July–August 2011

Making Financial Markets Work For Consumers

Reprint: R1107B

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act created a new federal agency, the Consumer Financial Protection Bureau, to improve the functioning of consumer financial services markets. The Bureau is scheduled to open its doors in July 2011. Its first director will be responsible not only for setting the policy direction of the agency but also for establishing its organizational structure and management climate. In this open letter to the director, four professors—Campbell, of Harvard University; Jackson, of Harvard Law School; Madrian, of Harvard’s Kennedy School of Government; and Tufano, formerly of Harvard Business School—offer advice on how to set priorities and craft policy responses.

They suggest eight simple ways in which the new director can identify problems that deserve early attention:

Look for high stakes. Prioritize problems that put large numbers of households at material financial risk.

Look for confusion. Be concerned when consumers routinely misunderstand the terms of a financial product.

Look for regret. Big financial decisions are often made so infrequently that consumers do not become adept at them.

Look for folly. Some groups of people, for instance, routinely miss the opportunity to refinance their mortgages when interest rates drop significantly.

Look for suckers. Some financial products generate a large chunk of their profits from a small fraction of customers.

Look for rip-offs. If an expensive product survives in a very competitive market, it could mean that some consumers don’t understand what they’re buying.

Look for opportunities. Don’t limit the focus to only problems—actively seek innovative products that will benefit consumers.

READ FULL ARTICLE

• Save
• Share

The Big Idea: The Age of Hyperspecialization

Reprint: R1107C

Since 1776, when Adam Smith described how the division of labor could spur economic progress, work has increasingly been broken into ever smaller tasks performed by ever more specialized workers. Now, however, as knowledge work expands and technology advances, we’ve entered an era of hyperspecialization: Work previously done by one person is divided into more-specialized pieces done by multiple people, achieving improvements in quality, speed, and cost.

For example, the start-up software firm TopCoder chops its clients’ IT projects into bite-size chunks and offers them to its worldwide community of developers in the form of competitive challenges. The developers aspire to be ranked among the company’s top coders, virtually guaranteeing quality in the winning end products. A company called CastingWords produces transcripts of audio files by farming out segments to remote workers for simultaneous transcription: Many hands make (extremely) fast work. The nonprofit organization Samasource sends data-entry work to marginalized individuals in the developing world, where tiny jobs lasting just minutes and paying just pennies give workers an economic boost while creating substantial savings for clients.

Managers who want to capitalize on hyperspecialization’s possibilities need to learn how best to divide knowledge work into discrete tasks, recruit specialized workers, ensure the quality of the work, and integrate the pieces into a final whole. Meanwhile, companies and governments must be aware of the potential perils of this new age: “digital sweatshops” and other forms of worker exploitation; nefarious schemes hidden behind task atomization; work that becomes dull and meaningless; increased electronic surveillance of workers. All these, the authors believe, could be ameliorated by global rules and practices and a new form of “guilds” to provide workers with a sense of community and support for professional development.

READ FULL ARTICLE

• Save
• Share

Are You a Collaborative Leader?

Reprint: R1107D

Social media and technologies have put connectivity on steroids and made collaboration more integral to business than ever. But without the right leadership, collaboration can go astray. Employees who try to collaborate on everything may wind up stuck in endless meetings, struggling to reach agreement. On the other side of the coin, executives who came of age during the heyday of “command and control” management can have trouble adjusting their style to fit the new realities.

In their research on top-performing CEOs, Insead professors Ibarra and Hansen have examined what it takes to be a collaborative leader. They’ve found that it requires connecting people and ideas outside an organization to those inside it, leveraging diverse talent, modeling collaborative behavior at the top, and showing a strong hand to keep teams from getting mired in debate. In this article, they describe tactics that executives from Akamai, GE, Reckitt Benckiser, and other firms use in those four areas and how they foster high-performance collaborative cultures in their organizations.

READ FULL ARTICLE

• Save
• Share

The Unselfish Gene

Reprint: R1107E

For generations, we have operated on the assumption that human beings are fundamentally selfish, and so we have built systems and organizations around monetary incentives, rewards, and punishments. That hasn’t always worked very well.

Now the tide is starting to turn. In fields such as evolutionary biology, psychology, sociology, political science, and experimental economics, researchers are seeing evidence that human beings are more cooperative and behave far less selfishly than we have long assumed.

The success achieved by such collaborative offerings as Wikipedia, Craigslist, Facebook, and open source software has, in fact, a scientific basis. Dozens of field studies have identified highly successful cooperative systems, which are often more stable than those based on incentives. Moreover, researchers have found neural and possibly genetic evidence of a human predisposition to cooperate. Evolution may actually favor people who collaborate and societies that include such individuals.

Organizations would be better off helping us to engage and embrace our generous sentiments rather than assuming that we are driven purely by self-interest. We can build collaborative systems by encouraging communication, ensuring that claims about community are authentic, fostering a feeling of solidarity, being fair, and appealing to people’s intrinsic motivations.

READ FULL ARTICLE

• Save
• Share

Bringing Minds Together

Reprint: R1107F

Boston Scientific founder John Abele has been party to his share of groundbreaking innovations over the years. But the revolutionary advances in medical science that these breakthroughs brought about were not the efforts of one firm alone, let alone one inventor.

Abele tells two fascinating stories of collaboration—one about Jack Whitehead’s upending of hospitals’ blood and urine testing procedures and the other about Andreas Gruentzig’s success in bringing balloon catheterization into the cardiology mainstream. Both Whitehead and Gruentzig spearheaded the emergence of entirely new fields, bringing together scientist-customers to voluntarily develop standards, training programs, new business models, and even a specialized language to describe their new field.

The process of collaboration, Abele says, is fraught with contradictions and subtlety. It takes consummate leadership skills to persuade others to spend countless hours solving important problems in partnership with people they don’t necessarily like. Moreover, managing egos so that each person’s commitment, energy, and creativity is unleashed in a way that doesn’t disadvantage others requires an impresario personality. Finally, true authenticity—something that few people can project—is critical for earning customers’ trust and convincing them that their valuable contributions won’t be used for anything other than moving the technology forward.

READ FULL ARTICLE

• Save
• Share

The Globe: The Paradox of Samsung’s Rise

Reprint: R1107N

Twenty years ago, few people would have predicted that Samsung could become a world leader in R&D, marketing, and design. Fewer still would have predicted success given the path it has taken: grafting Western business practices onto its essentially Japanese model.

Like today’s emerging giants, Samsung faced a paradox: The tightly integrated business system that worked in its home market could not secure its future in global markets. So into an organization focused on continuous process improvement, Samsung introduced a focus on innovation. Into a homogeneous workforce, it introduced outsiders who could not speak the language and were unfamiliar with the company’s culture. Into a Confucian tradition of reverence for elders, it introduced merit pay and promotion, putting some young people in positions of authority over their elders.

Chairman Lee Kun-Hee recognized at the outset the challenges of opening up Samsung’s culture to new ideas. He changed only what needed to be changed, ensured that people understood the new practices, and never flagged in his commitment to the effort.

READ FULL ARTICLE

• Save
• Share

Building a Collaborative Enterprise

Reprint: R1107G

Can large companies be both innovative and efficient? Yes, argue Adler, of the University of Southern California; Heckscher, of Rutgers; and Prusak, an independent consultant. But they must develop new organizational capabilities that will create the atmosphere of trust that knowledge work requires—and the coordinating mechanisms to make it scalable. Specifically, such organizations must learn to:

• Define a shared purpose that guides what people at all levels of the organization are trying to achieve together;

• Cultivate an ethic of contribution in which the highest value is accorded to people who look beyond their specific roles and advance the common purpose;

• Develop scalable procedures for coordinating people’s efforts so that process-management activities become truly interdependent; and

• Create an infrastructure in which individuals’ spheres of influence overlap and collaboration is both valued and rewarded.

These four goals may sound idealized, but the imperative to achieve them is practical, say the authors. Only the truly collaborative enterprises that can tap into everyone’s ideas—in an organized way—will compete imaginatively, quickly, and cost-effectively enough to become the household names of this century.

READ FULL ARTICLE

• Save
• Share

Who Moved My Cube?

Reprint: R1107H

Managers once discouraged casual interaction among employees, viewing it as a distraction from “real work.” Today we know that chance encounters on the job promote cooperation and innovation, and companies craft their floor plans and cultures with this in mind. So why do their careful, well-intentioned efforts often go awry?

Common sense, it turns out, is a poor guide when it comes to designing for interaction. Work spaces inspire informal encounters only if they properly balance three factors that have both physical and social aspects:

Proximity. Spaces should naturally bring people together.

Privacy. People must be able to control access to their conversations and themselves.

Permission. The social purpose of the space needs to be evident, and the organizational culture should signal that nonwork interactions are not just sanctioned but encouraged.

Creating the right conditions is challenging enough in the physical world; doing it in a virtual environment is even harder. But asking employees to set Skype, IM, and other applications to indicate their availability can replicate a sense of proximity online. Setting clear policies governing access to electronic communications helps convey reassurance that privacy is protected. And leaving video links and virtual offices open promotes the feeling that geographically disparate groups are welcome to engage with one another casually, just as they might in a real-world common space.

There’s no simple formula for balancing proximity, privacy, and permission in either the physical or virtual spheres. Managers who grasp the fundamentals and design spaces with balance in mind, however, will be better equipped to understand and predict the effects of different spaces on interactions, and to learn from their successes and inevitable mistakes.

READ FULL ARTICLE

• Save
• Share

How I Did It: The CEO of Bayer Corp. on Creating a Lean Growth Machine

Reprint: R1107A

At a meeting in September 2007 of the executive committee of Bayer MaterialScience, Babe knew he was expected to present a detailed plan for reducing overhead costs at the company’s North American headquarters. Earlier that year the committee had suggested shutting down the headquarters altogether; to preserve the region’s credibility—and his own position—Babe would have to find some impressive savings. He did. The plan he presented would cut 25% from the $400 million in overhead costs. But Babe didn’t stop there: He asked for $70 million in additional resources, which he would use to completely transform and grow the business.

That bold proposal paid off. The committee endorsed his plan and granted the $70 million, giving Babe 18 months in which to deliver. Now he would have to lay off hundreds of employees; retrain 1,000 others; outsource many operations; roll out new IT systems; and modify the company’s product offerings. Following the mantra “Simplify, standardize, automate,” his transformation team redesigned virtually every one of the company’s business processes. Perhaps most important, it developed change-management skills within the organization.

READ FULL ARTICLE

• Save
• Share

The HBR Interview: Technology, Tradition, and the Mouse

Reprint: R1107J

Iger became Disney’s CEO in 2005, following a rough five years for the company that included a hostile takeover attempt, a shareholder revolt, and a battle with two prominent board members. High on his agenda was ending the internal warfare and winning back employees’ enthusiasm and admiration. He also needed to help the company see technology as an opportunity rather than a threat and to strike the right balance between tradition and innovation. It was time, for example, to move on to computer-generated animation—and even to update the bland Mickey Mouse, who was originally meant to be impish and irreverent. (Donald Duck filled that role after Mickey became a corporate symbol and a role model for kids.)

Iger is a strong believer in taking big risks, in being accessible, and in paying attention to one’s instincts. He’s driven by challenges, as an early experience shows: At the age of 23 he was told by his boss that he wasn’t promotable. He believes that a CEO’s role involves determining strategy; establishing ethics for the company, its employees, and its products; and hiring and motivating great people.

In this edited interview with HBR’s editor in chief, Iger talks about executive compensation, the changing nature of stock ownership, Disney’s use of social media, and the company’s new theme park in Shanghai.

READ FULL ARTICLE

• Save
• Share

The New Psychology of Strategic Leadership

Reprint: R1107K

Firms in an industry typically cluster around a few strategic positions, and the intense competition on those occupied “mountaintops” makes it hard for firms to gain attractive returns. Superior opportunities lie on unoccupied mountaintops. Yet because those opportunities are “cognitively distant”—far from the status quo—strategists have trouble recognizing and acting on them. Competition, therefore, is weak.

Most managers are trained to analyze economic forces when they want to identify new opportunities. But that approach usually won’t uncover the kinds of ideas that overturn the status quo. Recent research on human cognition suggests that leaders would do better to use associative thinking to spot, act on, and legitimize distant opportunities. They should learn to make analogies with businesses in other industries, for example. For example, Charles Merrill launched an extraordinarily successful business when he reimagined banking as a “financial supermarket.”

This article explores ways to jump-start associational thinking—and to bring stakeholders along on the journey.

READ FULL ARTICLE

• Save
• Share

The Merger Dividend

Reprint: R1107L

During a merger, senior managers may be tempted to dictate strict assignments or hire consultants to do the heavy lifting. But that approach denies top leaders the chance to let their managers grow and develop. What’s more, sticking with leaders already in place is the best way to build a team that can make the most of the new organization that will emerge.

Companies can maximize the growth opportunities inherent in a merger by developing three specific leadership areas. The first, getting everyone on the same page, is best accomplished by drawing up what the authors call a “merger intent” document to clearly outline what’s expected of everyone on both sides of the deal. The second, executing with discipline, involves putting people with high potential into critical short-term roles and letting them strengthen their abilities. It also involves setting immediate, challenging goals for teams in an attempt to boost achievement. The third leadership area, building an A-team, directs top managers to conduct an overall assessment of the talent available on both sides of the deal and create a team that reflects the best of the best.

The integration process can be emotional and difficult. Giving up-and-coming leaders the chance to perform under pressure, however, will yield leadership dividends sure to benefit firms for years to come.

READ FULL ARTICLE

• Save
• Share

Adaptability: The New Competitive Advantage

Reprint: R1107M

Traditional approaches to strategy assume that the world is relatively stable and predictable. But globalization, new technologies, and greater transparency have combined to upend the business environment. In this period of risk and uncertainty, more and more managers are finding competitive advantage in organizational capabilities that foster rapid adaptation. Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things.

Those that thrive are quick to read and act on weak signals of change. They have worked out how to experiment rapidly and frequently not only with products and services but also with business models, processes, and strategies. They have acquired the skills to manage complex multistakeholder systems in an increasingly interconnected world. And, perhaps most important, they have learned to unlock their greatest resource: the people who work for them.

The authors, senior partners at the Boston Consulting Group, review these four types of organizational capabilities, showing what companies at the leading edge are doing to create them. They also discuss the particular implications of this fundamental strategic shift for large corporations, many of which have built their operations around scale and efficiency—sources of advantage predicated on an essentially stable environment.

READ FULL ARTICLE

• Save
• Share

Managing Yourself: A Smarter Way to Network

Reprint: R1107P

The adage “It’s not what you know, it’s who you know” is true. The right social network can have a huge impact on your success. But many people have misguided ideas about what makes a network strong: They believe the key is having a large circle filled with high-powered contacts. That’s not the right approach, say Cross, of UVA’s McIntire School of Commerce, and Thomas, of the Accenture Institute for High Performance. The authors, who have spent years researching how organizations can capitalize on employees’ social networks, have seen that the happiest, highest-performing executives have a different kind of network: select but diverse, made up of high-quality relationships with people who come from varying spheres and from up and down the corporate ladder.

Effective networks typically range in size from 12 to 18 people. They help managers learn, make decisions with less bias, and grow personally. Cross and Thomas have found that they include six critical kinds of connections: people who provide information, ideas, or expertise; formally and informally powerful people, who offer mentoring and political support; people who give developmental feedback; people who lend personal support; people who increase your sense of purpose or worth; and people who promote work/life balance. Moreover, the best kind of connections are “energizers”—positive, trustworthy individuals who enjoy other people and always see opportunities, even in challenging situations.

If your network doesn’t look like this, you can follow a four-step process to improve it. You’ll need to identify who your connections are and what they offer you, back away from redundant and energy-draining connections, fill holes in your network with the right kind of people, and work to make the most of your contacts. Do this, and in due course, you’ll have a network that steers the best opportunities, ideas, and talent your way.

READ FULL ARTICLE

• Save
• Share