Marina Gorbis's Blog, page 1420

The Persuasive Pressure of Peer Rankings

Introducing a new product is essentially an exercise in persuading people to change their behavior. Many companies try to tackle this challenge by making the functional benefits of the new seem so much more compelling than the old. But this approach rarely works. After all, how many of us as children enjoyed eating our vegetables just because our moms said they were better for us than desert?

But how much quicker would your attitude have adjusted if your best friend had dared you to eat them? Or if eating broccoli had suddenly become the newest craze in your fifth-grade class?

A new form of social data that harnesses the power of peer pressure is emerging as a potentially powerful way to change behavior and spur the growth of new categories of products. It works because peer pressure data goes beyond demonstrating the functions of a product to satisfy deeply powerful emotional or social needs we may not even realize we have.

Many people are aware by now, for instance, that utility companies across the U.S. have been taking advantage of peer pressure to reduce energy consumption by including charts in electricity bills showing how energy efficient you are compared to your neighbors. Companies such as Opower and My Energy have developed these data systems, and they can now point to studies that show the combination of data and social pressure reduces home energy use.

Presented in the right way, peer data can also be effective in changing consumer financial habits, such as encouraging a higher savings rate. The ING division of CapitalOne has one such application, called CompareMe, that promises to increase retirement savings rates by drawing on survey data to compare your rate to that of people with similar incomes, and to the average in your state. Putnam Investments has developed a “How Do I Compare?” feature for its 401K clients. Academic studies are showing that the peer effect works in motivating people to save more.

And consider what happened the first time consumers who’d bought a FitBit to track how much they exercised and slept saw the “Friends” tab on their app. Suddenly, users were invited to take part in a friendly competition to rank themselves against their friends and colleagues in weekly step counts. Here’s what you might see on (what you’d hope is) a typical week:

Competing wearables offer a variety of peer data, differentiating themselves from the mechanical activity trackers and pedometers that have long been on the market. Taken together, the power of all that peer data has helped transform a small, sleepy category into a hot product segment. Forecasts are calling for annual sales of activity trackers to balloon to more than 45 million by 2017. And this figure is almost certainly too low, considering that Apple is expected to include fitness tracking in its iWatch this fall, and some forecasters are predicting that Apple will sell more than 60 million units in the first year.

In our experience, when evaluating whether peer data can be harnessed to change the behavior of your customers, you would do well to apply these three lessons:

Know what behavior you want to change. This sounds straightforward, and in a company with a clear strategy it is. Walgreens, for instance, which has widened its mission from operating pharmacies to improving people’s overall wellness, would naturally want people to get more exercise and live healthier. So employing peer data to encourage consumers to get more exercise would certainly be desirable.

The next step, though, is not as straightforward, even in this simple case.

Identify all the compelling functional, social and emotional jobs that might motivate someone to alter that behavior. The best way to find those unmet jobs is to spend time observing current habits of consumers. Walgreens, for instance, knows that its customers are motivated by discounts (which is why it has its Balance Rewards program, which trades discounts for loyalty). So last year, it created the Steps program, which lets FitBit and Up users synch their devices to the Walgreens app, offering 20 rewards points for every mile walked (250 miles earns a $5 discount). To harness peer data, the apps let you invite Steps members that you know into your league via Twitter and Facebook.

In selecting which data to socialize, strike a balance between people’s need for privacy and their desire to share things in public. This is a tricky line to walk. Walgreens customers can share their step counts, but not their calorie counts. Sometimes the best approach is to make all the data anonymous (as the energy companies do). Other times, it might be more effective to give people control over what they share, as FitBit does (if you don’t want to share, you just don’t turn the feature on).

If this seems obvious, consider this cautionary tale: A school in Massachusetts posted student test scores, together with the first and last names of the kids who earned those scores, as a way to harness peer pressure. The idea was to encourage those at the low end to work harder. Sadly, this was a dubious premise that had not been previously tested. Even worse, the school posted all this information without even telling people they were going to do it, let alone giving them the option of not associating names with data. Not surprisingly, complaints ensued, no one was motivated to work harder, and the project was mercifully abandoned. Meanwhile, the Walgreens Steps program has been wildly successful, with 1.3 million people signing up so far, despite little advertising for it.

Finally, make the data actionable. Suppose you know, for instance, that your neighbors are using far less electricity than you are. Even if that spurs you to want to conserve, you’d still need to know how to do it. As you motivate people, you must also consider how you will follow through with steps to improve, or help their friends reach their level. Walgreens made sure that as part of its Steps program, the app and website would suggest additional ways to stay well (including suggestions of products and services that could help).

Soon just presenting peer data will no longer be enough. The social network Fitocracy goes further, assigning a human coach who creates a tailored exercise and diet program for you, then measures your headway toward your goals while also comparing your progress to your friends’. Given how new such programs are, it seems likely that innovative firms will find opportunity in devising ways to apply the power of positive peer pressure to behaviors we haven’t thought of yet.

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

With Flextime, Bosses Prefer Early Birds to Night Owls

Flextime programs have never been more popular than they are today. Google allows many employees to set their own hours. At Microsoft, many employees can choose when to start their day, as long as it’s between 9am and 11am. At the “Big Four” auditing firm KPMG, some 70 percent of employees work flexible hours.

Employees love these programs because they help them avoid compromises between home and at work. Yes, there are often boundaries within which a work day must begin and end, and at least some chunk of core hours that remain common across employees. But within those constraints, workers can schedule their office hours around the various other demands on their time, giving them greater control over their lives and allowing them to accomplish more. And because employees love the programs, companies have learned to love them, too. Research shows that in general, flexible work practices lead to increased productivity, higher job satisfaction, and decreased turnover intentions.

Yet the question lingers of whether employees who take advantage of flexible work policies incur career penalties for doing so. As noted in a recent paper by Lisa Leslie and colleagues, the evidence is mixed.  Their research explored a potential reason for the widely varying outcomes: managers might look upon flextime favorably when they perceive a worker is using it to achieve higher productivity, and unfavorably when they perceive it being used to accommodate personal-life demands.  Leslie et al. make the case that depending on what the manager attributes the flextime use to, the employee may be either rewarded or penalized.

We looked at another possible explanation for why some flextime-using employees and not others would experience negative career outcomes. Perhaps, we hypothesized, it matters in which direction an employee shifts hours. People seem to have a tendency to celebrate early-risers. Witness the enduring popularity of aphorisms like Ben Franklin’s  “early to bed, early to rise, makes a man healthy, wealthy, and wise” or, in China, “a day’s planning should be done in the morning.” In the eyes of managers with power over careers, are employees who choose later start times stereotyped as less conscientious, and given poorer performance evaluations on average? Do the “larks” on a team hold a hidden edge over the “owls”?

We began our research by testing whether such a stereotype actually exists. We designed a laboratory experiment to discover the degree to which people made a natural implicit (that is, nonconscious) connection between words associated with morning (such as “sunrise”) or evening (such as “sunset”) and words associated with conscientiousness (such as “industriousness”). Across 120 participants, we found that on average people do make a greater natural implicit association between morning and conscientiousness.

With the general stereotype established, we went on to explore its impact in actual work settings, and on ratings provided by real supervisors.  The field study we conducted tested the hypothesis that supervisor ratings of conscientiousness and performance would be associated with the timing of an employee’s work day. The hypothesis was supported. Across 149 employee-supervisor dyads, even after statistically controlling for total work hours, employees who started work earlier in the day were rated by their supervisors as more conscientious, and thus received higher performance ratings.

We conducted another laboratory experiment to test the same hypotheses in a more tightly controlled setting. We put participants in the role of being a supervisor, and asked them to rate the performance of a fictitious employee. We gave a performance profile to the supervisors, which was constant across everyone. However, in the “morning” condition we indicated that the fictional employee tended to work from 7am to 3pm, and in the “evening” condition we indicated that the fictional employee tended to work from 11am to 7pm. Everything else about the fictional employee and performance profile was identical across the conditions. Across 141 participants, we found that the research participants gave higher ratings of conscientiousness and performance to the 7am-3pm employees than to the 11am-7pm employees.

Thus, in three separate studies, we found evidence of a natural stereotype at work: Compared to people who choose to work earlier in the day, people who choose to work later in the day are implicitly assumed to be less conscientious and less effective in their jobs. But an additional finding must also be noted. In both the field study and the lab experiment, the effects were strongest for employees who had supervisors who were larks, and disappeared for employees who had supervisors who were night owls. (For those interested in further detail on the studies, our formal paper will be published later this year in the Journal of Applied Psychology.)

Of course, the implications of this research are not pretty. It seems likely that some employees are experiencing a decrement in their performance ratings that is not based on anything having to do with their actual performance. Organizations may be inadvertently punishing the employees who use flextime to start and finish working later in the day. And as accumulated poor performance ratings have detrimental effects on career advancement, this could partly explain why we often see flextime utilization having negative effects on employee careers.

The important implication is that senior managers must intervene in some way to keep supervisors from essentially punishing employees for using the very flextime policies their organizations endorse. Rather, they should be doing the opposite; if they encourage the use of flextime, they will produce the benefits noted by previous research. As with other areas of unintentional but proven bias, the advice is to increase managers’ awareness of their tendency to stereotype and why it is invalid. They must be continually reminded to recognize their cognitive tendencies and adjust for them.  Managers must be especially diligent in rating the performance of employees based on objective standards, and not allowing implicit prejudices – such as their morning bias – to color their assessments.

Meanwhile, what is the individual employee to do? One message workers could take from this research is that, if they have the opportunity to use flextime, they might be better served by using it to move their schedules early in the day rather than later in the day. However, we would hesitate to recommend this, since a trend in that direction can only heighten the penalties for their colleagues whose lives outside work make the earlier hours difficult. More productively, they can raise the subject of hours and timing with their supervisors, and help make explicit the understanding that start time is immaterial.

One way or another, team leaders must come to accept that the people who use flextime to start their day late are not necessarily lazier than their early-bird colleagues. Otherwise, flextime policies that could serve both employees and employers well will become known, and avoided, as routes to dead-end careers.

Is It Better to Be Strategic or Opportunistic?

I spoke with contributor Don Sull, who teaches strategy at MIT and the London Business School, about the tension between scholars who put sustainable competitive advantage at the center of strategy and those who argue that some industries are changing too quickly to allow for sustained performance. Here’s our edited conversation:

Who’s right — the “sustainable advantage” traditionalists or the “transient advantage” challengers?

They both have something useful to say. Let’s borrow some language from political philosophy and think in terms of thesis, antithesis, and synthesis.

Okay – what’s the thesis?     

Start with Michael Porter. His most brilliant insight was that companies compete on a bundle of connected, mutually reinforcing activities and resources. That bundle allows the company to create value in a way that can’t be imitated. (Ikea, for example, has figured out how to get customers to pay more than you might expect for furniture that they have to assemble themselves…thus keeping IKEA’s costs low. There’s a very sophisticated, interlocking set of choices behind the advantage they’ve created.) The people who came along later and talked about competing on competencies and resources – these are all extensions of Porter’s thinking. So that’s sustainable strategy.

It’s trendy to say that sustainable competitive advantage is dead. Empirically, this is simply not true. Microsoft is in the supposedly volatile technology sector. They’ve missed almost every technological breakthrough of the past decade — and yet they earned $237 billion in operating income from 2001 to 2013 working off a strategy that was in place in the mid-1990s. It’s easy to get caught up in the hype. Sustainability still matters.

But there are plenty of businesses that appeared to be unassailable at one time that turned out to be vulnerable.

Right, which brings us to our antithesis. Another group of people had a key insight – let’s call it the opportunistic view – which is that another way to create economic value is to seize a new opportunity. Firms often use an innovative technology or a new business model to seize the new opportunity and they typically disrupt someone else’s business in the process. So this view is often associated with innovation or disruption. The core, however, is creating value by seizing new opportunities.

It’s easy for people in academia to take rhetorical shots at each other over this divide. But by and large managers understand that they need to do both things – create a difficult-to-imitate competitive position, but also seize new opportunities, find new ways to compete.

That raises a key question — how do you balance the two needs?

Here’s where we get to the synthesis. There have been several important insights. Michael Tushman and Charles O’Reilly introduced the idea of ambidexterity. It’s incredibly difficult for a company to both exploit an existing advantage and explore a new one. So it makes sense for one business unit to focus on the incumbent business and for a mostly separate unit to create a new business — with both units answering to the same corporate head. There’s a lot of good evidence that this approach works.

Another approach is to run a portfolio of businesses. GE, Johnson & Johnson, and Samsung all do this successfully. Over time, you move into new businesses and out of older ones. A good chunk of the economy runs this way. When done well, it works.

HBR ran an article by Todd Zenger recently that was interesting, claiming that you can use your mutually reinforcing system of activities and resources as a platform to catch new opportunities. He has a nice analysis of how Disney does this. It’s similar to what Chris Zook and James Allen have said about adjacencies: you find opportunities that fit your core.

Then there’s the horizons view – which is a very practical approach. It says that you focus some resources on sustaining your business, some on incremental change, and some on disruptive businesses. LEGO is a great example. The CEO has 100 people working on the core business, 20 or so on a slightly wider range of opportunities, and fewer than a dozen on innovations that could fundamentally disrupt the company’s business model.

The corporate change literature fits in here, too, though it gets away from the strategy/innovation debate. These are the people who claim that Polaroid should have seen what was coming and turned itself around. But this is incredibly difficult to do if you are running a single, focused business. I won’t say nobody’s done it. But a lot more have failed than succeeded.

The bottom line, then?

The key to success in today’s volatile markets is strategic opportunism, which allows firms to seize opportunities that are consistent with the bundle of resources and capabilities that sustain their profits.

When Innovation Is Strategy

An HBR Insight Center




Your Business Doesn’t Always Need to Change
Should Big Companies Give Up on Innovation?
How GE Applies Lean Startup Practices
Does Your Strategy Match Your Competitive Environment?

Why Twitter Needs India

Twitter’s numbers show it has a big problem. The platform is attracting fewer and fewer new users in the U.S., and its current users are abandoning it at an increasing rate. Twitter’s managers have tried to fix the problem by changing the look of Twitter profiles. Some observers suggest deeper changes to the platform: making the experience much more user friendly, developing better algorithms for surfacing interesting content, or improving search functionalities.

But what Twitter really needs is a global strategy. And this means a strategy to win in India. Without that, the bad news about Twitter will continue to pile on. Here’s why.

There are three key Internet markets in the world. First, there is China, with 618 million Internet users, about a quarter of the global online population. The Chinese will soon spend more on online purchases than consumers in the U.S., even though an average Chinese citizen only earns a ninth of what Americans do. But an American company cannot win in China, unless it engages in extensive censorship. This is why Facebook cannot compete in China, and neither can Twitter. So China is out of the picture.

Then there is the U.S. with approximately 250 million Internet users. Twitter has operated in this market since 2006, so almost everyone who wanted to try Twitter has tried it. And if they haven’t liked the service yet, it will be hard to make them do so now. On top of that, very few Americans haven’t tried the Internet yet. Even if all of them (15 years or older) went online this year, and all of them fell madly in love with Twitter, the site would add about 40 million new users. The U.S. is not going to be much help either.

Finally there is India, where in 2012 there were 150 million Internet users. This June, that number will grow to almost 250 million, about as many as in the U.S. The market is not as rich as in China or the U.S., but the number of Internet users will grow for a very long time, as there are over a billion people in India. And the Indian population loves the American social platforms: India is already the second biggest user of Facebook after the U.S., and by my calculations it will become number one this year. Facebook is already helping to make this happen. Remember WhatsApp, the acquisition Facebook made a couple of months ago for almost $19 billion? It happens to be the most popular social interaction tool in India. It’s not a coincidence that Facebook wanted to buy it to accelerate its growth there.

Meanwhile, Twitter had only 33 million users in India in 2013. And the country is nowhere close to becoming the number one user of Twitter. This is not surprising, as the company has no growth strategy in this incredibly attractive market.

So what should Twitter’s strategy in India be? The company needs to do two things. First, it needs to attract a lot of users by applying what it has learned in the U.S., where the viral process was not what brought Twitter into the mainstream and increased its numbers. TV was responsible for that. The CNN show Rick Sanchez Direct was the first to air live tweets on TV in early 2008. After the Mumbai bombings later that year, a Twitter ticket tape became a permanent fixture on CNN, and other broadcasters soon followed suit. With free 24/7 advertising on key broadcast media, it is no wonder that Twitter grew so quickly. Now, Twitter should turn that accidental success into strategy. The company should approach every conceivable broadcast medium in India to make sure that its name and its services are promoted broadly, even spending money to advertise to new Internet users in India. Remember, WhatsApp is already huge in the Indian market, and it’s used a lot by companies and politicians and other public figures. So Twitter can’t just sit there and wait for people to show up.

Second, Twitter has to keep Indian users very happy so they stay on the platform. That will require recognizing that most users in India access the Internet through their mobile phones. Indian consumers need light and fast mobile applications that don’t use up a lot of bandwidth (this is how WhatsApp become successful). Second, Twitter needs to develop additional services that alleviate some of the many information gaps in India. For example, it could develop services to aid the Indian democratic election process (currently, Google Hangouts, Facebook and WhatsApp dominate this process). Twitter could also help build a better public health information dissemination system (where it would not have many competitors). Or it could release an application to collect, aggregate and disseminate prices of produce across various markets.

All of these would help Twitter retain its Indian users for a long time. But first things first: Twitter’s management has to put India front and center of its growth strategy.

How GE Stays Young

GE is an icon of management best practices. Under CEO Jack Welch in the 1980s and 1990s, they adopted operational efficiency approaches (“Workout,” “Six Sigma,” and “Lean”) that reinforced their success and that many companies emulated. But, as befits a company that has been around for 130 years, GE is moving on. While Lean and Six Sigma continue to be important, the company is constantly looking for new ways to get better and faster for their customers. That includes learning from the outside and striving to adopt certain start-up practices, with a focus on three key management processes: (1) resource allocation that nurtures future businesses, (2) faster-cycle product development, and (3) partnering with start-ups.

Resource allocation: i ncubating a protected class of ideas.

A fundamental challenge of any firm – especially a huge global company such as GE – is how to balance nurturing tomorrow’s future businesses, with the resource demands for running and improving today’s operations. You need to think like a portfolio manager, allocating resources both to innovate in your core and for the future. Knowing that today’s operations will almost always win the lion’s share of resources, you need to consciously create a protected class of innovative ideas to invest in, even if money is tight.

For example, GE incubated an energy storage company (“Durathon”), which has gone from the lab to a $100 million business in five years. In 2009, GE’s transportation unit developed a new sodium battery for a hybrid engine for locomotives. Chief Marketing Officer Beth Comstock told me they looked to see how they could take this battery technology to new markets. After first targeting backup power for data centers, they settled on providing backup power for cell phone towers in countries with unreliable electrical grids, such as in Africa and India. Says Comstock, “You have to believe that energy storage has a big future.” It took the financial backing and technical support of GE and the support of CEO Jeff Immelt to nurture this business through numerous technical and business model changes. Marketing plays a catalyst role, providing growth funding. And after accumulating significant experience with this portfolio approach, GE is focusing today on fewer things that they’re incubating in a bigger way.

Product development: g etting closer to customers and moving faster.

Organic growth depends on discovering breakthrough ideas, leveraging technology, and getting closer to customers. As it turns out, getting the breakthrough ideas is usually the easy part. The hard part is executing the idea to build a business, which takes a process that actually works. In our current fast-paced environment of constant change, you need a product development approach that relies on many fast cycles of experimentation, reviewing prototypes early on with customers to learn what provides value, and being flexible if customer feedback suggests new directions.

As I described in a previous post, GE is working with Eric Ries, a Silicon Valley entrepreneur and author recognized for pioneering the Lean Startup movement. The Lean Startup approach is enabling GE to take “Agile” and “Lean” methods, which they had been using to improve operations, and apply them to starting businesses. They have branded it “FastWorks.” And it has helped not only provide a new product development process, but a role model for a new culture based on a venture model. People in finance at GE, typically focused on return on investment and payback periods, love FastWorks because they get a better throughput of ideas.

Partnering: getting ideas from start-ups.

Leading companies have been using “Open Innovation,” collaboration, and joint ventures for many years to get a shot of adrenaline, find new markets, and get to them faster. What’s new is partnerships by large and successful companies with start-ups for joint incubation of innovative business ideas. Despite all their resources, big companies realize they can’t tackle big challenges alone. They need to tap into young, entrepreneurial companies filled with brilliant data scientists, restless tinkerers, and passionate innovators. On the other hand, start-ups benefit from the resources, customer relationships, expertise, and scale of the established companies.

GE has actively created several “ecosystems” with start-ups. For example:

In March the company formed a joint venture with Local Motors, a “co-creation company” that taps into an online community of car enthusiasts (engineers, mechanics, and industrial designers) to design new vehicles. GE intends to use Local Motors’ crowd-sourced workforce model to design new products, initially for GE Appliances.
GE has formed a partnership with Quirky, a crowd-sourced innovation platform, to invent connected products for the home: innovators submit ideas, which are voted on by Quirky’s community, and the promising ones are refined by Quirky’s designers and engineers.
Through Kaggle, another GE partner that is a community of data scientists, GE asked for algorithms to optimize airline flight paths and reduce delays – ultimately improving air travel overall.
In advanced manufacturing, GE turned to GrabCAD, asking their experts to help redesign a metal jet engine bracket with the goal of making it 30% lighter while preserving its integrity and mechanical properties like stiffness. Participants from 56 countries submitted nearly 700 bracket designs, and the winner was an engineer from Indonesia who reduced the weight of the bracket by 84%.
Finally, GE has created GE Ventures, a group in Silicon Valley that spends their time not just investing ($150 million annually), but forming technical and commercial collaborations with startups in energy, health, software, and advanced manufacturing.

GE’s current focus on innovation and on these three key management processes – which draw on the techniques and the energy of start-ups – represents the latest wave of improvement over a long and successful history. By working with and emulating start-ups, GE hopes to both grow their core offerings and disrupt their current way of doing business — and to keep an old company young. And as one of the world’s largest and most respected companies, it’s easy to imagine that other large companies will soon be following suit.

Your Sense of Moral Purity May Block You from Making Professional Connections

Research participants who imagined themselves pursuing professional connections at a party felt dirtier afterward, on average, than those who had imagined themselves merely meeting a lot of people at the party and having a good time (2.13 versus 1.43 on a five-point dirty-feelings scale), say Tiziana Casciaro of the University of Toronto, Francesca Gino of Harvard Business School, and Maryam Kouchaki of Harvard University. Moreover, people in the former group were later more likely to take a favorable view of cleaning products such as soap, toothpaste, and window cleaner. This and other experiments suggest that networking in pursuit of professional goals can harm a person’s sense of personal moral purity, the authors write in a working paper.

Will China Bring Your Firm New Owners, Partners, or Competitors?

Consumers in the United States are used to buying products that are made in China. American multinational firms are accustomed to selling to Chinese customers within China. But what happens when China goes West? What are the implications for corporate America when Chinese firms begin doing business in the U.S. and other developed markets?

You may think this is an issue for tomorrow—when Chinese firms are known for being innovators instead of imitators, and when their overseas investments are not limited to natural resources in Africa and Latin America. But Chinese companies of all sizes are already operating in the U.S. in a big way. More than 80% of last year’s special U.S. visas for immigrant entrepreneurs were issued to individuals from China. U.S. corporations are placing orders for Lenovo-made laptops, while American workers are driving cars made by Chinese-owned Volvo to the office and feeding their families bacon produced by Shuanghui International, the new owner of Virginia-based Smithfield Foods. In total, Chinese companies invested $90.2 billion internationally last year, according to official Ministry of Commerce statistics.

The rise of Chinese investments in the U.S. offers very tangible benefits for the U.S. economy, but it is also changing the traditional dynamics of our domestic competitive landscape. How should corporate America respond? The answer to this question varies depending on whether an American firm is considering new ownership, seeking new partners, or responding to new competitors from China.

For American companies seeking strategic investment, Chinese ownership presents a new alternative to the traditional routes of private equity investment or acquisition by a larger domestic industry incumbent. A top concern among firms taking on private equity investment is who becomes the ultimate decision maker. Under private equity investment, the CEO—formerly the top decision maker in the company—has to answer to the representative assigned by the private equity firm. Chinese ownership can remove this concern from the equation. Moreover, Chinese owners may even be in a position to inject additional capital into a firm after a first round of investment, which would be almost unheard-of under private equity ownership.

During the global financial crisis, Robert Remenar, CEO of Nexteer, a Michigan-based automotive steering firm, deliberately searched for potential new Chinese owners. His firm required significant capital investment, but he knew that the fundamentals of Nexteer’s business were working well. In 2010, Chinese firm AVIC Automotive purchased Nexteer for $465 million. Under the new ownership, Remenar retained his entire management team and was allowed decision-making authority from the new owners to implement an effective strategy to get the firm back on track.

For American firms partnering with Chinese companies, access to new international markets, especially in China, is an obvious gain. In theory, this might sound like an ideal relationship: the American partner possesses technical know-how or a world-class brand while the Chinese partner brings capital and new market access. But what are the broader implications for industry standards? Western companies should consider the long-term implications of partnerships with Chinese firms, in particular the issues of intellectual property and technology transfer.

To cite just one prominent example, Hollywood studios and directors are now forming partnerships with Chinese production houses at a rapid pace—from DreamWorks Animation to Titanic director James Cameron. As collaboration between Hollywood and Chinese firms deepens over time, it will be interesting to see the impact these partnerships have on the Chinese movie production industry. Will Chinese production houses be able to close the knowledge gap and begin producing international blockbuster films of their own? Or will they remain reliant on experienced Hollywood experts for the long term?

Finally, a common misconception of Chinese investment in the U.S. is that the poor product quality, food safety issues, or corrupt business practices that may be present in firms’ China operations will carry over. This assumption is false. When a Chinese company operates in the U.S., it must do so in accordance with local regulations and business practices—or else face the legal consequences. For example, Sinovel, a Chinese wind turbine producer, had to divest its U.S. operations last July after it was charged in federal court with stealing trade secrets from its former U.S. supplier.

However, there may be cases when Chinese firms receive special incentives from the Chinese government (particularly state-owned enterprises), which could enable them to compete at unfair price points or extend contract terms to their customers at less than market value. In the U.S., the Department of Justice and Federal Trade Commission are both involved in the deal review process to monitor such anti-competitive concerns. American firms operating in the same industry as Chinese competitors should remain vigilant and work together to lobby relevant regulators and government bodies to prevent any anti-competitive business practices from taking place.

We are still at the beginning of the phenomenon of China going West. The number of Chinese companies operating in the U.S. as well as the amounts of their investments will continue to increase dramatically in the months and years ahead. Understanding what this means for American business is critical to ensure U.S. firms and the public can capitalize on new opportunities while avoiding or minimizing potential business risks.

Understanding the New Battle Over Net Neutrality

The Federal Communications Commission is expected to issue new proposed rules this week on “network neutrality,” the principle that broadband Internet service providers can’t discriminate among the content that runs through their pipes. Early indications are that it will be an Animal Farm sort of net neutrality, with some nets more neutral than others. FCC Chairman Tom Wheeler promised recently that his agency “will not allow some companies to force Internet users into a slow lane so that others with special privileges can have superior service.” But the rule seems likely to allow ISPs to cut deals with content companies to ensure that their packets get delivered smoothly — as Netflix reluctantly agreed to with Comcast in February and Verizon last week. Which by definition means they’re in a faster lane than others, doesn’t it?

At this point, you may be expecting me to launch into a thundering denunciation of this assault upon our rights as citizens of the Internet. That is, after all, what 90% of what’s written on this topic amounts to (the other 10% can be found mostly on the opinion pages of the Wall Street Journal). I, however, am going to give you something different: 11 things I learned about net neutrality while spending way too much time studying the topic over the past few days. I remain anything but an expert (and I ask the communications lawyers among you in particular to please point out any errors in the comments), but I thought a semi-neutral take on net neutrality might make for a nice change of pace this week.

1. The judges did it. The reason we’re having to suffer through this net neutrality discussion yet again is because three judges on the D.C. Circuit of the U.S. Court of Appeals (two appointed by Bill Clinton and one by Ronald Reagan) ruled in January that the previous set of “open Internet” (that’s what the FCC calls net neutrality) standards violated the law and the agency’s own rules. The problem, the court said, was that the FCC’s bans on blocking or discriminating against certain Internet traffic sounded like the kind of rules that would apply to a “telecommunications service,” yet the FCC has classified broadband internet as an “information service.” So while two of the three judges (the Clinton appointees) agreed that the FCC had the right to regulate broadband providers’ relationships with content providers (the FCC term is “edge providers”) even if it classified broadband as an information service, they didn’t think the agency had done it correctly up to now. The majority jovially encouraged the FCC to try again (“After all, even a federal agency is entitled to a little pride,” wrote Judge David Tatel), an effort that Chairman Wheeler hopes to launch at a Commission meeting this Thursday.

2. This “telecommunications” vs. “information” thing isn’t just technical minutiae. The terminology comes from the Telecommunications Act of 1996, but the concepts date back to the 1970s, when the FCC began to differentiate between basic telephone service and the cool new things people were beginning to do with computers over telephone lines. Telecommunications services are common carriers, expected to provide basic service on equal terms to all — and to let other businesses make use of their infrastructure to provide information services. These information services, the thinking went, were better left free to innovate and compete largely exempt from FCC regulation. In the early days of the consumer internet, the hundreds of competing dialup ISPs that piggybacked on existing phone lines fell clearly in the information services category. But in 1998, the FCC decided that the broadband DSL connections provided by telcos amounted to a telecommunications service.  In 2002 the Commission switched course again and ruled that broadband access provided by cable TV companies was an information service — the reasoning being, in part, that cable broadband had ended the DSL monopoly and created a competitive market once again. This led to a zillion lawsuits from phone companies and other non-cable ISPs, but in 2005 the Supreme Court decided that the FCC was within its rights to make that call. After that, just to be fair, the FCC deemed DSL and other broadband services to be information services as well. But that hasn’t stopped cable companies from becoming the dominant providers of broadband access, with DSL a clearly inferior option and the much-anticipated buildout of fiber-optic networks by the telcos going more slowly than hoped.

3. It’s been a great decade to be a telecommunications lawyer. By classifying broadband as an information service, the FCC was effectively pledging to leave it alone. But when Comcast started blocking BitTorrent and other peer-to-peer sharing services because it said they were using too much bandwidth, the Commission jumped in and, in 2008, determined that Comcast’s behavior “unduly squelches the dynamic benefits of an open and accessible Internet.” Comcast sued, and the D.C. Court of Appeals (with Clinton appointee David Tatel writing the majority opinion there, too) ruled in 2010 that the FCC had failed to offer adequate justification in the law for its actions — it had basically just cited some vague exhortations from the Communications Act of 1934. By then Democrat Julius Genachowski, an avowed net neutrality fan, was in charge at the FCC. After floating a trial balloon about re-reclassifying broadband as a telecommunications service, the Commission decided instead to draw up a set of open Internet rules that it based on some less-vague exhortations in the Telecommunications Act of 1996. Verizon Communications challenged these in court, which led to the January Appeals Court ruling.

4. Republicans are from Comcast, Democrats are from Google. The pro-net-neutrality camp wants more regulation of broadband providers, which sounds like kind of a Democratic thing. But many of its members are convinced that this regulation is needed to preserve the Schumpeterian, creative-destructive free-for-all of the Internet, which sounds like something Republicans would be for. Also, dislike of the cable industry is a nonpartisan emotion: I would guess that if you asked Republican voters, “Should cable companies be regulated like electric utilities?” the most common answer would be, “You betcha.” And while a decade ago the entities on the side of net neutrality (the term is usually traced to a 2003 paper by Columbia Law School professor Tim Wu) were mostly cuddly little nonprofits and startups — and thus presumably endearing to Democrats — some are now multinational giants. Google has about the same revenue and profits as Comcast, and more than twice the market capitalization. So increasingly, this fight pits one set of gigantic capitalist entities that happen to be preferred by Democratic politicians against another set preferred by the Republicans. It didn’t start out this way: The Telecommunications Act of 1996, with its push for competition and lighter regulation, was a bipartisan effort. The 2005 Supreme Court dissent arguing that of course cable broadband was a common-carrier telecommunications service was the work of arch-conservative Antonin Scalia. The FCC chairman who went after Comcast in 2008 was Bush appointee Kevin Martin. Now, however, the rhetoric, the FCC votes, and even the court rulings are increasingly breaking down along partisan lines.

5. We’re on a slippery slope to a walled garden. Or something. On the face of it, the fact that Comcast and Verizon want Netflix, which accounts for 28% of all fixed-line Internet traffic in the U.S., to pay for some of that bandwidth it’s hogging does not seem all that alarming and unreasonable — unless you work at Netflix. The concern is what comes next. Mr. Net Neutrality himself, Tim Wu, writes that “bloggers, start-ups, or nonprofits” will “be behind in the queue, watching as companies that can pay tolls to the cable companies speed ahead.” That’s a bit rich — companies like Netflix and Google and Facebook already spend zillions of dollars ensuring that their content gets delivered more quickly and reliably that that of your average blogger, start-up, or nonprofit. They’ve just been spending it on server farms, undersea cables, and cloud services, not deals with ISPs. Yes, the companies with control over the “last mile” into consumers’ homes are in a special and uniquely powerful position, and there are reasons to suspect that the cable companies in particular would love to turn the freewheeling Internet into a “walled garden” of selected and paid-for content and to disadvantage those, like Netflix, who compete directly with their own offerings. There are also reasons to suspect that competitive forces and/or the FCC will stop them. There’s also the example of the mobile internet, which the FCC exempted from some of its open internet rules because there’s less bandwidth available and more direct competition. Smartphone screens definitely have a walled-garden aspect to them, but the vegetation has nonetheless grown pretty freely and riotously, and the chief gardeners have turned out to be Apple and Google — not the wireless phone companies.

6. That’s not the only slippery slope. The argument from the other side is that if the FCC succeeds in laying down strict rules on how broadband providers may interact with content providers, then that could bring all innovation and evolution in broadband to a halt. “An unwarranted government interference in a functioning market is likely to persist indefinitely, whereas a failure to intervene, even when regulation would be helpful, is likely to be only temporarily harmful because new innovations are constantly undermining entrenched industrial powers,” Judge Laurence Silberman (the Reagan appointee) wrote in his partial dissent to January’s Appeals Court decision. (Then, just to be snarky, Silberman supported his assertion with a quote from Tim Wu’s book The Master Switch: The Rise and Fall of Information Empires: “[J]udicial errors that tolerate baleful practices are self-correcting while erroneous condemnations are not.”) This reflects the standard conservative line on antitrust, which can be traced back to the University of Chicago Law School classroom of Milton Friedman’s brother-in-law, Aaron Director: monopolies may be bad, but competition usually wears them down, while government regulations are forever. Although of course in the FCC’s case, regulations only seem to last until the next Appeals Court decision.

7. An open Internet does seem like a good thing. There is widespread agreement among economists that the current open, modular nature of the Internet has stimulated innovation and growth. The debate is really over whether enforcing that openness by regulatory decree is necessary or even helpful. If Internet openness really is as great as it seems to be, one line of reasoning goes, then it will win out in the end anyway. The counterargument, made in economist Joseph Farrell and legal scholar Philip J. Weiser’s 2003 paper “Modularity, Vertical Integration, and Open-Access Policies,” is that if firms in gatekeeper positions such as broadband providers have monopoly power, they may do things that are in their own short-term interest yet reduce the overall economic value of the networks to which they provide access. American communications history offers some support for this contention: The first great U.S. communications network was the Post Office, which was run by the government. As historian Richard John tells it in Spreading the News: The American Postal System from Franklin to Morse, Congress gave itself the power to determine postal routes in 1792 and subsequently expanded the postal system much faster than any profit-seeking businessperson (or even halfway cost-conscious bureaucrat) ever would have. This legislative involvement has in recent years become the USPS’s Achilles heel, as Congress won’t allow it to cut back on activities that lose billions. But in the early days it was crucial to building the national economy, and the nation. In his subsequent book Network Nation: Inventing American Telecommunications, John makes the case that the next great communications network, the telegraph, expanded much less quickly as a private monopoly than it would have if inventor Samuel Morse had succeeded in getting postal authorities to take it over, as he initially hoped. And of course the one-time phone monopoly AT&T, while birthing all sorts of amazing innovations at its Bell Labs, was legendarily reluctant to give innovative competitors access to its customers.

8. Just because something is a good thing doesn’t make it the law. The big problem the FCC has faced in all its attempts to impose its open Internet ideas upon broadband providers is that Congress has never explicitly asked it to do such a thing. Over the past decade several bills have been proposed to rectify this lack of direction, but none have made it far. So the FCC has, as noted above, fallen back on a section of the Telecommunications Act of 1996 that directs it to take “measures that promote competition in the local telecommunications market or other regulating methods that remove barriers to infrastructure investment.” In its open internet rules, the FCC basically argues that preventing broadband providers from discriminating against certain content will stimulate demand for broadband, which in turn will stimulate more infrastructure investment. Not for nothing did Verizon’s lawyers refer to this reasoning as a “triple bank shot.” There was a time when such regulatory creativity was applauded in the courts, but that ended sometime in the 1970s. What’s interesting is that the January Appeals Court decision (and even the dissent) made clear that the FCC can expect little trouble from the courts if it takes actions that directly promote competition or remove barriers to investment. One such measure, which Chairman Wheeler has already promised is on the way, would be to preempt the despicable laws that at least 20 states have enacted (under heavy lobbying from the cable companies and telcos) to prevent municipalities from building their own broadband networks. But surely there’s much more the agency could do in that direction.

9. The most obvious solution may not be the solution. FCC could also just reclassify broadband providers as telecommunications services, giving it far more power to regulate their behavior. Chairman Wheeler has said this option is still on the table, but he doesn’t seem to be planning to make use of it anytime soon. Why not? My guess is that it’s some combination of (1) wanting to get some new broadband rules out quickly to fill the current regulatory void, which requires continuing on the same track rather than starting over on a new one, (2) fear of the legal and political blowback that would surely ensue, and (3) genuine belief that competition is a better solution to whatever might ail broadband than common-carrier regulation would be. If broadband were classified as a telecommunications service, for example, the law points toward a requirement that cable companies and telcos open up their broadband lines to rival providers of internet access. This could remove much of the incentive for companies to string new, even-broader-band lines into Americans’ homes. The FCC could then try to build in new incentives through regulation and subsidy, but that would obviously bring its own complications. In a very interesting petition filed with the FCC last week, the Mozilla Foundation (the people behind the Firefox web browser and some other stuff) proposed a middle ground of continuing to treat the relationship between broadband providers and consumers as an information service, but regulating the interactions between broadband providers and content providers as a telecommunications service. I have no idea if that would stand up to legal scrutiny, but I like the creativity.

10. Broadband internet service in the U.S. is … okay. As of 2012, the U.S. ranked 20th in the world in the number of fixed-line broadband connections per 100 people. This and other global measures of broadband penetration are often trotted out to make the case that this country is a terrible laggard in the field, but I’m not so sure of that — all but one of the nations ahead of it on the list are much smaller and more densely populated, and even the exception, Canada, has a population concentrated along its southern border rather than strewn all over as in the U.S. So the performance of broadband providers here seems neither brilliant nor dismal. And unlike in Europe, where economic troubles and budget cuts have curtailed broadband plans, the forecast for the U.S. seems to involve continued, if not exactly consistent, buildout — with Google Fiber and AT&T’s planned Ultra-Fast Fiber Network currently generating the most excitement. Interestingly, mobile broadband penetration in the U.S. ranks much higher, at ninth in the world. That could have something to do with it being easier to upgrade a small-town cell-phone tower than to string new wires to everybody in town, or it could be a reflection of a much more competitive market in wireless broadband than in the wired variety. Or both.

11. Cable companies are a long way from winning the hearts and minds of American consumers. The American Customer Satisfaction Index gives Internet service providers (the cable industry) a score of 65 for 2013 — the worst of any industry tracked — with hoping-to-merge giants Time Warner Cable and Comcast at even more dismal scores of 63 and 62, respectively. Subscription television services (the cable companies plus the better-liked satellite and telco providers) get a slightly better rating of 68, with Comcast at 63 and Time Warner Cable at 60. Electrical utilities, by contrast, score a perfectly respectable 77. The public sector rates a weak-although-still-better-than-cable 68, the much-criticized airlines score 69, and health insurers come in at 73. There’s no ranking for newspapers in 2013, although in some past years they’ve done even worse than cable. Interestingly, both newspapers and cable for decades followed the same simple business strategy: (1) acquire a local monopoly, (2) squeeze the greatest possible profits out it. In a generally admiring account of the rise of cable pioneer John Malone in his book The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, Will Thorndike describes how Malone starved his cable systems of resources because he “saw no quantifiable benefit to improving his cable infrastructure.” It was only the arrival of competition from satellite TV in the mid-1990s that changed his tune. Malone was (and is) an extreme case, but in general pleasing customers and pursuing technological innovation don’t really seem to be in the cable providers’ DNA. Given that, it’s actually pretty remarkable how much they’ve accomplished in broadband over the past decade. Going forward, though, the question is whether the cable industry’s history should lead us to fear what it might do to the Internet — or chuckle at its hopes of outmaneuvering the likes of Amazon, Apple, and Google.

The Best Leaders Are Humble Leaders

In a global marketplace where problems are increasingly complex, no one person will ever have all the answers. That’s why Google’s SVP of People Operations, Lazlo Bock, says humility is one of the traits he’s looking for in new hires. “Your end goal,” explained Bock, “is what can we do together to problem-solve. I’ve contributed my piece, and then I step back.” And it is not just humility in creating space for others to contribute, says Bock—it’s “intellectual humility. Without humility, you are unable to learn.”

A recent Catalyst study backs this up, showing that humility is one of four critical leadership factors for creating an environment where employees from different demographic backgrounds feel included. In a survey of more than 1500 workers from Australia, China, Germany, India, Mexico, and the U.S., we found that when employees observed altruistic or selfless behavior in their managers — a style characterized by 1) acts of humility, such as learning from criticism and admitting mistakes); 2) empowering followers to learn and develop; 3) acts of courage, such as taking personal risks for the greater good; and 4) holding employees responsible for results — they were more likely to report feeling included in their work teams. This was true for both women and men.

Employees who perceived altruistic behavior from their managers also reported being more innovative, suggesting new product ideas and ways of doing work better. Moreover, they were more likely to report engaging in team citizenship behavior, going beyond the call of duty, picking up the slack for an absent colleague — all indirect effects of feeling more included in their workgroups.

Our research was also able to isolate the combination of two separate, underlying sentiments that make employees feel included: uniqueness and belongingness. Employees feel unique when they are recognized for the distinct talents and skills they bring to their teams; they feel they belong when they share important commonalities with co-workers.

It’s tricky for leaders to get this balance right, and emphasizing uniqueness too much can diminish employees’ sense of belonging. However, we found that altruism is one of the key attributes of leaders who can coax this balance out of their employees, almost across the board.

Nonetheless, our study raises one common, perhaps universal implication: To promote inclusion and reap its rewards, leaders should embrace a selfless leadership style. Here are some concrete ways to get started based on both our current research and our ongoing study of leadership development practices at one company, Rockwell Automation:

Share your mistakes as teachable moments. When leaders showcase their own personal growth, they legitimize the growth and learning of others; by admitting to their own imperfections, they make it okay for others to be fallible, too. We also tend to connect with people who share their imperfections and foibles—they appear more “human,” more like us. Particularly in diverse workgroups, displays of humility may help to remind group members of their common humanity and shared objectives.


Engage in dialogue, not debates. Another way to practice humility is to truly engage with different points of view. Too often leaders are focused on swaying others and “winning” arguments. When people debate in this way, they become so focused on proving the validity of their own views that they miss out on the opportunity to learn about other points of view. Inclusive leaders are humble enough to suspend their own agendas and beliefs In so doing, they not only enhance their own learning but they validate followers’ unique perspectives.


Embrace uncertainty. Ambiguity and uncertainty are par for the course in today’s business environment. So why not embrace them? When leaders humbly admit that they don’t have all the answers, they create space for others to step forward and offer solutions. They also engender a sense of interdependence. Followers understand that the best bet is to rely on each other to work through complex, ill-defined problems.


Role model being a “follower.” Inclusive leaders empower others to lead.  By reversing roles, leaders not only facilitate employees’ development but they model the act of taking a different perspective, something that is so critical to working effectively in diverse teams.

At Rockwell Automation, a leading provider of manufacturing automation, control, and information solutions, practicing humility in these ways has been essential to promoting an inclusive culture — a culture Rockwell’s leaders see as critical to leveraging the diversity of its global workforce.

One of the key strategies they’ve adopted to model this leadership style is the fishbowl — a method for facilitating dialogue.  At a typical fishbowl gathering, a small group of employees and leaders sit in circle at the center of the room, while a larger group of employees are seated around the perimeter.   Employees are encouraged to engage with each other and leaders on any topic and are invited into the innermost circle.  In these unscripted conversations, held throughout the year in a variety of venues, leaders routinely demonstrate humility —by admitting to employees that don’t have all the answers and by sharing their own personal journeys of growth and development.

At one fishbowl session, shortly after the company introduced same-sex partner benefits in 2007, a devoutly religious employee expressed concerns about the new benefits policy — in front of hundreds of other employees.  Rather than going on the defensive, a senior leader skillfully engaged that employee in dialogue, asking him questions and probing to understand his perspectives.  By responding in this way, the leader validated the perspectives of that employee and others who shared his views.   Other leaders shared their own dilemmas and approaches to holding firm to their own religious beliefs yet embracing the company’s values of treating all employees fairly.   Dialogues such as these have made a palpable difference at Rockwell Automation.  Employees have higher confidence in their leaders, are more engaged, and feel more included — despite their differences.

As the Rockwell example suggests, a selfless leader should not be mistaken for a weak one. It takes tremendous courage to practice humility in the ways described above. Yet regrettably, this sort of courage isn’t always rewarded in organizations. Rather than selecting those who excel as self-promotion, as is often the case, more organizations would be wise to follow the lead of companies like Google, Rockwell Automation, and others that are re-imagining what effective leadership looks like.

Robots Are Starting to Make Offshoring Less Attractive

The hype around robots taking jobs is reaching a crescendo, in response to an insightful new book The Second Machine Age by Erik Brynjolfsson and Andrew McAfee, as well as an Oxford Martin School study: ‘The Future of Employment: How susceptible are jobs to computerization?‘ The former states that digital technology and robotics are advancing at such a pace that: “Professions of all kinds — from lawyers to truck drivers — will be forever upended. Companies will be forced to transform or die.” The latter claims that up to 47 percent of American jobs are susceptible to robots and automation within the next seven to 10 years.

Despite the doom and gloom, advances in robotics and associated technology are having a positive impact on local manufacturing and services and both sustaining and creating jobs. In developed economies, they have even sparked a trend toward the return of jobs from overseas, or “botsourcing.” This new wave of bringing production back home through robotics automation may be the single biggest disruptive threat to India’s $118 billion information technology industry. The more processes can be automated, the less it makes sense to outsource activities to countries where labor is less expensive.

The threat is being taken seriously elsewhere in Asia as well. Foxconn, the world’s largest contract electronics manufacturer best known for manufacturing the iPhone, has recently announced it will spend $40 million at a new factory in Pennsylvania, using advanced robots and creating 500 jobs.

Thanks to one of the most advanced robotic manufacturing facilities in the world, Tesla Motors builds its electric cars entirely in the US.

In each of these cases, the combination of advances in robotics and automation and rising wages in developing countries has upended the promise of cost reductions through outsourcing. Sutherland Global Services, an outsourcing company in Rochester, NY, says it can reduce costs for its clients between 20 and 40 percent by shifting IT work to a developing economy, but it can reduce costs by up to 70 percent if it uses automation software coupled with its U.S.-based employees to complete tasks involving high volumes of structured data.

Nobel Prize-winning economist Paul Krugman writes in his book The Age of Diminishing Expectations: “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

The same is true of business: profits increase (or decrease) in proportion to the output per worker. Shifting work to places where labor is cheaper is one way to improve this in the short term. But over time technology is a far more reliable path to increased productivity.

In March 2012, Amazon announced the $775 million cash acquisition of Kiva Systems, a warehouse automation robotics company. By October 2013, Amazon CEO Jeff Bezos noted that they had “deployed 1,382 Kiva robots in three Fulfillment Centers.”  Yet Amazon continues to significantly grow its number of employees in these fulfillment centers, adding 20,000 full-time employees in the U.S. last year. This year, when the company announced that it was hiring an additional 2,500 full time U.S. fulfillment staff, it emphasized that the jobs had a 30 percent pay premium over traditional retail jobs. Technology done well doesn’t just replace workers, but makes them more productive.

For managers, the trend toward botsourcing will require a shift in thinking. Rather than moving operations to wherever work costs the least, consider which pieces can be automated, and how best to combine human and robotic expertise.