Silent Killers: Overcoming Barriers to Organizational Learning
After the Revolution: Putting the Internet in Perspective
Rationale for Non-Rationality: Why We Make Bad Choices
Books
   ·Design Rules: The Power of Modularity
   ·American Business, 1920-2000: How it Worked
   ·Low Risk, High Reward: Starting and Growing with Minimal Risk
HBS Press Books in Brief

ew research suggests that roadblocks to strategic implementation are often embedded in an organization's leadership. Open communication and self-examination at all levels of management can help get a company back on track.

In their HBS working paper "Overcoming the 'Silent Killers' to Strategy Implementation and Organizational Learning," HBS professor Michael Beer and Russell A. Eisenstat, president of the Center for Organizational Fitness, outline six barriers to implementing strategic plans.

Beer and Eisenstat uncovered these obstacles using a process they refined more than a decade ago called Organizational Fitness Profiling (OFP). OFP helps CEOs or business unit general managers and their top teams assess how well an operation fits their espoused strategy and management principles. The regimen requires a group of the unit's most highly respected employees to interview colleagues and internal and external customers. They then report to their leaders what they have learned about the organization.

After gathering profiles of over 150 organizational units in a dozen companies from the high-tech, pharmaceutical, medical product, hotel, banking, and building product industries, the authors examined the findings of twelve profiles conducted in four companies. In those organizations, the same six issues arose time after time: unclear strategies and conflicting priorities; an ineffective leadership team; top-down or laissez-faire management by the general manager; poor coordination across functions, businesses, or borders; lack of effective and honest vertical communication; and inadequate leadership skills and development throughout the organization. "It is clear from this data that as far as employees are concerned, the problem in their organization had to do with the fundamentals of management and leadership, not the quality or commitment of the people nor the quality of management systems and processes," write Beer and Eisenstat. Therein lies the conundrum. Because these roadblocks to implementing strategy are at the heart of an organization's leadership, they are almost never discussed -- turning them into "silent killers."

CEOs and general managers can overcome these six natural stress points -- which exist in almost every hierarchical organization, say the authors -- by using a disciplined approach that systematically confronts each one. To begin with, Beer and Eisenstat recommend that the CEO or general manager create a partnership between their top and lower-level managers, engaging the entire organization in an honest, fact-based conversation about the new strategy and its barriers. For example, one general manager in the study learned from his staff's candid feedback during an OFP that his aversion to conflict was stifling communication and hindering his unit's ability to implement strategy. Upon confronting his own weakness, he was able to manage more effectively.

That kind of open communication and self-examination is key to overcoming the silent killers. Concludes Beer, "The current competitive environment requires high levels of teamwork at the lowest possible level in the organization. These employees have significant knowledge and information about customers and products. A free flow of information that keeps people at the top informed, yet empowers those on the front lines to solve problems quickly, is crucial to implementing a successful strategy in the 21st century."

-- Judith A. Ross

For more information on this topic, visit the Center for Organizational Fitness Web site: www.orgfitness.com.

Twenty years ago, if you had been given $10,000 to invest in either IBM or Microsoft, which would you have chosen?

"Put yourself in 1980," HBS professor Richard L. Nolan challenged alumni during his spring reunion presentation "The Exploding Internet: Impact on Business and Society." "If you're IBM, who's your major competitor?" Answering his own question, he displayed a photo of a very young Microsoft team. The ragtag "kids" at Microsoft are shown sporting long hair, beards, and T-shirts. Pointing to the still adolescent-looking Bill Gates, Nolan added, "Would you have invested in Microsoft in 1980?" Funny as the photo seems today, the point was clear. "There has been a fundamental shift in terms of what's going on in business," Nolan noted. "We have never lived through anything like this."

With that, Nolan opened his discussion of the profound changes that computers -- and now the Internet -- have wrought on the way business is conducted. Comparing industrial-economy giants IBM and Boeing with Microsoft and Cisco, Nolan said the mature business model of a hierarchical organizational structure with a "make-and-sell" strategy can't be adapted to the virtual, information-enabled world of dot-coms. There, the real-time speed, sense-and-respond approach to customers, and low overhead are paramount.

"When you went to Harvard Business School, we really knew what we were talking about," he told alumni. "But in the new economy, just about everything we accepted about business is being questioned." Nolan, an expert on general management and technology who is studying the shift from the industrial model to the new information economy, said CEOs of incumbent (pre-Internet) companies are trying to compete with dot-coms, "but they get dot-com vertigo. They trust their senses, even after realizing they're wrong, and they get into trouble. We don't know what the business models are."

Blame technology for the dizziness, said Nolan. "The Internet is the fastest-growing technology to ever reach fifty million users, and it did it in four years." In contrast, he said, "television took thirteen years to reach that many people, and the PC itself took sixteen years." The nature of information presents another challenge to the traditional manager. Unlike other resources in business -- workers, money, and materials -- information is far from scarce. "It's exploding," Nolan remarked. "The amount of information we have is doubling every six to eight years. That's what dot-coms are leveraging. This is truly a revolution."

Nolan underlined the advantage that new-economy companies have over their incumbent competitors, using drugstore.com as an example. Taking only a year to build, drugstore.com has become the fastest-growing company to reach $1 billion in market value. It serves consumers 24 hours a day, has a development team instead of a staff, and has no checkout lines. Bricks-and-mortar firms such as Walgreens, on the other hand, must build physical stores and employ and train store staff. Customers have to show up in person to purchase goods and must often wait in line.

"There is a huge difference in economies," Nolan stated, adding that since drugstore.com entered the field, many more health-related Internet companies have followed. "Once a dot-com comes into an industry, the industry is never the same," he said.

Nolan is not suggesting that the old management models be completely scrapped. Traditional practices certainly still work for Boeing, which can't realistically release new airplanes with flaws the way Microsoft can release a new version of Windows with "bugs." Microsoft can serve and respond to consumers instantly and adjust its products in real time; Boeing has to perfect the product first and then sell it. While each company could learn something from how the other operates, Nolan suggested they should stick to their own knitting. After all, he queried, if Microsoft could build an airplane, "Would you want to fly in version 1.0?"

- Margie Kelley

Nolan's latest book is Sense & Respond: Capturing Value in the Network Era(HBS Press, 1998, edited with Stephen P. Bradley).

he same neurochemicals that made our prehistoric ancestors flee the saber-toothed tiger now percolate in our brains when we bristle at a spouse's criticism or negative comments in a board meeting, according to research by HBS professor emeritus Michael C. Jensen.

Jensen's research, in conjunction with Harvard's interfaculty Mind/Brain/Behavior Initiative, resulted in his formulation of a model of human behavior that explains why even the most "rational" people behave irrationally at times, willfully continuing in self-destructive behavior. Whether it's an alcoholic who refuses to admit that drink is killing him or a CEO who lets the company go bankrupt instead of changing business tactics, most humans consistently resist listening to feedback about their mistakes.

"There's nothing nonrational about making mistakes," said Jensen during a lively reunion presentation last spring. "The nonrational part is when somebody offers us evidence of a mistake and we don't say, 'Oh my goodness! Thank you so much!'" Jensen argued that "what learning is about, at its very core, is finding out when we're making an error." Thus, an unwillingness to receive bad news about ourselves "causes huge problems for learning and for change." Jensen believes this tendency is the source of most so-called people problems in organizations.

Jensen's model defines two regimes of behavior: the Resourceful, Evaluative, Maximizing Model (REMM) and the Pain Avoidance Model (PAM). At any given point, behavior is governed by one or the other of these regimes, and Jensen suggests that time is split between them in about a 50:50 ratio. The switch into the PAM regime occurs when we are frightened -- which can happen without our even knowing it. The switch begins in a section of the subconscious part of the brain called the amygdala. This area processes sensory stimulation before it reaches the conscious part of the brain. If the amygdala perceives a threat, it boosts the production of adrenaline, increasing the heart rate and creating other physical changes. At the same time, it releases neurochemicals into the conscious part of the brain, affecting its operation -- a phenomenon familiarly known as the "fight-or-flight" response.

While this reaction is invaluable in the face of physical threat, Jensen noted, "it is also generated by the threat of emotional or psychological pain, and that has mostly counter-productive, negative effects." Although the brain's chemistry is beyond our control, Jensen suggests that being aware of the pattern gives us an advantage in dealing with it. "Neurological 'muscles' can be strengthened just like biceps or quadriceps," he said, "but in order to strengthen them, we have to do exactly what we don't want to do -- we have to accept the emotional pain of hearing about our faults in order to learn."

The payback? "Individuals who are able to control this tendency make natural leaders and have a competitive advantage in life," Jensen said. He recommends three principles to help counteract this trait: seeking truth persistently, accepting personal responsibility, and delaying gratification (i.e., accepting present pain for future benefit). These ideas, he acknowledges, are stressed in nearly all major world religions. Religion is one of several institutions that Jensen believes can function as a "prosthesis" to bridge this gap in an individual's reasoning. Others, he suggests, include families, universities, corporations, and government -- the last a somewhat painful admission for Jensen, a former libertarian.

"You cannot believe this about human beings and also believe in a pure libertarian philosophy," he admitted. "It turns out that if we give individuals complete freedom of choice, they won't necessarily end up in the place in which they would judge they're best off."

- Laura Singleton (MBA '88)

by Carliss Y. Baldwin and Kim B. Clark
(The MIT Press)

Today's fast-paced global economy often seems to operate as an independent force, but its products, firms, and markets are all derived from human effort and intelligence, as HBS professor Carliss Baldwin and Dean Kim Clark remind readers in their new book, Design Rules: The Power of Modularity. Baldwin and Clark are intrigued by the underlying structure of these human-designed products and systems and the ways in which they evolve beyond their original incarnations to transform entire economies and cultures. Understanding this phenomenon of design evolution, the authors write, "is crucial to comprehending the opportunities and the risks that change creates."

The authors describe their book as an examination of "the process of design and how it affects the structure of industry." From a business landscape replete with possibilities, they select a single modern-day example -- the electronic computer -- as the focus of their study. Baldwin and Clark argue that the computer industry could not have experienced its unprecedented levels of innovation and growth without embracing the concept of modularity -- the building of complex products from smaller subsystems that can be designed independently yet function together as a whole. It was modularity, the authors assert, that freed designers to experiment with different approaches while working within the norms of established design rules.

Thus, the computer industry was transformed from a quasi monopoly (dominated by IBM) into a large modular "cluster" of related subindustries, a development made possible by the decentralization and multiplication of design options. When the forces of modular design eventually took center stage in the early 1990s, the computer industry's balance of power -- economic and strategic -- was changed forever.

As Baldwin and Clark explain, "The architecture of modularity partitions designers' efforts and efficiently coordinates their actions." The process of design evolution "directs their searches and appropriately rewards their efforts." The result of this dynamic has been one of history's great technology success stories.

In a second volume of Design Rules, the authors will examine how the interrelated processes of design and industry evolution operate once a modular cluster has formed.

American Business, 1920-2000: How It Worked

by Thomas K McCraw
(The American History Series/Harlan Davidson)

The past decade has brought such enormous change to the business world that it can be easy to lose sight of the equally tumultuous periods that have preceded it. In American Business, 1920­2000: How It Worked, Thomas McCraw, the Isidor Straus Professor of Business History, presents a succinct and insightful analysis of the entrepreneurs and companies that have left their impression on world industry. McCraw examines these economic developments in the context of events such as World War II, tracing the decentralizing effects of the draft, rationing, and Ferdinand Eberstadt's Controlled Materials Plan. Also included are overview chapters on the impact of women and African Americans on business, as well as considerations of three vital sectors of the American economy: finance; chemicals and pharmaceuticals; and computers, Silicon Valley, and the Internet.

From the past eighty years of "relentless change," McCraw offers colorful illustrations of how business transformed the country's economic and cultural landscape. Alfred P. Sloan's stunning turnaround of General Motors and his creation of multidivisional structures present a fascinating portrait of one of the century's most impressive business minds. Neil McElroy and D. Paul ("Doc") Smelser of Procter & Gamble introduced soap operas to radio and television audiences, a marketing coup that resulted in "the longest-running and most successful media strategy in U.S. advertising history," according to Advertising Age.

McCraw reminds readers that despite the present-day size of behemoths such as McDonald's and Ford Motor Company, each began as a small, entrepreneurial venture. And as unique as each company's innovations may have been -- whether it was Ray Kroc's refinement of franchise economics or Henry Ford's perfection of assembly line production -- every organization faced the key business problem of determining where to place the decision-making power along the employee-manager continuum.

"The outburst of information technology capped an eighty-year trend in which decision rights moved mostly downward within business hierarchies," McCraw concludes, highlighting factors such as increased consumer power, intensified competition, and the human toll from corporate downsizing as a few of the other significant developments of the latter part of the 20th century. As entirely new economies and industries continue to evolve at a dizzying pace, American Business, 1920­2000 provides a welcome vantage point for appraising the past and surveying the future.

Low Risk, High Reward: Starting and Growing Your Business with Minimal Risk

by Bob Reiss with Jeffrey L. Cruikshank (foreword by Howard H. Stevenson)
(The Free Press)

Entrepreneurs are not risk seekers; they are risk managers, risk sharers, and risk minimizers.

This is a central lesson in Low Risk, High Reward, a new book by Bob Reiss (MBA '56) and former HBS Bulletin editor Jeffrey Cruikshank (51st PMD) that is based on Reiss's experiences as the founder of fourteen successful start-up companies. (One of these start-ups, a novelty-watch distributor, was named one of the nation's fastest-growing companies in 1992, 1993, and 1994 by Inc. magazine.) In addition, Reiss draws upon several dozen interviews that he conducted with other entrepreneurs in a variety of fast-moving industries.

Reiss explores entrepreneurial issues across the life span of a company, from finding good ideas, to raising money, to building products, to getting orders and reorders. He also focuses on the skills and attributes of the successful entrepreneur, including a separate chapter on what he calls "numeracy": the ability to understand and use numbers to help one's business. Included in the book is a useful appendix that instructs the reader in how to create and read a twelve-month operating cash flow statement.

Many HBS readers will recognize "The R&R Case," by HBS professor Howard Stevenson. Introduced in the 1980s, the case focuses on one of Reiss's business ventures, and for many years it was the first case taught in entrepreneurship electives at the School. Reiss provides his own commentary on the case, which distills a number of the important themes in the book.

In the book's introduction, Reiss writes that Low Risk, High Reward is intended for a wide spectrum of readers -- from those who already own their own businesses; to nine-to-fivers poised to take the entrepreneurial plunge; to graduate-school, college, and even high-school students for whom entrepreneurship is still a distant dream. In Low Risk, High Reward, Reiss offers them all a key piece of advice gleaned from his many years on the entrepreneurial front lines: "Working smart can be even more important than working hard."