Marina Gorbis's Blog, page 1573

Research: How Sensory Information Influences Price Decisions

Words are not simply the flat, black-and-white letters as depicted in the dictionary. They are three-dimensional objects that contain feelings, sounds, and pictures when they are said or read. We use words to represent the sensory experiences of sight, sound, touch, taste and smell. The map we use to describe and interpret an experience is based upon one of three channels of information — visual, auditory, and kinesthetic. "Visual" refers to pictures and imagery, "auditory" to sounds, and "kinesthetic" refers to touch and tactile feelings.

The conversations salespeople have with prospective customers involve these visual, auditory, and kinesthetic channels. Can different amounts of visual, auditory and kinesthetic information influence the price customers will pay for an item? Recently, a sales linguistics experiment was conducted in order to answer this question. Sales Linguistics is the study of how customers and salespeople use language during the complex decision-making process.

Sensory Information Price Test

Study participants were separated into three groups and six items were presented to them in a classroom setting. All participants were business professionals and university graduates between the age of twenty-four and fifty-seven. The groups were asked to estimate the price of each item and rank whether they had a low, medium, or high level of comfort with the answer they gave.

The first group would be presented only visual information consisting of a picture of the item and a brief description. The second group would be shown the same visual information as the first group, but the description would be read to them with dramatic emphasis and accentuation, creating an auditory connection. The third group would be shown the visual information, read the description in the same manner as for group two, and also be provided the opportunity to hold and inspect the item before making their guess, creating a kinetic bond..

The participants were presented with an eclectic mix of items. In order, they were shown a baseball hit by famous home run hitter Manny Ramirez of the Cleveland Indians, a six inch wooden penguin honoring Admiral Byrd's expedition to the south pole, a black plastic stapler, a copy of Rudyard Kipling's second Jungle Book published in 1915, a vintage brass letter opener from Italy, and a 1886 Morgan United States Silver Dollar.

Understanding the Test Results

While the test results provide many different revelations about how people interpret information, two high-level metrics underscore the impact sight, sound, and touch can have when making a decision about price. Below are the average answer comfort scores for each group (with three being the highest score). You'll notice the scores increase with the addition of more sensory information by approximately 20 percent. The third group who received the highest amount of information from all three sensory channels had the highest sense of comfort with their answers.

The next point of comparison is average total overall price, which is calculated by adding the estimated price together for each of the six items. The average total overall price for each group varied greatly with group two (visual and auditory information) being the highest at $325,000. In addition, 29% of group two members estimated all the items cost over $250,000 whereas none did in group three.

Clearly, the test results show that different amounts of visual, auditory and kinesthetic information influence the perception of the item's price. The experiment also provides other important lessons for sales and marketing professionals.

Customer Miscommunication



The mind does not treat all information equally. Information is ignored, misinterpreted, and generalized based upon surrounding experiences. For example, study participants misinterpreted that the baseball hit by Manny Ramirez was a home run ball when it was only a foul ball. You should never assume prospective customers have received the message correctly.

Verbal Suggestion Susceptibility

The mind is quite susceptible to verbal suggestions. Group two's average total price was nearly seven times that of group one and close to twenty times the average of group three. The tone, tempo and demeanor of what you say can have more impact on a prospective customer than the actual words you speak. This is a particularly important point for salespeople who sell primarily over the phone.

E-mail Communication Dependency

Salespeople have increasingly grown to rely on e-mail for their primary method of communication with prospective and existing customers. There is a down side to this dependence since the persuasiveness of verbal suggestions is forfeited. Check your sent box and examine the last twenty e-mails you sent. Where would a phone call or in-person conversation have been better suited?

Avoid Product Evaluations



No salesperson typically wants to slow down the sales cycle by having the customer conduct a lengthy product evaluation. This study provides an entirely new reason why they should be avoided. The results suggest that hands-on familiarity with an item actually lowers the perception of its value. For example, the average price for group three who handled the brass letter opener was $100 while group two's average was nearly $10,000.

Sales Presentation "Talk Track"

The "talk track" that accompanies sales presentations and product demonstrations plays a critical role in shaping the prospective customer's perception of value. In this regard, many companies don't take the time to ensure the fluency of their sales organizations by providing them compelling written scripts and testing them to ensure they are able to delivered persuasively.

it was Rudyard Kipling who said "Words are, of course, the most powerful drug used by mankind." He was right. Your most important competitive weapon is your mouth and the words you speak. This test proves it's not only what you say, but also how you say it!

The Art of Irresistible Email

Virginia was ready to pull out her hair. Why wasn't anyone responding to her email?

As the director of training for a global professional services firm, she'd recently sent out a note explaining important changes to the summer training schedule and asking office directors to respond with their preferred locations. But only a few had done so. Training was a huge priority for her firm, so why were they ignoring her request?

Corporate employees receive and send more than 100 emails a day on average, according to tracking sites like Pingdom and Radicati. Competition for attention is fierce. So, no matter your title or department, you need to master electronic messaging to get your job done.

Luckily, crafting emails in a way that encourages people to read and act on them is relatively easy. You just have to apply some age-old techniques of persuasion.

Before you start typing, consider:

The objective. What do you want to achieve with this email? Is your purpose to inform? Request input? Ask for help?

What-who-when. Your objective will inform the message, including what to write, who should receive it and when to send it. Also think about whether it should come from you, or someone with more seniority.

Visual logic. Clear structure and typographical signalling will boost the odds that your reader will get your message quickly and respond in ways that meet your goal.

Let's look at Virginia's original, unrequited email.

To: Blue Corp Office Directors

From: Virginia Brown, Training Director

Date: Friday, May 30, 2013

Time: 5 p.m.

Subject: New Hire Training

Dear Colleagues,

I'm writing to let you know about significant changes to our new hire training schedule. Instead of running training from August 15 - 20th at our New York location, we'll be hosting regional trainings in New York, San Francisco and Cincinnati on three different dates. And we'll be bringing our best trainers to every location. For those office directors with new hires, we'd like to hear which training location you prefer and how many new hires you'll be sending. If for some reason the timing, which will be August 10-14th in NYC, 15-19th in SF and 20-24th in Cincinnati, doesn't work, please contact my assistant, Francine Nordell at x2345, and we'll see if there is enough demand for a make-up session. We need to put the calendar for training together by June 30th, so please get back to me by June 15th. I think you'll be pleased with our new approach and your new hires will benefit tremendously from getting to know a smaller group of colleagues as they participate in the training.

Best,

Virginia

Virginia's message isn't long, but it's a muddle of mixed signals. Her opening line sounds like her goal is to inform office directors of a new approach to training. But in reality she's requesting input: preferred training locations. That's hard to quickly recognize, and the urgency isn't clear.

There are several things she can do to better telegraph her intent, thereby prompting a better response:

Put the subject line to work. Most of us already use our subject line to predict the "what," e.g. "Re monthly financials." But it's also the place to build a personal bridge: "Re monthly financials, per Peter's request," and to indicate urgency: "Re monthly financials, per Peter's request. Need feedback by Tuesday."
Visually highlight the key message. Structure your email so the most important request or information is at the top, then put it in bold. This may seem like a, "duh," but people often "bury the lede", as journalists like to say, several paragraphs down. If you are sending to multiple readers, also bold the names of anyone you address directly, so they immediately connect to content that's relevant to them. If you're making multiple points, use indentations and numbers or bullets.
Use links to go deep; voting buttons to get answers. If you want someone to act on your email then make it concise and jargon-free. Use links to let readers go deeper or access forms, and voting buttons to get folks to sign up.
Time the delivery for maximum impact. Never send an email at the end of the day or the start of a weekend. Make sure people are opening it at a time when they're at their desks and have time to read it.
Add clout by having a superior co-sign. We may be moving into a less hierarchical work world, but the boss's name still gets attention. If you need help, ask for it.
Leave the ball in the reader's court. If you want people to get back to you or take action, make sure you put the request in bold as well. Make clear what you need from them.

Let's apply this to Virginia's email.

To: Blue Corp Office Directors

From: Gordon Boss, SVP Human Resources and Virginia Brown, Training Director

Date: Thursday, May 29, 2013

Time: 9 a.m.

Subject: Need Your Site Registration for New Hire Training by June 15th

Dear Colleagues,

We are converting from national to regional sites for our new-hire training and offering three dates. We need you to register your trainees for a venue by June 15th to accommodate all. Please click on one of the following sites to register and enter the number of trainees.

New York: August 10-14

San Francisco: August 15-19

Cincinnati: August 20-24

If the timing doesn't work, please contact my assistant, Francine Nordell at x2345, who will gauge demand for a make-up session.

We'll be sending our best trainers to all locations. We anticipate that getting to know a smaller group of colleagues will strengthen relationships and spark collaboration.

Thanks in advance for registering.

Best,

Virginia

What are your challenges in email communication? And what tactics have you found to be irresistible?

The Real Power of Enterprise Social Media Platforms

An unusual — and unusually rich — funding opportunity inspired researchers at MIT and several other top-tier research institutions to improvise a comprehensive multi-media proposal on a tight deadline. While the schools' own IT infrastructures and apps proved disconcertingly incompatible, Dropbox and skillfully edited Skypes facilitated exactly the kind of real-time and asynchronous coordination and "version management" needed to deliver a "knock-their-socks-off" plan fast. They won eight-figure funding.

More humbly, incompatible communications networks and a less-than-proactive IT department drove a company's supply chain and procurement teams to use LinkedIns, private Tweets and cut-and-paste Sharepoints to quickly coordinate go-to-market product changes with key vendors. The ad hoc network enabled suppliers to transparently coordinate and collaborate with each other as well as respond to their customer's requests.

These real-world vignettes highlight social media's underappreciated and undervalued impact within and between organizations: the power to self-organize. For completely understandable reasons, enterprise social media tools and platforms like Yammer, Chatter, Jive and Sharepoint have been branded as great ways to communicate, engage, collaborate, coordinate, update and share information. That's largely accurate. But those pretty verbs obscure where the real action is taking place.

Initiators and intrapreneurs aren't just using social media to make their efforts more transparent and accessible, they're using these platforms to improvise and organize new ways to get the job done. They're using these tool and technologies to add value to existing processes or, indeed, to create new "just-in-time" processes (and programs) that the C-suite and other senior managers had never envisioned. Social media inside the enterprise and out lower the costs and increase the power of individuals to productively coalesce and coordinate on their own initiative.

In other words, social media tools enable "gray markets" in enterprise self-organization unanticipated by the organizations that provide them. Sometimes, organizations even experience "black markets" in social media-enabled "self-organization" when their people use unauthorized or unsanctioned platforms like Twitter, Dropbox, Skype, LinkedIn, Google+ and even Facebook to share ideas and coordinate their activities.

Why? For reasons healthy and dysfunctional alike. More than a few organizations provide such poor communications and collaborative tools that the only way people can really do their jobs is to create and maintain their own collaborative networks. Even worse, some individuals and teams in troubled organizations use external social media platforms to facilitate their own "Enterprise Spring" so they can accommodate and counterbalance the perceived incompetence and/or poor behaviors of their bosses.

Where IT once confronted the spectra of "shadow apps" and "gray market computing," the rise of social media platforms inside the enterprise and out now means that entire managements now see "emergent" leaders and processes. These aren't designed for or planned; they materialize directly from the perceived needs of concerned individuals and teams who now have the ability to self-organize inside the firewall and out because of these media.

That's (potentially) revolutionary. That's also why so many organizations are understandably suspicious and/or wary of what enterprise social media platforms might truly represent. Yes, they're about communication, coordination, collaboration and transparency. But they're also about power — the power of individuals and teams to reach within and across enterprises to effect meaningful change.

At Fortune's recent Brainstorm Tech Conference, retired General Stanley McChrystal

observed that technology had fundamentally changed how America's special operations command managed its special forces warriors. The technologies of situational awareness put soldiers at the front lines — not the Generals in the command centers — in the best positions to decide how to best prosecute their missions. The General recognized that these technologies were better used to empower rather than to second guess.

The bottom line: the most important impact of social media technologies comes from who — and what — they empower, not just the information they exchange. Do organizations appreciate and understand that these tools put them in the "empowerment" and not just the "better communications" business?

Reinventing Corporate IT
An HBR Insight Center





Are We Asking Too Much of Our CIOs?
Is Your Organization Ready for Total Digitization?
Why Can't a CIO Be More Like a CFO?
Exploit IT for Strategic Benefit

SAC and the Strange Focus on Insider Trading

Five years after a financial crisis that, as best anybody can tell, had almost nothing to do with insider trading by hedge funds, the two biggest post-crisis criminal crackdowns on the financial sector in the U.S. have centered on ... insider trading by hedge funds.

First up was Galleon Group and its founder, Raj Rajaratnam, brought down in an investigation that also resulted in the conviction of former McKinsey chief and Goldman Sachs board member Rajat Gupta. Since then, Preet Bharara, the U.S. Attorney for the Southern District of New York and the man behind the Galleon prosecutions, has been building up to a full-on assault on an even more prominent fund, SAC Capital Advisors. Bharara has not filed charges (yet?) against SAC founder and chief Steve Cohen, but on Thursday he charged the hedge fund itself with "insider trading that was substantial, pervasive, and on a scale without known precedent on the hedge fund industry."

It may seem strange that Wall Street's top cop has chosen to attack Galleon and SAC instead of the institutions at the heart of the mortgage meltdown that brought on the financial crisis. It may seem even stranger when you consider that a lot of legal scholars don't think insider trading is fraud, and a few even think it should be encouraged.

It is strange. That said, it's pretty clear why it happens: Bharara and his predecessors (Rudy Giuliani held the same job in the late 1980s) have taken on insider trading cases because they can win them. Thanks to a half century of SEC opinions and court rulings, insider trading is much easier to prosecute than other dodgy financial behavior. The question, really, is whether this amounts to a perverse miscarriage of justice, or just a somewhat convoluted way of enforcing norms for good behavior on Wall Street.

The modern era in insider trading law dates to 1961, when Securities and Exchange Commission Chairman William Cary (a Columbia Law School professor before President John F. Kennedy appointed him to the SEC) wrote an administrative order declaring that insider trading amounted to a violation of the anti-fraud provisions of federal securities laws. Before then insider trading was handled as common-law fraud in state courts, and cases were hard to win. That's because, as Georgetown Law Professor Donald C. Langevoort put it in a recent article, "no one has ever been able to articulate a robust theory of harmful marketplace deception arising from insider trading." That is, it's hard to say who exactly is being defrauded. Those who sell shares to or buy them from someone with inside information are certainly at a disadvantage, but it's not clear that they're harmed. And other shareholders aren't directly affected at all.

Cary argued that insider trading — or just passing inside corporate information to others who might trade upon it — was illegal because that information belonged to the corporation. A few years later, the U.S. Second Circuit Court of Appeals adopted and expanded upon his reasoning to hold that the law was intended to ensure that "all investors trading on impersonal exchanges have relatively equal access to material information."

Since then the insider trading prohibition has been elaborated through Supreme Court decisions and SEC orders in the U.S., and has spread to many other countries as well. It has also been the source of unending discussion and controversy among legal scholars. Just in the past few months, the Columbia Business Law Review has come out with an entire issue devoted to the topic (based on a symposium held at Columbia last fall), and Edward Elgar has published a 512-page Research Handbook on Insider Trading (list price, $240) edited by UCLA Law Professor (and prolific blogger) Stephen Bainbridge.

I will not claim to have read all or even most of the contributions to these volumes (law professors write long), but just dipping into them is an educational if bewildering experience. (The Langevoort article cited above is from the Columbia Business Law Review; my brief history of insider trading law is partly cribbed from Bainbridge's introduction to the Handbook.) The main lesson I learned is that the case against insider trading is much less about specific harms than a belief that it's bad for financial markets in general.

This belief is, as already noted, not universally held. The most famous argument against prosecuting insider trading was set out by the influential and irrepressible law-and-economics scholar Henry G. Manne in his 1966 book, Insider Trading and the Stock Market. Manne believed (and believes) that since it's in society's interest for information about corporations to get out and be reflected in share prices, we should be encouraging corporate insiders to trade on what they know, not punishing them for it.

That reasoning, while it continues to inspire law professors to write articles, has never taken hold in court. Cary's original claim that corporate insiders have no business profiting from (or helping others profit from) information that belongs to the corporation as a whole has more or less prevailed. In fact, it has expanded: The traders at Galleon and SAC weren't corporate insiders — they were investors (or speculators, if you prefer) scrabbling for information about corporations whose shares they were thinking of buying or selling or shorting. This activity helped speed the flow of information to financial markets, thus enabling more efficient and accurate pricing of the shares of corporations. Finding out things about corporations that management would rather not disclose is something professional money managers are supposed to do.

But in doing so, Galleon and SAC (allegedly at this point in SAC's case) caused insiders at corporations to betray their fiduciary responsibility and generally made the country's financial markets more cutthroat and amoral than they were before. And that, really, is the core of the crime. To quote again from Langevoort's article, the "central premise" behind insider trading laws is that "manifestations of greed and lack of self-restraint among the privileged, especially fiduciaries or those closely related to fiduciaries, threaten to undermine the official identity of the public markets as open and fair."

The connection between the insider trading cases and all the other unsavory behavior that went on in financial circles in the years leading up to 2008 (and surely still goes on, if perhaps at reduced volume) would seem to be, then, that they're all manifestations of greed and lack of self-restraint among the privileged. And because, for various reasons, we seem unable to throw people in jail for hawking toxic collateralized debt obligations or giving those CDOs triple-A ratings, going after insider traders is the best our criminal justice system can do.

The SEC has, of course, brought a fraud case against Goldman Sachs bond trader Fabrice Tourre that is related to the 2008 crisis and is being tried right now. It's a civil case, and most indications are that it won't be easy to win. The SEC must show that Tourre intended to dupe investors, and jurors must be convinced that the dupees weren't so sophisticated that they should have known better than to buy into a synthetic mortgage CDO that Goldman Sachs had assembled in large part so hedge fund manager John Paulson could bet on its failure. Goldman itself already settled in the case with a $550 million fine and an admission that its marketing materials "contained incomplete information," so that's something. But it's not nearly as big a something as going to jail for insider trading.

So that's where things stand. Insider trading of shares in publicly held corporations has been criminalized, but few other dubious financial practices have. Perhaps that's as it should be — insider trading does feel icky, and prosecuting it sends the signal that there are lines that market participants should not cross. Also, trying to jail everybody who sells investments that go bad (which is really what most financial fraud amounts to) would probably grind financial markets to a halt.

But the emphasis does seem to be off. The ban on insider trading dates to an era when the stock market was the biggest financial show in town, and small investors still controlled a big percentage of it. Now institutions dominate stock trading, and publicly traded stocks are a relatively small part of a burgeoning financial universe of private equity, debt, commodities, derivatives, and more. Yet most government investigative and prosecutorial energy seems to remain focused on insider trading in stocks — because that's where cases can be won.

A History of Entrepreneurship Can Hurt Your Job Prospects

Employers and recruiting agencies sent 63% fewer positive replies to fictitious candidates whose CVs showed they had owned and managed small HR consulting companies, in comparison with equally qualified candidates whose CVs showed they had been project managers in corporate HR consulting divisions, according to research in the UK led by Philipp D. Koellinger of Erasmus University in the Netherlands. Among the female candidates alone, the gap was even wider, at 75%. Thus it appears that starting a business has consequences for entrepreneurs' job prospects: Self-employment sends a "negative signal" to the job market, the researchers say.

The Women Who Become Board Members

An interview with Boris Groysberg and Deborah Bell, authors of the article Dysfunction in the Boardroom.

Download this podcast

A written transcript will be available by August 2.

Does the Fed Chair Need to Be a Great Manager, or Just a Great Economist?

By the end of the year, President Obama will likely make one of the most important economic decisions of his presidency: appointing a new Federal Reserve chairman. The two leading candidates, according to reports, are Janet Yellen, the Fed's vice chairman, and Larry Summers, a former member of the president's economic team and Secretary of the Treasury under the Clinton Administration. Both have impressive economic credentials but differ in background and reputation, raising the question of what, exactly, makes a great Fed chair.

Is success as Fed chair simply a matter of being a brilliant economist, or are a consensus-driven leadership style and the ability to effectively manage the Board of Governors and the Federal Open Market Committee equally critical?

That question is particularly relevant in the case of Summers, who has a reputation — rightly or wrongly — for being brilliant but aggressive and hard to work with. Luckily, research by two economic historians can help answer it.

In a 2004 paper for the Journal of Economic Perspectives, Christina and David Romer, both of the University of California at Berkeley, looked at the history of the modern Fed to identify which factors best predicted success as chair. (Christina Romer, also a former member of the Obama team, has been mentioned as a candidate for chair but is not considered a likely pick.) Here's the short version: "The key determinants of policy success have been policymakers' views about how the economy works and what monetary policy can accomplish."

In reaching this conclusion, the authors looked at testimony to Congress and other statements by Fed chairmen and determined, not surprisingly, that what they said was closely linked to what the Fed ended up doing. They then found that realistic and well-reasoned economic statements were directly tied to policy success. (The authors treat these statements as "beliefs" held by the chairman, but one need not assume they fully reflect that individual's beliefs to accept the rest of the analysis.) The paper then explores a number of variables, looking for correlations with the "sensible beliefs" that lead to successful tenures.

The authors first examined professional backgrounds, but found little relationship:

This analysis suggests that concrete background characteristics have been
highly imperfect indicators of future views. Training in economics, experience on
Wall Street, nonpartisan public service in economic policymaking and limited
political involvement have been correlated with sensible beliefs, but there are
exceptions to nearly every rule.

The paper goes on to look at the public writings and statements by Fed chairs prior to their appointments, and finds that this method better predicts success:

Fortunately, there is something else that predicts chairmen's views exceptionally well: their own writings and statements. Each of the past Federal Reserve chairmen expressed quite clearly the views that dominated policymaking during his tenure at the confirmation hearing or before.

Before applying these conclusions to the present case, some caveats are necessary. First, looking at professional backgrounds is not the same thing as considering temperament and leadership. One cannot dismiss the importance of these qualifications on the basis of this analysis. Second, much has changed since 2004, including the Fed's toolbox. Under Chairman Bernanke, the Fed has pioneered various "unconventional" policies aimed at stimulating the economy and lowering unemployment. In today's environment of uncertainty and experimentation, management ability may be of particular importance.

Nonetheless, this research is worth bearing in mind when considering who would make the best Fed chair. Leadership, temperament, and background are no doubt important, but they should take a backseat to the candidates' economic views.

That leaves the minor detail of what exactly the two leading candidates believe when it comes to monetary policy. Yellen has said and written more on the subject in recent years than Summers, meaning that it's a lot easier for us to predict what she'd do as Fed chair. But President Obama and the Senators who would have to approve the new Fed chair do at least have a fallback with Summers — they could ask him.

Are We Asking Too Much of Our CIOs?

It is all well and good — and true — to say that the role and mandate of the CIO are expanding. Smart commentators here and elsewhere have described why and how that is happening. But too many organizations are stretching their Chief Information Officers (CIO) too thin. CIOs are being tasked with managing internal business systems, cloud-based services, big data innovation, data security, and the 24x7 needs of global customers who access company data on personal devices. Effective leadership and management across these areas is possible, but not without without providing CIOs with the proper support structures and instituting necessary organizational alignment.

It's time for a forward-looking but realistic assessment at the expanding role of the CIO, and what it takes to fulfill this successfully. Not surprisingly, the keys are balance, support, and alignment. Here are some constructive ideas:

Ray Wang, Principal Analyst & CEO of Constellation Research Group outlines four personas of the next generation CIO:

Chief "Infrastructure" Officer: "Keeping the lights on" and managing existing systems
Chief "Integration" Officer: Bringing together internal and external data and systems
Chief "Intelligence" Officer: Fostering business intelligence and getting the right data to the right people
Chief "Innovation" Officer: Looking for disruptive technologies to drive innovation

Today's CIOs must learn to balance all of these personas. As Jennifer Kenny, CIO of SRI International, describes it, CIOs need to be "Whole Systems" thinkers and practitioners (that's business systems, not computer systems). Research focused on the careers of 14 highly successful CIOs found that, beyond the skills needed by all C-level executives (an extensive network, emotional intelligence, leadership, etc.), CIOs especially need:

an integrative mind
focus and vision
a trusting and trustworthy nature (to better build and nurture cross-functional teams)

Finding people who have such a broad base of skills is problematic, at best. And juggling all of these roles and responsibilities leaves CIOs with little time to think about innovation. Bruce Whetstone, an IT management consultant covering a variety of industries, argues that the CIO already has several full-time jobs, managing infrastructure and the integration of internal and external data and systems (Intel's CIO, Kim Stevenson, calls those roles "table stakes"), as well as business intelligence. This doesn't leave much bandwidth for innovation. And Whetstone doesn't see many companies meeting IT halfway. Instead, "people want to blame IT when the data isn't at their fingertips." Whetstone argues that companies need to do a better job of empowering the entire organization to access and manipulate data, while at the same time integrating the CIO's role more seamlessly into business units (and business unit budgets). Indeed, we may begin to see more business unit leaders in CIO roles in the future. For example, at the Las Vegas Sands Corporation — an analytics heavy business — Rom Hendler serves as SVP, Chief Marketing Officer, and interim CIO.

Match the CIO reporting structure to the strategic goals of the organization.

But, empowering CIOs and employees throughout the organization isn't enough.

Tomorrow's organizations will also need to align the CIO reporting structure to the strategic goals of the organization. Research from Dr. Rajiv Banker and colleagues at Temple University's Fox School of Business found that organizations with cost leadership strategies and CIOs who report to the CFO have higher performance than peers with CIOs who report to the CEO. However, organizations with product differentiation strategies have higher performance when the CIO reports to the CEO. Alignment with strategic positioning will be key to success.

The bottom line is that before we can ask our CIOs to do more for business, we need to evaluate how the organization can provide the support necessary for all four of the CIO personas to function. The right model for your own company may be to employ a single broad-based CIO who can deliver on all four persons; a technical CIO who works in collaboration with other IT executives with business backgrounds; or tighter integration across the C-suite, perhaps through formally aligning the goals of the CMO/COO and CIO.

The office and activities of the CIO need to be in tune with the needs of the organization. This is more than a shuffling of responsibilities. Work towards a meaningful redesign that will carry you through the decade.

Reinventing Corporate IT
An HBR Insight Center





Is Your Organization Ready for Total Digitization?
Why Can't a CIO Be More Like a CFO?
Exploit IT for Strategic Benefit
IT Cannot Be Only the CIO's Responsibility

Coping With Change in Emerging Markets

In 2000, Chrysler's then president, James Holden, traveled to India to study the market. Upon returning to Detroit, he summarized his visit with the remark: "Call me when (India has) built some roads," according to Forbes correspondent Robyn Meredith in her 2007 book The Elephant and the Dragon.

Holden didn't anticipate that the Indian automobile market would grow by over 500% over the next 10 years: India's car sales shot up from 518,000 units in 2000 to 2.8 million in 2010, making it the world's sixth largest car market. Not surprisingly, Chrysler is notable for its near-absence — in 2012, Chrysler-Fiat's share was 0.4%— from the Indian market today.

Five years ago, logos were essential to sell luxury products in China. Consumers didn't see the point in splurging on designer products if people couldn't see that they had the money to do so. Plastering Louis Vuitton's LV or Gucci's G all over their products was critical for those companies to earn premium prices.

It's different today. Affluent Chinese have shopped in New York, London, Milan, and Paris, and they've seen what Americans and Europeans buy and use. They've become more comfortable with their wealth and are starting to emulate their global peers. Subtlety is in with China's luxury shoppers, at least in the big cities.

Markets change much faster in developing nations than they do in developed countries, as these examples show. The pace of change in preferences and sizes poses a dilemma for executives in multinational companies. If tomorrow turns out to be different from today, as it undoubtedly will, their strategies will be out-of-sync with reality. At the same time, they also face the risk that any predictions they make may prove to be nothing more than a figment of the imagination.

In an environment of constant change and churn in the marketplace, senior executives can take four steps to increase the odds of getting their strategies right:

Learn from heterogeneity. "The future is already here, it's just not evenly distributed," noted futurologist William Gibson. Emerging markets are pretty diverse. Look at the range of per capita incomes: Brazil's is approximately $13,000, China's $5,500, Indonesia's $3,500, and India's is just $1,500.

Systematically analyzing data across emerging markets therefore increases the ability to anticipate market evolution and consumer behavior. Pairwise analysis can be particularly helpful. Senior Lenovo executives say that the PC market's growth in rural China has been useful in predicting the evolution of that segment in India, for instance.

Keep experimenting to test assumptions. If you were the leader of a luxury products business in China three years ago, you may have felt that the market was going to change. However, it would have been impossible to predict with any confidence the speed at which that shift would take place and how it would differ across markets. A useful way of uncovering that information is to experiment constantly.

Experiments carried out across customer segments and market segments generate rapid and low-cost learning. When Wal-Mart entered China, it treated the first stores it opened as living laboratories. It tested different store formats and varied merchandise mixes to understand which approaches would work in what markets.

Leverage stakeholders' wisdom. Find out what assumptions guide your competitors. What do suppliers think? What do distributors believe and, in the case of B2B businesses, what do customers think? What do equity analysts say, especially those who follow local companies? And what are the opinions of the experts who track your industry?

Tracking stakeholders' perspectives may not yield a consensus prediction. But it will force you to question your assumptions, reducing the risk of being blindsided. Sealed Air China used this approach to decide whether it should develop lower-priced packaging material and go head-to-head with local rivals.

Be prepared to change course. Given the multiplicity of factors, political and economic, that shape the evolution of emerging markets, it's all too likely that you will run into the unexpected. These need not always have a negative impact; for example, a sudden food safety crisis involving local rivals may boost demand for your products.

Executives must understand that working in developing countries is akin to whitewater rafting, not canoeing. Coming to grips with that fact will make all the difference between tasting success and getting overwhelmed by the turbulence in those markets.

Be the Company Customers Can't Live Without

Imagine you're the CEO of a startup offering a technology solution when the economy plunges into the worst downturn since the Great Depression. Up to then, you've delivered impressive results; your product has reached $22 million in revenues in four years on the market and your solution is recognized as a leader by the tech pundits.

Imagine choosing that time to tell your Board that, in essence, you want to walk away from about half of that business.

You may at this point be imagining yourself out of a job. But hear me out. As you may have guessed, this really happened and the "you" in the story is actually me. I'm happy to say that the conversation with the Board went quite well, our business has nearly tripled since that day, and I'm still the CEO. And I've learned that there is a big difference between being a good company and building one that customers can't live without.

Discover Where You Make the Most Difference

By staying close to your customers and listening to their problems you can define your true value. At Imprivata, we had an "Aha" moment when we realized that the kind of problems we were solving in the healthcare industry were larger, strategic issues, compared to the more tactical problems we were solving in other industries. It was clear that we had what it took to deliver value that our healthcare customers couldn't live without. Make it your business to figure this out and determine where you are solving your customers' highest-order problems.



And then, of course, do your homework about the competitive landscape. Just because your solution has the most to offer one industry doesn't mean that industry lacks other, perhaps even better, options. Once you identify your best purpose, determine what's driving growth in that market. Are there clear market leaders? What are the holes in their solutions? What value do customers still need that the current market isn't delivering? Are there any external conditions that could inhibit or encourage growth? How big is the opportunity?

Make the Big Bet

CEOs get paid to make the high-impact decisions that simple data analysis doesn't render obvious. When a big opportunity presents itself in a dynamic market there's no time to "wait and see." You track trends, read the tea leaves, and know when to make your move.

With a big bet like a decision to narrow your focus on a make-or-break segment, you need to go all in. You can't be constrained by your old ways of thinking about product enhancements and other investments in the future. Now everything must be viewed through the lens of being that company a certain set of customers depend upon. Consistent communication with customers to understand their evolving challenges, then innovating with that perspective in mind is critical to maintaining strategic importance to your clients.

Making the bet also means staying the course, always sticking to the commitment. Every decision you make needs to align with the goals set out in the plan. If something doesn't support the plan, you need to make the tough call no one wants to hear and say no — even if it means giving up a few million dollar deals (something we had to do multiple times). If you, as the CEO don't stay committed to your plan when it's difficult to do so, you can't expect the rest of your executive team — or staff — to make the transition.

Align Your Team

Once you have discovered your purpose, done your homework, and doubled down on your bet, it's time to focus on team building. Do you have the right players in place to engage with your clients' next wave of strategic issues? Where are the gaps? In building our team we place value on passion and creativity over prior experience, and look for people who have the courage of their convictions.

In your interactions with the team, you need to communicate your focused plan so often that it feels like overcommunicating. Distill the company vision so that it is concise and easily understood. Everyone — whether the person is the SVP of sales or an entry level administrator — needs to understand how the decisions they make in their daily roles can help that vision materialize. Every year, we set three corporate goals and announce them at our annual kick-off meeting. The goals are then reiterated at each quarterly company meeting, and at departmental meetings throughout the year. If everyone knows the goals, it is much easier for employees to make effective decisions that move the company forward. And the more invested employees are in this process, the more pride they take in the company's overall success.

In 2012, Imprivata's revenue reached approximately $54 million. Three years after we decided to consolidate our focus on a single vertical market, more than 80 percent of that revenue is from the healthcare industry. Focusing on the market where we have the most strategic value for our customers — where we have become intrinsic to their success - has given us a higher sense of purpose.

The irony does not escape me that we have a steep economic downturn — something many young companies don't survive — to thank for this. For our organization, the financial crisis and recession emphasized how valuable it is to be a business that customers can't live without, regardless of the economic cycle. It forced us to focus on where we could deliver the most value, and to chart a new course.