Marina Gorbis's Blog, page 793

How Netflix Expanded to 190 Countries in 7 Years

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Netflix’s global growth is a big factor in the company’s success. By 2017 it was operating in over 190 countries, and today close to 73 million of its some 130 million subscribers are outside the U.S. In the second quarter of 2018, its international streaming revenues exceeded domestic streaming revenues for the first time. This is a remarkable achievement for a company that was only in the U.S. before 2010, and in only 50 countries by 2015.

Other U.S. internet companies have scaled internationally, of course (Facebook and Google are two obvious examples). But Netflix’s globalization strategy, and many of the challenges it’s had to overcome, are unique. Netflix must secure content deals region by region, and sometimes country by country. It also must face a diverse set of national regulatory restrictions, such as those that limit what content can be made available in local markets. International subscribers, many of whom are not fluent in English, often prefer local-language programming. And many potential subscribers, accustomed to free content, remain hesitant to pay for streaming services at all.

Furthermore, strong competition in streaming already exists in many countries. In France and India, for example, homegrown leaders offer local-language video content, thus depriving Netflix of first-mover advantage. In some countries, like Germany and India, rivals such as Amazon Prime were already established. Yet the majority of Prime subscribers are in the U.S., and Netflix has managed to make inroads into even those markets where Prime arrived first. Now Netflix, with its global reach, has more subscribers worldwide than all other pure streaming services combined.

Netflix’s success can be attributed to two strategic moves — a three-stage expansion process into new markets and the ways it worked with those markets — which other companies looking to expand globally can use too.

Netflix did not try to enter all markets at once. Rather, it carefully selected its initial adjacent markets in terms of geography and psychic distance, or perceived differences between markets. For example, its earliest international expansion, in 2010, was to Canada, which is geographically close to and shares many similarities with the United States. Netflix was thus able to develop its internationalization capabilities in locations where the challenges of “foreignness” were less acute. In doing so, the company learned how to expand and enhance its core capabilities beyond its home market.

In that sense, the first phase of its globalization process was consistent with the traditional model of expansion. But from the experience and learning it gained in that process, Netflix developed the capabilities to expand into a diverse set of markets within a few years — the second phase of the process.

This second phase, involving a faster and more-extensive international expansion, saw Netflix extend its footprint to some 50 countries, drawing on the lessons it learned in the first phase in order to operate in a wider variety of markets. The choice of those markets was influenced by their degree of attractiveness, such as from shared similarities, the presence of affluent consumers, and the availability of broadband internet. The second phase helped Netflix continue learning about internationalization and partnering with local stakeholders while also growing its revenue. Since this phase involved expanding into more-distant markets, it was supported by investments in content geared toward the preferences of those geographies, as well as technological investments in big data and analytics.

The third phase, during which a much-accelerated pace of entry brought Netflix to 190 countries, used everything it had learned from the first two phases. It had gained expertise in the content people prefer, the marketing they respond to, and how the company needed to organize itself. Now Netflix focused on adding more languages (including for subtitles), optimizing its personalization algorithms for a global library of content, and expanding its support for a range of device, operation, and payment partnerships. Six months after entering Poland and Turkey in 2016, for example, Netflix added the local languages to its user interface, subtitles, and dubbing. As with the markets it had entered earlier, the company launched a service targeted at early adopters, and then iterated quickly to add features to attract a wider audience.

Recognizing that in some parts of the world, particularly emerging and developing economies, mobile is the primary way most people access the internet, Netflix also began placing a greater emphasis on improving its mobile experience, including sign-ups, credentials and authentication, the user interface, and streaming efficiency for cellular networks. It has been developing relationships with device makers, mobile and TV operators, and internet service providers as well.

Netflix has worked with, and responded to, the new markets it’s entered. The company has partnered with key local companies to forge win-win relationships. In some cases, it has joined with cell phone and cable operators to make its content available as part of their existing video-on-demand offerings. For example, when Vodafone launched a TV service for its customers in Ireland, it included a dedicated Netflix button on its remote controls. More recently, Netflix announced deals with Telefonica in Spain and Latin America and with KDDI in Japan.

And while Netflix believes that “great storytelling transcends borders,” in the words of Ted Sarandos, Netflix’s chief content officer, the company has responded to customer preferences for local content: Currently it’s producing original content in 17 different markets. Importantly, Netflix sees such content production as not just local-for-local, but also local-for-global. In other words, it aims to have content attract an audience not only locally, where it is produced, but also more widely. As such, Netflix potentially reaps the benefits of investing in local content all around the world.

To address the protracted process of signing content deals with major studios on a regional or local basis, it has increasingly pursued global licensing deals so that it can provide content across all of its markets at once. Netflix has also begun to source regionally produced content, providing a win-win for these producers, whose local content can find a global audience.

The company is also applying its deep customer insight to international markets, using that knowledge to create content that appeals to a wide range of customer segments. Despite its very rapid internationalization, Netflix implemented in all markets the same customer-centric model of operations that had been key to its success in the United States. It experiments with customer usage data to determine which offerings work best. Because it operates in so many countries, Netflix is able to try different approaches in different markets. As the number of its international subscribers grows, the performance of its predictive algorithms continues to improve.

Netflix has demonstrated that developing country-specific knowledge is critical for success in local markets. This knowledge needs to be both broad and deep, extending across political, institutional, regulatory, technical, cultural, customer, and competitor domains. Understanding local cultures ensured that Netflix could be sensitive to and respond to their differences. This enhanced its credibility and helped it forge smooth relationships with key stakeholders.

Taken together, the elements of Netflix’s expansion strategy constitute a new approach that I call exponential globalization. It’s a carefully orchestrated cycle of expansion, executed at increasing speed, to an increasing number of countries and customers. The approach has helped the company expand far more quickly than competitors. Going forward, Netflix will face increasing competition not only from other global players such as Amazon Prime but also from new entrants and regional or local players. In that regard, it will have to continue to expand its blending of global and regional content.

For a variety of market and technological factors, including the absence of high-speed broadband and a very low level of internet penetration in many parts of the world, exponential globalization was infeasible until a few years ago. With the growth of the internet in general, including on phones, tablets, and smart TVs, Netflix has demonstrated that this strategy is now a viable option. But it requires a mastery of local contexts, including the ability to acquire local knowledge and to demonstrate sensitivity and responsiveness. With the increasing prevalence of winner-take-all markets, companies operating in such markets will need to pursue an internationalization strategy similar to Netflix’s. And when it comes to Netflix’s next stage of growth, and how it will respond to new challengers, the sequel appears likely to be as captivating as the original.

Which Types of Companies Are Adding Women to Their Boards, and Which Aren’t

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California recently passed a law requiring public firms headquartered in the state to include at least one woman on their boards by the end of 2019. The proposal has led to criticism that board quotas have unintended consequences. Others have claimed that a quota might be necessary to combat the glacial pace of voluntary change in boardrooms.

Our contribution is to bring hard data to pinpoint where regulators and commentators might want look to address gender disparity. In particular, we have gathered data on every board appointment and resignation filed with the SEC for all public companies with more than $75 million in market capitalization since April 1, 2018. The findings are eye-opening.

Between April 1 and September 24 2018, 228 women have been appointed to boards relative to 433 men. That data points to the well-known gender disparity in the board room. However, when we probed a little deeper, a different picture emerges. When we focus on companies with a market capitalization of $5 billion or more, interestingly, the male tilt goes the other way. That is, 57 women have been appointed to boards of such large companies relative to only 19 men. Hence, pressure from the media and large institutional investors appears to have largely worked in such companies at addressing the gender imbalance.

However, when we consider the board composition of firms just going public, things do not look all that good for gender balance. Only 51 women have been appointed to the boards of firms that went public relative to 455 men. That is, only around 10% of board members of firms that IPO’d since April 1, 2018 are women!

Why such a large imbalance? Venture capital is a notoriously male-dominated business. VCs usually invest their money in start-ups that go public and hence they end up serving on the boards too. Last year, just 2% of venture capital funding went to startups founded by women and women comprise just 9% of the decision-makers at U.S. venture capital firms. Given that a large fraction of firms going public are based in California, the “quota” might create new opportunities for women directors especially when the VCs cash out and resign from the boards.

Our intention is not to support or oppose the quota in one way or the other in this piece. We want commentators and legislators to look at the evidence. Our data suggests the director market for very large corporations may converge to gender parity in the next few years even without legislation — provided pressure from media and institutional investors keeps up. VCs and start-ups deserve more focus, among institutional investors, proxy advisors and the media, as battle grounds for gender disparity in the board rooms.

5 Ways Your Data Strategy Can Fail

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There are plenty of great ideas and techniques in the data space: from analytics to machine learning to data-driven decision making to improving data quality. Some of these ideas that have been around for a long time and are fully vetted, proving themselves again and again. Others have enjoyed wide socialization in the business, popular, and technical press. Indeed, The Economist proclaimed that data are now “the world’s most valuable asset.”

With all these success stories and such a heady reputation, one might expect to see companies trumpeting sustained revenue growth, permanent reductions in cost structures, dramatic improvements in customer satisfaction, and other benefits.  Except for very few, this hasn’t happened. Paradoxically, “data” appear everywhere but on the balance sheet and income statement. Indeed, the cold reality is that for most, progress is agonizingly slow.

It takes a lot to succeed with data. As the figure below depicts, a company must perform solid work on five components, each reasonably aligned with the other four. Missing any of these elements compromises the total effort.

 

Let’s explore each component in turn.

Quite obviously, to succeed in the data space, companies need data, properly defined, relevant to the tasks at hand, structured such that it is easy to find and understand, and of high-enough quality that it can be trusted. It helps if some of the data are “proprietary,” meaning that you have sole ownership of or access to them.

For most companies, data is a real problem. The data is scattered in silos — stuck in departmental systems that don’t talk well with one another, the quality is poor, and the associated costs are high. Bad data makes it nearly impossible to become data-driven and adds enormous uncertainty to technological progress, including machine learning and digitization.

Then, companies need a means to monetize that data, essentially a business model for putting the data to work, at profit. This is where selling the data directly, building it into products and services, using it as input for analytics, and making better decisions come to the fore. There are so many ways to put data to work that it is hard to select the best ones. A high-level direction such as “using analytics wherever possible” is not enough. You have to define how you plan to use analytics to create business advantage and then execute. Without a clear, top-down business direction, people, teams, and entire departments go off on their own. There is lots of activity but little sustained benefit.

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Organizational capabilities include talent, structure, and culture. Some years ago, I noted that most organizations were singularly “unfit for data.” They lack the talent they need, they assign the wrong people to deal with quality, organizational silos make data sharing difficult, and while they may claim that “data is our most important asset,” they don’t treat it that way. If anything, this problem has grown more acute.

Start with talent. It is obvious enough that if you want to push the frontiers of machine learning, you need a few world-class data scientists. Less obvious is the need for people who can rationalize business processes, build predictive models into them, and integrate the new technologies into the old. More generally, it is easy to bewail the shortage of top-flight technical talent, but just as important are skills up and down the organization chart, the management ability to pull it all together, and the leadership to drive execution at scale. Consider this example: Many companies see enormous potential in data-driven decision making. But to pursue such an objective, you have to teach people how to use data effectively (HBR’s current series on data skills will focus on this topic). Leadership must realize that earning even a fraction of the value data offer takes more than simply bolting an AI program into one department or asking IT to digitize operations.

Structure and culture are also a concern. As noted, organizational silos make it difficult to share data, effectively limiting the scope of the effort. All organizations claim that they value data, but their leaders are hard-pressed to answer basic questions such as, “Which data is most important?” “How do you plan to make money from your data?” or “Do you have anything that is proprietary?” Some even refer to data as “exhaust” — the antithesis of a valued asset! Without an abundance of talent and an organizational structure and culture that value data, it is difficult for companies to grow successful efforts beyond the team and department levels.

Fourth, companies need technologies to deliver at scale and low cost. Here, I include both basic storage, processing, and communications technologies, as well as the more sophisticated architectures, analysis tools, and cognitive technologies that are the engines of monetization.

Quite obviously companies need technology — you simply can’t scale and deliver without it. Facebook, Amazon, Netflix, and Google, who have succeeded with data, have built powerful platforms. Perhaps for these reasons, most companies begin their forays into the data space with technology. But from my vantage point, too many companies expect too much of technology, falling into the trap of viewing it as the primary driver of success. Technology is only one component.

The last element is defense, essentially minimizing risk. Defense includes actions such as following the law and regulations, keeping valued data safe from loss or theft, meeting privacy requirements, maintaining relationships with customers, matching the moves of a nimble competitor, staying in front of a better-funded behemoth, and steering clear of legal and regulatory actions that stem from monopoly power. You’re unlikely to make much money from defense, but poor defense can cost you a lot of time, money, and trouble.

Thus, data require a range of concerted effort. At a minimum, HR must find new talent and train everyone in the organization, tech departments must bring in new technologies and integrate them into existing infrastructures, privacy and security professionals must develop new policies and reach deep into the organization to enforce them, line organizations must deal with incredible disruption, everyone must contribute to data quality efforts, and leaders must set off in new, unfamiliar directions.  Adding to complications, data, technology, and people are very different sorts of assets, requiring different management styles. It’s a challenging transition. Many companies have tried to resolve their data quality issues with the latest technology as a shortcut (e.g., enterprise systems, data warehouses, cloud, blockchain), but these new systems have missed the mark.

It is important to remember that the goal is not simply to get all you can out of your data. Rather, you want to leverage your data in ways that create new growth, cut waste, increase customer satisfaction, or otherwise improve company performance. And “data” may present your best chance of achieving such goals. Successful data programs require concerted, sustained, properly-informed, and coordinated effort.

What We Often Get Wrong About Automation

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When leaders describe how advances in automation will affect job prospects for humans, predictions typically fall into one of two camps. Optimists say that machines will free human workers to do higher-value, more creative work. Pessimists predict massive unemployment, or, if they have a flair for the dramatic, a doomsday scenario in which humans’ only job is to serve our robot overlords.

What almost everyone gets wrong is focusing exclusively on the idea of automation “replacing” humans. Simply asking which humans will be replaced fails to account for how work and automation will evolve. Our new book, Reinventing Jobs: A 4-Step Approach for Applying Automation to Work, argues that while automation can sometimes substitute for human work, it also more importantly has the potential to create new, more valuable, and more fulfilling roles for humans.

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The intense emphasis on automation eliminating certain jobs for humans often stems from a fixation on near-term economic outcomes, particularly a focus on a traditional “lift and shift” equation that measures success according to the reduction in labor costs resulting from having fewer workers. While most organizations also look for gains like improvements in speed, quality and service, the focus is still on economic outcomes. Such a narrow focus overlooks some of the most important and vital benefits of optimizing work automation. Indeed, we have found that automation often results in higher compensation for workers, with those costs often being offset by greater productivity. However, the benefits go beyond strict economic accounting. By reinventing jobs to optimize work between humans and automation, organizations can attract a larger and more qualified applicant pool and achieve better retention, greater safety, and increased diversity.

The reinvention of work in the oil and gas industry provides an excellent example of the more nuanced approach to optimized work automation, as well as the array of benefits that lie beyond the more obvious economics of reduced labor costs.

Work Reinvention on the Oil and Gas Rig

Traditionally, oil rig workers must be on-site, doing hands-on, manual labor that is often dangerous. However, rapid advances in technology now make it possible to create a completely autonomous rig. The traditional, economically-motivated way to envision the benefits of this technology is to imagine how many workers doing today’s oil-rig jobs could be removed from the operation if the rigs were fully automated.

In contrast, the CEO and leadership team of one organization that worked with Ravin’s firm, Willis Towers Watson, adopted a more deliberate and inventive strategy. First, they refocused their strategy to provide a more comprehensive extraction solution, envisioning the rig as a platform for services beyond simply drilling a hole in the ground, with automation driving that transformation.

Second, instead of fixating on eliminating human labor, they set out to optimize their human talent, shifting employees away from repetitive, physical, isolated, and dangerous work and toward more variable, mental, interactive, and less hazardous work. They reinvented their rig crews to provide many of the services that before had been provided by third parties, offering a complete oilfield management solution.

Third, they recognized the fundamental value of deconstructing the existing jobs into work activities, to more clearly reveal where automation would eliminate some work, augment other work, and create entirely new work that was previously not possible. The reinvented work activities fell into several categories:

Activities centralized (sensors and AI monitor operations and transmit data to human workers in a control center)
Activities shifted to other roles (e.g., maintenance previously done by teams on each rig are shifted to shared-service teams)
Activities augmented (e.g., AI assists with monitoring rig performance, and sensors allow more precise directional drilling)
Activities eliminated (e.g., robotics now perform pipe running and other dangerous and dirty work)
Activities created (e.g., previously lesser skilled rig workers can now perform some electrical/mechanical engineering work)

These newly reinvented jobs required increasing pay levels by between 7% and 15%. A traditionalist aiming to cut labor costs with automation might see that as a losing proposition, but a more complete analysis reveals the benefits that easily offset the increased labor cost.

The Increased Profitability Payoff

Converting the rig into a platform for multiple oil field solutions and optimizing the core drilling performance produced a 45% increase in profitability and a significant reduction in performance variance between rigs. This substantial increase in overall rig profitability easily offset the increased labor cost. That profitability gain was partly due to envisioning the rigs and their workers more strategically — as part of a whole oilfield solution, rather than simply a drilling service for hire — and optimizing the role and impact of human labor.  These results are impressive, but this strategic approach to work automation also produced two additional, unexpected gains.

Better Workforce Retention/Attraction

The reinvented jobs required very different skills. For example, the job of a “derrickman” was reinvented into a new job of “technician”; this shift eliminated the need for many basic manual skills, but added several new competencies, such as advanced electrical and mechanical knowledge, and enhanced communication and collaboration skills.

As we noted, acquiring and training workers with these new skills required increasing pay levels between 7% and 15%. The increased pay levels helped address the significant industry challenge of attracting and retaining skilled talent. With the reinvented jobs, this company could better compete for top talent, not only with higher pay, but also with more desirable work, because many dirty and dangerous tasks were automated.

The organization expects to see more highly-skilled job applicants apply, join, and stay.

The Diversity Dividend

The other surprising benefit from automation was an increase in workforce diversity. The traditional rig work was physically demanding, isolated, and dangerous. It attracted and retained workers who were overwhelmingly male, with family situations that allowed them to spend large blocks of time on the rig. After the organization reinvented this work, many activities that formerly were performed almost exclusively by men stationed on rigs in remote locations were now performed in a centralized control room in a major metropolitan area. The applicant and worker pool now included more women, and those with more diverse family situations who possessed the cognitive skills required to perform this reinvented work. The diversity and inclusion of genders, family structures, regions and ethnic backgrounds increased so much that for the first time the organization achieved its long-sought diversity goals.

Beyond the Organization

Debates about the impact of automation will rage on for the foreseeable future, but this example illustrates many positive outcomes available through the careful and collaborative reinvention of jobs. This reinvention is not only vital to optimizing work and automation within a single firm; it is also important for empowering organizations to participate in the social conversation about future job creation and work. Political, social, economic and regulatory debate typically relies on concepts like “good jobs,” “lost jobs,” and “preparing a workforce for the jobs of the future.”  By adopting a systematic approach to work automation, organizations can better shape these debates by more clearly illuminating the full array of benefits and costs, both within the organization and for society more broadly.

How to Develop a Data-Savvy HR Department

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To create an analytical culture in your organization, you need to nurture the right mindset among your employees. And that starts with creating a culture of analytics in your HR department. How can senior leaders help HR develop a culture in which people think analytically? First, you need to understand the different levels of comfort with analytics in HR, and then you need to decide your approach to hiring and building expertise at each of the different levels.

Understanding your current levels of HR analytics expertise

Our research for the book The Power of People showed that HR professionals can be broadly categorized into one of three groups with respect to their current analytical capability:

Analytically Savvy — These are HR professionals who are formally trained in analytics techniques and are adept at working with data and interpreting analyses.
Analytically Willing — These people are open-minded about analytics and are ready, able, and willing to learn, though they lack formal training in data analysis.
Analytically Resistant — This group tends to be skeptical and dismissive of the value of a data-based approach, preferring instead to rely on intuition.

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You can gauge the levels of comfort with analytics in HR by checking for specific skills when hiring, and monitoring engagement with learning opportunities. Once you understand the different levels of analytical comfort and expertise that exist within your HR team, you can determine how to hire and develop each type of HR professional.

Hiring for analytical capability

Roles that require producing analytical information demand analytically-savvy workers, while roles that involve interpreting and working with analytical information require analytically-willing workers.

You can assess whether workers are analytically savvy by examining formal qualifications, and by administering well-designed psychometric tests that measure general mental ability. General mental ability is a good predictor of performance because high scores indicate workers can acquire job-related knowledge more quickly. You should also consider less traditional evidence of learning beyond formal education, such as massive open online courses (MOOCs) provided by companies such as Coursera or edX.
For analytically-willing workers, consider personality tests that measure “investment” traits like openness-to-experience. Investment traits describe the tendency to engage in complex thinking. Because analytical information can be complex, comfort with complexity enhances the chance that the analytically willing will be able to extract meaning from analytical information.

Developing analytical capability

The key to developing capability among existing workers is to provide engaging learning opportunities to workers at all levels of expertise:

Analytically savvy. Keep these workers’ skills up-to-date by providing opportunities for advanced training; encourage participation in meet-ups, online user groups and forums; and support participation in professional groups and conferences. Assign them responsibility for analytics evangelism and reinforce this in performance objectives. Each evangelist should have an objective of mentoring one colleague who is less analytically capable. If you do not have analytically-savvy people in your team, hiring a few will help to establish an analytical culture.
Analytically willing. A good starting point for these employees is to provide foundational education on HR analytics. This can be achieved by requiring all HR staff to complete an online course about the basics of workforce analytics, such as Wharton’s Coursera HR Analytics Module, which can be completed in just four weeks with a commitment of one to two hours per week. The analytically willing should then put their learning into practice by applying the techniques to their day-to-day work. These expectations can be incorporated as explicit goals in performance management systems.
Analytically resistant. For these employees, focus on how analytics can enhance their personal effectiveness. Pair them with analytically-savvy colleagues to use data and analytics to solve a problem they are struggling with. If these opportunities are declined, it might be necessary to discuss why they are reluctant or what they are struggling with. The ultimate goal is not necessarily to transform the analytically resistant into data experts, but to have them see the value in analytics and, ideally, embrace it as a path to success.

Personalize learning, and deliver it at scale

Analytically-related learning opportunities for all HR professionals can be managed with a Netflix-style, online learning system, such as IBM’s Your Learning platform. With platforms like Your Learning, you can curate content targeted at each level of comfort with analytics. HR departments can set learning goals for workers to suggest how many hours of learning they’re expected to complete in a given period. A good benchmark for this would be 60 hours per year, the average at IBM. Analytical skills should also be designated “hot skills” for HR professionals, and as people acquire more of these skills, their compensation should be increased to reflect their enhanced capabilities.

It is important to pay close attention to the feedback learners provide and modify the content based on what’s most effective. For instance, learners can be encouraged to tag content, and tags should be visible to content designers and other learners. This enables social learning where new course participants learn from past participants’ experiences, and allows designers to improve the content as they go. By monitoring and rewarding learner progress, firms can recompose the skills of their workforce. A good way to reward progress is via digital credentialing, with a system like Credly, that allows workers to share their learning success as badges on social platforms such as LinkedIn.

A more data-savvy HR function is entirely achievable. By understanding the levels of analytics capability in your HR team today, hiring for critical skills to fill gaps, and providing ongoing, targeted and engaging learning opportunities, organizations will be well positioned to realize the promise of analytics in HR.

Why People Aren’t Motivated to Address Climate Change

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People are often highly motivated to avoid threats. If you are walking down a dark, isolated city street, you are vigilant for unexpected sights and sounds and probably pick up the pace to get back to a populated area as quickly as possible. If you step into the street and see a bus bearing down on you, you jump back. If a large unfamiliar dog is growling outside your front door, you stay inside.

This week, we were updated on another serious threat. According to the recent United Nations report on climate change, if the nations of the world do not take drastic action soon, there could be serious consequences in the next 25 years. Yet the president of the United States did not even comment on the report after it was released, and a leading candidate in Brazil’s presidential election has promised to withdraw the country from the Paris agreement.

If people are motivated to avoid threats to their existence, why is it so hard to get people to act on climate change?

Unfortunately, climate change involves a combination of factors that make it hard for people to get motivated.

First, acting on climate change represents a trade-off between short-term and long-term benefits, which is the hardest trade-off for people to make. Decades of work on temporal discounting point out that we overvalue benefits in the short term relative to benefits in the long term. People don’t save enough money for retirement, preferring to spend money now rather than having it in their old age. People overeat in the present, despite the problems that obesity can cause in the future.

Ignoring climate change in the short term has benefits both to individuals and to organizations. Individuals do not have to make changes in the cars they drive, the products they buy, or the homes they live in if they ignore the influence their carbon footprint has on the world. Companies can keep manufacturing cheaper if they don’t have to develop new processes to limit carbon emissions. Governments can save money today by relying on methods for generating power that involve combustion rather than developing and improving sources of green energy, even those that are more cost-effective in the long run.

Second, climate change is a nonlinear problem. People are really good at making judgments of linear trends. If you spend $5 a day on coffee, then it is easy to think about the influence that has on your weekly budget, without needing a spreadsheet.

When a function increases slowly at first and then accelerates, though, that causes problems, because people extrapolate that function linearly. A few cigarettes are probably not deadly. Instead, it is the accumulated damage from years of smoking that leads to significant health problems. For many years, then, smokers may engage in their habit without obvious consequences until suddenly there is a significant problem. As a result, the health problems appear to sneak up on people when they’ve been building all along.

Likewise, it took a long time before there were any signs of climate change that were obvious to people. People are much better with obvious threats like that nasty dog at the door than they are with threats that escalate quickly and nonlinearly.

Third, many effects of climate change are distant from most people. Research on construal level theory argues that people conceptualize things that are psychologically distant from them (in time, space, or social distance) more abstractly than things that are psychologically close. When there are weather disasters that are probably a reflection of climate change (like wildfires or extreme storms), they tend to happen far away from where most people live. As a result, most people are not forced to grapple with the specifics of climate change, but rather can treat it as an abstract concept. And abstract concepts simply don’t motivate people to act as forcefully as specific ones do.

Fourth, the future is always more uncertain than the present. That is one reason people value the present so much more strongly. After all, if you save a lot of money for retirement, there is no guarantee that you will live long enough to enjoy it. In the case of climate change, there are skeptics who argue that it is not certain that the influence of human activity on climate will have the dire consequences that some experts have projected.

While all of these factors are working against us, there is hope. Whether you’re trying to get yourself to engage in more activities that reduce your impact on the climate or trying to convince others (or organizations) to act, there are a few things you can do.

Bringing the future mentally close, so you begin to feel the specifics of a daily life disrupted by a change in global climate, will help reduce the psychological distance. Only when you and others experience this future threat in the present (rather than something that is still a generation away) will it have enough motivational force to get you to engage in actions that take more effort today, like taking public transportation or turning down the AC on a hot summer day. Familiarize yourself with the reports and predictions (you can start with the UN report), and think through and talk about how your daily life will be affected.

It is also worthwhile to confront the uncertainty of the future head-on. If you (or someone you know) is skeptical that human activity is affecting the climate, contemplate the probability that global climate change is real. Most skeptics think there is at least some chance that human activity is affecting the climate. Have them state their probability. When I have tried this with skeptics I have talked with, they often give a low probability, like 20%. At that point, I try to make the decision more specific. I ask whether they would be willing to forgo something today to invest in a disease that has a one in five chance of affecting a grandchild. And if so, then I ask how taking climate change seriously is different. You don’t have to be a skeptic to try this logic on yourself. Consider what you’d be willing to forgo today knowing that in one generation there will be serious, catastrophic consequences because of inaction.

You can also initiate a serious discussion about values among your peers and within your organization. The idea that options in the present are more valuable than options in the future (the essence of temporal discounting) is an evaluation. And the word evaluation contains the word value in it — meaning it assumes a set of values.

Ultimately, we have to be willing to be explicit about the values we are acting on. If we choose to enrich our lives in the present at the cost of the quality of life of future generations, that is a choice of values that we rarely like to make explicitly. We have to be willing to look in the mirror and say that we are willing to live our lives selfishly, without regard to the lives of our children and grandchildren. And if we are not willing to own that selfish value, then we have to make a change in our behavior today.

How One Nonprofit Is Expanding Health Care for the Uninsured

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America spends $3.3 trillion on health care, or more than $10,000 per person, which is twice as much as any other industrialized country. Yet nearly 30 million Americans, or 10% of the population, are uninsured. If the Affordable Care Act unravels in the near term, the number of insured could creep back up to 50 million, the level in 2009. These numbers exclude the millions more who are underinsured — people with high deductibles, high copays, and benefit caps that leave them very exposed if they fall seriously ill and are hospitalized.

Washington, DC invariably takes a financial approach to this problem. Politicians debate endlessly who should pay for what, and how much of the burden of health care should be borne by individuals and their families versus state governments or the federal government. There is deep division on these questions, and Washington has been in gridlock for years.

But, in our view, Washington is focused on the wrong issue. The real problem is that U.S. health care costs too much, the quality is uneven, and too many people can’t get the care they need. We have a crisis in health care delivery, and if we can fix that problem we’ll have more than enough resources to cover all the uninsured and underinsured. Conversely, if we don’t fix that problem, health care will be unaffordable, no matter who pays for it.

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Viewed this way, there is a bottom-up solution to the problem of America’s uninsured. It’s a solution we discovered during our research in India, and involves breakthrough innovations that drive down health care delivery costs so much that the margins from serving those who can pay is more than enough to cover the costs of those who cannot.

In India, only 10% of the population has health insurance, while 90% are uninsured, the opposite situation of the U.S. Imagine what that must be like. Indians largely depend on free care — or die from the lack of it. In that brutal environment, a handful of private Indian hospitals, led by compassionate doctors, have found innovative ways to drive down health care costs to unimaginable levels while maintaining high quality. Some of them provide free or highly subsidized care to as many as half or two-thirds of all their patients — and still earn a good enough return to attract private investors, even though Indian prices for most medical procedures are 1%–10% of U.S. prices. For instance, open-heart surgery in one of these exemplar hospitals can cost $2,100, compared with $75,000–$150,000 in the U.S.; a cataract operation can cost $200 or less, compared with $3,500 in the U.S. In Reverse Innovation in Health Care we elaborate on the five principles that allow the Indian exemplars to provide world-class health care at ultra-low prices.

The question is: Could U.S. hospitals apply those same principles to drive down costs so much that the margins from serving insured patients more than pays for serving all the uninsured and underinsured? The answer is yes, as we found in the example of Ascension, the largest nonprofit health system in the United States.

Deeply grounded in the Catholic faith, Ascension resembles the Indian exemplars in its commitment to providing high-quality, low-cost health care, especially to the poor and vulnerable, who are often uninsured. Under the leadership of Anthony Tersigni, Ascension’s president and CEO, the organization has sought to become much more efficient at delivering health care. The following are some of the ways Ascension has become cost-effective:

Ascension pooled purchasing in a central group, which allowed it to exploit economies of scale. In a 2010 review of its purchasing strategy, Ascension concluded that it didn’t really have an effective purchasing strategy at all. Most of its hospitals were still buying from their own legacy suppliers, with whom they had little leverage. In food and environmental support services alone, for example, $400 million a year was going to more than 100 different contracts. Ascension saved 10%–15% a year by aggregating all of those contracts and negotiating from the strength of the combined operation. The savings to Ascension in supplies alone totaled about $1 billion, or 5% of total revenues.
Ascension centralized functions such as human resources, payroll, travel services, and finance, thereby streamlining operations and saving costs.
Ascension convened doctors’ councils to evaluate the quality of available surgical implants, and then leveraged its size to purchase the devices at the best price. It also pursued process innovations that resulted in cost savings.
Ascension expanded an in-house service group at one of its hospitals into a full-service maintenance company called TriMedx, which then offered its services to all of Ascension’s member hospitals, making it possible to increase the useful lives of the hospital group’s medical devices and machines. TriMedx was so successful that Ascension spun it off as an independent for-profit enterprise, which in 2017 had 1,800 clients in 28 states.

Among other things, these cost savings have allowed Ascension to waive insurance deductibles and unpaid bills at all of its hospitals for patients earning less than 250% of the poverty level, and provide some level of financial support to patients earning up to 400% of the poverty level. The new policy added to Ascension’s costs of providing relief to the poor. Ascension also used cost savings to support a wide range of community outreach programs, such as free health screening events in many of its communities. As Rhonda Anderson, the CFO of the nonprofit, told us: “Our mission goes back hundreds of years: providing care for the poor and the vulnerable. It’s part of Catholic social teaching.”

The real challenge in the United States, in our view, is to imbue health care organizations with the kind of purpose that inspired the Indian exemplars and organizations like Ascension. U.S. health care organizations need to rediscover the values and sense of purpose that attracted many employees to the health care profession in the first place.

In both India and the United States, this strategy works because an organization with an inspiring purpose leads employees to find innovative ways of improving quality, lowering cost, and expanding access — all at once. This is the power of purpose, a power that U.S. health care organizations should draw on more than they do.

Ascension has another solid reason for pursuing its strategy. It will be well positioned to thrive if value-based competition replaces the fee-for-service system in the United States. Ascension’s strategy has no downside, only upside. That’s why other health care organizations should emulate its strategy. At worst it will ensure success in the demanding world of value-based competition and help pay for care for America’s uninsured and underinsured. What is not to like?

Staying Focused in a Noisy Open Office

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Let’s face it: The open office can be a nightmare, especially when you’re working on something that requires your undivided attention. To make matters worse, your colleagues can be distracting — maybe they’re having loud conversations or their cell phones are constantly chirping. How can you make peace with your open office? How should you handle loud coworkers who are disturbing your focus? What’s the best way to cope with the noise and distractions in your office without coming across as antisocial or rude?

What the Experts Say

There is an ongoing debate about the pros and cons of open offices. Some research indicates they spark creativity and camaraderie, while newer studies suggest that open offices encourage employees to avoid one another. When designed well, these spaces can foster collaboration by “offering opportunities for serendipitous interactions with people all over the company,” says David Burkus, an associate professor at Oral Roberts University and the author of the forthcoming book Friend of a Friend. The trouble is, all those interactions “can be very distracting” when you’re trying to get work done. But as companies increasingly adopt an open layout, it’s important to learn how to deal with unwanted noise, says Karen Dillon, the author of the HBR Guide to Office Politics. You need your own “survival strategies” as well as some ground rules that you and your team can agree to. Here are some ideas.

Embrace the positives

We all crave some solitude in the workplace. After all, there’s a certain level of psychological safety that comes with having an “office with a door,” says Dillon. That modicum of privacy ensures that “your colleagues can’t overhear your phone calls” or know precisely which “websites you’re browsing” at any given time. And yet, she says, “There’s a lot of benefit to getting to know your colleagues on a more intimate level. There’s laughter, there’s humor, and you feel the rhythm of each other’s work and lives.” Dillon recommends trying to embrace the open office concept by focusing on the positives, “the bonding,” and downplaying the negatives, “the occasional TMI.” At the very least, resist your impulse to be the first to grumble about the noise, says Burkus. You don’t want people to see you as persnickety or difficult.

Align team expectations

Instead of griping, Burkus suggests, have a conversation with your team about how you can all work optimally in an open office. You should first speak to your manager since it’s best if this discussion is “instigated by leadership,” Burkus says. He recommends telling your boss, “I’d like to get the conversation going, but I don’t think I’m the right person to bring it up. Can you help?” As a team, your collective goal is to come up with “agreed-upon norms that you’ll all operate within,” says Burkus. For example, when one colleague is on the phone, the rest will speak only in whispers. “Ask for explicit and implicit support,” adds Dillon. She suggests “picking an ally who can be a second set of eyes for you,” so that if coworkers are being noisy when you’re on an important call, for example, this colleague could politely ask them to pipe down. “And you will do the same for that person.”

Invest in headphones

Dillon recommends purchasing a set of noise-canceling headphones for those times when you are “working on something that requires intense concentration.” You can listen to white noise or classical music or whatever it is that helps you feel and perform at your best. Headphones also “serve as a visual cue to your colleagues” that you’re not to be disturbed unless it’s absolutely necessary. “Use discretion in how often you use them,” Dillon warns. “Show that you are still part of the team.” Burkus says that he knows of teams that have a de facto “earbud code” that colleagues use to signify their level of focus. “Two earbuds in means ‘Leave me alone. I’m concentrating.’ One earbud in and one out means ‘Ask before interrupting me.’ And both earbuds out means ‘I’m interruptible.’”

Move around the office

Everyone needs a place at work where it’s possible to “think, write, and brainstorm free of distractions,” says Dillon. And even the most open of open offices tends to have discrete spaces that allow employees to remove themselves from the commotion. You should take full advantage of empty conference rooms, semi-private cubicles, and quiet alcoves, says Burkus. “Confront that mental block you have about staying in the desk you were assigned to,” he adds. That way, “when your chatty colleague starts talking about last night’s Game of Thrones, you can just take your laptop and move to a different part of the office.” A tip for those who work in large companies: “It’s often helpful to move to a different floor of your building,” says Burkus. “People aren’t as apt to know you and, therefore, you’re less likely to be distracted.”

Leave the office (temporarily)

If concentrating at your office proves difficult, Burkus recommends asking your boss for permission to work elsewhere — the local library or a nearby cafe — on occasion. Depending on what you’re working on, “pay attention to where you feel comfortable and where you are most productive,” and frame your request around that. For instance, you might say to your manager, “When I write these reports I need to be focused. Can I go across the street to work at the coffee shop to do this work?” This is a “smaller ask” than requesting to “work from home one day a week,” and therefore it’s harder to refuse.

Ask to permanently move desks

If your problem isn’t the open office per se, but one talkative and very loud coworker, it might be time to “speak with your manager about moving desks,” says Dillon. “You shouldn’t suffer.” Don’t complain, however. Instead, talk to your boss “about how you will be more productive” in a new space. She suggests saying something like, “It will be easier for me to stay on deadline if I move to a place that is quieter.” Whatever you do, don’t let your annoyance “bubble up” so that you one day scream at your colleagues to shut up, says Dillon. An outburst like that “is very hard to repair,” she says.

Principles to Remember

Do:

Talk with your manager and your team about how you can all work optimally in an open office.
Purchase a set of noise-canceling headphones for those times when you are working on something that requires intense concentration.
Investigate private spaces in your office where you can think, write, and brainstorm free of distraction.

Don’t:

Be difficult. Try to embrace the positive benefits of an open office plan.
Go at it alone. Ask a trusted colleague to run interference for you from time to time and promise to do the same for that person.
Suffer in silence. Speak to your manager about moving desks if you feel it will improve your productivity.

Case Study #1: Be positive, and distance yourself from distractions when necessary

Zeba Rashid, who specializes in celebrity event management, has worked in many different kinds of office environments over the course of her career. She prefers open offices to a more corporate setting with closed doors and high cubicle walls.

“[My job] is all about connecting with others, and I find that an open setting is conducive to both idea flow and personal connection,” says Zeba. “I also find that having a running dialogue in the office gets my creativity flowing.”

While Zeba focuses on the positive aspects of her open environment, she readily admits that it is not optimal for when she needs to be “laser focused” on her work.

In her current job as vice president and director of influencer marketing at CRC, a New York City-based public relations and digital marketing agency, Zeba has learned how to deal with noise and distraction. “When I am working on high-level contracts or proposals, I often put on my headphones,” she says. The headphones provide a signal to her colleagues that she is “working on a time-sensitive deadline” that requires silence. Importantly, they “don’t intrude on anyone else’s conversations” in the office. “That is key: Open space is all about respect,” Zeba says.

Recently, while working on an important deadline, she reserved a conference room in the office to give herself some physical distance from her colleagues’ conversations. “I think the biggest issue in an open space is setting up the social protocols,” she says. “I always find that being direct and nicely excusing myself goes a long way towards goodwill.”

She simply told her team, “I’m working on finalizing a celebrity contract at the moment, and so I will be in the conference room if you need me for anything urgent.” Most people are there to work, so it isn’t hard to break away and disconnect from chatter when necessary.”

Zeba says she and her colleagues have developed close working relationships over time, “so we know how to work with each other and when we need the non-chatter” zone. “Working in an open office environment allows me be approachable and accessible for everyone,” she says.

Case Study #2: Develop ground rules and find a way to quiet your brain

Kaitlin Stewart, senior account executive at the TASC Group, the public relations agency, works in an open office with eight of her colleagues. Her boss, the cofounder, has a semi-private office, and there’s also a half-enclosed conference room for smaller meetings.

For the most part, Kaitlin views the open office as beneficial for her team’s camaraderie. “It allows for a lot of collaboration,” she says. “We’re all able to throw around ideas, and it creates a collegial environment.”

But noise sometimes becomes an issue. Unwanted sound can be distracting and even “debilitating for a lot of people,” she says.

That is why the team has set ground rules for how to work optimally in the open office environment. For example, “There’s no yelling across the room. If you’re engaged in friendly topical banter with a colleague, you must be mindful [to keep it down] if someone else is on the phone. If your discussion is going to be long, you need to move to the conference room,” she says.

The ground rules are “a regular point of conversation,” she says. “We frame it around strengthening the team overall and codifying our best practices.”

Kaitlin has also found meditation helps. “My boss encourages all of us to each take 20 minutes at some point during our workday to close our eyes and sit in silence,” she says. “It’s an exercise in training your brain to tune out background noise. I find it very helpful for quieting my mind.”

For now, Kaitlin has made peace with noise and distraction. But she says she “absolutely would ask to move desks” if she thought it would help her work better. “I feel strongly that your job is your livelihood, and you have to be given the tools you need to be productive and succeed.”

How Amazon’s Higher Wages Could Increase Productivity

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Amazon recently made headlines by announcing that it would voluntarily increase its minimum hourly wage to $15. With a federal minimum wage of only $7.25, this pledge might seem like a curious decision — especially for a company as laser-focused on cost containment as Amazon. But thinking only about the costs involved in raising wages misses a key issue: pay hikes can also boost workplace productivity.

Given Amazon’s well-deserved reputation as a data-driven (and long-term oriented) company, you can bet that Amazon’s management team has done the analysis and figured out that paying employees more is, from a business perspective, more benefit than cost. They’re not the first company to make a decision like this — most notably, Walmart set a minimum wage of $11 earlier in 2018 — and we hope others come to realize that paying workers more can be a matter of enlightened self-interest.

In fact, the company has been accused of being too self-serving in its minimum wage hike — concerns arose nearly immediately after its announcement that the increase might be financed by cuts to bonuses and benefits that would leave workers no better off than before.

In our own research, we’ve explored the impact that minimum wages can have on businesses, as well as the ways in which higher wages can motivate employees and spur productivity. We’re fascinated by companies’ motivations to do prosocial (and also antisocial) things. And looking at Amazon’s recent announcement, there’s reason to think that a pay hike would be good both for Amazon’s employees and its bottom line.

Ultimately, Amazon may very well benefit from increasing its minimum wage, even if it does end up paying its workers more. Here’s why:

First, higher wages allow firms to attract and retain better employees (assuming competitors don’t follow suit and raise their wages as well). But there is an important — and often overlooked — second effect. Paying wages that are above the market rate (known within economics as “efficiency wages”) can also be an important motivating force for your existing employee base. The intuition is straightforward: higher wages makes a job more desirable. This leads to a larger applicant pool waiting to take over when openings occur, and makes it easier to replace a slacker employee. It also means that workers have more to lose by slacking off — who cares if you’re fired from a $7.25 an hour job, but where else will you find somewhere that pays $15 per hour?

The concept of efficiency wages is an old idea, dating back at least to Henry Ford’s introduction of the “five dollar day” in 1914, at a time when the daily wage at manufacturing plants near his Highland Park factory was $2.30. Ford himself called it his finest cost-cutting move, because of the boost to productivity that came as a result.

There’s good reason to think that Jeff Bezos’s $15 per hour will be as successful as Ford’s $5 a day.

The manner in which Amazon announced its $15 wages is likely to boost the productivity gains coming from the wage hikes. How so? Beyond the classic notion of efficiency wages — I work harder because I fear losing a better-paying job — above-market wages can lead to a second productivity gain driven by employees’ innate sense of reciprocity. Research (including our own work) has found that when a company gives unexpected pay increases, workers often reciprocate by working harder than is required (even if they don’t worry about getting fired). And, what better way to signal your good intentions and concern for workers than through a flamboyant public announcement of a substantial pay raise.

Finally, some of Amazon’s high wage PR may be directed at government officials. With a president who has taken to bashing the company and its leader, it can’t hurt to look like the good guy once in a while. And if governments at the state and city-level make good on their pledges to raise the minimum wage locally, Amazon will be paying $15 an hour sometime soon anyway — so why not get out in front of the issue now?

Of course, there remain open questions about the implementation of Amazon’s new plan: Will employee benefits (like annual bonuses) be rolled back to finance the wage increase? Will some contract workers be excluded from it? We hope not, and we hope that Amazon is sincere about meaningfully improving wages for their lower wage workers. Furthermore, the law of unintended consequences being what it is, we’re sure that not even Amazon will anticipate all of the effects of higher wages — one story that followed close on the heels of the announcement described brewing resentment among incumbent Amazon workers that newbies would get the same high wage as more senior employees.

And, to be clear, if increasing wages turns out to be a profitable decision that does not take away from our support for Amazon’s decision. We applaud cases in which companies do right by their employees, the environment, and society in general. And if Amazon ends up making more money as a result, that’s all to the greater good.

Why Leaders Need to Cultivate Complementary Strengths

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Robert is a strong leader.

How do I know? When he left one company to join another, many in his top team followed him to the new company because they wanted to keep working for him. That’s a pretty strong testimonial.

“Yes, he pushes us hard,” one of his direct reports told me, “but I work harder and I deliver. I like that.”

But every leader — even strong ones — have their challenges. And while Robert (not his real name) inspires hard work and loyalty, he also inspires fear, especially in people who don’t know him well or are a few levels below him in the hierarchy. To be clear, Robert is not abusive. He simply has a high bar and is respectfully intolerant of mediocrity. But the impact is one of fear. More than once, a member of his team has come to me with great ideas that they have not shared with him.

Fear doesn’t bring out the best in people. It mutes their performance as they take fewer risks and make overly conservative, safe choices. It also befuddles them, sending them down a confidence-sapping negative spiral: They speak nervously, which makes them appear unsure, which creates doubt in their leaders, who question them more aggressively, which increases their nervousness, which befuddles them even more…and it’s all downhill from there.

On the one hand, this is not Robert’s problem — it’s the problem of the insecure employee. People need to build the confidence to engage with leaders who have an incisive mind and high expectations.

On the other hand, it is Robert’s problem. If he wants to get the most out of all his employees (and their teams), he needs to create a safe environment in which they can perform their best.

As an executive coach of high-performing leaders, I see this all the time. And here are two mistakes coaches often make when trying to help these leaders.

The coach accepts the leader’s perspective that it’s not his problem, that it’s the problem of the people with too delicate a constitution. They shouldn’t quiver in their boots under a legitimate line of questioning. He may be right about them, but he’s not right that it’s not his problem. As a leader who wants to get the best out of his people, it’s always his problem.
The coach tries to help the leader tone down his approach so that he’s not so scary. This is a bad idea. Why? First, most leaders are right that their questions are legitimate. Second, muting the leader is an exercise in frustration and is unsustainable. Third, even if that works, performance suffers anyway since the leader is no longer holding people to the high standard they ultimately need and want. In other words, the leader ends up replacing high performance with mediocrity. And for high-performing leaders (and their organizations), that’s unsustainable.

So what’s the solution?

Imagine you make a soup and it tastes too bitter. The soup is made; you can’t remove the bitter taste. But you can add some sugar to it that balances out the bitterness and makes the soup far more palatable. In other words, sometimes it’s not about changing or taking out an ingredient; it’s about adding one that’s missing.

Instead of reducing his incisiveness, Robert should increase his warmth.

He can acknowledge a person’s insights before asking his questions. Or he can thank them for bringing something to his awareness that was missing (which has the added benefit of showing his vulnerability). He can add a few words of support. He can simply connect with the person warmly and with a smile. He can give context to his questions so that everyone can learn about the way he thinks.

We all have attributes that simultaneously work for us and against us. The solution is not to subdue our strengths but to add ingredients that balance them out. In other words, build complementary skills.

If you have the opposite problem of Robert? If you hold people with care and comfort but tend not to push them? Don’t reduce your warmth — rather push yourself to ask a hard question, without losing your warmth.

Recently someone I work with was accused (by more than one person) of being too political. Her role required that she be adept at managing the politics of the most senior leaders of the organization, so dulling this trait would have been counterproductive.

“Your problem isn’t that you’re too political,” I suggested. “It’s that you’re not communicative enough with your colleagues at your level.” I coached her to continue to leverage her diplomatic skills, while including her team in her efforts instead of working around them.

As for Robert? “Don’t dilute your greatness,” I told him. “Let’s just build a container for it.”