Marina Gorbis's Blog, page 1419

That Mad Men Computer, Explained by HBR in 1969

It’s 1969 on this season’s Mad Men, and a glass-enclosed climate-controlled room is being built to house Sterling Cooper’s first computer — a soon-to-be-iconic IBM System/360 – in the space where the copywriters used to meet.

That same year, in an article entitled “Computer Graphics for Decision Making,” IBM engineer Irvin Miller introduced HBR’s readers to a potent new computing technology that was part of the 360 — the interactive graphical display terminal.

Punch cards and tapes were being replaced by virtual data displays on glass-screened teletypes, but those devices still displayed mainly text. Now the convergence of long-standing cathode-ray-tube and light-pen hardware with software that would accept English language commands was about to create a revolution in data analysis.

Previously, if executives had wanted to investigate, say, the relationship of plant capacity to the cost of production, marginal costs to quantity produced, or marginal revenues to quantities sold, they’d have to fill out a requisition, wait for a data analyst to run a query through the machine, using some computer language like Fortran, and then generate a written report. That could take months.

But interactive graphics offered the possibility of providing realistic answers quickly and directly. As Miller explains: “With such a console in his office, an executive can call for the curves that he needs on the screen; then, by touching the screen with the light pen, he can order the computer to calculate new values and redraw the graphs, which it does almost instantaneously.”

To read Miller’s tutorial is to return to some first principles that may still be worth bearing in mind, even in today’s world of vastly greater amounts of data and computing power (the largest mainframe Miller refers to has a capacity of two megabytes). The first is his almost off-hand initial stipulation that the factors affecting a business that a computer can process are quantitative.

The second is his explanation (or, for us, reminder) of what the computer does when it delivers up the graphs: “To solve business problems requiring executive decisions, one must define the total problem and then assign a mathematical equation to each aspect of the problem. A composite of all equations yields a mathematical model representing the problem confronting the executive.”  Miller suggests, as an example, that a system programmed with data on quantities produced and sold, plant capacity, marginal cost, marginal revenues, total cost, total revenue, price, price for renting, and price for selling could enable businesspeople to make informed decisions about whether to hold inventory; expand plant production; rent, buy, or borrow; increase production; and examine the effects of anomalies on demand or the effects of constraints.

Even in this simple example it’s easy to see how hard it is to “define the total problem” — how, for instance, decisions might be skewed by the absence of, say, information on interest rates (which in 1969 were on the threshold of skyrocketing to epic proportions) or of any data on competitors,  or on substitutes (a concept Michael Porter wouldn’t introduce until 1979).

Miller is hardly oblivious to the dangers (the term “garbage in; garbage out” had been coined in 1963); and in answer to the question of why an executive should rely on the differential calculus and linear programming that underpins the models (interestingly, Miller assumes senior business executives haven’t had calculus), he replies that the point of the equations is only to “anticipate and verify intuitive guesses which are expected to be forthcoming from the businessman” [italics original]. In other words, the mathematics are essentially meant to serve as an amplification of the executive’s judgment, not as a substitute.

Intuition-support is, in fact, the point for Miller. For him, the real benefit of the new technology isn’t just the ability to perform what-if analyses on current data, as powerful as that is, but that executives could do it in the privacy of their own offices, which would afford them the time for the private reflection from which intuition springs. “The executive needs a quiet method whereby he alone can anticipate, develop, and test the consequences of following various of his intuitive hunches before publicly committing himself to a course of action,” Miller says, before he even begins to explain how the technology works.

In this it’s enlightening to revisit Miller’s estimates of how much time the entire process was supposed to take: a few weeks to construct the model, five minutes to conduct each what-if scenario – and then two full hours for the executive to consider the implications of the answers. In this, HBR’s first examination of data visualization, it is in those two hours of solitary quiet time that the real value of interactive computing lies.

Persuading with Data

An HBR Insight Center




How Data Visualization Answered One of Retail’s Most Vexing Questions
The Case for the 5-Second Interactive
Generating Data on What Customers Really Want
10 Kinds of Stories to Tell with Data

Who’s Responsible for the Walmart Mexico Scandal?

The Walmart bribery scandal is one of the most closely-watched cases of alleged malfeasance by  a global company. It broke into the open  in April, 2012, when  the New York Times published a lengthy investigative piece alleging Walmart bribery in a Mexican subsidiary and a cover-up in its Bentonville, Arkansas, global headquarters. The piece, which won a Pulitzer Prize for reporter David Barstow, raised a host of  personal accountability and corporate governance issues for the company.

Late last month, on the second anniversary of the story nearly to the day, Walmart released its first Global Compliance Report (GCR). The report describes the company’s governance response and changed compliance framework — from holding 20 audit committee meetings in 2014, to substantial organizational restructuring, to enhanced education and training.  On paper, Walmart appears to have adopted many best practices and to have set out a sound plan for moving forward. However, questions of accountability remain unanswered, when it comes to determining what actually happened in the past, what systems failed, and who was responsible for possible violations of the Foreign Corrupt Practices Act, which bars bribery of foreign officials.  A lengthy internal inquiry continues, as well as investigations by the Justice Department and the SEC, with the scope broadened to include possible Walmart improprieties in Brazil, China and India.

Finding the answers to these questions is important in two ways. First, the answers will determine whether current and past senior officials are culpable and whether any sanctions (governmental or company imposed) are appropriate. Holding people accountable — especially senior officers — is essential to deterrence inside Walmart (and for other companies, too). The essence of the Times story was the allegation that Walmart Mexico, under the direction of the then country CEO and his General Counsel, bribed officials to get permits and clearances for new stores — and falsified records of these transactions. When a Walmart lawyer in Mexico blew the whistle in 2005, senior officers both in Mexico and in the United States allegedly stopped two different efforts by other Walmart employees at headquarters to conduct a thorough and independent inquiry. The whistleblower charges were sent back to Mexico and buried. Although it must be emphasized that there are no official findings as yet, these senior officers, according to the story, included the then-Walmart CEO and General Counsel in Mexico, the then-CEO, Lee Scott (recently retired as member of  the Walmart board);  the then-head of Walmart international, Mike Duke (who succeeded Scott as CEO, has just retired from that position, and remains on the Walmart board as executive  committee chair), and Thomas Mars, then-General Counsel. Also at issue are what and when management told the board and what processes the board had for oversight.

Second, the reforms outlined in the GCR are hard to evaluate fully unless and until the specific problems that prompted them are laid out in detail. Certainly an important goal for Walmart’s board and current management is to improve the company’s compliance capability. But it is also likely that enhanced compliance  personnel, processes and systems are part of a company effort to respond to problems uncovered in the investigation to improve its position in settlement negotiations with the government. Whether there will be a settlement, what facts Walmart will admit and what precise sanctions and future obligations it will face are not known to outsiders at present.

What is known is that the inquiry is wide-ranging and Walmart has taken it very seriously. Through January, 2014, the company has spent $439 million on the probe, and estimated that it would spend $200-240 million more on investigative and compliance costs this year. It has retained three law firms, one for the audit committee, one to conduct an internal investigation and one to advise on the global compliance review. Moreover, it is paying numerous other firms to represent 30 Walmart employees who have been questioned in the probe, including senior executives from corporate headquarters.

The  Global Compliance Report does respond, in general, to issues raised in the original story. Most substantially:

Walmart has a number of initiatives to combat the culture of silence which allegedly allowed the Mexican scandal to fester for a number of years before corporate leadership was informed. That malign culture, in turn, allowed corporate leadership to ignore the evidence of wrongdoing and keep the board in the dark. Among the most important new initiatives is an escalation and review procedure which aims to ensure that high-risk issues move swiftly to the attention of  the chief ethics office in headquarters, which has a direct link to the Audit Committee. (Think GM and its delays in addressing problems with an ignition switch.)


Walmart has made a number of organizational changes to integrate compliance, legal, risk and finance staffs, both in geographies and in relation to different compliance subjects. This step aims to bring appropriate expertise (e.g. anti-bribery, money laundering, product safety, etc.) to different types of compliance issues in different nations and markets, and to create checks and balances so that key staff functions can be both partners to business leaders as well as guardians of the company, and not be pressured by business leaders to ignore serious issues. In the report’s next iteration, Walmart should, however, explain more clearly how its newly drawn (and perhaps overly complex) matrix organization will actually carry out the fundamental compliance tasks of prevent, detect and respond — how it will map business processes, assess risks under various requirements, prioritize them and then mitigate them.


Walmart has instituted a critical technique for ensuring board and senior management involvement in creating a culture of integrity.  The Audit Committee on behalf of  the  board sets key compliance objectives for the next calendar year. The Committee then assesses whether senior managers have met those objectives. If not, then some or all of that executive’s cash incentive will be withheld by the board’s Compensation Committee. This vital focus on pay for performance with integrity involves the board and senior management in articulation and implementation of  key annual compliance goals,  just like key annual commercial goals.  Here, too, more detail is needed in the next Compliance Report about what the goals actually are (one can infer them from the Report but a clear articulation would be more potent) and what methods were used to measure whether or not the goals were met.

What is missing, in my view, is a powerful statement by the CEO that he is the leader of compliance in Walmart — and a companion, deeply-felt statement by the board that this is a core CEO responsibility. The Report is replete with redrawn organizational boxes and organizational detail. But, an integrity culture is simply not possible without CEO commitment to integrity as a bed-rock company goal, and to driving compliance deep into the organization through personal action and reviews. In both the current Annual Report and Proxy Statement, there are rather pro forma statements, but not a sense of real personal commitment from the CEO (as opposed to the Audit Committee) or the board.  Similarly, the company must make clear the related point that the top operating business leaders are the chief integrity and compliance leaders in their sphere — that they must make this issue a reality by their own personal actions and leadership.

Walmart’s bribery scandal, and the sweep of the current investigation, have made this case a poster-child for the snares of corruption facing global companies, putting it in the same category as the towering bribery scandal faced several years ago by Siemens.   Many boards and CEOs from around the globe cite corruption as one of the top issues they face in current globalization efforts — in this sense, “the whole world is watching” the Walmart case carefully.

With its Global Compliance Report,  Walmart has written an important chapter in this saga. But, until the results of the investigation are made public and the government’s response revealed, the story — both on past accountability and future governance — is far from over.

Build Your Own All-Star Team

Let’s imagine that you have recently assessed your company’s talent, and that you found plenty of high-performing executives and employees. Yet somehow your company’s overall performance isn’t where it should be — all those “A” players just aren’t getting the job done. Why?

The fact is, it isn’t enough just to hire the best. If you want to boost the productivity of your organization’s human capital, you also have to deploy those high performers effectively — put them to work so they can deliver the results they’re capable of. One of the most effective methods of deployment I’ve seen is to create all-star teams. Teams like these are a kind of force multiplier: if you group (say) three individuals from your list of A players into a team, you’ll typically get more than three times the output.

High-performing teams are the secret behind many extraordinary accomplishments. In the 1990s, for instance, then-CEO Mickey Drexler turned Gap around by creating a team of A-list merchants and designers, including luminaries such as Maureen Chiquet, now CEO at Chanel, and Andy Janowski, who later became CEO of Smythson. The team transformed Gap’s products and stores and helped the company grow faster than any other retail brand at the time.

More recently, SpaceX, the rocketry and spacecraft company founded by legendary entrepreneur Elon Musk, developed its Falcon 9 launch vehicle for just over $300 million. A NASA analysis determined that the space agency would have had to spend nearly $1.4 billion to achieve the same result. One big difference according to NASA: SpaceX relied on many fewer people. Its engineers worked long hours, probably longer than their NASA counterparts would have. But even more important was the efficiency and productivity of SpaceX’s top-performing design teams, which developed and launched the rocket for a fraction of what it would have cost NASA.

Many companies fail to take advantage of the force multiplier because their organizational systems get in the way. Here are three tips that may help you get past those internal obstacles:

Rank and reward team performance, not individual performance. Some companies rate individuals against each other and give disproportionate rewards to the top performers. These “stacked ranking” systems may sound appealing, but they work against high-performance teams. When there’s stacked ranking, people who are A players typically decline to collaborate with other top performers, for fear their ranking and incentive compensation will suffer. You’ll escape this trap if you reward team rather than individual results.
Create an inspiring goal. You can’t put your top-performing teams on every job — there aren’t enough A players to go around. So save these teams for the mission-critical tasks, and make sure every member understands the tasks’ importance. Teams of Navy SEALS and the best NASCAR pit crews succeed because every team member is a high performer and because they all know that achieving their goal matters. The teams at Gap and SpaceX were doing jobs that would determine the future of the company. If you want your top performers to work productively together and forget about their sometimes-large egos, you have to inspire them to put the mission first.
Put top leaders in charge of top teams. A 2012 academic study of a large company’s front-line supervisors concluded that, as one summary put it, “The most efficient structure is to assign the best workers to the best bosses.” Great bosses bring out the best in people by getting them to work more effectively. Think of Ford Motor Co. over the past 20 years: until 2006, its finances were shaky, and it was losing about a point of market share every year. Then Alan Mulally became CEO, and only a few years later Ford was making money and gaining share. Yet Mulally’s senior team is mostly the same group of individuals who were there while Ford was struggling. The difference was leadership.

The force multiplier from effective teaming and deployment is powerful: companies that tap into it can expect to improve their human capital productivity significantly. Like Ford, Gap, and SpaceX, they can perform better than anyone could reasonably have expected.

The IT Project That Brought a Bank to Its Knees

Sir Christopher Kelly, a former British senior civil servant, recently produced a damning report, which reviewed the events that led to the £1.5 billion capital shortfall announced by the U.K.’s Co-operative Bank in June 2013. This shortfall resulted in its parent, Co-operative Group, ceding control of the bank to bondholders, including U.S. hedge funds. One section highlights the problems the bank encountered as it attempted to replace its core banking systems, a program that was cancelled in 2013 at a cost of almost £300 million.

“The weight of evidence supports a conclusion that the program was not set up to succeed,” Sir Christopher writes. “It was beset by destabilizing changes to leadership, a lack of appropriate capability, poor coordination, over-complexity, underdeveloped plans in continual flux, and poor budgeting. It is not easy to believe that the program was in a position to deliver successfully.”

The factors contributing to the failure cited in the report are ones that we all too frequently have encountered when we have  reviewed challenged or failed projects. We have developed a simple yet powerful framework that leadership teams can use to navigate the digital landscape and avoid the kinds of problems that Co-operative Bank suffered. It is based on four questions.

1. Are we doing the right things?

This is the strategic question. The CEO’s first accountability is to clearly and regularly communicate what constitutes value for the enterprise and the strategic objectives to which all investments must contribute and against which their performance will be measured. The second is ensuring through the initial investment-selection process and regular portfolio reviews that resources are allocated to investments that are both aligned with and have the greatest potential to contribute to the strategic objectives.

While the strategic rationale for the Co-operative Bank’s investment was not in question, the Kelly report notes that the bank’s leadership “was over-estimating its capability to deliver such a complex program.” For one thing, an investment of such complexity and risk had not been successfully undertaken by any U.K. full-service bank and, with limited exceptions, major banks in Europe and North America. Evaluating such risks is a key consideration in assessing any IT investment, especially one that is part of a major transformation. Two key questions are: Do we understand the extent of change required for this investment to succeed? And is this level of change achievable?

2. Are we doing them the right way?

This is the architecture question. Because this question is usually thought of as relating to technical architecture, it is generally considered by CEOs as a technical issue and the domain of the CIO. Nothing could be further from the truth. What we are advocating here is a broader view of architecture − enterprise architecture − that has both organizational and technological components. The CEO is accountable for ensuring that there is an overall enterprise architecture.

Since the Kelly report doesn’t consider this issue, we cannot comment specifically about whether the bank’s leadership gave adequate consideration to the standardization of processes and the degree of integration across all businesses. However, the observations in the report suggest that if such consideration had been given, it may have raised a number of flags.

3. Are we getting them done well?

This is the delivery question. Although this is the area where there is a significant body of knowledge, it is the one where the failure of governance continues to result in significant and very visible failures. We continually find that most major transformation initiatives end up being managed as IT projects, with responsibility abdicated to the CIO.

This is clearly where the Co-operative Bank’s program floundered. As the Kelly report states, “the Bank neither had the requisite levels of discipline before the program began, nor built it during the program.” Communication and coordination between different parts of the business involved in the program were weak. Dysfunctional and unconstructive working relationships across these areas did not help matters. There was also a lack of clarity about responsibilities for deliverables: People interviewed for the the report described “managers managing managers, managing managers.” A board subcommittee was supposed to provide closer oversight of the transformation program, but Sir Christopher says the figures were neither analyzed in sufficient detail nor with sufficient consistency to give it insight into key drivers of cost escalations. The message consistently given to the sub-committee by the program’s managers was the initiative was making satisfactory progress even when this was not the case.

4. Are we getting the benefits?

This is the value question. Surprisingly, this is the question that receives the least attention in most enterprises: Few measure or assess whether expected benefits have been delivered. This question also cannot be delegated to the CIO. In ensuring that expected benefits are realized and sustained, the CEO must be the person accountable for maximizing value from the portfolio of business-change investments. The Kelly report notes that there was a failure to develop a detailed business case and a complete lack of consistency about the expected benefits across the program.

Addressing these four basic questions is not just something to be done on a one-time basis to secure funding for any proposed investment. They must all be considered both individually and collectively on an ongoing basis to ensure that value is realized from investments in IT-enabled change. CEOs and boards may balk at this, but they need to recognize that IT is increasingly embedded in all aspects of their business, and creating and sustaining value from the change that IT both shapes and enables falls within their realm of accountabilities. The consequences of failing to do so are starkly illustrated by the Co-operative Bank’s crisis.

Alibaba Looks More Like GE than Google

Alibaba, the Chinese internet titan that filed for an IPO in the U.S. last week, could be the largest tech IPO in history. But Alibaba doesn’t look much like Facebook, Google, or even Amazon. Instead, it operates more like GE.

Spanning e-commerce, payments, messaging, business software, entertainment, and more, Alibaba looks a lot like a conglomerate. And it sets strategy like one, according to a Harvard Business School case study by professor Julie Wulf. Competition trumps cooperation, and distributed decision-making by individual business units trumps universal strategy.

With its success, Alibaba and its founder Jack Ma are making the case for a strategy approach that has fallen out of favor in the U.S. As the 2010 case describes:

By his own admission, Ma was a fan of Jack Welch, so it was only natural that his organization came to resemble that of GE in some regards. Just as Welch did not dictate an overall theme or strategy for GE, Ma preferred not to set one agenda from Alibaba’s corporate center, but rather to have each subsidiary set its own strategy. Much like Welch’s famed “#1 or #2” objective for each of this businesses, Alibaba’s governance inspired its subsidiaries to be the leaders of their respective industries. Ma explained, “Business unit presidents must have the freedom to do what is right for their business. I want business units to compete with each other…and focus on being the best in their businesses.

While conglomerates are few and far between in the West, their success in China is no surprise. As a 2013 HBR article explained, “Conglomerates may be regarded as dinosaurs in the developed world, but in emerging markets, diversified business groups continue to thrive.”

The article, by J. Ramachandran, K.S. Manikandan, and Anirvan Pant of the Indian Institute of Management at Bangalore, Tiruchirappalli, and Calcutta, respectively, also offers a concise history of the rise and fall of Western conglomerates:

Conglomerates were all the rage in the United States and Europe for decades, but hardly two dozen of them survive there today. By the early 1980s, they had been laid low by their poor performance, which led to the idea that focused enterprises were better at creating shareholder value than diversified companies were. Most conglomerates shrank into smaller, more specialized entities.

The heart of modern strategy is the alignment of complementary activities. If activities are complementary, they should be combined as divisions of the same firm, the thinking goes. If they are not complementary, part of the firm should be sold. Conglomerates resist this approach, combining more diverse businesses and allowing them separate decision-making structures. Investors are wary of this approach. As the article authors write, “On Wall Street the typical conglomerate discount ranges from 6% to 12%.”

Alibaba’s businesses are not completely diverse, of course. There is a central theme behind them all, and it is the rise of internet usage in China.

What stands out in the Alibaba case isn’t a total rejection of complementarity, but an approach to strategy that mirrors that of conglomerates. Rather than dictating decisions from the top down, Alibaba lets them roll up from the individual businesses. “When internal competitive conflicts arose among Alibaba’s businesses, the firm’s culture tended to favor individual subsidiaries over the group,” according to the case. “Ma constantly made subsidiary heads aware they had the freedom to do what was right for their businesses.”

Like conglomerates, Alibaba’s businesses have separate boards, and even separate technology teams and platforms. The exhibit below, from the 2013 HBR piece, describes how Alibaba and firms like it handle strategy, in light of such a distributed approach: with a “group center.”

A “group center” is a group of executives in a conglomerate tasked with long term strategy, locating cross-business opportunities, and shaping the firm’s identity and values. Sure enough, this resembles how Alibaba is organized. One-hundred and twenty executives from its subsidiaries and C-suite form what is known as the “Group Organization,” a leadership team that meets annually to set long-term strategy and to consider “complementary organizational changes.”

Some group centers emphasize strategy work over identity or vice versa, but the authors suggest that the most successful ones balance the two.

This group-led approach to conglomerate strategy offers key advantages, the authors argue, in balancing the search for cross-business opportunity with a more flexible structure for day-to-day management solutions. They write:

In a sense, the business group liberates strategy from structure. Though structure is supposed to follow strategy, the former’s limitations seem to have decided strategy until now. Too often the need to pass up opportunities in order to satisfy shareholders’ expectations has inhibited companies’ growth. A business group, particularly one led by a dynamic group center, enables the pursuit of shareholder value at the affiliate level as well as strategic value at the group level. That makes the business group a winning organizational structure even if it isn’t popular in North America — yet.

While conglomerates may not be about to catch on in the U.S., there are signs that their bottom-up approach to strategy might be making a comeback. Facebook is unbundling its services, giving up on offering a single, comprehensive online offering and instead offering a series of separate apps. At some point, the company will have to decide whether the strategy flows up from those divisions, or flows down from the top — and what to do when two groups’ interests conflict.

The justification for the move, according to CEO Mark Zuckerberg, is the “premium on creating single-purpose, first-class experiences.” Jack Ma would no doubt agree.

Decisions Don’t Start with Data

I recently worked with an executive keen to persuade his colleagues that their company should drop a long-time vendor in favor of a new one. He knew that members of the executive team opposed the idea (in part because of their well-established relationships with the vendor) but he didn’t want to confront them directly, so he put together a PowerPoint presentation full of stats and charts showing the cost savings that might be achieved by the change.

He hoped the data would speak for itself.

But it didn’t.

The team stopped listening about a third of the way through the presentation. Why? It was good data. The executive was right. But, even in business meetings, numbers don’t ever speak for themselves.

To influence human decision making, you have to get to the place where decisions are really made — in the unconscious mind, where emotions rule, and data is mostly absent. Yes, even the most savvy executives begin to make choices this way. They get an intent, or a desire, or a want in their unconscious minds, then decide to pursue it and act on that decision. Only after that do they become consciously aware of what they’ve decided and start to justify it with rational argument. In fact, recent research from Carnegie-Mellon University indicates that our unconscious minds actually make better decisions when left alone to deal with complex issues.

Data is helpful as supporting material, of course. But, because it spurs thinking in the conscious mind, it must be used with care. Effective persuasion starts not with numbers, but with stories that have emotional power because that’s the best way to tap into unconscious decision making. We decide to invest in a new company or business line not because the financial model shows it will succeed but because we’re drawn to the story told by the people pitching it. We buy goods and services because we believe the stories marketers build around them:  “A diamond is forever” (De Beers), “Real Beauty” (Dove), “Think different” (Apple), “Just do it” (Nike). We take jobs not only for the pay and benefits but also for the self-advancement story we’re told, and tell ourselves, about working at the new place.

Sometimes we describe this as having a good “gut feeling.” What that really means is that we’ve already unconsciously decided to go forward, based on desire, and our conscious mind is seeking some rationale for that otherwise invisible decision.

I advised the executive to scrap his PowerPoint and tell a story about the opportunities for future growth with the new vendor, reframing and trumping the loyalty story the opposition camp was going to tell. And so, in his next attempt, rather than just presenting data, he told his colleagues that they should all be striving toward a new vision for the company, no longer held back by a tether to the past. He began with an alluring description of the future state — improved margins, a cooler, higher-tech product line, and excited customers — then asked his audience to move forward with him to reach that goal. It was a quest story, and it worked.

Good stories — with a few key facts woven in — are what attach emotions to your argument, prompt people into unconscious decision making, and ultimately move them to action.

Persuading with Data

An HBR Insight Center




How Data Visualization Answered One of Retail’s Most Vexing Questions
The Case for the 5-Second Interactive
Generating Data on What Customers Really Want
10 Kinds of Stories to Tell with Data

How to Deal with a Slacker Coworker

No one likes picking up someone else’s slack. But when a colleague leaves early, misses deadlines, and doesn’t give 100% to a project, it can be difficult to determine the best course of action. Should you confront them about their behavior? Speak to your boss? Or mind your own business?

What the experts say

We’ve all worked with someone who doesn’t pull his own weight — a colleague who checks Facebook all day, takes two-hour lunch breaks, and never meets a deadline. But as irritating as it can be, you shouldn’t become the behavior police unless their slacking is materially affecting your work. “You don’t want to have the reputation of an oversensitive alarm detector,” says Allan R. Cohen, a professor of management at Babson College and author of Influence Without Authority. Susan David, the founder of the Harvard/McLean Institute of Coaching, agrees: “If your slacking coworker isn’t impacting your ability to do your job or your ability to advance in the organization, move on and focus on your own work.” But if your job is suffering because of your colleague’s behavior, it’s time to act. Here’s how to handle this tricky situation.

Put yourself in their shoes

Dealing with a colleague who isn’t giving his all can be frustrating, but don’t presume to know the root causes of his behavior — slacking doesn’t always indicate laziness. “It may be an issue at home,” says Cohen. Or it could stem from difficulties at work. Perhaps the person is struggling to understand a new assignment or to learn a new skill set. “Context matters,” says Cohen. “You don’t want to make assumptions about the other person’s motivations.” He advises doing some “exploration and inquiry” before making any moves. And that includes some introspection. But don’t spend too much time debating whether to approach them. If you wait until you’re fed up with their behavior, you’re more likely to lose your temper and look unprofessional.

Choose conversation over confrontation

If your work is affected by your colleague’s behavior, it’s time to speak up. But don’t ambush him or adopt an accusatory tone. “Approach the conversation with curiosity and compassion,” says David. “You want to show that you’re genuinely trying to solve the problem, rather than punish or make a point.” Ask how things have been going. Say, “I’ve noticed that you seem to be less engaged with this project than you used to be. Are there ways that I could help?”

Stick to the facts

Bring specific examples of the offending behavior to the conversation, and clearly explain the impact it’s had on you and other colleagues. “You want the discussion to be, ‘Here’s what happened and here’s the difference it made,’” says Cohen. For example, tell the person that her missed deadline jeopardized a client’s deal, or that her early departures required you to stay late. But keep the dialogue positive and forward-looking. Cohen suggests role-playing the conversation with someone first to get the words and tone right.

Be flexible

You may have your own idea of how best to fix the problem — but don’t get fixated on any pre-set solutions. “What is helpful is to explore different options with the individual,” says David. You should also resist the temptation to think about the situation as black-or white:  you’re right and the other person is wrong. “Thinking someone is wrong is actually very depleting to us as individuals,” says David. It takes up energy, and “prevents our ability to solve anything.”

Give them a second chance

If one conversation doesn’t do the trick, try again. It may be that you weren’t direct or specific enough the first time. “You want to be able to come back to the person and say, ‘We talked about this, here’s what you said you would do, and here’s what hasn’t happened,’” says Cohen. “There might be a couple rounds of that.” If the behavior persists and it continues to negatively affect your work, it’s time to take the issue to your boss. But give your colleague a heads-up, Cohen says, both out of professional courtesy and as a further spur to change his behavior. “I believe in advance warning,” he says.

Tread carefully with your manager

Approach the boss in the same way you did the slacking colleague: with empathy, an open mind, and specific examples. If you handle the situation with grace, your manager will be impressed. If you don’t, you “start to be the person who is toxic, and who doesn’t have the emotional agility to move on,” says David. So make sure you come across as flexible and willing to help solve the problem.

Principles to remember

Do:

Keep an open mind — your colleague might have unseen reasons for slacking


Address the issue with your colleague before talking to your boss


Use specific examples to show how the behavior is affecting everyone’s work

Don’t:

Get caught up in the issue — if it’s not affecting your productivity, it’s not your problem to fix


Tell your boss without giving your colleague more than one chance to improve


Use an accusatory tone — approach the conversation with curiosity

Case Study #1: Take a friendly approach

When copywriter Katherine Childs* joined a Midwestern advertising agency, she quickly realized that Kevin* was pegged as the office slacker. The young art director took longer than others to complete assignments, turned in work using outdated software, and let his skills fall behind those of his colleagues.

Katherine, whose role included managing project workflow, saw how Kevin’s work habits hurt the entire creative team. “He was slowing down my production line,” she says. “I needed to have a certain amount of work out the door each day, but it took the team three times longer to process his files.” Though the problem had persisted for months, no one had approached Kevin about improving his workflow. “It was the elephant in the room,” Katherine says. “There was a lot of resentment, but no one was demanding he get his skills up to snuff.”

Katherine decided to talk to Kevin. She learned that he often took longer on projects not out of laziness, but because of the way he conducted research. It was clear “he wanted to be great at his job,” she says. He’d also clashed with a former boss at the agency, and cocooned himself as a result, making it easier to ignore the frustrations building around him.

Sensing Kevin would rise to the challenge, Katherine arranged for him to be given more assignments. She also quietly arranged for colleagues to train him in the skills he was missing. When broaching the subject with Kevin, she emphasized how the added effort would help him build his portfolio — and he eagerly agreed. “You often need to present such things in a way that benefits them,” she says.

In short order, Kevin was meeting deadlines and taking on more work. His colleagues noticed, and his slacker reputation was forgotten. “Once someone makes an effort — and you can see they are making an effort,” people change their perceptions, Katherine says.

Case study #2: Work around them if necessary

When Mark Berlin* was tapped to build a new direct-sales division at a major insurance company, he had to overcome a number of challenges. Chief among them was the fact that his colleague Dennis*, the head of the phone sales department, resisted doing the extra work that changing the status quo required.

Mark approached Dennis about the problem, pitching it as an opportunity to make both of their processes more efficient. “I suggested we each learn more about each other’s part of the sales funnel,” he says, but the effort went nowhere. He tried again, telling Dennis that he was hurting other teams down the line. “I tried to suggest very limited, very doable, low-hanging fruit kind of things” that could be accomplished together and build trust, says Mark. But Dennis and his team continued to be a drag on the entire division.

Ultimately, Mark had to “completely reengineer” his process to compensate for Dennis’s inefficiencies. But his efforts didn’t go unnoticed: The VP of the group “knew how hard it was to work with Dennis and appreciated what we were doing,” Mark says.

Mark’s takeaway from the experience? “Stop focusing on the slacker and start focusing on what needs to be accomplished.” There’s no right way for dealing with a colleague who isn’t giving 100 percent — “you can marginalize them, incorporate them, redirect them, or even remove them,” Mark says. But at the end of the day, “you need to know what you’re trying to get done and focus on that, not on the person.”

*Not their real names

When to Pass on a Great Business Opportunity

Imagine you are the CEO of one of Britain’s oldest and possibly least innovative insurance companies, The Prudential. One of your better managers comes to you with the idea of setting up an internet bank. Or you are a supervisory board member of Mannesmann, a solid German engineering company, and your executive team suggests that the company bid for a mobile telephone license. Do you invest in the exciting new opportunity even though it does not fit with your existing strategy?

It depends on whom you ask.

Some experts will say that you should invest in a portfolio of new ventures as part of what McKinsey calls the “third horizon.” Using this logic, both Prudential and Mannesmann should have a go.

Other experts will argue the opposite: “stick to your existing strategy,” “don’t let yourself be distracted,” and “beware of becoming over-diversified.”

Who’s right? After more than 30 years working on corporate-level strategy issues as an academic, and advising companies as a consultant, I have learned to avoid coming down firmly on one side or the other.

In my new book, Strategy at the Corporate Level, my co-authors and I describe three logics for making these decisions: business logic, added-value logic, and capital markets logic. The latter is only relevant in the case of acquisitions or divestments. Since both of the opportunities described above are about organic growth, we can start by applying the first two logics to help leaders decide what to do.

The first logic speaks to a basic truth: companies should seek to invest in attractive businesses. An attractive business is one in a high-margin industry that is growing. In addition, the business must have or be able to create a competitive advantage. For the Pru, internet banking proved not to be a high margin industry and although it did successfully launch an internet bank, it has not had a good return on its investment. The CEO should, therefore, have been wary about this opportunity.

Owning a mobile telephone license in German, on the other hand, was likely to be a high-margin business, and, since there were few licenses for sale, the owners of a license would have a competitive advantage. Hence, the supervisory board members should have been keen to hear more about this opportunity.

Let’s look at the second logic. It makes sense for a company to own a new business if it can create more value from owning the business than other parent companies. If not, it is likely to be outcompeted by the other companies. So how does a company create more value from owning a business than others? Sometimes the parent company has some special wisdom to bring to the table or some special assets to contribute. Sometimes, the new business adds some special value to other businesses that the parent company already owns.

Unfortunately, in the cases of Mannesmann and The Prudential, neither condition appeared to exist: both new investment projects would have failed the test of the second logic.

Putting the two logics together suggests that The Prudential should have outright rejected the proposal to create Egg, the company’s internet bank, while Mannesmann should only have invested in a mobile telephone license if it anticipated changing its strategy so that it would be able to create extra value from the new business (by for example, becoming an international telecoms company) or if it anticipated selling the license after a year or two to an international telecom company (the strategy it chose).

Since this last thought involves a possible sale of a business, we need to engage the third logic, which is about the likely state of the capital markets at the time a transaction might be needed. Are the markets likely to over or under value the asset being sold?  It would be reasonable for Mannesmann to expect that one of only a few mobile telephone licenses in Germany would, when the industry consolidated, attract more than a few eager bidders. So over-valuation would be more probable than under-valuation: as a potential seller of a license, Mannesman would gain.

Let’s try the three-logic analysis on an up-to-date case: whether Apple should get into the drone business. Since Microsoft and Google are buying drone businesses, I can imagine that a manager at Apple might suggest to Tim Cook that he do the same.

Is the manufacturing of drones likely to be a high margin business?  Since this is a high-tech product, and there are likely to be many different segments, the answer is probably yes.

Is an Apple drone business likely to have a competitive advantage? This would depend on the specific proposal. But, although those proposing the investment will believe that they have something unique, given the range of competitors, the probability that Apple’s business will end up with an advantage is low; Cook should be wary.

Is Apple likely to create more value from owning a drone business than other companies? It’s unlikely. Even if it is possible to create exciting apps linked to drones, it is not obvious that Apple needs to make the drones to get the synergies. Other aspects of Apple’s way of managing are unlikely to constitute “wisdom” that would be of great value to a drone business. So, added value is not likely to be high and subtracted value is possible: Cook should be even more suspicious.

Finally, is the market for drone businesses over or under-valued? Given the amount of activity recently, and the rich companies that have been buying drone assets, it is likely that drone businesses are over-valued. Even capital markets logic is against this proposal. With all three logics giving red or amber signals, Cook should say no to buying into a drone business.

The three logics will often caution a management team against a new opportunity that does not fit the company’s existing strategy.  But, as the Mannesmann example shows, they do not rule out all such investments.  Of course, if the company does decide to go ahead, they face the challenge to decide how to structure and manage the new unit.

When Innovation Is Strategy

An HBR Insight Center




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How College Experiences Shape Adult Lives, According to Gallup

High levels of well-being and engagement with work in adulthood are linked to 6 experiences in college, according to Gallup: having at least one professor who generated excitement about learning; feeling that professors cared about students as people; being encouraged by a mentor to pursue goals and dreams; working on a project that took a semester or longer to complete; having an internship or job that allowed for the application of ideas learned in the classroom; and being extremely active in extracurricular activities and organizations. Although few people report having had all six experiences, those who had the first three are 2.3 times more likely to be engaged at work and 1.9 times more likely to experience high well-being.

Beijing’s Rules for State Capitalism Are Changing

When Shanghai Chaori Solar Energy, a Chinese solar cell-maker and power-generator, missed an interest payment on its bonds in February 2014, the Chinese government didn’t intervene. As a result, Shanghai Chaori became the first Chinese company to default on servicing its debt — since 1997.

That immediately led to conjecture worldwide that China’s “Lehman Brothers moment” had arrived. In the aftermath of the Shanghai Chaori debacle, experts feared, more defaults would occur and China’s financial markets and stock markets would crash, triggering off an economic crisis — as happened in the U.S. in 2008 after Lehman Brothers went under. Nothing of the sort happened, of course.

A month later, in March 2014, when building materials company Xuzhou Zhongsen Tonghao New Board missed a coupon payment on bonds it had issued last year, the China Securities Regulatory Commission stated that “the market” would handle the problem. Sino-Capital Guaranty Trust, the bond guarantor, eventually paid investors, but Xuzhou Zhongsen became the second Chinese company to default in recent times, again sparking off speculation that China’s moment of reckoning had arrived. But it hasn’t.

In fact, the Lehman Brothers collapse is the wrong analogy to use. China has actually reached its “Dubai moments,” when the line between commercial loans and government debt must be publicly redrawn. That happened in Dubai in late 2008, when housing sales fell dramatically and real estate companies, some of them state-backed, were unable to service debt. Housing prices fell by around 60% over the next two years, and many developers went broke.

Dubai’s growth had been masterminded by its government, with state-owned banks and real estate companies shouldering most of the risk for projects that would not have been normally approved. Deal terms were often altered, so that private companies and banks would be willing to invest heavily in big projects. As a result, Dubai became one of the world’s financial capitals in 10 years’ time.

One of the problems with a state-sponsored development strategy is that it creates the widespread belief that commercial projects enjoy sovereign guarantees. That is, investors assume that if things go wrong with projects, the country’s leaders will help them by getting state-owned companies, banks, and local governments to support them. In the case of Dubai, the assumption was that oil-rich Abu Dhabi would step in if there ever was a major problem.

When Dubai’s real estate companies started collapsing, investors looked to Abu Dhabi, but the response from down the road was chilling: These were commercial loans, pointed out the Abu Dhabi government, and not guaranteed by the state. Over the next years, Abu Dhabi provided some support, but those holding commercial debt had to take significant write-downs. Real estate companies folded, investors incurred losses, and the line between commercial loans and government debt in the UAE was redrawn.

Abu Dhabi’s response at that juncture sounds pretty similar to recent statements from the China Securities Regulatory Committee in response to the two Chinese companies’ defaults. It stated that the situation “would be handled by market rules,” and in a post on Weibo, pointed out that it had “required the bond issuer, broker, and insurer to fulfill their responsibilities to investors.” Business in China is quickly realizing that the rules have been redefined, and that implicit government guarantees on commercial projects no longer exist.

Clearly, China is having its “Dubai moments.” Xuzhou Zhongsen has realized that there will be no government rescue forthcoming. Sino-Capital Guaranty Trust is confronting the reality that insuring commercial bonds is not a risk-free business. The banks have woken up to the fact that they could be stuck with non-performing liabilities. And investors are realizing there is no government guarantee on investments in China, even those associated with the state-owned banks.

What does that imply for China and the world?

One, we are, once again, witnessing the renegotiation of the rules of state capitalism in China. The relationship between the state and business, which is understood implicitly and usually not documented, is being clarified publicly. In China, that’s a pretty normal process.

Two, that process shouldn’t be equated with instability. There will be a knee-jerk tendency to link Chinese companies’ commercial problems with the financial system’s stability. However, the latter relates more to debt and cash levels, not defaults.

Three, investors would do well not to hold bank equity in China, but they shouldn’t worry about bankruptcy either. Many banks remain profitable although several smaller banks will likely need to recapitalize themselves at some point.

Four, concerns should rise about the fate of Chinese private companies, particularly those in real estate, solar, steel, cement, and manufacturing. Not only are many small groups vulnerable to downturns in the real estate market, but also, they operate on the periphery of the relationship between the state and business. When those lines shift, they could go under.

Five, don’t worry much about real estate projects in China. Even if a developer goes bust, it will be left with some construction commitments, and most projects will be put on hold or snapped up by larger players. In Dubai, five years after, the real estate market is growing so rapidly that it is generating concerns that it is over-heating.

Above all, remember that these defaults have not changed the fundamentals, which are still about manufacturing, consumer demand, and rapid urbanization in China.