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HBR JanFeb 2017: Cumulative advantage

Harvard Business Review January/February 2017: Cumulative advantage

1. Adi Ignatius: A new look for a new era

Adi Ignatius, the editor in chief of HBR, draws attention to the changes introduced with this issue: increased number of articles, more luxurious presentation, frequency of 6 issues a year, greater volumes of content on the website, including digital articles and tools.

Idea Watch

2. HBR Team: The power of positive surveying

As we know, surveys are a common tool for gathering feed-back and engaging customers. As a rule, they are designed to uncover points of criticism in the hope that by addressing these weaknesses companies can improve their goods and services. The research presented here suggests that it is worth considering how we ask for feed-back. When we focus on aspects that may be problematic or negative, these experiences are foregrounded and perhaps unduly emphasized. In contrast, starting a survey by asking for a compliment sets a better mood for filling in the questionnaire and results in higher satisfaction scores overall.

3. Alison Beard: Your success is shaped by your genes

This research illustrates an emerging field of study called sociogenomics, which investigates the links between genes and socio-economic phenomena. It draws on a study of 918 people from a city in New Zealand, surveyed at regular intervals during their first four decades. Daniel Belsky of Duke University School of Medicine and his colleagues cross-referenced the findings from the successive surveys and found a certain consistency across time. Those who had good results in school at an early age maintained, on average, a positive course in all areas – work, wealth, family, friends, mobility. They also carried certain genetic variants that have been proven to influence educational attainment. The researchers calculated a polygenic score to indicate the number of genetic variants for each subject and used this to probe correlations with performance and success. However, greater data sets will be necessary to understand why certain people with low polygenic scores nonetheless have above average results, while some with high polygenic scores fail.

How I Did It

4. John Legere, CEO of T-Mobile, on winning market share by trash-talking rivals

By his own account, John Legere thrives on rivalry, both by virtue of his background, as a former competitive runner, and as a matter of business strategy, since in saturated markets winning new customers often takes place at the expense of other providers. After he became the CEO of T-Mobile, in September 2012, Legere used an approach of robust questioning to unravel unnecessary bureaucracy and re-infuse the business with a spirit of urgency. In his analysis, the wireless industry as a whole alienated customers by locking them in with long-term contracts, hiding the real costs of mobile phone handsets and poor service. After publicly challenging the industry to address these issues, at a press conference at the Consumer Electronics Show in Las Vegas in January 2013, he introduced radical changes in the T-mobile product strategy, eliminating long term contracts and charges for global roaming, making it easier to upgrade to a new smartphone, improving the wireless network. Calling out rivals on their unfulfilled promises is only part of his use of public relations, however. Legere is an active user of social media keeping a close watch on customer responses and encouraging prompt resolution of any service issues. Moreover, there is nothing like having an enemy to rally your troops.

Spotlight: Cumulative advantage

5. A. G. Lafley and Roger L. Martin: Customer loyalty is overrated

As much we crave novelty, and many companies try to supply us with ever newer, better products and services to cater to this craving, this article argues that we are to a large extent creatures of habit. There is, of course, room for niche products and markets, answering to shifting tastes and desires. On the whole, however, the market leaders in many consumer products owe their position to a process of habituation and gradual expansion that builds on some basic insights about how our minds work, i.e. saving energy, relying on shortcuts and processing fluency, rather than expanding energy on rational weighing of arguments and information. For this reason, once we have had a successful experience, we tend to want to repeat it again, thus reinforcing the initial preference. Having done the job of providing a good initial experience of matching the value proposition to customer needs, three related strategies can help turn products into market leaders. First, design for habit, for instance by making the elements of presentation that can be seen from a distance consistent, distinctive and visible, and by making them fit easily in the consumer’s environment. Second, innovation should take place inside the brand; changes in packaging or method of delivery should hark back to the core elements of brand identity, be it fonts, colours, shapes. Finally, communication should be simple. As consumers, many of our choices are made quickly and quasi-automatically, and we prefer is when we can do this smoothly.

Rita Gunther McGrath: Counterpoint, old habits die hard, but they do die

When is habit the dominant force and when are the fundamentals of a business about to change to such an extent as to render habits obsolete? Gunther McGrath discusses here the idea of inflection points to describe this crucial moment, showing that new business models can introduce radically more attractive products and services. One example of this tension between old and new, incumbents and challengers is the case of Gillette, a brand acquired by P&G in 2005, and which enjoyed 70% market share in 2010. A new competitor, the Dollar Shave Club, delivers high quality but inexpensive razors to subscribers by post, making continuity of supply trouble free. Taking advantage of the opportunity to reach potential clients over the internet, the Shave Club built a customer base of over 20 million in a matter of months and was purchased in 2016 by Unilever for about 1bn USD.

David Champion, interview with Jørgen Vig Knudstorp, CEO and President of the LEGO Brand Group

For Jørgen Vig Knudstorp, and LEGO, habit is the foundation for a deep connection between product and customers. Habituation, through repetition, can turn into a value commitment, an element of identity, which reinforces durable attachment. Habit starts by keeping the basics of the product simple and attractive, but it persists through incorporating novelty, ways of combining and recombining, using the LEGO pieces in many different ways and sharing these experiences with other fans. Even though 60% of the products put out every year by LEGO are new, they are designed to function within a play platform with the rest of the range, thus combining predictability, richness of possible combinations and novelty.

Scot Berinato, How habit beats novelty

Berinato reprises here neuroscience findings that show how our minds work: by looking for similarities between any new experience and what we know already. Thus, ‘the less energy required to recognise something, the better’, new neurological evidence that the ‘warm glow of familiarity’ exists. Experiments have shown for instance that we are able to recognise a full shape when we are given only a few elements of it, even if we had seen it only for a brief time years before.

David Champion, interview with Scott Cook, Intuit chairman and cofounder

Intuit provides accounting software for small businesses and Cook explains here how some of the features of the package were shaped to take account of already existing habits in the way people process their financial information and prepare their accounts. In the process, Intuit is also deploying technology to make many habits redundant, for instance by taking credit card and bank feeds and categorizing them automatically according to merchant codes. Equally, technology can be leveraged to create new habits, for instance around participation in online communities to take advantage of network effects and expand markets.

Features

6. Marshall Fisher, Vishal Gaur, and Herb Kleinberger, Curing the addiction to growth

Like any other life cycle, the retail one goes through predictable phases, from launch to growth to maturity and finally decline. In practice, thinking through the details of retail chain development and expansion to spot the moments of inflection, when the cycle changes course, and formulating the best strategy for those particular moments remains difficult. Here, Fisher, Gaur and Kleinberger suggest solutions based on analysis of data from 37 US retailers with recent sales of at least $1 billion whose top-line annual growth rate had slowed to single digits, i.e. retail chains approaching their maturity phase. Those who remain successful have focused on securing the gains from consolidating operations, while those still seeking to grow through expansion or acquisitions have seen their profits decline more. From this baseline of comparative success, Fisher, Gaur and Kleinberger derive a system of measurement to help retailers spot the right moment to switch strategies, from store openings to consolidation, and to boost their revenues from existing stores. This entails increasing sales through superior leveraging of real estate, the better deployment of analytics, new product development, more effective staffing and channel strategy as well as effective customer-facing policies.

7. Thomas Wedell-Wedellsborg, Are you solving the right problems?

What would problem diagnosis for the daily meeting look like? What could be a comparatively simple and easy to apply method to identify the problems that need to be solved? Wedell-Wedellsborg suggests that while managers tend to get into solution mode quickly, the far greater challenge is to identify which is the better problem to solve. Dysfunction is easy enough to see – a lift is too slow, there are 3 million dogs in shelters across the US waiting to be adopted – but often it can be made to disappear more quickly through an indirect approach. Say, put a mirror by the elevator doors to make the wait less boring or help current dog owners find more flexible solutions to avoid giving their dogs up to shelters to begin with. Reframing the problem requires legitimacy, since at first sight a redefinition may appear counterintuitive, even wacky. There are also six other practices for effective reframing that might be useful: bring outsiders into the discussion; get participants to state their definition of the problem in writing; ask what’s missing; consider multiple categories; analyse positive exceptions; and question the objective.

8. Paul J. Zak, The neuroscience of trust

According to Zak, there is a neurological signal for the generation of trust – feelings and behaviours – and that is the release of oxytocin in the brain. This finding has provided opportunities to design experiments in order to determine which management behaviours tend to increase oxytocin – and trust – in organizations. Zak presents here eight such behaviours. These include recognition of excellence; the assignment of difficult but achievable goals, to induce ‘challenge stress’; discretion over how work is carried out; support for job crafting; broad sharing of information; purposefully building relationships; the facilitation of whole-person growth; and openness about one’s own vulnerability. Further, by measuring the extent to which these behaviours are present in organizations, Zak and his team have proposed calculations of the level of trust and tested correlations with other important indicators, such as performance, reported levels of satisfaction among employees, and earnings. According to this research, in organizations that have high levels of trust, employees have reported 106% more energy at work, 50% higher productivity, 13% fewer sick days, 76% more engagement, 29% more satisfaction with their lives and 40% less burnout, suggesting the high value of return on behaviours that create and sustain trust.

9. Sim B. Sitkin, C. Chet Miller, and Kelly E. See, The stretch goal paradox

Stretch goals, combining extreme difficulty with extreme novelty, have been embraced by some of the leading Silicon Valley companies, such as Yahoo or Google, as the instrument of choice for providing motivation and defining strategy. But when have stretch goals actually been pursued effectively? In their review of experience with stretch goals, Sitkin, Miller and See find that organizations that could benefit from stretch goals rarely use them, while failing companies turn to stretch goals as a last ditch attempt to transcend difficulties and generate breakthroughs. They believe that the factors that would predict success, positive recent performance and the availability of slack resources, when present, in fact induce a degree of complacency. Based on this analysis, the authors go on to provide clear decision paths for assessing when to use stretch goals. Finally, the article proposes a few alternatives, including the pursuit of small wins, patient building up of slack resources and the pursuit of small losses for those cases when stretch goals would be unlikely to succeed.

10. Heidi K. Gardner, Getting your stars to collaborate

The tension between specialisation and synthesis in knowledge production is an old one. To generate cutting edge insight, researchers often need to specialise and retain discretion about the formulation of hypotheses and methodologies. This may result in a culture dominated by star performers who are protective of their independence. At the same time, solving complex problems often requires collaboration and the pulling together of findings and insights from a variety of fields of knowledge. In this case study of the Dana-Farber Cancer Institute, Gardner shows how smart institutional design and patient working through difficulties can provide an effective way to balance these competing priorities. Institutionally, an additional layer, in the form of integrative research centres has facilitated the sharing of knowledge and resources across fields while breakthroughs continue to be tied to the traditional funding model. At the same time, the process of change required several long-term interventions: providing evidence that collaboration works; administrative and managerial support for collaborative projects; definition of the specific skills necessary for good performance and acknowledgement of the strengths and areas of development for team members; and having leaders who model and support good behaviours.

11. Matthew Dixon, Lara Ponomareff, Scott Turner, and Rick DeLisi Kick-ass customer service

Dixon et al. present here the results of a global survey of customer representatives, defining seven types of reps, their effectiveness and their relative preponderance in the whole group. Intriguingly, the most effective reps, the controllers, represent only 15% of reps, lagging behind empathisers (32%) and hard workers (20%). The controllers are anything but timid, modelling a type of intervention which is pro-active and directive, proposing short-cuts and work-arounds that resolve problems quickly and aggressively. Thus, controllers tend to customise the interaction to individual customer personalities and contexts, quickly take on board the steps already completed by customers and skip ahead to the right next step, prescribe the fastest and easiest resolution path and anticipate and resolve additional potential problems. Intriguingly, controllers are not the favourite type of representatives from the point of view of managers, but Dixon et al. propose a series of changes in the hiring and training of representatives to encourage the development of a controller mind-set.

12. Marco Iansiti and Karim R. Lakhani, The truth about blockchain

Iansiti and Lakhani propose here a model for foundational technology adoption that might be taken as a guide for how blockchain will come to transform patterns of administrative control and record keeping. The model is derived from the experience with another distributed computer networking technology, TCP/IP (transmission control protocol/internet protocol) which enables the internet as we know it. Built on top of the internet, blockchain is thus expected to go through similar phases of adoption, from single use applications, such as bitcoin, to localised networks, to substitution for existing networks, to transformation. Admittedly, as with TCP/IP, first introduced in 1972, the process of blockchain adoption and development is expected to take decades. Nonetheless, the comparison with the TCP/IP process and the identification of the four stages of blockchain development might serve to anticipate developments and even guide investment.

13. Clayton M. Christensen, Efosa Ojomo, Derek van Bever Africa’s new generation of innovators

Widespread corruption, weak infrastructure, shortage of skills and a thin middle-class have been nearly insurmountable barriers for developing markets in Africa and turning the continent’s vast potential for growth and prosperity into reality. Nonetheless, while the efforts of the Western multinationals have been stymied by these obstacles and some have even withdrawn from Africa, other businesses, built from below, have thrived. Typically, such businesses have followed a ‘pull’ strategy; they have tapped into the unmet demand of the poor and compensated for the lack of infrastructure and skills by internalising these functions and integrating operations across the value chain to combat corruption. Examples include the Tolaram Group, the maker of Indomie instant noodles, in Nigeria, whose business model comprises its own electricity generation for noodle manufacture, water infrastructure as well as marketing strategies such as school canteens, Indomie fan clubs, stores and Independence Day awards. Several general lessons are drawn from such experiences: discover areas where consumers struggle to meet a need; spot the workarounds that people have come up with to cope with these shortages; learn from law bending and identify abundant or slack resources.

14. Andrew Winston, George Favaloro, Tim Healy Energy strategy for the C-suite

Perhaps surprisingly, Winston, Favaloro and Healy find that even large companies used to track their costs with some precision are rarely able to put precise, detailed numbers on their energy spending, whether direct or indirect, including supply chain, outsourcing and logistics. As the cases of leaders in this field, such as Microsoft, show, the savings available when consumption and costs are closely tracked can be substantial. Further, the authors provide a rule-book for developing an energy policy including 5 steps. First, secure a C-level mandate and setup a high level team. Second, integrate energy into the company’s vision and operations by analysing energy impacts, setting targets, integrating energy considerations with strategy and processes, and linking the procurement and management of energy. Third, track energy at all levels to get a complete and detailed picture of consumption and related vulnerabilities and risks. Forth, take steps to increase your sourcing of energy from renewables and other advanced technologies, which come with options for price hedging and save on the cost of compliance with stricter energy regulations down the line. Finally, engage all key stakeholders – customers, communities, investors and partners as well as employees – to ensure smooth and efficient execution and capture the added benefits from increased trust in the brand.

Experience

15. Richard S. Ruback, Royce Yudkoff, Buying your way into entrepreneurship
Rather than starting an enterprise from scratch, Ruback and Yudkoff point out that it is possible to embark on an entrepreneurial path by purchasing a sound, established business with the aim to scale it up and take it to a new level. In this article they define and explain this process along four major steps. To begin with, it is important to asses one’s own readiness and understanding of the task. Second, the search for a suitable match often takes between 6 months and two years and entails assessing a thousand prospects or more as well as creating a financing model. Third, negotiating a deal requires preliminary and confirmatory due diligence, where analytical clarity and thoroughness are as important as calm and patience. Finally, careful transitioning into leadership is also crucial for your future success and includes tasks such as meeting all managers, employees, and external stakeholders, communicating the transition plan, and taking control of the cash flow.

16. Paul Healy, Case study: How much should a new CEO shake things up?

This is a case study of a bank in Turkey whose new CEO, a former consultant, was appointed to push through a program of change that includes letting go of senior managers, ramping up mobile-banking operations and establishing partnerships with supermarkets and electronics stores. Is the pace she is setting too fast? Can the success of initial changes come quickly enough to convince opponents and create the momentum to continue the program?

17. Tim Sullivan, Blockbuster magic

What makes for the one in a million success story, a global hit, in movies, pop music, books, or TV? Three books reviewed here explore the many elements that go into a successful effort of this kind: from talent, content, distribution, zeitgeist, not to mention a little magic dust.

18. Daniel McGinn, Life’s work interview with Jerry Seinfeld

Jerry Seinfeld has built an extraordinarily successful career as a stand-up performer and sitcom star in just such a volatile and complex environment. ‘Proportion is key to everything’, he says; ‘you have to stop at a certain point or it loses the magic.’ And ‘you have to know how to encourage yourself to be confident and courageous when you’re creating new material and also how to be harshly critical and let go.’

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