HBR Notes by Frank Olsson > Harvard Business Review Notes by Frank Olsson- March/April 2020

Harvard Business Review Notes by Frank Olsson- March/April 2020

4 April 2020

Harvard Business Review Notes by Frank Olsson- March/April 2020

Harvard Business Review March/ April 2020

The theme for this issue is “Creating a Culture of Experimentation” where one article points out that although an organization says it is tolerant of failure, the individual in charge of failure fears risk of being down-rated, often causing risk-averse behaviour. There is an interesting article called “What’s Holding Women Back?” and one “One Last Chance to Save Capitalism.”  Holding women back is is to a large extent caused by an engrained (erroneous) bias that women are less committed and for saving capitalism the article points out endemic abuse of rules, ethics and decency in the relentless pursuit of profits wealth and power. When we move from the odd rotten apple in the barrel to a rotten barrel there is a serious problem. Business have the power to shape responsibilities for the greater good. They should exercise it. Please find below a few notes from this issue.

The editor in chief, Adi Ignatius says in his introduction: The business case for diversity is clear. More important, it is the right thing to do. At a time when executives are grappling with the proper role of the corporation in society, they can no longer play it safe by simply reflecting the values of the world in which they operate. Business have the power to shape responsibilities for the greater good. They should exercise it.

Another Reason to Push for Female Directors. Research has shown that female board representation leads to better acquisition and investment decisions and less-aggressive risk-taking. Female directors temper the overconfidence of male CEOs. “In terms of crisis firms that do not have (sufficient) female board representation suffer a greater drop in performance.”

How many temp workers are too many? Research shows that too high turnover caused by temporary staff can reduce profitability. The flexibility that temporary workers bring comes at a cost as it depletes the firm’s collective human capital.

To be effective, Performance Rankings must be balanced with recognition for prosocial behaviour. /I have told new recruits that we all have two responsibilities, one is to do our job, the other is to enthuse others to want to do their job as best as possible – to be a catalyst for success and contribute to a good corporate culture/.   

Building a Culture of Experimentation. It takes more than good tools. It takes a complete change of attitude. By Stefan Thomke. To successfully innovate, companies need to make experimentation an integral part of everyday life – even when budgets are tight. That means creating an environment where employees’ curiosity is nurtured, data trumps opinion, anyone can conduct or commission a test, all experiments are done ethically, and managers embrace a new model of leadership. Early failures allow developers to quickly eliminate unfavourable options and refocus their efforts on more-promising alternatives. The people who thrive with this are curious, open-minded, eager to learn and figure things out, and OK with being proven wrong. Nothing stalls innovation faster than a so-called HIPPO – highest paid person’s opinion. Francis Bacon said: If a man begins with certainties, he shall end in doubts; but if he will be content to begin with doubt, he shall end with certainties. Large-scale testing is not a technical thing; it is a cultural thing. How willing are you to be confronted every day by how wrong you are? And how much autonomy are you willing to give to people who work for you?

What is Really holding Women Back? It is not what most people think by Robin Ely and Irene Padavic. There is a perception that women suffer from balancing life issues more than men – men too suffer from the balance problem and still advance. Women were held back because, unlike men, they were encouraged to take accommodations, such as going part-time and shifting to internally facing roles, which derailed their careers. The real culprit was a general culture of overwork that hurt both men and women and locked gender inequality in place.

Whereas firm members attributed distress over work/family conflict primarily to women, many men are suffering too. Putting lack of commitment down to women’s greater desire to spend time with family doesn’t account for the fact that even childless women have promotion records no better than those with children. The work/ family narrative is falsely pinned on women. Research shows that a 24/7 culture creates discontent for women and men alike and that the “accommodations” solution, ironically, tends to derail the careers of highly qualified women, leaving companies’ senior ranks depleted of some of their brightest female stars. Long hours /which in my view is a misnomer as all hours have 60 minutes/ don’t raise productivity but decreases performance at least on a per hour basis. The lynchpin for protective measures of women is a belief in women’s natural fitness for family, and in men’s, for work. At the employee level, they appeared as unconscious psychological defence mechanisms that reinforced the gendered work/ family split.

Two strongly held ideologies supporting the status quo remains; Long hours are necessary, and women’s stalled advancement is inevitable. What holds women back at work is not some unique challenge of balancing the demands of work and family, but rather a general problem of overwork that prevails in contemporary corporate culture. / My perception is that the US suffer from this overwork more than Europe – perhaps due to an anti-social attitude/ As more research shows the business advantage of reasonable hours, some employers will come to question the wisdom of gruelling schedules. If and when this is changed, neither women, nor men will feel the need to sacrifice the home or the work domain and gender equality in the workplace can be achieved.

How Insider CEOs Succeed by Andrew Chastain and Michael Watkins. Firms invest a lot in onboarding CEOs hired from the outside, but transitions for CEOs appointed from within are rarely handled with the care required.

A More Sustainable Supply Chain by Veronica Villena and Dennis Gioia. Developing a sustainable supply chain must include all suppliers, also those lower down in the chain.

Becoming a Better Corporate Citizen – PepsiCo’s Journey by Indra Nooyi and Vijay Govindarajan. I (CEO Indra Nooyi) added a focus on sustainability, by which I mean satisfying multiple stake holders’ interests to ensure the long-term viability of the company. Who we are must be rooted in our core business model away from the corporate philanthropy and towards a deep sense of purpose that would drive share-holder value. We needed to change the way we made money – not just give away some of the money we earned. Taking bold actions early is critical for showing the organization that a purpose-driven strategy is not just the flavour of the day. Three things will send a clear message: creating high-profile leadership positions and filling many of them with outsiders; overturning decisions that would have made it through in the old days; and letting some people go. Resource allocation too must be tied to purpose. We insisted on sustainability sign off for every capital expenditure. This shift has had a positive effect on overall profitability.

Your Company is too Risk Averse by Dan Lovallo, Tim Koller, Robert Uhlaner and Daniel Kahneman. To improve performance by nearly a third, the company needed only to make investment decisions in accordance with the CEOs risk tolerance rather than that of junior managers. Organizations that make inconsistent risk choices up and down the corporate hierarchy are leaving a lot of free money on the table.

Beyond Silicon Valley: How Start -Ups Succeed in Unlikely Places by Alex Lazarow. Frontier start-ups take a more balanced approach to growth in which they charge for the value they create from the get-go, build resiliency into their models, focus on growth and profitability, and take a long-term outlook. In emerging markets, they are more likely to tackle fundamental societal challenges and to invest in their work force.

Firing with Compassion by Joel Peterson. / in my book “Learning to Dance – Corporate Style I have one chapter on firing arguing that firing well is almost as important as hiring well/. Key is to act when you must and not defer or you will lose respect from staff. Also, to understand that team spirit and culture requires that it is done with support and compassion as people will be observing the process. Be generous, be supportive. Once decided, get it done!

One Last Chance to Fix Capitalism, to avert upheaval we need policy change and private sector leadership by Scott LaPierre (based of five new books).  For anyone still unsure that big, important things are now broken, several new titles paint a convincing portrait of grossly unsustainable inequality, corrupt political processes, and looming crisis – much of it stemming from a financial system that for 40 years or so has prioritised short-term profit over all else and systematically removed any checks on its own worst impulses in pursuit of that goal. The authors of these books offer some delectably vile case studies, from the Royal Bank of Scotland’s swindling of its own customers to Bear Stearns’s demise at the hands of unethical rivals. “If you want to make money – real money – in finance, you need to find ways of sabotaging either your clients, your competitors or the government.” The highest achievers mange to sabotage all three of them at once. Economists and historians agree that the single most important step is re-empowering governments, though they diverge on whether that means more effective regulation, progressive taxation, wealth taxes, or other measures. In a nutshell, markets require adult supervision. Private sector leaders – especially those who have profited from the market’s decades of inefficient value creation and wealth distribution – should be leading the charge.


Notes by frank@olsson.co.nz 21 February 2020

Harvard Business Review January/ February 2020

As always, a few interesting articles in this new issue. I found the one on politicainterference in international trade and business for no other reason than demonstrating raw power interesting and scary. When rules and ethics and fair play go out the door it is time to reflect and be concerned. Please find below a few lines from this issue.

Why boards should worry about executives’ off-the-job behaviour. The article makes the point that extravagance whether with corporate funds or private funds can be cause for worry. Likewise, infringements and propensity to break the law in private life may indicate lack of balance and judgment. Fraudulent accounting is much more common by people with a legal record than by those who don’t. People who prioritise material goods are less concerned about others and less likely to engage in environmentally responsible behaviour.

Advertising makes us unhappy. In analysing life satisfaction by 900,000 citizens of 27 European countries, researchers found that the higher a country’s ad spend was in one year, the less satisfied citizens were a year or two later.

Are you undervaluing your customers? by Rob Markey. The true purpose of a business is to create and keep customers (Peter Drucker). Earning customer loyalty is firmly in the interest of both share holders and management. /same as being a good corporate citizen is the long-term interest of share-holders - my comment/. Companies at the top of their industries in Net Promoter Scores of Satisfaction rankings grow revenues roughly 2.5 times faster than industry peers and deliver 2-5 times shareholder returns over the next 10 years. Public-company financial disclosure rules and corporate accounting practices require little to no reporting on customer value; most firms lack the capabilities needed for managing it; and organizations’ traditional structure puts functional priorities ahead of customer needs. New tools and technologies are emerging and a fundamental shift in the way companies organize work and some investors are starting to realize that customers is the ultimate source of value. Companies should disclose reliable and consistent information about the progress they are making growing customer value: customers acquired, customers of a year or more and revenue per new and existing customer.

The goal is not simply to induce customers to buy. It is to improve their lives so effectively that the company earns their trust and continued business. /Any problem you solve for a customer brings you closer – my comment/. Harvard Business Review November/ December 2019er Fader

It is easy to blame companies’ short termism on shareholder pressure and a bias toward quality financial reporting but managers share the blame when they fail to educate investors about the customer value their company creates.

How to Value a Company by Analysing its Customers by Daniel McCarthy and Peter Fader. A method for measuring a firm’s underlying value is called customer-based corporate valuation (CBCV). CBCV simply brings more focus to how individual customer behaviour drives top line. If you are an executive and you aren’t currently disclosing your customer metrics, start thinking about the story they would tell if disclosure were required.

Over Time, the Market Will Demand this Information by Jack Brennan. Managing for loyalty has gone from an intuitive idea to a conceptual goal to an operational practice. When anyone is buying a company, the customer base is a critical part of what they’re buying. The questions are: What is the nature of your customer base? How are you acquiring customers? How are you losing them? Which ones are profitable?

Competing in the Age of AI – how machine intelligence changes the rules of business by Marco Iansiti and Karim Lakhani. Scale, scope and learning have come to be considered the essential drivers of a firm’s operating performance. You don’t have to be a software start-up to digitize critical elements of your business – but you do have to confront silos and fragmented legacy systems, add capabilities, and retool your culture. As AI-powered firms collide with traditional businesses, competitive advantage is increasingly defined by the ability to shape and control digital networks. Organizations that excel at connecting businesses, aggregating the data that flows among them, and extracting its value through analytics and AI will have the upper hand. Strategy needs to focus on the connections firms create across industries and the flow of date through the networks the firms use. Industry expertise hs become less critical – having experience of a digital firm is crucial. AI requires deep tinking about legal and ethical challenges, including careful consideration of what data should be stored and preserved – and what data should not. Navigating these opportunities and threats will be the real test of leadership for both businesses and public institutions.   

The New Analytics of Culture by Matthew Corritore, Amir Goldberg and Sameer Srivastava. Cultural fit is important, but what predicts success most is the rate at which employees adapt as organizational culture changes over time. Cognitive diversity helps teams during ideation but hinders execution. The best cultures encourage diversity to drive innovation but are anchored by shared core beliefs.

TRANSFORMER CLO the role of chief learning officer isn’t just about training anymore by Abbie Lundberg and George Westerman. Organizations should cultivate every employee’s ability to explore, learn and grow. The objective is not only to train people but to position the company for success. Focus less on currently needed skills and more on mindsets. You learn the most when you actually have to teach somebody what you learn. /Every manager and every employee needs to plan for and execute learning – in a small nimble company everyone understands that – my comment/.

When Data Creates Competitive Advantage, and when it doesn’t by Andrei Hagiu and Julian Wright. New technologies make data-enabled learning much more powerful than the customer insights produced in the past, They do not however guarantee defensible barriers. Buying data is easier than buying customers. Often alternative sources of data can significantly level the playing field by removing the need for a big customer base.

The Elements of Good Judgment – how to improve your decision-making by Sir Andrew Likierman. McKinsey has long included the obligation (not suggestion) to dissent as a central part of the way it does business. Amazon’s Leadership Principles specify that leaders should “seek diverse perspectives and work to disconfirm their beliefs.” Major decisions should require that  biases be on the table before a discussion and, when necessary, that a devils advocate participate. Acknowledge that mistakes will occur – and doubt the judgment of anyone who assumes they won’t. Good judgment is paramount. Those with charisma but no judgment lead their followers in the wrong direction. Those with passion but no judgment hurl themselves down the wrong paths. Those with drive but no judgment get up very early to do the wrong things.

Taming Complexity – Make sure the benefits of any addition to an organization’s systems outweighs its cost by Martin Reeves, Simon Levin, Thomas Fink and Ania Levina. If your industry is prone to technological change and rapid obsolescence, then the package of resilience, adaptability, coordination, and inimitability becomes more attractive than the package of efficiency, understandability, manageability, and predictability. Maintaining complexity within productive bounds is a difficult task involving challenging trade-offs.

Choke Points – Countries are turning economic infrastructure into political weapons, and that poses a major risk to business by Henry Farrell and Abraham Newman. Both the Bush and Obama administrations pressed US based internet-communications firms not only to provide data on suspected terrorists but also to help spy on US adversaries, rivals and even partners. As other powerful states respond to and even model the US strategy, a war is quietly being waged through manufacturing ties and business relationships. US officials are concerned that Chinese-produced components could be compromised and then deployed in surveillance activities or even sabotage. Chinese leader fear that the US will use the ZTE playbook against more Chinese firms. They worry that America sees Chinese economic strength as a security threat and will do everything it can to hamper and even cripple the Chinese economy. This is one of the reasons they’re trying to accelerate their ability to develop and manufacture advanced chips: so that they won’t be at the mercy of the US government.

Although EU has officially identified China as a rival and begun to pay much closer attention to Chinese acquisitions, it is still far less belligerent toward China than the US is. Indeed, it is beginning to create ways to work around US economic power and perhaps even oppose it. EU has started to experiment with alternative financial channels that are far less exposed to US pressure. Businesses are being forced into involuntary service in purely political disputes. Companies that lie at emerging choke points are likely to also come under pressure. Behind the US case against Huawei is a straightforward fear: the America will lose control over 5G networks and the internet of things. US security would be threatened in a world where everyone depends on Chinese communications technology.

Apple is spearheading a global initiative known as the Digital Geneva Convention to develop core norms of cybersecurity. The goal is to persuade private companies to collectively commit to limiting offensive cyberattacks – including those by the US government.

Notes by frank@olsson.co.nz 20 Jan 2020

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