Marina Gorbis's Blog, page 1436

Why Family Businesses Come Roaring out of Recessions

The family business is still widely regarded as an ineffective organizational form (read this, this, or that paper), especially in the US, even though recent evidence challenges this perception.  Some studies (see here or here) have shown that during periods of economic growth, family-managed companies in the US actually perform better than professionally managed businesses.

However, a rising tide lifts all boats; it’s the ebbing tide that reveals the truth.  Just how do family businesses perform during recessions, when only the strong survive?

To answer that question, we compared the performance of 148 publicly listed family-owned companies between 2000 and 2009 with that of 127 non-family businesses using Standard & Poor’s Compustat database.  Of course, the National Bureau of Economic Research classified two (2001 and 2008) of those 10 years as recession years.

We found that family businesses handily outperformed non-family companies during both the 2001 and 2008 recessions in terms of a key metric, Tobin’s q.  (Tobin’s q is the ratio between a company’s market capitalization and the replacement cost of its tangible assets, with a higher ratio indicating that a company has more intangible assets such as patents, brands, leadership etc., and is likely to grow more in the future than one with a lower Tobin’s q.) 

For instance, in our sample, the average Tobin’s q of all the family businesses remained at 1.9 regardless of the economic cycle, but that of the non-family corporations dropped from 1.2 during the growth years to 0.8 during recessions.  Thus, the former coped better with the recessions than the latter. The family companies’ edge remained after we controlled for a number of factors such as company size, age, level of globalization, level of diversification, R&D intensity, and industry.  It held true for both founder-managed companies, such as Dell and Microsoft, as well as for multiple family-member-managed corporations such as Walmart and Federated Investors.

We also found three differences in marketing strategies, which may account for the performances of the two types of companies.

1. Family-owned businesses did not hold back on new product launches during the recessions.  Data from several sources such as the Capital IQ database, Factiva, and LexisNexis revealed that they introduced 12 new products a year, on average, regardless of the economic cycle whereas launches by non-family companies fell from 14 a year during the boom years to just eight on average during the recessions.

The family businesses’ proactive approach clearly helped them do better.  Not only is it easier to differentiate brands when there is less competition, but also, products introduced during recessions will enjoy a first-mover advantage as the economy recovers.

2. Family businesses maintained almost the same levels of ad-spend during the recession years as they did during normal times, helping them do better than the professionally managed companies, which reduced ad-spend when the times got tough.  In our sample, the average advertising intensity (advertising expenditure divided by total assets) of the family companies fell marginally, from 2.0% during the non-recession years to 1.9% during the recessions.  The same metric for the non-family companies plunged from 1.4% during the non-recession years to 1.0% during the recessions.

3. Family businesses maintained their emphasis on corporate social responsibility regardless of the state of the economy. Corporate social responsibility can be measured by counting companies’ social strengths — launching social initiatives such as philanthropic contributions, health and safety programs for employees, etc. — and social concerns such as controversies like workforce reductions, violations of environmental regulations, etc. Companies with a high number of social strengths and a low number of social concerns can be said to deliver high levels of social performance.

Customers penalize companies when they don’t maintain high social performance levels, especially in uncertain environments.  Data from the KLD STATS database revealed that the family businesses in our sample maintained the same number of social strengths and social concerns during the two recession years while the non-family companies’ social strengths decreased from 3.4 to 2.7 and their social concerns shot up from 4.2 to 5.0.

Family businesses’ proactive actions and long-term perspective during recessions are driven partly by a unique concern for future generations and an emphasis on preserving the family name, but there’s no reason why other companies can’t emulate them.  By being more proactive in their marketing and by maintaining their focus on social responsibility, any non-family company can minimize the impact of a downturn.  But most don’t — because their leaders’ don’t have the same motivations, which is the essence of the difference between family and non-family businesses.

Which Customers to Listen to, When

AOL, Nokia, RIM, Kodak, DEC. All the same story: once-great companies that suffered disruption. In business, if you’re not listening to the right customers, it can all disappear before you realize what’s happening.

Many modern businesses take stock in the reality of disruptive innovation and try to react accordingly. In the software industry, giants like Microsoft, SAP, Oracle, and IBM have all invested heavily in the cloud technologies that are disrupting software. In car rentals, firms like Hertz and Enterprise are making bets on car-sharing operations. Even dominant businesses like Amazon and Facebook spend enormous sums of money to snatch up and independently operate disruptive businesses like Quidsi and Whatsapp. But in almost all of these situations, the threat is clear and present by the time an investment is made.

So, the question is, why — with a strong understanding of the dynamics of disruption — are we still so slow to move?

Pundits and managers alike readily cite reasons including the stresses of business model innovation or the difficulty of making small experimental investments inside the four walls of an established organization. I don’t believe these answers.

In my experience, I’ve never seen a stalwart executive fail to tear down these barriers when conscious of the significance of the change on their doorstep. With an understanding of disruption, leaders don’t want to relegate themselves to slow decay simply for reasons of organizational friction. That’s not the legacy executives hope will be recorded next to their names on the pages of the Wall Street Journal articles and Harvard Business School case studies — inaction and powerlessness.

My experience points me toward another answer: Most businesses aren’t listening to the right customers. Most businesses spend their time listening to their most demanding customers — not only because those customers tend to be the most profitable, but also because our listening techniques direct us towards the customers who speak the loudest. And we end up ignoring — sometimes not even hearing — other customers who may become equally valuable in the future.

It’s the way we listen that allows good companies to get eaten from the ankles up; forced to react, not anticipate. To get ahead of disruption, managers need to fundamentally change how they gather customer feedback.

Steve Blank often likes to point out that start-ups are entities formed to identify product-market fit. In the early days, an organization’s very survival hinges on its ability to hearing what the market wants. Once they discover what that is, along with their target market, success becomes a game of execution. Our quest for “understanding” disappears unless it is driving growth and profitability.

When there are no disrupters on the horizon, management’s singular focus on growth and profitability doesn’t interfere our ability to listen to the market and predict the future. Customers who have the largest demands will tell us so in sales meetings and reinforce their message when they vote with their wallets. Customers that companies would normally neglect, those that offer lower profitability – those who feel like we’re providing more functionality than they need – will also tell us so in the form of customer complaints and negative social sentiment. Because, before disruption is on the horizon, there is generally no other game in town. For a real-world example, just consider the airline industry. For the most part, there still are no good alternatives to air travel and far too frequently, the disruptive point-to-point carriers simply don’t fly the routes that compete with the major incumbents. So the airlines court the opinion of their premium flyers and are able to sort through the complaints from of the rest of us who are forced to fly around the country with lost luggage.

Before disruption, feedback abounds. But the listening techniques that companies naturally employ in their early days are utterly inept to direct strategy once a disruptive entrant enters the arena with a credible substitute for upmarket competitors.

Once a disruptive substitute emerges, the paradigm changes. Instead of complaining, customers at the low end of the market can simply leave. They no longer feel captive, as if their only option is to yell as loudly as possible in order to be heard. They don’t feel an emotional investment. They simply feel like they made a temporary decision, and its time to make a new one. So they exit.

Albert Hirschman described this phenomenon in his essay, Exit, Voice, and Loyalty. He used economic theory to explain trends he saw in both business and politics. One of his insights was that as the market changes and new options emerge for your customers, so too must your listening tactics and your approach to building customer loyalty. This is where most of our organizations fall down. As disrupters emerge on the scene, we simply trudge along expecting the same listening and prioritization tools to guide our operations. But those tools fail us in understanding what our customers see in these new entrants.

Customer surveys are unlikely to drive engagement from the bottom of the market or the customers who’ve long since abandoned the platform. Social listening is likely to collect input from customers who feel invested or captive in our solutions, not those that are on the verge of leaving for greener pastures. Sales feedback will tend to focus on the best, most profitable, customers, neglecting the voice of the meager customers with no appetite for solutions from the current portfolio.

Keeping a company from faltering in the face of a disruptive entrant requires awareness that only different listening practices can provide. Whenever I’m approached by a firm trying to anticipate disruption, I suggest three tactics to improve listening practices — tactics that we could all benefit from.

Religiously conduct customer exit interviews. The customers who opt to buy different products instead of your own are those who can tell you the most about the appeal of those products. Those customers can articulate where you fell short and where others did better. Often, to identify who these customers are, you need to set up different types of listening systems. Put people in stores to observe purchases, send email questionnaires to customers who haven’t visited you in a while to solicit their opinions. Have an honest and open conversation about where you fell short.

Strengthen engagement tools for low profit customers. Many organizations do a great job at bringing their best customers into the discussion when it comes to the next generation of product or service. The gaming industry looks to blogs and conventions to understand how the “hardcore” gamers will react to improvement. But when it comes to disruption, you need tools to engage those in other segments of the market. You need to identify who’s on the margin of your business and actively open channels for communication with them. Start advisory groups and user communities intentionally populated with people who only engage with your core products peripherally. They won’t feel as invested as your best customers, so you’ll need to make sure you do the work to get them involved and contributing feedback. Unfortunately, if you don’t do the work, you may remain stuck in the echo chamber associated with daily business.

Use the data time machine to predict competitor growth. Your business likely grew up out of the low end of a market, once upon a time. A powerful tool in understanding the appeal and threat of your competitors is revisiting your own history. If the customers that are leaving today had left 10 years ago, what would have been the impact on your growth? If they’d left 20 years ago, how much profit would have been lost? Would you even be in business today? This type of listening to economic indicators can both help you understand the speed and scope of your disruption as well as position the significance of the threat to your executives. There is no better tool than a rational and realistic description of risk to get large companies to move.

Adapting to disruption is never easy. But it is possible to be aware of the threat far before it’s tearing your business apart. The key is understanding which customers you naturally listen to, and to focus some of your listening on those that you don’t before its too late.

The Problem with Being Too Nice

Leaders are placed under a tremendous amount of pressure to be relatable, human and … nice. Many yield to this instinct, because it feels much easier to be liked. Few people want to be the bad guy. But leaders are also expected to make the tough decisions that serve the company or the team’s best interests. Being too nice can be lazy, inefficient, irresponsible, and harmful to individuals and the organization.

I’ve seen this happen numerous times. A few years ago, a senior staff member of mine made the wrong hire. This can happen to anyone, and the best way to remedy the situation is to address it quickly. Despite my urging to cut the tie, this staff member kept trying to make it work. While I laud the instinct to coach, fast forward two months later, and we were undergoing a rancorous – and unnecessary – transition process. There’s a key lesson here for any leader. Nice is only good when it’s coupled with a rational perspective and the ability to make difficult choices.

Here are a few other other recognizable scenarios where being nice isn’t doing you – or anyone – any favors:

Turning to polite deception. You’ve been in these brainstorming meetings – everyone is trying to hack a particular problem, and someone with power raises a ridiculous idea. Instead of people addressing it honestly, brows furrow, heads nod like puppets on strings, and noncommittal murmurs go around. No one feels empowered to gently suggest why that particular idea won’t work. At my company, rejecting polite deception is a big part of how we do business. When something isn’t right, we call each other out on it respectfully, then and there, without delay. Why? It’s not helpful to foster an everyone-gets-a-trophy mentality; you have to earn the honors to get the honors.

The long linger. Sometimes a hire just won’t cut it in a certain role. It might seem easier to keep an employee in place rather than to resolve the mismatch – but it actually is not. Resist the temptation to prolong confrontation, to see if things will get better. It is more of a disservice to let someone flounder, especially when it’s clear that he or she just isn’t hitting the mark. Be kind and communicate clearly, but don’t be nice. Be surgical about it. Make the clean cut. Help the person transition somewhere he or she can succeed. Handling employee issues immediately helps your culture and productivity – over time, you’ll attract employees with similar values and convictions.

Don’t be a doormat. When you’re too nice – to suppliers who can’t deliver on time, to colleagues who don’t do their work, to customers who refuse to pay – you’re actually letting others take advantage of you and your business. When you’re overly generous with your allowances for others, you create a fertile atmosphere for contempt to spread. Imagine the reactions of your most talented, focused, and motivated employees as they watch lackluster coworkers get pass after pass. Anger and resentment take root, morale plummets, and turnover starts to go up, up, up. Think of how loyal customers will react if they see how easy it is for others to take advantage of your services. Your reputation will surely suffer. These problems become more difficult to solve as they pile up. You don’t need to be severe to be respected, but you do need to hold your organization to certain standards — and you must be firm about people meeting them. Setting rules will help you when decisive action is needed. No more delays, no demurring, no debating.

Failing the introspection test. Are you too nice to yourself? Introspection is a powerful leadership tool, but we often forget to use it. When you ask yourself what behaviors hold you and your team back, you can recalibrate your leadership style for the better. When you give employees the space to give you the hard truths, without fear of repercussion, you’ll get valuable perspective and make a giant leap forward in maturing as a leader.

Of course, this doesn’t mean managers get a free pass to be disrespectful, cruel, or a bully in the workplace. There’s a world of difference between being an effective leader with high expectations and dealing with problem after problem caused by milquetoast management. Beware of confusing being nice – or being liked – with being a good leader.

A Simple Theory for Why School and Health Costs Are So Much Higher in the U.S.

The costs of education, health care, and the live performing arts are growing at about the same rate in all the OECD countries—and yet the costs of these services are much higher in the United States. For example, U.S. total educational spending, as a share of GDP, is about is 26% higher than the average of the other OECD countries. A team led by Edward N. Wolff of Bard College points out that because the humans who provide these services aren’t replaceable by machines, costs tend to rise inexorably, and that America got a long head start on spending in the nineteenth century when a rapidly expanding economy led to huge expenditures on universities, hospitals, and cultural institutions.

How to Adapt to American-Style Self-Promotion

Imagine you’re at a networking event in the United States and you hear your colleague make the following statement to a potential employer:

“… I’d be very interested in learning more about your company to see if there might be a fit for me.  Before doing my MBA, I worked at Bain Consulting and then prior to that was an officer in the army…”

Understanding that this is only a portion of the conversation, how would you judge what you happened to hear? As:

(a)  Too self-promotional: the person is speaking too positively about himself for the situation.

(b)  Not self-promotional enough:  should give more details at this point in the conversation about specific accomplishments at Bain (such as projects completed or impact on clients) as well as additional information about military service.

(c)   Just about right:  This is self-promotional, but the context allows it and the person is providing appropriate and relevant information to position himself in a positive light.

Typically, most Americans choose option C. Sure, it’s a bit self-promotional, but this is taking place at a networking event, so the potential employer is probably expecting comments like this. What’s interesting, however, is the reaction Andy often gets from his foreign-born MBA students about the same scenario.  To many of them, the language feels overly self-promotional — like the person is really boasting about himself in an inappropriate manner.  And this points to a thorny cross-cultural challenge many foreign-born professionals face here in the United States, especially when networking or interviewing:  the challenges of American-style self-promotion.

It’s hard to quantify, but we believe the United States is the most overtly self-promotional country in the world.  Certainly there is variance among cities, regions, industries, and especially individuals. But overall, American professionals are often quite comfortable promoting themselves, especially in a business environment — and that behavior is actively encouraged as a sign of competence and self-confidence. That’s simply not true in most other countries and cultures, from East Asia to Latin America to most of Europe. Even in the United Kingdom, where we share a language, Andy’s research has revealed that overt, American-style self-promotion is taboo.

But here’s the challenge:  Many young professionals strive to find work and progress up the organizational ladder here in the United States.  And to do that, they need to learn to self-promote.  In interviews and at networking events, they need to emphasize what they themselves have achieved and accomplished (opposed to emphasizing only what the “team” has accomplished).  And when on the job, they need to self-promote to a certain degree, to establish a reputation as someone who can add value and contribute to the bottom line.

So how can young, foreign-born professionals learn to act outside their personal and cultural comfort zones to promote themselves and their accomplishments?

First, as we discussed in our previous post, “Self-Promotion for Professionals from Countries Where Bragging Is Bad,” it’s important to reframe your concept of personal branding. If you think of it as phony show-boating, you’re never going to want to even attempt it, which means you’re missing out on the professional benefits of being recognized by others. Instead, focus on the big picture — such as making a difference and helping your company — and you’re far more likely to want to make an honest effort.

Next, make sure you understand the actual level of self-promotion that’s acceptable and appropriate for the specific situation you find yourself in. Because many foreign-born professionals are so shocked by American levels of self-promotion, they often overestimate how much is being done. The danger is that when they dive in and attempt it themselves, they risk overcompensating. What they miss is that there is a zone of appropriateness and acceptability for self-promotion, even in American culture, and that when you go outside the zone, you’ll be seen as arrogant and boastful. So make sure you recognize the “zone of appropriateness.”

It’s also critical to learn your own “personal comfort zone” with respect to these rules.  How much of a gap is there, for example, between how you’d naturally and comfortably act in a given situation and how you need to act to be effective?  And if there is a gap, as there is with so many foreign-born students and professionals we work with, you will need to develop a strategy for bridging this gap. Perhaps you can create rules of thumb to follow in certain situations. For instance, if you meet someone at a networking event and they ask a question about how you’re spending your time, you can be sure to mention your involvement in your alumni group — which simultaneously shows that you’re an active and engaged professional, and highlights your affiliation to a top-tier school. And at a very basic level, don’t be caught flat-footed when someone asks, “What have you been up to lately?” Be sure to have a good answer ready, so you can demonstrate your expertise.

Finally, find yourself a cultural mentor who is familiar with how self-promotion works in the US and, ideally, who can also empathize with the challenges that you face as an outsider to this culture. Good cross-cultural mentors are worth their weight in gold.  They can help you master the new culture code, identify your own personal comfort zone, diagnose the gap you experience between how you need to act and how you’d typically act, and then help you strategize solutions.

In no time, with these pieces in place, you’ll be able to self-promote in a way that doesn’t make you feel like you’re losing yourself in the process.

Design Can Drive Exceptional Returns for Shareholders

It used to be about “us” and “them.”

“Us” were the people who believed that design could add significant value when tightly integrated with other business processes.  “Them” were the majority of managers who didn’t get what design was all about in the first place.

Today, however, the distance between “us” and “them” is getting smaller. And with good reason: From Target to Uber, business managers everywhere are starting to understand that the strategic use of design is making a difference in achieving outsized business results. At the same time, design is notoriously difficult to define, tough to measure, and hard to isolate as a function.

To better understand how design leads to returns, my company, Motiv Strategies, and the Design Management Institute worked together to produce a new tool that tracks the results of design-centric companies against those that are not. Called the Design Value Index, it shows that 15 rigorously-selected companies we believe institutionally understand the value of design beat the S&P by 228% over the last 10 years.

The index was constructed in the same fashion as other indexes that seek to isolate an industry sector (banking, biotech), geography (China), or size (large cap), for example. In our version, we sought to identify only companies that are design leaders. Starting with a list of over 75 publicly-traded U.S. firms, we found only 15 that met our six criteria: publicly traded in the U.S. for 10+ years; deployment of design as an integrated function across the entire enterprise; evidence that design investments and influence are increasing; clear reporting structure and operating model for design; experienced design executives at the helm directing design activities; and tangible senior leadership-level commitment for design. Corporations who made the index based on this criteria include Apple, Coca-Cola, Ford, Herman-Miller, IBM, Intuit, Newell-Rubbermaid, Procter & Gamble, Starbucks, Starwood, Steelcase, Target, Walt Disney, Whirlpool, and Nike.

The latter company is a great example of what it looks like to place design at the center of corporate strategy. At Nike, a large and well-resourced design function reports directly to CEO, Mark Parker, who early in his tenure was a designer himself. Virtually everything the company makes, and is thinking about making, is highly influenced by this huge team of footwear, product, fashion, store, graphic, interaction, and brand designers. Using human-centered design methods, inspiration for the company’s signature products is drawn directly from its cadre of famous and not-so-famous practicing athletes, with whom the designers directly interact with to devise authentic performance innovations and style updates.

In fact, no other company function is allowed to second guess the design team’s direction when it comes to the emotional and functional benefits for consumers, the interpretation of market trends, and, of course, aesthetics. Design is expected and trusted to lead Nike.

This is not to say that design “runs” the company, however. Rather, design is a highly influential force that, when effectively integrated with strategy, marketing, and so forth, can help the company stay out in front of its competitors by staying close to customers and commanding handsome price premiums. Of course, design also has a huge impact on the representation of Nike’s brand across the globe. Countless acts in the design details ladder up to one big, fat impression that Nike is the company for performance-minded athletes.

How can this type of commitment to design contribute to results? In Interbrand’s 2013 list of the World’s most valuable brands, Nike ranks 24th, two slots up from the prior year and a 13% increase in value to $17.085 billion. Next to Apple, Nike had the highest shareholder returns in our index — from 2003- 2013 Nike’s market cap increased from under $6 billion to $70 billion, or 1,095% over the last ten years.  Further, Nike was ranked the #7 most innovative company by Fast Company in 2014, and the 13th most admired company by Forbes magazine.

The bottom line is that companies that use design strategically grow faster and have higher margins than their competitors. High growth rates and margins make these companies very attractive to shareholders, increasing competition for ownership. This ultimately pushes their stock prices higher than their industry peers. The returns in our Design Value Index were 2.28 times the size of the S&P’s returns over the last 10 years. Neither hedge fund managers, nor venture capitalists, nor mutual fund managers came anywhere close to these results.

And thanks to the exemplar companies included in our index, as well as many international firms like Samsung, Ikea, and BMW, consumers now recognize, expect, and will pay for good design. This goes beyond traditional consumer products; government and B2B marketing, notorious for not-so-great aesthetics and customer experiences, are starting to make design a priority.

As a person who has spent part of her career helping companies appreciate and use design to their advantage, I will be the first to tell you that making it a central part of strategy isn’t always easy. But now that we know a lot more about how integrated design drives returns, companies across sectors can start thinking about managing design strategically at the enterprise level. There is clearly much value to unlock, and the only way to do this effectively is to do it together. I want no more talk of “them,” just “us.”

GM’s Comeback as Theater

Notes on Hubris GM Sold Us on a Comeback. Don't Buy a CEO's Apology — Buy Cars That Are SafeThe Guardian

GM succeeded because America wanted it to, not because it had the ability to make safe cars. At least this is the argument put forth by Heidi Moore, who supports it with an HBS working paper by Susan Helper and Rebecca Henderson. In addition to calling out GM's failure to understand the true nature of global competition among automakers, the duo cites hubris as a critical factor: Even as GM continued to make inferior vehicles, it believed it was a good company with a proud history. "GM play-acted, magnificently, at resilience," Moore writes, with the government and the public complicit, all while the company continued to make cars that killed people. Instead of dreaming about a mythical past, GM needs to get beyond apologies and focus on the future: "Can GM actually make a car that's safe to drive?"

Working Hard for the (Very Little) Money The Myth of Working Your Way Through CollegeThe Atlantic

A few of your older relatives may have told you how they paid their way through college by bagging groceries or painting houses. But today's reality is that it would take a student 48 hours per week of minimum-wage work to pay for his or her education. According to a calculation for one university, the inflation-adjusted cost of a credit-hour is five times greater today than it was 35 years ago, when some of those relatives of yours were putting themselves through school by the sweat of their brows. In 1979, an industrious student could earn enough in a single day to pay for a credit-hour; today, paying for a credit hour takes 60 hours of minimum-wage labor. The solution, for many students, is loans loans loans, which translate into years of post-college penny-pinching or, in some cases, default. —Andy O'Connell

Wasn't that a Song in the Sixties?Citigroup Says the "Age of Renewables" Has BegunGreentech Media

The shale-gas boom in the U.S. has been a concern for low-carb (as in low-carbon) environmentalists, who worry that abundant, cheap natural gas will encourage us all to burn more carbon-polluting fuel and turn us away from sun and wind power. But a new report from Citigroup says gas's volatile, rising price is making those alternatives more attractive to the U.S. power industry. And with coal and nuclear power being seen as uncompetitive on cost, solar and wind will "continue to gain market share" into the foreseeable future, Citi analysts say. It's a trend that's aided by investors' realization that solar projects, in particular, offer low risk and a strong cash flow. There are a lot of acronyms to wade through in this Greentech Media piece, but there's a palpable excitement that a new age has begun in the world's biggest electricity market, and its name is "renewables." —Andy O'Connell

Your Car Has Feelings, Too How to Stop Worrying and Love the Robot That Drives You to WorkKellogg Insight

A robot doing the work of a human makes a lot of us nervous. But does making a self-driving car more like a person cause the rider trust it? The short answer is yes, according to lab research conducted by Kellogg School business professor Adam Waytz and colleagues. Experiment participants riding in a highly realistic driving simulator programmed to steer and brake autonomously reported trusting the vehicle more when it was given a name, gender, and human voice than when it drove in exactly the same manner, absent human attributes. What’s more, the riders trusted the person-like car more when it suffered a minor accident caused by another driver, and they felt less stressed to boot. Waytz had expected people to blame the self-driving vehicle for any accident. But people gave the anthropomorphized car the benefit of the doubt, as if it were a person. —Andrea Ovans

The Bright Side Livestrong Without LanceInc.

When Lance Armstrong was a hero, his Livestrong nonprofit raised hundreds of millions of dollars to help cancer patients and their families. After he stopped being a hero, the organization lost the support of Nike and RadioShack, revenue dropped, and 13 of its 100 employees resigned. Someone sent Livestrong a box of its iconic wristbands — cut into tiny pieces. That must have hurt. Would Livestrong ever be what it once was? Issie Lapowsky writes for Inc. that CEO Doug Ulman, himself a cancer survivor (three times, no less), has persevered, despite the sudden shrinking of the organization's prospects. Ulman sees not only a role for Livestrong, but new opportunities, as long as people can be persuaded to stop comparing it to what it was. He's doing things he wouldn't have done in the good old days, such as exploring a partnership with a medical school to design a cancer center. The organization’s future, he says, could be even better than its past. Now that’s optimism. —Andy O'Connell

BONUS BITSNotes on Social

U.S. Secretly Created 'Cuban Twitter' to Stir Unrest (AP)
When a Selfie Becomes an Endorsement (The Boston Globe)
This is What Happens When Facebook Controls the Signal, and it Defines You as the Noise (Gigaom)

Strategic Humor: Cartoons from the May 2014 Issue

Enjoy these cartoons from the May issue of HBR, and test your management wit in the HBR Cartoon Caption Contest at the bottom of this post. If we choose your caption as the winner, you will be featured in the next magazine issue and win a free Harvard Business Review Press book.

“Focus, people! No one else sees a prancing pony?”

Michael Shaw

“I know you’re swamped, Doug, but I need you to karaoke something for me ASAP.”

John Caldwell

“Sometimes I wonder what it is exactly you’re grooming me for.”

P.C. Vey

And congratulations to our May caption contest winner, Frank Orlando of Sherborn, MA. Here’s his winning caption:

“Are you sure this will help our social media campaign?”

Cartoonist: Paula Pratt

NEW CAPTION CONTEST

Enter your own caption for this cartoon in the comments below—you could be featured in the next magazine issue and win a free book. To be considered for the prize, please submit your caption by April 17.

Cartoonist: Crowden Satz

What It Really Takes to Listen to Patients

Medical science has enabled our health care system to deliver outcomes that would have been impossible a generation ago, and advances in fields such as genomics and stem-cell therapy offer immense promise to further accelerate medical innovation.

One promising trend in improving overall care is the growing emphasis on incorporating voices of patients, consumers, and caregivers into the design of programs and policies. Health care is at the beginning of a dialogue with the world on evidence, outcomes, and patient well-being that will transform care.

As extraordinary as insights from the laboratory often are, better understanding the experiences of patients and health care providers can provide a roadmap for the critical last mile of medical care, where all policies, procedures, and practice converge into action.

Below, I offer some approaches drawn from my experiences working in health-care-delivery organizations, government, and industry. The principles I propose are my own and do not reflect official policies of any organizations with which I am affiliated.

We must strive to move beyond our own experiences. Those of us who work in health care inevitably refer to our own experiences with the health care system when making decisions about strategy and program design. Even at high levels of policy or strategy discussions, it is common to hear, “when I was at the doctor…” or  “when my mom was sick…” And while we can gain insights from these personal encounters, it’s critical to remember that our expertise inside the field strongly informs our experience.

All leaders in health care have a level of access, familiarity, and comfort with medical care that vastly exceeds that of the average patient. Consequently, as health care providers, we have to ask ourselves this question: What stories are we not hearing? If we don’t keep ourselves honest and consider the voice of the patient not in the room, we overlook opportunities to improve care for a substantial number of people.

Michael Porter and I recognized this limitation in our work studying the organization and structure of cancer-care delivery and published a case study that aims to track the complexities of navigating the healthcare system. It tracks the experience of a patient and her family as they seek to treat her adrenocortical carcinoma, cancer of the adrenal glands.

From the patient’s perspective we see the confusion of conflicting treatment recommendations, the frustration of opaque hospital processes, and the strain of deciding on a course of action – all through the lens of a diagnosis that gave the patient just a handful of months to live.

As health care professionals, we have to consider the context of that type of patient experience: a person struggling with a dauntingly complex system while facing a heart-wrenching turn of events.

Get authentic patient voices in the room. To lead change in health care, organizations must get in the room the voices of real patients – people whose lives are touched by our products and services.

Whether it’s legislation or strategy, the best-intentioned and most carefully considered policies will have weaknesses that are exposed only through execution. It’s no surprise that complex processes will face challenges in implementation. But by integrating patient voice early and often, those roadblocks can be better understood and more quickly remedied.

At Merck, Michael Rosenblatt, the company’s chief medical officer, and I worked with colleagues to develop “patient input forums.” This initiative brings in volunteer patients who suffer from health conditions relevant to Merck’s research. The forum typically features patients interviewed by master clinicians who are their treating physicians.

Through these forums, Merck scientists can better understand disease from the patient’s perspective, ask questions about care treatment and process, and identify areas of unmet need. They see firsthand that a patient isn’t a disease with a body attached but a life into which a disease has intruded.

At a minimum, these forums provide inspirational value to people within the company who support the company’s mission of improving and saving lives. At best, these forums can be the source of new insights to drive discovery.

Embrace online communities, but know their limitations. Online communities are a powerful, emerging avenue for insight into patient sentiment about a disease or therapy. Many communities are focused on particular diseases and focus groups, offering a locus of conversation on specific topics.

There are, of course, limitations, one of which is self-selection bias. People participating in an online community around their disease are already more engaged, more informed, and more tech savvy than many others. So while leaders in the health care system integrate the (undeniably valuable) insights from these communities into decision-making processes, we have to account for these patients’ above-average sophistication and its implications for their treatment choices.

Remember the other influences of patient health. As impactful as the increasing focus on patient voice can be, it’s critical for organizations to consider the other influencers of a patient’s health that the patient himself might take for granted. Family members, cultural traditions, stress levels, sleep habits, and numerous other lifestyle factors impact health but are often considered “just how things are.”

As patient perspective is better integrated into health care decision-making at all levels, the health care industry has an opportunity to expand the conversation to include everyday factors that collectively have a meaningful impact on health.

Overcome the risks – they’re usually worth the benefits. Because protecting patient privacy is so important in healthcare, integrating patient voice is not as simple as one might expect. Meeting the regulatory needs of any health care organization takes planning, flexibility, and cooperation across teams.

Through engaging the patient voice, we have a powerful tool to inspire and shape new solutions in health care, and there is real value in working through the associated challenges. As the health care system takes a more collaborative approach to helping patients and as patients become active participants, everyone wins.

American Firms Dream of Growth but Invest in Efficiency

After more than five years of sluggish growth, U.S. companies are finally starting to feel a bit more optimistic. The Federal Reserve is projecting GDP growth of 2.8 to 3 percent in 2014 (U.S. Economic Outlook for 2014 and Beyond, January 13, 2014, About.com), and our own research, “CEO Briefing 2014 –The Global Agenda: Competing in a Digital World,” found widespread optimism in the C-Suite about companies’ growth prospects.

What we are not seeing, however, are many signs of truly ambitious growth strategies which could result in companies putting newly restored balance sheets to work. For example, despite all the froth about how companies need to accelerate growth in emerging markets, three-quarters of the U.S. executives surveyed said they will continue to invest heavily in their home market, which is a largely mature and slow-growing economy. These executives said they are pinning their hopes for growth in the U.S. on gaining a greater share of customers’ wallets, not necessarily on expanding their base of new customers or opening up new export markets.

That leads to two interesting questions. If emerging markets are attractive, why is so much investment capital flowing to mature markets? And, if growth is mostly about gaining market share and developing new products, why is a substantial focus on investment to retain existing customers and make existing products and services more efficient?

On the efficiency topic, 87 percent of companies represented in the study plan to increase their investments in research and development – with a significant portion of this investment devoted to digital technologies such as mobile, cloud computing, analytics, social media, ecommerce, and machine-to-machine communication. Sounds good; “New investment in innovative technologies” makes a great headline for the next earnings call or annual report. But what’s underneath such headlines is fascinating: Most of the U.S. companies in the study generally view digital technologies as a way to streamline existing operations and improve customer relationships — not as an engine for growth.

In fact, 68 percent said that their investments in digital technologies are primarily focused on process efficiencies and cost reduction, while just 25 percent said such investments were geared toward helping the company reach customers. The emphasis is on greater operational efficiency – and on improving the experience for existing customers – rather than on growing sales, opening new sales channels, or creating new products or services.

U.S. companies are great at improving existing operations and thinking of new ways to apply technology to drive productivity. In a sense, this is the basis for the story of U.S. economic performance over the last 200 years. Much can be gained from increasing employees’ efficiency and keeping existing customers happy. But these investments are not the avenues to the robust growth that innovative technology offers.

Enthusiasm for digital technologies is not lacking. Indeed, U.S. executives were more likely than their global counterparts to believe cloud computing, data analytics, ecommerce, and machine-to-machine communication will be important to their businesses in the next year. And U.S. companies appear to be further ahead of their non-U.S. counterparts in applying digital technologies to their operations: 45 percent of the former and 36 percent of the latter said such technologies support at least half of their major business processes.

The real power of digital innovation, however, is in helping create and serve new markets with entirely new offerings, and that’s where U.S. companies are still waking up to the possibilities. We see two principles that U.S. business leaders should keep in mind as they contemplate investments in innovative technologies:

Don’t bring your old business model to the new digital party. Too many companies appear to be overlaying digital technologies on their existing infrastructure and business model. Banks, for example, may be increasing their volume of mobile transactions, but many do so while maintaining a costly system of branches and ATMs. “Going digital” for many companies means creating too many channels and fragmentation, at a higher cost structure, because the new costs of digital (such as new infrastructure, customer service, technology, and management) are simply layered on top of the old business model. The result is that too many businesses are making their operations more complex in order to offer convenience to customers who are paying no more than they were before. More costs, less profit, more complexity.

Look at what’s profitable, not at what’s possible. For all the talk about customer-centricity and improving the customer experience, the primary objective for most businesses is profitable growth. Giving existing customers new and delightful digital experiences makes the most sense when it is done in the context of a) lower costs; b) new cross-selling opportunities; or c) the opening up new channels to attract previously underserved markets.

As U.S. companies invest in digital technologies, the art of the possible is often the first discussion. Moving beyond productivity, efficiency, and customer satisfaction – table stakes for business operations today – they may want to consider whether digital represents an opportunity to sell new products or services, potentially reaching new markets. Some would say that is the big payout for companies as they harness what’s possible in a digital world. Let’s think carefully about rebalancing investments in digital to support growth that reaches beyond incremental efficiency gains.