In her new book, "Understanding Michael Porter: The Essential Guide to Competition and Strategy", Joan Magretta, Senior Associate at the Institute for Strategy and Competitiveness at Harvard Business School, distills Porter's core concepts and frameworks into a concise guide for us who run businesses.
In an interview with Professor Porter, Ms. Magretta asked him what he sees as the common strategic mistakes that companies make. Here is a summary of his response:
Trying to compete to be the best by going down the same path as everybody else and thinking that somehow you can achieve better results. This is caused by confusing operational effectiveness with strategy.
Confusing marketing with strategy by building strategy around the demand side of the equation and focusing on the value proposition. A robust strategy requires a tailored value chain or supply side element as well. Strategy links choices on the demand side with the unique choices about the value chain or supply side. You can't have competitive advantage without both.
Overestimating your strengths. This creates an inward-looking bias. For example, you might perceive customer service as a strong area. So that becomes the "strength" on which you attempt to build a strategy. But today, everyone has good customer service or they parish. The same can be said for quality. So a real strength for strategy purposes has to be something you can do better than your rivals. And ‘better’ because you are performing different activities than they perform because you've chosen a different model than they have.
Getting the definition of the business wrong, or getting the geographic scope wrong.
The worst mistake—and the most common one—is not having a strategy at all. Most executives think they have a strategy when they really don’t, at least not a strategy that meets any kind of rigorous, economically grounded definition.
In motivating your workforce, social comparisons can be more important than financial incentives. Research by Assistant Professor Ian Larkin of the Harvard Business School, suggests that the most
powerful workplace motivator is not financial reward. Key findings of his work include:
The most powerful workplace motivator is our natural tendency to measure our own performance against the performance of others.
In the age of social networking, employees are more likely than ever
to share salary information with each other. Employers need to keep
this fact in mind when designing compensation plans.
"Traditionally, [the field of] economics has held a very rational view
of people, and there's a gigantic amount of literature focusing on
financial incentives and the idea that simply having financial
incentives causes people to work harder," Professor Larkin says. "But my research
suggests that in deciding how hard we work and how well we think we're
performing, social comparisons matter just as much."
Salaries are getting less and less secret because of social networking. So when it comes to compensation, employers should assume there are no secrets. Larkin points out that "people get upset quickly when they realize that there are
large variances in how much other people are paid. Companies need to
realize that with the overflow of information these days, paying peers
differently is going to affect not only how those people feel but how
their colleagues feel as well."
Larkin goes on to argue that paying each employee solely according to his or
her performance is actually an inefficient strategy; and it can lead to
resentment or even sabotage on the part of employees who believe they
are underpaid compared with their colleagues. Thus, a standardized
salary scale, combined with non financial incentive programs, may be the
best way to motivate employees. "When deciding how much effort to
exude, workers not only respond to their own compensation, but also
respond to pay relative to their peers as they socially compare."
Click here for the complete article as published in "Working Knowledge"
You have probably read or at least heard of the business classic "Who Moved My Cheese?" by Spencer Johnson. By way of review, Johnson's characters include mice in a maze, and teaches lessons about accepting and anticipating change gracefully.
Now, Deepak Malhotra, a professor in the Negotiation, Organizations and Markets unit at The Harvard Business School asks, "Is that really the best message to send to your employees?"
In his book, "I Moved Your Cheese" he argues that success in the areas of innovation, entrepreneurship, creativity, leadership, and business growth—as well as personal growth—depend on the ability to push the boundaries, reshape the environment, and play by a different set of rules.
He believes that "in some ways, the message of WMMC may indeed be dangerous, or at least debilitating, because it promotes the idea that change is inevitably beyond our control, that we shouldn't waste our time wondering why things are the way they are, and that we should just put our heads down and keep running around the maze chasing after cheese."
He goes on to say that "what is often holding us back from achieving greater success is not real limitations, but that we have internalized environmental pressures, social norms, and the expectations of other people. The world tells us how things have to be, and we don't push back enough."
Click here to learn more from the full article that appeared in the September 2011 addition of "Working Knowledge" published by the Harvard Business School.
It is difficult to be optimistic in a crisis, to look for opportunities and shed that feeling of doom and gloom. The main lesson in a book written at the beginning of our current economic crisis by Harvard Business School professor Bill George, 7 Lessons for Leading in Crisis, is exactly that: See crisis as a chance to develop and enhance your leadership skills.
Bill George is a Professor of Management Practice at HBS and the former chairman and CEO of Medtronic. He states: "Crises offer rare opportunities to make major changes in an organization because they lessen the resistance that exists in good times."
Another important conclusion is that "Leaders must be willing to ask for help. They should rely on a mentor, an internal management team, and an external support group” (like TEC). “No one can be an effective leader in a crisis by attempting to go it alone. Leaders must be the first to recognize this reality and plan accordingly."
The seven leadership lessons include: 1. Face reality, starting with yourself, and rethink your company strategy. 2. Don't be Atlas; get the world off your shoulders and shed your weaknesses. 3. Dig deep for the root cause and reshape your company to play to your strengths. 4. Get ready for the long haul and make vital investments in the future. 5. Keep your people focused on winning. 6. You're in the spotlight: follow your True North and create your company’s image as an industry leader. 7. Go on offense: focus on winning now and develop rigorous execution plans. Click here for the complete article
The United States Debt Crisis continues to receive much attention in the press and on both cable and conventional news stations as well it should. In my opinion, we cannot truly escape from what is now commonly called the "Great Recession" until a real solution to the debt crisis is found. Yet Washington politics has made reaching a solution all the more difficult. Creating private sector jobs, real long term jobs, is the way out. Jobs are created as a natural part of wealth creation. That's how the US became the wealthiest country in the world. But job creation has become easier said than done.
When Standard & Poor's Rating Services lowered its long-term sovereign credit rating on the United States from AAA to AA+ it became a shot heard 'round the world. Stock markets plummeted, consumers' confidence and pocketbooks took another beating, and the blame game engulfed politicians and S&P itself. In a recent article in Working Knowledge from the Harvard Business School, four HBS faculty members give their views on the Debt Crisis.
First, in the view of Bo Becker, Assistant Professor of Business Administration, "the real story is about how unsustainable the massive US government deficits are, and how difficult they will be to close." S & P simply acted as a messenger. "Anger with S&P... is much like anger directed toward a referee who has made a difficult call—frustration with the result expressed as criticism of the messenger. "
"So rather than focus on whether S&P called the downgrade a little too soon, let's focus more on figuring out how to get the US fiscal house in order. "
Robert Kaplan, Professor of Management Practice agrees. "This downgrade was probably bound to happen." The question still remains "how can we deleverage our government and still foster growth in the economy?"
"For starters, I believe that the federal government must focus on entitlement reform, new revenues, and some new spending intended to foster growth. This new spending may involve continuation of the payroll tax holiday as well as improvements in this country's infrastructure. "
"This is an historic leadership moment. Can our leaders work together, face reality, engage in real debate and help solve our nation's problems?"
Bill Sahlman, Professor of Business Administration, continues. "I haven't felt so frustrated since Richard Nixon left office in the throes of the Watergate scandal in 1974. Our so-called political leaders have just completed a grand game of chicken, and the United States is the loser."
"One side argues that we can't raise revenues, while the other asserts we can't cut entitlements. Both sides are wrong. Entitlement costs, especially health care, will eat us alive. Without real reform of affordable health delivery, not just reform of access to health insurance, the US economy is doomed."
"On the revenue side, we will need to increase taxes, broaden the tax base, and reform the tax code or we are also doomed...You don't need a crystal ball to see that we have an unsustainable business model and no political process for change."
"What we need is simple—growth. Where does growth come from? The answer is equally simple. Business, especially new business, creates jobs and prosperity."
"Private action can overcome partisan haggling and incompetence. America is a great country, because it has citizens who constantly search for new ways to improve the world. We have willing investors. We view crises as opportunities. We, the non-politicians, need to accept responsibility for fixing the country and get on with it."
Matt Weinzierl, Assistant Professor of Business Administration, takes a different view.
"The fiscal stress on the United States is not imminent. Borrowing costs for the government are at historic lows. Bond markets, which...are S&P's customers, appear to have ignored the agency's opinion entirely."
"The US economy is not in a position to absorb fiscal austerity. The consequences of a second downturn could prove disastrous... Whether a new fiscal stimulus is merited or even possible is up for debate, but a fiscal retrenchment in the near term is likely to make things worse."
"The threat is real, the costs will be large, and we must act...What we must do is well understood: Reform entitlements and the tax code to spend less, raise more, or both. Fixing the long-term fiscal problem will require political courage. S&P may have meant their downgrade as an attempt to awaken that political will, but by issuing it during the heated debates over the debt ceiling and short-term policy, S&P risks prompting fiscal austerity over the wrong time horizon."
We as business leaders can fix our Country's problem by growing our companies, creating wealth, which naturally results in creating jobs and increasing tax revenues. We need government to create a friendly tax and regulatory environment, then get out of the way and let us go to work. In today's political environment, this too may be easier said than done.
Robert Kaplan is a Professor of Management Practice at Harvard Business School. In his new book, What to Ask the Person in the Mirror, he argues against the notion that great leadership is about having all the answers. He believes that leadership skills can be learned--and that many of these skills require executives to rethink their conception of what a superb leader actually does. Developing and practicing these skills requires hard work and may demand that talented executives overcome some degree of discomfort and even anxiety in order to raise their game.
When CEOs ask Rob Kaplan for answers, he responds "Most leaders spend a lot of their time looking for answers. Very often, they may feel isolated and alone. I want to help them refocus their attention on framing and then discussing the key questions that will help them regroup, mobilize their team, formulate a plan of action, and move forward." Not surprisingly, this is the focus of TEC as well.
Here are the key areas of inquiry that Kaplan suggests can help leaders improve the success of their companies:
1.Have you developed a clear vision and key priorities for your enterprise?
" The leader may have a clear vision in his or her head but has not communicated it effectively throughout the organization. Leaders need to ask whether they articulate a clear vision and, just as importantly, whether their key employees can re-articulate this vision in a consistent manner."
2.Does the way you spend your time match your key priorities?
“If you hate doing something, you are likely to avoid it. Conversely, if you love doing something, you are likely to arrange your time so you can do more and more of it."
The question then becomes, how do your passions coincide with the needs of the business? Have you reconciled your passions with these business needs? “
3.Do you coach and also solicit feedback from your key subordinates?
"Ironically, the executives most in need of feedback are very senior," and “may have become isolated or not realize that their direct reports have constructive advice regarding specific changes they need to make to improve their leadership effectiveness." If they become a TEC member, their peers will also provide this feedback.
When senior leaders ultimately do cultivate junior coaches and/or seek council from their TEC member peers, they may find that the criticism can feel "devastating at first because you realize it is accurate and that it is probably a widespread view within the organization.”
"Leadership is a team game," Kaplan says. "You have to solicit help from others or you're likely to under-achieve your potential."
4.Do you have a succession-planning process in place?
Kaplan stresses the importance of developing potential successors for key positions in your company-including your own.Then use this list up-and-comers to delegate more extensively to them. This also allows senior leaders more time to achieve a better match between their own time and key priorities. Leaders who fail to train successors risk not only doing too much themselves but also losing these valuable employees, who can become frustrated that they aren't being challenged to build their skills and careers at the company.
5.If you had to design your company today with a clean sheet of paper, what would you change?
It's natural for companies to fall out of alignment with achievement of key objectives in a rapidly changing world. Too often, leaders don't realize how off-track they are until serious damage has been done to the business Kaplan likens the situation to realizing your health is at risk only after you're stricken with a heart attack.
6.Do you act as a role model?
Leaders don't always realize that their actions set an example for the people who work for them.
7.Are you reaching your potential and being true to yourself?
"In the end, it's not about meeting everyone else's expectations," Kaplan says. "It's about reaching your unique potential and developing your own leadership style.”
Click here for the complete article in the July 18 issue of Working Knowledge from the Harvard Business School.
The Internet brings powerful tools to the workplace. It also brings powerful distractions - face book, personal shopping, games, videos, music or just surfing.
A number of studies have suggested that US workers waste between one and two hours a day web surfing, costing their companies billions in lost productivity. In response, some employers have banned private Internet use at the office. Sounds like a good idea on the surface. But this practice can result in other problems, perhaps more serious problems, according to new research.
The research paper "Temptation at Work", by Harvard Business School research fellow Marco Piovesan and colleagues, is believed to be the first study of the effects of temptation on work performance. The paper suggests that by banning web surfing, employers are essentially asking their workers to resist temptation until they can go home and surf on their own time. Yet people who are asked to resist temptation in anticipation of a later reward spend effort and energy resisting the temptation and actually become less productive and make more mistakes.
This conclusion is based upon laboratory tests on young people. These tests suggest to Piovesan that instead of a blanket policy prohibiting web use, employers should give workers periodic breaks for "personal communications". These frequent breaks, it is believed,would increase employee energy and relax them so their willpower comes back to the original level.
"They could go out for five minutes and check e-mail and still be able to concentrate on their jobs." In the future, Piovesan hopes to test that principle in an actual office environment. So stay tuned.
I often ask CEOs, "How do you think you should be spending your time?" with the follow up question, "How do you spend your time?" The two answers are almost always different. Most feel the should spend more time on strategy and planning but don't because of more urgent matters, i.e., fire fighting.
In his paper, "What CEOs Do, and How They Can Do Better", author Michael Blanding reviews the research conducted by Raffaella Sadun of the Harvard Business School, Luigi Guiso of the European University Institute, and Oriana Bandiera and Andrea Prat of the London School of Economics reported in their paper with the deceptively simple title "What Do CEOs Do?".
They studied how 94 Italian CEOs spend their time and came to the following correlations. (The emphasis here is on the term correlations as opposed to cause and effect.)
They found not surprisingly that the vast majority of a CEO's time, some 85 percent, was spent working with other people through meetings, phone calls, and public appearances, while only 15 percent was spent working alone. Of the time spent with others, chief execs spent on average 42 percent with only "insiders" (employees or directors of the CEO's firm); 25 percent with insiders and outsiders together; and 16 percent with only outsiders. (Exact numbers varied dramatically among the sample, with some CEOs spending more than 20 hours a week outside the office, while others spent almost none.)
They also found that time spent with insiders was strongly correlated with productivity increases. For every 1 percent gain in time spent with at least one insider, productivity advanced 1.23 percent. Less reassuring, however, was that the time CEOs spent with outsiders had no measurable correlation with firm performance.
This seemed surprising to me as I have always felt that time with customers was always time well spent as a CEO.
Regardless, the researchers were encouraged by the results of the initial study, so they are planning to continue along this line of research by expanding the data collection in other countries (India, China, and the US) in order to increase the sample as well as to take cultural differences into account.
Click here for the full article and stay tuned for the results of the expanded research.
Managers who inundate their teams with the same messages, over and over, via multiple media, need not feel bad about their persistence. In fact, this redundant communication works to get projects completed quickly, according to new research by Harvard Business School professor Tsedal B. Neeley and Northwestern University's Paul M. Leonardi and Elizabeth M. Gerber. At first blush, this redundant communication strategy may sound like nagging or a waste of time. But as it turns out, asking multiple times gets results.
Key concepts include:
Managers who are deliberately redundant as communicators move their projects forward more quickly and smoothly than those who are not.
Clarity in messaging matters less than redundancy. It's not the message; it's the frequency of the message that counts in getting the job done.
Managers without power (project team managers versus managers dealing with direct reports) were much more strategic, much more thoughtful about motivating their team. (Note that a lack of direct power is common in companies today, because so many people work on teams that form and disband on a project-by-project basis. Yet team leaders are still on the hook to achieve their business imperatives despite this absence of authority.)
Yet both managers with and without power met deadlines and budget goals with the same frequency, regardless of their communication strategy. However, managers without power got employees to move more quickly, and with less mop up needed later.
These results provide a concrete strategy for managers who are struggling with how best to communicate with workers. This is an actual strategy—a communication persuasion strategy.
After decades of outsourcing, America's ability to innovate and create high-tech products essential for future prosperity is on the decline, argue professors Gary Pisano, Professor of Business Administration at Harvard Business School, and Willy Shih, Professor of Management Practice in the Technology and Operations Management Unit also at Harvard Business School. Yet they are cautiously optimistic that it is not too late to get it back. From HBS Alumni Bulletin. Click here for the full article.
Key concepts include:
There is a long standing misconception that manufacturing is kind of the brawn and not the brain, and that the country should focus on the brain, i.e., product design and innovation.
There is a role for public policy in terms of making sure the country is maintaining a broader set of manufacturing capabilities.
Manufacturing capability takes a while to erode, but the damage is almost irreversible. So now is the time to be doing something about it.
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The authors argue that the United States is still an innovation powerhouse, but the problem comes about as more manufacturing moves offshore and commercialization capabilities diminish. This is true because exporting manufacturing ultimately drains away American innovation.
There has been a naive view that innovation is just about R&D and separate from manufacturing. People in the United States and other advanced industrialized countries say that the future is in innovation, not manufacturing, as if manufacturing is not part of the innovation process. In many sectors that's simply not true. The ability to develop very complex, sophisticated manufacturing processes is as much about innovation as dreaming up ideas.
In my own 30+ years in engineering design and manufacturing, product innovation and product design are only part of what’s needed to produce high quality, low cost products.Manufacturing processes are also key to success.Moreover, close collaboration between design and manufacturing are essential.I use the term “design for manufactureability”.This becomes problematic when the design engineer and the plant are 10,000 miles apart.
So here’s the problem.For any individual company, it is often better, in the short or intermediate term, to outsource production to an overseas supplier. The company can buy manufacturing services at a much lower rate if it goes to China or elsewhere, depending on the industry.
But if everybody is doing that, you get a general erosion in the ability to innovate - to increase quality, reduce costs and develop breakthrough products. This results in the long term erosion of the American economy. An individual company, though, can move assets anywhere. So companies can reward their shareholders regardless of what happens to the national economy. As a result, the interests of companies and the Country have diverged.
The authors point out that one of the issues in developing a national economic strategy has been confusion with the term "industrial policy," which “has been anathema in Washington”. "Industrial policy" suggests some degree of central planning. We don’t and shouldn’t do that.
They further point out that, unlike other nations, we don't currently have a national economic strategy. Note that strategy is different from policy, which is tactical. The authors think that we should develop a national strategy. I agree.
If you look at the United States in the post WWII period, there was a very strong national economic strategy around using science to drive economic growth. We created the National Science Foundation and the National Institutes of Health, among others, and the government invested dramatically in building a scientific and technical infrastructure needed to fuel growth. That was the national strategy, and it was not industrial policy.
Pisano and Shih conclude that there's an important need today for having a coordinated national manufacturing strategy at the highest level. I say that the need is more than important, it is critical in order to stop the erosion that we have been experiencing.
On the bright side, there are real reasons to be optimistic: The U.S. economy is quite resilient, and it's quite flexible. “We wouldn't want anybody to interpret what we are saying as the sky is falling. While there are some issues around policy, and there are some issues around management, it's time for executives to be leaders in terms of building the kind of capabilities that are going to make their enterprises great over a longer period of time.”
Sam has more than 25 years of leadership experience in manufacturing and engineering operations. He has served as a president and CEO for three companies and as Executive VP for a fourth. He brings a team-oriented approach to revitalizing companies by creating a shared strategic vision built around each individual's contribution.
Known for his knack for building high-performing management teams, identifying new profit opportunities, and balancing long-term solvency with near-term cash flow and profitability
TEC is an organization committed to the professional development of CEOs, presidents and business owners. Started in Milwaukee 53 years ago it has grown to be the largest CEO organization in the world with over 14,000 members in 13 countries. Its format is roundtable of Business Owners and CEOs who become a think tank for its members.
Visit TEC (The Executive Committee) to learn more.
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