Marina Gorbis's Blog, page 1546

When It’s in Your Interest Not to Be Self-Interested

“I have never known much good done by those who affected to trade for the public good,” Adam Smith wrote in The Wealth of Nations. “It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.”

What truly promoted the public good, Smith argued in the same famous paragraph, was the merchant who acted in his own self-interest, and in the process was

led by an invisible hand to promote an end which was no part of his intention … By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

Just because Adam Smith wrote it doesn’t make it true. But you have to admit that his distinction sort of feels right. Profit-seeking businesses have surely created more wealth than and brought at least as much positive social change over the past couple of centuries as philanthropists and governments. And do-gooders seeking to alleviate societal ills — poverty in Africa, say — have a frustrating habit of causing at least as many problems as they solve.

So what exactly is one to make of a new movement like “impact investing,” about which the World Economic Forum issued an intriguing report on Thursday? One of the definitions of impact investing, according to the report, is that you have to intend to have a positive environmental or social impact when making the investment.

This amounts to a willful flouting of Adam Smith’s warning, something that not just impact investors have been doing lately. Lots of big corporations are, at least in their marketing and employee recruiting, emphasizing purpose over profits. The entire Millennial generation, we are told, sees business as a big playground for social responsibility and idealism.

One way to look at this attitude, as Adam Smith did in 1776 and Milton Friedman reprised in a famous critique of an earlier generation of corporate idealists back in 1970, is as a dangerous distraction from the true role of business. Another is to see it as mainly window-dressing, a way to make employees feel better about the work they do, customers feel better about the products they’re buying, and investors feel better about the profits they’re making. This can have real economic value if, say, it means you can recruit better employees or get them to work harder. But it still feels a little dodgy.

Several of the impact investing types who showed up at the World Economic Forum’s New York office first thing Thursday morning to discuss the new report offered hints of another, more satisfying explanation. What this is really about, said Audrey Choi, head of global sustainable finance at Morgan Stanley, is “redefining how mainstream investment managers understand risk.” David Chen of Equilibrium Capital Group said the strength of impact investing is its “longevity of value.”

Psychologists and behavioral economists have in recent decades accumulated lots of evidence that humans tend toward myopia in financial decision-making — we are “hyperbolic discounters” who place a lot of value on immediate rewards and rapidly lose interest if the payoff seems far away. In other words, we often self-interestedly act against our long-run self-interest. In financial markets, where most decisions are made by professionals managing other people’s money, this psychological tendency is often reinforced by the economic incentives faced by those professionals. As Andrew Haldane and Richard Davies of the Bank of England documented in 2011, “[c]apital market myopia is real. It may be rising.”

All this talk of purpose and impact, then, can be seen as a way of nudging decision-making in a more long-run-oriented direction. It’s an imperfect way — a heuristic, basically. It clearly brings with it some dangers. But there’s a reasoning behind it that Adam Smith and Milton Friedman appear to have missed.

There’s More Laughter Among U.S. Monetary Policy Makers When Inflation Worries Are High

In meetings of the U.S. monetary-policy-setting Federal Open Market Committee, a member tends to elicit more laughter if he or she expects inflation to be higher in the coming year, according to an analysis of transcripts by American University doctoral candidate Kevin W. Capehart. A 1 percentage point increase in a member’s inflation forecast is associated with a one-half-laugh, or 75%, increase in the amount of laughter elicited by his or her witticisms during a meeting at the time of the forecast. Humor has been shown to be a mechanism for coping with the psychological stress of a perceived threat, Capehart says.

Dealing with Team Members Who Derail Meetings

What does your team do when someone takes a meeting off-track? If your team is like most, the leader says something like, “Lee, that’s not what we’re talking about now” or “Let’s get back on track” or the team simply ignores Lee’s comment and tries to bring the conversation back to the original topic.

But if your team responds in any of these ways, Lee may continue to press his off-track point, the meeting may drag on with members getting more frustrated with Lee, and the team won’t accomplish its meeting goals. Or Lee may stop participating for the rest of the meeting and the team, without realizing it, loses Lee’s critical input and support for implementing a team decision.

If you assume that Lee or others who derail a meeting are the problem and the solution is to get them back on track or stop them from talking, you may also be off-track. These team members’ behaviors are often a symptom of larger team problems. Team members often make off-track comments when there isn’t clear agreement on the meeting’s purpose or process, or when the team doesn’t provide time to hear each team member’s thoughts on a topic. Sometimes the problem is that you think others are off-track when they are not. So how do you handle it?

Agree on the track before going down it. Team members can’t be off-track if the team hasn’t agreed about what track it’s on. If your team doesn’t explicitly agree on the purpose and topic for each part of the meeting, then team members will use their own understanding to decide what is on-track. Because members will naturally have different interpretations, one team member’s comments can easily seem off-track to others.

Start your meeting by saying something like, “My understanding of the purpose of this meeting is X; does anyone have a different understanding, or think we need to add anything?” Even if you called the meeting and set the agenda, this ensures that if people think other issues need to be addressed, they can say so, and have them considered for the agenda, rather than raising them as off-track items. If it’s not your meeting and there is no agenda, simply ask, “Can we take a minute to get clear on the purpose and topics for the meeting to make sure we accomplish what you need?”

Check that others are ready to move down the track. When moving to a new topic, rather than say, “O.K, let’s move on” or simply move on to a new topic, say something like, “I think we’re ready to move to topic Y; anyone have anything else we haven’t fully addressed on X?”  If some people aren’t ready to move on, find out what needs to happen before they can move forward. This reduces the chance that people will re-raise issues that you thought had been fully discussed. If your team is staying on track but regularly runs out of time before completing its agenda, then you’re underestimating the amount of time necessary to make high-quality decisions that generate commitment. When you and the team agree on the track and make sure everyone is ready to move on, you are jointly designing next steps, which builds commitment to decisions.

Test your assumption that the meeting is getting derailed. If the team has agreed on the topic to discuss and you still think that someone is off-track, say something like, “Lee, I’m not seeing how your point about outsourcing is related to the topic of our planning process. Help me understand, how are they related?” When Lee responds, you and other team members might learn about a connection between the two topics that you hadn’t considered. For example, Lee might say that outsourcing will free up internal resources so that the team can complete the planning process in less time. If there is a connection, the team can decide whether it makes more sense to explore Lee’s idea now or later. If it turns out that Lee’s comment isn’t related but is still relevant for the team, you can suggest placing it on a future agenda. One caveat: there are times when it is critical to address team members’ issues immediately, even if they are off-track. If team members raise highly emotional issues about how the team is working together, it is important to acknowledge the issue’s importance and then decide whether it is more important to address than the current agenda topic. Sometimes focusing on how the team works together is more critical than focusing on the team’s substantive topics.

This isn’t simply a polite way of dealing with people who are off-track. It’s a way to suspend your assumption that you understand the situation and others don’t, to be curious about others’ views, and to ask people to be accountable for their own contributions so that the team can make an informed choice about how best to move forward. For this approach to work you can’t just say the words; you have to believe that Lee might be on-track and that you don’t see the connection.

By getting explicit agreement about the meeting purpose and topics and by being genuinely curious when people seem off-track, you and your team can move faster and accomplish more in your meetings.

Clay Christensen and Dominic Barton on Consulting’s Disruption

The HBS sage and McKinsey head discuss how to stay on top in a rapidly changing industry. For more, see the article Consulting on the Cusp of Disruption.

Download this podcast

Government Alone Can’t Solve Society’s Biggest Problems

Rising obesity. Human Trafficking. Re-skilling the workforce. A lack of quality education and safe water for the poor in the developing world. Whose job is it to solve these problems?

For decades, the answer to that question has been simple: government. Until relatively recently, governments provided for the public good, while the private sector largely stuck with Milton Friedman’s admonition that the social responsibility of business was to increase its profits. Thinking beyond the bottom line was considered unfocused or, even worse, a disservice to shareholders.

Today, the landscape has changed dramatically.

A new economy has emerged at the borderlands where traditional sectors overlap. This economy trades in social outcomes; its currencies include public data, reputation, and social impact. Previously untapped markets drive financial returns. The business models are unusual. The motivations range from moral obligation to new notions of public accountability, or even shareholder value. This “solution economy” represents not just an economic opportunity, but a new manner of solving entrenched societal problems.

New problem-solving innovators and investors power this solution economy. These “wavemakers” assume many forms, including edgy social enterprises with the mentality of a Silicon Valley start-up, megafoundations, and Fortune 500 companies that now deliver social good on the path to profit. They range from Ashoka, which deploys 3,000 citizen changemakers in 70 countries, to the global pharmaceutical giants that annually give away billions of dollars in medicine to low-income citizens.

Consider just a few data points. In 2009, private US philanthropy to developing countries exceeded official US government aid by almost $9 billion. In one survey of 184 global companies, the average company contributed about $22 million to philanthropy, with the group total exceeding $15 billion in just one year. Even institutional investors have directed funds to organizations that create public value. Socially responsible investing has grown into a $1 trillion industry.

The solutions designed by today’s wavemakers depend less on whether a problem is public or private, social or commercial, economic or political. Rather, designs consider the ability to reach the previously unreachable, raise funds from untapped sources, and leverage social networks — all conditions that fuel new markets for solving entrenched societal problems.

These multi-billion-dollar markets are forming around some of the world’s toughest problems — from fighting malaria to providing low-cost housing to educating the poorest of the poor. In these solution markets, businesses, social entrepreneurs, nonprofits, and multinational companies compete, coordinate, and collaborate to solve megaproblems. Instead of trying to patch a market failure, they create a market for the solution. Foundations, venture philanthropists, governments — and, often, private businesses themselves — act as funders, investors, and market makers.

Unlike most government-driven programs that check their ambition at political borders, these emerging solutions spread nimbly across the globe. In less than a decade, Unilever’s Project Shakti microloan program for women in rural Indian villages expanded from 17 saleswomen to 43,000, serving 3 million Indian households; it is now spreading to Sri Lanka and Bangladesh.

This all might inspire a touch of skepticism. You might be thinking something like this: We have markets in shoes, in homes, and in automobiles, but markets in societal outcomes? It seems illogical. Weren’t these big, wicked problems the very areas where we’ve experienced market failure in the first place — where government was forced to step in? Take something like human trafficking. It’s easy to see how there can be a market in engaging in this awful practice, but can a market be constructed to help stop it?

We assert that yes, you can create markets — or at least market mechanisms — around problems like environmental cleanup, transitioning from welfare to work, and even human trafficking. In fact, markets and economic ecosystems are developing around all manner of societal problems. The buyers in these markets purchase impacts or outcomes: healthier communities, kids who can read, reduced recidivism. The sellers provide outcomes: they design cheap, solar-powered lights; write the code that tracks salmonella outbreaks using government data; and build the cross-sector networks to fight scourges like human trafficking.

What about government? Its role has now shifted. Sometimes it is a funder; sometimes it integrates all the players; sometimes it’s the market maker; sometimes it’s just one of many contributors to the solution. Sometimes all it has to do is provide a space for these solution markets to work.

The Right Innovation Mindset Can Take You from Idea to Impact

Thomas Edison said it over a century ago: “Genius is 1 percent inspiration, 99 percent perspiration.” Unfortunately, when companies launch innovation initiatives, they tend to devote most of their time, energy and attention to that initial 1% – the thrilling hunt for the breakthrough idea. The real innovation challenge, however, lies beyond the idea, in a long, hard journey from idea to impact. Innovative companies sustain a track record of success by creating the right “climate” for employees to cultivate the innovation mindset — to think different, act different, and achieve extraordinary success.

Think Different

Opportunities

Not every idea is worth pursuing. The first step is to narrow down the ideas to worthwhile opportunities. Have a process to evaluate whether it is the right opportunity by asking: Do we want to pursue this–does it align with our purpose? Can we execute it–does it align with our core competencies? If it takes off in the best possible way, will the benefits be worth it? Are the risks such that the damage won’t be irrecoverable if things go wrong?

Dare to seize the opportunities that meet these criteria. Create mechanisms to seed fund and resource the right opportunities. Have a portfolio view of the opportunities, and ensure that there is a balance of opportunities that span current, adjacent and new space. Recognize that seizing the opportunity is but a tiny first step – like a little plant has sprouted. You have to nurture it patiently until it grows into a big tree with deep roots and a thick trunk.

“And” Thinking

The next challenge is to strike the right balance between getting the most out of these opportunities AND keeping your performance engine humming. What are the best structures to create so you neither disturb the rhythm of the performance engine nor drop the ball on opportunities? Many organizations embark on large-scale change management efforts to “make” their organizations more innovative; most fail. Our guiding principle is quite the opposite: Do no harm. The challenge is not just to make innovation happen, but to do so while simultaneously excelling in ongoing operations. Butter before Jam. Cake before icing. But butter AND jam. Cake AND icing. If the performance engine is humming along, it’s best not to impose an innovation challenge if it would disturb that rhythm. We would opt for minimal change on that front, and creating dedicated innovation teams that work in partnership with shared staff. Rather than major surgery, aim for precision surgery or micro surgery.

Act Different

Resourcefulness

Create a climate where resourcefulness is encouraged and rewarded. Pass down organizational stories, highlighting the obstacles that employees powered through to get results, through successive generations of leaders.

Achieve Extraordinary Success

Outcomes

Create a climate in which employees can focus on outcomes instead of getting caught in the activity trap. Create separate planning processes for innovation efforts that are big enough to require dedicated teams. Unlike the performance engine–where the planning process is focused on financial, customer, and market share performance–the innovation planning process needs to focus on learning, viewing innovation as a disciplined experiment. What gets measured gets done. In companies that consciously cultivate a climate of innovation, innovation is not about no accountability, but a different kind of accountability. Construct just enough structure to make sure you’re making progress in the right direction, and no more.

If a flight going from Dallas to New York were a degree off, it would end up in the sea instead. Most flights, in fact, are more than a degree off 95% of the time. Most flights, though, land where they are supposed to. How do they do it? One key reason: the pilot has a “rough” flight plan and engages in dynamic course correction.

This same notion of a “rough” plan coupled with dynamic course correction is what we recommend in innovation efforts. If the performance engine has monthly planning meetings, the innovation side should have weekly “course correction” meetings. If the performance engine is on a weekly rhythm, the innovation side has to step it up a notch and get on a daily course correction cycle.

Expand the Pie

When the business model has stabilized, have systems in place to encourage employees to “expand the pie” by developing new revenue streams, increasing reach, or converting non-consumers into consumers. For example, Apple expanded its pie by creating the App Store, where individuals and small development shops could stand on Apple’s shoulders and reach a market they never could otherwise. In turn, Apple’s reach increased because their customers got access to a much larger pool of software. They expanded the pie for themselves, their partners, and their customers.

Innovation execution is neither innovation nor execution but its own strange beast. When tamed, however, it can be a source of enormous strength, lasting differentiation, and sustained success.

Executing on Innovation

An HBR Insight Center




Lessons in IT Innovation From Silicon Valley
Research: Middle Managers Have an Outsized Impact on Innovation
What’s the Status of Your Relationship With Innovation?
Innovation Isn’t an Idea Problem

13 Years, 175 Million Users, Little Profit: What Pandora’s New CEO Needs to Do Next

After 13 years and 175 million users, Pandora has yet to turn a profit.

Brian McAndrews, Pandora’s new CEO, faces two challenges as he steps to the helm: reducing royalties from the 50-60% of sales currently paid, and increasing revenues per listener hour. The former represents the company’s central challenge, and is the subject of an ongoing war with rights-holders. But McAndrews can’t wait until that problem is solved to begin plotting Pandora’s future.

What Pandora Has Done Well

Aggressively pursued mobile revenue. In Q2 2013, mobile revenue per 1K listener hours was $34, up 50% from $22 in 2012. Desktop revenue has stabilized around $60, only growing 3.8% in the same period.

Limited mobile hours. Pandora recently capped free listeners at 40 hours per month (since 80% of listener hours are on smartphones) to stem losses until mobile advertising reaches similar margins to desktop.

Declared war on anti-competitive pricing from rights-holders. Both terrestrial and satellite radio pay much lower fees per hour of music than Pandora. And, according to Pandora’s assistant general council, at least 16 out of the top 20 Internet radio companies pay less than Pandora. Terrestrial radio pays a fixed fee (for 2012, BMI fee ranged from 0.3 – 1.7% of gross revenues), while satellite radio pays 9% of revenues (compared to Pandora’s roughly 60%). Pandora has responded with negotiating, litigating, lobbying and galvanizing its users – and has even bought a radio station to try and even the playing ground. So far to no avail.

But these incremental improvements are not enough. Although increasing mobile revenues are driving down royalty costs as a percent of revenues (52% in 2013 Q2, compared to 61% in FY2012), royalties have risen in each of the past three years, and these cost increases are slated to continue. While non-internet competitors pay as little as a few percent of revenues, Pandora’s prospects are grim.

What Pandora Should Do Next:  Pick Low-hanging Fruit, and Consider Transformation

Ultimately, Pandora will either need to pay similar amounts to other radio stations or abandon its current business model. But, in the meantime, McAndrews has options. Some are quick wins, and some verge on transforming Pandora’s business:

Better Ad Targeting

Use geolocation data for mobile ads. I often get mobile ads for businesses in NC — where I lived years ago. There’s no excuse for not using GPS and IP data to update my location and serve me appropriate ads.

Strongly encourage Facebook integration. Encourage people to sync their accounts with Facebook Connect to benefit from more user data, and the ability to better target ads. Right now, the only thing Pandora knows about me is my music taste; most ads are poorly targeted.

Partner with geo-located promotions. Since most listening is mobile, take advantage of geographic data, Facebook user data, and predictive modeling to partner with companies like Foursquare, Yelp, Square, or daily deals sites to serve targeted promotions that translate into real-world purchases.

Invest in predictive modeling for ad targeting. Beyond simple geographic data, Pandora could focus on predictive modeling to optimize outcomes based on specific promotions, and use conversion data from partners to evaluate success. There’s a lot of advertising value on the table beyond simply making sure that listeners are in the same city as an advertiser, or has a vaguely related interest.

Build the Market for Audio Ads

Develop a simple audio ad production product. Begin to compete with the ease of Google and Facebook advertising by facilitating low-cost audio ad production. Allow companies to submit text that will be produced as a simple ad for location-based ads or promotions — allowing many more advertisers to air audio ads. (Listen to Radiolab’s listener-narrated advertisements as an example.)

Develop an audio ad marketplace. As internet radio competition intensifies with Microsoft and Apple’s entry, enlist the longer tail of customers cultivated in the simple audio ad production product by offering an ad marketplace that connects customers with listeners on other audio networks. Such a network could provide high-margin revenues and improve sales effectiveness. If the network were a platform to connect advertisers to independent ad producers, it might eventually capture some of the ad revenue destined for major competitors’ stations.

Build Better Products for Artists and Venues

Introduce a new license for independent artists. Emulate Soundcloud’s user agreement for independent artists and voluntarily pay rates in line with what artists receive per user-listen from terrestrial radio. Then rewrite playlist algorithms to select these artists’ tracks more, helping artists much more through increased exposure than through slightly higher micro-royalties.

Develop a promotional platform for music venues and artists. Let artists and music venues advertise specific events, and monetize part of the value created for the music industry by directing fans to concerts they would love.

Launch a music ticket product. The artist promotion platform could allow people to buy tickets with a single click. Initially, this might require a concierge service and small transaction fee to facilitate purchasing tickets from multiple ticketing platforms, but this approach would allow pay-for-conversion advertising and could eventually let Pandora compete directly with Ticketmaster/LiveNation by developing a more artist-friendly ticketing platform.

Become an artist platform. Pandora has created much more value for the music industry than it has ever been able to capture through ads. It could reposition itself as what music labels should be, using its unique resources and user data to identify, develop, and market new talent, relying on a more effective model to grow the music industry by channeling much more profit to artists.

Some of these suggestions are obvious — I should not be hearing ads about an auto parts shop 1,000 miles away, or for fast food I will never buy. Others are entirely new business models. Together they give McAndrews a menu of options to improve his strategic position while Pandora’s battle over royalties rages on.

For the company to prosper, it must eventually decrease royalty rates and increasing mobile revenues. But, with competition intensifying and major resources underutilized, Pandora should start building the next version of its business model today.

For more information on radio royalties, see @degusta’s analysis here. 

For an overview of Pandora’s current economics, see @knowledgwharton’s article here. 

A Better Way to Encourage Price Shopping for Health Care

Several studies show wide variation in prices for common health care services, even within local areas. For example, a recent report from Massachusetts found that there was at least a threefold difference between the maximum and minimum price for common hospital and professional services such as cesarean or vaginal delivery, MRIs, and office visits, and that for most, including office visits for psychotherapy or eye exams and hospitalizations for appendectomy or heart attacks, the difference was six- or sevenfold. These findings are also echoed in the recent release of Medicare data showing large variation in charges for hospitalizations across communities in the United States. Moreover, prior research has also shown that there is little correlation between price and quality of care for inpatient care and that higher-priced providers control a large share of the market. Not surprisingly, given these facts, most analyst agree that encouraging price shopping for health care represents an important opportunity for reducing health care costs without adversely affecting patient outcomes.

Clearly, existing efforts to encourage price shopping haven’t led to desired results. We need fresh thinking and new solutions to tackle this seemingly intractable problem. However, before we look at new ways to address this issue, we need to understand why Americans aren’t bargain hunters for health care, especially given the constant drumbeat about the high cost of health care in the United States.

One theory holds that Americans don’t price shop for health care because health care prices are opaque and it is difficult for consumers to know the price of health care services. In response, more than 40 states have launched price-transparency initiatives. These initiatives vary in how pricing information is provided to consumers: under Connecticut law, for example, information is provided to individual consumers on request, whereas in New Hampshire information is available on a public website. The laws also vary in what type of price information is reported: in California, for example, only charges, which do not reflect the price paid by insurers or insured patients, are reported, while in New Hampshire both charges and amounts paid by both insurer and patient are reported.  However, emerging evidence suggests that even the most comprehensive price-transparency initiatives, such as the one in New Hampshire, do little to reduce the variation in prices for health care services.

One potential reason these initiatives have little bite is that most insured consumers pay only a fraction of the true cost of health care and thus have little incentive to shop for lower-cost care. Therefore, some have argued that high-deductible or consumer-driven health plans in which consumers have more skin in the game should encourage price shopping. However, a recent study shows that is not the case.  Examining prices paid by employees of 63 large companies for nine common outpatient services (such as office visits, chest x-rays, and colonoscopies), researchers found that patients with high deductibles paid roughly the same amount as their traditionally insured counterparts for eight of the nine services.  The only exception was office visits, where the researchers found that patients with high deductibles paid about 2% less. They also found that within high-deductible health plans, prices did not change depending on whether the service was bought before or after the employee reached the deductible.

So why are these consumers, in increasingly popular high-deductible health plans, leaving money on the table? There are several potential explanations. First, despite the proliferation of state-level price transparency initiatives, health care prices may still be opaque to consumers. In response, several private companies now offer more tailored and consumer friendly pricing information. Although these new initiatives show promise, whether they will solve the price-shopping conundrum remains to be seen. Second, consumers may use price as a signal of quality of care, since information on quality is notoriously hard to find; even the new private-sector initiatives provide scant information on quality. The notion that higher prices indicate better quality may discourage consumers from bargain hunting. And third, patients may be reluctant to question the advice of their doctors on where to get a particular service.

This last explanation also provides a way to solve the price-shopping conundrum: encourage doctors or their medical groups to price shop for their patients. Doctors can influence their patients’ health care decisions, including where to get services such as radiology and laboratory services. They are also likely to be more informed about the quality of services offered by various providers. Indeed, experience from the alternative quality contract shows that medical groups, given the right incentives, can be effective shoppers for their patients.  Medical groups facing global budgets (which set an annual budget for caring for a specified population) and that had not previously faced risk reduced spending by about 6% in the first year, and much of the savings was due to referrals to lower-price providers and settings.

Moving forward, we need to harmonize patient-oriented and provider-oriented strategies for encouraging price shopping. Patients need easily accessible information about price that is tailored to their individual needs. This information should include not only the out-of-pocket price of the service (e.g., a doctor visit) but also more holistic information on downstream costs for the entire episode of care and data on the quality of care. We do not, for example, want patients to choose doctors who charge a low price for the initial visit but provide poor-quality care or have higher episode costs. Such holistic information must reflect the patient’s insurance coverage so that it captures plan features designed to bolster patient price sensitivity through innovative insurance design, in which patients pay higher out-of-pocket costs for seeking care from higher-priced providers. Benefit designs should be harmonized so that patient incentives and provider incentives are more closely aligned in situations where provider groups have reason to consider price and total episode costs when discussing health care decisions with their patients. Perhaps accountable care organizations or other provider groups that accept accountability for patient spending and outcomes should have greater influence on benefit design. These efforts can lead patients to shop more effectively for doctors and can lead doctors to be better stewards of their patients’ health and dollars.

Such a multipronged approach to encouraging price shopping has generally not been attempted, partly because of lack of data and partly because of institutional barriers.  However, the confluence of recent trends in health care offers a unique opportunity for such strategies to gain a foothold. Insurers, both public and private, are increasingly willing to abandon fee-for-service payment models and to create incentives for doctors and other providers to make value-based decisions. The big-data initiative of the Department of Health and Human Services and widespread adoption of electronic health records will unleash a new wave of information on health care delivery, a necessary component of the better quality measurement that is needed to support value-based decisions.  Moving forward, policy should encourage such price shopping by providers and patients by facilitating the dissemination of information on price and quality and by strengthening antitrust enforcement to deter collusion or price fixing by providers.

Follow the Leading Health Care Innovation insight center on Twitter @HBRhealth. E-mail us at healtheditors@hbr.org, and sign up to receive updates here.

Leading Health Care Innovation

From the Editors of Harvard Business Review and the New England Journal of Medicine




Leading Health Care Innovation: Editor’s Welcome
Why Health Care Is Stuck — And How to Fix It
Getting Real About Health Care Value
Understanding the Drivers of Patient Experience

Consumers Go Out of Their Way to Pay in Round Numbers

56% of purchases at a self-service gasoline pump in upstate New York ended in .00, well above what would be expected by chance, and an additional 7% ended in .01, likely reflecting failed attempts to stop the pump at whole-dollar amounts, says a team led by Michael Lynn of Cornell. The findings, along with data on tipping and a pay-what-you-want online scheme, show a pronounced consumer preference for round-number payment amounts, the researchers say.

Collaborate with a Loved One Without Ruining Your Relationship

One of the most frequent questions we get about our book, The Progress Principle, isn’t about the content of the book or the research behind it. Rather, it goes something like this: “You guys wrote a book together, and you’re still married?!” Well, yes, we did, and yes, we are — for 23 years. Inevitably, that leads to questions about what it was like to work so closely together and how we managed it without ruining our marriage. Our glib answer is that it was “the best of times and the worst of times.” The best: sharing the excitement of discovery, developing new ideas, and realizing that it was all coming together (sometimes celebrated by a running-leap high five between 5’2” Teresa and 5’11” Steve). The worst: agonizing over our disparate interpretations of the data during long dinner-table discussions until our daughter begged, “Can we please talk about something else now?”

The more nuanced answer is that, while there certainly are difficulties and risks in writing a book with someone you care deeply about, there are also advantages and unique rewards. In fact, if you look into what it takes to work closely with a loved one on a project like this, there are lessons for any creative collaboration between people who care about each other.

Take the brothers Tom and David Kelley, who recently completed the terrific book Creative Confidence: Unleashing the Creative Potential within Us All. David founded both IDEO (one of the world’s top innovation and design firms) and the d.School at Stanford. Tom, an IDEO partner, joined the firm nine years after its founding. Although they have worked together at IDEO for 26 years and Tom has published previous books, this was the first time they attempted collaboration on a writing project. When we talked with Tom not long ago, he said, “The Creative Confidence book was our biggest collaboration ever, so of course, it had its ups and downs.” The stories he told us revealed much about their recipe for success.

First, start with a strong foundation and agree to protect it; maximize cooperation, minimize competition. “I love my brother,” Tom told us, “and it helps a lot that we have found our own paths through life, never competing against each other.” As children, they shared a bedroom and worked on many projects together. They never felt competitive toward one another, partly because of their four-year age difference and partly because they followed very different paths post-college — David in engineering and design, Tom in business and writing. When, in the early years of their time together at IDEO, they had their “one big fight” over IDEO’s strategy, David insisted that they resolve the conflict, saying, “I’ll do whatever it takes to fix this. Even if it means shutting down the firm.”

We, too, love each other. At the outset of our own project, we made a pact: If we ever felt that tensions over the book threatened our personal relationship, we would end the collaboration.

Second, at the outset, explicitly discuss similarities and differences in your cognitive and work styles; figure out a process that leverages your complementarities. Tom told us that “David is great at ‘bold strokes’ — big, inspiring ideas. I’m good at ‘long marches’ — crafting and re-crafting thousands of words on paper.” Having a great many stories in mind, accumulated over the brothers’ years of experience with creativity, Tom wanted to get right down to writing. Tom’s itch to dive in created the collaboration’s “most stressful moment,” because David was adamant about first developing a structure for the book. So they compromised. Tom spent a cathartic three months writing out every story, returning with a 100,000-word document that they could use as raw material for discerning the book’s main topics. This solution was just right for them because, in contrast to Tom, David, although a brilliant oral storyteller, “never wrote anything down.”

The process the Kelleys developed took advantage of each of their talents. Along with collaborator Corina Yen, whose engineering/journalism background was a bridge between David’s and Tom’s, they created each chapter’s skeleton by choosing one main topic, putting it at the center of a whiteboard, and then building a mind map around it. After a couple of hours, David would leave Tom and Corina to flesh out six or seven main themes. They would place each theme at the top of a piece of foam core, and then fill in the theme with various ideas from the whiteboard. Later in the week, David would come back in to help edit and rearrange the ideas, adding some new ones. Pieces of Tom’s early document got pasted under these themes, too. Eventually, Tom sat down and turned these boards into a coherent draft.

Finally, respect each other’s contributions. Although we used quite a different (and less ingenious) process than the Kelleys’, ours also involved contributions that couldn’t easily be equated. More like David, Steve is a big-ideas person; more like Tom, Teresa immerses herself in the data — the stories of our research participants — looking for patterns. Steve developed a loosely sketched first draft for most of our chapters; Teresa, the more fluent writer, added the flesh and wordsmithed the stories. It would have been easy for Tom and Teresa to become resentful that their partner wasn’t doing more of the actual writing, or for David and Steve to get frustrated with their partner’s focus on the details. But they didn’t, partly because of the love they shared with their partner, manifest in their up-front commitments to the relationship — but also because each member of the pair respects the other’s strengths.

Ultimately, collaborating successfully with a loved one comes down to following this basic rule for any people who want to both work effectively together and maintain a strong relationship: From the very beginning, figure out a process for leveraging each other’s strengths, compensating for each other’s weaknesses, and cooperating in a spirit of respectful kindness.