Marina Gorbis's Blog, page 1555

Research: To Reduce E-mail, Get Execs to Send Fewer Messages

You can ease an organization's overall e-mail burden by teaching top executives to send fewer, and clearer, e-mails, a team from consulting and academia has discovered. In a study at the headquarters of a large company, the team found that each executive e-mail begets a time-wasting flurry of other messages, especially if the original is confusing or ambiguous.

To see how dramatic the potential time savings can be, take a look at this interactive:

The figures in the exhibit assume that each staff member sends 40% fewer messages (on average) than each executive, that a message consumes 1.5 minutes of an employee's time, and that the staff's e-mail reduction rate is 1.185 times greater than the executives'. The researchers found this "contagion ratio" at the headquarters they studied.

The interactive is based on research by Chris Brown and Andrew Killick, practitioners at Modeuro Consulting, and Karen Renaud, a senior lecturer at the University of Glasgow. For more on their findings, read this article from our September issue.

Let Your Customers Streamline Your Business

This post was coauthored by Lisa Bodell.

Customers appreciate simplicity. In fact, a number of recent studies have shown that it's key to their loyalty and satisfaction. CEB reported in HBR last year that the most important factor in creating customer "stickiness" was "decision simplicity," i.e. the ease of getting credible information in the midst of marketing noise. Another CEB study found that loyalty is positively affected by reducing the amount of effort that customers need to invest in service issues. Along the same lines, Francis Frei and Anne Morriss, in their study of service businesses, have found that one of the most effective ways to keep customers is to simplify customer service jobs.



But how do you simplify in ways that will really make a difference for customers? Oftentimes, organizations rely on internal planning, process mapping, and brainstorming sessions to come up with new ways of satisfying customers. While this can be productive, more often than not it leads to ideas that barely change the status quo, because it's difficult for internal people to produce fresh perspective on longstanding policies and practices.

So rather than relying on internal perspectives alone, engage your customers in developing simplification ideas — the second of our seven strategies for simplifying your organization. Here are five best practices that will help you take an outside-in approach to making it easier for customers to do business with you.

Listen to your critics. Does your organization ask for customers' feedback about what it was like to do business with you? What about asking non-customers why they don't do business with you? Intentionally including people who dislike your product or service in a focus group can lead to more provocative conversations. Better yet, have naysayers sit in on internal planning meetings to share their thoughts on how product or service enhancements could affect how they perceive your company.

Roast your products and services. Comedy Central gained attention from its famous Roasts, where a celebrity gets torn to shreds with hilarious insults doled out by the audience. Try out this practice on your company's products or services. Do you sell something that's desperately in need of a makeover? Roast it. Do you have a product that doesn't work as well as it should? Roast it. The goal of this exercise is to see your products objectively like your customers do; flaws and all. Use customer service emails as fodder to get you started. This is an opportunity for your staff to say what everyone in the room and all of your customers have probably already been thinking. You'll get a good laugh, but more importantly, identify opportunities for improvement.

Turn pains into gains. Think about actively asking your customers about their pain points when it comes to working with your organization and its products or services. Once you identify the low points, you can start brainstorming how to make them selling points and key differentiators in the market. For example, if customers are consistently frustrated with the wait time for resolving complaints, make that your number one priority for change.

Figure out what your customers do all day. Think you know your target market? Not just their demographic, but what their life is actually like. What do they think about in the morning when they wake up? What are their high and low points throughout the day? What really makes them tick? Try giving your customers a diary for them to record what a day in their life is like, or have some of your managers spend a day shadowing a customer. This will help you understand unmet needs.

Learn from other industries. Sometimes businesspeople think their company has unique circumstances; that problem-solving strategies that have proven successful in other industries wouldn't work for them. This could not be further from the truth. Henry Ford got the idea for assembly line production from visiting slaughterhouses that used a similar technique. Cattle and cars don't seem to have much in common from the surface, but the strategy for efficiently delivering a final product to consumers is a great fit for both industries. Similarly, GE developed an approach to more rapidly solving customers' problems from talking with Walmart. What industries could provide radical change ideas for your company?

These five best practices of course are not meant to be all-inclusive; but they are all aimed at helping you to unlock a different way of thinking about simplification. If you want to make it easier for your customers to do business with you, make sure that you start with their perspective.

This post's coauthor, Lisa Bodell, is the founder and CEO of FutureThink and the author of Kill the Company.

The More Things Change, the More Our Objections to Change Stay the Same

One of the very first articles in the very first issue of Fast Company, a magazine I started 20 years ago with Alan Webber, is a smart and entertaining list compiled by E.F. Borisch, product manager at a long-established outfit called Milwaukee Gear Company. Borisch's article was titled, "50 Reasons Why We Cannot Change," and it offered a clever and entertaining collection of objections to and worries about the hard work of making real progress. Reason #1: "We've never done it before." Reason #4: "We tried it before." Reason #13: "Our competitors are not doing it." Reason #17: "Sales says it can't be done." Reason #18: "The service department won't like it." Reason #45: "We're doing all right as it is." Reason #50: "It's impossible."

Now here's the punch line: E.F. Borisch compiled his list back in 1959, and published it in an obscure journal called Product Engineering. What we found so amazing about the list when we reprinted it in 1993 — and what remains just as amazing 20 years later — is that most leaders in most organizations face precisely the same set of worries and pushbacks today.

The more things change, it seems, the more the objections to change remain the same.

So what have we learned in the twenty years since Fast Company was created, or the 54 years since E.F. Borisch compiled his list? Let me suggest five simple principles to change how we make change:

1. Most organizations in most fields suffer from a kind of tunnel vision, which makes it hard to envision a more positive future. That's why the first principle of change is originality — for leaders to see their organization and its problems as if they've never seen them before, and, with new eyes, they need to develop a distinctive point of view on how to solve them. All too often, especially in long-established companies, expertise gets in the way of innovation. That's why the most effective leaders I know aren't big fans of "benchmarking" — a commonplace exercise for inspiring change that often serves to reinforce the problem of tunnel vision. How enlightening is it, really, to learn from the "best in class" in your industry, especially if best in class isn't all that great? So why not learn from innovators outside your industry as a way to shake things up and leapfrog your rivals?

2. In troubled organizations rich with tradition and success, history can be a curse — and a blessing. That's why the second principle of change is to break from the past without disavowing it. Psychologist Jerome Bruner, in his collection of essays, In Search of Mind, has a pithy way to describe what happens when the best of the old informs the search for the new. The essence of creativity, he argues, is "figuring out how to use what you already know in order to go beyond what you already think." The most effective leaders I've met don't turn their back on the past. They reinterpret what's come before to develop a line of sight into what comes next.

3. The job of the change agent is not just to surface high-minded ideas. It is to summon a sense of urgency inside and outside the organization, and to turn that urgency into action. It's one thing for leaders to use fresh eyes to devise a new line of sight into the future. It's quite another to muster the rank-and-file commitment to turn a compelling vision into a game-changing performance. My friend and Fast Company cofounder Alan Webber puts it well. Progress, he likes to say, is a math formula. It only happens when the cost of the status quo is greater than the risk of change. That's why the third principle of change is for leaders to encourage a sense of dissatisfaction with the status quo, to persuade their colleagues that business as usual is the ultimate risk, not a safe harbor from the storms of disruption.

4. It may be lonely at the top, but change is not a game best played by loners. These days, the most powerful contributions come from the most unexpected places — the "hidden genius" inside your company, the "collective genius" of customers, suppliers, and other smart people who surround your company. That's why the fourth principle of change requires a sense of "humbition" among leaders — enough ambition to address big problems, enough humility to know you don't have the answers. When it comes to change, nobody alone is as smart as everybody together.

5. Change is as much about consistency as it is about disruption. Pundits love to excoriate companies because they don't have the guts to change. In fact, the problem with many organizations is that all they do is change. They lurch from one consulting firm to the next, from the most recent management fad to the newest. But the more things change under these ever-changing conditions, the more they tend to stay the same. Jim Collins puts it this way: "The signature of mediocrity is not an unwillingness to change. The signature of mediocrity is chronic inconsistency." And that speaks to the fifth principle of change: If, as a leader, you want to make deep-seated change, then your priorities and practices have to stay consistent in good times and bad times.

Here's wishing you well in the defining work of our time — the hard work of making deep-seated change in long-established companies. And here's hoping that twenty years from now, E.F. Borisch's list of "50 Reasons Why We Cannot Change" doesn't ring as true as it does today.

Your Nice Boss May Be Killing Your Career

Chris spent years working for a supportive, encouraging manager at a major technology company headquartered in Silicon Valley. In fact, his boss raved about him. His manager gave him top ratings in his performance evaluations, space to do his work, and had never been controlling. He was, according to Chris, terribly, unswervingly nice. Picture perfect boss, right? Wrong.

His manager had been in the company for 20 years. He had learned how to survive in the bureaucracy: don't make too many waves, don't cause problems. He played the political game well enough to still be there but not well enough to strengthen his reputation. He had slowly lost his political clout. As a result, his team had been winnowed away to a fraction of the size it used to be.

His own reputation bled over onto the members of his team. For Chris it had a powerful effect on his career: he had been passed up three times for a promotion he was repeatedly promised. It was not what his boss was doing that caused the problem. It was what his boss was not doing.

Over a twelve-month period I have gathered data from 1,000 managers about their experiences at over 100 companies including Apple, Cisco, HP, IBM, Intel, Microsoft, Novel, and Symantec. I wanted to understand the conditions under which people did the very best work of their careers. What I expected to find were examples of over managing, controlling, tyrannical managers. About half of the participants confirmed this assumption. The other half surprised me: what they described were managers who were nice but weak.

I once spent two days running a strategy session with just such an executive. He spoke with a soft, quiet voice. He never interrupted anyone when they were speaking. When he walked into the meeting he had a "nice" word for everyone. Every time the team became "positively frustrated" and ready to make the change necessary to get to the next level he would stand up and say sweetly, "Oh, I just wanted to remind you all of how far we have come." And after a few more sentences the spark of aspiration was gone from the room. He unintentionally signaled the status quo was plenty good enough. There was no need to try harder or change how things were going. He reminded me of what Jim Hacker (the fictional politician in the English cult classic "Yes, Minister") said to his bureaucratic colleague, "You really are a wet blanket, Humphrey, you just go around stirring up apathy."

Another executive I worked with had an almost voodoo ability to neutralize people's desire to take action. With an almost Jedi-like wave of the hand he seemed to say, "These are not the things you care about changing." People would be kicking and cussing before he walked into the room but a little later they would wonder what they had been frustrated about. That is a useful party trick to be sure but the result was career limiting for each member of his team. Everyone on the team was branded as average and in a reorganization the entire team were "let go."

These nice but somewhat absentee managers can continue to survive, unchecked for decades. At least a controlling boss who yells all the time gets noticed: they create acute pain and people complain. In contrast, the pain these nice "Neutralizers" produce is chronic. The pain is inflicted slowly, drip by drip. On any given day an employee can say, "Well, it's not so bad." They are, after all, nice. But the cumulative effect on your career can be dramatic.



This is a problem hidden in plain sight. The issue has been unintentionally camouflaged by leadership thinkers (I am guilty) who may have overemphasized overmanagment and underemphasized undermanagement. The majority of the leadership literature over the past 25 years has done this. But what happens if an undermanager reads an article, book or attends training of this kind? It may encourage them to continue in their hands-off, low control, absentee approach. They may say, "Yes, I don't like to smother my people or control them." They may speak about empowerment and enablement. All the while they allow their people's career prospect to decline slowly.

In the case of Chris, just naming the problem was liberating. Once he could see how toxic the situation was he took action. He met with his mentors. He visited with his connections. Within a few weeks he took a lateral move to get away from his "nice" manager. After another move a year later he is in a terrific position in a better company with far better prospects than he had before. Just developing a heightened awareness of the issue can be helpful. After all, we cannot solve a problem we do not see.

Some details have been changed to protect privacy.

How Industry Giants Can Create Corporate Breakthroughs

Most large corporations will admit to struggling with innovation. But in reality most companies, particularly those that manage to last for any reasonable period of time, do day-to-day innovation extremely well. After all, your laptop (if you still use one) is much more reliable than it was a decade ago. Your television picture quality is significantly better. Your cellphone sounds clearer and drops fewer calls. Your shampoo leaves your hair feeling cleaner. Your toothpaste leaves your mouth feeling that much fresher.

Where companies struggle is with the breakthroughs that reinvent existing categories or create entirely new ones. It's not like large companies never manage to do it. Apple spent most of the past 10 years riding successive waves of breakthroughs. Amazon.com turned its own internal IT capabilities into a multibillion-dollar cloud-computing offering called Amazon Web Services. And Nestlé has created a similarly large business of coffee devices and related consumables under its Nespresso brand.

But study the stories of these and related corporate breakthroughs, and it often seems that success traces back to a large dose of serendipity or the heavy hand of a charismatic founder. And there are plenty of stories of big bets that ended up disappointing. So it's no surprise that one of the most frequent questions senior executives ask us is how to increase the odds that their big bets on breakthroughs will pay off.

From our studies of corporate breakthroughs and our own experience in helping corporate giants such as Medtronic rethink the pacemaker market in India, Walgreens transform its corner drug stores into a disruptive mechanism to treat patients suffering from chronic conditions, and a Fortune 100 financial services company reinvent private banking, we've come to understand that large corporations have the best chances of successfully breaking through when three ingredients come together:

When the company focuses on a latent job to be done. A latent job is an important problem that customers really have but can't readily articulate. For example, a decade ago, it's unlikely that small-business owners would have told you that they needed a flexible way to host data and applications, one that preferably turned the fixed cost of computer hardware into a variable cost of renting capacity. But that's exactly the job Amazon realized so many of them needed when it developed its "elastic cloud-computing solution." That's not as exotic a bet as you'd imagine when you consider that just about every business owner is always looking for increased flexibility and opportunities to make fixed costs variable.
When the company rides an enabling trend. An "enabling trend" is some technological or societal shift that makes it feasible to address the latent job. The increased availability and affordability of high-speed Internet bandwidth, for example, enabled Amazon's own technological innovation in cloud computing to reach wider swaths of the market. Spotting transformational trends early can increase corporate confidence in bets on breakthroughs.
When the company takes advantage of its own catalytic capabilities in developing its offering. Corporations can't hope to innovate faster than the hordes of start-ups that nip at their heels. But they can innovate better than those start-ups if they take advantage of a unique capability, such as a hard-to-replicate asset or market access earned over decades of operations. Amazon leveraged the infrastructure it had built to power its own IT systems to provide its unique offering.

Because these ingredients are rarely obvious, remember sage advice by former Procter & Gamble executive and current Innosight advisor David Goulait: If you want to do something different, you have to do something different. Engaging the usual suspects following the usual process using the usual tools almost by definition won't do anything unusual.

Developing a breakthrough idea will never be a paint-by-numbers exercise. But this should not stop large corporations from redoubling their investments in breakthroughs. For as much as the world extolls the virtue of start-ups, large companies are uniquely positioned to address global challenges such as making health care more affordable, feeding the world's surging population, or dealing with challenges resulting from rapid urbanization. While it isn't easy, it is worth the effort.

Confronted with Attractive Female Opponents, Male Chess Players Take Greater Risks

For every 1-standard-deviation increase in a female opponent's attractiveness, male participants in large international chess competitions have an 8% greater propensity to play risky openings, but these moves aren't beneficial for their game performance, says a team led by Anna Dreber of Stockholm School of Economics in Sweden. Female players, by contrast, don't appear to be affected by the attractiveness of their male partners. Although there's no payoff on the chess board, "it could turn out that playing a risky strategy against an attractive female player is beneficial for a male player outside of the chess game," the researchers note.

The Global Rise of Female Entrepreneurs

Women's entrepreneurship has hit a media tipping point. The question is: Is it just a passing media fad that will soon be a blip on the radar screen, or is it actually a real, fundamental economic force that's reshaping the world? I think it's safe to say that it's the latter. Women-owned entities in the formal sector represent approximately 37% of enterprises globally — a market worthy of attention by businesses and policy makers alike.

While aggregated data is often challenging to find, the recent Global Entrepreneurship Monitor (GEM) found 126 million women starting or running businesses, and 98 million operating established (over three and a half years) businesses. That's 224 million women impacting the global economy — and this survey counts only 67 of the 188 countries recognized by the World Bank.

These entrepreneurs cross the spectrum of micro to high growth — from supporting life to creating wealth. They include hair salon owners, high tech visionaries and everything in between, all making critical economic contributions. Consider three aspects:

Reinvestment: In emerging markets, women reinvest a staggering 90 cents of every additional dollar of income in "human resources" — their families' education, health, nutrition (compared, by the way, to 30-40% for men. Think of women's increased income and assets as a gender dividend driving family, community and country wellbeing.

Job creation: Beyond their own incomes, 112 million of the GEM surveyed entrepreneurs employ one or more people. 12 million expect to employ up to six people in the next five years. That's 72 million jobs just from this small sample. In countries like Kenya, so called "SMEs" (Small and Medium Enterprises) like this are responsible for 80% of all employment. And in the U.S., more than half of the 9.72 million new jobs to be created in the SME sector by 2018 will be created by woman-owned SMEs

Innovation: When defining innovation as "offering products that are new to some or all customers" in some regions — including the U.S. and developed Europe — women entrepreneurs have higher levels of innovation than their male counterparts.

Collectively, women entrepreneurs look different than their male counterparts. Their lower employment numbers and growth aspirations have historically led to questions of how to "fix" them. But different doesn't mean deficient — or underperforming. For instance, recent Dow Jones research on venture-backed companies in the U.S. found those that were successful had twice the number of women on the founding team. On the other end of the growth spectrum, analysis of a dataset from 350 micro finance institutions across 70 countries indicated lending to more women was associated with lower write-offs and lower portfolio-at-risk. Similarly, I recently met with Sanergy and Copia Global, Kenyan social enterprises using franchise models. They both found that women entrepreneurs tend to be more successful because of their trusted status in the community. Controlling for firm characteristics, research suggests that women-owned firms outperform those owned by male counterparts.

Yet, while increasingly a recognized force, women's entrepreneurship still lags men's in all but seven countries in the world. If women's labor participation were closer to male participation, it would contribute $1T to GDP in emerging economies — women led businesses are key to this opportunity

Perceptions of opportunity and capability strongly link to entrepreneurial activity — that is, if you think you will succeed and will be supported, you are more likely to try. In the US and Developed Europe women are 18% less likely to perceive they have the capability to start a business. While the difference is less for developing economies, in every economy in the GEM study women have lower perceptions of their capabilities, showcasing the enormous opportunity for an enabling environment which would boost entrepreneurial activity rates. Foundational to this environment are access to healthcare, education, land rights and affordable childcare. Just as critical are role models and mentors. At Bank of America, we have partnerships with Vital Voices and the Cherie Blaire foundation, two leaders in training and mentoring emerging women leaders, to help women achieve their full economic potential. Programs like the Center for Women's Entrepreneurial Leadership are innovating in the academic space. We've all seen first-hand the enormous impact of this essential piece of the ecosystem.

But, as participants in these programs regularly articulate, they are insufficient without access to capital and markets. Women who have benefited from education and mentoring are experiencing "capital punishment." For this reason, I was thrilled to join the International Finance Corporation (IFC) in Tokyo this spring for the launch of the first global women's bond (which will be issued in October), $250M to be invested through banks into women led SMEs. The IFC estimates that enterprises with at least one woman founder are collectively looking for $1T to grow their businesses.

Smart companies are watching this trend. They see that women — including the billion women entering the formal economy as employees and entrepreneurs — will dictate their business success. Coca-Cola sees five thousand women entrepreneurs as part of its global supply chain by 2020. Wal-Mart understands the power of women-led firms to innovate compelling products. Itau perceives the 50% of Brazilian entrepreneurs that are women as a core market, and other members of the Global Banking Alliance for Women think similarly. And all firms should realize that in the war for talent, women are increasingly seeing entrepreneurship as a compelling alternative if a career path appears stunted.

Entrepreneurial activity creates growth and prosperity — and solutions for social problems. And today's trends show that women will be a driving force of entrepreneurial growth in the future.

This content represents thoughts of the author and does not necessarily represent the position of Bank of America or U.S. Trust.

Remembering Ronald Coase

Yesterday, I texted a non-economist friend to say how sad I was to learn of the death of Ronald H. Coase, who won the Nobel Prize in Economics in 1991. She wrote back, "Was it sudden or unexpected?" Well, I answered, he was 102 years old. So no. Not unexpected.

As for sudden, it did feel so to me. I haven't actually seen Prof. Coase since I moved from Chicago ten years ago. But I've just finished work on a new book with Paul Nunes on the new age of disruptive innovation (based on our March 2013 HBR article, "Big Bang Disruption"). That work brought me back, as so many things do, to Coase's early writings — in particular his two searingly critical yet insightful essays, "The Nature of the Firm" (1937) and "The Problem of Social Cost" (1960). In these last few months, Coase, his ideas, and the very large intellectual debt I owed to them were all very much in my thoughts. So, yes, his death struck me as sudden.

"The Problem of Social Cost," Coase once told me, was the reason he spent his career not in an economics department or a business school but at the University of Chicago School of Law. As The New York Times recounted in its obituary, during a famous dinner party Coase had to fight the entire economics department at Chicago to convince them that his novel theory on the relationship between property rights and legal rules — ever-since known as the Coase Theorem — was correct.

The group, which included Milton Friedman and George Stigler, was eventually convinced, but they didn't invite Coase to join the department. Yet "The Problem of Social Cost" has proven to be one of the most-cited articles in the history of economics.

The earlier essay, "The Nature of the Firm," is justly famous for its introduction to economic literature of the concept of market friction, or what Coase called "transaction costs." Transaction costs, Coase argued, explained why some interactions were left to the market and others were internalized in increasingly large, complex enterprises.

"The Nature of the Firm" was published in 1937, when giant multinationals such as General Motors were just coming into prominence. Coase had observed first-hand the efficiencies to be gained by internalizing market transactions. Having finished his coursework at the London School of Economics but with another year of required study to go, Coase secured a traveling scholarship, which he used to come to the United States to see for himself what firms were like — what they did and didn't do, and why.

This was perhaps his most radical contribution to modern economics. He always insisted that the more theoretical, formula-driven work that economists tended towards were of limited value. In articles, reviews, and speeches, he spent his entire career — all eighty years or so of it, up to and including one of his last publications, an essay in HBR in December 2012 — admonishing, extolling, and sometimes outright pleading with his colleagues to turn economics into a true social science, one driven by empirical research. (He gave up on traditional economics in 1996 and started his own group, the International Society for New Institutional Economics, which continues to this day.)

I had personal experience of Coase's passion for hands-on research — the beginning of a long and always surprising relationship. In the course of an independent study during my third year of law school at Chicago, I came across an interesting experiment going on at nearby Motorola, which had built software to "engineer" complex contracts.

The system was built to help lawyers select the most useful clauses and knit them together, simplifying the often-wasteful process of negotiation between Motorola and its business partners. If clauses had already been reviewed and agreed to in previous contracts, why not start with those rather than drafting from scratch? Why not, in other words, eliminate as many of the transaction costs as possible?

I arranged a visit to meet with Motorola's contracts team. And then I thought, why not invite Coase? He was long-since retired and had just won the Nobel Prize, but he still had an office at the law school, and still participated occasionally in activities of the school's law and economics program. So I wrote him a note and invited him to come along. To the astonishment of some of my faculty advisors, his secretary called a few days later to say he would be pleased to join me.

I picked Prof. Coase up at his home and drove him out to Motorola headquarters in suburban Chicago, where we spent the afternoon quizzing the lawyers and the system's developers, and where we had lunch in the company cafeteria. Coase, then a spry 80 year-old, asked the most interesting questions, and delighted our hosts with stories about the company's early history. At the end of the day, Coase thanked me for inviting him and for serving as chauffeur, and told me to let him know when I was next going to take to the field. I was stunned from beginning to end.

I graduated law school, but after a very brief time practicing at a Silicon Valley firm I returned to consulting, which I had done for a decade before. That in turn led to my first book, Unleashing the Killer App, which took an early look at how the Internet was changing the nature of business strategy.

But the insight that grounded Killer App came to me at a conference, listening to engineers talk about how open networking standards could simplify connections between devices and users. And I thought, ah, it's all about transaction costs. In my notes of the conference, I wrote down, simply, "Coase!"

Chapter Two of Killer App argued that Coase was the father of the new economy, where technology in the market was reducing transaction costs more quickly than technology inside firms, which couldn't adapt as quickly. The result, I said, was that firms would get smaller, or even virtual — a simple corollary to Coase's 1937 observation, which I called "The Law of Diminishing Firms."

I sent Coase a draft of the chapter, and he quickly sent back a stern handwritten note to say that I had misread some things. (Coase was notorious for his plain-spoken criticisms.) We should meet for lunch soon, he said, so he could set me straight. Of course I agreed immediately, and met him, tail tucked firmly between legs, at a nearby coffee shop a few days later. As it turned out, my sins were more venal than cardinal — I had erred mostly in a few biographical facts about Coase, which were easily corrected.

The revised chapter met his approval, or in any case did not generate any further disapproval. When I invited Coase to come to the launch party for the book, well, he came, and patiently answered questions from some very surprised attendees, who didn't expect a Nobel laureate to show up for a book party for a non-academic publication. I had long ceased being surprised by anything Coase did or did not do.

Since then, Chapter Two of every book I've written has been about the impact of Coasean economics on whatever I'm writing about, whether business strategy, technology deployment, or regulatory policy. But in truth, every chapter, every book, every blog post I've written is, in some sense, in debt to Coase. If not his insights, then certainly his work ethic.

Most of the obituaries, remembrances, and accolades he will deservedly receive in the coming weeks will focus on his groundbreaking work, his uncompromisingly critical mind, and his devotion to his field. I will read all of these. But I will be tempering these portraits of a daunting intellectual giant with fondness for the Ronald Coase I had the pleasure to know, a man who was inexplicably kind to me whenever I asked him for help.

Case Study: Bet on One Big Idea or Diversify?

The latest clinical trial of the experimental therapy L-39, conducted in India, was finally complete — and the results were thoroughly underwhelming.

Hilde Dach, the former chief scientist at drug-development start-up Genbac and now a team leader at German pharmaceuticals maker Caliska, which had acquired Genbac, could read disappointment in the face of Johan Greve, the Caliska division head who was her boss. The journey ahead for the drug, developed through Hilde's research on probiotics, suddenly looked arduous.

(Editor's Note: This fictionalized case study will appear in a forthcoming issue of Harvard Business Review, along with commentary from experts and readers. If you'd like your comment to be considered for publication, please be sure to include your full name, company or university affiliation, and e-mail address.)

Johan and the other leaders at Caliska might soon face a tough choice: Allow Hilde's unit to continue honing and testing the potential breakthrough therapy, or play it safe by focusing on L-39's potentially very lucrative application as a dietary supplement. Hilde hadn't thrown in her lot with Caliska merely to sell "medical foods," as they were known in the nutraceutical industry. In the laboratory, L-39, shorthand for a proprietary strain of Lactobacillus bacteria that Hilde had spent years cultivating, was so effective in reducing bowel inflammation in mice that she believed it could become the first probiotic ever to be approved by the European Medicines Agency, or EMA, as a therapy for a specific human ailment — the common gastrointestinal condition known as Crohn's disease.

Johan spread out the new study results on his office table at Caliska's German headquarters. The India trial was the company's second of L-39. The first, two years earlier, had assessed how well the bacteria in L-39 were tolerated, and the results were positive, as expected. This time, L-39 was put to the test as a Crohn's disease treatment, but the data showed that it had little success in improving the trial participants' clinical outcomes. Worse, the lead researcher in India had noted that in one patient, the bacteria appeared to have "translocated to" — that is, invaded — the spleen, perhaps because the patient was immunosuppressed.

Johan tapped the page. "That's very troubling," he said.

"I know," Hilde said. If L-39 could translocate, survive, and proliferate outside the intestine, patients could be at risk of bacteremia and, ultimately, multiple organ failure.

"And these numbers are so flat," he said.

"We can get them up," she said encouragingly. "It just means further refinement of the strain. We've already made lots of progress on that, and we'll make more. Plus, look at this," she added, pointing to a column of figures. "It's a statistically significant increase in blood flow to the patients' lesions. That tells us a lot."

"It's not nearly enough for proof of concept in humans," he said. "We're up against an EMA that has rejected virtually every health claim put forward for probiotics. The fact is, we may have to be more open-minded about L-39. You've always seen it as a pharmaceutical product. In the end, that may not be our best choice."

Hilde turned away. She knew he was talking about nutraceuticals.

"Hey," he said. "One way or the other, we're bound to make some real money on L-39."

Good Germs

Hilde paged through her inbox, counting the e-mails with "L-39" in their subject lines — three so far today. They were from people all over the world, begging to know how and where to buy the probiotic. Although her research hadn't made the mainstream media, IBD sufferers somehow found out about it. She had received some strange messages over the years, such as the one (now on her office wall) from a man asking whether the bacteria could help his two ferrets, which apparently developed inflammatory bowel disease (IBD) after eating veggie burgers.

Strange or not, the e-mails showed there was demand for a product like L-39 among IBD sufferers. In their own ways, these people had the same hopes that had first motivated Hilde 15 years ago, when she met Georg von Suttner at an Indian restaurant in Cambridge, England. She was a grad student, and von Suttner was a famous professor talking about the mystery of what goes on in the human gut.

She had piped up, as was her style, to say that the study of probiotics — bacteria that help maintain the natural balance of organisms in the intestines — was pseudoscience.

Von Suttner wasn't offended by the comment. He lifted a spoonful of pearly white raita. "How many bacteria do you suppose this spoonful contains?"

"A few thousand," she said.

"Probably 10 billion," he said. With a look of wonder, he described the "microbiota," the community of micro-organisms that live in and on the human body. "You and I have many more microbial cells than human cells," he said. "We ignore them at our peril."

That conversation was the start of Hilde's long, productive professional relationship with von Suttner. Working in his lab in Karlsruhe, Germany, she had a knack for growing strains of bacteria. Dubbed the Microbe Whisperer, she had developed strain after strain — L-39 was her 39th — and had worked with her staff of drug-delivery experts to find a way to keep the bacteria alive without refrigeration. She and von Suttner published several articles in scientific journals, and they caught the attention of a team of entrepreneurs and investors specializing in biotech start-ups. They soon persuaded Hilde and von Suttner to launch a firm focused solely on the pharmaceutical aspects of L-39. The nascent company, Genbac, raised €2 million; then, as Hilde's ongoing experiments showed that L-39 could reduce inflammation in mouse intestines, €7 million.

After the first human trials were complete, Big Pharma began to hover. At first, Hilde and the rest of the team politely hinted that they would retain control of the company indefinitely. But then Caliska, a global firm with businesses selling generic, off-patent medications and nutraceuticals, but with a well-respected R&D unit, approached Genbac with a €40 million offer. Hilde had initially resisted, worrying that Caliska, with its existing nutraceuticals business, might fancy L-39 more as a dietary supplement than as a pharmaceutical. But von Suttner and the rest of the start-up team persuaded her that the deal was too good to pass up, given the uncertain prospects of all therapies during the research phase.

Now Hilde was leading Caliska's pharmaceutical-probiotics research team, which employed some of the scientists who had been with her at Genbac. Von Suttner was long gone, having retired happily, and the initial investors and entrepreneurs had moved on, too.

The market for L-39 as a pharmaceutical was modest by Big Pharma standards. Of the estimated 5 million IBD sufferers worldwide, a third or so had Crohn's. The market size was nothing like that of diabetes patients, who numbered in the hundreds of millions. But L-39 was relatively inexpensive to produce, and as a pharmaceutical it could be sold for at least €5 per daily dose.

Still, Caliska's enthusiasm for L-39 was about more than numbers. As company executives watched the EMA reject health claim after health claim from probiotics luminaries such as Nabisco, Chr. Hansen, and DuPont Danisco, they became obsessed with becoming the first company to get the agency's approval in this area. Anticipating huge positive publicity from such a breakthrough, they poured millions into Hilde's research.

Given the recent trial results, Hilde wondered whether Caliska would now rethink that investment. She noticed Johan in the doorway, looking unusually serious.

Pressure from the Top

"I just got off the phone with Oskar," said Johan. Hilde knew, of course, that Oskar, Caliska's CEO, would want to know about the latest findings.

"He's not upset," Johan continued. "He's been in this business a long time, but he's leaning on me hard to see cash flow from your team, and the board is with him on that. He's a big proponent of the nutraceutical idea and can't wait to get your strain of Lactobacillus into the medical foods market with the Caliska name on it."

"Caliska may have a split personality as a pharma and a nutraceuticals company, but my unit doesn't," she said curtly. "We do biotech, not medical foods."

"As you know," he said, "even if nutraceuticals don't have to jump through the same regulatory hoops as pharmaceuticals, they still can be highly effective for patients. We sell many sophisticated compounds, and we're well respected in the industry and among investors for that business. Nutraceuticals make a big difference to our bottom line — they're our fastest-growing segment. In fact, they pay for our R&D. Think about it: Using your existing work, we could manufacture an over-the-counter L-39 tablet for 25 cents, which we could then sell for more than €1 per pill at retail."

"But we'd be competing for an unpredictable, fad-influenced customer base against nonscientific companies that make all kinds of exaggerated claims. Remember that study we saw, saying that half of 50 probiotics tested didn't even contain the specified strain or stated concentration? I'd rather stay out of that market, at least for now. After we've developed the Crohn's therapy and shown the world L-39's value as a pharmaceutical, fine — the nutraceutical people can then do whatever they want."

"The company can't wait that long," Johan reasoned. "We have a chance now."

"What would we claim?" she asked. "That the bacteria increase blood flow to bowel lesions? That they reduce inflammation in mice?"

"You want to unlock the potential of L-39?" Johan said. "Selling it as a nutraceutical is just another way to do that."

"But what about safety?" Hilde asked. "If the bacteria translocate, if someone dies —"

"We won't let that happen. We'll solve all the safety issues before we take the product to market."

"Let me see if I understand," Hilde said. "You want me to tell my scientists, some of the best in their field, to spend their time and energy developing this nutraceutical instead of trying to improve L-39 so that it can help patients with Crohn's and other serious conditions? You want me to postpone that dream, probably for years, so that we can get the European Food Safety Authority's approval of L-39 as a supplement? That would require strong, positive results in two full-scale, randomized, placebo-controlled trials. And once Oskar sinks all that money into the supplement and starts getting a nice stream of income from it, why would he continue to invest in L-39's pharmacological promise?"

"I'm not trying to force you into anything," Johan said. "The company values your expertise. But we must be practical. Some form of diversification might prevent your unit from losing its standing within Caliska during the long journey to — and through — the clinical trials for the EMA."

"You know how I feel," she said resolutely. "We should go for broke on making L-39 work as a pharmaceutical."

A Chilling Premonition

Hilde was trying to get into her suite of offices and labs, but chains were on the doors. Her employees were outside with her. "What's happening?" she asked. Someone told her that the clinical trials in Europe had failed, L-39 was causing organ failure, Caliska had disbanded the team, and everyone was out of a job.

She woke up with a start and glanced over at her husband. "Are you awake?" she said. "I had a terrible dream."

"What about?" he asked sleepily.

"Ever since the latest trials, I've been worrying that L-39 might turn out to be a complete failure," she admitted.

"It won't be," he said. "But even if it is, at least you've already made your money on it."

"I didn't get into this to get rich," she protested.

"Maybe your dream is telling you something," he said.

"What do you mean?"

"Your single-minded focus on the pharmaceutical aspect might ultimately be, I don't know, self-destructive?"

"How can you say that?"

"If L-39 fails as a pharmaceutical and you've got nothing else, sure — Caliska might shut it down. But if you have a separate, thriving nutraceuticals line, they'd think twice. And you could bring Genbac's scientific expertise to bear — and change the whole probiotics field. Educate customers about the science of probiotics."

He did have a point, she thought later that morning on her way to work. She'd never get a chance to change the world if Caliska halted her work on L-39.

Question: Should Caliska market L-39 as a nutraceutical?



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Do Your Kids Need More Competitive Capital?

"When I was interviewing [job candidates] at Morgan Stanley, if I got a female candidate — because it's banking and you need to be aggressive, you need to be tough — if she played, like, ice hockey, done. My daughter's playing, and I'm just a big believer in kids learning to be confidently aggressive, and I think that plays out in life assertiveness."

I met Madeline while studying 95 families with elementary school-age children who compete in chess, dance, and soccer — research that is the basis for my new book, Playing to Win: Raising Children in a Competitive Culture. I label the lessons and skills that parents hope their children gain from participating in competitive activities "Competitive Kid Capital." The word "capital" applies, because many parents believe that the acquisition of certain character traits associated with vigorous competition will set their daughters up to be the leaders of tomorrow. In particular, as I talked with these parents about the skills and lessons they saw their children gaining from such activities, five themes emerged: (1) internalizing the importance of winning, (2) bouncing back from a loss to win in the future, (3) learning how to perform within time limits, (4) learning how to succeed in stressful situations, and (5) being able to perform under the gaze of others.

One of the questions that interested me was how parents of girls in particular make choices between the three activities, deciding which is best suited to building Competitive Kid Capital for a new generation of women leaders. Madeline also told me, "We have no illusions that our [nine-year-old] daughter is going to be a great athlete. But the team element [is important]... That ability to work on a team was a crucial part of our hiring process. So it's a skill that comes into play much later. It's not just about ball skills or hand-eye coordination."

Sports are important in American upper-middle-class culture. Historically women from upper-class families were most focused on the arts; but today athletics have become especially important for these women. Two studies, one by the Women's Sports Foundation and the other by the Oppenheimer Foundation, found that 82 percent of executive businesswomen played organized sports in middle school and high school and that 80 percent of female executives in Fortune 500 companies identified themselves as competitive tomboys during childhood. The Oppenheimer study also found that while 16 percent of women describe themselves as athletic, when you look at the responses of women who earn over $75,000 annually, the number rises to about 50 percent. These findings are consistent with the work of economist Betsy Stevenson on Title IX, which finds that participation in high school sports increases the likelihood that a girl will attend college, enter the labor market, and enter previously male-dominated occupations.

Given this, it's not surprising that moms like Madeline, competing themselves in the business world, seek out sports for their daughters — they know firsthand how important these experiences can be. But I also saw the same decisions being made by credentialed moms who opted out of the corporate world — and certainly no less dedication to capital-building.

Take Lois, who is in her early forties. She is married with two young girls, one in third grade and the other in kindergarten. Her husband is an ER doctor and she is a former banker who opted out of the workforce to focus more of her time and energy on getting pregnant after struggling with infertility, which she attributed to stress from work. When you meet Lois you quickly realize that she is constantly fiddling with the BlackBerry glued to her palm or ear as she arranges her daughters' classes, appointments, and play dates. Instead of managing employees and clients, Lois micromanages her daughters' lives.

Lois regularly attends a Parenting Mommy Group in an area that is not close to her home; she is willing to travel because she likes this particular group's discussions about childhood, competition, and activities. She also told me about her conversations with psychologists: "Raising kids is a big experiment and I won't know till later [if I did it right]. I have my own therapist ... and she is very suspicious about chess in particular because it puts rewards on achieving things rather than on the experience of it." All these meetings and discussions occur in between shuttling her girls from chess tournaments to figure skating lessons, tennis classes, and private Hebrew tutoring. When asked what she wants for her eldest, Lois replies simply, "I want her to be happy and balanced and not neurotic like me, obviously."

While all the moms I met want their children to be happy, they also think that being organized, competitive, and even sometimes a little neurotic, is the key to getting ahead in the business world. And that's a cornerstone to how they are raising their daughters to succeed — by finding ways for them to acquire competitive capital while they're young. I look forward to seeing the studies that will be published some thirty years from now ...