Harvard Business Review

July/August 2016

Annotated table of contents

1. Adi Ignatius, Fixing a broken system

Adi Ignatius, the editor in chief of HBR, introduces two articles on ‘fixing health care’ in this issue. Practical and important, it is hoped ‘these articles will deepen the discussion and accelerate the search for a better solution’.

Idea Watch

2. HBR Team, How to make the most of omnichannel retailing

Are promotional coupons equally effective irrespective of preferred shopping channels, in-store or on line? Research shows that in-store shoppers are the source of higher profits due to greater likelihood of impulse purchases and comparative difficulty to compare prices with other retailers. Inviting them to shop online by giving them coupons destroys this advantage. Especially when the shop is located within reasonable distance to home, reinforcing the preference of in-shop purchases is more effective for retailers. Conversely, it makes sense of try to motivate online shoppers to visit brick and mortar outlets, by using vouchers or providing parking facilities.

3. Alison Beard, CEOs shouldn’t try to embody their organization’s culture

Angelo Kinicki of Arizona State University reports on his research with Chad Hartnell, of Georgia State University. They surveyed top managers at 114 small and medium companies in the US tech sector to uncover how CEOs and their organizations balanced two elements of culture: task orientation and relationships. Perhaps surprisingly, companies where CEOs were able to offer a contrast to the prevailing company culture had 1% to 4% higher financial results. Managers at lower levels tend to copy CEO behaviour creating too much uniformity. The CEO’s ability to change tack to compensate for any bias is more productive for the organization as both of these aspects of culture and leadership are important.

How I Did It

4. Martin Sorrell, CEO of WPP on turning a portfolio of companies into a growth machine

Martin Sorrell describes here the arc of his career, from building credibility to go on his own to testing his entrepreneurial mettle, surviving a financial crisis in the 1990s, and consolidating the business model behind WPP, the largest advertising and marketing services company, with 190,000 employees in 112 countries. WPP has grown through acquisitions and has largely respected the autonomy of its units. However, its growth and resilience have depended on centralising certain corporate functions such as talent management, finance, IT, real estate and legal. It also created client-centred clusters to service its 45 largest clients, drawing on talent from across the company. WPP spends 60% of its revenue on its people and Sorrell is especially proud of the company’s talent development programs, including X Factor, a program for women, and the Leadership Equity Acquisition Plan, which gives top executives opportunities to invest in WPP shares.

Big Idea

5. Ethan Bernstein, John Bunch, Niko Canner and Michael Lee, Beyond the holacracy hype

Each company balances in its own way reliability and adaptability, with solutions ranging from deeply controlled and hierarchical, which emphasize reliability, to more modular, horizontal systems that favour adaptability. Both conditions are necessary to create stability and to allow organizations to evolve. Organizations that have adopted holacracy, such as Morning Start, Valve, W.L. Gore or Zappos have taken the challenge of designing organizational structures a step further. They have designed innovative ways to maintain maximum amount of individual choice and discretion while creating stability through process-based authority, transparency and accountability. This article is a clear presentation of current experience. It bursts the myths that self-managing organizations, or holacracies, have no organizational structure; that hierarchy is completely absent; and everything is decided by consensus. It also gives a concrete sense of how such organizations operate and solve common problems by drawing especially on the case of Zappos. While examples of wholesale adoption of self-organizing principles at the level of the company are rare, elements of the model are more easily adopted and can be productively used to enhance adaptability.

Spotlight: Building a diverse organization

6. Frank Dobbin and Alexandra Kalev, Why diversity programs fail

Dobbin and Kalev draw on research on diversity programs implemented at over 800 US companies to show that direct control tactics, including diversity training, hiring tests, performance ratings and grievance procedures have typically failed to promote greater inclusion of women or ethnic minorities in the upper ranks of management. The explanation is that attacking bias directly tends to reinforce it, as managers comply outwardly but game the new procedures or programs to pursue their own (discriminatory) preferences even more aggressively. The authors show that programs that have activated different mechanisms, or principles, such as engaging managers in resolving problems, exposure to people from different backgrounds and social accountability have had much better results. Further, they discuss a large variety of practical tools that respect these principles and are proven to get results: college recruitment programs, mentoring, self-managed teams, cross training, diversity task forces and diversity managers.

7. Iris Bohnet interviewed by Gardiner Morse, Designing a bias-free organization

Iris Bohnet is the author or What Works, director of Women and Public Policy Program at the Harvard Kennedy School and co-chair of its Behavioural Insights Group. She is interested to help companies that want to overcome bias against women and minorities. She argues that it may well be impossible to root out biases, but it is possible to design organizations that help us to behave well and enact our higher values. Examples include, famously, the use of curtains to audition candidates for orchestras, a method that led to women representing around 40% of orchestra players today; the use of applications such as Applied, GapJumpers or Unitive to strip certain demographic data from resumes when hiring; conscious attention to loaded words (being supportive or competitive, say) in the writing of job adverts which could cue a preference for female or male candidates etc. To get started, companies should take stock of their current practices by gathering data and then acting, through tested interventions, including control groups, to try to change the diversity indicators towards greater inclusivity. Allies include fathers of daughters, and it remains important to help white man weather the painful consequences of increased competition, says Bohnet.

8. Lisa Burrell, We just can’t handle diversity

Lisa Burrell, a senior editor at HBR, provides here a round-up of research on diversity which echoes the main themes in the previous two articles. While the benefits of diversity are generally well recognised, the obstacles to increasing diversity in the work place remain well-nigh daunting. To begin with, even though it is easy to agree that merit is an important criterion for gaining recognition and rewards, it is notoriously difficult to assess objectively; most successful people attribute to merit successes that may simply be due to good chance. In ambiguous situations, those in a position to pass judgement tend to be positive towards people like themselves, and negative towards the others, as illustrated by Laura Rivera in her book Pedigree. Defensiveness around our own position, the tendency to consider that what we have constitutes legitimate ownership, make it difficult for leaders to perceive inequity and open up to the need to include others on the basis that they are systemically disadvantaged or less fortunate. Such obstacles are rooted in our cognitive and emotional biases and unlikely to respond to direct challenges. However, with self-conscious effort, we might be able to outsmart our biases at the level of the organization by designing an environment in which people are more likely to take the more generous, and collectively productive choice.

Features

9. H. David Sherman and S. David Young, Where financial reporting still falls short

Sherman and Young take stock here of corporate accounting practices following recent reforms and the codification of standards in the Generally Accepted Accounting Practices (GAAP) in the US and the International Financial Reporting Standards (IFRS). They discuss five areas where accounting practices remain vulnerable to manipulation. Companies vary in how they adopt such standards and consistent comparison of results to enable investment decisions is not always possible. Norms for recording future revenue also differ across countries and industries. Some companies, especially in the tech sector have introduced unofficial earnings measures, such as EBITDA (earnings before interest, taxes, depreciation, and amortization), “eyeballs” or “page views”. Practices for writing off bad investments could use different interpretations for fair, market value. Finally, managers are aware how their decisions – when to spend, how much – are reflected in accounting and reporting periods and have been known to schedule their decisions for the sake of showing a better result. New analytical tools can check for consistency in the distribution of figures used or for evasive patterns in verbal cues to spot potential misconduct. Certainly, armed with an understanding of where financial reporting can fall short investors have a greater chance of making correct evaluations and decisions.

10. Michael E. Porter and Robert S. Kaplan, How to pay for healthcare

There is virtually universal recognition in the US that the current fee for service payment system in health care drives up costs unnecessarily, does not deliver optimal results for patients and is unsustainable in the long run. Porter and Kaplan provide a strong argument for a system of bundled payments which would cover health care provision for a particular incident or condition. They provide five conditions that a bundled payment would have to satisfy to be effective and explain how this will transform patient wellbeing by encouraging integrated, multidisciplinary care, accountability for outcomes and cost reduction. Further, they address in depth eight practical obstacles to implementation and give examples of successful practice. In sum, they argue that bundled payments can transform competition by prioritizing value for patients and patient choice, reshaping the strategies of healthcare providers and altering industry structure.

11. Brent C. James and Gregory P. Poulsen, The case for capitation

James and Poulsen are practitioners working at Intermountain Healthcare, a healthcare provider in Utah, as well as scholars. Their analysis starts by identifying three sources of waste in the healthcare system at the level of production (5%), suboptimal deployment of resources for individual care (50%) and population level waste when treatment is offered to people who do not need it (45%). The alternative method for healthcare payments they propose is capitation, a risk-adjusted monthly payment covering all necessary health services for each person. They claim that this is the superior solution because it provides incentives for cutting waste across all three categories as it allows providers to capture some of the value released through savings. Like Porter and Kaplan they consider in some detail implementation issues and current practice to support their argument that capitation is both feasible and effective.

Experience

12. Leslie K. John, How to negotiate with a liar

Lies are common and our ability to spot them not much better than flipping a coin. John draws on extensive research to illustrate five tactics that could increase our chances of either preventing lies or spotting them when they do occur. Encourage others to tell the truth by making disclosures yourself, preferably of the kind you seek. Ask direct questions that incorporate pessimistic, rather than optimistic assumptions; if correct, your assumption is more likely to be confirmed. Make sure that you are getting the answer to your question by watching out for dodging; bring a list of questions to the table and take stock of whether they have been answered. Treat confidentiality as a given, drawing attention to it specifically breeds mistrust. Cultivate leaks and listen for moments when people let information slip.

13. Mitchell Weiss, Case study: Should you adjust your business model for a major customer?

A company has just changed from a model of selling street lights to cities to one of subscriptions, where they sell the whole service package around street lights to ensure they consume less energy. The dilemma arises when an old customer expresses the intention to place a large order to buy street lights. Make the sale and compromise the new business model and potentially the brand? Experts and members of the HBR community advise.

14. Jeff Kehoe, Can capitalism be redeemed?

Kehoe, a senior editor at HBR, reviews three books about inequality in the US and globally by three economists, Robert B. Reich, Andy Stern and Branko Milanovic respectively. There is agreement about the size of the problem and the debate is increasingly about how to tackle the sources of inequality and redefine the rules of the capitalist system itself.

15. Alison Beard, Life’s Work interview with Greg Louganis

An Olympic gold medallist diver in 1984 and 1988, Greg Louganis is now 56, HIV positive, openly gay, and happily married. His achievements span sport and activism for LGBT and human rights. Here he speaks about learning to visualise as a performer, when only 3 years old, the ups and downs of his health and career, writing his book Breaking the Surface and taking a holistic approach to mentoring younger athletes.