Friday, January 18, 2008

Towards A Lean Customer Service

Thanks to the pioneering success of Toyota, the concept of a "lean" operating system has been implemented in countless manufacturing companies and even adapted for industries as diverse as insurance and healthcare.
With its focus on standardization, quality improvement, cost reduction, and efficiency, lean's influence (and various interpretations of its tenets) continues to grow. In their working paper "Lean Principles and Software Production: Evidence from Indian Software Services," HBS doctoral student Bradley Staats and professor David Upton examine what happens when Wipro Technologies, an Indian outsource provider of software services, launches its own lean initiative.
"In terms of operations and improvements, the service industries in general are a long way behind manufacturing," Upton says. "The motivation for this work was to gain some well-grounded research on how improvements can be brought to services through some of these lean concepts."
Not all lean manufacturing ideas translate from factory floor to office cubicle. For example, tools such as the andon cord, a rope that manufacturing workers pull when they encounter a problem on the line, are not directly replicable in software as there is no line to stop.
"What we hope to do," Upton says, "is to distill the relevant aspects of lean manufacturing so that managers can see how these tools were applied successfully in a service environment similar to their own."
Unfortunately, lean's prevalence has led to some misconceptions.
"Some people think lean means 'not fat,' as in laying people off," Upton says, noting that in their paper they propose that the difference in a lean operating system comes from how it alters the way a company learns through changes in problem solving, coordination, and standardization.
They also draw on a framework of 4 principles of the Toyota Production System defined by HBS professor Kent Bowen and Steven Spear (HBS DBA '99):
Rule 1: All work shall be highly specified as to content, sequence, timing, and outcome.
Rule 2: Every customer-supplier connection must be direct, and there must be an unambiguous yes or no way to send requests and receive responses.
Rule 3: The pathway for every product and service must be simple and direct.
Rule 4: Any improvement must be made in accordance with the scientific method, under the guidance of a teacher, at the lowest possible level in the organization.
Wipro gains efficiency
In the paper, Staats and Upton describe how Wipro first launched its lean initiative in 2004 with a core team of managers. The small group visited lean manufacturing companies and discussed the concept's basic principles before each manager adopted a project in order to implement this new approach to software services. Of the projects, 8 out of 10 showed greater than 10 percent improvement in efficiency.
"Some people think lean means 'not fat,' as in laying people off." —David Upton
With those results in hand, the core team decided to roll out the approach across the firm. By the end of 2006, Wipro had 603 lean projects completed or in the works (the company typically had 1,100 projects under way at any one time).
"One of the important lessons we've seen on the ground is how Wipro approached the launch of this lean initiative," Staats says. "They didn't come out with big banners and say, 'OK, today your work is lean work, and yesterday it wasn't.' They started with a small group and recruited other people from there. It was a very controlled experimentation."
In their research, Staats and Upton document how the use of lean principles affected the workflow at Wipro. The concept of "kaizen," or continuous improvement, for example, resulted in a more iterative approach to software development projects versus a sequential, "waterfall" method in which each step of the process is completed in turn by a separate worker.
By sharing mistakes across the process, the customer and project team members benefit individually and collectively from increased opportunities to learn from their errors; the project also moves along more quickly because bugs are discovered in the system earlier in the development process.
Wipro also uses tools specific to the software development process based on lean principles. The DSM (design structure matrix), for example, defines connections and pathways for a project's workflow and suggests an order of tasks. A complementary tool, the SCE (system complexity estimator), ranks a software module based on its complexity and compares its actual architecture with its ideal (simplest) architecture in order to learn where a team might need more or fewer skilled members. The company also employs the more familiar lean technique of value stream mapping (VSM) to identify and decrease wasted time and effort throughout the software development process.
Improving from the bottom up
While most organizations struggle with implementing a new system, fighting the general inertia that many employees experience when faced with yet another new initiative, the goal of lean is to open up the work process and abolish the usual hierarchies. According to Staats, this seems to have happened at Wipro.
"It was interesting to talk to some of the less senior team members, because they were getting involved in much bigger-picture issues than they ever had before," he says. "In the case of value stream mapping, every member of the team was able to get a sense of the overall picture of what they were doing and spot problems they wouldn't have been able to see before."
"It's about unlocking the power of thousands of software engineers."—Bradley Staats
Staats suggests that the use of lean principles at Wipro could have qualities of a "Trojan Horse initiative." From the outside, lean accomplishes the short-term goal of productivity (getting inside the city's gates), but it could also lead to more radical, innovative change (the sacking of Troy).
"One of the main ideas behind lean is to take parts of a task that don't require human intervention and give them to machines so that humans can focus on the important issues," Staats explains. "The same is true in software, where you have the added benefit of being able to give some of your work to a computer, which can process it more reliably and quickly than a human."
More time, coupled with a better understanding of the different moving parts of a project, creates feelings of empowerment in workers who haven't traditionally taken part in innovation.
"It's about unlocking the power of thousands of software engineers and encouraging innovation up and down the organization," Staats says. "You can impact productivity while also changing the problem-solving capabilities of the organization."
Ideas into action
Wipro is typical amongst Indian firms in its thirst for knowledge, Upton adds.
"These companies are intellectual environments. People are very interested in taking conceptual ideas and figuring out how to put them into practice. There's not the same division between the 'real world' and university research that you often encounter in the United States."

Of Course: "The World Is Not Flat"

Thomas Friedman, author of "The World Is Flat: A Brief History of the Twenty-first Century", opines that a number of events ranging from the fall of the Berlin Wall to the rise of the Internet have flattened the competitive landscape worldwide by increasing globalization and reducing the power of states.
But the world is not flat, argues HBS professor Pankaj Ghemawat. Think of it as partly globalized, or "semiglobalized."
"Strategies that presume complete global integration tend to place far too much emphasis on international standardization and scalar expansion," Ghemawat argues. While identifying similarities from one place to the next is essential, effective cross-border strategies will take careful stock of differences as well.
An expert on global strategy, Ghemawat lays out an action plan for business in his new book, Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter.
As he sees it, important realities dotting the landscape for business can be grouped into 4 basic areas: cultural, administrative/political, geographic, and economic. Discussions of globalization tend to overlook these factors. And companies that wish to make headway should consider 3 broad ways of dealing with distance: adapt, overcome it, and exploit it.
"What is different about this book on global strategy is its focus on the differences across countries," he writes. "The idea is to help businesses cross borders profitably by seeing the world as it really is, rather than in idealized terms."
Ghemawat explained more via e-mail with HBS Working Knowledge.
Martha Lagace: The subtitle of your book is "Crossing Borders in a World Where Differences Still Matter." Amid the talk around us about an increasingly flat world, what differences have mattered, do matter, and will continue to matter for companies?
Pankaj Ghemawat: The subtitle is meant to emphasize that we continue to live in a semiglobalized world, one where differences between countries and regions continue to matter.
To make this point, it is useful to start with some facts about levels of globalization because, as the late Daniel Patrick Moynihan observed, we are all entitled to our own opinions, but not our own facts. The most commonly cited figure concerns international trade, which represents more than 25 percent of most economies. But when I began to research a broader range of measures including investment, phone calls, tourism, and immigration, I found that, surprisingly, the average extent of globalization is only 10 percent. For example, for every dollar of capital investment globally, only a dime is accounted for by foreign direct investment.
The other thing that surprised me was that some indicators of globalization aren't increasing as many experts have claimed. There is general agreement that the international share of total Internet traffic is decreasing rather than increasing. This calls into question the other common myth that even if the world isn't quite flat today, it will be tomorrow.
The data clearly indicate that national borders still matter. I group the differences that they demarcate into 4 areas: those related to cultural (language, customs, religion, ethnicities, etc.), administrative/political (laws, trading blocs, colonial ties, currency, etc.), geographic (physical distance, lack of land border, time zones, climates, etc.), and economic (income levels, cost of natural resources, financial resources, human resources, infrastructure, information, etc.). It is important to take a broad view of such differences, to figure out the ones that matter the most in your industry, and to look at them not just as difficulties to be overcome but also as potential sources of value creation.
Q: You say Toyota is an example of a company that understands the complexities of global strategy. What approach to globalization has allowed Toyota to thrive among automakers?
A: Toyota has overtaken General Motors to become the largest automaker in the world—while making money in the process. Toyota is distinguished from most of the Western automakers, not just DaimlerChrysler, by the fact it treats market share as the result of building better cars more cheaply than its competitors, and not as an objective in and of itself.
Its globalization has actually been driven by a complex array of coordination mechanisms across different regions, which Chairman Fujio Cho characterizes as the fundamental building blocks of the company's strategy.
"The idea is to help businesses cross borders profitably by seeing the world as it really is."
Note that Toyota's starting point is not a grand, longer-term vision of some distant globality when autos and auto parts can flow freely from anywhere to anywhere. Rather, the company anticipates expanded free-trade agreements within the Americas, Europe, and East Asia, but not across them. This is a more modest—but also more realistic—vision of a semiglobalized world in which neither the bridges nor the barriers between countries can be ignored.
Q: You have studied and written about Wal-Mart for more than 20 years. Wal-Mart has certainly expanded during that time, but not without criticism and its own miscalculations. What do Wal-Mart's experiences show us about crossing borders? What is it doing differently in new markets such as India?
A: When CEO Lee Scott was asked a few years ago about why he thought Wal-Mart could expand successfully overseas, his response was that naysayers had also questioned the company's ability to move successfully from its home state of Arkansas to Alabama.
Unsurprisingly, the foreign markets in which Wal-Mart has achieved profitability—Canada, Mexico, and the United Kingdom—are the ones culturally, administratively, and geographically closest to the United States.
The point is not that Wal-Mart shouldn't have ventured into more distant markets, but rather, that it needed to think differently about how to compete in them. It is now starting to do so in markets such as India, which does not allow foreign direct investment in retailing. Wal-Mart has therefore entered via a joint venture with an Indian partner, Bharti, that will operate the stores while Wal-Mart deals with the back-end of the business.
More broadly, Wal-Mart's recent strategy illustrates all three broad ways of dealing with distance—adjusting to it (Adaptation), overcoming it (Aggregation), and exploiting it (Arbitrage)—the AAA strategies elaboration of which occupies close to one-half of Redefining Global Strategy.
Wal-Mart International is increasingly cognizant of the need to adapt to local contexts—as evinced not only by the India entry strategy but by changes in merchandising policies, clearer definition of decision rights, and even the astonishing job-swap between some of the top managers running the U.S. operations and their counterparts at International.
Wal-Mart also tries to aggregate across national boundaries with its IT platform and regional management teams that were created in 2004 to manage global brand development and oversee government and public relations. As John Menzer, who ran International before becoming Wal-Mart's vice chairman, put it, "We're playing 3-D chess: global, regional, local."
And finally arbitrage through offshoring, particularly to China, saves Wal-Mart much more money than the operating income generated—on a much larger investment base—by the international store operations. This is, in some sense, what Wal-Mart's global strategy is primarily about.
Q: How do you see business shaping the future of globalization? In which ways are companies playing a big role, and in which ways could or should they step up more to exert a positive influence on society?
A: By recognizing the importance of business in shaping broad outcomes-including those related to the future of globalization. Globalization has gone into reverse before—between the two world wars—and could do so again. Some of the concerns voiced by antiglobalizers include:
A declining share of wages in total national income in developed countries at a time when the share of profits is at a multidecade high in many developed countries.
The lack of a globalization safety net in many of those countries. (The United States, for instance, is estimated to gain $1 trillion per year from trade, but spend about $1 billion on job-retraining, according to The Economist.)
The creation of a 2-track world. As microcredit pioneer Muhammad Yunus put it in his speech accepting the 2006 Nobel Peace Prize, if globalization "is a free-for-all highway, its lanes will be taken over by the giant trucks from powerful economies … [at the expense of] Bangladeshi rickshaws."
It is neither principled nor practical for companies to stick their heads in the sand in response to an issue as fundamental as the distribution of the globalization dividend. Yet, as thoughtful business leaders (e.g., Coke's Neville Isdell) have pointed out, business has not been very active in trying to counter the antiglobalizers. In terms of public discourse and action, in particular, I'd recommend the following steps for companies that favor greater integration (of course, not all will do so):
Be careful about your choice of words. Outsourcing often triggers negative vibes, as former Bush economic adviser Greg Mankiw discovered. So does globalization, which, according to U.S. pollster Frank Luntz, "frightens older workers." (Luntz recommends talking about the free-market economy instead, although one suspects that this might work less well in continental Europe.)
Try to be concrete rather than abstract about economy-wide benefits of globalization. Findings such as those from the McKinsey Global Institute that for every dollar the United States sends abroad through outsourcing, it gets about $1.12 back are more useful than appeals to the process of market equilibration described in economics textbooks.
Dispel globalization bogeymen that don't have a scientific basis, such as the myth that increased global integration necessarily leads to increased global concentration.
Support job-retraining programs and, more broadly, social insurance. History shows that support for free trade tends to be fragile in the absence of such programs.
Emphasize upgrading and productivity growth as the focus of public as well as business policy. These are what really matter in the long run for the wealth of nations as well as companies.
Q: Do you get exasperated by popular viewpoints that treat globalization as a monolithic force without any shades of gray? What's the best way you counter views that seem more emotional than fact-based?
A: I don't get exasperated at all because it is precisely the popular view of globalization as an irresistible force leveling everything that stands in its way, including national differences, that makes my message important. Based on surveys that I have done, many managers do believe this view, and suffer from strategic biases as a result.
Emotional denials of the fact of semiglobalization are, past some point (which may come very soon!), better countered with stories than with additional data. I like the story of Coke, because through to the late 1990s, under CEO Roberto Goizueta, it bought into and based its global strategy on the globalization apocalypse that was popular then, the globalization of markets (rather than production), because customers everywhere were supposed to increasingly want the same products and services. As a result, Goizueta embarked on a strategy that involved focusing resources on Coke's megabrands, an unprecedented amount of standardization, and the official dissolution of the boundaries between the U.S. organization and the international one.
10 years later, Coke's strategy under CEO Neville Isdell looks very different. Coke is now focused on learning from Japan—where it reportedly offers more than 200 products but makes more money than in any other major international market—for insights into how to pursue the broader objective of injecting more variety into the Coke system. The strategy is no longer always the same one: In big emerging markets such as China and India, Coke has lowered price points, reduced costs by indigenizing inputs and modernizing bottling operations, and upgraded logistics and distribution, especially rurally. And the official boundaries between the U.S. and international organizations have been restored-recognizing the fact that Coke faces very different challenges in the United States than it does in most of the rest of the world since per capita consumption is an order of magnitude higher in the United States.
Coke is therefore a cautionary tale of a company getting carried away with globaloney and paying for it—but is apparently managing to weather the storm. Other companies that went through a similar set of wrenching changes might not have the kind of strategic cushion associated with the world's most valuable brand name. It is generally better for them to ponder the lessons in my book than to seek to experience them all: Offline learning is a lot cheaper than online learning in this context.
Excerpt from Redefining Global Strategy
Readers are probably also looking for specific advice on what might be done to improve their companies' future global trajectories. In response, let me offer some tentative recommendations for making a path toward a better future.
Path Making
How might you improve the path that you follow from today to tomorrow and beyond if the future is shrouded in uncertainty? To be more specific, how might your company improve, in the context of globalization, on the common expedients of sailing in one direction until hitting a sandbar, or playing pinball to the headlines, or simply marking time?
1. Anticipate bumps and detours even if you do believe that the world will eventually become much more integrated. Even if you remain convinced that the apocalyptic vision of close-to-complete integration will be realized sooner or later, recognize that the road from here to there is unlikely to be either smooth or straight. There will be shocks and cycles, in all likelihood, and maybe even another period of stagnation or reversal that will endure for decades. (It's happened before!) Volatility of this sort is particularly worth allowing for in relation to the BRIC (Brazil, Russia, India, and China) economies that Thomas Friedman and other writers have recently emphasized as centers of value creation in the twenty-first century. But even companies that are supposed to be sophisticated about emerging markets trip up on this point. Goldman Sachs—the leader in investment banking in most major markets, the first major Wall Street bank to commit resources to post-Soviet Russia, and one of the institutions responsible for popularizing BRIC countries as an opportunity set—ranked twenty-fourth among investment banks in Russian equity and debt underwriting in 2005.2 Why so low? Because Goldman, like a number of other investment banks, exited after Russia's 1998 financial crisis and debt default, and let several years go by before trying to reestablish its foothold there. Note that strategies such as this often entail buying in at the top of the cycle and exiting at the bottom—usually not a recipe for financial success.
2. Pay attention to other "predictable surprises" as well. Bumps are just one manifestation of "predictable surprises," a term coined by Max Bazerman and Michael Watkins to describe situations where "leaders had all the data and insight they needed to recognize the potential, even the inevitability, of major problems, but failed to respond with effective preventative action."3 A number of predictable or at least possible surprises are in the air as far as the general global environment is concerned: global warming; different kinds of meltdowns in the Middle East, China, India, and the United States, among other possibilities; a global liquidity crisis; a general sociopolitical backlash against globalization; and so on.4 Notions of a global governance gap reinforce the idea that a shock of this sort might have a persistent effect. How many such shocks is your company prepared for? At a minimum, I suggest articulating one or more deglobalization scenarios and analyzing their implications for your company's global strategy, as a prelude to thinking, possibly, of alternatives.
3. Add to predictive power by taking things down to the industry and company level. Shocks, cycles, and trends, even when they have crosscutting implications, vary greatly across industries and companies in their effects, in ways that greatly reduce the usefulness of trying to fit one world-historical conception to all of them. Focus on the risks and, more broadly, trends that are most likely to affect your industry or company, and how they are actually to do so. Thus, even the effects of something as potentially far-reaching as global warming depend on whether one looks at the issue from the perspective of a financial investor, a construction firm, an automaker (whose reaction would also depend on its focus on large versus small cars), or a potential supplier of cleaner energy, to cite some varied examples. And depending on the setting, other risks or trends may well be more salient and therefore worth prioritizing. For example, when I first started working with Indian software firm TCS on building useful scenarios about the future, we figured that it made the most sense to start with avian flu, given the nature of the company's business.
4. Recognize the importance of business in shaping broad outcomes—including those related to the future of globalization. The preceding discussion might have seemed to suggest that outcomes will unfold independently of what businesses decide to do. But for many key uncertainties, that is clearly not the case. Consider the broad process of globalization itself. Some of the concerns voiced by antiglobalizers include the following:
A declining share of wages in total national income in developed countries at a time when the share of profits is at a multidecade high in many of them.
The lack of a globalization safety net in many of those countries (the United States, for instance, is estimated to gain $1 trillion per year from trade, but to spend about $1 billion on retraining)5.
The creation of a two-track world. As Muhammad Yunus, the microcredit pioneer, put it in his speech accepting the 2006 Nobel Peace Prize, if globalization "is a free-for-all highway, its lanes will be taken over by the giant trucks from powerful economies ... [at the expense of] Bangladeshi rickshaws."6
It is neither principled nor practical for companies to stick their heads in the sand in response to an issue as fundamental as the distribution of the globalization dividend. In terms of public discourse and action, in particular, I'd recommend the following steps for companies that favor greater integration (note that not all will do so):
Be careful about your choice of words. Outsourcing often triggers negative vibes, as former Bush economic adviser Greg Mankiw discovered; so does globalization, which, according to U.S. pollster Frank Luntz, "frightens older workers."7 (Luntz recommends talking about the free-market economy instead—although one suspects that this might work less well in continental Europe.)
Try to be concrete rather than abstract about economywide benefits of globalization. Findings such as the McKinsey Global Institute's calculation that for every dollar the United States sends abroad through outsourcing, it gets about $1.12 back are more useful than appeals to the process of market equilibration described in economics textbooks.8
Dispel globalization bogeymen that don't have a scientific basis, such as the myth that increased global integration necessarily leads to increased global concentration.
Support job-retraining programs and, more broadly, social insurance. History shows that support for free trade tends to be fragile in the absence of such programs.
Emphasize upgrading and productivity growth as the focus of public as well as business policy. These are what really matter in the long run for the wealth of nations as well as companies.
5. Don't let a focus on the future crowd out consideration of the here and now. The future, including whether the direction of globalization creates headwinds or tailwinds for global strategies, certainly has a bearing on the success or failure of those strategies. But it should not be allowed to crowd out consideration of other factors that also matter, including those in the here and now. A refrain throughout this book is that the current state of practice of global strategy leaves significant headroom for improvement. One way of exploiting that potential is to get started.

Dessent Is Healthy in Decision Making

What lessons could the humid shores of the Caribbean, the freezing heights of the Himalayas, or the farthest reaches of Earth's atmosphere hold for your company or organization? Although those places couldn't be more different, all were the scenes of disastrous outcomes brought on by a weakness to which all organized human groups are susceptible—the suppression, especially during planning and decision-making, of views that might be perceived as contentious or disruptive to an organization's foundational beliefs.
Consider the costs to organizations, large and small, when dissent does not or cannot surface: Abjuring rigorous debate about its merits, a youthful president John F. Kennedy essentially rubber-stamped a 1961 plan to invade Cuba at the Bay of Pigs, resulting in one of the biggest U.S. foreign policy fiascoes in decades. During a 1996 commercial expedition to the summit of Mt. Everest, several climbers, including two of the world's most experienced professionals, died in part because junior team members didn't speak up when their expert leaders ignored their own core operating principles surrounding safety. In 2003, NASA engineers were reluctant to challenge long-held beliefs that foam strikes incurred during the launch of the space shuttle Columbia posed no risk to its fuselage.
This propensity to maintain silence, a flaw at once personal and organizational, is "widespread and problematic" in both the public and the private sectors, says HBS professor Amy Edmondson, who chairs the Doctoral Programs and teaches in the Technology and Operations Management unit.
"To cite one example, former HBS doctoral student Jim Detert and I interviewed some 200 people of all ranks and functions in a high-tech multinational. We found to a very significant degree that people did not speak up about things they deemed important. Most of those were not 'bad news' things; to our surprise we found that people were reluctant to voice what they perceived to be good ideas, unless they were extraordinarily confident they would be well-received. And this in a firm that lives and dies by its ideas."
Edmondson says this reluctance to speak up stems variously from fears that superiors will not like the idea or that it may appear to criticize the status quo, which most people find reassuringly familiar or dangerous to challenge. Edmondson sums up the mental calculation this way: "The potential costs to me for speaking out seem reasonably certain and somewhat immediate; the potential benefit to me for speaking out seems rather uncertain and definitely long-range."
In the corporate world, Detroit's V-8 car culture was long unable to entertain the notion that a large segment of consumers might prefer automobiles that were safe and fuel-efficient. Coca-Cola ignored evidence that "New Coke" would fizzle and launched it anyway. Companies in the mechanical-watch and analog-photography industries refused to heed the messengers and the message that adaptation and change were necessary if they were to continue to exist.
Challenges to the conventional wisdom can be upsetting to individuals and organizations alike, and for that reason are often suppressed or discouraged. "Don't rock the boat" and "You get along by going along" seem crude and outdated workplace mantras when contrasted with the sophistication of modern business, yet they are still considered sound advice.
Compensating candor
HBS professor Max Bazerman of the Negotiation, Organizations & Markets unit believes that within organizations, candor should be rewarded and incentives designed to encourage that.
Says Bazerman, "Executives sometimes complain to me that their sales force is sacrificing profitability for revenue by lowering prices to make more sales. So I ask them, 'On what basis do you compensate them?' Inevitably they answer, 'On the number of sales made.' Similarly, when executives complain that 'My people just don't bring me dissenting views, what do I do?' my reaction is, 'Can you tell me the last three times someone brought up a dissenting view, what happened with that discussion?' Often executives themselves are responsible for suppressing dissent: They're not fully listening, they're cutting people off, or they have a preconceived notion of where they're going. In fact, many times leaders prefer an orderly shop and aren't actually looking for dissent."
From the Oval Office to the boardrooms of Detroit and everywhere in between, "fundamental but highly controversial issues often are not surfaced," former Vietnam-era Secretary of Defense, Ford Motor Company president, and World Bank president Robert S. McNamara (HBS MBA '39) told the HBS Alumni Bulletin in 2004. The reason, McNamara explained, is that such issues are deemed too threatening to organizational harmony or to individuals' career advancement. As a result, the validity of a principal U.S. rationale for the Vietnam War, the "domino theory," was never debated at the highest levels, McNamara said, nor was Detroit's received wisdom that the American public would be reluctant to buy compact, fuel-efficient, and designed-for-safety cars.
Ironically, some eight decades ago, Detroit had a notably powerful advocate for dissent and disagreement in decision-making. At a meeting of one of General Motors' top committees in the 1920s, GM president Alfred P. Sloan Jr. said, "Gentlemen, I take it we are all in complete agreement on the subject here." Heads nodded around the table. "Then," continued Sloan, "I propose we postpone further discussion of this matter until our next meeting, to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about."
Developing disagreement and "high-contention" decision-making at the loftiest levels of the organization were things that HBS professor Bill George of the Organizational Behavior unit insisted on when he took over as CEO of Medtronic, the medical-devices company, in 1991. That's in part because George had experienced firsthand what Robert McNamara warned of—George worked under McNamara for several years while an assistant to the late HBS professor Robert Anthony, whom McNamara had hired to be comptroller of the Defense Department.
"Unfortunately, McNamara himself contributed to the very shortcoming he speaks of—his domineering style led him to shut out other voices," recalls George. It was a lesson that George took to heart and would later draw upon during his own business career.
Start at the top
"If you want good decision-making, contention is essential," George says. "When I joined Medtronic, one of the things undermining its performance was conflict avoidance. To reverse that, we established a system that had a COO in charge of line operations along with a vice chairman of equal power who was responsible for quality, for being alert to any possible problems, and for raising questions about them. You need a team at the top where high contention is demanded and rewarded. If it doesn't start at the top, it will not operate in other places."
During the decision-making process, George explains, this means asking probing questions and insisting that managers present each situation in objective terms, rather than with a positive spin.
"You must acknowledge and thank those who disagree by telling them that they made the discussion, and hence the ultimate decision, much better," George says. "You need to reward and promote the mavericks or else the organization will lose its creative edge. You try to create tension inside because the outside challenge is so great."
HBS professor Michael Tushman of the Organizational Behavior unit also sees an aware, open, and inquiring senior team as critical to sound decision-making.
"The key is for senior teams to be able to hold paradoxical ideas, or to think in the future and the past, simultaneously," Tushman declares. "Otherwise, the past will always trump the future—people prefer not to know about the future because it's so threatening to entrenched interests and to career competencies."
Tushman has been focusing his research on companies that can "be both big and small, be centralized and decentralized, live in the future and the past, and 'exploit and explore,' all at the same time. That's a relatively rare accomplishment," he says. Tushman cites organizations such as Analog Devices, British Telecom, IBM, and Procter & Gamble as achieving these goals to varying degrees.
How do firms achieve that level of performance? Tushman says they need an overarching aspiration (for a watch company, it might be "We're going to tell time," without being wedded to any particular technology). Also required are internal architectures that honor both the past and the present and a senior team or CEO who can embrace these contradictions and make trade-offs to accommodate them. Adds Tushman, "Some groups 'exploit' and some 'explore,' and you don't want to mix them. The locus of these controversial issues is thus at the highest levels."
Honesty at the heart of improvement
Business, which prides itself on its pragmatism, needs to remain aware that the managerial and organizational structures that define it can also breed protective sacred cows or truth-denying ideologies that ultimately threaten it. What's required in an organization is honest, thorough, and ongoing self-criticism, which, after all, is at the heart of continuous improvement.
Many observers note that one of the factors contributing to the preeminence of Toyota, arguably the world's most successful company, is its openness to learning, driven by humility.
History shows that the best and the brightest—the smartest guys in the room—often make mistakes because they won't listen to what they falsely believe is not worth hearing. Shutting out voices that might say otherwise can be risky. Decisions are seldom better for silence, and overcoming that is a key task for the leader of any organization.

Going Up The Organizational Ladder

People achieve success in the early years of their career by specializing and becoming functional experts—in essence, they succeed by knowing more and more about less and less, says Benjamin C. Esty, chair of the General Management Program at Harvard Business School. "But there comes a time when they have to recreate themselves as generalists. In this new generalist role, they end up knowing less and less about more and more. This is an extremely difficult and potentially very risky transition, and it can easily derail a very successful career. GMP is about smoothing and accelerating this transition into general management."
For new general managers—or just as likely in companies these days, senior functional managers who operate as part of an executive team or who have important cross-functional or cross-organizational responsibilities—their job has changed from driving excellence in a single functional area to integrating consistency, cohesion, and alignment across many moving parts in the business unit.
"When you're responsible for leading, it's not enough to do what you've done in the past. You need to fundamentally rethink what you're doing and where you want to go in the future."
Launched in autumn 2006, GMP is a new executive education comprehensive leadership program designed to address the needs and concerns of precisely these managers. GMP's innovative teaching philosophy and methodology are driven by a core group of extremely committed GMP faculty; the program is also supported by a very professional and skillful administrative team. Although it is a new program, GMP actually grew out of two other longstanding programs with a deep tradition and knowledge base at the School, the Program for Management Development (PMD) and The General Manager Program (TGMP), which together have more than 11,000 alumni.
As a modular program—with on-campus learning interspersed with work back at the organization—GMP's target market is executives with fifteen to twenty years of experience. In a typical program, there are executives from twenty-five to thirty different countries, more than fifty different industries, and all functional areas. Participants typically lead (or are about to assume leadership positions) at the business unit, division, or country level.
The first big challenge for new general managers, says Esty, is seeing linkages and interconnections across the organization. The second is transitioning from the role of a doer to the role of managing through other people—and that's a big change.
"As a new GM, you will be one step away from the customers or one step away from the shop floor. Your job is much more about people and less about hands-on doing. So really the challenge is about delegation and achieving leverage; and on some level it's about finding, hiring, developing, and retaining top people. With those individuals, you then have to build an effective team.
"A lot of people aren't comfortable letting go; they want to do."
How it works
New skills, while important, are only a small part of what new general managers must possess. GMP's greater goal is to challenge them with new perspectives and ideas around people and organizations to help them forge connections across functional areas, says Esty.
To that end, readings and classroom discussions in GMP are very different from the Harvard MBA program, and from other HBS leadership programs. Where the MBA program develops functional skills, GMP uses business cases that cut across multiple functional areas and highlight the challenges of integration. The cases also focus on general managers from companies around the globe in an effort to mirror the international mix of participants. "We try to have cases that reflect the people in the group. More importantly, we choose cases with protagonists that have exactly these general manager jobs, who are 'the general manager in the middle' who have the incredibly difficult job of managing up, down, and across the organization.
"The cases are designed to get smart people to see different things in the same situation. In essence, the cases end up being Rorschach-like experiences: 'Here are some clouds. What do you see?' It's stunning for the class to realize that very smart people can come to very different conclusions. And so it really expands how they think about problems and gets them to focus on the process of making important decisions." But changing the way people think and improving their business judgment is what GMP is really all about, says Esty.
For faculty it's exciting, he said, because the teaching imperative mirrors the participants' experiences because faculty teach outside their own area of expertise. Esty, for instance, is an expert in corporate finance. "We don't teach as finance professors or marketing professors; we teach as general management professors under the rule that anybody can teach anything and everybody teaches everything. By teaching across functional boundaries, we're trying to replicate in the program what the participants face in their new jobs."
Like executives, faculty eventually need to resist career pressures that compel them to become too narrow because many, if not most, business problems are multi-dimensional. "When you come to HBS as a junior faculty member, you study relatively narrow subjects in a single domain; and if you're going to really tackle big issues you'll have to get broader and understand the complexities and nuances of business at a deeper level.
"This program, for those of us who teach it, really gets back to the core of what Harvard Business School was founded on: a general management perspective. That means some breadth, where you have to understand the linkages across the business, but also some depth in order to understand what drives the business, what the core economics look like, and how leaders lead."
Similarly, participants are encouraged to think about the general management issues in each case rather than focus on functional aspects. They're asked to figure out what the issues are and how they affect all aspects of the organization as well as the people, the customers, and other important constituents. In their job as well, issues don't arrive on their desk flagged as marketing or finance issues; part of the challenge is problem identification. Then the challenge is to design a feasible and integrated solution that works for the entire business unit.
You're a case study
GMP participants don't just talk about cases; they also each write their own case study describing an important leadership challenge they face. The "Your Case Study" exercise, developed by HBS professor Joshua D. Margolis and Sarah M. Kauss, was adopted by GMP faculty with several objectives in mind. It effectively forces participants to apply what they've been learned in the program. At the same time, it provides benefits to the sponsoring organizations by requiring participants to work on personally relevant issues. It does, however, have one other longer-term benefit. Esty hopes some of these individual case studies will be developed into full-fledged case studies for use in the GMP program. "I would love to see 10 to 20 percent of our cases involve graduates of the program," he says.
Participants write the case study while on break between on-campus modules, then come back to campus and discuss it with two types of groups. The first is their "living group," a mixture of participants with whom they live and interact on-campus.
"For instance, I might write that my organization is merging and that my leadership challenge involves merger integration; you, on the other hand, may be in charge of developing a market entry strategy for China. So we each have something different, but we know each other well from having lived and worked together in the program. After getting advice from the people in your living group, the next step is to match people with similar leadership challenges or with specific expertise in those areas. As people draw on each other's experience and knowledge, they begin to build a lasting advisory network. Clearly one of the long-term benefits of the program is being part of such a fantastic network of advisors, coaches, and mentors." A related benefit is the program's clear emphasis on personalized learning through a series of exercises like this one and other diagnostic exercises.
By this point in the program, students also concentrate on leadership and driving change. Leadership is about getting things done, but it's also about how to react when events happen to you, says Esty. GMP gets students to think about two big sources of turbulence: globalization—what happens when market boundaries change—and technology shifts—what happens when an industry's fundamental economics change.
Your job is much more about people and less about hands-on doing.
The final module of the program is lifelong learning. "I've emphasized that we teach people a set of skills, perspectives, and ideas. But what we're trying to do is get them ready to learn and relearn, and in some cases unlearn, and to critically think about how they look at the world and some assumptions they make."
Students can continue to personalize their education as much as possible by accessing a proprietary Web site called Transition to General Manager. There they read interviews on forty topical areas with roughly fifty Harvard alumni who've navigated a similar career shift.
The goal is really to address idiosyncratic development needs. While the program's core content address issues, ideas, and theories relevant to the typical new general manager, the program actually involves eighty individual general managers. "Our goal is to make sure we address as many individual development needs as possible. And that's what we try to do in Modules 3 and 5 with the proprietary Web sites and access to other HBS resources including HBS faculty. Drawing on the depth of our faculty and personalizing the connections between participants and HBS faculty is a critical part of the program."
A break from the everyday
Short programs can effectively deliver basic skills and present new theories, but GMP is doing something much more complex: trying to change the way people think about important problems and get them to make better business decisions. It is also trying to change the way they act by improving their leadership skills. The former takes time to identify and assess critical assumptions about management, leadership, and business; the latter requires practicing new approaches.
Getting away for an extended period from the everyday demands of the office is therefore vital for many general managers, says Esty. "One, you have to get away from day-to-day activities to really learn, and that doesn't happen for a weeklong or two-week program. The second thing is, we're not teaching just skills; we're teaching perspectives and mental mindframes, and it takes time to step back and think about how you perceive the world, to consider what assumptions you are making about management and leadership, and to consider alternatives and then practice them."
Trust and cohesion are therefore fundamental components of the GMP experience. Participants are encouraged to help each other. It takes time for cohesion to build to the point where people want to help each other, and where they trust each other enough to give and receive very candid feedback. Few executives have access to this kind of insightful and very helpful feedback inside their organization, particularly when it comes from non-competitive peers.
"An extended program gives you the opportunity to really step back and reconsider how you approach issues, navigate them, lead, and question what you do to possibly change it and try out some new ideas. It gives you a chance in a very low-risk setting to try out new approaches. It's a supportive environment here at HBS. We know learning requires risk-taking and sometimes entails failure, disappointment, and frustration. We've got a setting where the stakes are low and the group is very supportive, friendly, and knowledgeable. So the longer break gets people to take risks, try new things, and envision something better. In the end, participants leave with the skills to identify, frame, and solve complex business problems and the confidence to make important business decisions in an uncertain and rapidly changing environment."
Time is necessary for reflection on who you are as well as what you do, he continues. The living groups offer a lot of feedback that improves participants' self-awareness in ways that are not possible inside an in-house company program where people would likely feel competitive or unwilling to let down their guard.

Managing High Flyers

What contributes to an individual's ability to remain a star? To what extent does past star performance predicate future star performance? And to what extent does a key organizational factor—colleague quality—help or hinder the ability to sustain star performance? The performance of stars is an important career matter for individuals as well as for managers who want to inspire, nurture, and recruit stars.
A new study by Harvard Business School's Boris Groysberg and Linda-Eling Lee on star knowledge workers, specifically security analysts, addresses these questions. As they explain in a forthcoming article in the Journal of Organizational Behavior, it is true that a star's past performance indicates future performance—but the quality of colleagues in his or her organization also has a significant impact on the ability to maintain the highest quality output.
"Stars need to recognize that despite their talent, knowledge, experience, and reputation, who they work with really matters for sustaining top performance," say the authors.
The article, "The Effects of Colleague Quality on Top Performance: The Case of Security Analysts," outlines important implications for star players as well as their managers. Groysberg and Lee explained more in this interview with HBS Working Knowledge.
Martha Lagace: Let's begin with the key question you ask in your paper: Who "owns" top performance: individual stars or their organizations?
Boris Groysberg and Linda-Eling Lee: Both. We found that even though an individual's past performance can indicate future performance, the organization also significantly affects top performers' ability to maintain their performance.
Specifically, top performers rely on high-quality colleagues in their organizations to improve the quality of their own work and to deliver it effectively to clients.
Q: What is important now about knowledge workers from both a business and a theoretical perspective? Where do you see beliefs about performance playing out in business today?
A: Some have pointed out that the main difference between knowledge workers and, say, manual workers, is that knowledge workers own the means of production. That means they carry the knowledge, information, and skills in their heads and can take it with them. As the basis of competition shifts to superior knowledge and information, organizations have naturally become increasingly concerned that they attract, leverage, and retain the best knowledge workers.
In addition, our culture is very enamored of stars and with the idea that extraordinary talent accounts for individuals' extraordinary performance. The business media likes to treat star knowledge workers, such as top analysts, bankers, lawyers, and CEOs, as if they are star athletes. There is an assumption that these star knowledge workers, like star athletes, actually "own" everything they need to perform at the top level and can take that knowledge and skill anywhere. They are treated as free agents who can take their top performance to work for the highest bidder.
Our study debunks that myth. Star analysts rely a lot on the quality of the colleagues that their organization provides to sustain top performance. They cannot simply replicate their top performance in any organizational context.
Q: Why did you construct your study as you did?
A: Our study focuses on the performance of Wall Street analysts because this is a population that is commonly believed to "own" their performance. Interviews we conducted prior to the study indicated that analysts themselves as well as their managers believe that top performance in this industry is due to individual talent. This could be one reason that there is a great deal of mobility in this labor market.
Stars are treated as free agents who can take their top performance to work for the highest bidder.
We were interested in why some star analysts were able to maintain their star rating over this period while others had a harder time doing so. We found that having high-performing colleagues in different locations in the firm—at the team level, at the department level, and in an entirely different department (sales)—had a significant impact on star analysts' ability to maintain their stardom.
Our dataset is also one of the few that has been able to measure the performance of knowledge workers for a large sample across a large number of firms in an industry. In addition, it contained very good information about the quality of colleagues for each analyst. Because we had data over a long period of time for all these factors, we were able to distinguish the causal effects of individual and organizational factors on star performance more clearly than previous studies that lacked longitudinal data.
Q: How should top performers consider their next career move?
A: We think our study has important implications for both individuals and managers. Stars need to recognize that despite their talent, knowledge, experience, and reputation, who they work with really matters for sustaining top performance. Stars are courted by headhunters all the time. When considering a career move, it is very important for stars to evaluate the level of support they are receiving from their colleagues in different parts of the organization.
It may not always be obvious that someone sitting in a different department can really impact your performance. But losing those ties, especially ties to the top performing colleagues, can be detrimental to maintaining top performance.
Q: How should managers at the firm level evaluate their organization's environment in terms of its ability to inspire and sustain top performance?
A: For managers, it is imperative to understand that stars are not self-contained silos. Producing top-quality knowledge work requires collaboration and flows of information among a network of top performers. That means any one decision on hiring and retention can have a real impact on the performance of top employees in an entirely different part of the firm. It also means that it is not enough to have a few star performers here and there within the organization. If these stars lack high-quality support and information-sharing with other star colleagues, they will have a harder time maintaining their star performance.
Firms that already have a large stable of high-performing individuals might have built a competitive advantage. Their stars make it more likely for each other to sustain top performance. Firms that lack this advantage fight an uphill battle. They can hire or cultivate stars. But if there are only a few stars, these individuals will tend to have a tougher time sustaining top performance.
Q: What else are you working on?
A: We also examine the portability of performance in a different labor market: star general managers from General Electric. These findings are presented in the Harvard Business Review article "Are Leaders Portable?" co-written with Andrew N. McLean and Nitin Nohria. The records of former GE general managers demonstrate that even skills widely perceived as generalizable are constrained by context and imperfectly portable.
Firms that already have a large stable of high-performing individuals might have built a competitive advantage.
We continue to extend our research into other labor markets in order to understand conditions that help and hinder portability of performance. The "Recruitment of a Star" case explores this model of human capital as a portfolio of skills, and asks which of four candidates for a job is likely to possess the most portable skills.
The frequency with which workers move in teams suggests that at least some individuals are aware of the value of colleagues. Lawyers, doctors, consultants, bankers, programmers, creatives, and general managers often leave with a team of colleagues to join a competitor. This phenomenon is called a lift out. It is observed in industries as diverse as medicine, advertising, software development, and apparel manufacture. The Harvard Business Review article "Lift Outs: How to Acquire a High-Functioning Team," co-written with Robin Abrahams, describes the effects of team moves—or lift outs—on performance portability. We found that a successful lift out typically unfolds over four consecutive interdependent stages that must be meticulously managed. We are continuing to work on this topic.
Finally, we are working on a paper that examines whether higher-quality colleagues can act as a retention mechanism for knowledge workers.