Breakthrough Ideas for Today’s Business Agenda

For executives who believe that business is driven by smart new ideas—not just reams of information, whizbang technologies, and larger-than-life CEOs—it is the best of times and the worst of times. The air is thick with ideas but in the way that a summer night is thick with warmth, fragrance, …and bugs. You want to be outside, taking it all in, but it’s risky. Ideas swirl around. Some of them are as tantalizing as fireflies, begging to be captured and considered up close. Some are simply bothersome: lots of noise, no bite. And some of them are as dangerous as hornets—get too close, and you’ll pay the next day, and sometimes longer. Every year, many business ideas—the good, the bad, and the ugly—swirl through the offices of HBR where a team of 22 editors explores and debates them. Is that idea, we ask, truly new? Will it make a meaningful difference in the lives of people creating, leading, and transforming business? Can we be sure—sure enough—that it will endure the vagaries of an economy that sometimes seems to be nothing but a series of fads? At the end of the vetting process, some 65 articles are published each year in these pages. (A similar process at the HBS Press, HBR’s close collaborator, produces 35 books.) Not every new article or book contains a breakthrough concept—some present insights that expand existing streams of thought and practice, for example. Others describe useful new managerial tools. The fact is, revolutionary ideas are rare. Indeed, we would posit that one truly big, paradigm-shattering idea is born each year—maybe. The year 1979 gave us Michael Porter’s on the forces that shape strategy. In 1990, it was C. K. Prahalad and Gary Hamel’s theory on core competencies. In 1995, it was Clayton Christensen on disruptive technologies. In 1998, it was Daniel Goleman on emotional intelligence at work. Those kinds of ideas don’t just advance the conversation; they permanently alter it. While paradigm-shattering ideas are rare, every year a small number of emerging ideas can legitimately be called breakthrough—they’re important, even agenda setting. The editors of HBR and the HBS Press recently set out to identify those ideas in our overflowing well from the last year or so. We scrutinized and settled on five. They were not distinct articles or books presenting theory A or B by one expert or another but broader themes—call them emergent schools of thought. We do not claim that the list presented here is exhaustive. It is only as knowledgeable, opinionated, and idiosyncratic as the editorial group itself. Which is very, on every count. Like everything we publish, the ideas on our list are based on the sound research and rigorous thinking of businesspeople, academics, and consultants. But these ideas go further, too; they explore new territory. They do not settle it or claim to. But with this, the first HBR List, we seek to start conversations about business and management, not end them, for as every executive knows, ideas are just the fuel for meaningful action. Then, it’s up to you. Even a Great Business Model Is Not Enough The meteoric rise and fall of dot-com businesses during the past year left markets reeling, analysts scratching their heads, and CEOs searching for answers. As many a new god of the Internet economy faltered and fell, observers looked for clay feet. The most obvious candidate: bad business models. But what exactly is a “business model,” anyway? No one ever defined the term precisely—it seemed to mean either “what we do” or “how we hope to make money someday”—but it always got tossed into conversations about new economy businesses. For a while last year, it supplanted “business strategy” as the guiding principle for executives and entrepreneurs, justifying a rather cavalier attitude toward profitability and competitive advantage. Then came June 22, the day Lehman Brothers bond analyst Ravi Suria issued a scathing report on Amazon.com’s financial position. In Amazon’s “unhealthy balance sheet, poor working capital management, and massive negative operating cash flow,” Suria saw the “characteristics that have driven innumerable retailers to disaster through history.” The report, with its meticulous emphasis on traditional measures of business viability, seemed to tip the zeitgeist from dot-fantasy to dot-reality. Overnight, pundits and investors turned from Internet cheer-leaders into Internet skeptics. Suria’s analysis called into question not just bad business models but the very concept of business models. Even a great model, he showed, will fail if it doesn’t take into account the often harsh realities of competition and industry structure. Doing something cool, even earthshakingly cool, is not enough. Today, pure Internet companies and traditional businesses alike are spending a lot less time dreaming up business models and a lot more time focusing on the basics. Companies of all stripes are learning, again, that success depends not on the number of eyeballs “harvested” during a 30-second Super Bowl ad but on the only thing that has ever mattered: profitability. And profitability, as Michael Porter argues in “Strategy and the Internet” (HBR, March 2001), is shaped by a few very familiar and constant determinants. Over the long haul, he says, the companies that win are those that display the discipline and focus necessary to establish a distinctive competitive positioning and then stick with it, no matter which way the winds blow. Another traditional notion suddenly back in vogue is execution, the hard and often unglamorous work of translating a strategy from words on paper to action in the marketplace. In The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment (HBS Press, 2000), Robert Kaplan and David Norton raise their groundbreaking work on the balanced scorecard to the strategic level; the book describes a rigorous process for ensuring that strategy execution will mirror performance measurement and vice versa. None of this means that companies should become rigid: flexibility still matters. In “Strategy as Simple Rules” (HBR, January 2001), Kathleen Eisenhardt and Donald Sull note that while successful companies in turbulent markets do indeed need coherent strategies, they must also allow lower-level managers to make strategic decisions on the fly, without a lot of top-down direction. One way to do that is to develop “simple rules” to govern key processes—rules that embody strategy without calcifying it. Perhaps the greatest challenge facing today’s manager continues to be merging the discipline of institutional strategy with the freedom of individual initiative. Change Is Changing Buffeted over the past decade by rapid and disruptive changes in technology and markets, companies have repeatedly been told they must reinvent themselves or die. This thinking has been articulated most comprehensively in Gary Hamel’s Leading the Revolution (HBS Press, 2000) and related articles, including his “Waking Up IBM: How a Gang of Unlikely Rebels Transformed Big Blue” (HBR, July–August 2000). Although Hamel is careful not to disparage incremental change initiatives, he argues strenuously that tweaking existing processes and systems is not enough. Instead, he says, companies must embrace radical innovation. “Industry revolutionaries don’t tinker at the margins,” Hamel writes. “They blow up old business models and create new ones.” While this view has increasingly come to represent the vanguard of management thinking for many executives, few have the guts to act upon it. After all, who wants to undergo the pain and uncertainty of a wholesale transformation of one’s business? But the thinking about change is changing. A number of management experts have recently begun to assert that executives need the guts to say no to revolution. Radical change can impose more stress on an organization than it can bear and end up destroying what makes a company viable, if not wildly successful. By all means, they say, change continually, but do it incrementally, even in these turbulent times. This revisionist view was most forcefully put forth in the past year by Eric Abrahamson, of Columbia Business School, in his article “Change Without Pain” (HBR, July–August 2000). His appeal to appreciate our human resistance to change captured the imagination of change-weary executives everywhere. Abrahamson emphatically rejects the “change or perish” philosophy—which often translates into a “change and perish” reality when an organization gets ripped apart by change—and argues instead the merits of “dynamic stability.” This is a process of continual, but usually small, reconfigurations of existing practices and business models rather than the creation of new ones. When greater change is required, less ambitious initiatives should follow so that an organization has time to recover and reshape itself. This new strain of thinking about change clearly reflects the mind-set of many executives. In “The Business Case Against Revolution” (HBR, February 2001), an interview with Nestlé’s Peter Brabeck, the chief executive points to the robust, if unspectacular, performance of the Swiss company as evidence that businesses can succeed through evolution rather than revolution. Certainly, he says, all companies must change if they are to compete in today’s turbulent marketplace—but they mustn’t change everything, all the time. While big, dramatic change may be necessary if a company is on the ropes, it otherwise provokes paralyzing fear in employees and distracts managers from running the business. Nestlé will continue to benefit from stability and evolutionary change, Brabeck says. “Why should we manufacture dramatic change?” he asks. “Just for change’s sake? To follow some sort of fad without logical thinking behind it?” Others provide an implicit critique of the radical change imperative by digging more deeply into incrementalism. Michael Beer and Nitin Nohria, both of Harvard Business School, argue that the problem doesn’t lie with conventional change initiatives themselves but with the way in which companies typically seesaw from one practice to another. In “Cracking the Code of Change” (HBR, May–June 2000), the authors distinguish between economic change (for example, improving returns through downsizing and restructuring) and organizational change (for example, strengthening corporate culture by improving employee attitudes and capabilities). Seventy percent of change initiatives fail because companies use only one of these approaches or use both, but haphazardly. Successful change, Beer and Nohria say, requires companies to carefully balance both approaches, a far cry from tear-down-the-barricades revolution. Even Clayton Christensen, one of the heralds of the era of disruptive change, cautions executives to assess how much innovation their organizations can handle before rushing to launch major change initiatives. “In trying to transform an enterprise”—especially a big one, with well-established processes and culture—“managers can destroy the very capabilities that sustain it.” In “Meeting the Challenge of Disruptive Change” (HBR, March–April 2000), Christensen and coauthor Michael Overdorf, both of Harvard Business School, offer a method for managers to assess their organization’s capacity for change and some ways to neutralize its limitations. They freely acknowledge that their advice “runs counter to much that’s assumed in our can-do business culture.” The counterrevolution, it seems, has begun. Ego Makes the Leader Those powerful and mysterious creatures we call “leaders” have always fascinated the human imagination. What, we wonder, makes them move us? What internal forces move them? And what, if anything, does that mean for our own prospects as leaders? These questions have spawned a veritable deluge, in recent years, of leadership literature. There have been the predictable treatises on the leadership styles of popularly acclaimed business heroes, such as Richard Branson and Jack Welch. But these days, observers are looking for lessons on business leadership from none less than Shakespeare, Plato, and even Jesus Christ. There is, of course, no one right way to crack the code of leadership, no one right way to see inside a leader’s mind. But in the last year, a new and illuminating way of understanding leadership emerged—call it the lens of the ego. To fully grasp what makes successful leaders tick, the proponents of this new approach say, study their egos—or more specifically, the size of them. That, however, is where the agreement ends. The ego debate was launched with Michael Maccoby’s article, “Narcissistic Leaders: The Incredible Pros, the Inevitable Cons” (HBR, January–February 2000). Drawing on the theories of Sigmund Freud, Maccoby makes a compelling case that the most effective leaders in times of disruptive change are those with the personality type that Freud called narcissistic. Some people see things the way they are; narcissists see them the way they want them to be—because they ardently believe they can make them so. When the world needs shaping, they are ready with a mold. Not surprisingly, as evidenced by the media coverage and debate that followed Maccoby’s article, the theory of the oversize ego touched a raw nerve. The popular view of narcissism, after all, is decidedly negative: narcissists are dangerous; their egos run away with them; and, like Icarus, they inevitably crash to the sea and drown. But, the author argues, narcissists can actually be good for business—very good—with their oversize energy, vision, and charisma. Indeed, Maccoby, a psychoanalyst and anthropologist, describes ways in which narcissistic leaders he has counseled figured out how to avoid the traps of their grandiosity and egotism. They’ve used their narcissism to move their companies toward greatness. Enter management expert Jim Collins, also with a strong opinion about the role of ego but coming down about as far from Maccoby as intellectually conceivable. Basing his argument on six years of research, Collins contends in “Level 5 Leadership: The Triumph of Humility and Fierce Resolve” (HBR, January 2001) that the most effective leaders fully suppress their egos. His research found that the most successful leaders of the past 50 years—those responsible for wholesale transformations of their businesses—have been self-effacing, humble, and downright shy. Collins doesn’t claim that great leaders are Caspar Milquetoasts, of course. Level 5 leaders are as resolute as they are modest. They certainly don’t lack egos; they just don’t put them on display. While Maccoby’s productive narcissists see companies as extensions of their egos, Level 5 leaders subjugate theirs for the sake of those companies. So who’s right about leadership and ego? The jury is out and may always be. But perhaps both parties can live side by side. Consider what Robert Goffee and Gareth Jones argue in their article “Why Should Anyone Be Led by You?” (HBR, September–October 2000). The particular size and shape of a leader’s ego, they claim, is less important than his or her authenticity. Inspirational leaders succeed because they effectively communicate themselves—both their virtues and their flaws—to their followers. According to this worldview, a naturally self-effacing leader should not try to hide shyness, and a narcissist should not feign humility. To have a shot at becoming a powerful leader, you must merely do the near-impossible: show your true self, ego and all. Only Connect In recent years, countless executives have confessed that their most important job is not strategy making or the vision thing but people management. None other than Larry Bossidy, the tough-as-nails former CEO of AlliedSignal, writes in these pages (“The Job No CEO Should Delegate,” March 2001) that CEOs should devote more time—he himself devoted up to 40 % —to hiring and developing managers. Indeed, the sentiment “people are my most important job” has been asserted by such a pantheon of executives that it would probably make more sense to make a list of the few who disagree. It would be short. This year, however, a more nuanced, deeper, and, we would say, improved version of the “people first” mantra has emerged. Instead of managing individuals, the new thinking goes, manage the relationships between them. After all, no individual working alone can accomplish great things on any scale. Leaders, then, shouldn’t be focusing as much on how to manage individuals to be better performers as on fostering stronger connections among people. Not surprisingly, the notion that relationships are the key to organizational success (and even a society’s success) has a name: social capital. Sociologist Robert Putnam brought the phrase into wide circulation in a famous 1995 essay. In his book Bowling Alone: The Collapse and Revival of American Community (Simon & Schuster, 2000), Putnam defines social capital as the “connections among individuals—social networks and the norms of reciprocity and trustworthiness that arise from them.” He goes on, in 544 compelling pages, to make the case that the quality of social capital marks the difference between a vital economy and a stagnant one. Putnam’s voice was just a solo before the chorus began. Dorothy Leonard and Walter Swap, from Harvard Business School and Tufts University, respectively, set out to study how tacit knowledge gets transferred in Silicon Valley. They soon turned their attention to networks of relationships between “mentor capitalists”—cashed-out, highly successful entrepreneurs—and their protégés. These mentors put massive amounts of time into coaching newcomers—even though they rarely work for the same company. Leonard and Swap realized that mentors and protégés were woven into the larger fabric of the Silicon Valley culture, a set of relationships that has created extraordinary economic value in a very short time. Established players in the Valley put capital into the “social bank” by helping someone out today, knowing that somebody else will do the same for them in the future. (Leonard and Swap’s observations appear in “Gurus in the Garage,” HBR, November–December 2000.) Don Cohen and Laurence Prusak explore how social capital operates within organizations in their book In Good Company: How Social Capital Makes Organizations Work (HBS Press, 2001). Trust, personal networks, and a sense of community have always been crucial to organizational effectiveness, they say, but have also been taken for granted. No more. Today’s levels of virtuality and volatility erode a company’s social capital even as they place higher demands upon it. The authors point out that trust begets trust: almost every managerial decision—from hiring and promotion, to installing new technologies, to designing office space—is an opportunity for social capital investment or loss. Similarly, John Seely Brown and Paul Duguid, the chief scientist at Xerox PARC and a sociologist, respectively, call for more attention to social context in an ever more wired world. In The Social Life of Information (HBS Press, 2000), they decry information technology that aims to empower individuals while obliterating social organizations and that ignores the ways in which social context adds meaning to information. None of these writers would claim that it’s possible to “engineer” relationships, but it’s certainly possible to create contexts that nurture them. In “Introducing T-Shaped Managers: Knowledge Management’s Next Generation” (HBR, March 2001), Morten Hansen and Bolko von Oetinger of the Boston Consulting Group offer one strategy to do just that. They argue for promoting managers only if they’ve devoted substantial time—a good target is 10 % of work time—to helping colleagues outside their group solve problems. (Many companies talk about incentives for collaboration but actually reward self-serving stars.) In the same issue, Vanessa Urch Druskat of Case Western Reserve University and Steven Wolff of Marist College look at group performance through a different lens—that of emotional intelligence—but arrive at similar conclusions about the importance of relationships. “Building the Emotional Intelligence of Groups” (HBR, March 2001) urges managers to cultivate norms for “group emotional intelligence” as the foundation of trust and collaborative behavior. The new focus on social connectedness is even linked, paradoxically, with one of last year’s hyped ideas: that we’re a nation of free agents. That idea has certainly been oversold (organizations aren’t going to die off anytime soon), but it’s undeniable that today’s work world favors a certain kind of independent actor: the one with the best relationships. The Biology Century Dawns From the internal combustion engine to the atomic bomb to the microprocessor, advances in physics underpinned many of the product breakthroughs that shaped life—and business—in the twentieth century. But the dominance of physics as the source of business innovation may soon be broken. It’s looking more and more like the twenty-first will be the century of biology. The mapping of the human genome, largely complete, is the most obvious sign of biology’s ascendance. As Juan Enriquez and Ray Goldberg show in “Transforming Life, Transforming Business: The Life-Science Revolution” (HBR, March–April 2000), our new understanding of the code of life is transforming many industries, from agriculture and chemicals to health care and pharmaceuticals. And that’s just the beginning. Genetically modified organisms, the authors argue, will come to play central roles in mining, energy, defense, cosmetics, and many other industries. Since DNA is in essence only another form of software code, computer processing and the Internet will both influence and be influenced by scientists’ progress in genetics. But it would be wrong to think that genetics is the whole story. As companies realize the treasure trove hiding in the life sciences, a great deal of research and development money will flow into biology, creating all sorts of revolutionary products. One new field, dubbed biomimicry or biomimetics, is already producing commercial breakthroughs. At last year’s Olympic Games in Sydney, for example, many swimmers wore bodysuits made from a material with exceptionally low drag that researchers had developed by mimicking sharkskin. Similarly, scientists have been studying leaves to build more efficient solar cells, and they believe that understanding and adapting the way butterfly wings dissipate heat could lead to a novel cooling system to prevent computer chips from overheating. Some biologists even believe that DNA molecules could one day be used for storing and processing data—a single gram of DNA can theoretically store as much data as one trillion CDs! Beyond product innovation, biological research may help increase the efficiency of human organizations. In the new field of swarm intelligence, researchers have been studying social insects such as ants, bees, and termites to understand the principles and behaviors of self-organizing systems. Recent research in this field may have enormous implications for how companies can organize themselves and develop more effective business strategies. Biological experimentation has, of course, always stirred controversy, particularly when it’s pursued for profit. Just think of animal testing and genetically modified foods. The controversies are certain to multiply and intensify. Undoubtedly, cloning will be ground zero in this brave new world. The cloning of humans is already well within our grasp and, as Brian Alexander writes in “(You)2” (Wired, February 2001), may be under way at this moment in some secret laboratory. Get ready for the ultimate in luxury goods: a whole new version of you.

Breakthrough Ideas for Today’s Business Agenda

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