Marina Gorbis's Blog, page 1414

Strategy Is No Longer a Game of Chess

Legendary strategists have long been compared to master chess players, who know the positions and capabilities of each piece on the board and are capable of thinking several moves ahead.

It’s time to retire this metaphor. Strategy is no longer a game of chess because the board is no longer set out in orderly lines. Industries have become boundless.  Competitive threats and transformative opportunities can come from anywhere.  Strategy, therefore, is no longer a punctuated series of moves, but a process of deepening and widening connections.

The first person to think seriously about how businesses function was Ronald Coase.  In his groundbreaking 1937 paper he argued that firms gained competitiveness by reducing transaction costs, especially those related to information.  In his view, firms could grow until the point that organizational costs cancelled out transactional benefits.

In the 1980s, Michael Porter built on this idea and made it more possible for managers to act on with his concept of value chains. His ideas provided managers with a blueprint for building competitive advantage.  By increasing scale companies could create efficiencies along the entire value chain through either operational excellence or bargaining power with suppliers and customers.  Costs would be further reduced through scale as firms moved up the experience curve.

In effect, competitiveness was the sum of all efficiencies and you created those efficiencies by building greater scale.

The world envisioned by Coase and Porter was relatively stable.  Transaction costs were like weeds, which managers could gradually root out.  Once the lines of competition were drawn, strategy was a mainly a matter of bringing “relative strength to bear against relative weakness,” as UCLA’s Richard Rumelt has put it.

Yet today we live in a world of accelerating returns, where cost efficiencies can improve exponentially, nullifying scale advantages.  Further, technology cycles have begun to outpace planning cycles.  So in the course of planning and executing any given strategy, relative strength and relative weakness are likely to change—sometimes drastically.

So we find ourselves in an age of disruption, where agility trumps scale and strategy needs to take on a new meaning and a new role.  We can no longer plan; we can only prepare. This requires what Columbia’s Rita Gunther McGrath calls a shift from “learning to plan” to “planning to learn”.

When Jeff Bezos started Amazon, his purpose was to sell books against traditional competitors like Barnes & Noble.  Yet today, Amazon is much more than a retailer.  It offers cloud computing services to enterprises, builds computer hardware, and develops TV shows. It directly competes with firms as diverse as Microsoft, Walmart, and Netflix.

However, Amazon is not a conglomerate; it is a platform.  The same cloud architecture that runs its online store is what it offers as a service to enterprises and distributes entertainment to consumers.  As it expands connections to into new areas, it deepens capabilities at its core.   This is why, if you’re looking at the competitive landscape, it doesn’t make sense to talk about Amazon’s “industry position” as much as it does to examine its ecosystem.

When Coase wrote his famous paper in 1937, transaction costs were a much heavier burden.  Today’s most valuable corporate resources aren’t tied to a physical place, don’t substantially diminish with use, and are easily distributed.  The world has changed and so must strategy.

Many have argued over what this shift should entail. For instance, McGrath argues, in her excellent book, The End of Competitive Advantage, that sustainable competitive advantage is no longer possible and we must be content with achieving transient advantage.  In her view, rather than focusing on a distinct set of capabilities, firms must constantly be moving on to greener pastures. And yet I’m not sure this part of her argument holds.  Clearly, there are plenty of firms such as Amazon, Walmart, and Apple that are able to not only maintain, but deepen their advantages over time.  Sure, they’ve increased their scope as well as their scale, but their core businesses have also improved.

What’s changed is that competitive advantage is no longer the sum of all efficiencies, but the sum of all connections.  Strategy, therefore, must be focused on deepening and widening networks of information, talent, partners, and consumers.  Brands, in effect, have become more than assets to be leveraged, but platforms for collaboration.

You’ll Absorb More if You Take Notes in Longhand

College students who take notes on laptop computers are more likely to record lecturers’ words verbatim and are thus less likely to mentally absorb what’s being said, according to a series of experiments by Pam A. Mueller of Princeton and Daniel M. Oppenheimer of UCLA. In one study, laptop-using students recorded 65% more of lectures verbatim than did those who used longhand; a half-hour later, the laptop users performed significantly worse on conceptual questions such as “How do Japan and Sweden differ in their approaches to equality within their societies?” Longhand note takers learn by reframing lecturers’ ideas in their own words, the researchers say.

Why Germany Dominates the U.S. in Innovation

Reading the headlines, you might think that the most urgent question about national success in innovation and growth is whether the U.S. or China should get the gold medal. The truth is: Germany wins hands down.

Germany does a better job on innovation in areas as diverse as sustainable energy systems, molecular biotech, lasers, and experimental software engineering. Indeed, as part of an effort to learn from Germany about effective innovation, U.S. states have encouraged the Fraunhofer Society, a German applied-science think tank, to set up no fewer than seven institutes in America.

True, Americans do well at inventing. The U.S. has the world’s most sophisticated system of financing radical ideas, and the results have been impressive, from Google to Facebook to Twitter. But the fairy tale that the U.S. is better at radical innovation than other countries has been shown in repeated studies to be untrue. Germany is just as good as the U.S. in the most radical technologies.

What’s more important, Germany is better at adapting inventions to industry and spreading them throughout the business sector. Much German innovation involves infusing old products and processes with new ideas and capabilities or recombining elements of old, stagnant sectors into new, vibrant ones.

Germany’s style of innovation explains its manufacturing prowess. For example, many, if not most, of the Chinese products we buy every day are produced by German-made machinery, and the companies that make them are thriving.

It also explains why Germany’s industrial base hasn’t been decimated, as America’s has. Germany is better at sustaining employment growth and productivity, while expanding citizens’ real incomes. Even with wages and benefits that are higher than those in the U.S. by 66%, manufacturing in Germany employed 22% of the workforce and contributed 21% of GDP in 2010. The bottom line: German manufacturers are contributing significantly to employment growth and real income expansion.

In the U.S., by contrast, fewer and fewer people are employed in middle-class manufacturing jobs. In 2010, just under 11% of the workforce was employed in manufacturing, and manufacturing contributed 13% of GDP. Inequality is on the rise, and the country’s balance of payments is getting worse.

Three factors are at work here:

Germany understands that innovation must result in productivity gains that are widespread, rather than concentrated in the high-tech sector of the moment. As a consequence, Germany doesn’t only seek to form new industries, it also infuses its existing industries with new ideas and technologies. For example, look at how much of a new BMW is based on innovation in information and communication technologies, and how many of the best German software programmers go to work for Mercedes-Benz. The U.S., by contrast, lets old industries die instead of renewing them with new technologies and innovation. As a result, we don’t have healthy cohesive industries; we have isolated silos. An American PhD student in computer science never even thinks about a career in the automobile industry — or, for that matter, other manufacturing-related fields.


Germany has a network of public institutions that help companies recombine and improve ideas. In other words, innovation doesn’t end with invention. The Fraunhofer Institutes, partially supported by the government, move radical ideas into the marketplace in novel ways. They close the gap between research and the daily grind of small and medium-size enterprises. Bell Labs used to do this in the United States for telecommunications, but Fraunhofer now does this on a much larger scale across Germany’s entire industrial sector.


Germany’s workforce is constantly trained, enabling it to use the most radical innovations in the most diverse and creative ways to produce and improve products and services that customers want to buy for higher prices. If you were to fill your kitchen and garage with the best products that your budget could afford, how much of this space would be filled with German products such as Miele, Bosch, BMW, and Audi?

Germany actively coordinates these factors, creating a virtuous cycle among them. Germany innovates in order to empower workers and improve their productivity; the U.S. focuses on technologies that reduce or eliminate the need to hire those pesky wage-seeking human beings. Germany’s innovations create and sustain good jobs across the spectrum of workers’ educational attainment; American innovation, at best, creates jobs at Amazon’s fulfillment centers and in Apple stores.

It’s high time for the U.S. to revamp its innovation system. Americans need to recognize that the purpose of innovation isn’t to produce wildly popular internet services. It’s to sustain productivity and employment growth in order to ensure real income expansion. We need new policies that allow American innovation to be scaled up and produced on American soil, by American workers. Changes need to happen in how we transfer radical inventions from the lab to the marketplace, via a set of public-private institutions that do for America what the Fraunhofer centers do for Germany. We need to think about skills training as a lifelong endeavor, with workers across the spectrum of education being taught how to use new technologies to increase productivity.

Economic growth doesn’t happen at the moment of invention. Only innovation policies that target the complete innovation cycle will succeed in creating economic growth that enhances the welfare of all citizens. There is nothing a German can do that a properly trained and incentivized American cannot.

When Innovation Is Strategy

An HBR Insight Center




How Samsung Gets Innovations to Market
When to Pass on a Great Business Opportunity
Is It Better to Be Strategic or Opportunistic?
Your Business Doesn’t Always Need to Change

Where There’s No Margin for Toxic Leadership

Growing a midsized firm takes a top team with zero weak links.  Even one ineffective executive weakens a firm’s ability to address big problems. But building a consistently strong top leadership team is difficult for at least three reasons: the tendency to be loyal to existing members, the lack of management depth to promote from, and many CEOs’ lack of experience in many functional areas.

To be sure, this is not just a problem for midsized firms. Plenty of large companies have dysfunctional executives, as many Fortune 500 human resource consultants can tell you. But big firms can afford one or two dysfunctional leaders because their executive teams are sizable. Ford Motor Co. (a $134 billion company) has a corporate-level team of 41; Western Union (a $5.6 billion company) has 15. One troublesome executive out of 41 or even 15 is not likely to be fatal – unless, of course, he is the CEO. But when it’s a team of six? It’s a different story.

Consider the case of a $30 million manufacturer. Back in 2001, it was growing rapidly. The CEO thought he needed to step out of the chief sales role to focus on operations and finances. He hired a head of sales who quickly asked for broader authority and a fancy title: Chief Lightning Catcher. In fact, he wanted the CEO to stay out of sales altogether, and he succeeded in pushing him out of that function.

Everything seemed fine for the first few years. Three years later, the firm’s sales growth ground to a halt and it continued to be flat for two more years. The CEO sensed a problem with the sales chief, but wasn’t clear what it was so he left him alone. But the sales head kept blaming others for sales opportunities that went sour. The self-appointed Chief Lightning Catcher said he needed more control to right things.

By 2005, the Chief Lightning Catcher found a company that wanted to acquire the firm and provide badly needed investment capital. The Chief Lightning Catcher led the talks, which became serious. But in December 2005, the offer fell through. The reason, the CEO found out later: the would-be buyer didn’t like the Chief Lightning Catcher. It turned out he was manipulative, divisive, and ineffective.

Four months later the CEO fired him. To his surprise, the sales team was relieved; they had been micro-managed. Customers didn’t care; the sales chief had hardly communicated with them. In fact, several customers told the CEO they had stayed with his company despite the sales chief’s presence.

With a re-energized sales team and a new product whose revenue quickly became about a quarter of the company’s sales, rapid growth returned. By 2013, the CEO, his business partner and an early private equity investor received an offer to sell some of their shares to a large company.  They accepted the deal and the CEO and his co-founder continue to run their firm.  In retrospect, the CEO wished he had fired his ex-sales chief two years earlier than he did.

Many CEOs of midsized firms are loyal to the team that got them there, but that loyalty is misplaced if it erodes the company’s ability to grow. Any leader’s first loyalty must be to his firm’s health, not his direct reports’ continued employment at the firm.

Getting rid of subpar leaders — quickly — is hard, especially if they were once outstanding performers. It’s even harder if viable replacements aren’t on the immediate horizon.  This is why it’s the role of midsized company CEOs – not their HR heads — to build the leadership pipeline, both internally and externally. That requires mentoring and developing middle managers as well as building a network of external candidates in critical functional areas.  Those who can build a great team give their companies far more upside potential, stronger growth, and far fewer crises to manage.

How Separate Should a Corporate Spin-Off Be?

Businesses sometimes need to invest in new opportunities that do not fit the current business or current strategy well.  The traditional advice, from Clayton Christensen’s work on disruptive innovations and Michael Tushman’s on organizational ambidexterity, is to set up the new activity as a separate unit, reporting to a manager at the corporate headquarters who can sponsor the new activity and help to integrate it with the rest of the company.

This generic advice is good, but it does not deal with a large number of related decisions. Which corporate policies should apply to the new division and which should not? Should the managers in the new division have similar terms and conditions and bonus arrangements to those of their colleagues in the existing businesses? How much time should the corporate executive committee spend on this new activity?   How should it be monitored and targeted? Should the new activity be a joint venture with a third party?  Should the new activity have a separate stock market listing or separate funding?

Getting the right answers depends on understanding two factors: the particular opportunities for synergy and the risk that the parent company will subtract value. Both factors are unique to the particular business division, its parent company and the other businesses in the family.

Synergy may come from economies of scale. If so, some activities will need to be centralized or shared. But synergy can also come from cross-selling, coordinated strategy, or many other sources. Hence the nature of the integration between the new division and the rest of the organization should be tailored around the particular sources of synergy. Even once the sources of synergy are clear, there are still choices to be made, and in making them managers should look for the type of integration that has the lowest risk of subtracted value.

Subtracted value can come from corporate policies and habits, people decisions, strategic guidance, performance management processes, and more (my book Strategy at the Corporate Level lists eight typical sources). New ventures, for example, often complain that the corporate finance function requires them to meet budget or lose bonuses or funding; or they can’t recruit the talent they need because of the corporate job evaluation approach.

Whenever a division has a business model that is different from that of the core businesses, the risk of subtracted value is particularly high: the corporate rules of thumb are often toxic. Shell’s preference for a strategy of vertical integration proved a disaster in aluminium, and BAT’s belief in market share was as damaging when the company entered financial services.

This, of course, is the reason for creating as much separation as possible and as much decentralisation as possible. Minority investors, separate stock quotes, managers with significant shareholders can all help give extra protection against subtracted value. If these mechanisms do not significantly undermine the synergy opportunities, they are worth considering.

Let’s look at an example. At Britain’s Virgin Group, the main source of synergy is the shared brand — which is therefore managed centrally through a company that licenses the Virgin brand to divisions in wildly different types of business. The divisions pay for what they get, and contribute a negotiated amount to the development of the brand.

But there’s significant risk of subtracted value from interference in operating units by managers at the Group level. To get around this problem, Virgin encourages the management team in each division to take a significant, sometimes 50%, stake in the division. If their own money is at risk, they are less likely to follow central advice or policies, unless they believe it helps their business.

Mass-market brand-behemoth Unilever applied a creative solution to the problem of subtracted value when it acquired the up-market brand Elizabeth Arden. It appointed a gatekeeper. Anyone in Unilever who wanted to contact someone in Elizabeth Arden had to go through this person.

By creating a deliberate bottleneck, Unilever protected Elizabeth Arden from distractions and interference, and the acquisition prospered. Unfortunately, after a year or two the bottleneck was removed, and Elizabeth Arden began to struggle. Later, Unilever sold Elizabeth Arden. Released from the mother company, the new owners doubled margins within 18 months.

Designing an appropriate degree of separation is vital for a new investment that does not fit easily within a company’s existing strategy. The broad advice to keep things separate is useful, but it does not help managers make the fine-grained decisions that are needed. It is only by defining clearly the precise areas of synergy, looking for ways of getting the synergy without risking negatives and setting up mechanisms to help the new business resist corporate smothering that managers can design the right, tailored solution for each new investment.

When Innovation Is Strategy

An HBR Insight Center




How Boards Can Innovate
When to Pass on a Great Business Opportunity
How Samsung Gets Innovations to Market
Is It Better to Be Strategic or Opportunistic?

Business School Professors Should Be Like Movie Directors

As business school professors, we always ask ourselves why we are needed. Because we train future leaders and shape how organizations create value for societies. But will students need us in the same capacity in the future? Not if we don’t change to meet shifting educational needs.

A January Economist article on the Future of Jobs quoted experts saying that 47% of all job categories, including high-skill professions in medicine and law, will be automated within two decades. Among the professions that were said to be safe from automation (for the moment) are those that require human interaction and emotive and social competencies, such as management; those that rely on craft mastery, such as recreational therapists and actors; and those that involve understanding complex systems of human and institutional interaction, such as economists. Luckily, b-school professors seem to be hybrids of economist, therapist, actor, and manager. We have knowledge to bestow on students, a stage to practice our craft, and design capabilities for pedagogy.

But with more and more technologically disruptive change affecting our classrooms – through social media, wearable computing, Massive Open Online Courses (MOOCs), gamification, and so on – it’s time we shift away from the business school model of sage-on-a-stage. Classrooms are becoming a mesh of virtual and real, inspiring more collaboration, and expanding across hundreds of cultures as campuses globalize. Employers expect us to train our leaders to create value on this new frontier, as they should.

However, our current business model is ill-prepared for these trends. We need to think beyond presentations and videos, Socratic method and quizzes, case analyses and papers. Professors must think of themselves as experiential movie directors for a production of Global Business in the Networked Economy, orchestrating and coaching a multinational cast of actors through experiments – and stepping off of the stage for a broader purview. This new frontier demands something inconceivable from professors: Risk not knowing what the outcome would be, or the metrics associated to it, a priori. By reshuffling the fundamentals to meet and shape new conditions, b-school professors can better address the changing needs of students in a rapidly digitizing world.

Build immersive landscapes to design and test business solutions in near real-world settings. Incorporate the various actors, pressures, and uncertainties that create actual problems for leaders. The classroom should be more akin to one big reality game that simulates a market or industry. It could imitate the lifecycle of a real firm with different stages running for an entire one- or two-year MBA program.

Script and direct large-scale complex simulations. Help could come from the entertainment industry: screen writers, game developers, and producers. Integrate content and logic from different business functions into gripping narratives with dramatic arcs. Use incentives to stimulate moves and counter-moves. Teams would diagnose problems and synthesize solutions for them, and then act those out in the landscape, starting a dynamic exchange.

Optimize students’ own wisdom by coaching teams through their challenges and guiding them so they can make the right decisions. Have students gather insights from their own behaviors and responses as a simulation progresses.

Equipping students with the skills to master these challenges is how learning takes place. By encountering roadblocks and unforeseen messes, students are forced to exercise strategic agility. They learn to demonstrate innovation aptitude, how to handle value gains and losses in economic, environmental, and technological systems, and when to ask for signals and feedback from teammates, competitors, outside experts, and professors.

As a result, students would be more deeply engaged and satisfied, employers would be better served, more positive business outcomes would be accessible, and professors would remain highly valued (and our jobs secured).

The young leaders of tomorrow need to be ready for it. Can we change to help them?

Do Genes Affect Our Attitudes Toward Interdependence?

Numerous studies have shown that Americans of European origin have a more independent, and Asians have a more interdependent, social orientation, as measured by questionnaires asking about agreement with such statements as “I feel it is important for me to act as an independent person.” But this social-orientation difference is about 6 times greater among people from both backgrounds who are carriers of two particular alleles of a dopamine-receptor gene known as DRD4, according to a team led by Shinobu Kitayama of the University of Michigan. The alleles appear to predispose people to acquire behaviors that are considered socially desirable, the researchers say.

Health Care Becomes Entrepreneurial (Finally)

All of us know that you have to be a little crazy to be an entrepreneur. Launching, let alone sustaining, a new enterprise can be challenging along almost every dimension − mentally, emotionally, and often financially. Historically, this reality has been even more sobering in the health care sector, where the typical hardships experienced by any start-up have been amplified by numerous industry-specific challenges: Extensive regulation, entrenched players with a strong grip on the status quo, confusing paths to entry, and an even more opaque path to payment have made health care a particularly treacherous territory for entrepreneurs.

But ongoing changes in policy, technology, and industry culture are now creating unprecedented opportunities for those with just the right kind of crazy. In our group at Merck, we are witnessing this opportunity firsthand as we collaborate with start-ups in the areas of digital health, big data, and health IT.

Four dynamics are driving this new era of health care innovation:

Finally, there is a financial incentive to innovate. Government-led measures to reform health care such as the HITECH Act, which infused billions of dollars into improving the sector’s use of information technology, and the Affordable Care Act (ACA), create a business case for performance improvement that never existed before. Accountable Care Organization (ACO) models in both the private and the public sectors are rewarding providers for lowering the overall costs of care and keeping patients healthy.

While the managed care movement made a similar run in the early 1990s, the movement towards accountable care, bundled payments, and other population health efforts have not caused the type of backlash that managed care did − in large part because most of these models have not meaningfully restricted patient choice. RxAnte, Evolent, and Humedica are just three of the many new companies seizing the opportunity to help old players comply with new policy standards that focus on improving outcomes and efficiency.

New players are fearlessly sensing the opportunity. Health care is attracting an influx of talent from other industries to tackle some of its toughest problems. Top-tier thinkers from data science, business, finance, and the digital world are coming together to find new solutions. Through the venture capital community, veteran corporate leaders like John Scully, Steve Case, and Gerald Levin are contributing capital and deep business expertise to numerous health-related start-ups. Tech company founders like Max Levchin of PayPal, Samer Hamadeh of Vault.com, and Naveen Selvadurai of Foursquare are diving into health care as well, bringing new perspectives and talent into the domain. All recognize the enormous size of the opportunity to make a profit while improving care, lowering costs, and improving health.

According to a recent Rock Health report, venture funding of digital health companies exceeded $1.9 billion in 2013, up 39% from 2012.

Access to data is enabling us to better understand and address problems. Improving the amount of and access to higher-quality data will enable stakeholders across the health care ecosystem to work together to better understand the gaps and flaws in care. While we are only in the early days of the open data movement, innovative uses of data will empower new approaches to improving outcomes. The intelligent use of data will have a transformative influence on all points of care. Entities like Optum Labs are bringing together physicians, pharmaceuticals companies, hospitals, ACOs, and researchers to identify predictive analytic algorithms than can anticipate when patients are likely to get ill — so that we can intervene and improve outcomes.

Consumer technology offers direct access to patients. With unprecedented access to information, patients are being empowered in new ways. The proliferation of wearable devices from companies like Fitbit and online support communities like PatientsLikeMe are sparking a dramatic rethink of how patients can learn about and monitor their health. These technologies currently affect a small share of the population. But as they continue to improve and adoption by consumers grows, there will be a plethora of opportunities for  innovators.

All of these developments spell the dawn of an exciting new era for entrepreneurs, techies, investors, clinicians, and, last but not least, patients.

Can You Crowdsource a Big Idea?

Bill Joy, co-founder of Sun Microsystems, famously said, “No matter who you are, most of the smartest people work for someone else.” This insight is almost a tagline for the rise of online distributed innovation, commonly referred to as “crowd sourcing.” A number of scholars at Harvard Business School have gotten in on the act, studying how crowds solve problems in new product development, scientific breakthroughs, and even trying to find the tomb of Genghis Khan. Recently, Nitin Nohria, Dean of HBS, challenged some of us to apply what we have learned to a core function of the school – generating relevant, rigorous knowledge.

Working with Professor Clayton Christensen on the research that became “The Capitalist’s Dilemma,” and taking a page from his book, we thought, How might we disrupt our own knowledge generation process? While HBS certainly has brilliant professors who are creating new knowledge, the mathematical truth is that there are more smart people outside of HBS than within it. We realized that we had a strong connection to an enormous untapped asset — the HBS alumni — and decided to formulate a “beta” challenge to test with the alumni of Clay’s course, Building and Sustaining a Successful Enterprise (BSSE in HBS-speak). We used the OI Engine software, dreamt up by Tom Hulme while he was studying at HBS and currently used for OpenIDEO, a diverse community that solves challenges with a social-impact focus. In one sense, this project was cutting edge, but it builds on really promising methods developed by organizations like the open source software community, the Wikipedia collective, TopCoder, OpenIDEO, General Electric, Siemens and NASA.

You can see the outcome of our challenge in this HBR article, as well as in an interactive exhibit showing how the process worked.

Here are some lessons we learned along the way.

Consider what your question assumes.

We invested considerable time in framing the challenge question, How do we innovate for long term growth and job creation? We could have opted for a simpler or broader question, but we hoped the tough challenge would pique the intellectual interest of community members. In hindsight, this set a significant hurdle to participation: we selected for people that understood the challenge, found value in it, and felt that they had something to add. While this resulted in high quality contributions, it also led to at least some selection bias. In this situation, we consciously accepted this trade off for reasons both substantive, like our desire to build on an existing knowledge base, and contextual, such as managing HBS’s inaugural foray into working collaboratively with the crowd.

Ask the right parts of your community.

We consciously decided that virtually all of the invited community would be alumni of the BSSE course at HBS, both because they shared a common intellectual framework and because we believed they would be more likely to answer a call to action from Clay. While our ultimate goal is to tap a broader group, research suggests that starting with a small, connected community is the best way to seed a thriving community.

Set norms for contributions early.

We quickly observed what we called a “culture of composed contribution”; people did not seem comfortable thinking aloud (as it were) in front of the community. This response was in marked contrast with other open source situations, but very much in line with HBS culture. The general reluctance to contribute imperfectly finished thoughts created a significant barrier to entry; we suspect that it discouraged creative but less developed ideas that could have pushed thinking, been more open to refinement, and served to build ties among participants. Next time, we might deliberately contribute less refined ideas at first, to convey their acceptability and usefulness.

Get people up to speed.

As the infographic reveals, our collective thinking evolved over time; while many early ideas shaped the article directly, other ideas sparked others’ thinking, sometimes weeks later. Given our time-poor community, this made urgent the challenge of bringing community members up to speed. (The site generated an extraordinary amount of material.) Our solution was to offer accessible building blocks of the conversation. We featured contributions that we thought would give the users a soft re-entry into the challenge and sent summary newsletters to the community outlining some key activities on the platform.

Keep them coming back.

Our colleagues in the HBS Digital Initiative have studied the construction of online communities; they often begin as small, passionate, and densely populated, then later become a collection of interlinked communities. We hope to pull a much larger group in to our discussions in the future and otherwise explore how to bring the crowd into all aspects of our mission. (A continuation of the work done on Capitalist’s Dilemma appears at this site – please join in.)

In a more general sense, we intend to continue exploring how “the crowd” can contribute to academic work, how together we can deepen our understanding of complex, hard-to-solve problems, and how – maybe, just maybe – we can contribute to solving those problems. With that in mind, we would love to read your feedback on this process and thoughts in the comments below on what other challenges the community might take on.

Managing the Immoral Employee

Out of all the management questions we should be asking, this is surely the least asked. How do we handle individuals who are prone to unethical behaviors, especially if they are talented and hard to replace?

There are three reasons why this subject is more or less taboo. First, morality is hard to define, especially without getting too philosophical, and management writers are typically allergic to metaphysics. Second, it is controversial to label people as immoral (although alternative terms – unprincipled, dishonest, corrupt – are hardly euphemisms).

The third problem is that managers struggle to judge moral character, not just in their subordinates but also in themselves. Many managers suffer from a common misconception, that honesty and competence are positively correlated, but there are as many honest people who are incompetent as competent people who are dishonest.

Hence much of the management world operates under the illusion that employees are generally ethical, and that bad apples are not only an exception but also easy to detect. Yet dishonest work behaviors, such as staff abuse, rule bending, and theft cost the economy billions. Take the Enron and WorldCom scandals, which cost the U.S. economy around $40 billion during the first year alone – that’s as much as the federal government spends on homeland security every year.

It is therefore time to admit that some people are more vulnerable to unethical temptations than others, and managers can play an important role in attenuating (or increasing) the rate of unethical incidents in their teams and organizations. Here are six tips drawn from the academic literature on how to manage morally weak employees:

Engage them. Research shows that job satisfaction accounts for some of the effects of moral personality traits on counterproductive work behavior. Even less ethical individuals will be more likely to act morally if they are engaged at work. By the same token, alienating employees may enhance moral disengagement even in those with higher integrity. Give employees meaningful tasks, make them feel valued, treat them like adults, and they will be more compelled to exercise organizational citizenship, no matter how principled they are.

Lead by example. Research shows that leaders’ morality level determines the degree to which employees perceive the organization as ethical or unethical. For managers, the implication is clear: if you want your employees to act morally, start by acting morally yourself. This is particularly important for direct line managers. As meta-analytics studies show, when subordinates trust their supervisors they are happier and more productive at work, so everyone wins.

Pair them with ethical peers. Although we tend to think of peer pressure as a source of antisocial behavior, peers can also inspire ethical conduct. Teaming your less moral employees with colleagues who have strong integrity will motivate them to behave more ethically. Humans learn via observation and imitation, and much of this learning occurs without awareness. Accordingly, recent research suggests that peers play a critical role in determining the moral compass of our workplace.

Invest in moral training. Most people develop their default moral predispositions before they reach adulthood. That said, organizations can influence employees’ ethical choices via explicit educational programs. For example, the Ethics Resource Center reports that businesses that implement formal programs to support ethical choices, such as whistleblowing, decrease counterproductive behaviors and misconduct rates, as well as increasing employee satisfaction.

Reduce their temptation. As Oscar Wilde once said, “anybody can be good in the countryside – there are no temptations there.” Ethical behavior is a function of both people’s personalities and the situations they are in. Everybody has a dark side, but the antisocial aspects of our personalities are much more likely to surface in toxic environments or situations of weak moral pressure. It is hard to change someone’s personality, but managers can do a great deal to affect the environment employees inhabit. Managers can help employees who are less capable of exercising self-control by surveilling and controlling them a bit more.

Create an altruistic culture. Although organizational culture cannot be created overnight, meta-analytic reviews have demonstrated that a caring culture prevents unethical work behaviors, whereas a culture of self-interest promotes them. Clearly, it is not sufficient to include “integrity” as a core organizational value – most companies do that already, alongside “creativity”, “diversity”, and “corporate social responsibility”, but that’s just the stuff they write on their websites. What matters is persuading employees that the organization truly values generous, selfless behaviors.

Of course, at this point you may be wondering: can’t you just avoid hiring dishonest people in the first place? That’s easier said than done. A manager might attempt to suss out an applicant’s morality through careful interview questions or self-report questionnaires. But as a recent review noted, there is “a logical problem with self-assessments of integrity. People who lack integrity specialize in manipulation and deceit, which makes their self-assessment a dubious source of information.” And yet since prevention is clearly the best solution, hiring managers will have to rely on other means: peer evaluations, 360-degree feedbacks, and careful reference checks. Past behavior is the best predictor of future behavior, so capturing reliable data on candidates’ reputation is the best way of evaluating their integrity. Unless we do so, immoral behaviors will remain the “silent killer” of individual careers and organizational effectiveness.