Marina Gorbis's Blog, page 1562

The Problem with Procurement

Back in 1983, in a Harvard Business Review article, Peter Kralijc called for the procurement function to take on a larger and more strategic role in managing the supply chain. Thirty years on, sales people in most large companies are still being trained in ways to actually bypass procurement folks in their customer companies. This is not evidence of people taking the function seriously. What went wrong?

To find out, we conducted a survey with close to 200 procurement executives, in Asia and in Europe. We found pretty conclusively that procurement managers are their own worst enemy, both with external suppliers and within the company, with internal customers and other stakeholders.

Let's begin with supplier relationships. Nearly half our respondents claim they spend time with suppliers asking them for updates on the markets and new business suggestions. This is not great, perhaps, but it certainly sounds encouraging.

Poke a little deeper, though, and you'll find the picture looks less rosy. As the chart below shows, only about a third of managers are actually bringing any supplier intelligence into their organizations by advocating for suppliers and facilitating new connections for them, which is what you would expect someone managing the supply chain to do. Just 20% claim to be communicating business insights shared by those customers; only 17% could even tell us in segment their supplier put their company. No wonder suppliers don't want to spend time with these folks.

Let's turn to what's going on inside the company. As the second graphic shows, many procurement managers are trying to demonstrate internally that they have strategic value. They're gathering intelligence systematically about the company's stakeholders and communicating their successes. But it isn't getting much further than that. Less than 30% of the time do we see procurement managers customizing value propositions for internal customers and stakeholders, tracking satisfaction levels and setting targets for satisfaction.

If this sample is representative, then we can hardly be surprised if many c-suiters think that procurement is a backwater. And we can hardly expect young high-flyers in most industries to see it as a career path of choice.

Looking ahead, procurement managers will have to change the way they approach suppliers and business peers; being a strategic business partner means so much more than negotiating a discount.

People with Higher Status Live Longer

Nobel Prize winners live an average of 1.6 years longer than nominees who aren't selected, a finding that's consistent with a causal link between status and longer lifespan, say Matthew D. Rablen and Andrew J. Oswald of the University of Warwick in the UK. The mechanism for the link is unclear, but it may have to do with higher-status individuals' greater control over their work lives. Lack of control in the workplace is associated with stress, and high levels of stress hormones damage immunological processes.

China's Impending Slowdown Just Means It's Joining the Big Leagues

China's era of spectacular economic growth is coming to an end. That's a popular theme at the moment, with any number of culprits cited — an overleveraged financial system, pollution, too little consumer spending, corruption, anti-corruption campaigns, and of course bad driving. It's reached the point that the Chinese government's International Press Center felt compelled to gather a group of reporters in Beijing earlier this week just so that Justin Yifu Lin, the former World Bank chief economist who is now a professor at Peking University and a government adviser, could tell them that he's "reasonably confident the Chinese government has the ability to maintain a 7.5% to 8% growth rate."

Here's the thing: a 7.5% to 8% GDP growth rate already is a significant slowdown from the nearly 10% annual pace at which China's economy had been growing until last year. And while all the economic issues cited above are real, the big issue confronting the Chinese economy is something simpler and more encouraging. The country is on the cusp of succeeding in its epic quest to break into the ranks of the world's affluent nations. When that happens, growth tends to slow.

That's been the finding of economists Barry Eichengreen of UC Berkeley, Donghyun Park of the Asian Development Bank in Manila, and Kwanjo Shin of Korea University in Seoul in two recent studies of growth slowdowns in emerging markets around the world. In the first, published in Asian Economic Papers last year, they reported a marked tendency toward slower economic growth when per capita incomes reach around $17,000 a year (in 2005 prices). In a newer working paper with more-complete data, they revise that to report two inflection points, one in the $10,000-$11,000 range and another around $15,000-$16,0000.

China, with a per capita GDP of $7,827 in 2011 (in 2005 dollars, according to the latest edition of the Penn World Tables), is getting close to that first landmark. It also has a couple of other characteristics that Eichengreen, Park, and Shin have found to be identified with growth slowdowns — an aging population and an economy that has favored investment over consumption. Basically, it's due. Or, as Eichengreen put it in an email when I asked him about it:

Financial systems, deleveraging, and environment and political problems all differ across countries, but all fast growing, late developing countries slow down once the low hanging fruit has been picked. China can add several percentage points of growth a year by shifting 20 million workers from rural underemployment to urban employment, but once the pool of underemployed labor is drained it's, well, drained. If you're a technological latecomer, you can grow fast by importing foreign technology, but once you've succeeded in that you have to start investing in and developing your own, which is a harder task.

Remember, these difficulties are the fruits of success. At 7.5% annual growth, China would cross the $10,000 per capita threshhold in 2015, and $15,000 in 2020. Well before then it would pass into the ranks of the world's "high income" nations, according to the World Bank's classification.

Not that stuff couldn't go wrong along the way. Eichengreen and Shin are co-authors (with Dwight H. Perkins, an emeritus professor at Harvard Kennedy School) of the 2012 book From Miracle to Maturity: The Growth of the Korean Economy (no, I haven't read it, but you of course should), and Eichengreen sees important parallels in the Korean experience:

Korean governments attempted to resist the inevitable slowdown. Their legitimacy derived from delivering growth, and there was the external threat from North Korea that caused them to further prize economic strength. Our estimates there show a break-point in growth potential in 1989. But Korea sought to keep the old growth rates going by boosting investment. That worked for about 7 or 8 years, but no longer. And they ended up with a financial crisis in 1997-8. The Chinese have studied this history too, which is part of the explanation for why they are prepared to accept the current lower growth rate and, not incidentally, are in the process of clamping down on financial excesses.

None of this means there aren't big risks inherent in such a slowdown for the Chinese government (which, unlike South Korea's in the late 1980s is showing no signs transitioning towards democracy) and for the global economy (for which a Chinese slowdown will have an impact that earlier slowdowns in Korea and the other Asian tigers did not). But it is important to remember that for an emerging market, slowing down can mean you've arrived.

How to Reward Your Stellar Team

You've been told that getting the most from your team depends on rewarding and recognizing them collectively. But it's tough to do that, especially when most management systems are so focused on individual performance, undermining the very teamwork you're hoping to encourage. Luckily, you don't have to overhaul your company's evaluation process or pay structure. As a team manager, you can support the right behaviors with things that are in your control.

What Experts Say

A few decades ago, companies were struggling with how to measure and reward individual performance. But in their quest do so, many overreached, says Michael Mankins, a partner at Bain & Company and coauthor of Decide and Deliver: Five Steps to Breakthrough Performance in Your Organization. "The pendulum has swung too far, and now those measures are getting in the way of forming good teams," he explains. At the same time, compensating people for collaboration can be tricky, says Deborah Ancona, a professor at MIT Sloan School of Management and coauthor of X-Teams: How to Build Teams That Lead, Innovate, and Succeed. "The boundaries are often blurry and people work on multiple teams at the same time, making it hard for the manager." Still, both she and Mankins agree, it's worth the effort to get it right. "Rewarding a team dramatically improves not only the team performance but also the individual's experience," says Mankins. Here's how to do it effectively.

Set clear objectives

Team members have to understand and agree on what success looks like. "You need to have some way of assessing the group's performance — a common set of objectives or aspirations," says Mankins. He advises bringing everyone together to discuss goals and metrics. Have them answer the question: What would it take for us to give ourselves an A? "Having this sort of dialogue can be motivational and lays the groundwork for collaboration in an objective way," he says.

Check in on progress

Once the team knows what it's supposed to do and how the work will be evaluated, check in regularly. Pose questions that help the group assess its progress: How are we performing as a team? What obstacles can we remove? You can have this conversation in a meeting or do it anonymously. "Use a service like SurveyMonkey and ask team members to give themselves a collective grade. If everybody agrees that it has been a C week for the team, then you can discuss how to improve," Mankins says. "If you give yourselves an A, it's something worth celebrating."

Use the full arsenal of rewards

Most managers don't have the power to change how salaries or bonuses are handled at their organizations. If you do, be sure to tie a portion of the discretionary compensation to team or unit performance — the bigger the percentage the better. But if you don't control the purse strings, don't fret. There are lots of non-monetary rewards at your disposal. "Think beyond team dinners and social events. Those are just table stakes," says Mankins. Ancona has studied hospitals where administrators put pictures of groups that have drastically lowered infection rates on prominent display to recognize them for a job well done. You can also give your team exposure to senior leaders. "Teams like to be seen as part of a project that contributes at a high level," Ancona says.

Get to know your team

Of course rewards are only motivating if you give the team something it wants. This can be challenging because what makes one person feel appreciated may have no effect on another. Spend the time to get to know your team members and look for things they all value. If you're at a loss, ask them for input.

Focus discussions on collective efforts

Ancona says that many companies include teamwork as a core competency in their leadership development models. As a manager, you can further encourage your people to collaborate by talking about them as a team, not as a set of individuals. Be sure to celebrate successes and discuss setbacks collectively. "The less you talk about individual contribution the better," says Mankins. Instead, praise the behaviors that contribute to the team's overall success such as chipping in on others' projects and giving candid peer feedback.

Evaluate team performance

In addition to completing individual performance reviews, consider conducting a team review as well. Mankins says that companies like Apple and Google have made this part of their formal processes, but you can do it on your own too. Every six months or so, take a close look at the group's progress, noting its accomplishments, where it has succeeded, and how it can further develop. Don't mention individuals in this appraisal but focus on what the team has done — and can do — together.

Principles to Remember

Do:

Agree on what success looks like

Bring the group together to discuss progress against goals and how to improve

Consider doing a formal evaluation of the team

Don't:

Only think of rewards as money — there are lots of non-monetary perks that people appreciate

Focus on individual performance — emphasize the team's accomplishments

Reward your team with something they don't collectively value

Case study#1: Set a team purpose and measure against it

To help launch PfizerWorks, a productivity initiative that allows employees to outsource boring parts of their jobs, Jordan Cohen put together a small team including his two direct reports, Tanya and Seth, and started by devising a collective purpose. Following the advice of David Collis and Michael Rukstad in "Can You Say What Your Strategy Is?" the group worked together to come up with a strategy statement of no more than 35 words. "These were the words we were going to live by and we struggled over every clause," he says. Next, they developed metrics tied directly to their strategy. "We had measures for inputs, outputs, and customer satisfaction, all of which we agreed to," he says. Meeting those goals was a reward in itself because team members could see how their actions contributed. "It was a source of great pride. It made them feel like they could win everyday," he says.



Jordan also found ways to make sure his team members were publicly recognized for their work. When PfizerWorks launched, he stopped going to meetings with senior leaders and let Tanya and Seth handle them instead. They became the face of the program. At a meeting with Gary Hamel, just before the famed management thinker was about to give a speech referencing PfizerWorks at the World Business Forum, Jordan asked if he'd be willing to mention the team by name. He did, leaving Tanya and Seth "somewhere between paralyzed and over the moon."

Case study #2: Let them improve their skills

When Christopher Lind worked at a software company, he led a team of eight people who were responsible for training the company's sales force. Most of them had been with the company for a while, but many didn't have formal skills in instructional technology and design. Still, "I was fortunate that everyone on the team had a strong desire to learn," Christopher says. "They wanted to grow their skillset and familiarize themselves with new technology."

The team made great progress, exceeding every goal Christopher set and then asking for new ones, so when it came time to reward them as a group, more advanced training seemed to be an obvious choice. He purchased a multi-license agreement to instructional design software. "I had spent enough time with my team to know they were eager to expand their experience and technical abilities," he explains. "I knew it could lead to them moving on to more senior jobs," he says. But "I ultimately decided that providing them with a valuable development opportunity outweighed that risk." In fact, he hoped it would give them a reason to stay. And he was right. Several team members told him that his investment, of both money and time, made them feel valued. It also gave the team something extra to work on together.

Platforms Are the New Foundation of Corporate IT

Reinventing corporate IT requires recognizing deep differences between what we have today and what we need in the future. These differences go to the foundation of the modern corporate IT department — the infrastructure — which includes the software, hardware, communications, facilities, data centers, operations, and other technical resources a corporation operates. This infrastructure sits on top of a publicly available substructure of assets and resources — telecommunications and the Internet, for example. Infrastructure and substructure support the information, processes, applications, rules, and channels that are the face of corporate IT.

Infrastructure largely determines the IT organization's structure, its budgeting, how the corporation goes to market, its legacy, and its capacity to change. It embodies the long tail realities of major business and technology decisions, resulting in an IT department struggling to manage multiple costly and incompatible infrastructures.

The days of seeking a single, one-size-fits-all, one-price-feeds-all IT department are numbered. Infrastructures are under assault technically, functionally, and financially. New digital technologies like mobile, big data, analytics, cloud, social, and sensors represent fundamentally different types of solutions than the proprietary transaction technologies such as Enterprise Resource Planning. Consider:

Standards-based (rather than proprietary) technologies in mobility, Internet protocols and open API's demand shorter application and infrastructure development cycle times. Standards reduce not only the amount of technology but also the risk associated with bringing new and legacy technologies together.
Functionally, digital technologies are front-office, customer-facing, and demand-generating. They're the business's brand. Digital demands move at the pace of the market, competition, and customer expectations rather than the upgrade cycles of IT vendors.
Financially, infrastructure is simply too expensive and consumes too much in its present form. CIOs need to provide infrastructure at a lower cost and with more agile capability. Even current cloud and virtualization technologies, which often lower unit costs, don't change the drivers and structures of those costs. It is only a matter of time before growing digital transaction volumes overwhelm these technologies in their current form.

Increasing needs for speed, creativity, low cost, and flexibility demand that we move beyond infrastructure to platforms. A platform is the collection and integration of common resources that support multiple business operations. Financial services companies have platforms that allow them to release new products without having to replace their infrastructures. Facebook, Google, and other digital companies invest in similar capabilities giving them a seemingly endless stream of innovations and experiments from a single platform.

"Plures ex uno" — or many out of one — is the goal of a digital platform. Note this is the opposite of the motto of the United States — "e pluribus unum" or one out of many. The comparison is apt as corporate infrastructure is federated in nature with limited viability in the digital future.

A platform is more than service-oriented architecture on steroids. Platforms look at technology with a business view organizing around specific business actions like one-click sales, search, description presentation, and pricing. These common actions treat information rather than business logic or code as the source of specialization. This enables platform companies to add new features and functions once that are available to all or just a part of their customers giving them the flexibility and adaptability required in modern business.

Platforms reflect the heterogeneity of digital technology, allowing each part to change without disturbing the peace across all components. Platforms are critical for a world of consumer-driven technology, multi-vendor competition, and standards wars fought in the marketplace rather than the lab.

Platforms fit the economics of digital business. They provide a means to gain scale efficiencies from across the enterprise rather than trying to drive them across individual infrastructures. This is essential in a world where IT transaction volumes grow faster than business purchases. Consider online banking where many transactions are free of charge but have a real cost to the bank. Platforms provide a way to drive down transaction costs and preserve company margins.

Platforms require more than stitching together existing infrastructures. More interfaces, more integration and more condition-specific logic may be an interim step, but it only adds cost, complexity and core rigidity in the corporation.

Achieving the functional and financial benefits of a platform involve going back to basics of business — not transactions. Yes, the devil is in the details. And yes, we have tried service-oriented architecture and virtualization before with mixed results. Reinventing corporate IT requires more than changing the role of CIOs and IT in a digital age. Reinvention at scale must extend down into the fundamental drivers of IT cost, quality of service, and future flexibility. That starts with reinventing the foundation of IT and abandoning the infrastructure model.

Reinventing Corporate IT
An HBR Insight Center





The Future of Corporate IT Looks a Lot Like Google
Today's CIO Needs to Be the Chief Innovation Officer
The Real Power of Enterprise Social Media Platforms
Are We Asking Too Much of Our CIOs?

Why HR Needs to Stop Passing Over the Long-Term Unemployed

One of the very bad things about the Great Recession is that those who were not doing well already got hurt the worst, and that also seems to be the case for the economic recovery. Hiring has picked up, but not for the long-term unemployed, those out of work for more than more than 26 weeks. We'll get a new look at the data when July jobs numbers are released Friday.

The revelation last year that many job requirements for open positions mandated that candidates already be employed seemed a bit like a joke, but the evidence that employers screened out unemployed applicants was so widespread that the Equal Employment Opportunities Commission began investigating it.

A couple of interesting studies examined the extent of discrimination against the unemployed. These studies are unusual in that they involved real efforts to find real jobs. One created 3,000 pretend candidates and sent their resumes to a random sample of job openings. They varied one item among otherwise identical applications: whether the individual was currently unemployed and, if so, how long they had been unemployed.

Only about 4.5% got callbacks, which suggests that the typical unemployed applicant has to apply to a little more than 20 jobs to just get a positive response from an employer indicating that they are still being considered for the job.

Surprisingly, the call-back rate was slightly higher for those who had just been laid off than for those who currently had a job. What happens after you are unemployed for more than a month? At that point, the probability of getting any positive response from employers falls sharply and declines further with each month, hitting a plateau after about eight months. A person with an otherwise identical set of skills and experiences is about half as likely to get a positive response from employers after eight months of unemployment as compared to a person just being laid off.

The other study (PDF) is similar, with an important twist. They compared applicants on two dimensions: How long they were unemployed and whether they had relevant job experience. This study also found a sharp drop-off in employer interest for candidates with around six months of unemployment, but it also found that recently unemployed candidates with no relevant experience for the position were more likely to get employer interest than were those with relevant experience who were unemployed for six months or more.

What's going on here? At least at present — and perhaps because of the depth of the recession — there doesn't seem to be much stigma associated with being unemployed per se. But there is a really big reluctance to hire those who have been unemployed for a while. It's so big that it trumps the concern about having the relevant skills, which news reports constantly suggest is the big challenge employers face.

Here's the point: Hiring managers are only human. They don't have much support in doing their jobs. If you think hiring decisions are based on careful evidence about what attributes make the best hires, think again. Few employers have the time or resources to do any studies of what predicts a good hire, let alone looking at the specific evidence concerning prior unemployment. There is no evidence that I have seen anywhere suggesting that the long-term unemployed make worse candidates.

Hiring managers are going with their gut feel or what they think are "sensible" ideas about what makes a good candidate when the resist hiring the long-term unemployed. We know that going with your gut in hiring decisions means going with all kinds of unstated and in many cases unconscious prejudices. That's what kept women and minorities out of many jobs and now keeps older workers out of them as well. How about these sensible ideas? "If they were good, someone else would have hired them" — not when other employers think like you do and when there are so few jobs to go around. "Their skills are rusty" — one doesn't forget how to do a job in six months, and all new hires require some time to learn how your operation works.

What we do know about job candidates who are long-term unemployed, which is related to job success, is that they are persistent. Millions of other unemployed facing this job market gave up looking and dropped out of the labor force. We also know that they will likely be very grateful to have a job, and gratitude is associated with many aspects of good job performance. They are also likely to be cheaper and easier to hire because you don't have to woo them away from their current employer.

The way to get hiring of the long-term unemployed started is to recognize that there is no objective case in this economy for not considering a candidate who has been out of work for a while. Therefore, excluding them out of hand is a form of prejudice. The people at the top of organizations need to point out that excluding such candidates is likely costing us money because we are ignoring potential good hires, just as it costs us money to exclude women, minorities, older individuals, and anyone else who has the potential to do the job.

It's the right thing to do in terms of our social impact, it's the right thing to do to make our organization inclusive and looking like our society, and it's also the financially sensible thing to do.

The Innovation Mindset in Action: Shantha Ragunathan

This January, we met Shantha Ragunathan, an illiterate woman from Kodapattinam, a remote village in Tamil Nadu, India. Her story is at once heartbreaking and inspiring, showing that game changers can come from all walks of life, all over the world.

At six, Shantha lost her parents. By her twenties, she was stuck in a seemingly dark pit without a glimmer of hope: with two children and little financial support from her husband, she could not afford even one square meal a day. Although she was poor in resources, she possessed the innovation mindset shared by many game changers: they see and act on opportunities, use "and" thinking to resolve tough dilemmas and break through compromises, and employ their resourcefulness to power through obstacles. Innovators maintain a laser focus on outcomes, avoid getting caught in the activity trap, and proactively "expand the pie" to make an impact. Regardless of where they start, innovators persist till they successfully change the game.

Hopeless as her situation was, Shantha engaged in "and" thinking. She imagined a future when her family would be out of poverty AND her kids would start their adult life educated. Unimaginable as it may seem, she had no real-life role models in her village for this dream. Some of her neighbors had given up all hope and fallen into alcoholism; others exploited their kids with child labor to earn money; still others sacrificed their entire lives in an attempt to get their children out of the vicious circle of poverty—with few successes, despite their sacrifices and heroic efforts.

Shantha's "and" thinking powered her dream and kept her alert to opportunities. When Ms. Sasikala, a Block Development Officer (BDO), talked to the Kodapattinam villagers about microfinance, only Shantha, of all the villagers, saw the opportunity and took action.

To participate in a microfinance campaign, the village had to form a Self Help Group (SHG) of about 20 people, with each member contributing a certain amount of money every month. To keep the math simple, let's say $10 (although in this case the currency was Indian rupees): 20 people x $10 each = $200. The bank (in this case Indian Bank) would then loan a matching amount, bringing the available funds to $400. Any member of the SHG, either individually or as a team, could pitch a proposal to use the available funds to a microfinancing committee of bank officials and village elders.

For example, a member could propose to use the money to buy an income-producing asset, such as a cow. Selling the cow's milk would create an income stream, a portion of which would repay the loan; the remainder would lift the cow-owning entrepreneur out of poverty. The microfinancing committee decided which proposal to fund each month, giving out $400 month for approved proposals: $200 from the SHG contributors and $200 in matching loans from the bank.

While most folks who heard the Block Development Officer's presentation thought that microfinance was too much work and gave up, or froze into inaction not knowing what to do, Shantha's resourcefulness kicked into high gear. She went door to door, pleading and pitching. In her own words, "I had to go back over 50 times knocking on the same door because they wouldn't trust me enough to even give ten rupees [about 20 cents]. I talked to them about how we can work together to solve our problems." Undeterred, Shantha persisted until she persuaded the required number of people to sign up for the microfinance project.

Shantha formed the SHG and went to the bank, assuring the loan officers that her SHG would start fruitful businesses, like buying cows and selling milk, with the loaned money. She was awarded the bank's matching micro-credit loan. Then Shantha made her pitch to the microfinancing committee, describing how, with traditional bank loans, they would borrow at very high interest rates and get stuck in a poverty cycle, barely making enough money to repay the interest. The committee, moved by her courage and business acumen, approved her funding.

Shantha was driven, focusing on outcomes. She started with one cow, and with the income from the cow's milk she repaid the loan and also bought more income-producing assets: sheep, goats, small corner stores, sewing machines, and audio systems rented out for village events. Over a 14-year period, Shantha converted that first, tiny microfinance loan to wealth, including her own house and a college-level education for both of her children. (Her daughter is now a teacher and her son an engineer.) She was so successful that she was appointed by the BDO as a mentor and a consultant to rehabilitate unsuccessful SHGs.

Although she had no formal education, Shantha had strong business acumen and innate leadership qualities. When asked how she learned to manage a business, she said, "I watched the shops in my village. I noticed that those that had sales revenues more than their costs, succeeded. Those that had costs more than their sales revenues, failed. I knew I wanted to succeed. So I made sure revenues exceeded costs." She trained six other villagers to lead the SHG in her absence—clearly understanding the importance of building a leadership pipeline, without the benefit of an MBA education.

Shantha expanded the pie. She helped other villagers form SHGs and found ways for SHGs to grow. For example, when she heard that a tissue manufacturer was having productivity problems because of constant power cuts, she convinced the company to invest in an SHG that manually assembled the tissue boxes. This resulted in jobs for many villagers as well as cost savings for the company: the tissue boxes were assembled for far lower cost than the machines, but at the same quality.

Shantha Ragunathan is truly a game changer. Shantha's success spread in a ripple effect from her family and her village to dozens of neighboring villages, ultimately affecting thousands of individuals. From the edge of society, unable to be a consumer, she got "into the game" by acquiring wealth. She brought along with her thousands of people, who also became active participants in the game. Even more important, by serving as a role model, she created the foundation for many more such leaders and game changers to emerge.

We can all make a difference in areas in which we are "poor." Shantha was poor in money, but others of us are poor in business, health, relationships, career, respect, relationships, or time. We can lift ourselves out of this poverty the way Shantha Ragunathan did: by applying the innovation mindset and changing the game.

Ride Sharing Disrupts the Taxi Business in Los Angeles

Ride-sharing services such as Lyft ask for "donations" that run about 20% less than cab fares in Los Angeles, says The New York Times. The services, which have ignored city regulators' orders to shut down, appeal to younger riders as a cheaper and more fun way to get around. Cab companies point out that ride-share services can charge less because their cars don't have to be accessible to the disabled or include safety partitions protecting drivers from riders.

"Alternatives" Isn't a Dirty Economic Word

There Is No Alternative. Margaret Thatcher and her allies in the "dry" wing of the British Conservative Party popularized the phrase three decades ago. TINA, for short. The name never caught on in the U.S. as in the UK and parts of Continental Europe, but the idea did. The most compelling statement of it may have come from Milton Friedman, talking to Phil Donahue in 1979:

There is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.

Put that way, it's hard to disagree with. There is no attractive alternative economic system out there that we could jump to if we got tired of this capitalism stuff. And we shouldn't want to — the capitalist era has coincided with a staggering increase in living standards.

But Thatcher was also saying that a specific set of financial-market-friendly, ownership-oriented, low-tax policies was the only path to economic success. By the 1990s, similar attitudes had taken hold in both major political parties in the U.S., at international institutions such as the IMF and OECD, and in the Zeitgeist everywhere. The newly globalized economy, policed by what Thomas Friedman dubbed the "Electronic Herd" of financial markets, just wouldn't allow for much freedom of choice in economic policymaking.

Yet look at the World Economic Forum's national-competitiveness rankings now. The top 10 nations are, starting at No. 1, Switzerland, Singapore, Finland, Sweden, the Netherlands, Germany, the U.S., the UK, Hong Kong, and Japan — all capitalist countries, sure, but with dramatically different forms of capitalism and roles for government (government spending is
GDP (adjusted for purchasing power), which gives us Luxembourg, Macao, Norway, Singapore, Brunei Darussalam, Switzerland, Hong Kong, U.S., Australia, and Austria. That last list does seem to indicate that it's best to be a small country (or autonomous region of China) that either has huge petroleum reserves or is a magnet for wealthy people from elsewhere, but that's not exactly helpful as an economic-policy roadmap.

One thing all the countries on these lists do have in common is that they participate in the global economy — they don't wall themselves off, as India and China tried to do for decades (with dismal results) before changing course. They also have economies driven by the profit motive (although that may be arguable in the case of Brunei, where oil and gas export pretty much are the whole economy). So successful economies do operate within certain bounds. They're just not nearly as narrow as a slogan like "There Is No Alternative" might lead you to think.

A classic example: As Thatcher took office as Prime Minister in 1979, booming oil revenue from the North Sea offered big opportunities and posed big decisions for the UK and Norwegian governments. Under Thatcher, the UK chose to spend the windfall as it came in and cut other taxes — a policy that her successors didn't really alter. Norway started out on a similar track, albeit using the money more to prop up its increasingly expensive welfare state than to cut taxes, but in 1990 established what was then called the Petroleum Fund, now a $720 billion sovereign wealth fund with significant global influence and hugely positive implications for the country's fiscal present and future. Now, not surprisingly, some in the UK are saying that's an alternative they should have considered.

The strength of TINA as a governing principle is that it's simple. But that's its weakness, too. It often doesn't tell you what you need to know, and sometimes it gives you the wrong advice (putting oil money straight in consumers' pockets surely seemed a more TINA thing to do than setting up a government-run oil fund). There are similar problems with the simple consensus on monetary policy that prevailed during the TINA years (set a low inflation target and keep to it, period) and the prevailing view in the U.S. and UK on how to run a corporation (maximize value for shareholders, period). The real world just isn't that simple. There are other factors at play. And there are alternatives.

One of the most convincing arguments for the superiority of free-market capitalism is that one size doesn't fit all. Tastes vary, and change. Information about the economy, as Friedrich Hayek wrote, is too widely dispersed for any one person or organization to know what the best course is. This observation is usually taken as an argument against government intervention in the economy, which is certainly how Hayek meant it. But in a world where there are lots of governments with differing policies and priorities, yet increasingly a single global financial market in which returns across countries and asset classes are ever-more correlated, it's not obvious to me that the Electronic Herd will always have better economic judgment than your local mayor.

What got me thinking about all this was President Obama's recent push to start a new economic policy conversation in the U.S. After actually sitting down and reading the speech that kicked off the campaign July 24 at Knox College in Illinois, and the one at an Amazon warehouse in Tennessee Tuesday where he proposed a reduction in corporate tax rates in exchange for more infrastructure and education spending, I cannot claim to have encountered a new economic paradigm. In general, the President's proposals seem designed to be reasonable-enough-sounding things that House Republicans will say "No" to (possible new House GOP slogan: There Is No Alternative to No).

Still, the tone is interesting. "Growing inequality is not just morally wrong, it's bad economics." Obama said in Illinois.

Because when middle-class families have less to spend, guess what, businesses have fewer consumers. When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy. When the rungs on the ladder of opportunity grow farther and farther apart, it undermines the very essence of America — that idea that if you work hard you can make it here.

The TINA take on inequality is that it's an inevitable byproduct of economic dynamism. You want growth, you have to accept inequality. That's surely true, up to a point. The anti-TINA argument is that beyond that point inequality starts dragging down the economy — that there's a Laffer curve for inequality, as economist Mark Thoma put it. What that point is, and what to do about it, are hard questions to answer. But that sort of is the point in a post-TINA world. There aren't always obvious answers. There are, however, alternatives.

The Future of Corporate IT Looks a Lot Like Google

They tweet. They showroom. They pin and like and yelp. And whenever they do, customers accelerate corporate IT's biggest challenge: to rethink and reinvent itself. The implications stretch beyond any one hot seat in the C-suite.

More than ever, customer experiences are based on a foundation of technology and delivered to a digitally-savvy population. Digital experiences come in many guises: mobile apps, web sites, how-to videos on YouTube, LCD screens on products (think of exercise machines that track calories burned). Some experiences come through channels that companies can influence but not control, such as social networks and review sites.

Digital experiences unleash more ways for companies to influence and satisfy the customer, and differentiate themselves from competitors. But there's a catch for CIOs and other tech-minded executives: to keep creating opportunities, companies must keep changing the experience or fall behind. Each generation of technologies raises customer expectations beyond the last.

In part, this is because customers will keep raising the bar for satisfaction and attention as they use the new technologies and services. But emerging technologies will also enable customer experiences that are far superior to those of today. For example, companies will anticipate customers' future needs, and act like personal advisors. Already, Google Now works on an "anticipate and deliver" basis: the technology delivers information that's needed before it's requested. Companies will assist customers as they cross back and forth between physical stores and the online world. Spanish clothing chain Desigual has moved part of the way there, creating flagship stores in Paris and Barcelona that only stock samples — the customer can try on different looks, then purchase the clothes online.

Tomorrow's digital experiences will offer new kinds of value, solving needs that did not exist before in locations that didn't exist before. When driverless cars roam the freeways, cars are no longer just vehicles. Their interiors will be designed to be whatever passengers want, be it a theatre, office or shopping mall on wheels. And who wants digital gift wrap? An MIT startup called "Delightfully" is betting people who give online gift certificates will appreciate it.

The problem for companies is that once customers see something cool, different or better, they expect to see it everywhere. This puts immense pressure on the organization to keep up with the competition while trying to innovate in its own right. It's a digital arms race, and corporate IT and other functions must be battle-ready.

How can companies exploit digital technologies to deliver compelling customer experiences time and again? Executives across the C-suite will need to work together with corporate IT and F.O.C.U.S.:



Frame strategy based on a new model of customer interaction. Traditional customer acquisition strategies won't work because the path to purchase is no longer linear. Customers now find, evaluate, discuss and buy products nonstop, bounce from one stage to another. A complaint on Facebook or a recommendation on a fan's web site can hasten or redirect a purchase. This upheaval requires a new way of thinking that spans the physical and digital worlds.

Optimize marketing efforts to achieve influence at scale. Word of mouth still influences purchasing behavior. Only now, social networks increase that circle from a few trusted friends and family to hundreds of people online. By studying what customers do with social media, and identifying their sharing patterns, companies can provide attractive online social content at the right time to the right people.

Create new digital experiences by adopting Silicon Valley's approach to innovation. The tech staff at companies like Google, Facebook and LinkedIn use agile, iterative development techniques to deliver improvements fast. They quickly test new services and features with actual customers and data. And by tapping crowdsourcing and open source communities, they bring more ideas to the table and turn them into products fast.

Use in-depth analytics to understand customers better. Creating digital experiences built on cloud and analytics will rewrite how marketing and sales teams work and break down internal silos. For example, when companies capture and analyze their customers' interests, and integrate it with data from other sources, marketers and developers can better predict and influence consumer behaviors and deliver more personalized experiences. Social media and marketing data can also be integrated with warranty data and post sales and service feedback.

Set up enterprise IT that can design, build and run digital experiences. The bottom line for CIOs: to serve the accelerating demands of digital customers, IT organizations will have to behave more like Amazon or Google, and less like their traditional competitors. Legacy systems often prevent it. They are unable to manage unstructured or non-numeric data, or too inflexible to develop new features at Valley-like speed. But that won't be acceptable to other executives. They will wonder why their IT organization can't be more like Facebook's "hackers" and make thousands of bug fixes, improvements and new features each week. For corporate IT to remain relevant, it must get its house in order now or risk irrelevance. If rethinking corporate IT leads to a fresh start for corporate IT, so be it. The business side cannot afford to wait while today's customers tweet, like and yelp.

Reinventing Corporate IT
An HBR Insight Center





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