June 2013

Honeywell’s CEO on How He Avoided Layoffs

Reprint: R1306A

When Cote arrived at Honeywell, in 2002, the company had gone through three CEOs in four years. It had repeatedly missed earnings, and it had environmental liabilities that had never been dealt with. Virtually no pipeline of new products existed, because managers had been disinvesting to boost profits. Over the next five years he worked to fix many of those problems, and by the end of 2007 the company’s credibility had been reestablished with investors and its share price had more than doubled. Then the recession hit.

Cote’s view was that any restructuring Honeywell did in response should be what was best for business efficiency and profitability over the long term—not solely a reaction to the recession—and should have no impact on the company’s ability to outperform in recovery. The leadership team settled on furloughs, and this is the story of how they worked.

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Tours of Duty: The New Employer-Employee Compact

Reprint: R1306B

For most of the 20th century, the relationship between employers and employees in the developed world was all about stability and lifetime loyalty. That has recently changed, giving way to a transactional, laissez-faire approach that serves neither party well.

A new arrangement is needed, the authors argue—one built on alliance (usually temporary) and reciprocity. The high-tech start-up community of Silicon Valley is pointing the way—and companies that wish to be similarly agile and entrepreneurial can learn valuable lessons from its example.

Under the new compact, both employer and employee seek to add value to each other. Employees invest in the company’s adaptability; the company invests in employees’ employability. Hoffman (a cofounder of LinkedIn), Casnocha (a technology entrepreneur), and Yeh (an entrepreneur and angel investor) outline three simple, straightforward ways in which companies can make the new compact tangible and workable. These are (1) hiring employees for explicit “tours of duty,” (2) encouraging, even subsidizing, employees’ efforts to build networks outside the organization, and (3) establishing active alumni networks that will enable career-long relationships with employees after they’ve moved on.

In the war for talent, such a compact can be a secret weapon that helps you fill your ranks with the creative, adaptive superstars who fuel entrepreneurial success.

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Transient Advantage

Reprint: R1306C

For decades, the business world has been fixated on achieving sustainable competitive advantage, a position within an industry that allows a company to best its rivals over the long term. Though we can all point to organizations that have succeeded with this approach—think GE and Unilever—in today’s world, the edge of most companies doesn’t last long. The forces at work here are familiar: the digital revolution, disappearing barriers to entry, globalization. In a turbulent environment, businesses can’t afford to spend months crafting a single long-term strategy. They need a portfolio of multiple transient advantages that can be built quickly and abandoned just as rapidly.

Transient advantages call for a whole new playbook, says Columbia Business School’s McGrath. It involves a view of strategy that is less industry-bound and more customer-centric. Executives who grasp this shift don’t rely solely on analysis to develop strategy; they use tools like advanced pattern recognition and observation to set broad strategic themes and then let people experiment within them. They also adopt decision metrics that support entrepreneurship, replacing the net present value rule, for instance, with the logic of real options. And, knowing that product features can be copied instantly, they focus on providing experiences and solutions to problems to customers, and turn relationships into competitive barriers.

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The New Dynamics of Competition

Reprint: R1306E

In 1979 Michael Porter’s five forces model transformed the field of strategy. But the 1996 article “Value-Based Business Strategy,” by Adam Brandenburger and Harborne Stuart Jr., may prove to be even more significant, as it applied mathematics to the evaluation of strategic decisions. Ryall, of the University of Toronto’s Rotman School of Management, now introduces a model of competitive strategy that is built on Brandenburger and Stuart’s mathematical work.

The value capture model (VCM) has an explanatory, predictive power that no other theory of competitive strategy can claim. It defines competition in an industry as a tension between the value generated from transactions that a firm undertakes with a given set of agents and the forgone value it could have generated from transactions with other agents. An important implication is that strategists must shift from looking at how a firm competes with other players to examining how players compete for a firm.

Work on the VCM is already revealing important insights to leaders who chart the strategic direction of their firms. A streamlined version with a reasonably full complement of input variables, bolstered by empirical research and further refinements, could illuminate the way to better business practices.

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What Is the Theory of Your Firm?

Reprint: R1306D

Asked to define “strategy,” most executives would probably come up with something like this: Strategy involves discovering and targeting attractive markets and then crafting positions that deliver sustained competitive advantage there. This view of strategy as position remains central in business school curricula around the globe.

Unfortunately, writes the author, investors don’t reward senior managers for simply occupying and defending market positions. Equity markets are full of companies with powerful positions and sluggish stock prices. Merely sustaining prior financial returns, even if they are outstanding, does not significantly increase a share price; tomorrow’s positive surprises must be worth more than yesterday’s.

Zenger argues that managers’ most vexing strategic challenge is not how to win or sustain competitive advantage but, rather, how to keep creating value. He offers what he calls the “corporate theory,” which reveals how a given company can do just that. Drawing on the history of Disney and Apple, he describes what makes a corporate theory strong, shows how it informs strategic choices, and warns what can happen when a company loses sight of its theory.

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It’s All About Day One

Reprint: R1306G

Leaders find transitions into new roles the most challenging times in their professional lives, when they either build credibility and create momentum or stumble and sow doubts about their effectiveness. Much attention has therefore been given to how they should take charge in their early days—but far too little to how the organization should set them up for success from the start. Failure to announce appointments in the right way can undo all the work that went into the selection and hobble even the strongest leader from the start.

When someone unexpected is chosen, the transition can set off an emotional storm. To avoid a bad start, the leader who made the selection, his or her HR partner, and the communications, investor relations, and legal professionals who advise them must provide good answers to four fundamental questions: (1) What message is this appointment meant to convey? (2) Why is this person the right one for the job? (3) Which members of the organization need to be informed? (4) What should they be told and when?

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Dysfunction in the Boardroom

Reprint: R1306F

Though boards claim they strive for diversity, the number of female directors remains low; women held only 16.6% of Fortune 500 board seats in 2012. To find out why—and learn about the women appointed to boards and their experiences—Harvard Business School’s Groysberg and organizational researcher Bell teamed up with Heidrick & Struggles and WomenCorporateDirectors to conduct annual surveys of board members. In this article they reveal the findings of their 2010 survey of 294 women and 104 men, presenting a profile of the typical female director, what directors thought about the benefits of diversity and the dynamics between men and women on boards, and best practices for recruiting and managing directors.

Three themes emerged from the data: (1) Women had to be more qualified than men to be considered for boards. Contrary to popular belief, female directors had more operational and leadership experience than male directors. (2) Boards don’t know how to leverage diversity. The women said they were not treated as full members of the group, though the men were largely oblivious to this problem. (3) Great talent is not enough to create a great board. Boards need processes and cultures that encourage inclusiveness as well as diversity.

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Creativity in Advertising: When It Works and When It Doesn’t

Reprint: R1306H

Do highly creative ads really inspire people to buy products? Studies have found that creative messages get more attention and lead to positive attitudes about the products, but there’s little evidence linking those messages to purchase behavior. To address this gap, Reinartz and Saffert developed a consumer survey approach that measures perceived creativity along five dimensions—originality, flexibility, elaboration, synthesis, and artistic value—and applied the approach in a study of 437 TV ad campaigns for 90 fast-moving consumer goods brands in Germany. The study then linked the assessments to sales figures for the products.

The findings confirm that creative campaigns are, in general, more effective than other types of ads. The research also shows that the various creativity dimensions deliver different results. Elaboration, for instance, had a far more powerful effect on sales than did originality, a more commonly used dimension. Indeed, many companies focus on the wrong dimensions in their campaigns. This article reveals which product categories are best suited to creative advertising and which dimensions of creativity have the most influence on sales.

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L’Oréal Masters Multiculturalism

Reprint: R1306J

As the cosmetics company L’Oréal has transformed itself from a very French business into a global leader, it has grappled with the tension that’s at the heart of every global enterprise: Achieving economies of scale and scope requires some uniformity and integration of activities across markets. However, serving regional and national markets requires the adaptation of products, services, and business models to local conditions.

Since the late 1990s, the L’Oréal Paris brand—which accounts for half the sales of the consumer products division—has dealt with that tension by nurturing a pool of managers with mixed cultural backgrounds, placing them at the center of knowledge-based interactions in the company’s most critical activity: new-product development.

L’Oréal Paris builds product development teams around these managers, who, by virtue of their upbringing and experiences, have gained familiarity with the norms and behaviors of multiple cultures and can switch easily among them. They are uniquely qualified to play several crucial roles: spotting new-product opportunities, facilitating communication across cultural boundaries, assimilating newcomers, and serving as a cultural buffer between executives and their direct reports and between subsidiaries and headquarters.

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How to Give a Killer Presentation

Reprint: R1306K

For more than 30 years, the TED conference series has presented enlightening talks that people enjoy watching. In this article, Anderson, TED’s curator, shares five keys to great presentations:

• Frame your story (figure out where to start and where to end).

• Plan your delivery (decide whether to memorize your speech word for word or develop bullet points and then rehearse it—over and over).

• Work on stage presence (but remember that your story matters more than how you stand or whether you’re visibly nervous).

• Plan the multimedia (whatever you do, don’t read from PowerPoint slides).

• Put it together (play to your strengths and be authentic).

According to Anderson, presentations rise or fall on the quality of the idea, the narrative, and the passion of the speaker. It’s about substance—not style. In fact, it’s fairly easy to “coach out” the problems in a talk, but there’s no way to “coach in” the basic story—the presenter has to have the raw material. So if your thinking is not there yet, he advises, decline that invitation to speak. Instead, keep working until you have an idea that’s worth sharing.

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