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It’s human nature to grumble a little about the boss, the boring meeting, or some seemingly clueless directive from several layers above. Strictly speaking, such grumbling doesn’t cause real harm; everyone needs to vent now and then.

But an organization is in serious trouble when most discussions on crucial issues take place in side conversations, rather than in formal meetings, where concerns can be addressed thoughtfully with people in a position to instigate a change of course.

Recent news reports on Boeing reveal what appears to be an epidemic of side conversations about the 737 Max jetliner. In private emails and instant messages, employees expressed rampant concerns about the Max during its development — and outright disdain for some of the decisions being made, technologies being put forward, and even for the company’s customers. The 117 pages of internal communications turned over to the U.S. Congress last week paint a damning portrait of Boeing’s culture — captured in persistent side conversations. Its employees derided airline customers as incompetent and idiots,” and had similarly harsh words about regulators and Boeing senior executives.

As Captain Sully” Sullenberger noted in the New York Times, We’ve all seen this movie before, in places like Enron.”

Side conversations occur because people believe it’s not acceptable to tell the truth publicly. They happen because employees have learned that meetings are places where you go along with the boss or the majority, even if you disagree with what’s being decided or planned. Because we all want to express ourselves and feel heard, we can’t stay silent forever. So we seek out our peers — the ones with whom we believe we can talk straight — and then say what we really think.

Here’s how to tell whether your organization might be plagued by an unhealthy degree of side conversations.

• During a development process, an overwhelming emphasis on speed or profit drives out conversations about a new offering’s quality and safety and/or a new product or service is discussed in only positive terms in formal progress meetings. It’s a given that new offerings bring risks, uncertainties, and problems. Not hearing about them should always raise a red flag.
• Subject matter experts say little or nothing at meetings. Although it’s always possible they simply have nothing to say, given their expertise and the novelty of the project, it’s more likely they feel unable to say something negative.
• People automatically agree with leaders at meetings on crucial issues. Their lack of data, substantive comments or enthusiasm is a warning sign.

The way to heal a sick” culture (as Boeing’s was called by Sara Nelson, president of the Flight Attendants Union) is to help all employees recognize that side conversations about substantive issues are a source of organizational pathology. It starts with senior executives building a culture of psychological safety where employees believe that candor is expected and welcome. As I have detailed in a recent book, this culture can be carefully built through three kinds of ongoing leadership action:

Set the stage. Be explicit about the tensions and challenges that plague all new endeavors, and constantly remind people that you understand the risks, uncertainties, and complexities. Make sure everyone knows that you recognize the tension between the profits the company desires and the absolute premium placed on quality and safety. Point out that kicking the problem down the road costs more in the long run.

Insist on input. Do not accept silence by subject matter experts in meetings. Issue explicit invitations for input. Put people on the spot by asking questions to elicit their thoughts. Force yourself to be curious and ready to hear what they are seeing and thinking.

Appreciate messengers. Respond productively to bad news and concerns. You never know how much courage it might have taken someone to speak. Focus on solutions. Invite ideas and look for volunteers to team up to help solve the problems raised.

Because of escalating uncertainty and risk in many industries, building a healthy culture for candid, challenging conversations has never been more important. It’s time to drive side conversations back onto the center stage.

from:hbr

 

About 10% of S&P 500 companies change CEOs annually. Behind these appointments are often years of intricate preparation grooming successors. We regularly get approached by CEOs and boards who find it challenging to groom the right candidates and look for effective approaches to develop the next CEO.

Venerable behemoths like GE, IBM, P&G, and McKinsey have historically been viewed as CEO factories; indeed, 20.5% of all CEOs appointed at the S&P 1500 firms from 1992 to 2010 came from 36 CEO factories such as these, with GE being the largest. The sheer brand power of these companies often helped their executives rise to the top of search lists. But today GE is run by an outsider, IBM’s performance has been mixed, and P&G had a painful do-over” on their CEO succession. Now we must look beyond the brand names to uncover repeatable practices that boards, CEOs, and HR teams can use to strengthen their leadership pipelines.

It is tempting to assume that the largest academy companies have an edge when it comes to developing talent. As part of ghSMART’s CEO Genome research, we discovered that some surprising companies produce remarkable numbers of CEOs. Moreover, the CEOs these companies produce tend to perform well, thanks in part to the leadership development practices the companies embrace. We estimate there are over a dozen stealth CEO factories” across a range of industries and geographies; these include Medtronic, Rohm and Haas, and Danaher Corporation. We’ll explore the latter two in greater detail.

Until Danaher alum Larry Culp took charge at GE, Danaher was virtually unknown to the general public despite its stellar performance in scientific innovation. Rohm and Haas (which merged with Dow Chemical in 2009) was highly respected within the chemicals industry but far from a household name. And yet both companies produced scores of successful CEOs. More important, companies led by CEOs who came out of Rohm and Haas or Danaher performed 67% better than those same companies did when other CEOs were in charge. (Our research partners at the University of Chicago, N Vera Chau and Professor Steve Kaplan, compared stock returns for companies while they were led by 35 CEOs who came out of Rohm and Haas or Danaher and compared those returns to stock market returns of the same companies during time periods when they were led by CEOs who were not Rohm and Haas or Danaher alums and adjusted for variations in industry returns.)

Three practices stand out as especially important in the success of these stealth CEO factories — and these are distinctive from the prevailing approaches we see in many large companies today. These practices are instructive for boards, CEOs, and CHROs as they groom successors. The practices also offer helpful guidance for individuals who are looking to grow.

1. Give leaders broad authority. In contrast to the complex matrix management structure prevalent among large corporations today, stealth CEO factories vest their general managers with broad roles and substantial decision authority. As Raj Gupta, former chairman, CEO, and president of Rohm and Haas reflects: Very early on in their careers, we had GMs responsible for manufacturing, selling, R&D, supply chain and asset management. These were real CEO-like jobs running a full P&L and balance sheet, making big decisions with minimal guidance by corporate.” CEOs coming out of Rohm and Haas and Danaher spent on average nearly half of their careers in P&L leadership roles prior to their first CEO jobs, arming them with valuable experience running a business. Andy Silvernail, who joined IDEX Corporation from Danaher and created over $9 billion shareholder value as CEO, says, At Danaher, I got my first P&L six months out of business school. It was a highly decentralized environment with a lot of opportunities to really run a business in your early thirties. The buck really stopped with you. You had to make real decisions from an early age.” The broader authority to make decisions is an important factor in grooming future CEOs. Our CEO Genome research showed that highly decisive CEOs were 12 times more likely to succeed.

2. Encourage them to think like CEOs. Stealth CEO factories push their leaders from very early days to think like CEOs — laser focused on metrics and stakeholders directly connected to value creation. Managers at Danaher are trained to prioritize cash, returns on working capital, and strong competitive positions in markets with growth outlook. As a result, CEOs coming out of Danaher are astute at selecting high quality businesses to run and to acquire. For example, Scott Clawson is a serially successful CEO who quadrupled the value of the first company he ran (GSI, a $800 million agricultural equipment business) and delivered more than twice the returns on the second (Culligan, a $500 million water treatment company). Scott told us that he leaned on Danaher training to complete over 35 acquisitions, helping strengthen companies’ competitive position and adding hundreds of millions of shareholder value.

Rohm and Haas ingrains in its leaders a sense of responsibility to five key stakeholders (five voices” in the company vernacular): customers, employees, investors, community, and process. In most companies this broad view doesn’t factor into daily decision making until the C-suite. At Rohm and Haas, you were taught very early to evaluate every decision from the perspective of the five voices,” says Pierre Brondeau, a Rohm and Haas alum who is now CEO of FMC Corporation. That prepares you for the CEO role – thinking about the full set of stakeholders you are accountable to. It’s not about pleasing your boss – it’s about doing the right thing by your stakeholders.” Pierre successfully applied those principles to grow value of FMC five-fold during his tenure as CEO. In our CEO Genome research leaders who effectively engage stakeholders to produce results were two times more likely to succeed as CEOs.

3. Challenge strong performers early with big opportunities. Stealth CEO factories send young managers into uncharted waters with minimal support. We made bets on people and moved them early on,” says Raj. As one Rohm and Haas executive noted, Raj was very comfortable looking beyond the obvious candidates for big jobs, often reaching or more levels down.” For example, in the late 90’s Raj bet on relatively inexperienced young manager named Carol Eicher to lead the launch of a $1 billion joint venture in Saudi Arabia, which was the first of its kind for Rohm and Haas. He didn’t hesitate to send Carol to negotiate this important and complex deal, which was larger than any of ROH existing business units at the time, because he believed she had acumen to succeed. Carol successfully launched the JV and went on to become a successful CEO of Innocor delivering fourfold returns for investors.

Our research showed that these types of bold bets (career catapults”) help accelerate leaders to the top. And CEOs coming out of stealth CEO factories have these types of career experiences more often than a typical CEO. Compared to only a third of all the CEOs we analyzed, virtually all the CEOs who emerged from stealth factories had at least one career catapult, 79% of them had two, and 37% had three or more (compared to only 6% all CEOs in our analysis).

CEO Commitment Is Critical

To benefit from these approaches, the CEO must be committed to development of the leadership pipeline as her top priority. Raj Gupta says his commitment to these practices helped him groom 16 successful CEOs during his tenure at the helm of ROH, including Ilham Kadri, who is now in her second CEO role running Solvay – an $11 billion chemical company headquartered in Brussels. Kadri says, As a young manager with just a few months at ROH under my belt I was put in charge of closing a major acquisition in Russia in the midst of 2008 financial crisis. Later on, I was appointed first ever female General Manager in the Middle East and Africa, leading the transfer of ROH technologies in UAE and executing large investments in the Kingdom of Saudi Arabia. Those opportunities challenged me very early in my career to operate with a lot of unknowns and make decisions on a wide range of issues, which was great training for becoming a CEO.”

These three practices for developing strong leaders don’t require huge scale or large training budgets. They require leadership values and corporate structures that allow for real empowerment and risk taking. Above all, they require the leader at the top to be personally invested and genuinely eager to grow other strong decisive leaders rather than obedient corporate foot soldiers.

 

It’s hard to find a CEO today who doesn’t tout the importance of innovation, yet many seem stumped by how to achieve it. A widely cited McKinsey survey from 2008 found that 84% of executives believed that innovation was critical to their business’s growth, but only 6% were satisfied with their company’s current innovation performance. A more recent study by KPMG and Innovation Leader asked executives to rate how advanced their companies’ innovation efforts were on a five-point scale. Nearly 60% of respondents said they were at the earliest stages (ad hoc, which was one point, or emerging, two points) while only 2% said their innovation activities were optimized (5 points).

Having studied innovation at more than 40 companies over the last 25 years, I believe the disconnect between ambition and execution comes from an overly narrow view of what innovation entails and a tendency to conflate innovation and R&D. When business leaders don’t see breakthrough results from their R&D divisions, they take it as a sign that long-term investments in innovation don’t pay off and cut R&D spending.

In reality, innovation is much bigger than R&D. It involves three distinct capabilities: Discovery, Incubation, and Acceleration (DIA). R&D is just one part of the Discovery capability – invention. Corporate leaders need to recognize that developing business applications, revenue models, and markets for new products often requires as much time and resources and deserves as much emphasis, as inventing the technologies themselves.

Without a strategic innovation function that includes a comprehensive Discovery process and the capacity to Incubate and Accelerate new technologies, companies end up stockpiling undeveloped inventions in their R&D departments and, according to our research, don’t see a strong return on investment from their exploratory R&D. They fall into the trap of having breakthrough ideas that are incrementally executed,” as the CTO of a well-known Fortune 500 company put it during our research.

Innovation Requires Thinking Bigger

The answer to boosting innovation, then, isn’t just about R&D spending, but about building a robust innovation capacity. Corporate leaders would do well to heed the lessons of a well-known home goods company I studied extensively from 2010 to 2016. In the early 2000s, ambitious product experiments, like a tankless water heater, failed to catch on in the market. When new leadership arrived in 2007, they were alarmed by years of investment in big bets with little commercial payoff.

Instead of giving up on Discovery, however, the company regrouped. According to a senior VP, while they were able to perfect new products on a technical level, they saw they had a critical shortcoming in developing the markets for them. They were also picking projects that stretched them into new technological areas and markets simultaneously, pulling them too far from existing competencies.

By sharpening their existing strengths and growing their capabilities to Incubate and Accelerate promising products, they struck gold. Within two years, the company launched a high-tech faucet that became their biggest seller in decades. This was followed by a series of home fixture products that together more than doubled their sales volume in those categories and increased profits by more than 20%. Along the way, they learned an essential lesson: No matter how many amazing inventions R&D produces, it is just the beginning of the innovation process. A robust innovation function is necessary for any new technology to reach its peak potential and successfully mature into a full-fledged business.

Building Capability for Incubation and Acceleration

A well-functioning innovation team has capabilities beyond what a typical R&D department or existing business unit can provide. It not only refines the technical aspects of a new product during Discovery, but also maps the complete opportunity landscape of its use cases and business applications. In the Incubation phase, the team expands, tests, and elaborates the most promising opportunities and hones a business model and strategy. It Accelerates opportunities that start to take off, transitioning them into the mainstream once they have achieved the scale needed to survive under normal operations and metrics.

Rather than pigeonholing promising inventions into existing business units and the most obvious applications, a robust innovation function fosters an expansive view of what a technology might become and then shepherds it down the most promising pathways. For example, in the 1990s, the semiconductor company Analog Devices, which I studied, developed a new accelerometer capable of sensing changes in speed at 5% the cost of existing technologies. While perfecting this invention to be used for airbags in cars, other opportunities emerged to use it in video games, satellites, and scientific instruments. Experience in these smaller, specialized markets helped the company refine the technology and strengthen their position once they broke into the automotive market.

Innovation Pays Off

The tendency to conflate innovation and R&D also muddies people’s understanding of the long-term value it creates. Since the 1980s, U.S. companies have slashed spending on basic, exploratory science and engineering research, largely because they believed these investments wouldn’t be rewarded in the market. The benefits were too vague and not traceable to profits in the near term. However, research shows that investment in truly breakthrough innovation does pay off — if it encompasses more than R&D and includes robust Discovery, Incubation, and Acceleration capabilities.

On first glance, a 2015 study of 141 U.S. firms I conducted with Dmitri G. Markovitch and Pamela J. Harper appears to confirm people’s fears about the return on R&D spending. Across a decade of data, we found no statistically significant relationship between a firm’s investments in basic, exploratory R&D (measured by each firm’s number of patents over the past decade, weighted by how scientifically novel they were) and the firm’s stock market value. This finding aligns with existing research showing that there is either no connection, or in some cases a negative relationship, between exploratory R&D and market performance.

But the critical insight from our study is that an innovation capability that goes beyond basic, exploratory R&D is the missing piece that produces market value. We measured the presence of incubation and innovation personnel within each firm (such as senior leadership and formal teams tasked with innovation and incubation) and the quantity of the firm’s public communications about innovation — the two most readily available public indicators of investment in innovation beyond R&D. And we found that the level of these activities could turn the relationship between R&D and market performance from a slightly negative to a significantly positive one. (Interestingly, in our statistical analysis, innovation activity alone also has no impact on market value. It is only the interaction of innovation activity and basic, exploratory R&D that has a positive effect.)

Overall, our study supports what I have found across years of research at numerous companies: that investing in innovation pays off, but not if it is limited to R&D.

 

Gina O’Connor is a Professor of Innovation Management at Babson College, where she conducts research, teaches students and helps executives develop breakthrough innovation in large companies through Babson Executive Education. Her most recent book is Beyond the Champion: Institutionalizing Innovation through People (20).

 

from hbr.org

An increasing number of large firms are taking action on big social issues—from education, to gun control, to climate change, even impeachment. This follows, in part, consumers’ growing desire to shop with and support companies that reflect their own values and beliefs. But Corporate Social Responsibility (CSR) isn’t limited to big corporations. Small businesses do this, too, and have for a long time.

Small business leaders often build tight bonds with the communities they serve and because of that, their civic engagement is driven by the customers and clients they see every day, not Madison Avenue marketing firms, focus groups, or message testing. In a recent study, 72% of people believe locally-owned businesses were more likely than large companies to be involved in improving their communities.

CSR can be a risky undertaking. Approach the wrong cause, and you risk alienating customers and even employees. Devote too many of your resources, and you risk missing your financial goals. So how are small businesses so successfully navigating these waters? Below are my top three takeaways from my time spent with small business owners through the International Franchise Association.

Focus on Needs Close to Home
Small businesses’ clear advantage is that owners see every day what issues matter to their communities. Consider Jimmy Jamshed, the owner of Dallas-area Captain D’s restaurants. After encountering several individuals desperately rummaging through trash cans in search of food, Jamshed began a casual effort to donate some of his restaurant’s food to deliver to impoverished areas of his community. Soon community members and customers joined in, transforming Jamshed’s efforts into a full-fledged charitable program called Food for Homeless. Jamshed remains deeply involved, paying out-of-pocket for meals and visiting a local park almost daily to deliver meals and clothing.

Similarly, Premium Service Brands in Charlottesville, Virginia identified a problem in their community—children with school-provided lunches didn’t have access to healthy meals over the weekend. To change that, the office staff began spending Friday mornings grocery shopping for underserved students at the elementary school down the road. Now, students enrolled in their meal program receive a backpack filled with a weekend’s worth of food for easy-to-make meals containing high nutritional value. The program provides year-round stability to local families, removing a source of stress from students’ lives.

While the small business advantage in identifying challenges is clear, larger corporations can create a more organic, bottom-up strategy for engaging their consumers to know what issues matter to them most. This approach of directing focus to community needs will undoubtedly help companies stay on-brand and authentic.

Local Leadership is Authentic
Local business owners understand that listening to constituents needs before acting is essential to achieving the highest results. For example, when Norm Robertson, the owner of Express Employment in Indiana, organized veterans to speak out for legislation that could help, it didn’t happen in a vacuum. Robertson himself was a veteran, but he also heard regularly from veterans who used his company’s employment services that they needed a better way to move from public service into the private sector. After listening to them, Robertson became an advocate for the Veteran Entrepreneurs Act, which aims to lower up-front costs for veterans wishing to open local businesses and creating a tax credit to cover 25 percent of initial fees.

In some cases, though, engagement goes beyond legislation alone. When Hurricane Michael closed in on Florida last October, Just Between Friends franchisee Karen Miner partnered with city officials to gather and deliver supplies to families affected by the storm. Miner realized the most effective way to distribute items was by collaborating with her locally elected officials to determine which areas were most affected. By working with her local police departments, Minor successfully influenced public efforts and significantly increased the effectiveness of relief for those in need. She utilized her political voice to ensure that those affected by the natural disaster were given the supplies and support essential to recovery.

There are many ways for corporations to engage in their communities, but these examples show that the most successful efforts have a common thread. They require listening, understanding and action, carefully focused on what matters to the communities they serve. These initiatives show consumers that the welfare of your community is part of your business’ value proposition.

Putting People Ahead of Politics
While it’s important for businesses to exercise their influence in the community, the best strategy for most brands is to remain out of politics. Most businesses are not pushing their political views, rather they are raising awareness on the issues that matter to their communities – where the rubber meets the road—and their customers appreciate that.

Catherine Chuck is an owner of several Applebee’s locations across ideologically diverse states. In order to be effective in her philanthropic efforts, Chuck has successfully navigated the varying political leanings of her locations by supporting initiatives that bridge party lines and bring people together rather than divide them. And she has excelled at this, raising over $14.5 million in funds and in-kind support to community nonprofits and organizations including local schools, veterans’ organizations, and for childhood cancer research. By supporting non divisive causes such as these, Chuck has successfully exercised her influence in bringing communities together for the common good.

Even education, which can be a contentious issue, can be made non-political. For example, Sonic Drive-In’s Limeades for Learning” campaign works with the brand’s franchisees and the community’s teachers to support educational programs and products for students. Through Limeades for Learning,” customers at local Sonic locations are encouraged to vote online in support of teacher-nominated supplies and educational materials, which Sonic then delivers to the classrooms. This unique partnership combines the community’s priorities with both locally owned and operated stores, as well as corporate engagement.

Key Takeaways

We so often talk about CSR as if it were a new concept, but in reality, small enterprises have toiled in their communities and acted upon local needs for a long time. Small businesses’ CSR and community engagement efforts may never receive the splashy coverage that large corporate donations garner, but they play an instrumental role in the success of communities and, from their local vantage point, have an ability to impact their cities and towns in ways that go beyond just jobs or service creation. Estimates by the Franchising Gives Back program, founded by Roark Capital’s Steve Romaniello to quantify charitable giving from franchises, show that locally owned and operated franchised small businesses have given more than 2.6 million volunteer hours to charitable causes in recent years. With their ability to listen to and understand local needs that matter most to the people they serve, they highlight how businesses across the country can develop relevant and authentic approaches to CSR.

 

 

 

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دعوتنامه

  احتراما، از شما دعوت به عمل می آید تا در  همایش "هدایت تحصیلی پیشرفته"  روز یکشنبه مورخه 98/07/21 

از ساعت 17:00 الی 19:00  با حضور محترم سرکار خانم دکتر فردوسی، روانشناس مطرح صدا و سیما و

جناب آقای دکتر ، مشاور تحصیلی به آدرس ذیل حضور به هم رسانید.

امید است حضور شما در این همایش زمینه ساز آینده ای درخشان برای فرزندان نازنین شما و این مرز و بوم باشد .

آدرس:

سیدخندان، خیابان شهید کابلی (دبستان)، کوچه حمیدی، پژوهش سرای اشراق، جنب آموزش و پرورش منطقه 7.

 

 

 

 

 

 

In 2012, Denmark’s biggest energy company, Danish Oil and Natural Gas, slid into financial crisis as the price of gas was plunging by 90% and S&P downgraded its credit rating to negative. The board hired a former executive at LEGO, Henrik Poulsen, as the new CEO. Whereas some leaders might have gone into crisis-management mode, laying off workers until prices recovered, Poulsen recognized the moment as an opportunity for fundamental change.

We saw the need to build an entirely new company,” says Poulsen. He renamed the firm Ørsted after the legendary Danish scientist Hans Christian Ørsted, who discovered the principles of electromagnetism. It had to be a radical transformation; we needed to build a new core business and find new areas of sustainable growth. We looked at the shift to combat climate change, and we became one of the few companies to wholeheartedly make this profound decision, to be one of the first to go from black to green energy.”

That strategic impulse—to identify a higher-purpose mission that galvanizes the organization—is a common thread among the Transformation 20, a new study by Innosight of the world’s most transformative companies. Fortifying this new view, the Business Roundtable last month released a statement signed by 1 CEOs stating that serving shareholders can no longer be the main purpose of a corporation; rather, it needs to be about serving society, through innovation, commitment to a healthy environment and economic opportunity for all.

Our aim was to identify the global companies that have achieved the highest-impact business transformations over the past decade, using the same methodology as our 2017 study. Our research team screened all the firms in the S&P 500 and Global 2000 using three lenses:

1. New growth: How successful has the company been at creating new products, services, new markets, and new business models? This includes our primary metric: the percentage of revenue outside the core that can be attributed to new growth areas.
2. Repositioning the core: How effectively has the company adapted its traditional core business to changes or disruptions in its markets, giving its legacy business new life?
3. Financials: Has the company posted strong financial and stock market performance, or has it turned around its business from losses or slow growth to get back on track? We looked at revenue CAGR (combined annual growth rate), profitability, and stock price CAGR during the transformation period, which was different for each firm.

Our initial phase of research identified 52 companies making substantial progress towards strategic transformation—merely 3% of the public companies in our data set. From this second-round list, an Innosight partner panel voted to narrow it down to 27 finalists. For the third round, the following companies were selected as the Transformation 20 and ranked by a panel of management experts (see judges).

 

Each of these companies developed new-growth businesses outside its traditional core  which have become a significant share of the overall business. However, we believe it’s the decision to infuse a higher purpose into the culture, one that guides strategic decisions and gives clarity to everyday tasks, that has propelled these companies to success.

The #1 company, Netflix, is a case in point. In 2013, CEO Reed Hastings released an 11-page memo to employees and investors detailing a  commitment to move from just distributing content digitally to become a leading producer of original content that could win Emmys and Oscars.

As the memo said, We don’t and can’t compete on breadth with Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google. For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not Dish.”

Since unveiling that new purpose, Netflix revenue has roughly tripled, its profits have multiplied 32-fold, and its stock CAGR has increased 57% annually, versus 11% for the S&P 500.

Finding new purpose

In a comparable way, the purpose-driven mission of preventative healthcare has spurred major change at other large organizations that made the list. China’s AIA Group has moved beyond insurance to become a wellness company, whereas Dutch electronics giant Philips has largely divested its legacy lighting business to focus on healthcare technology.

The technology companies on our list also discovered ways to infuse purpose into their organizations as part of their fundamental change.

Siemens moved beyond a purpose of maximizing shareholder value to a mission of serving society.” This transformation began in 2014 with a plan called Vision 2020 that called for harnessing technologies such as AI and the Internet of Things. However, changing the mission also called for changing the culture. The biggest obstacle to any transformation is literally just the way we’ve always done things,” says Siemens USA CEO Barbara Humpton. Infusing a higher purpose into the company called for pushing decision making out from the center to every business unit, so that managers and rank-and-file employees feel they have a stake in future success. Ownership culture is central to everything,” Humpton says. This shift in the culture at Siemens has propelled it to divest its core oil and gas business and redeploy the capital to build a new Smart Infrastructure business focused on energy efficiency, renewable power storage, distributed power, and electric vehicle mobility.

In the case of Tencent Holdings, the company was founded in 1998 to harness the Internet opportunity, launching online chat forums and video games for China’s new generation of digital natives. As of 2005, shortly after its IPO, Tencent defined its purpose in terms of implementing our Online Lifestyle strategy, which strives to cater to the basic needs of our users.”

Only in subsequent years did founder and CEO Pony Ma Huateng broaden the firm’s outlook by embracing a mission of improving the quality of human life through digital innovation.” Since 2011, Tencent has invested heavily in new growth ranging from education and entertainment to autonomous vehicles and ride sharing to fintech and the industrial internet—areas that together now represent 25% of its $46 revenue. Through its Tencent Education business unit, the firm is now developing educational content and services for individuals, schools, and education management. All of this growth helped Tencent become the first Asian company to surpass $500 billion in market valuation.

In 2019, Tencent refined its mission once again, in response to the growing global backlash against technology’s dominance in our lives, boiling it down to: tech for social good.

 Several companies found that refocusing the organization to help save the planet can be especially powerful. Ecolab, #16 on our list, is a prime example.

 In the early 2000s, when Douglas Baker Jr. became its CEO, Ecolab was an 80-year-old firm growing 10% annually by selling industrial cleansers and food safety services. Our strategic plan was to sell more of what we had,” Baker says. To grow much beyond its $3.8 billion in revenue, the company could have kept moving into adjacent markets or new geographies, but Baker felt that wasn’t bold enough.

The transformation began by talking to customers, Baker says. The same customers who were buying its core products were also voicing concerns about access to clean water. And they weren’t alone. Projections for the year 2030 showed that 70% of the world’s GDP would be based in water-stressed regions, California and Southern India being prime examples.

In 2011, Ecolab had a $12 billion market cap when it acquired water technology company Nalco in an $8 billion deal. The combined company is now one of the world’s leading suppliers of hardware, software, and chemistry that helps manufacturers and service firms become more efficient users of water. A primary metric driving the organization is how much water is saved by its clients annually, which now stands at 8 billion gallons, against a 2030 target of 300 billion gallons.

We broadened our vision and our purpose changed,” Baker says. As our teams widened their awareness of global issues, our pride has been enhanced.” So has Ecolab’s market value, which has surpassed $55 billion, placing it among America’s top 100 most valuable firms.

Performing mission impossible

Such transformations are never easy. When the firm now known as Ørsted divested its coal, oil, and natural gas businesses, that created a giant revenue gap that urgently needed to be filled. The company had experimented with offshore wind power, but the technology was too expensive, producing energy that was more than double the price of onshore wind.

Under Poulsen, Ørsted embarked on what critics called an impossible mission: a systematic cost-out” program to reduce the price of offshore wind while achieving scale. The company managed to cut the cost by more than 60% while building three major new ocean-based wind farms in the U.K. and acquiring a leading company in the U.S.

The result: Previously about 80% owned by the Danish government, Ørsted’s IPO in 2016 was one the year’s largest. Operating profits have quadrupled since it began the transformation, and Ørsted is now the world’s largest offshore wind company, with about a third share of booming global growth market.

The takeaway lesson from these mission-changers is clear: In an era of relentless change, a company survives and thrives based not on its size or performance at any given time but on its ability to reposition itself to create a new future, and to leverage a purpose-driven mission to that end. That’s why strategic transformation may be the business leadership imperative of the 21st century

 

Algorithms are becoming increasingly relevant in the workplace. From sifting through resumes to deciding who gets a raise, many of these new systems are proving to be highly valuable. But perhaps their most impressive, and relevant, capability is predicting which employees will quit. IBM is in the process of patenting an algorithm that can supposedly predict flight risk with 95% accuracy. Given that we are in a candidate-driven market, this is a significant innovation. There are now more job openings in the U.S. than there are unemployed Americans.

Losing an employee can have a drastic effect on team morale, and result in a domino effect that leads to poor performance and productivity. Not to mention, it is expensive, and not just because of lost talent. It takes an average of 24 days to fill a job, costing employers up to $4,000 per hire — maybe more, depending on your industry. The good news is that only about a quarter of employees that leave do so within their first year. This means you have plenty of time to assess flight risks and address them.

But not every company has a fancy algorithm to help them out. Even predictive models that can identify the behavioral patterns that reveal who will quit don’t excel at explaining why they do. This is likely because the reasons people quit are deep-rooted and complex. During my fifteen years working in data science, I have run countless predictive models on employee retention, student retention, and customer churn across industry verticals, including healthcare, energy, and higher education. Through my work, I’ve identified eight common leadership mistakes that help explain this why. Understanding them, and how they impact your team, will help you identify those who are at flight risk, and make changes that may convince them to stay.

Mistake 1:  Setting inconsistent goals or expectations.

Consider this scenario: A sales representative at a rental car company has to choose between serving her next client, or correctly logging her previous client’s information into the system. Her manager has made it clear that slow service is poor service,” but she knows that improperly entering customer information could get her fired. Choosing between these two tasks causes her to experience high levels of stress on a daily basis, and as a consequence, she hates her job.

This situation is not uncommon. But when employees are forced to choose between tasks in order to meet competing expectations, the result is a team of stressed out people without clear priorities.

How can you avoid this situation? Take a note from Disney. Each worker in the Magic Kingdom is given a list of priorities with items ordered from the most to the least important. Safety comes first, followed by courtesy, show (or performance) next, and finally, efficiency. When a team members find themselves in sticky situations, no one is confused about how to manage them.

You can create this same kind of stability on your team by being consistent and clear with your expectations. Write them down — even if it is only for yourself — to see if any contradict or overlap. Then, make necessary changes and share. In doing so, you will empower your team and ease their stress by giving them a greater sense of control over their tasks. Most importantly, you will be making work a more pleasant place to be.

Mistake 2: Having too many process constraints.

Process constraints often occur when a lack of information, resources, or another factor, stops an employee from doing their job. I’ve seen this take place, for example, when a worker is forced to wait for several other tasks to be completed before they can move forward with a project. Such conditions will naturally inhibit performance — which are evaluated by managers — even if it is not the employee’s fault. In turn, the employee begins to feel powerless, and displays low morale, poor work quality, and frustration.

How can you avoid this situation? Consider context when evaluating performance. Look at the criteria, and consider how much control your employee has over their outcomes, as well as how much control you have over any constraints that may be affecting their output. Talk openly to them about their performance and ask questions that will help them communicate any concerns on their end.

If you find that process constraints are in fact affecting their performance, use your influence to try and improve the situation. Sometimes this might require having difficult conversations with other departments or leaders. But these conversations will ultimately benefit your employee, as well as your bottom line.

Mistake 3: Wasting your resources.

Pretend you are a marketing manager. You have until Friday to roll out a new campaign. It’s Tuesday, which should theoretically leave you with plenty of time. But there’s a problem. You have six meetings for a total of four and a half hours today. The following day, you have seven meetings, which eat up six hours. On Thursday, you have to attend a team training session for five hours. So, when are you supposed to work?

This is what we call resource waste. In the case above, and many others, the resource going to waste is time. Employees who are constantly crunched for time tend to get burned out faster, which impacts the quality of their deliverables. If you don’t give your team the resources they need to succeed, you are setting them up to fail. It’s not uncommon for employees in this situation to leave and seek out a company with a more sustainable work culture.

How can you avoid this situation? Sometimes busy weeks that result in wasted resources are unavoidable. But creating a list that ranks the importance and impact of your employees’ tasks can help. If your employee knows their campaign plan is due Friday, for example, help them itemize the tasks they need to complete by that deadline, and consider if doing so is realistic given their current workload. Before assigning them additional tasks or inviting them to meeting after meeting, ask, Is this new task a priority? Does this employee really need to be in the room?” If the answer is no,” give them space to do their most important work.

Mistake 4: Putting people in the wrong roles.

If you ever hear an employee say, I went to college for this?” you can bet they are not happy with where they are or what they are doing. This is another example of waste, but I call it knowledge and skills waste.” Unused abilities can leave employees feeling undervalued and faceless. An algorithm can easily take a job posting, outline the skills required for it, then take a resume, and infer the knowledge and abilities of a job candidate. But if there is a disconnect by the time that candidate becomes an employee, you’ve got a risk factor out of the gate.

How can you avoid this situation? It’s best to be transparent about the roles you are hiring for and what they require during the interview process. But if you’re already in too deep, there are a few ways you can handle it. Start by checking the job description your employee was hired into, and compare it against their current task load. Are there gaps, and if so, how wide are they? Take notes. Then discuss them with your team member to see which gaps are falling short of their goals, and which are the most important.

You may not be able to change the role entirely, and it may take time, but together, you can come up with a plan to help them take on more meaningful responsibilities, and drop tasks that add the least value to your team.

Mistake 5: Assigning boring, or overly easy, tasks.

Think about the last time you had to go to a work event that you really didn’t want to attend. Maybe you had to converse with too many people about uninteresting topics or sit through several hour-long seminars in a single day. How did you feel after the fact?

You were likely exhausted, very exhausted — even though all you had to do was talk a little and listen.

Why? Because you were suppressing your emotions. Suppressing, rather than acknowledging, any feeling can take a toll on your energy level, even if that feeling is boredom. If you have an employee with a light workload who constantly takes an excessively long time to finish their tasks, don’t assume they are lazy. Less work is not always easier work. When employees don’t have enough to do, they can lose motivation and experience negative emotions. If they suppress those emotions, they can become physically and emotionally exhaustion. The net result is a lack of work satisfaction and engagement, forcing employees to finally ask whether this job is the right fit for them.

How can you avoid this situation? Get creative. If your team member has a history of stable performance, they’ll likely be open to extending their capabilities and taking on more challenging work during their downtime. Before assigning tasks, ask your employee about their interests and passions. Based on their answers, give them work that will enhance their knowledge, skills, or help them grow in the right direction. A learning agenda with target goals, and a roadmap outlining how they will reach them, will also help you keep track of and check in on their progress.

Mistake 6: Failing to create a psychologically safe culture.

Hostile environments are easy to spot. If you notice your team members being overly agreeable or quiet in meetings, that’s a bad sign. When employees fear their thoughts or ideas will be met with repercussions, they tend to behave this way, which means you are likely operating in a fear culture. Employees who do not feel psychologically safe are more prone to error, and less likely to take risks, participate in healthy conflict, or grow in their roles. Contrarily, team members that feel psychologically safe are productive, innovative, and enjoy a sense of belonging.

How can you avoid this situation? To create a psychologically safe work environment, show your team that you are open to new ideas. In meetings, ask questions before posing answers and reward those who speak up by thanking them for their input or following up with additional queries. Consider all viewpoints when brainstorming solutions to difficult problems and make sure your team knows that there is no such thing as a wrong answer.” If an idea has a lot of potential, you might even ask your employee to run with it and present what they come up with at the next meeting. The more you can incorporate your team’s feedback into projects and strategies, the more empowered, valued, and safe they will feel working for you.

In addition, show some humility. When you own up to your faults, or admit that you don’t have all the answers, you show your team members that it’s okay to fail.” Take on the perspective that failure is an opportunity to grow, and your team will start to do the same.

Mistake 7: Creating a work environment that is too safe.

Studies show that a moderate level of pressure and friction at work is healthy for employee growth. But the key is moderation. When employees feel overly pressured to perform well in their roles, they can lose sight of what’s important, and in acts of desperation, use unethical means to excel. On the other hand, if your employees have no pressure at all, they may start to wonder if their work even matters. People who find no meaning or purpose in their work perform below their potential, are less productive, and are often less loyal than those who work in purpose-driven organizations.

How can you avoid this situation? One way to create a healthy amount of friction is to provide your team with regular feedback — both positive and negative. When delivered thoughtfully and without judgement, negative feedback can give people something meaningful to work towards. You should also be sure to remind your employees of what they are doing well, and how their role contributes to the goals of the larger organization (no matter how big or small their contribution is). In turn, they will begin to see how they fit into the big picture, and may even start to feel a greater sense of purpose.

Mistake 8: Leading with bias.

Consumer studies show how much customers value being treated fairly by the companies they give their money to, and the same can be said for workers on the inside, giving up their time. Leaders who are fair — without bias — are leaders who employees can trust, and a trusting manager-employee relationship defines the best workplaces,” improves performance, and is good for revenue. A lack of trust, however, can result in low morale and a team with little or no guidance. Think of it this way: if your employees don’t trust you to lead them down the right path, how will they come together and align their efforts to meet a shared goal? Put yourself in their shoes. Would you want to work at a place without clear direction?

How can you avoid this situation? Practicing self-awareness is a good start. Managers who can recognize their implicit biases and make adjustments to overcome them are more likely to lead in a fair and just manner. Before you make an important decision consider what is driving you. Are you basing your choices off of evidence, or preference? Have you considered other perspectives? Are there any gaps in your knowledge you need to fill first? Asking for regular feedback from your team, and acting on it, will also build a culture of fairness and open communication.

It’s true that there is no way you can control every aspect of your team’s work experience. If someone wants to leave bad enough, sometimes they just will. That said, focusing on your own behaviors, what you can control, will do wonders to improve the performance and cohesiveness of your team. The better you manage, the more productive, innovative, satisfied, and most importantly, loyal your team will be.

 

https://hbr.org/2019/09/8-things-leaders-do-that-make-employees-quit

from hbr

All organizations have the ability to be smarter than the sum of their members’ intelligence and talent. Unfortunately, most are actually dumber. The good news is there are a handful of practical steps to boost collective intelligence.

Create tools that allow everyone to communicate strategically about innovation. Good ideas can come from all corners of a company, but would-be innovators may need help developing a strong strategic argument. The Defense Advanced Research Projects Agency (DARPA), the innovative government agency focused on transformational breakthroughs in national security, uses a set of simple questions called the Heilmeier Catechism (named after a former director), to think through and evaluate proposed research programs:

• What are you trying to do? Articulate your objectives using absolutely no jargon.
• How is it done today, and what are the limits of current practice?
• What is new in your approach and why do you think it will be successful?
• Who cares? If you are successful, what difference will it make?
• What are the risks?
• How much will it cost?
• How long will it take?
• What are the mid-term and final exams” [that will allow you to measure] success?

Materials science company W.L. Gore puts its key innovation criteria in the form of a one-page Product Concept Worksheet,” which contains: a concise statement of the product concept, the technology to be utilized, the form of the product, and the customer needs that the product will address.

Either approach can easily be adjusted for use in most organizations; they provide common language that allows anyone to propose a new idea — and everyone to judge its merit.

Vet and refine ideas collectively and continuously. In nimble organizations, innovation ideas aren’t reviewed once or twice a year by a senior committee. Instead they undergo a constant process of review, refinement, and — if necessary — death. The goal is for only the best ideas to survive. In our research, we found that successful collective vetting depends on at least two things.

The first is clear, commonly understood guidelines (also known as simple rules) by which to judge proposed innovations. In an effort to rejuvenate its innovation pipeline, Corning created a set of simple rules, derived from successful past innovations:

• address new markets with more than $500 million in potential revenue
• leverage the company’s expertise in materials science
• represent a critical component in a complex system, and
• be protected from competition by patents and proprietary process expertise.

Second, diverse stakeholders are invited in early and often to help judge and refine the idea. At Gore, passionate champions” for new innovations use the company’s tools to frame the strategic case for their idea, vetting it with customers and colleagues in the process. If the idea gains support, the champion schedules regular peer review sessions with people from manufacturing, R&D, sales & marketing, and other areas of expertise who are in a good position to judge and refine the idea. The company’s culture of frank talk drives these review sessions. People understand that their collective job is to kill bad projects as quickly as possible and accelerate those that show the most promise.

Guidelines make it easier for everyone to judge the value of new innovations and avoid large, bad bets on relatively untested ideas. Senior leaders periodically review the portfolio of project ideas that are bubbling up and knit them together, using their knowledge of organizational capabilities and market/technology trends to create organizational strategy.

Bust through barriers that block innovation. Most organizations have regular  procedures for leaders to determine which new projects should get funded and who will be assigned to these initiatives. But at nimble organizations, leadership is flipped upside down. The job of top leaders is to serve people who are close to the market. They do whatever they can to clear the way for promising new projects and get innovation teams the resources they need.

NASA’s leaders are undertaking an intensive effort to understand and transform several major barriers to innovation. They asked their employees to help; people responded with nearly 300 recommendations. Some of these aimed to encourage more idea generation by giving people more time, money, recognition, and dedicated physical space for innovation. Others focused on reducing process requirements for innovations, for instance, fast-tracking low-cost missions and giving special treatment to high-potential technologies. One proposal would require new flight programs and projects to include an element of innovation to encourage informed, appropriate R&D risk, as a means to counter the agency’s risk-averse culture. The outcome of this effort remains to be seen, but NASA’s leaders are certainly making a concerted effort to tackle the blocks to innovation.

Using these three practices, companies can harness the insights and energy of all of their people through a collective prediction market,” in which innovation ideas are examined, improved, and pushed forward by the many, not the few. An innovation prediction market makes many small bets on new ideas at early stages, only a few of which will pan out after intensive collective vetting. In so doing, nimble companies aggregate the intelligence of their workers to better predict future success, and act to make that future real.

From: https://hbr.org

Harvard Business School Professor Sunil Gupta explores the infiltration of Amazon into dozens of industries including web services, grocery, online video streaming, content creation and, oh, did we mention physical bookstores? What’s the big plan? Is the company spread too thin? Or is it poised for astronomical success?

 

Brian Kenny: In the world of computer science, Jon Wainwright is kind of a big deal. A computer language pioneer, he was the principle architect of both Script 5 and Manuscript. What makes John a legend has nothing to do with programming. Let me explain.

On April 3, 1995, Jon was in need of work-related reading material. He fired up his T1 modem and navigated the fledgling internet to the beta version of a new online bookstore. With the click of a mouse, he became the very first customer to make a purchase on Amazon.com. Fluid concepts and creative analogies, the book he purchased, never became a best seller, but Amazon took off like a rocket ship and hasn't slowed down since. With a market cap larger than all other retailers combined, including Walmart, Amazon owns 49 percent of all online sales. In the time it takes me to read this introduction, the company will earn over $300,000. Will we ever see the likes of it again?

Today, we'll hear from Professor Sunil Gupta, about his case entitled, Amazon in 2017. I'm your host Brian Kenny. You're listening to Cold Call, part of the HBR Presents network.

Sunil Gupta is an expert in the area of digital technology and its impact on consumer behavior and firm strategy. He is the author of the recently published, Driving Digital Strategy, a Guide to Re-imagining Your Business. This case is the perfect stepping-off point to cover some of the ideas in that book. Sunil, thank you for joining me today.

Sunil Gupta: Thank you for having me.

Brian Kenny: The case is a great foundational piece to launch into some of the ideas [of the book]. I'm going to assume that anybody listening to this podcast has purchased something on Amazon, or watched something on Amazon Prime. I had forgotten about their modest beginnings, and just how much they've grown and expanded and changed… Let me start by asking you … what led you to write the case?

Sunil Gupta: As you said, everybody knows Amazon. At the same time, Amazon has become quite complex. They have grown into a business that defies imagination. That raises the question, is Amazon spreading itself too thin? Are they an online retailer? Are they video producers? Are they now making movies? In strategy, we learn everybody should focus. Obviously, Jeff Bezos missed that class.

You start to wonder, what is the magic behind this? What is the secret sauce that makes Amazon such a huge success? Their market cap almost touched a trillion dollars a few months ago.

Brian Kenny: Insane. The case takes place in 2017. (Editor’s note: Amazon in 2019 has just been published.) Start us off by setting it up. How does the case open?

Sunil Gupta: At that point in time, Amazon had just bought Whole Foods, which was very counterintuitive. Amazon has been an online player. Why is it getting into an offline business? That was against their grain as an online player. The second thing is, food is a very low-margin category. Amazon is a technology company; its stock is going to stratosphere. Amazon had been (operating) Amazon Fresh for 10 years, and hasn't succeeded. Why don't they give up? That was a starting point. Of course, the case describes all the other 20 things they have done in the last 20 years and asked the question, what is Amazon up to?

IT'S ALMOST A 25-YEAR-OLD COMPANY THAT STILL WORKS LIKE A STARTUP.”

Brian Kenny: Amazon and Jeff Bezos are sort of synonymous. He's a cult of personality there, like Steve Jobs was with Apple. Jeff's been in the news a lot lately for other reasons, you know, personal reasons. He is probably one of the best-known CEOs in the world. What's he like as a leader?

Sunil Gupta: I don't know him personally. Based on the research I've done, he certainly is very customer obsessed. He's focused on customer. He always says, "You start with the customer and work backwards." He still takes calls on the call center. The culture is very entrepreneurial, but also very heart driven. I mean, the idea for Amazon Prime evidently didn't come from Jeff Bezos, it came from a person low in the organization. He's quick to adapt the ideas if he sees some merit in it. It's almost a 25-year-old company that still works like a startup.

Brian Kenny: Was the original concept for Amazon . I mean, he sold books originally. Was it ever really a book company?

Sunil Gupta: I think it started more as an online retailer. Book was an easy thing, because everybody knows exactly what you're buying. It's no concern about the quality. His premise in the online store was a very clear value proposition of three things. One was convenience, that you can shop in your pajamas, so we don't have to fight the traffic of Boston or Los Angeles. The second was infinite variety. I don't have the constraint of a physical store. Even if I have Walmart, which is a huge store, I can only stock so many things. As a result, you only have the top sellers. In Amazon, I can have the long tail of any product, if you will. The third was price. It was cheaper, simply because I don't have fixed costs of the brick and mortar store. I can reduce the cost structure and therefore I can be cheaper. Those were the three key value propositions. That's how it started. The idea was, I'll start with books and then move on to electronics and other things. But then of course, it moved far beyond being an online retailer.

Brian Kenny: This gets into some of the ideas in your book. I was really intrigued in the book about the notion of what kind of business are we in? Just that question alone. At face value, it looked like Amazon was a retailer. They went in directions that nobody could have imagined.

Sunil Gupta: Right. The purpose of the case was to illustrate how these are all connected. From a distance they look completely disconnected, and completely lack focus. Let's start with how the concept evolved.

The first thing was, as I said, it was online retailer. Very soon it became a marketplace. Now, what is a marketplace? They basically allow third-party sellers to also sell on the Amazon platform, which is distinct from a traditional retailer. Walmart doesn't allow me to set up shop within Walmart, but Amazon allows me to do that. Now, why would they do that? Simply because it increases the variety that they can sell on the platform. Therefore, consumers are quite happy with the variety of the product they can get on Amazon. Amazon gets commission without having the inventory and the capital cost.

Perhaps the most important thing about becoming a platform is that it creates what we call network effects. If everything I can buy is available on Amazon, more consumers are likely to go there. Because there are more consumers, more sellers are likely to go there. It just feeds itself and becomes a virtual cycle. That's why there is only one Amazon. Even if I start an online retail [store] that is in many ways better than Amazon, nobody's coming to gupta.com, because buyers and sellers are not there. That became the next phase, changing from an online retailer to a marketplace. Then it went into AWS (Amazon Web Services), and you say, "How can it go into being a technology company and compete with IBM and Microsoft?" It was competing with Walmart before.

Sunil Gupta: In fact, at that point, Wall Street was very down on that. They said, "What is Bezos thinking?" The idea, if you think about it, was very simple. Amazon was building (web services technology) for its own purpose, and then started giving this technology, using this technology, for third-party sellers who were selling on its platform.

Brian Kenny: Let me just interrupt for a second. That's a marked change in direction. They had always been a consumer platform. Now they're in a business-to-business play. I bet a lot of consumers don't even know about Amazon Web Services.

Sunil Gupta: Correct. That was not saying in a traditional sense, "This is my market." That's simply saying, I have this capability. There's a demand for this capability. Can I do it?" Part of that was opportunistic, also. If you remember in 2001, the dot.com bubble crashed. If you're a B2C company, you hedge your bets and get into B2B business. Part of that may have been luck. And then Amazon started producing hardware, Kindle, and now competing with Apple.

You sort of say, why is an online retailer getting into hardware production? If you think a little bit about it, the answer is very easy. Kindle was designed to sell eBooks as people move from buying hard copy books to downloading eBooks. The Kindle is the classic razor and blade strategy. I sell razors cheap in order to make money on the blades. I'm not making that much money Kindle, but I'm making money on e-books, which is very different from Apple's strategy. Apple actually makes money on devices, but Amazon is not making money on devices, or at least not making huge money. Similarly, it moved into online streaming of the video content and suddenly became a competitor of Netflix. You say, "Why is a retailer becoming a competition of Netflix?" Again, if you think a little about it, the answer becomes clear. As you and I moved on from buying DVDs [to] streaming the stuff, that's what Netflix did. They used to send the DVDs to us.

Brian Kenny: I remember that. I still have a couple.

Sunil Gupta: Amazon is very good in moving with the customer. If the customer moves from buying books to e-books, Amazon moves in that direction. If customers move from buying DVDs to streaming, it moves in that direction. Now, can Amazon do it? Of course, they can. They have AWS. Netflix is one of the largest AWS customers.

AMAZON IS VERY GOOD IN MOVING WITH THE CUSTOMER… IF CUSTOMERS MOVE FROM BUYING DVDS TO STREAMING, AMAZON MOVES IN THAT DIRECTION.”

Brian Kenny: Are they leading or following? Are they creating a market? In the beginning it seemed like they created something entirely new. Now, are they anticipating, or are they just sort of reacting to what's happening?

Sunil Gupta: It's a combination of both. In some ways they are following the consumer behavior. [When consumers started] moving to streaming, Amazon was not the first—Netflix started the streaming thing, and then Amazon comes up with it. If you think about it, Amazon not only distributed third party content on videos, but now they have Amazon Studio. They are making movies. The competition now becomes Hollywood instead of Walmart.

You sort of say, "What has gone wrong with Jeff Bezos? Why is he making movies?" Making movies is a pretty expensive business and highly risky. Again, the key is to understand the purpose of the movies, which is to hook consumers on Amazon Prime. If you remember, Amazon Prime started at $79 dollars per year. The benefit at that time was two-day free shipping. Now, you and I are smart enough to do the math, saying, how many shipments do we expect next year, and is $79 worth it? Bezos does not want you to do that math. He basically says, "Oh, by the way, I'll throw in some free content, some free music, some free unique movies.” Now you can’t do the calculation. Why does he care about Prime? Right now, Amazon has about 100 million Prime customers globally. Let's say I get an average 100 dollars per year, that's $10 billion in my pocket, before I open the store.

Brian Kenny: Right.

Sunil Gupta: The research also shows that Amazon Prime customers buy three to four times more than non-Prime customers. I mean, if you're a Prime customer, you don't even price shop.

Brian Kenny: Once you're Prime, you’ve got to justify being a member. You buy everything on Amazon.

Sunil Gupta: Exactly. Your purchases increase. You become price insensitive, which is fantastic. Jeff Bezos has said that every time we win a Golden Globe award for our content, we sell more shoes. The purpose of creating their own content is not to make money on the content. This is a different razor, to sell you more shoes. Once you understand that, what looks like disparate business is actually extremely tied together.

Brian Kenny: It all comes right back to the core. They haven't always had good ideas. Have they had some misses along the way too?

Sunil Gupta: I think the biggest failure was Fire phone.

Brian Kenny: Remind us what that was?

Sunil Gupta: Amazon launched their own phone. They were obviously very late in the market. iPhone was already there. Samsung had done very well. You have two major players, if not many others, who are very well established. Consumers love their iPhones. The question of course was, why is Amazon launching a phone? What are the odds of success? Clearly the odds of success were low.

The reason was they didn't want to be beholden to the iPhone or to the Googles of the world. They know that the world is moving towards mobile, in terms of shopping. Certainly in emerging markets everybody's moving to mobile shopping. If tomorrow Apple or Google sort of restrict … availability or use of Amazon—because they're all competing with each other now—it becomes a challenge. Not all innovations succeed, but you've got to take a shot. If you think about it, all the technology and thought processes that went into Fire phone were not a complete waste. That went into Echo. Now Alexa is a big hit.

Brian Kenny: They're a market leader in that in that space. Let's talk a little bit about the ideas that underlie this Amazon case. I think it starts with knowing what business you're in. Your book addresses this. I think I know we're in the education space here at Harvard Business School. Should we be thinking about other businesses?

Sunil Gupta: I think you're right. The bigger question that Amazon case raises is, how do you define what business you are in? Most of us tend to define business by the traditional industry boundaries. If I'm a bank, I'm in banking and other banks are my competition. I think industry boundaries are getting blurred today. Amazon can get into banking. If I have lots of customers, I can start giving loans to small and medium enterprises.

Brian Kenny: You would know a lot about those customers.

Sunil Gupta: The key asset now is customers and data, not the product and services that you offer. Once you know about customers, you can do lots of different things. Industry boundaries are getting blurred. You need to think not about competition, but what do customers want. Do I have capabilities to serve that? The second thing is that the traditional definition of where competitive advantage comes from is changing. When I learned my MBA, we used to read Michael Porter's competitive strategy stuff. If I were to simplify and summarize what I learned in competitive strategy it was that competitive advantage comes from making your product better or cheaper. Differentiation or cost leadership, which makes sense. If you think about it, it's very much product focused. I think in today's world competitive advantage comes from connecting products and connecting customers. The Kindle, and e-books is an example of connecting products, multiple products, right? Making movies on Amazon and selling more shoes is connecting products. Razor and blade have been around forever. I think what’s different today is razor and blade could be in completely different industries. Movies and shoes.

The other side is connecting customers. We are in a network economy. That's why there is only one Facebook, or one WhatsApp. If you are the only person on Facebook, what's the value of Facebook? Not much, unless you love yourself. As more and more people get onto Facebook, the value of Facebook increases. It's not about improving product. Without changing product, Facebook value increases. I think in this connected world that we live in, it's about connecting products and connecting consumers.

Brian Kenny: We've got a lot of listeners out there, many of whom are probably leading firms of one kind or another. How do they go about exploring or redefining their business?

Sunil Gupta: I think again, you need to think about what is your key asset? Everything starts with the consumer. In the Amazon case, you move with the consumer to some extent. I asked the same of a company for a medical device manufacturer. I said, "Who's your competition?” The typical answer is: the other medical devices. Medical business is now becoming a lot about data. Google is getting into that. Apple. iPhone is becoming a medical device. Suddenly you have a very different kind of player getting into this thing. When I say, "What business are you in?" you need to think about who might get into that business, and that changes the whole picture.

Brian Kenny: Why is Amazon so good at engaging customers?

Sunil Gupta: I think it comes from the culture of being customer obsessed, that no matter what the customer is right. They deliver on that promise. The level of convenience that customers expect from companies has changed. It used to be that if a company delivered a product within a week that was considered good. Now, if you don't deliver on the same day, it just seems awful. They've raised the bar in everything. Of course, they're using technology very effectively, whether it's in their warehousing or now investing in drones. I think they're still a 25-year-old startup.

Brian Kenny: That's another point that I wanted to touch upon. They're able to adapt their supply chain it seems almost effortlessly to whatever business direction they move in. Is it possible for another entry to come into this space and scale in the same way that Amazon has? Is this a once-in-a-lifetime type thing?

THAT'S THE KEY QUESTION: ARE THE PIECES FITTING TOGETHER NICELY, OR DO THEY JUST HAPPEN TO BE ANOTHER BUSINESS BECAUSE IT'S PROFITABLE?”

Sunil Gupta: That's a tough question. It's not that they're adapting supply chain for everything, right? For example, I don't think the Amazon supply chain is ready for delivering frozen food. If I have a supply chain to ship you electronics, I can use the same supply chain to ship you prescription medication. That opens up another several-billion-dollar market. If I call myself an online retailer, I will never think of prescription drug delivery. If I think of my capabilities, I have the warehouse to deliver electronics and books. Why can't I deliver your prescription medication? That opens up completely different businesses.

Brian Kenny: What are the kind of pitfalls that you need to be careful of, as you start to move into adjacent markets?

Sunil Gupta: I think definitely the big challenge is: how far do you go? On one hand it's good to expand the business scope, because the industry boundaries are getting blurred. The danger is, do you lose focus? The classic challenge of losing focus. There's a balance. I think in Amazon's case, if you notice, everything is very tightly connected. If you remove one part, the whole becomes less. That's the key question: Are the pieces fitting together nicely, or do they just happen to be another business because it's profitable?

Brian Kenny: We've done a couple of cases on Cold Call that touch on the organizational impact of firms that move into new businesses. Some of them are examples of where it’s benefitted the employees. In other cases, it seems to have disrupted the culture in negative ways. How do you see this playing out at Amazon? Does it impact them in any way?

Sunil Gupta: Amazon has grown the top line 20, 25 percent every quarter without fail, except for one quarter in 2001. Right now, in 2019, their sales are @232 billion. I don't know many companies that can grow at that rate, even when they're over $200 billion. I think that as an employee, if you're on a winning team it has to energize you. If you are in a culture which encourages experimentation and innovation, it has to excite you. At the same time, I'm sure it's a very demanding culture, and there have been reports about how demanding the culture of Amazon is. It probably is not for everybody. For the people who are innovative, who are entrepreneurial, who want to be on a winning team, I'm sure it's an exciting place.

Brian Kenny: There are sort of shades of Apple there. I mean, I think Apple had the same reputation. Have you've discussed this case in class with students?

Sunil Gupta: Oh, many students.

Brian Kenny: What are sort of the top line things that surprise you as you discuss it?

Sunil Gupta: I think the nice thing about this case is that everybody knows Amazon as a consumer. Everybody has shopped at Amazon. People see it as very surface level. They sort of don't realize the deep insights that comes out. As a three-page case, you think you’ll be done in 10 minutes, but then you peel the layers of the onion. That was a shocking thing to them, as to how you peel the layers of the onion and how you see the connection across different things. Why did Amazon buy Whole Foods? It makes no sense. Why did they get into AWS? It makes no sense. When you start unpeeling that layer, you see the connection as to why Amazon is doing all these different things. I think that's the A-ha” moment that comes across.

Brian Kenny: Much more on that in your book. How's the book doing?

Sunil Gupta: Book is doing great.

Brian Kenny: I bet you can buy it on Amazon.

Sunil Gupta: You can certainly buy it on Amazon.

Brian Kenny: That's great. Sunil, thanks for joining us today.

Sunil Gupta: Thank you very much Brian.

Brian Kenny: If you enjoyed Cold Call, you should check out HBS SkyDeck, a podcast series that features interviews with HBS alumni from across the world of business, sharing lessons learned and their own life experiences. Thanks again for listening. I'm your host Brian Kenny. You've been listening to Cold Call, an official podcast of Harvard Business School, and part of the HBR Presents network.

 

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