Marina Gorbis's Blog, page 1410

MOOCs Won’t Replace Business Schools — They’ll Diversify Them

Over the past few years, business school administrators — like other university officials — have been losing sleep over Massive Open Online Courses (or MOOCs), worrying that these low-cost digital alternatives will cannibalize their business model.

As elite business schools have started to offer their own courses through platforms like Coursera, commentators have pointed out that it’s now possible to cobble together an elite MBA for free. Others have argued that executive education programs are likely to be disrupted, as companies weigh the savings they could achieve by directing executives to MOOCs instead. These programs are a crucial source of revenue for business schools. At Wharton, nearly 20% of the annual revenue comes from executive education, while at Harvard Business School 26% does, and at IESE, it is nearly half.

Are these fears well founded? The answer depends on the students participating in MOOCs. If they fit the profile of traditional MBA or executive education enrollees, then the threat to business schools is clear. Our data suggest that this is not the case. At least at present, MOOCs run by elite business schools do not appear to threaten existing programs, but seem to attract students for whom traditional business school offerings are out of reach.

Though a few studies from Harvard, MIT, and the University of Pennsylvania have examined MOOC participants, none to date have focused specifically on those taking business classes. We analyzed data on over 875,000 students enrolled in nine MOOCs offered by the University of Pennsylvania’s Wharton School. This includes a demographic survey with over 65,000 responses. The nine courses consisted of four that introduce the MBA core — Accounting, Finance, Marketing, and Operations Management — as well as Gamification and the Global Business of Sports. These business MOOCs do not appear to be cannibalizing existing programs but do seem to be reaching at least three new and highly sought-after student populations.

According to the Wharton data, 78% of individuals who registered for an online business course came from outside of the United States. For comparison, Executive MBA programs in 2012 only attracted an average of 14% foreign students. Part-time or flexible MBA programs attracted 10%-32% foreign students, depending on the type of program. Even full-time two-year MBA programs, which attracted 45% foreign students, fall far short of the international reach of these business MOOCs.

It is clear that none of the traditional business education programs can match the global reach of MOOCs, which is all the more impressive when you consider that they are operating at significantly larger scale.

For business schools, then, MOOCs are a tremendous opportunity to expand into underserved markets. Nearly half of the international students enrolled in Wharton’s MOOCs hail from developing countries.

Businessmen and women in developing countries have few sources for high quality management training; there are only five business schools in all of sub-Saharan Africa that have received AACSB, AMBA, or EQUIS accreditation –  all in South Africa. They are turning to MOOCs for accessible world-class training.

Even among U.S. enrollees, there appear to be important differences between the population of MOOC students and traditional business school students. First, well-educated foreign-born U.S. residents appear to be overrepresented in business MOOCs. Overall, 35% of all U.S. individuals enrolled in the Wharton business MOOCs are foreign-born, with 54% having a graduate or professional degree. Only 12.9% of the U.S. population is foreign-born. Though MOOC enrollees are quite educated overall, the rate of advanced degrees for foreign-born U.S. enrollees exceeds that of other students.

17%, or one in six, of the highly educated, foreign-born American enrollees in business MOOCs are unemployed, higher than the 13% unemployment rate for native-born American MOOC enrollees. Again, we seem to be seeing groups of individuals who cannot access elite executive education courses obtaining training through MOOCs. And for the unemployed, this may be a way to obtain credentials and skills to enhance job searches.

The final group enrolling in business MOOCs is underrepresented minorities. In open, online Wharton business courses, 19% of American students are underrepresented minorities, compared to 11% of students enrolled in traditional MBA programs at nine of the top U.S. business schools. And in terms of absolute numbers, not just percentages, there are vastly more underrepresented minorities online. Across those nine top business schools, that 11% represents just 315 underrepresented minority MBA students, while 19% of the Wharton online business classes constitute 166,552 underrepresented minority students.

Business schools are trying to attract these three groups — students from outside the United States, especially developing countries, foreign-born Americans, and under-represented American minorities. According to the 2012 Application Trends Survey by the Graduate Management Admission Council, these populations were among the most likely to receive special, targeted outreach by business schools. Open, online business courses are reaching them in droves. These MOOC courses might then provide a highly enriched recruiting pool for full-time and executive MBA courses.

One area where business MOOCs are falling short is in attracting female students. While more than 40% of applicants to MBA programs are now women, only 32% of students enrolled in business MOOCs are women. That number drops to 23% in BRICS countries. Women in the developing world face even greater barriers to traditional business training than their male counterparts. Careful marketing aimed at these women might open the door for yet another large population of new business school students.

If business schools want to take advantage of the MOOC opportunity to reach a more diverse group of students, they should seek to better understand those students’ motivations. For instance, lots of previous debate over MOOCs has focused on the relatively low rate of course completion. Indeed, only one out of every twelve students who enrolled in Wharton’s courses were still watching the lectures after eight weeks. Only 5% completed all of the course material and assessments (slightly higher than the 3% rate for non-business courses). And it turns out these “completers” tend to be disproportionately male, well educated, employed, and from OECD countries. Among American students, they tend to be white.

On its face, this finding might seem to undermine MOOCs’ potential to enhance the diversity of business school offerings. But for many students, completing an online course is not the most important outcome. Just 43% of respondents to a pre-course survey administered to nine business and non-business courses at Penn indicated that receiving a certificate of accomplishment was “extremely important” or “very important” to them. Similarly, edX has found that only 27% rank earning a certificate of mastery as extremely important.

Business schools must bear this in mind and move away from a business model of charging for certificates of completion. Instead, they must tailor offerings to the goals of these learners, whatever they may be. This could be as simple as moving to a monthly subscription or “freemium” model for access, or it could mean a more fundamental rethinking of what comprises a “course” online.

It is clear from our research that, rather than cannibalizing business school course offerings and executive education, open, online business courses appear for now to be expanding the overall reach of business education. Even in their infancy, business MOOCs from Wharton are reaching groups of students most commonly targeted for outreach by business schools: working professionals outside the United States as well as foreign-born and underrepresented minorities in the United States.

MOOCs are undoubtedly disrupting higher education. Business schools, like other university institutions, will need to strategically adapt to changing circumstances. But the MOOC disruption may not necessarily be the threat everyone is worried about. In fact, it looks more like an opportunity.

What’s Holding Uber Back

As a consumer, I absolutely love Uber. The other week I was at a dinner in a relatively remote part of Singapore. Afterwards, the hotel concierge furiously worked three phones to get taxi cabs to appear for the 15 people who were waiting with growing impatience. I clicked three buttons, and my ride was there in 12 minutes. It’s simple, and it works beautifully.

I also love Uber as a student (and teacher) of disruptive innovation theory, because the challenges the transportation company is encountering as it seeks to expand into new cities helpfully illustrate how to assess an idea’s disruptive potential.

This is important, because companies that adhere as closely as possible to the patterns of disruption have the greatest chance to create explosive growth and transform markets. Those that deviate from the approach can succeed, but they are likely to have to fight much harder and spend much more.

Based on our field work applying Clayton Christensen’s foundational research on disruptive innovation, we look at potential disruptors’ performance in three critical areas.

First, the would-be disruptor should follow an approach that makes it easier and more affordable for people to do what historically has mattered to them. Making the complicated simple and the expensive affordable is why disruptors have the potential to dramatically expand a constrained market or prosper at price points that are far lower than market leaders’.

Uber nails this. Getting a taxi is a maddeningly complex task in cities around the world. Uber’s slick user interface solves the problem in a simple, elegant way. It has had to deal with occasional customer complaints about so-called surge pricing (when the price of a ride shoots up dramatically at times of high demand, such as during major weather events or on New Year’s Eve). But it probably has a more committed user base than any business launched in the last five years.

Next, the innovator has to develop a behind-the-scenes advantage:  a way of producing a product or service that seems magical from the customer’s perspective and that is difficult for other companies to replicate. Ideally, the innovator has a proprietary technology that makes the offering simple and affordable, or it has developed an innovative operating model that enables the business to keep its costs radically lower than competitors’ as it scales up. Either (or ideally both) of these advantages helps the innovator defend itself when existing competitors or others inevitably respond by trying to emulate its success.

Uber looks solid here, as well. Its powerful back-end system allows it to manage a real-time network of cars in an extremely simple and potentially low-cost way. It can take advantage of network effects in its operations, since the more drivers it recruits, the more valuable its service become and the more other drivers want to join in.

The final area — and the one where Uber faces clear challenges — is whether the would-be disruptor is following a business model that takes advantage of “asymmetries of motivation”. In simple terms, that means a disruptor is attacking markets that existing companies are motivated to exit or ignore because they are unprofitable or seemingly too small to matter.  (We discussed these in detail in Seeing What’s Next.)

Consider the early days of Salesforce.com. The company sold its cloud-based customer relationship management software to small companies that could never afford more-sophisticated applications sold by industry leaders like Siebel. Salesforce.com didn’t compete against these applications. It competed against pen and paper and handmade spreadsheets. In its early days, market leaders felt no pain because Saleslforce.com wasn’t taking away any of their customers; rather, it was creating new ones.

The other way disruptors take advantage of asymmetries of motivation is to build a business model that makes it financially unwise for incumbents to respond. This is at least one reason why Netflix ended up crushing Blockbuster. Netflix’s business model did not require it to charge the late fees that made up the vast majority of Blockbuster’s profits. Naturally companies are unlikely to follow strategies that appear to destroy profitable revenue streams or promise to lose them money.

Uber is following neither of these paths. It targets exactly the same customers that taxi companies want. And customers pay fares that are generally comparable, if not higher, than ordinary taxi fares. Taxi companies therefore are naturally neither motivated to ignore nor to flee from Uber. Rather, they are fighting fiercely with every tool at their disposal, including protests by taxi drivers and legislative action.

Worse, the battle between traditional taxis and Uber has attracted opportunity-sniffing entrepreneurs who want to help the incumbents fight back. For example, one of the most popular apps now in Singapore is called GrabTaxi, which uses an Uber-like mobile interface to simplify the process of ordering a traditional cab. That allows cab drivers to offer many of the conveniences of Uber without being disintermediated. GrabTaxi isn’t trying to disrupt the market; it’s trying to help established companies fight back against entrants.

All of these battles are great for consumers, who get to enjoy simpler, increasingly more convenient solutions. There’s little doubt that Uber will continue to penetrate the markets it targets — particularly with its growing war chest of venture capital funding. But because it appears to be missing a key disruptive ingredient, the fight looks like it will get increasingly difficult and expensive.

The Simplest Way to Build Trust

In the midst of an intense negotiation, it’s hard to know what’s motivating the person across the table — is he willing to cooperate with you to meet both your interests or does he only want to serve his? You need to build trust with your counterpart so you can align your interests and increase the likelihood that he will honor his commitments.

A powerful way to establish trust is to employ one of the mind’s most basic mechanisms for determining loyalty: the perception of similarity. If you can make someone feel a link with you, his empathy for and willingness to cooperate with you will increase.

My favorite example of this occurred outside Ypres, Belgium in 1914. The British and the Germans had been fighting a long and bloody battle, but on the eve of December 24th, the British soldiers began to see lights and hear songs from across the field that separated their trenches from those of their foes. They soon recognized that the lights were candles and the songs were Christmas carols. What happened next was rather amazing. The men from both sides came out of their trenches and began to celebrate Christmas together. Men who had hours before been trying to kill each other were now sharing trinkets and family photos in complete trust that no violence would occur. Why? No one knows for certain, but I suspect that it was because in those moments, the men stopped viewing themselves as British and Germans, and rather saw themselves as fellow Christians. They came to perceive themselves as similar, and that meant they could trust each other.

Now you might think I’ve constructed a fanciful theory for a fluke occurrence. Fair enough. My colleague Piercarlo Valdesolo and I wondered the same, so we set out to study it. Although it made good sense that the mind would use similarity as a metric to decide to whom to be loyal, we had no hard proof. To find out if our suspicions were correct, we designed an experiment that allowed us to manipulate similarity stripped down to its most basic elements in order to see how it would affect behavior. To do this, we brought participants into the lab one at a time for what they believed was an experiment on music perception. They put on earphones and sat across from another person, who was actually an actor working with us. The task was simple; all it required was tapping the sensor in front of them with their hand to the beats they heard over their earphones. The beats were designed so that some participants could see their hands tapping in synchrony with the actor (who had his own sensors and headphones), while others would see random, unsynchronized tapping. Why the tapping? Moving in time is an ancient marker the brain uses to discern who’s similar. It occurs in rituals, in military drills, and in team exercises. If you’re moving in time with someone, it’s a symbol that right here, right now, the two of you are a unit.

After the tapping, we had designed a situation where the participants would see the actor get stuck while completing an onerous task from which they themselves were excused. But before they left the experiment, they were offered the opportunity to help the actor complete the onerous tasks if they so desired.

As we expected, relatively few people (18%) decided to come to the aid of the other when they hadn’t been synchronized. But if they had tapped in synchrony, the number who helped (50%) jumped dramatically. What’s more, the increase in helping was directly tied to how similar participants felt toward the actor. Surprising as it may seem, those who tapped in synch believed they shared more in common with the actor than those who didn’t, even though they had never said a word to the actor.

There’s nothing magical about hand tapping. We’ve found the same effect in several ways, including telling people they shared some esoteric (or even phony) characteristic with another. All that’s required to increase people’s willingness to support each other is any subtle marker of similarity.

Try it in your next negotiation.  Find and emphasize something – anything – that will cause your partner to see a link between the two of you, which will form a sense of affiliation. And from that sense of affiliation —  whether or not it’s objectively meaningful – comes a greater likelihood of trustworthy behavior.

Focus On: Negotiating




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How to Win the Argument with Milton Friedman

In 1970, in his famous essay, The Social Responsibility of Business is to Increase its Profits, Milton Friedman railed against any corporate attempt to promote “desirable social ends” which he argued were “highly subversive to the capitalist system.”

Ever since, folks who have gotten together in gatherings like last week’s Inclusive Capitalism Conference have argued that Friedman is wrong to make the trade-off between shareholders and the rest of society so wholly in favor of shareholders and that greater balance is required in that trade-off.

Yet the fact that they make that argument is precisely why Friedman has won the day for going on half a century, a spectacular success for a social sciences argument. Friedman has won the way a great debater wins — by cleverly framing the terms of the debate, not by brilliantly arguing the logic of the debate once it has been framed.

Because Friedman was so inflammatory in his call for a 100% versus 0% handling of the trade-off, his entire opposition for the entire time since 1970 has focused on making arguments for a number lower than 100% for shareholders. In doing so, they implicitly — and I would argue, fully — accepted Friedman’s premise that there is a fundamental trade-off between the interests of shareholders on the one hand and other societal actors such as customers, employees and communities on the other hand.

Ever since, the Friedmanite defense has been to force the opposition to prove that making a trade-off to any extent whatsoever against shareholders won’t seriously damage capitalism. As a result Friedman is innocent until proven guilty and the opposition guilty until proven innocent. That is why we are exactly where we are nearly a half century later.

Had the opposition been cleverer, it would have attacked the premise from the very beginning by asking: what is the proof that there is a trade-off at all? Had they done so, they would have found out that Friedman had not a shred of proof that a trade-off existed prior to 1970. And they would have found out that there still isn’t a single shred of empirical evidence that 100% focus on shareholder value to the exclusion of other societal factors actually produces measurably higher value for shareholders.

Friedman, of course, didn’t feel the need to assemble any empirical evidence to support his point. An economist falls apart and turns into a blubbing puddle on the floor if you take away the concept of trade-offs because they all started in the same place: the societal trade-off between guns and butter. Trade-offs are a sacred article of faith for economists. You simply can’t be an economist if you don’t consider trade-offs to be a central feature of your worldview.

I am an economist but the training apparently didn’t stick entirely for me. I think I read too much Aristotle along the way and to me he just seems smarter than anyone else I have ever read. What he argued about happiness has more direct relevance to shareholder value maximization than anything an economist has ever written. He maintained that happiness does not derive from its pursuit but rather is the inevitable consequence of leading a virtuous life.

The same applies to corporations. If they make it their purpose to maximize shareholder value, shareholders are likely to suffer because that cravenness turns off customers, employees, and the world in general. If they make it their purpose to serve customers brilliantly, be a fabulous place to work, and contribute meaningfully to the communities in which they operate, chances are their shareholders will be very happy.

That is my premise and I am sticking to it until someone can provide a shred of evidence that the opposite has any validity whatsoever.

The Case for Corporate Disobedience

If your company puts you in charge of developing a foreign market or a new line of business, your challenges are in many ways similar to those facing a startup. Before you can scale the business, you have to understand what your customers really want and value, and how to deliver it to them — and that process requires a lot of flexibility.

In theory, you have decent odds of getting it right. Unlike entrepreneurs working out of the proverbial garage, you can draw on your company’s resources to get things done. But as Steve Blank, Henry Chesbrough, and others have pointed out, that advantage is offset by the daunting fact that corporate innovators have to fight a war on two fronts. Like a startup, you have to get the market fit right, but you also have to fight the corporate systems at the same time, dealing with the rules, procedures, and approval processes that every big company has in place to support its strategy. It is a fight that every manager is familiar with, but nowhere is the challenge bigger than when the existing strategy is not aligned with the demands of the situation you are in.

To some extent, you can secure the necessary flexibility by negotiating it up front. Luke Mansfield, the leader of Samsung’s successful European innovation team, did just that; before accepting the job of establishing the new team, he secured full autonomy along with a three-year grace period in which his superiors were not allowed to ask for results. But up-front agreements can only carry you so far. Even if you are operating as a completely separate legal entity, getting things done requires you to collaborate with the main business — and in that process, you will quickly run into conflicts of interest and clashes with existing rules and regulations.

This is where the concept of stealth innovation can help you. In the research that my co-author Paddy Miller and I did for our book “Innovation as Usual”, we found that successful corporate innovators don’t always stick to the rules. Simply put, sometimes the right thing to do is to stop asking for permission and start bending or even breaking select internal rules, working quietly to help the company succeed in spite of its own control systems.

As outlined in our HBR article on the topic, rules and other control systems are generally there for a reason, and stealth innovation should be used in moderation and with great care. It is best practiced by people who have been with the company for a while and understand which of the internal rules should NOT be messed with. And it requires a constant vigilance to make sure that you don’t get into legal or ethical grey areas or lose sight of the company’s interests. For one, when you operate under the radar, it is imperative to involve some informal advisors and consult with them regularly, so you don’t become blind to your own actions or start taking dangerous risks.

Within the political sciences, the merits of conscientious civil disobedience are well recognized. But in the business world, strategic rule-breaking is still very much a polarizing idea. We can all agree that companies should strive to empower their employees. But empowering people to the extent of accepting that they should sometimes break internal rules, even if cautiously and with good intentions? When we wrote about the topic last year, we saw a lot of strong reactions; one commenter even called it “the work of the devil”. The concerns over stealth innovation were perhaps most succinctly stated by fellow HBR author Chris Trimble, who asked of senior executives, “How many stealth innovators do you want running around in your company?”

The question is reasonable, and if you are a senior leader, it is tempting to answer “zero”. But before you do, consider another question: How many of your CURRENT success stories have come about because somebody bent the rules? If you are like most of the companies we have worked with, several of your existing cash cows were created because somebody bent or even broke a few rules. That aspect of the corporate innovation process is rarely highlighted at awards ceremonies or in newspaper articles, and yet, as any innovator will tell you, it is undeniably there. Yes, breaking rules is risky; but the alternative of relentlessly sticking to them, even when the situation changes, also carries a risk. To deny the potentially positive impact of conscientious rule breaking is to ignore a fundamental truth about how successful companies operate in reality.

To be clear, it’s not that rules are bad. By and large, corporate strategies and the internal rules they engender are good and useful. But like the laws that shape our societies, they need to be interpreted and challenged when circumstances change. When formally established courts interpret laws, they aim to ensure maximum fairness, but they take a long time. In a company that needs to move fast, the interpretation often has to take place in real time, on the ground. Our job as senior managers is not to prevent all forms of rule breaking. It is to ensure that when the rules occasionally need to be broken, the people we put in charge are equipped with the experience, the incentives, and the informal support systems to make the right calls.

When Innovation Is Strategy

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Closing a Business Gracefully

Our family company, founded by my grandfather in 1880, was an importer and distributor of preserved food products in the Greek market. We had dry goods like sugar, coffee, beans, lentils, peas, and chickpeas. We also stocked preserved fish that we supplied to the mountain villages, many of which which had no electricity: Dutch smoked herrings, salted sardines from Portugal, and salted codfish from Norway, Iceland and Canada, all packed in 50 kilo wooden boxes or jute bags.

When I was a boy, none of our goods were branded; they were all sold in bulk and delivered to grocery stores; competition was all about price. It was not until the mid fifties, when I joined the company after completing my MBA in the US, that all this changed. We started packing products in branded half-kilo and one-kilo plastic bags. We also introduced non-food products to grocery stores, securing the distribution rights for American Home Products and Johnson and Johnson.

Our sales of packaged and branded products rose quickly and we prospered for a while as the first mover. But our industry model was changing as supermarkets started to displace the traditional grocery stores and began sourcing supplies directly. In this new environment there was no longer a viable place in the value chain for the wholesaler, and in order to survive we would have to become commission agents for our suppliers, taking orders from the supermarkets.

In our case, our early move into branded goods had bought us time to adjust, and we could embark on the process of closing down our wholesale business deliberately. But there was a real risk that we would lose a hefty sum in receivables from our eleven thousand grocery clients all over Greece, many of whom, not expecting more business with us, would sit on their debt to us forever. To reduce the chances of this happening, I made it a point to visit as many of the larger customers as I could to communicate in person that we would no longer be supplying them.

It wasn’t just about my meeting the customers, of course. There were too many of them for that. I also had to ensure that our sales force would co-operate. Since many of them would be losing their jobs as a result of our change in strategy, their co-operation could not be taken for granted. To secure it I engaged an employment finding agency to help them find new jobs, and paid them their salaries until they did. I also provided them all with warm personal letters of recommendation.

It wasn’t cheap, but the investment paid off, as we were able to recover the vast majority of our receivables. Better yet, the fact that we had made such a graceful departure positioned us well as a commission agent, a role for which it is important that you have a reputation for fair dealing. Trust, not price, is the differentiating factor.

When to Resign, and When to Clean Up the Mess

The resignation of Eric Shinseki, the now-former U.S. Secretary of Veterans Affairs, doesn’t solve the problem of an appallingly inefficient VA hospital system with long waiting times for treatment and deaths that happened while veterans waited for care. When should a leader resign, and when should he stay and clean up his mess? Should Shinseki (and President Obama) have resisted calls for his ouster, so that he could stay to address the problems?

We measure a leader, not by the absence of problems, but how he or she confronts those problems and takes action.

Jamie Dimon is still CEO of JP Morgan Chase, despite financial controversies and big legal settlements of the kind that toppled CEOs of other banks; he has guided the cleanup process, apparently effectively. PepsiCo CEO Indra Nooyi is leading a course correction (no scandal involved) after some analysts said she had taken her eye off the core product and thus should tender her resignation. John Chambers has led Cisco successfully for nearly 20 years through numerous ups and downs including dismantling a messy, controversial organizational structure of his own making (a complicated overlay of councils and boards). Boeing CEO Jim McNerny tackled the life-threatening battery problem on the new 787 Dreamliner aircraft, going from crisis to triumph. Elon Musk of Tesla is one of numerous entrepreneurs who prove their critics wrong by rising to the occasion when fires break out, eventually winning back public trust. And on college campuses right now, after rape and sexual abuse scandals have burst into public knowledge, presidents are still in place changing policies and practices.

Generations of Western middle class parents taught their children to clean up their own messes. In adult institutions, that isn’t always possible or desirable. For every Chambers, McNerny, and Nooyi who handles clean-up, there’s a Shinseki that must resign. Here’s what boards and bosses should ask leaders, and leaders should ask themselves, about when to resign, or when to stay for the clean-up campaign.

How mission-critical is the mess? Is the scandal isolated, or evidence of a widespread systemic problem that hasn’t been addressed? Isolated incidents can be dismissed as unfortunate tragedies. But when a problem pops up in more than one place, and it is central to the mission, and the leader doesn’t already have a plan in place for fixing it, then it is time for the leader to go. That applies clearly to the VA, where the delays in treatment are core, and Shinseki was in place long enough to have figured this out.

What did you know, and when did you know it? Did you take immediate action? Leaders should be the first to know, not the last, and when they know, they should take corrective action fast. When then-Johnson & Johnson CEO Jim Burke learned of a Tylenol tampering incident, he immediately ordered the removal of all Tylenol bottles from the market, and sorted out cause and responsibility later — a famous lesson since taught to generations of business school students. Soon after becoming CEO of General Motors, Mary Barra faced revelations about extensive automotive defects and deaths attributed to them. She immediately made some executive changes, such as appointing a safety officer, and created action plans. She faced a tough situation for a new CEO, especially one who had previously headed the global product development organization, but her swift actions have given her credibility for longer-term changes.

Are you a distraction? Have you become the story? New brooms sweep clean. But leaders who linger after messes surface can get stuck on a failed approach, and they can appear more interested in keeping their jobs than helping the organization achieve its mission. Tony Hayward had to step down as BP CEO after the explosion and oil spill in the U.S. Gulf because of how he handled it; he made headlines by whining about what was happening to him, rather than focusing on the human lives lost and economic costs for the region.

Just as cover-ups are usually worse than crimes, it’s not having a mess on their hands that causes leaders to fail; it’s how the mess is handled — the timing, communication, accountability, and compassion. Get those right, and you can continue to handle the clean-up. Get them wrong, and it’s time to get out of the way.

Shinseki, a highly-decorated military veteran, did the honorable thing. He also did the inevitable thing. Cleaning up a mess requires strong will, fast action, new approaches, and a lot of credibility. One resignation doesn’t restore trust, but it opens the door for someone who can.

 

How Xiaomi Beats Apple at Product Launches

The iPhone 6 is due in September.

The build-up to its launch will almost certainly follow the Steve Jobs M.O. Device specifications will remain a closely guarded secret until the launch date (unless an employee forgets his phone at a bar). There will be long lines at stores. We probably won’t be able to actually get the product for a couple of months after the launch. And, of course, users (we) will have no input into what we actually get; Steve Jobs’ dictum that “people don’t know what they want until you show it to them” is still an act of faith for Apple’s management.

But is this the only way to launch new products? Let’s think for a second about the risks inherent in this approach. Imagine that something goes wrong and a hardware glitch makes it necessary to recall and/or repair all products (remember the iPhone4 Antenna problem)? Or what if a certain feature or the device as a whole is a complete miss with consumers (think Apple Maps)?

All this secrecy comes at a price, both in the supply chain and by creating a difficult workplace. Consider how many people have to keep the secrets: factory workers, supply chain workers, and retail employees. Current employees will work weeks of overtime and self-employed contractors will be hired in the thousands. According to some media outlets, Apple already announced restrictions for employee vacation in Germany, probably because of the launch. This elaborate planning process is complex, expensive, and risky.

But what is the alternative? In “Why The Lean Startup Changes Everything,” Steve Blank argues for “experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional ‘big design up front’ development”. Blank’s approach is as relevant to new product launches as to new companies: they are also highly uncertain, with many unknown unknowns.

One of Apple’s competitors is already applying just such an approach to new product launches. Founded in 2010, Xiaomi is one of the biggest Chinese smartphone companies. Its revenues last year were already more than $5 billion — not bad for a three-year old.

Unlike Apple, Xiaomi produces its products in small batches, allowing for easy changes based on user feedback. Every Friday there is a major feature update of the operating system and a round of feedback from expert consumers. Because Xiaomi only sells directly to consumers (unlike Apple, which goes through many intermediaries), the company can collect all this feedback and build it into the next generation of devices.

In essence, the phone you buy this week can be different from what you’ll buy next week. As one example of the benefits of this approach, Xiaomi got its operating system translated into 24 languages by users and the company didn’t spend a dime. User feedback led to the creation of a very different and much more flexible device. Xiaomi allows users to swap the battery, replace a memory card, change case backs, and remove the SIM card.

Don’t get us wrong: we are not saying that Xiaomi has a better product than Apple: they are priced differently and they appeal to different segments of the market. We both use iPhones, not Xiaomi products. But many companies that try to take clues from Apple’s playbook on innovation will fail because they don’t have the marketing clout and brand appeal to push products rather than pull ideas. Further, Apple’s model is driven by the creative genius of individuals like Steve Jobs, who are not easy to find. Without these resources, a company might be much better off following the Xiaomi playbook.

If You Have a Lot of Work to Do, Hope for Rain

Bad weather is better than good weather at sustaining people’s attention and maintaining productivity, according to a study by Jooa Julia Lee of Harvard University, Francesca Gino of Harvard Business School, and Bradley R. Staats of the University of North Carolina. In a study of Japanese bank workers whose windows gave them a view of the weather, a 1-inch increase in daily rainfall was related to a 1.3% decrease in worker completion time for data-entry tasks. When the weather is bad, workers are less distracted by thoughts of outdoor activities.

The True Cost of Hiring Yet Another Manager

You can have terrific people working in the right teams and still not see the financial results you’re hoping for. Why? It could be that your organization’s structure is creating obstacles that compromise your workforce’s performance.

One common culprit is out-of-control tooth-to-tail ratios. In a war zone, some soldiers fight on the front lines. Others maintain supply chains, handle logistics, and otherwise support those front-line troops. Military commanders know they can’t let the tooth-to-tail (or combat-to-support) ratio get too low, or they’ll wind up with a force that costs too much and can’t win the battle.

It’s the same in a company. You have front-line employees who create what you sell or who deal directly with customers: software developers, sales reps, call-center staffers, and so on. You also have support staff, including the people in marketing, finance, HR, and other functions. When the tooth-to-tail ratio gets too low, front-line people find that they have to send every customer request or idea for improvement up through the bureaucracy and wait days or weeks for a response. That not only creates long delays for customers; it also makes front-line employees feel disempowered and demoralized. How can they serve the customer when they’re burdened with so much bureaucracy?

A second likely culprit: too many supervisory layers. Unnecessary supervisors create work and don’t increase efficiency, thus lowering an organization’s productivity. And companies often underestimate how expensive all those supervisors really are. Not long ago my colleagues and I studied the cost of adding a manager or executive, and we found a kind of multiplier effect (see the graphic below). When you hire a manager, he or she typically generates enough work to keep somebody else busy as well. Senior executives — SVPs and EVPs — are even more costly. These high-priced folks typically require support from a caravan of assistants and/or chiefs of staff. The support staff generates a lot more work for other people, too. The extra burden comes to 4.2 FTEs per hire, including the executive’s own time.

We’ve found three steps to be helpful in liberating your people from the organizational mire:

Manage your tooth-to-tail ratios closely. Appropriate ratios naturally vary from one industry to another. But a company can gauge its performance against benchmark levels and make adjustments as necessary. If you can create standard processes for handling queries and ideas from front-line people, that will help them make and execute good decisions faster. You may find that all those support personnel aren’t really necessary — that the tooth can be more effective with a much smaller tail.
Trim your supervisory layers. Compare your managerial spans — the average number of direct reports per supervisor—with industry benchmarks, and adjust your structure accordingly. Take into account, however, that different jobs require different spans of control. The lawyers in your legal department probably do highly specialized work that needs close supervision, thus requiring a narrower span of control. The custodians who clean your facilities, by contrast, can operate under a supervisor with a much broader span of control. Selectively removing supervisors (sometimes referred to as “delayering”) can reduce workload and costs throughout your organization.
Limit the caravans. It does little good to eliminate unnecessary supervisors if those who remain are as costly and inefficient as ever. In some companies, it’s common for senior VPs to have not just an assistant but a whole coterie of helpers, complete with a chief of staff. These caravans can generate just as much work as the executives themselves — again, a perverse multiplier effect. Limiting (or eliminating) these caravans reduces work and cost.

Some companies have begun to attack these organizational barriers. A large software company we worked with recently eliminated more than 40% of its supervisors, ensuring that the people who actually develop the product aren’t overburdened with managers and other functionaries. When Alan Mulally first became CEO of Ford, he did away with the CEO’s chief of staff position. It was a double-barreled message on Mulally’s part: not only wouldn’t he have a chief of staff; he wouldn’t have a staff at all. His decision precipitated similar moves elsewhere in the organization; no EVP wanted to have a chief of staff when the CEO didn’t.

Chances are that your top performers want to live up to their full potential. Don’t let organizational obstacles get in their way.