Harvard Business Review
October 2016
Annotated table of contents
1. Adi Ignatius, Kahneman on “Noise”
Adi Ignatius, the editor in chief of HBR, highlights the article by Nobel Laureate Daniel Kahneman and his collaborators at TGC Group, focusing on noise, bias and their impact on the business bottom line.
Idea Watch
2. HBR Team: The case against long-term incentive plans
In theory, long-term incentive plans help motivate executives to remain loyal to their companies and align their interests with those of their shareholders. However, research shows that in practice there are at least four reasons why long-term incentives have a lot less impact on motivation and performance than expected. First, like most people, executives value guaranteed payments over more uncertain ‘expected value’ rewards. They also discount heavily for time, preferring a pay-out now to a promised higher pay-out in the future. Third, the value of pay is rarely considered in absolute terms; rather, pay is valued through comparison with that of others in the peer group. Finally, pay packages are less effective when they appear to undervalue intrinsic motivation: other incentives, such as achievement, status, power and teamwork are also important and ought to be recognised.
3. Nicole Torres: You are likely to live longer if you retire after 65
Chenkai Wu, a PhD student in public health at Oregon State University reports on research with professors Robert Stawski and Michelle Odden (also at OSU) and Gwenith Fisher (Colorado State University). They analysed a sample of nearly 3,000 people from the Health and Retirement Study, a longitudinal survey of Americans age 50 and over. Statistical analysis revealed an interesting correlation between retirement age and mortality rates: those who retired after 65 had a lower mortality rate by 11%. The interview discusses the possible explanations behind this correlation and the need to investigate further the links between remaining actively engaged with the world of work and living longer.
How I Did It
4. Cheryl Bachelder, the CEO of Popeyes, on treating franchisees as the most important customers
Bachelder joined the board of Popeyes, a fast-food chain established in 1972 in Baton Rouge, Louisiana, in 2006 and became its CEO in November 2007. Most of the 2,569 Popeyes restaurants are owned by 360 franchisees and Bachelder describes here the complicated and sometimes fraught give-and-take between them and the company. While the company offers a tested business model, upholds core standards and controls product innovation, the financial risks involved in making restaurants successful are largely devolved to the franchisees. After consultation with the franchisees, to gain their loyalty, Bachelder introduced a change in ethos, committing to serve their needs more attentively, through a number of measures, including a national advertising campaign that raised the profile of the chain across the country; a cadence of new product launches; and improved data to help choose profitable locations for restaurants. This new approach led to eight years of success, ‘an unusual streak of steady growth in our industry’.
Big Idea
Errors in judgement have at least two types of causes. The better known of the two, bias, is systematic and can be social (stereotypes of different groups of people) or cognitive (overconfidence, unfounded optimism). The second is noise, defined here as ‘the chance variability of judgement’, the influence of mood and other immediate circumstances, including weather and comparison with the last case encountered. This article provides guidance for carrying out a ‘noise audit’ in order to make the problem of noise visible in the business world and to give managers the opportunity to own the problem (and the solution). In most professions a certain amount of variability in judgement is accepted as a matter of course. However, the noise audits described here identified surprisingly high noise indexes, i.e. the amount of variability between the judgements on the same case of two randomly chosen employees, of between 46 and 70%. The solution offered here is to construct algorithms based on ‘reasoned rules’, rather than data on outcomes, to support more reliable decision-making.
Spotlight on building a workforce for the future
Study after study has shown that more often than not employees’ behaviours return to type after the completion of training courses. The learning does not usually stick, unless supervisors adopt pro-management attitudes. Thus, training is not sufficient as a change strategy on its own. Instead, this article explains why reviewing organizational design needs to be the crucial first step for strategic organizational change. Once roles are reviewed and redefined, it becomes much clearer how employees can be best supported, through which forms of training and coaching. The article identifies six ‘silent killers’ that neutralize attempts to implement strategic change, including unclear direction and dysfunction and disagreement among senior leaders, and propose six steps to tackle them. It then considers how the new behaviours and cultural norms need to cascade down to all units and departments, to various degrees, as appropriate.
7. Peter Cappelli and Anna Tavis, The performance management revolution
Cappelli and Tavis start by sketching the history of annual performance reviews. Periods of focus on accountability have alternated with periods of focus on the development of employees, depending on labour market pressures and the relative balance of power between employers and employees. We are now seeing the return of scepticism about the usefulness of annual performance reviews. One of the most time consuming and least liked managerial activities, annual reviews are currently redesigned in a large number of companies. The article discusses this state of play, the (good) business reasons to drop appraisals, while recognising that some organizational challenges persist. Legitimate procedures to link pay and performance, to ensure alignment between individual and company goals, to avoid legal problems, and to provide a structured and predictable context for giving feed-back will likely remain necessary, whether they take the form of annual reviews or not.
8. John Donovan and Cathy Benko, AT&T’s talent overhaul
AT&T may fairly be described as one of the core companies in the US telecommunications infrastructure and remains one of the largest in the country, with nearly 300,000 employees. However, technological changes are now threatening to render the legacy assets of AT&T obsolete and with them the skills and competencies of its workers. This article from the AT&T chief strategy officer and group president responsible for technology and operations (Donovan) and his Deloitte LLP collaborator explains the response of the company and the measures put in place to upgrade technology and the skills of (nearly all of) the workforce at the same time. The tools for change include internal platforms for assessing roles, skills and performance, and for devising transition plans for individual employees; and financial support to obtain tuition for individual courses, nanodegrees and online master’s degrees at local universities. The overhaul also includes a shift from ‘corporate-ladder to corporate-lattice thinking’ in which employees are expected to take responsibility for the continual upgrading of their skills and for finding opportunities to contribute in a variety of roles in the company.
In this wide-ranging interview, Joerres considers the multiple pressures on companies as they seek to articulate a resilient workforce strategy. The low hanging fruits of globalisation, the availability of geo-located pools of skills that offer high quality work at low prices are largely either exhausted or quickly becoming so. The faster pace of technological change puts unprecedented strain on institutions to provide transitional paths for workers replaced by robots and software. The nature of the work itself is changing; while the durable and broad skills, such as ‘problem solving and ability to work on fluid teams’ are likely to remain important, it is difficult to predict at this stage what the more specific skills will need to be. Companies are advised to ‘put in place multiple work models’, including distant manufacturing and crowdsourcing, as labour markets are increasingly fluctuating in the way product life-cycles do. Managers will need to learn to let go of control and live with the permanent pressure of having to manage by modelling appropriate behaviours at all times.
Features
10. Mark R. Kramer and Marc W. Pfitzer, The ecosystem of shared value
Kramer and Pfitzer pick up here the story of shared value, a concept introduced by Kramer and Michael Porter in their Kramer and Michael Porter in their HBR article from 2011. This time the focus is squarely on the way companies can become aware of larger social problems that impinge on their ability to invest, produce, or bring their offerings to the market. In all likelihood, the same problems would affect a variety of other organizations, whether businesses, non-government organizations or public authorities. The article argues that taking account of this eco-system is crucial in devising solutions and provides six guideline suggestions on how to reshape the eco-system to resolve the underlying social problems and ensure collective impact to everyone’s benefit. These involve establishing a common agenda and a shared measurement system, defining mutually enforcing activities, ensuring constant communication and providing dedicated “backbone” support. Three detailed examples, penetrating Tanzania’s agricultural markets, organizing recycling at municipal level in the US, and increasing production of cocoa in Côte D’Ivoire and Ghana, illustrate how difficulties could be overcome to establish successful ecosystems of shared value.
11. Stelios Kavadias, Kostas Ladas, and Christoph Loch, The transformative business model
Kavadias, Ladas and Loch, three professors at University of Cambridge’s Judge Business School, report here the results of their research on the success of 40 companies proposing a transformative business model. A detailed appraisal of the proposed business models allows them to identify six major elements that characterise this population of ambitious, potentially industry-changing firms. These are: a more personalized product or service; a closed-loop process where resources are recycled; asset sharing; usage-based pricing; a more collaborative eco-system and an agile and adaptive organization. None of the 40 companies investigated have integrated all of these elements, but the more successful ones have at least three. The authors then show how awareness of these criteria might guide the development of an ambitious start-up by discussing the example of Healx, which aims to link underserved sufferers of very rare medical conditions to available, more generic medicines and treatments.
12. Carlos Ghosn, interviewed by Adi Ignatius, Making the car a mobile, connected workspace
Carlos Ghosn, the CEO of the Renault-Nissan alliance, spends a week every month each at the headquarters of Renault in France and Nissan in Japan, using the remainder of his time to explore trends, meet clients and providers, and to shape the overall strategy of the alliance. He is a powerful and well-informed source of insight on trends in the car industry and offers here invaluable observations on market positioning, the competition with technology companies and the likely path towards increased automation in cars. Handling problems (always be transparent), nurturing talent (“you cannot afford people who are just ok, you need high performers”), adapting to management styles in his different countries of operation (focus on safeguarding the integrity of the company in Japan, while in the US it’s all transactional, “you deliver, you get paid; if you’re looking for recognition, buy yourself a dog”), all seem to come easy to Ghosn. But his ultimate ambition is to make sure that the Renault-Nissan alliance remains solid and can go on without him.
Experience
13. Dacher Keltner, Don’t let power corrupt you
Kelter, a professor of psychology at the University of California, studies the ‘paradox of power’, the fact that once we acquire power we tend to leave behind the positive, more caring behaviours that helped us gain it in the first place. To help resist the momentary pull and excitement of using power rudely and arbitrarily, Kelter recommends a two-step process, richly illustrated with real-life examples. The first stept, self-awareness and self-reflection, involves noticing the dangerous heady moments when we enjoy power a little too much and letting them pass. The second entails active practice of gracious behaviours including the expression of empathy, gratitude and generosity.
14. Jill Avery, Case Study: How do you compete with a Goliath?
Brand positioning is both crucial and extremely hard to do well. This case study looks in detail at the efforts of a poncho-making company from Peru wishing to compete in the global market against a larger, established competitor who already uses similar marketing messages.
15. Kevin Evers, Resisting the hard sell
Evers, an assistant editor at HBR, reviews here three books on persuasion. Knowing and deploying well particular techniques to persuade might get you what you want; it could also help you see through the act when you are at the receiving end of a hard sell. The selection of books includes the latest from Robert Cialdini, Stanley Fish and Johan Berger.
16. Alison Beard, Life’s work interview with Penn Jillette
Penn Jillette, one half of the Penn & Teller comic duo established in the 1980s, shares insights about the craft and passion behind long-term success in comedy and entertainment. Get the low down on his strategies for keeping relationships real, building the performance acts around what truly resonates personally, engaging the audience’s attention, losing weight and more.
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