organization’s preparation — or lack thereof— for coping with the unforeseen.

Not that there aren’t plenty of straightforward pre-scriptions, models, and checklists in Learning fromCatastrophes. The book’s lessons include how to balanceprevention and mitigation, and how to understand thedifference between crisis response and true recovery. Abehavioral economics monograph on the cognitive bias-es that distort our perception of risk, causing us tounderrate the direst possibilities, should leave you botha little scared and a lot more vigilant. The variety of thecontributors and the disasters they treat, from globalwarming to the financial crisis of 2008–09, mean thatwhen you finish the book you’ll have a gratifying sensethat you’ve looked at a tough subject from more anglesthan you thought possible.

Better BossinessFinally, for a head-clearing blast of sauciness, pick up acopy of Robert I. Sutton’s Good Boss, Bad Boss: How toBe the Best...and Learn from the Worst. In a year whentoo many leadership books combined solemn withBEST10BOOKS

“Talk more than others — but not too much.” “Interruptpeople occasionally — but don’t let them interrupt you.”

“Try a little flash of anger now and then.”

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vapid, Sutton’s decision to focus on the figure of “theboss” comes across as thoroughly refreshing. Even afterdecades of study, we may not agree on what constitutesa leader or all the proper functions of a manager, buteverybody knows who the boss is.

If it’s you, however long you’ve been at it, you canprobably benefit from Sutton’s breezy tour of the wis-dom he has distilled from scholarly studies, his ownexperience, and the thousands of responses he receivedto his last book, The No Asshole Rule: Building aCivilized Workplace and Surviving One That Isn’t(Business Plus, 2007). To say that Sutton, a Stanfordprofessor, wears his learning lightly is to understate thecase. At times he wears it like a vaudeville comedian’sgonzo-striped blazer with accompanying plastic bouton-niere shooting water. This is a weirdly merry book, per-fect for a down year — but not anunserious book.

Consider, for example, Suttonon the imperative to take control.Yes, you as a leader have to, he coun-sels, in the sense that “you have toconvince people that your words anddeeds pack a punch.” And he offersup a series of fairly familiar gambitsto that end: “Talk more than others— but not too much.” “Interruptpeople occasionally — and don’t letthem interrupt you much.” “Try alittle flash of anger now and then.”What redeems this from beingmere Machiavellian gamesmanship isSutton’s admission that any control you pretend to isprobably largely an illusion— there’s a lot of play-actingin any executive role, he wants us to know. Hemakes thecase that pushing too hard in the wrong way is a lotmore dangerous than not pushing hard enough. Giventhe danger of the “toxic tandem” — your people arealways scrutinizing you, at the same time that powerinvites you to become self-absorbed — leaders arealways on the edge of becoming bad bosses, or evenworse, bossholes. So he also advises you to blame your-self for the big mistakes, serves you up a seven-partrecipe for an effective executive apology, reminds you toask the troops what they need, and finishes with theinjunction, “Give away some power or status, but makesure everyone knows it was your choice.”

Another chapter title captures the overall aspirationSutton advocates: “Strive to Be Wise.” His is a street-

smart, been-around-the-block-but-still-a-happy-warrior brandof wisdom, rooted in a boss’s understanding of himselfor herself coupled with an appreciation that bosses haveto take action and make decisions, including doing lotsof what Sutton labels “dirty work.” As a boss “it is yourjob to issue reprimands, fire people, deny budgetrequests, transfer employees to jobs they don’t want, andimplement mergers, layoffs, and shutdowns.” Wisebosses understand that although they may not be able toavoid such unpleasantness, how they go about the dirtywork makes an enormous difference. Empathy andcompassion are good places to start, says Sutton. Layeron constant communication with the affected, includ-ing feedback from them you really listen to, howeverpainful it is. Finally, you’ll probably need to cultivate a

measure of emotional detachment,beginning with forgiveness for thepeople who lash out at you. Andmaybe reserving some forgivenessfor yourself.

Indeed,Good Boss, Bad Boss is inits entirety a page-by-page guide tobetter bossly self-awareness. Thevariety of sources cited can be dizzy-ing. On one page you may get asummary of two academic studies, aquote from Dodgers coach TommyLasorda, a recollection of Sutton’sparents, and three examples of badbosses sent in to Sutton’s website. (Attimes, the book seems almost crowd-

sourced and puts one in mind of Charlene Li on thepower of social technology to expose behavior.) Whatgives all this consistency and makes for an enjoyable readis Sutton’s voice throughout — at times yammering, onrare occasions bordering on the bumptious, but in gen-eral so “can you believe this?” ready to laugh at theauthor’s own pratfalls, and so eager to help, that the neteffect is sneakily endearing. Rather a comfort in a low,mean year. +

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Walter Kiechel III ([email protected]) has served as themanaging editor of Fortune and the editorial director of HarvardBusiness Publishing. He is the author of The Lords of Strategy: TheSecret Intellectual History of the New Corporate World (HarvardBusiness Press, 2010).

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Innovation AS A

Social Actby Krisztina “Z” Holly

hen I was a young engineer, I thoughtinnovation was primarily a technolog-ical act aimed at creating new gadgetsand devices. Then I became an entre-

preneur and learned that innovation is also a businessact, requiring the application of sound managementprinciples. Now that I’m in the academic world, work-ing at the intersection of entrepreneurship and innova-tion, I realize that innovation — in its truest, mostproductive form — goes far beyond the marriage of bus-iness and technology. Innovation is first and foremost asocial act, and it requires human connections to thrive.

A surprising number of this year’s books on innova-tion are focused on the application of design principlesto products and companies. They are worthy books, andit’s good to see design thinking gain wider recognition.

But this ground has already beenbroken, and they are for the most

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INNOVATION

Steven Johnson, Where GoodIdeas Come From: TheNatural History of Innovation(Riverhead, 2010)

John Hagel III, John SeelyBrown, and Lang Davison, ThePower of Pull: How SmallMoves, Smartly Made, CanSet Big Things in Motion(Basic Books, 2010)

Clay Shirky, CognitiveSurplus: Creativity andGenerosity in a ConnectedAge (Penguin Press, 2010)

W

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part how-to books — perhaps useful, but not particu-larly original. Instead, the year’s best business books oninnovation explore new territory and illuminate thefundamental social principles that underlie the innova-tion process.

A single thread weaves through these books:Innovation is a team effort. But not a team effort in theways that you might imagine. It’s an effort among indi-viduals, organizations, and society as a whole. Eachbook highlights a different aspect of the social life ofinnovation, along the winding path that ideas takethrough creation, diffusion, and transformation.

CreationTo put the social aspect of innovation in context, let’srewind a few millennia. According to Steven Johnson,the author of Where Good Ideas Come From: The NaturalHistory of Innovation, sometime between 10,000 BC and

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5000 BC, humankind hit a watershed moment: Peoplebegan inventing in earnest. Before that, they built onone another’s ideas so slowly that it took 30,000 years toadvance from mining to metallurgy. But then a big shifthappened. They cast aside their hunter-gatherer waysand settled in cities, and shortly thereafter, a giant explo-sion of innovation occurred. The alphabet, currency,measuring sticks, aqueducts, cement, writing, bread,and wheels — these are just a handful of the vast num-ber of world-changing inventions that our forebearsdeveloped during this period.

Something happened when humans put downroots, Johnson argues. Ideas started bouncing betweenindividuals, growing and improving, in a web of con-nections he calls liquid networks. Unlike a gas, in whichmolecules rarely bump into one another, or a solid, inwhich molecules do not move fromplace to place, a liquid represents afree-flowing, high-contact medium.Cities provided such an environmentfor human thought; ideas collidedwithin them, people learned faster,and ideas spread more widely.

I would point out that thisnotion of liquid networks can alsohelp explain why universities aresuch hotbeds of creativity. Academiais based on the philosophy of sharingand building on ideas in an openenvironment, with students and fac-ulty in close proximity, creating arich intellectual stew. Accordingly,over the years universities have germinated game-changing ideas as diverse and valuable as the Internet,recombinant DNA technology (the basis for thebiotechnology industry), liquid crystal displays, magnet-ic resonance imaging, Kentucky bluegrass, Plexiglas,open source software, the pacemaker, insulin, rocketfuel, and the seat belt, just to name a few.

To support his thesis, Johnson cites a global studyby Geoffrey West, a theoretical physicist and formerhead of the Santa Fe Institute. West found that the cre-ativity of a city scales to the quarter power with respectto size. What that means is that a metropolis 50 timesthe size of a nearby town is, on average, 130 times moreinnovative on measures such as the quantity of inven-tors, number of inventions, research and developmentbudgets, and so on. Further, West found that the aver-age resident in that city is three times as creative as his or

her smaller-town neighbor.Johnson offers double-entry

bookkeeping, a key tool in the practice of capitalism, asan example of an important innovation arising from liq-uid networks. Described by Goethe as one of the “finestinventions of the human mind,” double-entry book-keeping was codified in the trade capitals of northernItaly during the Renaissance. Its development, saysJohnson, stemmed from the spillover of ideas from onemerchant to the next as markets morphed from the feu-dal system into early capitalism, and relationshipsbetween people became less hierarchical and more inter-connected. Interestingly, despite the importance of theinnovation, no one person ever claimed credit for it.

Examples like these have implications for the designof office space and business processes. The proverbial

watercooler — the site of countlessdiscussions ranging from the gossipyto the profound — can have anincredible generative effect. JohnSeely Brown, former director ofXerox PARC (Palo Alto ResearchCenter), once told me how the cen-ter’s coffeemaker was connected toits computer network, sending afriendly notice when the coffee wasbrewed to lure researchers intoimpromptu social moments thathelped feed their creative culture.Organizations as diverse as the high-ly successful Pixar Animation Stu-dios Inc., owned by the Walt Disney

Company, and CERN (the European Organization forNuclear Research), the organization responsible for theLarge Hadron Collider near Geneva, design cafés andsocial areas into the core of their buildings so thatemployees with varying job descriptions can serendipi-tously meet and form their own liquid networks.Executives who are overly focused on titles and report-ing structures should take note: Networks can be muchmore powerful than hierarchies in stimulating the cre-ation and sharing of ideas.

In addition to liquid networks, Johnson explores sixother patterns that underlie especially fertile ecosystemsfor innovation: the adjacent possible, the slow hunch,serendipity, error, platforms, and exaptation (a term bor-rowed from biology for the functional shift of a traitduring an evolutionary process). Each pattern is illus-trated with delightfully fresh and often surprising exam-

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ples from a wide array of sources — history, evolution-ary biology, chemistry, the U.S. Department of Home-land Security, urban planning, digital culture, and neu-rology — which stretch the reader’s mind, cultivatingnew ideas in and of themselves. Although the book doesnot address the social impacts of creativity per se, itsthemes and examples clearly underscore the role thatsocial phenomena play in the shaping and creation ofideas. For these reasons, I feel it is the best business bookof the year on innovation.

DiffusionSocial interaction is a critical factor in the generation ofideas, but innovation is more than creativity. Innovationis the process of transforming new ideas into tangiblesocietal impact. Society plays an essential role in thisprocess, which starts when a concept has sparked butbefore the fire has spread.

An idea is not an innovation unless it is adoptedand scaled, and the innovator’s ability to harness society

in this quest can either make or break the idea.Addressing this challenge, The Power of Pull: How SmallMoves, Smartly Made, Can Set Big Things in Motion, byJohn Hagel III, John Seely Brown, and Lang Davison,starts where Johnson’s book leaves off. (Disclosure: JohnSeely Brown is a friend of mine and a member of theboard of councilors that advises me at the University ofSouthern California’s Stevens Institute for Innovation.)

The Power of Pull paints an optimistic view of theworld based on a new paradigm, called “pull,” which isenabled by an unprecedented acceleration in technologyand can be highly profitable if harnessed effectively.Under this paradigm, individuals and corporations mustdevelop the ability to pull together the building blocksof successful innovation, to “draw out people andresources as needed to address opportunities and chal-lenges,” according to the authors. This new worldbelongs to “global hunter-gatherers” who repeatedlyput themselves into serendipitous situations. They skill-fully attract and connect with one another to rapidly

add value to their projects, andthey add reciprocal value to the

initiatives of others.The pull approach stands in sharp contrast to the

old-fashioned mind-set of “push,” in which organiza-tions try to anticipate demand and push their ideas, inthe form of products and services, out to their cus-tomers. In this paradigm, bigger is better, resources arescarce and centrally allocated, elites do the deciding, andall negotiations are zero-sum games. The authors offercompelling and frightening evidence that this widelyused approach is outmoded and has led to great instabil-ity and diminishing returns for today’s corporations:Competition is intensifying on a global scale, customerloyalty is declining, corporate returns on assets havedropped to less than a quarter of what they were a fewdecades ago, stock prices are much more volatile, andchurn in the S&P 500 is accelerating. By all measures,the authors conclude, corporations are ailing, no matterhow hard they push.

In the push world, knowledge is an asset to be close-ly guarded. But in the pull world, knowledge goes out of

date much too rapidly to hoard. Modern hunter-gather-ers share knowledge because they know they can createmore value by harnessing the flow of new knowledgethan they can by capturing and stockpiling it. Theauthors illustrate this point with examples from the soft-ware and apparel industries, in which companies haveleveraged customers, suppliers, and stakeholders in theirsearch for innovation.

Take, for example, the experience of SAP AG, oneof the world’s largest software companies, during itstransition to a service-oriented architecture. Companyleaders were convinced they had a great product on theirhands. The value of their technology was not the issue.Their concern was customer adoption, and they faced achicken-and-egg scenario in which customers would notbe able to see the benefits of the new product until theyhad worked with it. In light of this conundrum, thecompany launched a series of forums, blogs, wikis, andvideos called the SAP Developer Network, which en-couraged peer-to-peer interactions. With 1.2 millionpeople now participating in these online communitiesand helping one another, the program has been very suc-BEST10BOOKS

Relying on trust-based relationships to accelerateone’s business lies outside the comfort zone of mostcorporations, but it can lead to incredible results.

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cessful at both accelerating product adoption and build-ing and sharing knowledge.

At first, The Power of Pull may sound like a repriseof Henry W. Chesbrough’s book, Open Innovation: TheNew Imperative for Creating and Profiting fromTechnology (Harvard Business School Press, 2003). Butthe authors of The Power of Pull are talking about muchmore than a short-term transactional approach to find-ing and exploiting ideas; they advocate developinglonger-term relationships based on trust.

Relying on such trust-based relationships to acceler-ate one’s business lies outside the comfort zone of mostcorporations, but it can lead to incredible results. I sawthis firsthand in 2009 when the USC Stevens Institutefor Innovation worked with the prestigiousTED confer-ences to conceive and host the first independentlyorganized TED event, TEDxUSC.Given TED’s valuable brand andhigh standard for quality, I was pleas-antly surprised that TED leadersagreed to explore the idea when itwas still in its conceptual stage,instead of trying to maintain fullcontrol and pursue expansion oppor-tunities solely by growing their ownorganization. The latter actionwould have followed the traditionalpush model. But TED’s leaders tooka chance, and once we helped workout the kinks, they established theTEDx licensing program, whichenables nonprofit organizations tohost independently organized, TED-like events. Withina year, nearly 1,000 TEDx events were scheduled in 60languages all around the globe.

The Power of Pull should prompt executives toreconsider how knowledge, intellectual property, andcollaboration are managed within their companies andhow key functions, such as HR, IT, and customer sup-port, should be changed to take advantage of this newparadigm. It should also prompt such questions as: Howcan power and influence be channeled to the company’sedges and into its networks? How can pull enable thecompany to learn faster and better? What would thecompany be like if developing talent were its first prior-ity? And most importantly, how can the business attractand access the intellectual energy of people outside itsborders for maximum scale and success?

Hagel, Seely Brown, and Davison take a broad view

of innovation, citing examples aswide-ranging as multinationalcorporations, teen surfers in Maui, Iranian protesters,World ofWarcraft gamers, and entrepreneurs. The bookis dense; at times it feels as though the authors tried tofit too much into their manifesto. Expect to spend sometime digesting it; its ideas are complex — but also gen-uinely game-changing.

TransformationSociety plays a critical role in the development and suc-cessful diffusion of innovations, but it also affects inno-vations in a third way: It shapes them. And often, itchanges them in ways that are outside the control ofinnovators, meaning that the best innovators can do isanticipate and adapt. A good way to do that is to read

Clay Shirky’s new book, CognitiveSurplus: Creativity and Generosity ina Connected Age.

Shirky, who teaches in NewYork University’s Interactive Tele-communications program, has prov-en to be one of the most insightfulwriters on the revolutionary effect ofthe Internet. In this book, he digsdeep into the social DNA of hu-mankind to tell a story — an unfin-ished story — of an opportunity ofglobal scale that he challenges thereader to meet. In the process, heilluminates how society’s partnershipwith innovation can lead to surpris-

ing and wonderful results.The world has time on its hands, says Shirky, an

inordinate amount of free time totaling more than a tril-lion hours a year, which is now spent mostly in front ofthe television in many modern societies. But instead ofwatching TV, he argues, people should be using thosehours in creative endeavors, sharing their work for soci-etal gain.

I celebrate this as an idea whose time has come —yet again. A hundred years ago most of us would havebeen rolling up our sleeves to make a living or to fixsomething that was broken. Looking further back, thecreative acts of singing, dancing, and telling stories bythe campfire were an essential part of our everyday lives.It’s only recently, in the last half century, that we havebeen turning our backs on our tribal heritage of creatingand sharing. We’ve become consummate consumers, of

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products, services, and media. Fortunately, however, theInternet — our new digital campfire — has finallybegun to patch up our temporary estrangement fromour communal nature.

It is in this context that Shirky introduces a bigopportunity, and it’s only natural that our social sideshould embrace it. The Internet and its tools havereduced the cost of and lowered the barriers to creatingcontent and connecting people. As a result, everyonewho has access to these wonders has the opportunity toshape the future. For instance, the photographs thatpeople upload and the reviews they post by the millionscan become the collective foundation for future applica-tions and communities. With this newfound ability toparticipate, people can contribute to world-changinginnovations, like Ushahidi.com, a crowdsourced, onlinereporting platform that was first usedby Kenyans to report violent crimesin real time, and now has spreadglobally.

Shirky is a great storyteller. Heweaves his points into a journey thatis thought-provoking and accessible;he explores the many facets of socialscience for insights that are fresh andrelevant. Cognitive Surplus strikinglyillustrates how society is guiding theultimate direction of many innova-tions. Businesspeople should takeheed. If they don’t, they might misshow social media is shaping theirindustries, underestimate the oppor-tunity to leverage stakeholders and customers in the cre-ation of their products and services, and fail to grasp theinfluence of open source models on their bottom line.

I would offer Facebook as an excellent example ofharnessing society’s ability to influence innovation. “Icould have never imagined all of the ways people woulduse Facebook when we were getting started 6 years ago,”founder Mark Zuckerberg wrote in July 2010, the daythe company’s user base hit 500 million. Zuckerberg’swillingness to allow his customers to shape his site hasbeen a key ingredient in Facebook’s runaway success.

My one disappointment with Shirky’s book is thatit focuses only on new digital tools, and misses a paral-lel revolution that is enabling people to create and sharein the physical world. The up-and-coming “maker” cul-

ture — highlighted in CoryDoctorow’s sci-fi novel Makers

(Tor, 2009) and Chris Anderson’s article “In the NextIndustrial Revolution, Atoms Are the New Bits” inWired magazine in 2010 — is powered by a new boxof tools accessible to practically anyone: US$2,000CNC (computer numerical control) machines and$1,000 MakerBot 3-D printers, easy-to-program micro-controllers like the Arduino, public open-access work-shops like TechShop, and micro-factories and globalsupply chains ready to manufacture and ship smallbatches of a new product anywhere around the world.Manufacturing is becoming democratized; your next-door neighbor might be building the next electric car ormanufacturing and selling accessories for the iPad.

The implications of this mashup of free time andtools, whether physical or digital, should not be under-stated. Shirky demonstrates how a convergence of op-

portunity, means, and motivationwill enlarge society’s role in innova-tion. The only question that re-mains: What benefit will emerge?Shirky wonders whether we will useour new digital tools for pursuits astrivial as lolcats — or for savinglives. He is optimistic about theanswer. Let’s hope he is right.

The ultimate insight to begained from this year’s best businessbooks is that innovation is a teameffort and we are all on the team. Soalthough innovation concerns trans-lating ideas into societal impact, itequally concerns the impact of soci-

ety on the ideas. It is this complex interplay betweenpeople and ideas that makes the process of innovation sochallenging — and so fascinating. +

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Krisztina “Z” Holly ([email protected]) is vice provost for innovation at theUniversity of Southern California and executive director for the USCStevens Institute for Innovation. She was the founding executivedirector of MIT’s Deshpande Center for Technological Innovation,and has been an engineer and entrepreneur.

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Probing China’sInfrastructureby Sheridan Prasso

oo many books about China fall into one oftwo dichotomous categories: “good China”and “bad China.” In the former, a risingChina presents tremendous opportunities for

those who figure out how to lasso and ride the “greatdragon,” profiting from its enormous economic power.In the latter, China is a threat, a rising YellowPeril–tinged specter of repression and economic domi-nation that imperils Western ideals and global suprema-cy. Both approaches have sold well, but neither offers the

depth of understanding needed by corporate strategists.In order to truly comprehend the opportunities as

well as the risks posed by this massive nation, we need toread deeper. Rather than glossy overviews that postulategrand top-down theories, the best books about Chinastart on the ground and probingly elevate our under-standing. This year, they delve into China’s growingtechnological backbone; the rapid, tendril-like growthof its nationwide highway system; the impact of its eco-nomic development on the environment; and the strate-gic implications of its societal transformation.

Consumers AriseThe unfortunately titled China 2.0: The Transformationof an Emerging Superpower...and the New Opportunitiesappears at first glance to be one of those once-over-light-ly, lasso-the-dragon overviews. It is not. Author andmanagement consultant Marina Yue Zhang grew upin mainland China, received her undergraduate educa-tion from Beijing University (her country’s equivalentof Harvard), and then earned an MBA and a Ph.D.in management in Australia. She combines a well-researched perspective with the nuanced understandingof a native mainlander and filters them through well-communicated critical analyses. The result is a deeplyinformative book that examines the impact of technol-ogy on China’s economic development and ongoingsocial transformation.

Zhang calls this new China “2.0” to distinguish itfrom the monolithic China of old, where informationwas imparted by the government to the people in top-down fashion and economic development was a func-tion of central planning. She argues that “China 2.0 sig-nifies a new phase in China’s development and the needfor completely revamped thinking about what China isand how it works.”

It might be tempting to watch the travails of Googleand eBay in China and think of the Chinese as techno-logically backward and isolated. But Zhang demon-strates that the very opposite is true. Despite livingbehind the great firewall of censorship, more than halfof China’s 1.3 billion people use mobile phones or theInternet. This connectivity is having a profound effect,

T

Marina Yue Zhang with BruceW. Stening, China 2.0: TheTransformation of anEmerging Superpower...andthe New Opportunities (Wiley,2010)

Peter Hessler, CountryDriving: A Journey throughChina from Farm to Factory(Harper, 2010)

Elizabeth C. Economy, TheRiver Runs Black: TheEnvironmental Challenge toChina’s Future (2nd ed.,Cornell University Press, 2010)

Edward Tse, The ChinaStrategy: Harnessing thePower of the World’s Fastest-Growing Economy (BasicBooks, 2010)

CHINA

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according to Zhang. It is mobilizing public opinion andforging a new social order, as well as creating a levelof political transparency and institutional reforms thatChinese leaders had managed to avoid until now.

China 2.0 is filled with surprising statistics. Forinstance, more than 160 million Chinese have a person-al blog or other Web space. Zhang suggests that China’sone-child-per-family generation is looking for socialengagement in cyberspace to compensate for an isolatedupbringing. More than 400 million Chinese are regis-tered for QQ, an instant messaging application, andmore than 75 percent of Chinese Internet users have oneor more instant messaging accounts, compared to just39 percent in the United States. Chinese rely muchmore heavily on instant messaging than they do e-mail,which is easier to censor and track. Only 56 percent ofInternet users in China use e-mail atall, Zhang tells us, and then primar-ily for business communication.

Zhang tracks how connectivityis giving rise to a collective consumerpower that could transform thenature of business in China. Forexample, Chinese consumers usingmainly mobile phones to communi-cate organized a spontaneous boycottof French retailer Carrefour after aFrench pro-Tibet activist attacked awheelchair-bound, retired Chineseathlete during the Olympic torchrelay in May 2008. Carrefour hadnothing to do with the attack, butsuffered the wrath of consumer-driven, nationalisticprotest. “The interconnection of millions of Chineseempowers them as a group, as consumers, and as socialmembers in a political regime to form a collective powerto interact with merchants and policy makers in a waythey never experienced before,” Zhang writes.

Even President Hu Jintao now conducts onlinechats with Chinese netizens, and has publicly stated thathe tries to find time to gauge the public’s reactions togovernment policies via postings on the Internet — andcraft government responses accordingly. “Formerly, theChinese public was a passive receiver of messages fromthe top of society or within very confined boundaries;today everyone can be a newsmaker and broadcaster,”writes Zhang. “This collective power is only getting

stronger and more sophisticatedby the day.” The implications are

significant enough that Zhang advocates building inter-active platforms into all product marketing plans. Shenotes that even a small niche of consumers reached inthis way can create millions of sales — and millions ofpotential boycotters for unprepared retailers and makersof consumer products.

The evolution of the Chinese consumer is a partic-ularly important topic because Chinese government pol-icy and the interests of the West are both focused onpromoting domestic consumption as a driver of futureeconomic growth. So profound is the change thatZhang reports that China’s longtime greeting “Have youeaten?” (Chi fan le mei you? or just Chi le?) — whichoriginated in China’s past famines and hardships— nowhas a 2.0 version among China’s young, urban, connect-ed consumers. They text one another: “Where are you?”

(Zai nar ne?)Some commentators argue that

China’s new form of “state capital-ism” poses a threatening challengeto free markets. Zhang paints amore realistic picture of the natureof Chinese capitalism. It’s neithersingle nor unified, she says. It is abody made up of three separateorgans: state capitalism, which ofcourse is omnipresent; a flourishingsector built on private capitalism;and international capitalism. Theroles of the latter two are often over-looked by those observing Chinafrom the outside in. That’s why it’s

important to have observers like Zhang telling us aboutthe transformative changes unfolding in China 2.0 fromthe inside out. Her contextualized revelations providethe means for a new understanding, even for the well-initiated reader.

Road TripPeter Hessler often seems to stumble across insights inhis epic 7,000-mile road trip across China. Along theway, in Country Driving: A Journey through China fromFarm to Factory, this year’s best book on China, he man-ages to explore the human sides of industrialization,entrepreneurialism, urbanization, the creation of theauto industry, the inadequacies of China’s healthcare sys-tem, and the impact of the headlong building of thou-sands of miles of new highways modeled on the U.S.interstate highway system.BEST10BOOKS

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Hessler chooses his route from the only navigationtool at his disposal — a 158-page pack of road mapspublished by a company called Sinomaps. The roads onthese maps look mostly like squiggly red capillaries with-out names; they tend to disappear altogether when theyenter sensitive geographic areas that the governmentdoes not want exposed to visitors. Hessler decides to fol-low some of the capillaries that snake alongside a seriesof symbols that looks like this: ��������. It’s theoutline of the Great Wall.

China’s car culture is brand new, of course, and vir-tually every Chinese on the road today learned to drivewithin the last 10 years. Sometimes there are no rules ofthe road, driver’s license tests are almost laughable, andChinese people’s ability to read maps is nonexistent.Give rural Chinese people a map and they will turn itupside down wondering what it isand how it works. “In China, it’s notsuch a terrible thing to be lost....China is the kind of country whereyou constantly discover somethingnew, and revelations occur on a dailybasis,” writes Hessler. “The placechanges too fast; nobody can affordto be overconfident in his knowl-edge.... Nobody has today’s Chinafigured out.” So, rather than attempt-ing to paint China with broad-brushgeneralizations, he chronicles the his-tory and social context of life alongits roads in order to illuminate thedramatic changes of the present.

For example, in the 1940s, when the U.S. Armysent jeeps to the Nationalist forces of Chiang Kai-shekfighting the Japanese and the advancing Red Army, thevehicles suffered an inordinate number of accidents.They were designed for the right side of the road, butthe Chinese drove on the left. So the U.S. Army pro-posed that all of China switch sides, and GeneralissimoChiang agreed. This gave a leg up to U.S. automakers,which rushed to enter China when trade openeddecades later — beginning with the saga of AmericanMotors and its Beijing Jeep in 1979, the textbook casefor failed foreign partnerships.

Hessler follows that story to the origin of China’sauto industry: A single Chinese engineer went toEngland and bought equipment from an outdated Fordfactory. Then he went to Spain to acquire designs froma struggling Volkswagen subsidiary making a car similar

to the Jetta. He secretly put themall together in China’s poorAnhui province, contravening Chinese laws that forbidnew car makers to enter the market (which the companylater was able to have changed), and suddenly China hadits very own national car: the Chery (Qirui). CheryAutomobile Company is now China’s largest domesticautomaker, drawing the ire of foreign rivals for continu-ing to copy their designs on the cheap.

In a section titled “The Factory,” Hessler chroniclesa similar episode that unfolds before his eyes in thesouthern province of Zhejiang. A factory that makes thesmall metal rings that connect the straps of women’s brashas sprung up in the new town of Lishui along one ofChina’s brand-new, industrialization-creating toll roads.Its machinery was made according to specifications pro-

vided by the employee of anotherfactory, who committed the parts tomemory while at work and drewthem when he returned home eachevening. After a fair bit of tweakingthe replica, the new factory becameprofitable — and then enduredcopycats of its own. It’s a problemthat many a Western manufacturerhas faced in China, but as Hesslerexplains, it is part of the culture andthe nature of China’s current stage ofindustrialization.

If the reader is tempted tobelieve that the nature of China is tocopy rather than to advance, Hessler

reminds us about Francis Cabot Lowell in the 1800s.“Back then, the United States was the upstart society,and the British carefully guarded the designs for theirwater-powered Cartwright looms,” he writes. “ButLowell visited the mills of Manchester under false pre-tenses and he used his photographic memory to rebuildthe machines in Massachusetts, where his companybecame the foundation for the American textile indus-try.” The implications for China’s future are clear.

Country Driving explores how China clears the landto build new factory towns like Lishui, giving depth andbackground to the protests over land rights that fre-quently pop up in global news articles. It also records thetransformation of a distant suburb of Beijing from ruralvillage to tourist destination — and the creation of aclass of entrepreneurs building restaurants and guest-houses to take advantage of the change — all based on a

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newly constructed road that made the village accessibleto China’s newly minted middle class for the first time.

Hessler’s 2001 book, River Town: Two Years on theYangtze (HarperCollins), which chronicled his time as aPeace Corps teacher in central Sichuan province, hasbeen a must-read for every initiate to Chinese culture.This latest work, by the writer who has been called“America’s keenest observer of the New China,” providesan up-to-date companion and an unparalleled curbsideview of the vast economic upheavals that a decade of 10percent growth has wrought.

Crisis ReprisedAnother probing examination of the impact of China’sspectacular economic growth has resulted in an entirelydifferent type of analysis — an in-depth look at thedepletion of China’s natural resources and skyrocketingrates of pollution. Elizabeth C. Economy’s The RiverRuns Black: The Environmental Challenge to China’sFuture was a pioneering work when it first appeared in

2004. There have been a number of attempts to exam-ine China’s environment since. But Economy’s secondedition, updated throughout, once again proves thebook to be the most comprehensive, well-researched,and thoughtful analysis of China’s growing environmen-tal crisis and its implications for the country’s futuredevelopment. (Disclosure: Economy endorsed my book,The Asian Mystique.)

The new edition examines the policy transforma-tions that have occurred in China over the past two orthree years in areas such as clean energy, climate change,and investment in and development of natural resourcesabroad. It assesses the impact of several recent definingevents on China’s environment and its environmentalpractices: the Beijing Olympics, the global financialcrisis, and the Copenhagen climate change conference.It also traces the latest developments in the country’senvironmental movement: the growing role of environ-mental NGOs as watchdogs of both local governmentsand multinationals, and the appearance of urban-based

environmental unrest beginningin 2007.

Beijing is falling short in its ability to address theflooding, desertification, water scarcity, and fast-dwin-dling forest resources that threaten its future, Economyfinds, and therefore it must increasingly rely on otheractors, including the private sector, to manage theseproblems. Further, environmental degradation in Chinahas contributed to significant public health problems,mass migration, and economic loss. “Ignored fordecades, even centuries, China’s environmental prob-lems now have the potential to bring the country to itsknees economically,” the author writes. She notes thatestimates of the cost of environmental damage nowrange from 8 to 12 percent of China’s US$4.9 trillionannual GDP (as of 2009).

The local impact of these problems is urgently felt.Desertification has already affected the lives and produc-tivity of some 400 million people; in southwest Chinaalone, almost 100 million will lose their land within35 years if soil erosion continues at the current rate.According to the Chinese government, the total land

area in 2007 affected by sandstorms that were caused bydesertification equaled an area half again as big asAlaska. The magnitude of these problems could threat-en the stability of the government. “The authority andlegitimacy of the Communist Party depend on how wellChina’s leaders provide for the basic needs of their peo-ple and improve their standard of living,” Economywrites. “Fundamental to the state’s capacity to meet thischallenge is the environment.... Thus, the environmentwill be the arena in which many of the crucial battles forChina’s future will be waged.”

China’s modern approach to environmental protec-tion mirrors the approach it embraced for economicdevelopment: Devolve authority to local officials, openthe door to private actors, invite participation from theinternational community, and retain only weak centralcontrol. But the result is a patchwork of environmentalprotection in which a few wealthy regions with strongleaders and international ties improve, while most of thecountry continues to deteriorate. Economy, who is theC.V. Starr Senior Fellow and director for Asia studies atthe Council on Foreign Relations, argues that no matterBEST10BOOKS

China’s global influence has grown to the pointwhere companies can no longer separate theirChina strategies from their global strategies.

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what resources are invested, China will need to funda-mentally reform the local political scene — enhancingtransparency, the rule of law, official accountability, andresource pricing — to ensure that the environment willnot produce a severe drag on economic growth and achallenge to the political system. “China’s reform processhas brought an extraordinary dynamism and energy toboth the nature of China’s environmental challenges andits environmental protection efforts,” she writes. “Yet italso increases the uncertainty in attempting to chartChina’s future environmental path.”

As for the likely outcome, Economy envisions threepossible scenarios, handicapping none: China goesgreen to its own benefit and the benefit of the rest of theworld, inertia sets in and the status quo continues, oran environmental meltdown in China (triggered bya prolonged economic downturn inwhich the Chinese focus even moreintently on economic developmentat the expense of the environment)shakes the world. The United States,with its potential to transfer technol-ogy, and “its strong environmentalenforcement apparatus and historyof public participation in environ-mental protection,” could play animportant role in a positive out-come, she notes. “The environmentprovides a natural and nonthreaten-ing vehicle to advance U.S. interestsnot only in China’s environmentalprotection efforts but also in its basichuman rights practices and trade opportunities,” shewrites. At the same time, bold leadership will be re-quired to put in place the mechanisms to make truereform and change possible.

Four ChinasThe business environment for foreign players in Chinahas grown more difficult in recent years as the govern-ment has endeavored to substitute domestic companiesfor overseas investors — to the consternation of the lat-ter, who are being squeezed out of their present marketshares. Consequently, much of the old advice aboutnavigating China’s difficult business environment hasbecome outdated. In The China Strategy: Harnessing thePower of the World’s Fastest-Growing Economy, Booz &Company’s Chairman of Greater China Edward Tse,who was born in Hong Kong and educated in the

United States, provides a com-prehensive update, summing upthe current environment and relating the key tales thatare crucial to understanding it. (Disclosure: Booz &Company publishes strategy+business.)

Tse takes an umbrella approach to describingChina’s business milieu. He says that China’s economyhas four principal drivers: Open China, with its emerg-ing consumer potential that offers short-term retailopportunities and longer-term market share challenges;Competitive China, with its entrepreneurial energy andnascent innovation that is fostering highly competitiveindigenous companies; Official China, with its statecapitalism and economic liberalization; and One WorldChina, with its myriad business links and interdepen-dencies with the rest of the world.

Tse’s main thesis is that China’sglobal influence has grown to thepoint where companies can nolonger separate their China strategiesfrom their global strategies — theymust be integrated. “China is stilltypically viewed as a place ‘outthere,’ a stand-alone location isolat-ed from other aspects of global busi-ness,” he writes. “That will change.”

As China continues to innovate,it will make a bigger contribution tothe laboratory of global production,and its global value chains willincreasingly bring together “compa-nies from China and other countries

in unprecedented networks of businesses that crossnational lines,” Tse writes. He points to Sam Palmisano’sglobalization strategy at IBM, as well as those of KFC,Microsoft, Procter & Gamble, Coca-Cola, Pepsi, andSweden’s Tetra Pak, as examples of the success that suchintegrated strategies can deliver.

Tse delivers the familiar warning against going intoChina with blinders on and stereotypes intact. Instead,he says, companies must recognize that they will haveto deal with the difficult realities of operating there,particularly in terms of the government, and adaptaccordingly. Although this may seem obvious, countlessunsuccessful foreign forays into China have proved howdifficult it is to follow the standard advice. Tse providesa useful reminder: “The most successful one world com-panies will be those that negotiate the multilevel intrica-cies of relationships with officials, value-chain partners,

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and customers, then integrate these elements into aglobal framework. Bringing these complexities intocoherent focus is the foundation of any China strategy.”

The way to achieve this difficult goal, Tse main-tains, is by mustering the strategic vision, versatility, andvigilance needed to build new business strategies thatincorporate the four economic drivers. Versatility, forexample, requires mental fluidity and resilience, speed ofaction and organizational nimbleness, coordinated oper-ations among markets, constant monitoring of newdevelopments, managing human capital, establishingand maintaining relationships in China, running Janus-faced operations, and having an effective executive inChina. Again, obvious, but not always heeded by for-eign players.

“No other country resembles China. No othercountry has so many opportunities — and challenges.And no other time has been so crucial for entering

China as now,” Tse concludes. “The paradoxical truth,however, is that a China strategy is not a strategy forentering China. It is a strategy for creating a global busi-ness, in a way that prepares for something that may behappening for the first time in history: the knittingtogether of worldwide enterprise into a coherent whole.”

Whether such a rosy scenario will be borne out re-mains to be seen. Yet it’s clear that a changing, growingChina is inevitable. The best means of navigating itschallenges, then, are knowledge and preparation. Thisyear’s best books on China are a good place to start. +

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Sheridan Prasso ([email protected]) has been writingabout Asia for more than two decades, having been based in China,Hong Kong, Japan, and Cambodia. She is a contributing editor atFortune and was previously Business Week’s Asia editor. An associatefellow at the Asia Society, Prasso is the author of The Asian Mystique:Dragon Ladies, Geisha Girls and Our Fantasies of the Exotic Orient(Public Affairs, 2005).

Rob Goffee and Gareth Jones,Clever: Leading YourSmartest, Most CreativePeople (Harvard BusinessPress, 2009)

Boris Groysberg, ChasingStars: The Myth of Talent andthe Portability ofPerformance (PrincetonUniversity Press, 2010)

Jody Heymann with MagdaBarrera, Profit at the Bottomof the Ladder: Creating Valueby Investing in YourWorkforce (Harvard BusinessPress, 2010)

Talent Redefinedby Sally Helgesen

eter Drucker famously defined a knowledgeeconomy as one in which the human brainprovides the primary means of production.He then noted the obvious corollary: that an

organization’s most valuable resource is lodged in theheads of its employees and goes home with them atnight. In the decades since, this disturbing vision of theirassets streaming out of the building every night has ledmany companies to make a reappraisal of the value of

P

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their employees and to place a higher premium on tal-ent. But it has also led to a somewhat overexalted viewof the role that star performers play in organizations andthe extent to which enterprise is dependent upon indi-vidual talents.

The consequences of this overvaluation are many.The continuing wild escalation in senior leadership pay— often in defiance of performance — is a direct resultof our infatuation with star performers, and our belief intheir almost totemic power to produce results. It has alsocreated a cult of individualism that causes many gen-uinely talented people to misunderstand the nature oftheir contributions, and to view themselves as freeagents when they are not. Finally, it has perpetuated anindustrial mind-set based on rigid distinctions betweenthose who make decisions in organizations and thosewho carry them out, bolstering the elitist presumptionsof the former and negatively affecting the performanceof the latter.

This year’s best business books on human capitalsuggest that this approach to talent is now due for a cor-rection. Each sounds a cautionary note about overvalu-ing individual talent and suggests specific practices toaddress the resulting imbalances. (See “The ThoughtLeader Interview: Vineet Nayar,” by Art Kleiner andVikas Sehgal, s+b, Winter 2010.) Each of the books alsomakes clear that the school of talent strategy that wasfocused primarily on star performers and so-called highpotentials is obsolete, and that it is time for a more inte-grated and contextualized understanding of the valuethat human capital provides.

Clever ManagementClever: Leading Your Smartest, Most Creative People, byRob Goffee, a professor of organizational behavior at theLondon Business School, and Gareth Jones, a fellow atthe school’s Centre for Management Development,reinterprets the relationship between talent and theorganization in knowledge-based environments in afresh and compelling way. The authors define this rela-tionship as an “interdependence among equals.” In theirview, talent is as critically dependent on organizations asorganizations are on talent. And they believe that bothtalented people and their employers tend to underesti-mate the importance of this mutuality.

Goffee and Jones argue we need a more realistic wayof understanding the role that organizational resourcesplay in the exercise of talent; they believe we also neednew approaches to leading talented people. Argue is the

operative word here, for Clever iswritten as a manifesto. It eschewsfootnotes for passionate advocacy that is couched inclear and commonsense terms. This approach serves thereader well: Clever is wonderfully written, immediatelyengaging, and structured to provide a clearly articulatedpoint of view.

In the authors’ formulation, cleverness is not just acatchy synonym for talent; it’s a way of understandinghow talented people — defined as “people with thepotential to create disproportionate amounts of valuefrom the resources that an organization makes availableto them” — operate in the context of enterprise.“Clevers” are talented people who require an organiza-tional context to thrive and provide value. This makesclevers different from talented individuals who are ableto create value on their own, such as artists and solomusicians. The authors argue that the star system thathas developed around this latter group, as well as theprevailing infatuation with so-called free agents, has dis-torted how we understand the former group, making itdifficult to differentiate between the two.

Most books on talent speak in glowing (and oftengeneric) terms about their subject, but Clever paints amore balanced portrait. The authors, for example, areexplicit about the destruction that talented people canwreak, rightly pointing out that many highly dysfunc-tional organizations are full of clever people.

The book describes the characteristics that distin-guish clevers. For example, the authors observe that astrong belief in their own intellect is central to the iden-tity of clever people, which can make it difficult forthem to let go of a project when it’s time to move on.They note that clevers see themselves as highly inde-pendent and self-reliant, and usually care more aboutprojects that engage them than they care about theorganization as a whole. In other words, they have afree-agent mentality, and thus often fail to recognize theextent to which they rely on organizational resources tobring their passions to fruition.

At the same time, Goffee and Jones make clear thatclever people are not easily replaced in organizations.This is because the knowledge they hold is, almostby definition, tacit. Their skills are in many ways morelike the craft skills of the medieval period than thecodifiable and communicable skills that typified theIndustrial Revolution. As a result, cleverness is hard tocapture in conventional knowledge management sys-tems, and clever people know this: It is one reason they

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value themselves so highly.Clevers need leaders who are explicit in their rec-

ognition of the symbiosis between individual achieve-ment and organizational requirements, firm in repre-senting the needs of the latter, and skilled in providingopportunities that enable clever people to make themost of their talents. Much of the book is thereforedevoted to an examination of how to lead clevers —both as individuals and in teams. In one of the most use-ful and original sections of the book, the authors createa typology of clever teams based on the distinctive waysin which clevers perceive themselves: as techies, cre-atives, problem solvers, professionals, strategists, or sen-ior managers. The authors explain the inherent strengthsand characteristic weaknesses of each type, and givehighly specific suggestions for how to lead them toaccomplish larger objectives.

Goffee and Jones emphasizethroughout that authenticity is re-quired of anyone who seeks to man-age clevers. This is in part becauseclevers respond best to respect, butalso because they are quick to recog-nize and reject insincerity as well asboilerplate explanations and genericmotivational spurs. Interestingly,research indicates that the youngestgeneration of workers — oftenreferred to as millennials — place asimilarly high value on authenticcommunication. This suggests thatleaders in the knowledge economyshould cultivate their ability to listen and to empathize.It seems that the management of human capital willrequire leaders to become more human.

Talent in ContextFor readers who find Clever light on supportingresearch, Chasing Stars: The Myth of Talent and thePortability of Performance is a perfect companion vol-ume, as well as a brilliant book that offers extensive doc-umentation. It is also the best business book of the yearon human capital.

In it, Boris Groysberg, an associate professor in theorganizational behavior unit at Harvard BusinessSchool, offers robust support for the view that talent ina knowledge economy must be understood in an orga-

nizational context. His thesis,derived from classical human

capital theory, is that superior performance is achievedwhen talented individuals optimally leverage organiza-tional resources. His findings, and the force and richnessof both his data and his presentation, should have anindelible effect on how we understand exceptional per-formance. He also offers clear cautionary lessons aboutthe portability of talent.

Groysberg anchors his observations in the results ofan in-depth, eight-year study of one of the mostemblematic professions in the knowledge sector: WallStreet analysts. He chose this group of professionals fortwo reasons: It offers a shared, objective, and publiclyavailable means for measuring performance, in the formof Institutional Investor’s annual analyst rankings, and itconstitutes a “remarkably compact” labor pool that islarge enough to produce valid observations but small

enough to lend itself to coherentstudy. Groysberg was also attractedto analysts as a subject because thebelief that individual talent is theprime determinant of analyst per-formance has become a virtual arti-cle of faith onWall Street — amonganalysts themselves as well asemployers, investors, and the com-panies they cover.

Like Goffee and Jones, Groys-berg notes that the analysts —clevers in every sense of the word —routinely overestimate their ownvalue and underestimate the role oforganizations in providing a plat-

form that supports and enables their performance.Like other knowledge stars, Wall Street analysts

tend to see themselves as free agents. This is a signal mis-take in Groysberg’s view, because overemphasizing theirindependence often leads them (and their organizations)to imagine that their skills are highly portable. In fact,as his study reveals, the performance of star analystsdeclines sharply when they leave firms in which theyhave flourished.

Groysberg also posits that the dependence of talenton context makes knowledge more fragile than previous-ly assumed, and more dependent on skillful leadershipand carefully nurtured development. Such developmenthas become difficult to sustain in an environment inwhich short-term market pressures dictate organization-al decisions. The sad story of Lehman Brothers providesa case in point. Groysberg finds two periods in whichBEST10BOOKS

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the firm’s brilliantly led research department accountedfor repeated high annual rankings for its analysts. But healso finds that subsequent market pressures, especiallythe demand for cost cutting in the run-up to the com-pany’s IPO, led to rapid declines in these capabilities.

Although the evidence is strong that outstandingperformance is firmly tied to organizational support,Groysberg points out situations in which this generalrule does not apply. Not surprisingly, firm-specificknowledge tends to transfer less well than more generalskill sets. Thus, star performers from companies with astrong culture, clear team structure, active developmentprograms, and proprietary technology programs tend todo worse after leaving for greener pastures than thosewho have made their mark in firms that provide fewresources and essentially treat employees as free agents— the old Donaldson, Lufkin &Jenrette (DLJ) being an example ofthe latter. Companies such as DLJthat invest less in their people fostertalent portability, which exposesthem to high turnover and makesthem the incubators of the success ofother firms. The transfer of wholeteams — what Wall Street calls lift-outs — also appears to improveportability and increase the odds thatstars will maintain high performance.

Groysberg’s data additionallyreveals that female star analysts’ tal-ents are more portable than thoseof their male counterparts, withwomen’s performance improving rather than decliningfollowing a move. Drawing on interviews, he suggestsseveral reasons for this. First, women are more likely tobuild the kind of external relationships that provide sup-port during a move, often because their relationshipswithin their own firms are weak owing to cultural con-straints. Second, women’s work experience makes themmore skeptical of the idea that individual brilliance isenough to overcome entrenched cultural barriers. Third,women are more likely to weigh a variety of factors,including cultural fit, when contemplating a move,whereas men are more likely to base their decision onsalary and bonus alone.

Groysberg’s work calls into question the concept ofan elite workforce of free agents building individualportfolios of skills — a concept that took hold in thewake of Drucker’s observations about the primacy of

human capital in a knowledgeeconomy. Groysberg shows how“lateral demand poaching,” which is based on theassumption that performance is highly portable, is driv-ing up compensation, and he suggests that companiesrethink these beliefs given the highly speculative marketfor human capital that has developed. He also showshow these assumptions have made it more difficult fororganizations and their leaders to undertake the hardwork needed to skillfully integrate exceptional talentinto a larger whole.

Finally, Groysberg makes the case that the cult ofindividualism that has long been operative in the West— an ideology that is only becoming more entrenchedon Wall Street — has led us to misunderstand howtalent gets translated into achievement. He posits that

the growing influence of Asia’s morecommunal cultures will inevitablybegin to change this, leading usto a more refined understanding ofthe factors that foster exceptionalperformance.

Talent EverywhereJody Heymann, in her meticulouslydetailed Profit at the Bottom of theLadder: Creating Value by Investingin Your Workforce, also asks us torethink how we perceive and definetalent. She notes that in the past twodecades, companies have tended toview employees as representing two

highly contrasting camps.In one camp are well educated, professional knowl-

edge workers: the clevers, the high potentials, the stars.Companies tend to court this cohort, try to engage theirdeepest motivators, and pay them well to keep themperforming. Most literature about talent focuses onthese employees and, as Heymann points out, most ofthe firms that appear on “best companies to work for”lists tend to restrict their employee-friendly policies tothose at the high end of the ladder.

In the other camp are “bottom-of-the-ladder”workers, who are widely assumed to be interchangeablein the old industrial mold. These employees — assem-bly-line workers, call center operators, retail clerks— aretypically regarded as a cost that must be continuallyreduced if the organization is to achieve a competitiveadvantage. Even managers who don’t entirely buy this

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line of reasoning feel pressure to adopt it because ana-lysts routinely upgrade their valuations of companiesthat cut costs on bottom-tier labor, which is simply notviewed as an asset.

Heymann makes the case that this rigid divisionbetween those who are assumed to add essential valueand everyone else is itself a manifestation of an industrialmind-set, with its stark divisions between the heads andthe hands. Whereas Clever and Chasing Stars ask compa-nies to reexamine their often exaggerated presumptionsabout the stand-alone value of the heads, and place theirvalue in a broader organizational context, Profit at theBottom of the Ladder asks them to rethink their pre-sumptions about the potential of the hands, and to de-velop new ways of understanding, measuring, and sup-porting the value they can provide.

Like Chasing Stars, Heymann’s book is the resultof a wide-ranging multiyear study, though her popula-tion is the polar opposite of the high-performing ana-lysts whom Groysberg examined. Heymann’s team re-

searched the relationship between profitability in themarketplace and good working conditions for bottom-tier employees in small, midsized, and large firms in amix of sectors around the world, some publicly tradedand others privately held. She interviewed and observedworkers employed by an Alabama brick manufacturer, aNorwegian roofing supplier, an Australian auto partsmanufacturer, a South African scrap metal dealer, aPeruvian social services provider, and an Indian cementmaker, among many others.

In the course of her investigations, Heymann “wentfrom believing that it was possible for companies toimprove working conditions while being profitable…to realizing that the majority of the companies we stud-ied had increased their profitability by investing in theiremployees at the bottom of the ladder.” Her findingscall into question the conventional wisdom held byfirms, and the analysts they seek to impress. She alsodebunks the widespread belief that profitability isbetter served by providing incentives at the top of the

ladder than by providing them atthe bottom.

The book is organized as an integrated series of casestudies. Each case shows how at least one companyachieved remarkable financial results while addressing aspecific element of frontline working conditions: wages,flexibility, healthcare, training, the establishment ofcareer tracks, profit sharing, etc. The cases help readersbetter understand the measurable value that well-trained, motivated, engaged, and healthy frontlineworkers can bring to organizations. Taken together, theyprovide strong evidence that profitability is dramaticallyincreased when companies improve the quality of life oftheir bottom-tier workers.

Heymann finds that many executives undervaluethe potential of this approach because they have littleunderstanding of what bottom-tier workers actuallyknow and do. They therefore have no way to measurehow improving performance in the lower ranks mightbenefit the larger organization. Conversely, she findsthat organizations in which senior managers have bot-tom-tier experience do a much better job of leveraging

the economies of knowledge available on the front lines.Heymann offers Costco as an example. Because the

company promotes from within (a policy it views as acompetitive response to a shortage of talent) and becauseinternal data suggests that those who have worked theirway up the ladder make better leaders, Costco’s seniormanagers are intimately aware of the value that skilledand experienced bottom-tier employees can provide.Costco CFO Richard Galanti, for instance, who explic-itly condemns the pressure that Wall Street exerts on thecompany to cut frontline costs, argues that profitabilityin the big-box sector is highly dependent on volume persquare foot, which in turn is affected by the productiv-ity of the front rank of employees. He also notes thatcostly turnover, frequent absenteeism, communityresistance (which has proven expensive for Walmart),employee class action suits, and inventory shrink (someof which is due to employee theft) are routine short-term costs that analysts and most senior managers rarelytake into account, and that these measures skyrocketwhen frontline employees are treated purely as anexpense. As another Costco executive observes, “WhenBEST10BOOKS

Profitability is dramatically increased when companiesimprove the life of their bottom-tier workers.

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employees feel aggrieved and shortchanged, you arealways going to pay a price.”

Heymann shows that careful planning is required tobuild the right incentive structure for bottom-tier work-ers, who are highly sensitive to small spurs that enablethem to be more productive. She gives examples of com-panies that have done a good job of calculating thesestructures to support goals such as better teamwork,fewer defects, and more effective cross-training. Shetraces the development of virtuous circles of skill im-provement that can occur when companies take thetime to understand the nature of bottom-tier work. Andshe shows how resistance to valuing and supporting theseemployees can be overcome at the supervisory level.

Heymann and all the other authors of this year’sbest business books on human capital are explicit in

challenging widespread assump-tions about talent, knowledge,and value creation. They describe in detail what leader-ship in a knowledge economy really requires, addinginsights to Drucker’s famous formulation. In doing so,these authors shift the focus on talent from an overem-phasis on stars to a richer, broader, and more contextualview of how people add value to organizations. +

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Sally Helgesen ([email protected]) is a contributing editor ofstrategy+business. She is an author, speaker, and leadership devel-opment consultant whose books include The Web of Inclusion: A NewArchitecture for Building Great Organizations (Doubleday, 1995) and,most recently, The Female Vision: Women’s Real Power at Work (withJulie Johnson; Berrett-Koehler, 2010).

HUMANMINDRichard S. Tedlow, Denial: WhyBusiness Leaders Fail to LookFacts in the Face— and Whatto Do about It (Portfolio, 2010)

Michael J. Mauboussin, ThinkTwice: Harnessing the Powerof Counterintuition (HarvardBusiness Press, 2009)

Chip Heath and Dan Heath,Switch: How to Change ThingsWhen Change Is Hard(Broadway, 2010)

Paul Sullivan, Clutch: WhySome People Excel UnderPressure and Others Don’t(Portfolio, 2010)

Daniel H. Pink, Drive: TheSurprising Truth about WhatMotivates Us (Riverhead, 2009)

THE

You Are WHAT

You Thinkby Judith E. Glaser

n 1931, Alfred Korzybski, a Polish-American scientistand philosopher, coined the phrase “the map is notthe territory” to distinguish the words we use todescribe reality from reality itself. He said that we

tend to confuse the map with the territory, and we oftendon’t realize that we are confused. We communicate

I

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with others as if we all share the same map — and thesame world — which causes conflict and collisions.

General semantics, the discipline that Korzybskipioneered, studies the relationships between the mapand territory: the ways in which the words we use affecthow we think and, ultimately, how we act. In thedecades since he introduced his pioneering concepts, wehave learned — in part because of technologies such asfMRI that enable neuroscientists to study how thehuman brain works in real time and full color — thatKorzybski’s theories tell only part of the story. Wordsand thoughts are not always accurate reflections of real-ity, but they can and do provide the impetus for reshap-ing reality.

This year’s best business books on the human mindexplore the implications of the relationship between per-ception (what we see) and reality (what is), and argue forthe use of mind-awareness approaches in managing real-world problems and issues. Neuroscience research hasbegun to confirm that brain connections are formed

socially; when two people connect through a conversa-tion, their neural pathways (as illuminated by fMRIscans) take on similar patterns. These changes in brainpatterns are reinforced by further conversation — sothat an organization that successfully draws employeesinto repeated patterns of thought and action may liter-ally rewire their neural pathways. These pathways arefurther reinforced by the reactions of hormones, neuro-transmitters, and other chemicals within the body.

Each of these books, in its own way, explores thecontradictions between these findings and the conven-tional wisdom about behavior and the workplace. Theauthors integrate neuroscience into everyday life, shine alight on how we map the territory of our perceived envi-ronment, and help us figure out ways to map that terri-tory more constructively.

Deniers Never ProsperIn Denial: Why Business Leaders Fail to Look Facts in theFace — and What to Do about It, Harvard Business

School professor and businesshistorian Richard S. Tedlow tells

tabloid-worthy tales of what happens when businessleaders find reality so unappetizing that they refuse toacknowledge it. The stories are of well-known compa-nies, including Ford, A&P, IBM, and Coca-Cola, andthe details and drama that Tedlow packs into them earnthe book the title of best business book of the year onthe human mind.

The executives featured in the stories travel differentpaths to failure, but they all separate themselves fromreality by acting as if their maps are the territory. Theyrefuse to adjust course even in the face of oppositionfrom trusted advisors and incontrovertible evidence thatthey are following the wrong path. Thus, for example,Henry Ford’s success with the Model T blinded him tothe desires of his customers, and gave General Motorsthe opportunity to capture a winning share of the auto-mobile market with a broader range of models andoptions. And the executives at A&P stuck with the gro-cery chain’s private-label products even as their cus-tomers defected en masse to supermarkets that carried

the national brands they saw advertised on TV.The good news is that companies can recover from

denial, even when they seem permanently wed to theirhistories, their philosophies, or their belief systems.Tedlow points to IBM, which got caught up in its own“bureaupathology,” but learned, with Louis Gerstner’shelp, to conquer arrogance and overcome its history andculture. He says that Intel, DuPont, and Coca-Colawere also able to recover from denial by activating new“cultural DNA.”

Tedlow offers different approaches to staying clearof the pitfalls of denial in each chapter. They includelooking truth in the face every day — identifying howand where people are dismissing the truth or rationaliz-ing their version of reality. In all cases, however, gettingahead of the denial curve is vital. Tedlow says that exec-utives can accomplish this by encouraging straight talk,challenging assumptions, avoiding groupthink, andkeeping their eyes open to the symptoms of denial intheir own thinking and in others.

Denial explains why the “smartest people in theroom” (as Enron’s top executives were famously called)BEST10BOOKS

Companies can recover from denial, even whenthey seem permanently wed to their histories, their

philosophies, or their belief systems.

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can sometimes be very dumb. It’s a wake-up call to besure that we don’t allow ourselves to confuse our mapswith the actual territory.

Better Decision MakingPeople make decisions by building models in theirminds that are based on what has worked in the past,and then using those models as templates to follow. InThink Twice: Harnessing the Power of Counterintuition,Michael J. Mauboussin, chief investment strategist atLeggMason Capital Management and adjunct professorat Columbia Business School, argues that old mentalmodels can contain traps that lead to flawed decisions.Conversely, recognizing these mental traps can raise theprobability of making good decisions.

Mauboussin takes us into the dark alleys of thehuman mind where decision makerscan easily go astray. In chapter one,for example, he describes how we fallprey to three illusions that lead topoor decisions: We suffer from thebelief that our ideas are superior tothe ideas of others, the inclination tooverestimate our chances of success,and the perception that we havemore control over situations than weactually have. Deniers beware!

There is a long list of other trapsin the book. When you go into astore to buy one thing and come outwith another, you may have been avictim of “priming.” You thoughtyour mind was made up before you went into the shop,but you were a lot more susceptible to influence thanyou realized. How susceptible? Mauboussin cites a studythat found that 77 percent of people shopping for winein a supermarket bought French wine when Frenchmusic was playing and 73 percent bought German winewhen German music was playing. Yet nine out of 10people claimed music did not influence their choices.

Crowd or herd behavior also influences our decisionmaking. In chapter four, Mauboussin describes how weare overly influenced by authority and by our desire tobe insiders. In studies in which groups were asked tosolve puzzles, people posing as subjects were able to getthe groups to agree to answers that they originallythought were wrong.

The failure to account for context is a decision-making trap that causes much grief in organizations.

Knowledge acquired in one con-text does not necessarily translatein another context. That is why a new executive whodoes not account for the culture of the company he orshe is joining will often fail. Combining knowledgeand context, says Mauboussin, increases our chancesfor success.

The intent of Think Twice is not to make you feelinsecure or to get you to distrust your instincts; far fromit. The book brings into focus how people are uncon-sciously influenced by their experiences, by other peo-ple, and by the environment in which they find them-selves. Once you become conscious of these influences,you become a better mental mapmaker and can moreeffectively navigate the territory of your life.

The Rider and the ElephantAccording to Chip Heath and DanHeath, authors of Switch, change ishard because there are two conflict-ing sides of the human brain, therational and the emotional, vying forcontrol. Switch: How to ChangeThings When Change Is Hard is theirfirst book after the best-selling Madeto Stick: Why Some Ideas Survive andOthers Die (Random House, 2007).When most people try to fosterchange, say the Heath brothers, theyfocus almost exclusively on therational side and ignore the emo-tional side, which then rebels, often

sabotaging the change effort.To describe and solve this problem, the authors

draw on research from psychology and neuroscience,using a metaphor of a rider (the rational brain) and anelephant (the emotional brain). The authors are reduc-tionists, in this approach, because new research is pro-viding a richer and more complex picture of the brain’sworkings. Yet what makes the book worth reading is thepractical framework it offers to executives who mustundertake organizational change.

This framework involves three major activities. Thefirst is to rationally motivate the rider. For example,instead of focusing on what people are doing wrong andnagging them about it, the authors suggest focusing onwhat they are doing right (the “bright spots”) andencouraging them to continue their winning ways. Theauthors also advise would-be change makers to reduce

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the number of choices people have to make, thus elimi-nating some of the fear and uncertainty inherent tochange, and to script the changes to ensure that peoplehave a clear vision of the desired goal and the rewards ofattaining it.

The second set of activities in the framework isdesigned to get the elephant moving in the right direc-tion. The Heath brothers draw from motivational psy-chology to achieve this, focusing on the positive ele-ments of change, “shrinking” the change to make itseem less difficult to attain, and building confidence sopeople feel that they are capable of attaining it.

The final set of activities is designed to show therider and the elephant the path forward. It describeshow change agents can tweak the environment tochange behavior (as with playing music for shoppers),how they can create new habits thatsupport change, and how they canreinforce them by enlisting the helpof others.

Avid readers of neuroscience andpsychology will find many familiarideas in Switch; managers chargedwith creating change will find theseideas cloaked, usefully, in colorfulstories and metaphors.

Grace under PressureIn Clutch: Why Some People ExcelUnder Pressure and Others Don’t, PaulSullivan, a columnist for the NewYork Times, explores how to shinewhen the stakes and the pressure to perform are high.The secret that separates the players who are good inthe clutch from those who choke, he says, is a well-developed ability to respond in stressful situations in aconstructive way.

Sullivan summarizes this ability in five “clutch”principles and three “choke” principles that readers canuse as guidelines for how — and how not — to dealwith high-pressure situations. All the principles are copi-ously illustrated with stories of people and companieswe know, which help the reader to see how the princi-ples can be applied. Aside from his gimmicky relianceon the word clutch, Sullivan has written an easilydigestible book.

The five key principles used by those who success-fully handle pressure and per-form well in clutch situations are

focus, discipline, adapting, being present, and managingfear and desire. Focus is not the same as concentration;it is an intentional mapping of what you want toachieve. It requires thinking through the steps and theend game before you start playing. Discipline is stayingwith the plan, even in the face of great challenges. It isoften the key to success. Adapting is knowing when andhow to change the plan. It’s about, Sullivan says, “fight-ing the fight, not the plan.” Being present means beingin a state of heightened awareness in the moment— it’s analogous to the state described by MihalyCsikszentmihalyi in his book Flow: The Psychology ofOptimal Experience (Harper & Row, 1990). Finally,managing fear and desire is using these emotions asmotivators and drivers of performance without allowingthem to paralyze you.

Sullivan employs a chapter-longanalysis of how Billie Jean King beatBobby Riggs in the highly publi-cized Battle of the Sexes tennis tour-nament in 1973 to summarize theclutch principles. He calls the tour-nament a double-clutch situationbecause King was playing not onlyto win the match, but to challengethe conventional thinking aboutwomen in sports.

The three principles for avoid-ing choking, which are described inpart two of the book, are includedto help the reader steer clear of thebehaviors that cause people to fail to

meet their goals in high-pressure situations. The princi-ples are taking responsibility for your role in the situa-tion; not allowing overthinking to take you out of beingpresent; and ensuring that overconfidence doesn’t stopyou from putting energy into focus, discipline, and liv-ing in the moment.

People who master clutch are really mastering theamygdala, the part of the human brain that responds tostress and that can sometimes seem to take control of uswhen we are in pressure-laden situations. Sullivan thinkswe are all capable of creating stress-resilient maps thatcan enable us to traverse these toughest of territories.Clutch is a good place to start drafting such a map.

Beyond Carrots and SticksReading Drive: The Surprising Truth about WhatMotivates Us, Daniel H. Pink’s newest book, can beBEST10BOOKS

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depressing, especially as you realize how large a roleextrinsic rewards and punishments play in our lives.That’s because the most prevalent means of motivationare what Pink calls if–then transactions: If you do this,then I’ll give you that.

These incentives for changing behavior are based onthe assumption that motivation is extrinsic — peoplewill do more of what you want if you reward them for it(the carrot) and will stop doing things if you punishthem (the stick). But Drive suggests that we should limitour use of “currencies,” such as bonuses and fines thattry to externally motivate people, and instead engagetheir intrinsic motivators, especially three paramounthuman needs.

These needs are autonomy, the freedom to makechoices and determine our future; mastery, the ability tolearn and grow our expertise; and purpose, the quest formeaning in our lives. They are wired into our brains,according to Pink, who supports his thesis by drawingon four decades of scientific research. When we do not

satisfy these needs, we can fall into depression and loseour reason for being.

Pink singles out several companies that have putintrinsic motivation to work. He takes us inside 3MCompany, where William McKnight, who served as thecompany’s president from 1929 to 1949 and its chair-man from 1949 to 1966, came up with the unusual ideaof giving employees free time for what he called experi-mental doodling, a practice that yielded Post-It notes,among many other new products. Pink also points toGoogle’s policy of allowing employees to devote 10 per-cent of their time to projects of their choice, which hasproduced services such Google News, Gmail, GoogleTranslate, Google Talk, Google Sky, and more.

Pink explores the wide gap between what scienceteaches us about motivators and how companies actuallyseek to motivate people. For instance, one of the mostprescient bodies of research presented in the book high-lights the negative impact that extrinsic rewards have onproductivity over time. This research found that extrin-sic rewards narrow our focus to attaining the promisedreward itself at the expense of everything else. As a result

of holding this myopic view,companies such as Enron pro-duce toxic environments and flawed decisions, as well asunethical and even criminal behavior.

Instead, says Pink, corporate leaders should createenvironments that enable people to be creative, empow-ered, and engaged, and that provide them with a senseof their intrinsic worth. The last section of the book,which contains an array of ideas, practices, questions toponder, and action lists, should help in that endeavor.

Mapping the IntersectionsTogether, these books on the human mind are a wel-come breakthrough in business writing. Each oneaddresses a sliver of the biggest challenge we have ashuman beings — how to align our map with the terri-tory for sanity, for growth, and for success. Without thisextraordinary ability, we fail to adapt to our changingworld — and we get stuck in the past while the worldevolves around us.

In the past, in mainstream publishing, you couldnot mix business topics with personal effectiveness top-ics. But these books confirm that the barrier has fallen.By integrating research from the fields of neuroscienceand psychology into books about business challenges,their authors give us a new lens through which we canmore effectively and successfully navigate our complex,unpredictable world. +

One of the most prescient bodies of researchhighlights the negative impact that

extrinsic rewards have on productivity over time.

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Judith E. Glaser ([email protected]) is the founder andCEO of Benchmark Communications Inc., a leadership consultingfirm, and cofounder of the Creating WE Institute. She is the authorof several books, including Creating WE: Change I-Thinking toWe-Thinking and Build a Healthy Thriving Organization (Platinum Press,2005) and The DNA of Leadership: Leverage Your Instinctsto Communicate, Differentiate, Innovate (Platinum Press, 2006).

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THE ChorusTakes A Bowby David K. Hurst

he profit-maximizing management frame-work that arose from the widespread adoptionof the shareholder value model of corporategovernance may end up as a notable intellec-

tual casualty of the Crash of 2008. After 30 years ofleveraging, downsizing, and outsourcing, this predomi-nantly Western global economic system appears to be indecline. This could be a sign of a hemispheric financialcooling in counterpoint to the warming of the econo-mies of the Far East.

The challenge this creates for management thoughtand education is as simple as it isstark. The prevailing business

management framework, a set of practices and operatingprinciples that was designed to produce stability andorder in large, complex companies, and that has beensuccessful enough in treating growth as “more of thesame,” no longer appears to work. How can it be mod-ified— nay, rejuvenated— to accommodate innovationand invention, the new rallying cries for firms in theWestern world?

Although there has long been a Greek chorus ofcritics prophesying the doom of the current framework,a wide range of opinion exists on what is now required.Some say that the basic principles of management arestill relevant and valuable, but they are poorly taughtand applied. Others call for an entirely new paradigm.Nobody is satisfied with the status quo, nor should theybe. In this year’s best management books, some of themembers of the chorus step into the footlights.

The Middle WayIn Reinventing Management: Smarter Choices for GettingWork Done, Julian Birkinshaw, professor of strategic andinternational management at the London School of

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Julian Birkinshaw,Reinventing Management:Smarter Choices for GettingWork Done (Jossey-Bass,2010)

Jon R. Katzenbach and ZiaKhan, Leading Outside theLines: How to Mobilize the(In)Formal Organization,Energize Your Team, and GetBetter Results (Jossey-Bass,2010)

Richard T. Pascale, JerrySternin, and Monique Sternin,The Power of PositiveDeviance: How UnlikelyInnovators Solve the World’sToughest Problems (HarvardBusiness Press, 2010)

Srikant M. Datar, David A.Garvin, and Patrick G. Cullen,Rethinking the MBA:Business Education at aCrossroads (Harvard BusinessPress, 2010)

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Business and cofounder of the Management Lab, con-tends that management has to change — but not radi-cally. He charts what he claims is a middle way. Ac-cording to Birkinshaw, companies need a managementmodel that enables them to define objectives and moti-vate effort (the ends), as well as coordinate activities andallocate resources (the means).

Each of these four activities offers a spectrum ofmanagerial options that range from tight to loose, writesBirkinshaw. For instance, activities can be coordinatedtightly in a traditional bureaucracy, as they often are byfirms in established markets, or loosely through an orga-nizational plan that emerges naturally as a response tomarket opportunities and technical possibilities, such asGoogle uses. Resource decisions can be made hierarchi-cally or by deferring to collective wisdom. In stable envi-ronments, objectives can be alignedtightly with corporate strategy; inturbulent situations, objectives canbe pursued indirectly through theprinciple of “obliquity.” Under thislatter principle, to quote British mil-itary strategist Basil Liddell Hart,“The longest way round may oftenbe the shortest way home.” When itcomes to motivation, employees canbe attracted by a variety of material,social, and personal rewards.

Birkinshaw uses a two-by-twomatrix to summarize four distinctivemanagement models that representcombinations of these options: theplanning model (tight ends, tight means), the sciencemodel (loose ends, tight means), the quest model (tightends, loose means), and the discovery model (loose ends,loose means). Companies often begin their lives using adiscovery model, but if they are successful, the majorityof them gravitate to either a planning model or a sciencemodel. McDonald’s, with its highly standardized deliv-ery system, is an example of the planning model; con-sulting engineering firm Arup (the designer of suchavant-garde buildings as Beijing’s Bird’s Nest Olympicstadium), with its holistic model of “total architecture”that embraces sustainability, humanitarianism, andquality, illustrates the science model. Some firms maytry to hang on to the discovery model, as Google has,thanks to its phenomenal profitability. The least com-mon model, that of the quest, is used by many invest-ment banks.

These models may seemsimplistic, but they do describethe management behavior of many companies, as well asreveal the traps they can fall into when they follow themodels blindly. For Birkinshaw, the key to managerialeffectiveness is for leaders to learn when changes to anorganization’s management model are necessary by iden-tifying and analyzing the “blockers” that prevent peoplefrom doing their work, designing new methods forreplacing or removing those blockers, and then experi-menting with these methods.

The merit of Birkinshaw’s approach is that it iden-tifies the organizational context in which managementmodels are practiced. By representing these models asdecisions made by top management, however, Birkin-shaw firmly places himself within the rational-choice

approach of the academic world,stressing the “what” of corporatedirection rather than the “how” ofexecution (and human involve-ment). His model is not a dynamicone: The pervasive use of two-by-two matrices tends to freeze every-thing, making the resulting choiceslook more like calculated trade-offsthan creative integrations. Perhapsthese are the starting positions of adance between the polarities heidentifies, with the steps and tempoyet to come.

Some clues to the steps andtempo can be found in Leading Out-

side the Lines: How to Mobilize the (In)Formal Orga-nization, Energize Your Team, and Get Better Results, byJon R. Katzenbach, a senior partner at Booz &Company, which publishes strategy+business, and ZiaKhan, vice president for strategy and evaluation at theRockefeller Foundation. They take a much more fine-grained approach to managing that is based on findingthe right combination of the “logic of the formal” andthe “magic of the informal.”

In the three-part book, the authors focus on howindividual managers can use informal connections andconversations to enhance the formal incentives andstructures of a company — and, in the process, motivateindividual performance and mobilize organizationalchange. Managers who can draw on both the formal andthe informal as required have a high “organizationalquotient” (OQ). This is a combination of intelligence

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quotient (IQ) and emotional intelligence (EQ) that bal-ances disciplined and spontaneous actions, and rationaland emotional thinking, depending on the demands ofthe situation.

The objective is consilience, which literally means ajumping together of the formal and the informal, a cre-ative integration of “both...and” that harks back toMary Parker Follett, the early-20th-century pioneer oforganizational theory. This is the first of several evoca-tive metaphors that the authors use to describe one ofthe most desirable but elusive phenomena in organiza-tional life — those times when decisions, actions, andemotions jibe with strategic intent, when dynamic rou-tines are constantly being improved upon, whenemployees are proud of their company, and when thecompany as well as the members of its ecosystem (part-ners, suppliers, and customers) all succeed.

Katzenbach and Khan stress that a managerial focuson the informal is not just a matter of being nice. Peoplework and perform much better when they are treated

with care and respect as individuals. The challenge formanagers is how to accomplish this within the con-straints and abstractions of a formal system that isdesigned to achieve scale by treating everything andeveryone in the same way. Part of the solution, accord-ing to the authors, is to connect corporate values towork using stories and customers at the local level.

It is the managers’ behaviors that matter most, butthese are effective only if all the elements of the formalsystem enable the employee behaviors that managers aretrying to encourage. Thus, for example, metrics shouldnot be consumed purely by the upper levels of the hier-archy, or used only to judge performance against goalshanded down from above. They should also serve asfeedback signals for those responsible for doing thework; they should be crafted accordingly and under-stood in the context of everyday goals and priorities.

The Power of ContextThe importance of context as a determinant of behavior

is the central feature of ThePower of Positive Deviance: How

Unlikely Innovators Solve the World’s Toughest Problems.One author is the redoubtable management writer andconsultant Richard T. Pascale. The other two areMonique Sternin and the late Jerry Sternin, who passedaway during the writing of the book. In the 1990s, asworkers with the U.S. nongovernmental organizationSave the Children, the Sternins pioneered the applica-tion of the positive deviance (PD) method of change tosome of the world’s most intractable social problems.PD is now being used to tackle complex social problemsthat defy technical or externally imposed solutions, suchas societal inhibitions or cultural mores that cause peo-ple to refuse smallpox vaccinations or reject the use ofmosquito nets.

PD is not a method for transmitting knowledge orsharing best practices; it involves changing behavior bychanging social contexts. It recognizes that organization-al habits, both good and bad, are sustained by subtlecues and triggers of which the actors themselves are usu-ally unaware. When these cues and triggers are brought

to the surface and actors’ responses to them are changed,complex problems can be solved. The catalysts for thisprocess are so-called positive deviants, the few people orsmall groups within a troubled community who obtainconsistently better results while living and working inthe same context (in other words, with access to thesame resources and subject to the same constraints). Thetrick is to get everyone else to consciously choose to fol-low their example.

The authors take turns writing chapters that illus-trate applications of PD, some of which are compositeexamples, combining several cases into one. Despite thedrawbacks of such an approach, which makes it difficultto know exactly what happened at which site, the storiesthemselves are evocative and compelling. The mostpowerful one involves the grisly practice of female geni-tal mutilation (FGM) in Egypt. In Vietnam, where PDwas first used to alleviate child malnutrition, there wasconsensus that malnutrition was an undesirable condi-tion. In Egypt, on the other hand, there was no suchagreement on the perniciousness of FGM.The traumat-ic ritual was rarely discussed, but it was deeply embed-BEST10BOOKS

The catalysts for solving problems are positivedeviants, the few people who obtain consistentlybetter results while working in the same context.

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ded in the culture; as of 1997, 97 percent of Egyptianwomen had been circumcised in some way. ThenMonique Sternin and her colleagues began asking thepositive deviants — uncircumcised women and the menmarried to them — to talk about their lives on video-tape, offering social proof that such people were just likeeveryone else. This step required a good deal of informaldiscussion and socialization before anyone was comfort-able appearing on camera. The PD team chose a Copticmonastery far from Cairo — a safe place both physicallyand psychologically — to bring together small groups ofwomen. Here they showed the women the tapes, anddiscussed the idea of changing the practice in choreo-graphed conversations that used variations in space andpace and the palliative power of humor to reduce ten-sion and put people at ease. The participants sharedtheir stories and talked about their families, graduallybreaking the code of silence surrounding FGM. Overtime, the program spread: By 2000 the incidence ofFGM among Egyptian women was down to 93 percent,and today official FGM abandonment programs areincreasingly supported in that country.

The best way to think about the PD approach is asprocess consulting rather than content consulting. Inthe latter, the general assumption is that the organiza-tion has questions and the expert consultant bringsanswers. Process consulting turns that assumptionupside down: The organization has the answers, but hasnot heard the questions. That’s because the questionshave not been posed in the right form and context — ina manner, in other words, in which any answers haveclear implications for action. Positive deviance helpsaddress these issues by providing the example of smallgroups of people who already have part of the solutionin hand, and whose examples help their colleagues dis-cover the solutions for themselves.

PD works as change does in nature. It affects a partof a system, but preserves the whole; it is incremental inthe short term, but capable of producing dramatic evo-lution in the long run. This is the same way in whichnature balances stability and turbulence with a complexset of interlocking and ever-changing dynamics. It’sinsights like these that make The Power of PositiveDeviance this year’s best business book on management.

Back to SchoolBusiness schools were subjected to repeated criticismbefore the economic meltdown, but the volume and fre-quency of the complaints have increased as the deleteri-

ous side effects of the profit-max-imizing framework have becomeclearer. In 2007, Harvard Business School professorRakesh Khurana wrote the instant classic From HigherAims to Hired Hands: The Social Transformation ofAmerican Business Schools and the Unfulfilled Promise ofManagement as a Profession (Princeton University Press).(See “Uncategorical Insight,” by James O’Toole, s+b,Winter 2008.) This year, a team of Khurana’s colleaguesat Harvard Business School, Srikant M. Datar, David A.Garvin, and Patrick G. Cullen, deliver Rethinking theMBA: Business Education at a Crossroads. This tome re-ports the findings of a cross-sectional academic study ofthe leading business schools in the U.S. and Europe.

The target audience for the book is deans of busi-ness schools and administrators of business programs,but the book is relevant for anyone interested in the evo-lution of management ideas and the way they aredeployed. The authors address four broad themes: theneed for change in management education, the need fora new balance between the “rigor” of research and therelevance demanded by practitioners, the redesign of theMBA curriculum, and the challenge of implementation.

Reinforcing Khurana’s charge that academic pre-tenses have dwindled in business schools, the centralmetaphor used here is the business school as commercialenterprise, with value propositions (MBA programs)designed for different customer segments. Viewed as anindustry, business schools have done well, with theirproduction of MBAs rising sixfold over the past 30years, and their revenues becoming an increasingly largeportion of the overall financial base of their universities.

So what is the problem? Today, the demand for thecore product of business schools — the two-year, full-time MBA — is sputtering, especially at the second-tierschools, and the gap is being filled by a host of compet-ing products, such as part-time and executive MBAofferings and substitute qualifications. This has led towhat the authors characterize as a “hollowing out” of thedegree. In addition, considering that up to 75 percent ofthe graduating classes of some schools go on to careersin finance and consulting, the postcrash shrinkage ofthese sectors further threatens the future demand forMBAs. But the authors appear to have few concernsabout business schools recovering their institutional pur-pose or mission: Instead, they think that businessschools need to reassess and rebalance their commercialofferings in response to changes in the marketplace.

Rethinking the MBAmakes the cut as a best business

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book this year because its conclusions, grounded in dataand assembled coherently, present a clear, persuasive casefor change in business school curricula — and becausethey are likely to be taken seriously in management aca-demia. This book evokes an ambitious future for busi-ness schools themselves. The authors use the Be-Know-Do leadership triad, made famous by the U.S. Army atWest Point, as a handy framework on which to basetheir primary contention: that ever since the FordFoundation and Carnegie Foundation reports of the1950s, business schools have overemphasized the facts,frameworks, and theories of the “know” component atthe expense of the skills, capabilities, and techniques of“do” and the values, attitudes, and beliefs of “be.” Andthey identify eight unmet needs of students, many ofwhich are related to “being” and “doing.” These includegaining a global perspective; develop-ing leadership and integration skills;acting creatively and innovatively; andunderstanding the limits of models,markets, and other frameworks.

The authors acknowledge thatthe most effective ways to teachmany of the topics they recommendare still not well understood; at aminimum, MBA students requireteaching methods very different fromthose used in business schools today.Nonetheless, both the authors andthe people they interview appear san-guine about the ability of businessschools to deliver on these needs.Indeed, the new offerings from the six leading institu-tions the authors examine are impressive on paper:There are integrative global management courses, over-seas campuses and exchange programs, experiential pro-grams, and leadership laboratories, as well as integratedcurricula and courses in integrative thinking.

The language is right, but as the unmet needs arematched with their corresponding solutions, onebecomes concerned that these may be what longtimeHarvard Business School professor Fritz Roethlisbergerused to call verbal wands — fine phrases that may notbe accompanied by the behavioral changes necessary todeliver on their promises. Rewriting the marketingbrochures of business schools is easy enough, but howmuch change can one really make in the schools them-

selves, and over what time frame?The typical business school

is a siloed fortress, most of whose professors and deansprefer a fragmented, discipline-based curriculum becauseit gives them maximum freedom to pursue their ownresearch interests. It’s why many of them were attractedto the institution in the first place and how they haveearned tenure. Changing their incentive schemes willnot be easy. How realistic is it to expect such “discipli-narians” to deliver the integrated experiences designed topromote creativity and innovation that the authorsdescribe? Team teaching is probably one of the keys toproviding such experiences, but the authors acknowl-edge that its implementation has proved very difficult,and that the deans surveyed were almost all against it.Yet leading firms in the private sector mastered effectiveteamwork across the functional silos decades ago. If thebusiness schools cannot handle this, can they really

change? And if they cannot change,what is to be done about manage-ment education?

To answer that question, Re-thinking the MBA should probablybe read as part of a trilogy with twoother books: the magisterial FromHigher Aims to Hired Hands, andMatthew Stewart’s acerbic critiqueof management philosophy, TheManagement Myth: Why the ExpertsKeep Getting It Wrong (W.W.Norton, 2009). (See “The Clay Feetof Management Science,” by DavidK. Hurst, s+b, Spring 2010.) Readersof these three books might well con-

clude that the true objectives of management educationare indistinguishable from those of the liberal arts: toprovide an interdisciplinary education in literacy,numeracy, and an understanding of people, so that onecan marshal all these competencies in the service of cre-ating and running sustainable institutions.

Ironically, a model for this kind of educationalready exists outside business schools: It appeared in theform of politics, philosophy, and economics programspioneered as the “modern greats” in England in the1920s to train members of the civil service. Perhaps thereduced role of the business school might be to supervisestudents’ trajectories through the entire university,organize the appropriate experiences, and teach only thetechnical finance and operations subject matter notavailable elsewhere. The bulk of the faculty could returnto their true homes in other parts of the academy (eco-BEST10BOOKS

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nomics, sociology, engineering, psychology), and stopduplicating the liberal arts and sciences under the guiseof an MBA. Instead, the teaching of business would beintegrated with the general arts and sciences, under theassumption that everyone who learned to be a generallycapable individual would need to apply this knowledgeto making a living.

In the process, the business school might evenrecover its sense of purpose. Such a resolution wouldsupport the conclusion that rigor and relevance can beneither reconciled nor balanced in theory. It is the roleof science to separate the real from the relevant; it is therole and the craft of the manager to bring them back

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together again in the humanenterprise. But this can be ac-complished only through action. The antinomy be-tween rigor and relevance does not require a choice to bemade; it is a dilemma to be lived, and the best prepara-tion for that is preparation for life itself. +

BEST10BOOKS

Alan Brinkley, The Publisher:Henry Luce and His AmericanCentury (Knopf, 2010)

Warren Bennis, StillSurprised: A Memoir of a Lifein Leadership (Jossey-Bass,2010)

Daniel Okrent, Last Call: TheRise and Fall of Prohibition(Scribner, 2010)

Sarah Rose, For All the Tea inChina: How England Stole theWorld’s Favorite Drink andChanged History (Viking, 2010)

BIOGRAPHYHISTORY

True Tales OF

Fortuneby James O’Toole

e read biography to better understandourselves much as we read history tobetter understand our times. Four en-gaging new books admirably aid us

with both those tasks. As so many things do these days,our review of the year’s best business-themed biographiesand histories begins — and ends — in China.

One Man’s Life, Time, and FortuneEditor and publisher Henry Luce (1898–1967) presidedover the golden age of general-interest magazines. He

W

David K. Hurst ([email protected]) is a contributing editor ofstrategy+business and its Books in Brief reviewer. His writing hasalso appeared in the Harvard Business Review, the Financial Times,and other leading business publications. Hurst is the author of Crisis& Renewal: Meeting the Challenge of Organizational Change(Harvard Business School Press, 2002).

AND

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was cofounder of Time in 1923 and, over the next threedecades, created Life, Fortune, and Sports Illustrated. InThe Publisher: Henry Luce and His American Century,celebrated and prolific historian Alan Brinkley serves upboth an insightful account of the creation of those mag-azines and a brilliant character study of the entrepreneurwho created them.

Luce was a complex character, a “striver” who soughta central role for himself on the world’s stage, a man asego-driven as he was pathetically insecure and lonely.Brinkley suggests that the crucible for the publisher’smany successes — and his chronic unhappiness — washis early life in his native China, where he absorbed hismissionary father’s “seriousness, his ceaseless search forself-improvement, his energy, his ambition, his certaintyof purpose.” Indeed, the leitmotif of this masterfullycrafted biography is Luce’s lifelongsearch for the higher purpose thatwould define not only his own life,but the mission (clearly, he was hisfather’s son) of his magazines and,ultimately, that of America itself.

While growing up in China,Luce had dreamed longingly of hisEdenic homeland across the Pacific,a country he would not visit untilhe was 14 and ready to enroll inConnecticut’s prestigious HotchkissSchool. He turned out to be moreconventionally American in his valuesand beliefs than most of his fellowstudents at Hotchkiss (and later atYale) who had been born and raised in the United States.Throughout his life, Luce would be his nation’s quintes-sential booster, whose cheerleading culminated in hisinfluential essay “The American Century” published inLife in 1941, in which the central thesis was that theUnited States had a sacred duty to bring democracy, cap-italism, Christianity, and modernity to the world. Heargued that America was, as it should be, the only worldpower, and with that power came the responsibility tobecome “the Good Samaritan of the entire world [with aduty to feed] all the people of the world who...are hun-gry and destitute.”

Luce wanted America to start to fulfill that missionin China. Even more than his beloved magazines, or hiscountless lovers, China was the true passion of his life

(“Oh brave new world...OhChina!” he wrote with character-

istic pomposity and enthusiasm). He, his magazines, andhis nation were all required, in his cocksure mind, to helpthe civilized, Christian Chiang Kai-shek and hisNationalists defeat the godless Communists led by thebrutish Mao Tse-tung. When the U.S. “lost” China andChiang retreated to Taiwan in 1949, Luce went ballistic,and he and his magazines became ferocious cold warriors.

Yet the conservative Luce did not fall into lockstepwith Joe McCarthy and the right wing of the RepublicanParty. Although a prominent and virulent critic of theprogressive policies of Presidents Franklin Delano Roose-velt and Harry Truman, Luce was nonetheless a TeddyRoosevelt, Wendell Willkie, Dwight D. Eisenhower, andNixon moderate; he was not isolationist, and he believedin an active role for government. For example, in the1950s, he and his magazines were in the vanguard in

condemning racial segregation in theSouth and promoting equality acrossthe nation.

Brinkley offers fascinating de-tails about the creation of all Luce’smagazines, but s+b readers will bemost interested in the history ofFortune, which he launched onthe cusp of the Great Depression.Brinkley says that Fortune was Luce’s“real love among his magazines”(quoting Peter Drucker), and“among the most elaborately andlavishly designed publications of itstime.” Luce believed that “businessis essentially our civilization,” and

thus deserved to be celebrated in a magazine staffed bythe finest writers, photographers, and graphic designersof the age. Each issue was a work of art, printed on high-quality paper and selling for a dollar at a time whenmagazines typically sold for a nickel or dime.

Luce had intended for the magazine to reflect hispersonal philosophy of enlightened corporate socialresponsibility. But Depression-era deprivations encour-aged the magazine’s writers and editors to move farbeyond Luce’s constructive boosterism and to becomeobjective critics of business. In 1934, they were exhort-ing businesses to pay their employees living wages offer-ing at least “a minimum standard of decency” for themand their families.

For nearly 30 years, the staff produced a truly out-standing magazine; in my view, the old Fortune was thefinest popular magazine ever produced in this country.BEST10BOOKS

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Its first generation of writers and editors in the 1930sincluded such literary luminaries as James Agee,Archibald MacLeish, and Dwight Macdonald, to besucceeded in the 1950s by the likes of John KennethGalbraith, William H. Whyte, Daniel Bell, and AlvinToffler (all of whom would move on to fame in otherarenas). The magazine was the first to offer scientificpublic-opinion polls, the first to feature photographs asworks of art (Margaret Bourke-White andWalker Evanswere on staff ), and the first to incorporate fine art toillustrate texts (Charles Sheeler’s paintings of factories).

Brinkley’s account of the launching, marketing, andfinancing of Luce’s magazines gives business readersmuch to chew on. Luce was a fine businessman despitenot caring a whit about making money for himself. Hewas a superb judge of talent, and rewarded his star writ-ers and photographers handsomely. Indeed, he tookgreat care of all Time-Life employees, famously offeringthe most extravagant expense accounts in journalism.He was, however, an absentee manager, off traveling formonths at a time, only to suddenly and arbitrarilyintrude on the work of his editors (who for the mostpart respected him nonetheless, thanks to his insatiablecuriosity, creativity, high standards, and generosity).

Many people loved Luce despite — or perhapsbecause of — his insecurity and emotional vulnerability.He often turned to his employees for the friendshipmissing in his messy private life. His extremely publicsecond marriage, to prominent playwright and pol-itician Clare Boothe Luce, was a three-decade arrange-ment made in Hades between two “intensely self-centered and exceptionally ambitious” people whodidn’t sleep with each other, but chose to remain to-gether to enhance their respective careers. BecauseHenry and Clare shared an addiction to pouring theirsouls out in long letters to just about anyone, Brinkley isable to document even the most embarrassing details oftheir complex and often unattractive personalities.

The worst thing that can be said of the unpre-dictable, volatile, moody, and contradictory Luce wasthat, much like Rupert Murdoch today, he used thenews for his own purposes. He sought the power toshape national and world events, and although he wasseldom successful in those efforts, he never gave up try-ing. But unlike Murdoch, Luce was basically interestedin using his power for the public good, and sought tothe very end to live a virtuous life that would make hismissionary father proud. He didn’t always succeed, butevery week for four decades, his magazines provided

Americans with a common cul-tural touchstone that did muchto bind them together as a nation.

Brinkley argues that Luce and his magazines suc-ceeded because they were reliable reflections of theirtime, mirroring the values, aspirations, and beliefs of anincreasingly affluent middle class. He notes that themagazine empire that Luce built began its long decline(extending to this day) in the 1960s when the American“consensus” was broken and society fractionated as aresult of the Vietnam War and the women’s and civilrights movements. Today, it is simply impossible for asingle publication to speak to the interests of the count-less diverse audiences served by dozens of cable channelsand millions of websites.

On a personal note: While in graduate school, Iworked as an apprentice correspondent for Time begin-ning in 1967, the year Luce passed away. I have neverhad a better job.

Another’s Good FortuneIf the late Peter Drucker was the father of managementstudies, octogenarian Warren Bennis deserves the samemantle with reference to leadership. In Still Surprised: AMemoir of a Life in Leadership, Bennis examines his ownlife through the same lens he has used successfully overthe years to analyze the behavior of business and politi-cal leaders.

That lens is what social scientists call role, and it addsa useful perspective to this unusual memoir. Bennis notesthat biographers typically “look to psychobiography, notrole, to explain human behavior,” focusing great atten-tion on the family as the crucible in which individualcharacter is formed (as Brinkley successfully does withLuce). However, Bennis argues that “leadership is sooften a function, not of one’s personality or psychologi-cal makeup, but of the role one finds oneself in.”

Hence, Bennis dispenses with the expected historiesof his parents and childhood and dives straight into 10lively and focused chapters, each detailing the life andleadership lessons he learned playing various roles,including that of an NCO during World War II (he wasawarded the Bronze Star when he was barely old enoughto shave), a member of various research teams, a univer-sity president, and, later, a mentor, a teacher, and a father.

Throughout the book Bennis reminds us that his“has been a largely charmed life,” and he credits hismanifest success to the good fortune of finding the rightcolleagues at critical moments in his career. His first and

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most significant mentor was the great DouglasMcGregor, whose The Human Side of Enterprise(McGraw-Hill, 1960) stands as the most influentialmanagement book ever written. (See “Theory U andTheory T,” by Matthew Stewart, s+b, Autumn 2010.)McGregor’s insights about Theories X and Y were pro-found, and subsequent books by such gurus as PeterDrucker, Tom Peters, and Jim Collins can be seen asadditions to, or refinements of, that masterful work.Bennis notes that there have been echoes of McGregorin everything he has written over the last 50 years.(Disclosure: Warren Bennis has played a role in my owncareer similar to that which McGregor played in his).

Thanks to good luck, and McGregor’s influence,Bennis found himself in Cambridge, Mass., in the 1950sat exactly the time modern social science was being cre-ated at Harvard and MIT by such luminaries as econo-mists Paul Samuelson, Robert Modigliani, and RobertSolow; sociologists David Riesman, Talcott Parsons, andRobert Merton; anthropologists Clyde Kluckhohn and

Clifford Geertz; and psychologists Gordon Allport,Abraham Maslow, Erik Erikson, Kurt Lewin, and ErvingGoffman, all of whom were Bennis’s teachers, friends,and colleagues (he earned his doctorate in economics atMIT). As an aside, I can’t help noticing that Lewin diedat age 47, McGregor at 58, and Maslow at 62, all at ageswhen today we expect scholars to be most productive.(Bennis notes that everyone smoked then.) Also differentthen was the relative absence of barriers between disci-plines. Most of the individuals listed above knew oneanother, were familiar with one another’s work, and oftenworked together on research teams. Such experiences ledBennis to a lifetime search for “community,” to be a partof “good groups” and imbued with the desire to leadorganizations in which the entire cast and crew would be“making the same movie.”

To Bennis, leadership is not a solo act, and certain-ly not a simple function of individual character; thisis why he examines the role of leaders in the context oftheir organizations. Thus, he critically analyzes his own

performance as executive vicepresident of SUNY Buffalo and,

later, as president of the University of Cincinnati, interms of his success at creating the organizational capa-bilities needed to meet the specific challenges thoseinstitutions were facing at the time. Bennis pulls nopunches here, objectively analyzing the reasons for bothhis successes and his failures. With regard to the latter,he cites Alfred North Whitehead’s insightful wordsabout meeting the challenges of change: “Every leader,to be effective, must simultaneously adhere to the sym-bols of change and revision and the symbols of traditionand stability.” Bennis then concludes, “We failed tomaster the culture of Buffalo before we tried to changeit.” That’s a profound lesson Carly Fiorina could haveapplied profitably at Hewlett-Packard Company, whereshe failed to respect the depth of employees’ commit-ment to the culture created by the company’s founders.

In his landmark book On Becoming a Leader(Addison-Wesley, 1989), Bennis showed that one learnsto become a leader by reflecting on experience. In thescant 177 pages of his memoir, he captures a lifetime of

such reflection, and does so with good humor, often athis own expense. He tells one marvelous story afteranother; for example, about the time when he was animpoverished graduate student pinching every penny toundergo psychoanalysis (de rigueur in the 1950s foraspiring social scientists). When his mother asked himhow much it all cost, Bennis explained he was paying $3per session five times a week. After doing the math, shereplied, “Son, I wish you had taken that money andspent it on yourself.” This is one book that I wish hadbeen longer.

Hard Drink and Tough LessonsThe 18th Amendment to the United States Consti-tution was a stroke of singular national insanity. In1919, a determined, self-righteous minority succeededin forcing its extremist values on — and taking the lib-erty from — a compliant, hopelessly divided majority oftheir fellow citizens. In order to achieve the ends of the“great experiment” that became known as Prohibition,the federal government intruded further into the privatelives of U.S. citizens than ever before in the nation’s his-BEST10BOOKS

Bennis found himself in Cambridge, Mass., inthe 1950s at exactly the time modern social science

was being created at Harvard and MIT.

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tory: Billions of dollars in private property were taken,in effect, without compensation, the federal income taxwas created, and an army of (largely ineffectual) federalagents were loosed to police the behavior of millionsof scofflaws and to control the unprecedented increasein organized crime that, perversely, the legislationspawned. In his beautifully told Last Call: The Rise andFall of Prohibition, this year’s best book in the biographyand history category, distinguished journalist DanielOkrent seeks to answer the obvious question: How thehell did it happen?

Superficially, the answer is simple: Americans (actu-ally, American men) had for a century or more beenamong the world’s leading lushes, and the sober minor-ity (particularly, long-suffering wives and mothers) werewilling to resort to desperate measures in order to drytheir men out. But that was only halfof the story. The “drys” were, in fact,an unacknowledged coalition of“racists, progressives, suffragists,populists” and, especially, whiteProtestant nativists who saw Pro-hibition as a way of lashing out at therising number of immigrants fromIreland, Italy, and eastern Europe forwhom drinking was an integral partof the culture. It didn’t hurt thenativists’ argument that almost allthe beer brewers in the United Stateswere immigrant (or first-generation)Germans, and something like half ofthose involved in the production andsale of hard liquor were Jews. Now, how many causes arethere in which both Germans and Jews are easy targets— and in which the threat of African-American alcohol-inspired violence can be evoked, to boot? In all,Prohibition was a natural issue for the white, small-town, literalist-Protestant population that was grosslyoverrepresented in Congress at the turn of the 20th cen-tury, and that felt threatened by an increasing tide of“the other.”

So there they were, an oddly diverse team of dryscomposed of the Ku Klux Klan, the Socialist IndustrialWorkers of the World, Baptist and Methodist puritans,progressives such as Jane Addams and Upton Sinclair,and millionaire businessmen such as John D. Rockefellerand Henry Ford — all united in the unholy cause ofdenying others a right that had been historically enjoyedthroughout all of Christendom. Although members of

that group had little in common,they were kept masterfully unitedby one Wayne Wheeler, a Washington-based lobbyist forthe all-powerful Anti-Saloon League (ASL).

Okrent makes the case that Wheeler may have beenthe most effective lobbyist ever to have stalked the hallsof Congress. Although few today have heard of him, hewas famous — or, to “wets,” infamous — at the time forhaving almost single-handedly orchestrated the passageof the 18th Amendment and dictated the terms of theVolstead Act (which authorized the federal governmentto enforce the amendment). Wheeler was nothing if notdevoted to Prohibition. He was a one-issue man, and hisday and night obsession with his noble cause doubtlesscontributed to his early death at age 57. For two decades,he held sway over the majority of senators and represen-

tatives, supporting the dry ones,punishing the few wets who dared tooppose his cause, and intimidatingthe majority of those who were wetin their private behavior into eithersilence or, more commonly, hypo-critical support of Prohibition.

In addition to politicians onboth sides of the aisle, prominentdrys included circus man P.T.Barnum, suffragette Susan B. An-thony, perennial presidential candi-date Williams Jennings Bryan, JohnHarvey Kellogg (of cornflakes fame),and such reformed dipsomaniacs asprizefighter John L. Sullivan and

novelist Jack London. Reliably arrayed against thatformidable lineup were the editors of most big-citypapers, journalist H.L. Mencken, lawyer ClarenceDarrow, Democratic presidential nominee Al Smith,and the nondrinking Theodore Roosevelt (who none-theless called the Prohibitionist movement “egotisticallunacy”). For the better part of the decades-long strug-gle, these disorganized wets proved no match for theWheeler-led drys.

In fact, the ultimate repeal of Prohibition had farless to do with wet opposition than with the public’sgrowing perception that the consequences of the actwere, in Okrent’s words, “hypocrisy, greed, murderouscriminality, official corruption.” There was a positiveside: a decrease in consumption of alcohol, particularlyamong the less well-to-do and small-town residents. Butdrinking actually increased in most big cities, mainly

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among the more affluent and, particularly, among mid-dle-class women. Prior to the enactment of Prohibition,women did not drink in bars, and most did not evenimbibe at home with friends and family. But makingliquor illicit made it fashionable for the ladies to matchtheir gentlemen shot for shot, glass for glass, and we canthank Prohibition for such cultural innovations as coedcocktail parties and “powder rooms” in saloons. By theend of the era, there were some 32,000 illegal hoochjoints in New York City alone, almost all of them open-ly selling the stuff, and alcohol abuse had become asmuch of a problem for women as for men.

Perversely, by 1926 total sales of bootleg boozeexceeded the entire dollar amount of the U.S. federalbudget. For the Prohibition era as a whole, U.S. brewersand distillers actually ended up making money, mostvintners survived, and a number of industries thrived —including the physicians who legally prescribed “medic-inal Jack Daniels,” the “drugstores” that fulfilled thoseprescriptions (Walgreen Company grew from 20 to 525stores during the era), and especially the speakeasies anddistributors (aka bootleggers) that purveyed illegal stuff.Canadian distillers and the federal treasury in Ottawawere the happy beneficiaries of alcohol sales bannedsouth of the border. The losers were the U.S. governmentand taxpayers. Prior to Prohibition, taxes on the bottlehad amounted to 30 percent of all federal revenue.

Observing such goings-on with horror from acrossthe Pond, Winston Churchill called Prohibition “anaffront to the whole history of mankind” that was “atonce comic and pathetic.” Okrent documents both ofthose elements evenhandedly but with the wry — Iinadvertently typed rye ! — touch of humor the subjectcalls for. What can one say with a straight face about theChristian Socialist Frances Willard, head of theWomen’s Christian Temperance Union (WCTU),whose agenda included government ownership of indus-try (and theaters!), vegetarianism, cremation, and “alco-hol-free, tobacco-free, lust-free marriages”? She musthave been a barrel of laughs, but all we can do today isshake our heads at the risible, misguided surety and sin-cerity of her many pet causes.

But we can learn from the examples of the powerfulWCTU and ASL movements just why and how today’sNRA, Tea Party, PETA, and other radical special-inter-est groups thrive in the United States and exert influencefar beyond what their numbers seem to merit. Okrent

documents how the ASL, al-though able to deliver only a

small percentage of votes at the polls, consistently lever-aged its position by tipping close elections in favor ofcandidates who toed its line.

Ultimately, however, the Prohibitionists’ successesdepended on the predictable cravenness of DemocraticParty and corporate leaders who were willing to go alongwith the movement rather than risk having their own oxgored by its mad bulls. America’s business leaders wentinto hiding when the Prohibitionists sought to destroythe nation’s fifth-largest industry, and such leadingDemocrats as then New York governor Franklin Roose-velt (a nonreligious, two-martini man himself ) em-braced Bible-thumping teetotalers as if they were soulmates. Much as is the case today, educated business lead-ers and sophisticated members of the nation’s rulingclass entered, willy-nilly, into political alliance withundereducated populists and religious fundamentalistswho had interests antithetical to their own.

Finally, in the late 1920s, two business heroesstepped forward to do battle with the forces of darkness.Pierre DuPont and John J. Raskob worked with theAssociation Against the Prohibition Amendment(AAPS) to take on the ASL. Students of business historywill recall that they were the same powerful duo who ledboth the giant DuPont company and General Motors(the latter along with Alfred Sloan) during the 1920s.DuPont and Raskob recruited other top corporate lead-ers to the AAPS and worked side by side with societymatron Pauline Morton Sabin (a Morton salt heiress) tooutspend and outflank Wheeler and the ASL — evengoing so far as supporting Democratic presidential can-didate Franklin Roosevelt (who eventually found thecourage to lead the fight for repeal). And FDR’s electionin 1932 was the end of the game: Prohibition diedquickly and with nary a whimper the following year.

The end of Prohibition didn’t finish the AAPS. Itturned out that the organization really hadn’t been allthat concerned about gaining legal access to alcohol.(The rich never had supply troubles during Prohibition:In 1928, the bibulous Raskob ran up one liquor tab ofUS$1,651 — more than $21,000 today, adjusted forinflation). Instead, the most important item on the busi-ness leaders’ agenda actually was repeal of the 16thAmendment, which established the income tax. DuPontand Raskob reasoned that if the main argument forintroducing income tax had been to generate revenuelost as the result of Prohibition, then there would be noneed to continue to tax income once the feds got backinto the business of collecting on bottles. It was a cleverBEST10BOOKS

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argument, but when their candidate became president,and FDR began to spend all the revenue from bothincome and liquor taxes on New Deal programs, theinfuriated business leaders began to oppose him morevigorously than they had opposed the Anti-SaloonLeague. Roosevelt then became “that Socialist in theWhite House.” Sound familiar?

A Lighter BrewSarah Rose’s For All the Tea in China: How England Stolethe World’s Favorite Drink and Changed History is abreezy account of an enterprising Scottish botanist’sdaring act of industrial espionage in 19th-century China.

The story begins with the opium trade. For some200 years, the “Honourable” East India Company hadsold Indian opium to China and bought Chinese tea forEngland with the proceeds, making ahandsome profit in the process.According to journalist Rose, theopium trade turned nearly a third ofall Chinese adults into addicts. TheChinese authorities understandablywanted to get that monkey off theirback. They also wanted to reverse anincreasingly unfavorable balance oftrade that was transferring much ofChina’s wealth to Britain. So theytried to free themselves from thisundesirable arrangement by remov-ing Western traders from their coun-try by force in the First Opium War(1839–42). When they failed, thevictorious Brits claimed even more territory and rightsin China.

In the wake of those disastrous consequences forChina, the East India Company’s directors in Londonbegan to fear that the humiliated Chinese would start togrow their own opium poppies and thus imperil theirincome. And since something like 10 percent of Britishtax revenues were derived from the sale and import oftea, what was good for the East India Company was seenas good for Her Majesty’s government as well. Hence,caution was thrown to the wind and an all-out defensiveeffort was launched to beat the Chinese to the punch bygrowing tea in British India.

The problem was that China had a virtual monop-oly on the technology of tea making, and the only wayto transplant that knowledge to India was to steal it. TheEast India Company’s managers thus devised the clever

scheme of recruiting RobertFortune, an impoverished and, asthey correctly assumed, foolhardily desperate horticul-turist, to travel to China — undercover and alone — tomake off with tea seeds, plants, and the intellectual cap-ital required to grow and process them, and deliver all ofthe above to the Indian hills of Darjeeling (which werereckoned to be ripe for tea plantations).

As one can imagine, Fortune’s task was not easy toaccomplish in a China closed to foreigners, with thou-sands of muddy miles to cross, high mountains to climb,nasty brigands to battle, and scheming servants hell-benton exploiting a master who was dependent on them forhis very survival. It’s an old-fashioned adventure-story-cum-travelogue: the incredible journey of a VictorianMarco Polo. But that isn’t why s+b readers will want to

pick up this book.The book’s value lies in its paral-

lels to today’s contentious trade rela-tions between China and the West.History is almost repeating itself,although today the shoe is on theother foot. In the 19th century,China ran up a tremendous tradedeficit to Britain, much as theUnited States’ balance of paymentswith China is becoming insupport-able now. Britain used the gold itearned in China to expand its navalfleet and enhance its role as theworld’s superpower, and now Chinais doing much the same with its

export earnings. Today, of course, it is the Chinese whoengage in the occasional act of industrial espionage. Butthey still have a habit of dangerously adulterating prod-ucts meant for export to the West; then it was a poison-ous chemical to enhance the color of green tea, now it islead in toys. And all of the above was, and still is, com-plicated by cultural misunderstandings, nationalism,and an unwillingness to compromise on both sides forfear of losing face. History may not repeat itself, but itoften gets close enough to warrant that prudent man-agers sit up and take notice. +

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James O’Toole ([email protected]) is the Daniels DistinguishedProfessor of Business Ethics at the University of Denver’s DanielsCollege of Business. He is coauthor, with Warren Bennis and DanielGoleman, of Transparency: How Leaders Create a Culture of Candor(Jossey-Bass, 2008), which was chosen as one of last year’s bestbusiness books by strategy+business.

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