Marina Gorbis's Blog, page 1457

Rich Incentives for Innovation Yield a Flood of Mediocre Ideas

Offering employees equity stakes and other lucrative incentives to spur innovation raises their output of mediocre ideas but does nothing to stimulate real breakthroughs, which are stubbornly rare, say Oliver Baumann of the University of Southern Denmark and Nils Stieglitz of the Frankfurt School of Finance and Management in Germany. For example, a policy increasing employees’ share of innovations’ profit from 10% to 90% would more than double the flow of incremental suggestions, creating a torrent of mostly unusable ideas, while the number of radical innovations would rise by virtually zero. Companies would do better to offer low-powered incentives for innovation, the researchers say.

The Logic Behind Facebook’s Recent Moves

Recently, two Princeton graduate students released a study predicting the demise of Facebook by 2017, using concepts from epidemiology. No quicker had the media reported the results of the study than numerous rebuttals were posted. A few Facebook data scientists had great fun by posting their analyses showing that Princeton University would run out of students by 2021 and that the Earth would run out of air by 2060.

Like many of us, I was initially intrigued, but skeptical after digging into the methodology. The authors used Google trends keywords as a proxy for Facebook activity rather than real usage data. There are many possible reasons that the keyword “Facebook” could decline in popularity in Google searches; only one of those possible reasons is that Facebook itself is declining in popularity. This is a weakness in the study, at least in the absence of other variables being tested.

Despite the weaknesses of the study, actual Facebook.com usage data is available and my recent book Breakpoint analyzed the data. It shows a very similar pattern for visits to Facebook.com – that is, the website, but not the mobile app. So while the chart below does look alarming, remember that it doesn’t take into account Facebook’s recent investments in mobile (like the purchase of Whatsapp).

There are ways to predict the rise and fall of networks, and comparing the spread of a social network to a disease isn’t entirely inappropriate. There’s a reason we say things “go viral”. In fact, networks show a predictable pattern in which the size of the network increases rapidly to a certain point and then either levels out or declines sharply. This is true of diseases within populations, ants in ant colonies, neurons in the brain, and social networks. The peak is called a breakpoint and all networks—not just Facebook—hit a breakpoint. In many cases, the breakpoint does signify disaster, very similar to the predictions made by the Princeton grads. Remember MySpace?

But breakpoints don’t need to be disastrous. Breakpoints indicate mass adoption of a network at a level akin to a monopoly. The trick is to identify the market size and manage through the point at which you have hit critical mass.

The size of a physical network is limited by the “carrying capacity” of the environment. For biological and technological networks, those limits are physical. The brain can only have as many neurons as can fit inside the skull, and is also limited by the capacity of other organs that support brain function. The internet’s size is limited by the cables, routers, and switches that transmit information; as it grows, the internet will also be limited by energy consumption.

Similarly, the size of a virtual network is dictated by its carrying capacity, only that capacity is measured by utility instead of physical resources. An online social network can only grow as big as it remains useful, and the usefulness of a social network can be measured as the ease with which users can connect and share with friends and (sometimes) potential friends. A social network with only a few people isn’t useful. But neither is a social network with billions if it becomes too cluttered to find what you’re looking for. To see what I mean, try finding the right “Mary Smith” on Facebook.

There’s a biological precedent for this. All communities only grow to a certain size, then they either reach equilibrium or they collapse. Those that fight this collapse die in an evolutionary war against resources. Those that allow for a natural breakpoint shrink in size, but grow in other ways. The brain reaches the limits of the skull and then shrinks in numbers of neurons but grows in intelligence as those neurons form better connections. Ant colonies naturally only grow to a certain number of ants, even if there is plenty of food available in the region. They communicate through scent as well as through interaction patterns, so if you add too many ants there is too much noise, congestion, and confusion for the colony to communicate effectively. So they maintain a size equilibrium, and at that point they create a form of collective intelligence, acting as a unit to do amazing things.

This isn’t an option for Facebook; it can’t simply limit the total user base or try to control how many Mary Smiths sign up. But it can still learn from ants and other biological networks. Facebook has jurisdiction over many factors that make it more or less difficult for users to achieve their fundamental goals. The most important element is clutter in the form of a sloppy interface, advertisements, and unwanted connections. The site’s utility goes down every time a user gets annoyed, and that annoyance is the biggest threat to Facebook’s survival. Too many users equals too much clutter. Think of the ant colony: if you threw some Candy Crush invites into the nest, or subjected the ants to the chatter of members of other colonies, they’d probably go postal… right before the colony completely collapsed.

This explains why Facebook has been making such bold investments in mobile. There are significantly fewer distractions on your Facebook app than on your desktop. You can’t help but kill the clutter on a mobile device. And despite Facebook’s slowdown on desktops, 2012 was a banner year for mobile: it was in fact the first year that users spent more time on Facebook mobile than on the desktop site, and that’s good news for the company.

It’s not just social media that’s moving to mobile. Overall, we’re increasingly eschewing desktops and laptops for mobile phones and tablets. Part of the reason is that we’re using the internet on the move, but the other part of the reason is that apps and mobile sites offer stripped-down versions of websites. Just the basics, none of the clutter. It turns out that there is also more value, more utility, in offering less. Hence Facebook’s purchase of the ruthlessly simple Whatsapp and their recent launch of Paper, which offers a cleaner interface and more relevant content.

Determining what users find most relevant, and providing that and only that, is both Facebook’s greatest challenge and its greatest opportunity for making it through the breakpoint. If it succeeds, Facebook’s network curve won’t look like what happened to MySpace or polio, rather it will stabilize like other successful networks:

To Create Healthy Urgency, Focus on a Big Opportunity

There are two basic kinds of energy in organizations. One, triggered by a big opportunity, can create momentum in the right direction and sustain it over time. The other, based on fear or anxiety, might overcome complacency for a time, but it does not build any momentum or maintain it. Instead it can create a panic, with all the obvious negative consequences — stressing people out and eventually draining an organization of the very energy leaders wanted to generate.

We’ve all seen both kinds of energy: opportunity-driven urgency versus anxiety-driven activity. The weight of all my work and experience point overwhelmingly to the fact that in order to create change of real significance, to execute any new and different strategy, you need a sense of true urgency among as many people as possible. I have found that with less than 50% of managers and employees feeling that urgency, you’re very vulnerable to failure.

I’ve also found that people often mistake anxiety-driven activity for a true sense of urgency. But the two are vastly different.

When a person has a true sense of urgency, sparked by a significant opportunity, they are moved by that thought and feeling literally every day. In addition to doing their daily jobs, they proactively look for where they might be able to take action that moves them toward the opportunity. In a faster and faster moving world, this dynamic is invaluable.

In contrast, when a person is motivated by anxiety-driven false urgency, they may be exceptionally active — conducting many meetings, generating reports and PowerPoints, and burning up lots of hours. But that is activity, not productivity, and it also tends to be activity that is self-protective not organizationally important. It is basically running in circles with great energy.

Moreover, because of the way perception and information get filtered in our management-driven hierarchies, it can be very difficult to distinguish false from true urgency. Both look very different from complacency. Both display movement, activity, and initiative. A competent and well-meaning executive may see a big opportunity and begin to act on it, assuming that others also see it and will follow accordingly. But because of the tiered and siloed system he or she operates in, the belief that all is well and that needed momentum rather than anxiety or panic is building, may be completely untrue. And when truth becomes known, the damage is usually already done.

What to do? My colleagues and I at Kotter International have found again and again that a sense of urgency around a big opportunity can create powerful and sustainable action. The opportunity must be real and clear, of course. And it must be described and communicated about in ways that people can relate to and that draws on people’s feelings, not just their intellects. Remember: hearts and minds. Without this kind of positive energy at the core, no significant change effort can succeed.

Here are a couple of related pieces of advice:

Never assume that the people you’re leading or working with see what you see, even if a problem or opportunity seems obvious, blazing, impossible to miss. People’s view of the world is limited by silo walls and the ceilings and floors of their level in the hierarchy. A few emails or town hall meetings will not change this.


Never forget that so-called burning platforms can create more problems than solutions. Think of a crowded movie theater. Before yelling “fire!” consider the risk of people being trampled to death trying to exit the theater, or consider that even if they do make it out alive they’ll probably run frantically in ten different directions before collapsing, exhausted. No organization needs that kind of negative energy.


Related to the second point, keep in mind what the psychologists have pretty much proven: when it comes to sustained effort at a high level, positive feelings are infinitely more successful than negative. Fear and anxiety produce adrenaline which keeps people going for a limited time before leading quickly to burnout.

For those who think their businesses have no opportunity that can create true urgency, all I can say is that I have yet to find a situation where one does not in fact exist. Put a group of smart managers or executives in a room, facilitate the right kind of discussion for a day, and they will come up with a clear and emotionally compelling opportunity statement every time. I’ve seen it, and I’ve seen the power that can be generated when you get a group of excited employees finding creative ways to use that idea to ignite passion in their colleagues, and make change happen.

The Strategic Mistake Almost Everybody Makes

“It is simple math,” the strategist said in a tone that sounded suspiciously similar to how I explain things to my six-year-old daughter. “Decreasing churn by a percent — a single percent! — creates tens of millions of dollars of value. A point of market share creates five times that amount. Our growth investments are years from providing that kind of return.”

The general point is right — a dollar of investment in incrementally improving the core is almost always going to earn a greater near-term return than a dollar invested in a growth business that might take years to incubate. It’s one reason why it is so critical that companies begin to invest in growth before they need growth so they create space and time for those investments to mature.

Unfortunately, few companies do that. Instead…

“So,” the strategist continued. “If we just take our investment in innovation and redirect it to our core business, we’ll be much better off.”

No, no, no, no, no.

Sure, in the short term the company might be mildly better off. And I’m the last to argue against making today’s business as resilient as possible. After all, the free cash flow generated by today’s business is what funds investment in tomorrow’s business. However, slashing investment in new growth is perhaps the most dangerous thing that a company can do.

Every business and business model has a finite life. Products come and go. Customer preferences change. As Rita Gunther McGrath notes, competitive advantage is increasingly a transient notion. The companies that last over long periods of time do so by creating new products, services, and business models to replace yesterday’s powerhouses.

A few years ago we had Netflix founder and CEO Reed Hastings at a private event talking about disruptive change. This was before the PowerPoint  that Netflix created to describe how it approached the management of talent had spread throughout the Internet (I still find that document a very powerful descriptor of how to build a culture primed for creative destruction), and Blockbuster was still a very viable competitor. Hastings was describing how he thought about managing big transitions, like the one Netflix was inevitably going to make from delivering DVDs through the mail to online streaming.

“My point to the management team and the board is that the big risk we face is technology obsolescence. That is the dominant risk,” Hastings said. “The little risk is that somebody screws up some bug in some product or financial restatement. Those are not good things, but that’s not how companies fail. How companies fail is through lack of technology or business model innovation. And so if we’re going to be thoughtful stewards of value, we need to optimize around the big risks.”

Companies need to make sure they balance investment in strengthening today’s business with investment in creating tomorrow’s. They need to evaluate new growth investments using longer time horizons and use different management techniques to grapple with the high degrees of strategic uncertainty those investments entail.

Portfolio theory has its naysayers, but few argue with the fundamental idea that diversification decreases risks and increases a portfolio’s potential. Do you remember the most efficient buggy whip manufacturer or the most profitable distributor of packaged ice? Of course not.

Decreasing investments in diversifying your corporate portfolio increases the risk that the pace of disruptive change in your industry (which is likely going to be more furious than what your models are telling you) has a cataclysmic effect on your business. Don’t fall prey to the strategist’s fallacy.

The Outsized Benefits of Simply Introducing Yourself

Beyond "My Name Is"The Smartest Thing Jimmy Fallon Did on His First Tonight ShowTime

While I'm not usually a fan of "leadership lessons you can learn from [insert pretty much anything here, including pets and inanimate objects]," this well-written piece from television writer James Poniewozik smartly frames an important decision made by new Tonight Show host Jimmy Fallon: He introduced himself to his audience. And we're not talking "Hi, I'm Jimmy Fallon, and I'm looking forward to this." In fact, Fallon "deliberately walked the audience through who he was, who his supporting stars were and what kind of show he was going to do," writes Poniewozik. "He literally, at one point, pretty much explained how a late-night show works."

In essence, aside from entertainment, Fallon's job is not unlike that of a new CEO: to make existing employees, or in this case Jay Leno's fans, OK with him. By creating a comprehensive introduction process, Fallon had the power to "frame the story, from the beginning, in a way that could make these long-time Tonight viewers — many of them older — comfortable with him." Successfully managing the transition requires a vital combination of attributes: being honest and coming across as "humble and considerate, acknowledging that he represented a big change and asking the audience for their attention rather than demanding it." 

The Lone Maverick How to Avoid the Venture Capital TrapFortune

With Facebook’s $19 billion purchase of WhatsApp all over the news, an image of a handwritten note from a cofounder of the mobile-messaging-app service is making the rounds. The company’s CEO keeps it taped to his desk. It says “No Ads! No Games! No Gimmicks!” You can add to that: “No Revenue!” Or, at least, not much revenue. WhatsApp’s dollar-a-year user fees don’t add up to much cash flow. Which is exactly the kind of thing investor Devin Mathews is talking about in a Fortune piece that he wrote before the Facebook deal was announced. For years, the media has been leading all of us to think that there’s only one real path to entrepreneurial glory: Come up with a great idea for an internet product, raise $50 million from venture capital firms, and sell to Facebook or Google for a huge price based on clicks, views, likes, or something other than revenue or profits.

But the reality is that the vast majority of tech-company founders use personal savings to fund their companies until the firms are profitable. That may not sound exciting, but it's a "story that needs to be told more often because it is achievable, it is common, and it is companies like these that prop up the U.S. economy," Mathews writes. Of course, you have to be smart to do it this way: You need "deep insight into the trends driving an industry and the needs of customers." You also have to have the self-awareness to change when things aren't working, the confidence to surround yourself with people smarter than you are, and the courage to be alone with your thoughts. —Andy O'Connell

It's Not All About Food Spain, Land of 10 P.M. Dinners, Asks if It's Time to Reset ClockThe New York Times

In the interest of increasing productivity and pulling itself out of an economic crisis, Spain may have to rethink its daily work schedule (long hours of work punctuated by long hours of meals and naps) and even shift its time zone. While this isn't necessarily news — Slate's L.V. Anderson points out that the time-zone campaign has been underway for a while — there's one important nugget buried toward the end of the Times piece: The current schedule may be a detriment to women. "These working hours are not good for families," points out a lawyer and mother of two kids. And sociologist María Ángeles Durán, while doubting that a time-zone shift would boost productivity (technology gaps and a service-oriented economy are more to blame), told reporter Jim Yardley it could help women: "She cited a survey she conducted of female lawmakers in Europe, who complained that men deliberately scheduled meetings in the early evening when women were under pressure to return home."

"For men, this is perfect," Durán notes. "They arrive home and the children have already had their baths! Timetables can be used as sort of a weapon." 

The Perfect BrandThere's Nothing Subversive or Anti-Business About 'The Lego Movie'Pacific Standard

True, the villain in the new Lego movie is named Mr. Business, but Fox Business's accusation that the film is therefore somehow anti-corporate is way off, says Kevin Nguyen. Instead, the movie's subtext is the Lego business itself, which has proudly bounced back from past questionable choices, including retail stores, theme parks, and the like. By renewing a focus on customers — including, recently, girls — the company has undergone a resurgence. The whole film is a celebration of this powerful brand, of the universe of products it has created, and the legions of fans it has acquired. Lego wants nothing less than to be the perfect global toy brand. And if that isn't the epitome of big business, I don't know what is. —Andy O'Connell

Off-Label Uses for BitcoinMarginally UsefulMIT Technology Review

Bitcoin is in essence a transaction log, says writer/programmer Paul Ford. Its block chain protocol — built on top of well-understood, established cryptographic standards — records with certainty, and publicly, which transactions occurred when. That’s a great boon to law enforcers, who have called the coins "prosecution futures." Backed by the full faith and credit of absolutely no one, they may not be an ideal form of money, but they’re admirably suited to turning other things into money. Take digital art. Attaching a coin to a digital image could turn an easily copied commodity into a one-of-a-kind digital image — that is, a rare (potentially valuable) piece of original artwork. Or imagine if a brand like Dunkin’ Donuts created its own currency: DunkinDollars. When people clicked on an ad for, say, a Dunkin’ iced latte, they could be rewarded with Dunkin’s own virtual currency. The currency could not only replace cookies as a way to track transactions but also could be exchanged in the open market, like a kind of penny stock. "The entire web of advertising would become a more interesting place," Ford argues. Rather than ads hunting for you, you’d have a reason to hunt for ads. —Andrea Ovans 

BONUS BITSI'm an Introvert. And You?

It's Safe to Come Out as an Introvert Now (Quartz)
Hush. (Medium)
Shaking Off a Shy Reputation at Work (The Wall Street Journal)

Engage a Mentor with a Short-Term Project

Last summer my friend Rick hosted his nephew, a recent graduate from university, for two weeks as an intern in his consulting business. Under Rick’s guidance, his nephew prepared presentations, assisted in customer engagement projects, built a scheduling spreadsheet, suggested marketing recommendations, and formalized a development plan post-internship. Although not paid, the perks included full room and board and weekend adventures in nearby San Francisco.

For interns, this type of expert-led learning is expected. But learning new skills and gaining more experience shouldn’t be limited to unpaid assignments. Young workers seek mentors for guidance and support in helping them grow professionally. But finding that unique supporter can be a challenge for many young workers. Not everyone has an uncle like Rick willing to devote the kind of time he did with the thoughtfulness about specific skills to be developed.

According to a survey conducted by SuccessFactors in 2012, the number one benefit Millennials request upon being hiring is to receive a mentor. Yet the experience of many mentors, especially those in limited supply such as senior executive women, is that the free-range scope of most mentoring engagements presents a time commitment and emotional investment that prevents having more than one or two protégés at a time. That puts suitable mentors in short supply for young workers. How can you improve the likelihood that you will get access to the best possible mentor? As Jeanne Meister and I discussed in the HBR Guide to Getting the Mentoring You Need, one way to improve the odds of getting the mentor you want is to be sensitive to their limited time through a short engagement. Think really short, as in, less than a month — in essence, a micro-mentor.

Imagine yourself as a potential mentor. Which one is easier to say yes to? The person who asks, “Will you be my mentor?” or someone who approaches you with, “I want to learn more about working directly with customers, and I’d like you to mentor me in that area for the next month with just two or three meetings. Are you available?” It is much easier to say yes to the second request. With careful planning, you can get a great mentor — or a series of mentors — by simply showing sensitivity to the mentor’s schedule. Limiting the engagement to a very specific development area ups the odds of getting the mentor you need even further.

How should you structure a micro-mentoring relationship? Here are six tips for this special kind of mentoring engagement:

Set targeted goals. Select one or two critical goals to focus on, and identify ways of measuring success. There’s nothing more draining for a mentor than a growing list of nonspecific goals and no end in sight.
Find the right person. Look for someone expert enough, but not so expert that they’ve lost the ability to connect with someone at your level. You want someone just out of your league — barely. If you don’t know someone directly, use your network of peers and your manager to find someone. Alternatively, your company might have a searchable directory you can access. One of the best ways to connect with people in your own company is LinkedIn, so try looking there as well.
Identify your role. Be precise about your goals and your commitment to drive the relationship. Explain your role in the relationship, and what you plan to do during the engagement, whether that’s assisting the mentor in specific projects, shadowing the mentor, or having regular discussions. By doing so, you will stand out in stark contrast to those who simply ask someone to mentor them.
Define the time commitment. The more specific you can be, the better. Using the example of someone asking for experience working with customers, you might ask to shadow the expert for one visit with a customer and for the mentor to respond to two structured one-hour interviews over the next month.
Leverage the mentor’s time. Consider buddying up with one or two other peers who have expressed the same interest. The mentor gets bigger bang for the buck, and you gain visibility as a group that pursues professional growth. Your targeted mentor also earns a reputation for nurturing talent.
Stick to your word. Don’t extend the time commitment uninvited or fail to do the things you’ve agreed upon. Instead, at the end of the engagement, thank your mentor and express your appreciation. Ask them if they’d suggest another area you should be developing and who they might suggest as a mentor. If you felt you seriously connected with your mentor and you’d like a longer engagement, define it as completely new and give them a graceful way to decline if they don’t have the time. If they’re interested, they will respond enthusiastically.

One of the top reasons mentoring relationships fail is that the mentor and protégé do not connect with each other on an interpersonal level. The micro-mentor engagement allows a try-before-buying opportunity as well, should you ever be in the market for a longer-term mentor. However, you just might find that getting known by a half dozen or so key experts in the company over the next year through micro-mentors is the best way to increase your skill-set and help you find your next career opportunity.

This is the second post in a blog series on using mentorship to advance your career. Karie Willyerd is a contributor to the HBR Guide to Getting the Mentoring You Need.

Read the other post here:

Post #1: Three Questions to Advance Your Career

Why Rational People Can’t Succeed as Economic Forecasters

We’re all used to economic forecasts. We’re also used to them being wrong. But there was a time when forecasts were new and exciting, and people were genuinely surprised when they didn’t pan out. This was during the first decades of the previous century, an era that Harvard Business School historian Walter Friedman chronicles in his new book Fortune Tellers: The Story of America’s First Economic Forecasters.

The forecasters Friedman profiles are Roger Babson, founder of Babson College, whose simple “Babsonchart” of economic activity helped make him probably the most famous of the lot during his lifetime; Irving Fisher, the Yale professor whose 1929 pronouncements about a “permanently high plateau” for stock prices are mocked to this day but whose fingerprints are also all over modern academic economics; John Moody, who along with making economic forecasts created the now-controversial credit ratings business; and C.J. Bullock and Warren Persons of the Harvard Economic Service, who are almost completely forgotten now but briefly wielded global influence. Friedman also devotes a chapter to Columbia economist Wesley Mitchell and Commerce Secretary (that was his job until he was elected president in 1928) Herbert Hoover, who weren’t forecasters but whose joint interest in the business cycle led to the creation of many of the economic indicators we use today.

The book is fun reading, but what makes it especially interesting for any regular consumer of modern economic forecasts is how little today’s forecasters have improved on the methods of the 1910s and 1920s. Yes, there’s better data and more sophistication in today’s forecasts, but the basic principles were already being worked out by Babson, Fisher, and the like a century ago.

I interviewed Friedman about his book for an HBR Ideacast, which you can listen to below. What follows are edited excerpts from that and a post-Ideacast conversation.

Download this podcast

There’s a lot of failure in your book.

Friedman: There is a lot of failure in my book, but I think forecasting is a very maligned industry. Most people look at the history of forecasting and think of it as a march of folly, because they look at whether [forecasters] have become more accurate over time, and the truth is they really haven’t. No one’s been able to produce a reliable method of making predictions of where the economy’s going, and they won’t be able to. But in the effort to forecast they’ve done a lot of great things — they’ve introduced leading indicators, they’ve created econometric models, they’ve created important institutions like the National Bureau of Economic Research, and they’ve come up with ideas of how to conceptualize the economy.

The very idea that there’s this thing called the economy was something new.

Everybody talks about Silicon Valley being this bunch of entrepreneurs who created the computer industry in their garages. This was a bunch of entrepreneurs who gathered data either in their basements or in some subdivision of their office, and invented the idea of the economy. They made it tangible, so that people got a sense that the businesses around the United States were connected in some way, that they all went up and down together, and that what somebody did in Cleveland had an impact on what somebody did in New York.

Your book describes a rivalry between Babson and Fisher.

Babson really believes in historical trends. He’s just a trend analyst. Fisher doesn’t think trends are important at all; instead he believes in causation. He tries to figure out how the economy actually works. What effect does it have if we innovate? What effect does it have if we change the way we manage firms? What effect does it have if we plow earnings back [into firms]? Fisher tried to find ways to quantify these changes, and the effects they would have.

In the late 20s the Babson approach and the Fisher approach came into direct collision. Who won that battle?

If you were an investor, you liked Babson much better, because by luck he got it right in fall of 1929. Whereas Fisher, who gets it wrong in 1929 — and loses everything, including his house — his ideas start to spread in the post-World War II period. Fisher’s ideas really catch on, whereas Babson is much more marginal as a figure.

So this move to a more theoretical approach, has it resulted in better forecasts?

I think the move in forecasting that really has made a difference is the transition from the idea of a fixed business cycle — that is to say, a business cycle that you can’t alter in any way and that is a bit like a meteorological cycle — to one in which the government can actually try to flatten cycles. That really has changed things.

Is there a risk that you get overconfident because of that? One of the things that happened in the ‘20s is that things kept going so well, and the forecasters who predicted a continued boom were right again and again. If you get very confident that government knows what it’s doing and can manage the economy well, does that increase risk at all?

I think the real danger is believing that any forecaster really knows what he or she is doing. One of the problems that people have with forecasting is that they tend to look at past accuracy as an indication whether or not to follow a forecaster, when in fact past accuracy is much more often based on luck, and what you really have to do is try to figure out what these forecasters are thinking about, what their reasons are, and then you can decide whether you want to follow one or another. If you just blindly look as to whether they got it right or wrong, then you’re probably going to fall for a guru one of these days.

That fits a theme that goes through this book, which is that you shouldn’t really entirely trust any of these people, yet at the same time they’re valuable to the economy.

I think you need to think of forecasts a bit like treasure maps, in that you always have to be skeptical of the person who would want to print and sell treasure maps en masse, when it’s much better for you to simply keep a treasure map, if you actually have a valid one, and get the treasure yourself. You have to keep in mind that these people are trying to sell their predictions, and that persuasion is as big a part of this industry as prediction is.

Who’s your favorite?

I think Babson is my favorite, because it’s just so hard to figure out whether he believed what he was promoting or not. He builds his whole idea about forecasting on Sir Isaac Newton, yet how can a rational person actually believe that booms and busts precisely equal out over time? And what does that say about the craziness of the profession? Who actually thinks that they can figure out where the economy’s headed with some certainty? You can’t really publish forecasts unless you have a conviction that you’ve figured something out. And yet most rational people go about that only with some real doubt.

The people who doubt ultimately will fail, because when they get a prediction wrong they’ll throw up their hands, they’ll say their model was wrong. And those who really believe that they’ve got the right method will just explain away all of their failures and just keep pushing their model.

That sounds a lot like Philip Tetlock’s hedgehogs and foxes, where the people who keep hammering at it and don’t care if their forecasts are wrong are more likely to be wrong. It’s the foxes, the people who are willing to take in new information and don’t have one overarching theory of the world, who are better at prediction. But what you’re saying is you’re never going to make it in the forecasting business if you have that approach.

I think there’s a big marketing side to this story, and the ones who were good marketers ultimately succeeded. The pioneers were all basically people with a very strong sales sense. Moody succeeds because he’s very aggressive at selling. He tells these stories about going on the train and putting his prospectus on every open seat. Babson sends his salesmen all around the country. Fisher believes in syndicating columns and getting his predictions in front of every newspaper reader every Monday, which is another smart thing to do. They’re all very good at that.

The ones that are really bad at that are the Harvard group. They’re completely useless. They believe that they’ll just basically market to their alumni. Well, it’s a very small pool, so they don’t make any money, and partway through the ‘20s they just decide that they can’t make any money doing forecasts anyway, so that they’ll just try to keep enough [subscribers] so that they’ll make their budget every year and try to influence the field rather than make money.

In Defense of Corporate Wellness Programs

A recent HBR blog proposed to deliver “The Cure for the Common Corporate Wellness Program.” But as with any prescription, you really shouldn’t swallow this one unless all your questions about it have been answered. As a physician, a patient, and a businessman, I see plenty to question in Al Lewis and Vik Khanna’s critique of workplace wellness initiatives.

With their opening generalization that “many wellness programs” are deeply flawed, the authors dismiss a benefit enjoyed by a healthy majority of America’s workers. Today, nearly 80% of people who work for organizations with 50 or more employees have access to a wellness program, according to a 2013 RAND study commissioned by the U.S. Department of Labor and the U.S. Department of Health and Human Services.

It’s not clear whether the authors are intentionally dismissing or simply misunderstanding the wealth of data that shows how wellness programs benefit participating employees. The RAND study summarizes it this way: “Consistent with prior research, we find that lifestyle management interventions as part of workplace wellness programs can reduce risk factors, such as smoking, and increase healthy behaviors, such as exercise. We find that these effects are sustainable over time and clinically meaningful.”

Lewis and Khanna, however, don’t focus on such findings. Instead, they question the motives of a company for even offering a wellness program, which they slam as an “employee control tool” and “a marketing tool for health plans.” And, in perhaps the most baffling statement of all, the authors suggest that workplace wellness initiatives are “trying to manipulate health behaviors that are largely unrelated to enterprise success” (emphasis mine).

Let’s consider that piece by piece. What are the behaviors that corporate wellness initiatives are trying to influence? According to the RAND study, the most common offerings — available in roughly 75% of all wellness initiatives — are on-site vaccinations and “lifestyle management” programs for smoking cessation, weight loss, good nutrition, and fitness. In short, companies want to reduce the risk that their workers will get the flu, develop lung cancer, or suffer from the many debilitating conditions linked to overweight and a sedentary lifestyle. How could these initiatives be deemed “largely unrelated” to the company’s success?

I beg to differ, and there’s plenty of data to back me up. Many companies may have instituted workplace wellness programs initially as a way to reduce health care costs. However, a growing body of research suggests that nurturing employee health and wellness has a significant impact on productivity — which, as we all know, has a direct bearing on company profitability. Consider this paper by Harvard researchers who reviewed 36 studies of corporate wellness programs. The researchers reported that for every dollar large employers spent on wellness programs, they saw company medical costs fall about $3.27. But even beyond that payoff in health, the study found a comparable payoff in productivity: For every dollar spent on wellness programs, the companies’ absenteeism-related costs fell about $2.73.

Good health “plays a large role in employee productivity,” says a research study by the Milken Institute, an economic think tank. The institute’s researchers concluded that common chronic diseases (including cancer, diabetes, and heart disease) are responsible for $1.1 trillion in lost productivity annually in the U.S. economy. They attributed those losses both to absenteeism and to “presenteeism,” when employees come to work too unwell to do their jobs.

The RAND report says its research “confirms that workplace wellness programs can help contain the current epidemic of lifestyle-related diseases, the main driver of premature morbidity and mortality as well as health care cost in the United States.” If Lewis and Khanna think that such achievements don’t having bearing on enterprise success, we’ll just have to agree to disagree.

What I do agree with are the authors’ recommendations that employers follow the U.S. Preventative Services Task Force’s screening guidelines for generally healthy adults and their advice to tread lightly on promoting annual physical exams. Over-screening drives up health care costs, increases the likelihood of unnecessary treatment, and can even do more harm than good. And I certainly can’t quibble with their recommendation to ask employees what they want: Some of the best wellness programs I’ve seen stem from tight feedback loops between management and employees that lead to popular and effective wellness programming.

But I’m profoundly troubled by the authors’ intimation that corporate wellness programs are more about control or manipulation than about enhancing employees’ health. After working on wellness programs with hundreds of business leaders for the past eight years, I’m convinced that most of them truly want to support their workers’ well-being for three overarching reasons:

Humanity. Yes, it exists in the C-suite, despite what cynics say. Executives at America’s largest companies believe investing in the health and wellness of their employees is simply the right thing to do.

Fiscal responsibility. These leaders are under great pressure to rein in soaring health care costs, and they rightfully see wellness programs as one way to do that.

Perspicacity. Insightful executives look for every competitive advantage they can harness, and that’s what healthier employees represent. “Employers are recognizing that good health is a total business issue, and a lack of it affects workforce performance,” says a recent Towers Watson study. “Most now point to establishing a culture of health as their top priority and an essential factor for success.”

It may sound clever to ask executives the question that Lewis and Khanna pose: “Are you doing wellness to your employees or for your employees?” But neither choice seems ideal. In the many well-run companies that I work with, I see conscientious leaders doing wellness with their employees — a shared mission to cultivate a healthier workforce for everyone’s benefit.

In a New Culture, Wait to Cut to the Chase

Xavier Frei wanted to get down to business. A Zurich-born manager with 10 years’ experience working in Germany and Switzerland, Xavier had just landed a few days ago in Monterrey, Mexico, at a small pharmaceutical company that was recently purchased by Xavier’s company, a major European pharmaceutical firm. Xavier’s new role, at least for the next year, was to lead a product development team in Monterrey.

Excited about the new role and anxious to get quick results to impress his own manager, Xavier wanted to hit the ground running. He arranged a meeting of his team and set out responsibilities. He detailed very clearly the tasks people were expected to perform, as well as the dates that certain deliverables were due by. Xavier also explained to the team the urgency that his company felt from European competition and how their work pace would probably be quicker than it had ever been before in that particular company.

Xavier did everything he could to create efficient, optimal working conditions, but for some reason it did not seem to be working. Although no one complained, it didn’t seem like his team respected or trusted him. Xavier noticed how people in the office would be so friendly and convivial with each other, but when they saw him approaching, they would scatter. Xavier had been such an effective engineer in Europe, but there clearly was something different here. How could he turn things around?

A key mistake Xavier made was in taking an overly “businesslike” approach with his Mexican colleagues. In Mexico, relationships matter. It is critical for a boss to show that he knows and cares about his subordinates’ personal lives and families. Business is, of course, also important in Mexico, but the way a boss motivates workers is not completely “businesslike.” A smart manager must integrate the technical and the personal in order to motivate his team.

Global leaders can often struggle when trying to strike the right balance between building relationships and getting down to business. This process is generally easier in one’s native culture, because most people intuitively recognize the relative balance that each of these qualities typically has in the cultural cocktail of an individual country. In Mexico, it’s critical to develop a great deal of time and effort toward getting to know each other and building relationships before focusing on work, whereas in Germany, it’s perfectly acceptable to cut to the chase far sooner to get down to business. But what happens when working across cultures, especially when you are managing a team of people from mixed cultural backgrounds? How do you strike a balance between socializing and executing?

The first tip as a leader is to recognize and read your context. Are you working in a relationship-oriented culture? A task-oriented one? Or a combination of both? As the original example illustrates, national culture clearly plays an important role in this regard. Mexico is an example of a relationship-oriented culture. So too is China, where building deep, personal relationships is a precursor for developing trust and legitimacy. However, one mistake people often make when crossing cultures is to assume that national culture is the only dimension of culture to consider. It’s equally important to recognize the culture of the region you’re operating in, as well as the industry and the company itself. Even in China and Mexico, for example, there are some companies with very different organizational cultures than the country norm. Understanding these nuances is critical as a leader or manager for calibrating your own optimal balance of relationship-building and task-orientation.

Additionally, just as understanding the culture is critical for achieving this optimal balance, so too is reading the backgrounds of the individual people that you are engaging with. In the case of Xavier Frei, his employees were locals of the particular region he was operating in. In this case, he needed to adapt a “when in Rome” type of strategy and adapt to that particular context. But what if your employees happen to be atypical for the national cultural context? Or you have a mix of employees from various countries with a varied set of backgrounds? In this case, you have more leeway to develop your own set of expectations for balancing and integrating relationship-building and task-orientation. Of course, you will still need to pay heed to the culture of your particular company — which often has an unspoken, but fairly clear answer to the question of how to blend norming and performing.

Finally, as a leader, you do have the power to create a culture within your team, so do so thoughtfully and purposefully. What is the right blend or mix or fusion between task and relationship building that works for you and your team in the particular context you’re in? How might this change over time as your team progresses through various stages of its work? There is no single answer to these questions or recipe that works in all situations, but by asking these critical questions, you will be on your own way toward creating a culture that works for you and your team in your local setting.

Will Your Entrepreneurial Personality Sink Your Start-Up?

Some of the personality traits that draw people into starting their own companies can lead to negative workplace behaviors that cause the start-ups to fail, according to a study of more than 2,000 managers by Adrian Furnham of University College London and two colleagues. Among the traits that are the most predictive of managers’ being attracted to entrepreneurism are an inflated view of self-worth, perfectionism, and attention-seeking; under pressure, these can result in overbearing behavior, a sense of entitlement, micromanaging, slow decision making, stubbornness, and distraction, the researchers say. Managerial behaviors of this sort may contribute to new enterprises’ high rate of failure.