Everything Old Is New Again: The History of Technological Frontiers
Core Values Keep Airline Flying High
Books
   ·The Strategy-Focused Organization
   ·Breaking the Code of Change
HBS Press Books in Brief

t was a giddy time that presaged a new frontier, when a tinkering youth would become an international monopolist, and hundreds like him, eager for the quick riches that appeared inevitable, would start new businesses based on a revolutionary technology. Countless ordinary Americans poured money into public stock offerings capitalizing on the boom, only to experience financial heartache when the bubble burst.

Sound like the Internet revolution of the 1990s? Try the radio revolution of the 1920s. In a presentation to alumni at a recent reunion, HBS professor Debora L. Spar challenged the apocalyptic pronouncements of pundits who declare the Internet an unprecedented development heralding the collapse of national authority. "They assert that in cyberspace, governments wither away, that they no longer have any moral right to rule society, nor do they have any methods of enforcement," said Spar, adding dryly, "Ayn Rand is alive and well and living in Silicon Valley."

These prognosticators, from Spar's perspective, ignore the fact that there are precedents — technological breakthroughs in the course of history that were, for their time, as world-changing as the Internet has been in ours. The idea that anarchy is the inescapable outcome for cyberspace must be seriously questioned when one notices how other such revolutions have, in the end, submitted to governance.

"Over time, the revolution ends," said Spar. "The technologies become normalized, stabilized, and regulated." This transpires, she argued, not due to the govern- ment's desire to control, but the market's own need for stability.

Spar's research on this topic includes the maritime trading boom of the 17th century and the development of the telegraph, radio, and satellite television in the 19th and 20th centuries. In each case, she noted, contemporary reactions to the new frontier followed a similar pattern. The commercial opportunity attracts pioneers, some of whom resort to piracy to seize their claims. This leads to the assumption that governance is not just absent but impossible.

"There's a sense out there that this anarchy will remain," said Spar. That is, until the revolution moves to the next phase, when rules are demanded. The demands may stem from social concerns, as is now the case with privacy issues on the Internet, or, more intriguingly, they may come from the pioneers themselves.

"Once the pioneers have moved out there, claimed the loot, and put a stake in the ground, then they want property rights," Spar observed. "They don't want to be sitting out there with shotguns; they want to be running their business or mining their gold."

At that juncture, outsourcing protection to the state sounds pretty attractive to those former anarchists. Spar noted, for example, that the British East India Company pressed the British government to create a navy to curtail piracy, even though its own business had been established through just those kinds of tactics.

"The real winners here are the pirates, who then manage to get the state to cement their gains and become legitimate," stated Spar. For their respective eras, she asserts, Sir Francis Drake and Rupert Murdoch are kindred spirits who played such roles. More recent examples of pioneers inviting the state's protection include Amazon.com (zealously seeking government-issued patents for e-commerce innovations) and the trio of Netscape, Oracle, and Sun (bolstering the Justice Department's case against Microsoft).

Historically, Spar observed, breakthrough innovations have been followed consistently by commercialization, standardization, and regulation. She was careful to clarify the regulation phase. "What I'm talking about are the basic, underlying rules, which are primarily rules of property rights," said Spar. She thinks regulations will likely emerge governing the Internet in areas such as music downloading. However, she noted that the United States has failed in its attempts to protect encryption techniques as a national military asset. Content remains the most difficult area to control and thus promises to be the enduring freedom of this new frontier.

"That's the revolutionary part of the Internet, and that's the part that will shift the balance between states, firms, and society," Spar predicted.

— Laura Singleton (MBA '88)

Professor Spar's research is the subject of a forthcoming book, Pirates, Prophets, and Pioneers: Business and Politics along the Technological Edge, to be published by Harcourt Brace early next fall.

• Good people are essential for success.
• Keep the product and the process simple.
• Deliver the most reliable service at the lowest cost.
• Invest the time to connect with employees and customers.

These are the basic tenets fueling the phenomenal success of Southwest Airlines, according to "Core Values Amidst Change: A Conversation with Southwest Airlines' Top Management Team," a new working paper written by HBS assistant professor Jody Hoffer Gittell, MIT professor R. John Hansman, and MIT doctoral student Anne E. Dunning. The willingness of Southwest employees to invest time to connect with one another — from top managers down to front-line service representatives — may well be the essential value that sets Southwest apart from other major U.S. airlines, according to the authors.

Gittell and Hansman conducted a group interview with ten top executives at Southwest as part of the Global Airline Industry Program at MIT, an initiative examining how major commercial airline carriers are facing the challenges of their rapidly changing industry.

Staying on top of an industry facing more regulation (including the Airline Passenger Bill of Rights), new technologies, increasing traffic, a changing labor force, and heightened competition is a tremendous challenge. During the interview, Southwest's managers said that they have to constantly reinvent their processes to adapt to the changing environment. In every aspect of its business, the authors found, Southwest has sought to simplify procedures, boost innovation, and keep costs down while retaining a high degree of teamwork, communication, and coordination across functions.

While its top-ranked customer service ratings have established its reputation as the "nice" airline, Southwest is much more than a legion of smiling flight attendants. Founded in 1971, Southwest has "literally transformed the U.S. airline industry, particularly since reaching critical mass in the early 1990s," assert the authors. Known for its low fares and high reliability in short-distance travel, Southwest ranks first in on-time arrivals and baggage handling and has the least number of consumer complaints per passenger filed with the U.S. Department of Transportation. It gets its planes in and out of the gate faster than other major U.S. airlines and serves more passengers per employee.

Keeping the product and process simple has resulted in innovations like ticketless seating and online reservations, as well as snacks-only food service. This has not, as critics predicted, precluded Southwest from introducing a coast-to-coast service with the same simplified product.

To keep fares low, Southwest works to control costs, as opposed to cutting costs. But that doesn't mean Southwest isn't investing in itself. The company's willingness to spend time and money on people and equipment is evident in its low rate of employee turnover; the high ratio of supervisors to front-line employees (1:10, compared with the industry average of 1:20); the longer average time spent in recruitment of employees; and the emphasis on cross-functional teams. With 80 percent of its employees unionized, Southwest also invests time in creating strong relationships between management and union leadership. "We have been successful in negotiations when we go in asking how much we can pay employees rather than how little we can pay," stated Southwest's VP and general counsel Jim Parker.

As for the changes that technology brings, Southwest has one foot in the future and the other in the past. In addition to its pathbreaking use of online booking and electronic ticketing, the airline maintains a relatively young fleet of Boeing 737s — and no other models — to save money, increase reliability, and boost efficiencies since pilots and crews need only focus on the requirements of a single type of plane. But management confesses that Southwest lags behind in getting internal systems to work together with other airlines and, culturally, has not adopted e-mail and voice mail as a means of dealing with customers and each other. "We resist nonhuman interfaces," commented John Denison, the carrier's EVP of corporate services. "We want our customers to talk to human beings, but we have adapted to the Internet world."

Growing slowly and deliberately has served Southwest well, the study concludes. And taking the extra time to re-cruit and train staff, to use technology carefully, to control costs through simple innovations, and to make relationships a high priority have proved to be a winning combination.

— Margie Kelley

Alumni may request copies of working papers by calling 617-495-6852 or by visiting the HBS Division of Research Web site at www.hbs.edu/dor.

by Robert S. Kaplan and David P. Norton
(Harvard Business School Press)

Following the success of their 1996 bestseller, The Balanced Scorecard, Robert Kaplan and David Norton have published a new book based on their analysis of some two hundred organizations that have implemented balanced scorecards, the performance management system that the pair developed in 1992. In The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment, the authors delve into how successful businesses have taken their groundbreaking tool to the next level.

Kaplan, the Marvin Bower Professor of Leadership Development at HBS, and Norton (DBA '73), president of the Balanced Scorecard Collaborative, Inc., found that the diverse companies that used the balanced scorecard framework built new management systems that had many things in common. Each of the successful organizations they studied, including Mobil, CIGNA, and Duke Children's Hospital, used the balanced scorecard to align and focus all resources on strategy. The authors document how executives institutionalized the focus on strategy by adapting their organizations' culture, structures, and management systems.

Kaplan and Norton outline five requirements for building a strategy-focused organization: translating strategy to operational terms, aligning the organization to the strategy, making strategy part of everyone's job, managing strategy as a continual process, and mobilizing change through strong leadership.

The Strategy-Focused Organization also introduces a new framework called the strategy map. By analyzing hundreds of scorecards over the last decade, Kaplan and Norton have mapped the patterns that have repeatedly emerged into generic templates that allow companies to describe their strategy clearly and move on to what really matters — making it work.

"In today's business environment, strategy is more important than ever," write the authors. "This book shows how leaders can shape their own companies and meet the challenges and reap the rewards of a new competitive era."

Breaking the Code of Change

Edited by Michael Beer and Nitin Nohria
(Harvard Business School Press)

With the restructuring and upheaval that has characterized life in the corporate world over the last two decades, the ability to anticipate and respond to variable and uncertain business conditions has become an essential CEO survival skill. "The challenge of change has given rise to a CEO labor market that places a premium on a person's track record in leading change," write HBS professors Michael Beer and Nitin Nohria, editors of a new book of essays titled Breaking the Code of Change. Despite its importance, Beer and Nohria assert that the process of change remains poorly understood, and only a third of corporate change initiatives succeed.

After encountering widely divergent assumptions by leading executives about organizational change, Beer, the Cahners-Rabb Professor of Business Administration, and Nohria, the Richard P. Chapman Professor of Business Administration, organized a 1998 research conference at HBS in order to gain a better understanding of the phenomenon. The conference brought together academics, consultants, and CEOs for case discussions and debates on their differing approaches to the issue. Breaking the Code of Change, presented in a point-counterpoint style, is an edited collection of pairs of opposing papers given by conference participants. Each of the seven sections of the book offers two contrasting viewpoints followed by an analysis of the differing perspectives.

As a result of the conference, Beer and Nohria have mapped out two dominant and conflicting archetypal theories of change. Theory E is based on the creation of economic value, often expressed as shareholder value, whereas Theory O is centered on building long-term organizational capabilities. "These approaches are guided by very different assumptions by corporate leaders about the purpose of and means for change," they write.

In a book that could have been subtitled "the power of paradox," Beer and Nohria argue that "either/or" is a false choice. Instead, executives will need to synthesize Theories E and O to develop businesses that both satisfy shareholders and survive as viable institutions in the long run. "This framework," write the editors, "will aid researchers and practitioners as they engage the inherent, often unarticulated, tension between enhancing economic value and developing organizational capability as ends and means of change." — Rogelio Fussa