Wednesday, March 15, 2023

When It Comes to Half-Truths, No News Is Bad News

Insights by Stanford Business, March 15, 2023

by Theodore Kinni


Voluntary disclosures, like those issued by managers in quarterly earnings calls, inform investment decisions across financial markets. They can buoy — or puncture — corporate valuations and stock prices. But it isn’t always clear what effects result from the policies governing these disclosures, especially when it comes to rules about half-truths and the duty to update.

In a new article in Management Science, Anne Beyer, a professor of accounting at Stanford Graduate School of Business, and Ronald Dye of Northwestern’s Kellogg School of Management, use static and dynamic models to understand the effects of regulation on both voluntary corporate disclosure policies and the investors who depend on them.

Half-truths are disclosures that are true in and of themselves but misleading in light of other information managers know but choose to withhold. For example, if a company announces that it will be losing one of its major customers but doesn’t mention that it’s also aware that another major customer is likely to leave, that would be a half-truth. These kinds of omissions are illegal under federal securities law, but their definition is not universally agreed upon. This creates loopholes that can make it difficult to hold managers legally accountable for skirting the whole truth.

Legality aside, whether permitting half-truths in disclosures is preferable to prohibiting them is an open question. Many disclosure regulations aim at providing transparency for investors and other stakeholders. However, it is not self-evident whether barring managers from issuing half-truths leads them to disclose more information.

On the one hand, if a prohibition of half-truths is enforced, then a firm that wants to make a disclosure must disclose the entire truth and cannot selectively withhold part of the relevant information. This may cause the firm to not make any disclosure. On the other hand, if half-truths are allowed, a firm may be willing to share some information on a topic that it would be unwilling to share if full disclosure was required. Read the rest here.

Tuesday, March 14, 2023

Profiles in burnout

strategy+business, March 14, 2023

by Theodore Kinni

Photograph by PeopleImages

After New Zealand Prime Minister Jacinda Ardern unexpectedly announced her resignation on January 19, the lead on CNN’s analysis read, “Burnout is real—and it’s nothing be ashamed of.” Indeed.

It would have been more surprising if the PM had, as she described it, “a full tank, plus a bit in reserve for those unplanned and unexpected challenges that inevitably come along.” After all, she led New Zealand through a series of major crises, including the covid-19 pandemic and the Christchurch mosque shootings, which were the worst terrorist attacks in the country’s history. She endured extreme abuse online and received an unprecedented number of personal threats—so many that she may be the first ex-PM in New Zealand to require high levels of security. And she became a parent while PM, giving birth to a daughter, now four years old.

Going by The Burnout Challenge, by Christina Maslach and Michael Leiter, Ardern’s five-year-plus run as PM was a perfect storm for burnout. The authors should know. Maslach, who is professor of psychology emerita at University of California–Berkeley, created the Maslach Burnout Inventory, the first and leading burnout assessment, in 1981. Leiter, who was a professor of organizational psychology at Australia’s Deakin University and held the Canada Research Chair in Occupational Health at Acadia University, has been researching burnout—and collaborating with Maslach—for almost as long. Read the rest here.

Friday, March 3, 2023

Beware the Pitfalls of Agility

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, March 3, 2023

by Bernadine J. Dykes, Kalin D. Kolev, Walter J. Ferrier, and Margaret Hughes-Morgan

Given the panoply of recent disruptions — including COVID-19, inflation, Russia’s invasion of Ukraine — it’s no surprise that many leaders are striving to quickly dial up the agility level of their companies. Indeed, the ability to rapidly adapt to changing conditions can be a shield against disruption and a healing prescription for crisis. But organizational agility is not a panacea. There are pitfalls in the pursuit of agility that can and do produce unintended consequences.

Agility is a multidimensional concept that comprises three sequential and interrelated processes: alertness to the need for change, the decision to make the change, and the mobilization of the organizational resources required to execute the change. Our agility research and observations regarding the behavior of companies, especially during the pandemic, revealed that each process contains a pitfall that can subvert its outcomes: Alertness harbors the pitfall of hubris, decision-making harbors the pitfall of impulsiveness, and mobilization harbors the pitfall of resource fatigue. Read the rest here.

Friday, February 24, 2023

Why Digital Ability Trumps IQ

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, February 24, 2023

by Kimberly A. Whitler and F.D. Wilder

In 2013, as fast-emerging digital technologies and channels were creating a sea change in consumer product marketing, A.G. Lafley, then CEO of Procter & Gamble, acted to ensure that the consumer packaged goods giant would not be left behind. He appointed F.D. Wilder, one of this article’s coauthors, as global head of e-business and tasked him with driving digital transformation across P&G’s many brands. The goal of this initiative was to develop and integrate P&G’s digital marketing abilities, e-commerce channels, and IT platforms — driving up sales, profit margins, and cash flow in the process.

As the e-business team considered this challenging mandate, it focused on the digital marketing ability of P&G’s brand and business managers as a key enabler of the transformation. Unfortunately, the team found that the literature regarding digital transformation tends to give short shrift to the capability of leaders: It focuses mainly on raising the “digital IQ” of the workforce — that is, the measurement of how much an organization can profit from digital and technological solutions.

Digital IQ has its limitations as an effective measure of ability, not the least of which is its strong emphasis on teaching and testing for generic vocabulary and knowledge. Yet digital and other transformational efforts nearly always require employees to work in new and unfamiliar ways. To ensure that they can do this new work, leaders must be able to assess employee ability by connecting it not only to knowledge and skills but also to targeted actions and performance outcomes. Only then can they identify and activate pockets of strength in the digital ability of employees and isolate and remediate pockets of weakness. Read the rest here...

Monday, January 30, 2023

A goal isn’t a mission

strategy+business, January 30, 2023

by Theodore Kinni

Illustration by VectorInspiration

There are missions, and then there are missions. One type of mission is an achievable task with a fixed goal that is often tactical and short-term in nature. The other mission is a high-level aspiration that provides direction and motivation to an organization over a long period of time. Leaders who mix up the two can put the future of their companies at risk.

The distinction between the two types of missions is dramatically illustrated in the recording of a White House meeting held on 21 November 1962. During the meeting, President John F. Kennedy and NASA’s chief administrator, James Webb, whom Kennedy appointed, had a heated argument about NASA’s proper mission.

It had been 18 months since Kennedy had called out a piloted moon landing as one of his top priorities in a special address to Congress, declaring, “First, I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the Earth.” Now, Kennedy was considering whether he could move the target date for the first lunar landing from 1967 to 1966, and he was grilling NASA’s leaders about the feasibility and costs of doing so.

As they wrangled over the size of the special appropriation that would be needed to fund an accelerated schedule, Kennedy suddenly tacked. “Do you think this program is the top-priority program of the agency?” he asked Webb.

“No, sir, I do not,” answered Webb. “I think it is one of the top-priority programs….” With that, an argument began that revealed the chasm between Kennedy’s view of NASA’s mission and Webb’s view. Read the rest here

Wednesday, January 25, 2023

Rethinking Hierarchy

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, January 25, 2023

by Nicolai J. Foss and Peter G. Klein

Chris Gash/

For all the hype and promise swirling around the idea of eliminating management to create agile, flat organizations, bosses and corporate hierarchies have remained extremely resilient. As we argued in the pages of MIT Sloan Management Review in 2014, under the right conditions, having such hierarchies in place is the best way to handle the coordination and cooperation problems that beset human interactions. They allow human intelligence and creativity to flourish on a larger scale. They provide a larger structure, with predictability and accountability, for specialists to do their work.

But that doesn’t mean traditional, command-and-control organizations are right for today’s environment. We see a confluence of business and social trends influencing the development of new kinds of hierarchies. Rapid technological progress, instant communication, value creation based on knowledge rather than physical resources, globalization, and a more educated workforce require us to rethink how we wield managerial authority. Meanwhile, individual views on politics, religion, and culture also inform our attitudes toward hierarchies — such as whether we value autonomy or admire authoritarian figures. All of these factors point to a new, different role for hierarchy to play in meeting the challenges of the 21st century.

The key challenge for designing and operating hierarchies today and tomorrow is to balance two opposing forces. The first is the desire, common to us all, for empowerment and autonomy, which helps companies mobilize employees’ creativity and exploit their unique knowledge and capabilities. The other is the need — particularly in environments characterized by rapid change and interdependent activities across the enterprise — to exercise managerial authority on a large scale.

Companies need clear, fairly enforced policies and procedures that achieve coordination and cooperation while respecting employee desires for empowerment and relative autonomy. Managers have to figure out when to intervene and when to let employees handle problems themselves.

These are tough issues without easy solutions. Which decisions should be decentralized (or delegated)? How much discretion should employees have over the decision areas delegated to them? How are these employees incentivized and evaluated? How do executives make sure that all these decentralized decisions mesh together? A central lesson of theories and evidence on organizational structure is that there are no universally “best” answers to these questions, only trade-offs that depend on the contingencies facing the company. Identifying and acting on those trade-offs — not decentralizing everything, everywhere — is the key to successful leadership. Read the rest here.

Tuesday, January 10, 2023

Can bossless management work?

strategy+business, January 10, 2023

by Theodore Kinni

Photograph by Tom Werner

If you’ve been feeling like your leadership contributions are underappreciated, add a copy of Why Managers Matter to your reading list. In it, Nicolai Foss, a strategy professor at the Copenhagen Business School, and Peter Klein, the W.W. Caruth Chair and professor of entrepreneurship at the Hankamer School of Business, Baylor University, examine the various iterations of manager-free organizations that have been proposed—and occasionally adopted—over the past 50 years or so. Their conclusion: nonsense!

Foss and Klein lump the ideas of management thinkers, such as Gary Hamel, Michele Zanini, and Frederic Laloux, and approaches to decentralized management, such as holacracy and agile, into what they call the bossless company narrative. “The basic thrust of the genre is that while bosses are still around, the less control they exercise the better,” they write. “What the Harvard historian Alfred D. Chandler Jr. called the ‘visible hand’ of management should give way to worker autonomy, self-organizing teams, outsourcing, and an egalitarian office culture.”

Then the duo bales the entire genre into something resembling a straw man and puts a match to it. “The near-bossless companies—and there aren’t many of them—with their self-managing teams, empowered knowledge workers, and ultra-flat organizations are not generally or demonstrably better than traditionally organized ones,” declare Foss and Klein. “Bosses matter, not just as figureheads but as designers, organizers, encouragers, and enforcers.”

Foss and Klein make a detailed and extended case against the bossless company narrative with which it is hard to take issue, especially in the realm of large enterprises. Schemes like holacracy, in which decisions are made by teams, may work for small companies with distributed ownership, such as boutique consultancies and other kinds of partnerships, but they haven’t worked in large companies like Zappos, which have many more employees and require far more coordination. Agility, too, tends to work better for running projects than for running whole companies. In short, hierarchical management structures are, as the authors put it, “the worst form of organization—except for all the others.” Read the rest here.

Tuesday, January 3, 2023

Bad Apples or Bad Leaders?

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, January 3, 2023

by Charn P. McAllister, Jeremy D. Mackey, B. Parker Ellen III, and Katherine C. Alexander

Leaders typically take responsibility when employees perform poorly but not when employees behave badly. It’s like there’s an unwritten rule that protects leaders when employees engage in deviant workplace behavior. Perhaps this protection stems from the notion that it isn’t fair to hold leaders accountable for the actions of a few bad apples.

Our research suggests that surprisingly often, this view of workplace deviance is misguided. We’ve found that leaders have a strong effect on whether employees engage in deviant behaviors. Thus, when employees act badly, their leaders would be wise to take a step back and consider whether and how they may be complicit in that behavior.

Workplace deviance includes employee behaviors that violate organizational norms in ways that threaten the well-being of companies and their employees. Sometimes these behaviors are directed toward individuals, such as when an employee physically or verbally lashes out at a colleague or gossips with coworkers. Other times, deviant behaviors are directed toward an organization, such as when an employee steals workplace property or leaks confidential company information. The consequences of workplace deviance include productivity and inventory losses, as well as a host of other expenses that ultimately cost organizations billions of dollars annually.

Some leaders dismiss workplace deviance as an unavoidable side effect of apathetic or rebellious employees who either don’t care for or actively dislike their colleagues or employers. These bad apples do exist. Research shows that employees low in the personality traits of conscientiousness and agreeableness are more prone to workplace deviance. So are employees who exhibit socially malevolent personality markers referred to as the dark triad: Machiavellianism, narcissism, and psychopathy.

Given these findings, it’s easy to conclude that the “bad apple” argument makes sense. The problem is, research into the role of personality in workplace deviance does not consider the role that leaders play in employee behavior. Read the rest here.

Monday, December 19, 2022

The Transparency Problem in Corporate Philanthropy

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, December 19, 2022

Despite increasing demands by employees, investors, and communities for environmental, social, and governance transparency, philanthropy remains an often overlooked and almost entirely opaque sphere of corporate activity. This is no small issue: In 2021, corporate giving in the U.S. alone is estimated to have exceeded $21 billion.

To explore the dimensions of this problem and understand the use of disclosures in corporate philanthropy more broadly, I studied transparency in the philanthropic foundations of Fortune 100 companies. These foundations are only the tip of the iceberg in corporate giving, but they are indicative of the state of philanthropic transparency across the business world. The research revealed the difficulties that leaders and stakeholders face in trying to gauge the efficacy of giving, ensure accountability for it, and capture the full value it may offer to both the givers and recipients of corporate largesse.

Sixty-seven Fortune 100 companies operate active private foundations. In 2019, their combined grants approached $2.3 billion, which was directed to a variety of causes, including health and social services, community and economic development, education, civic and public affairs, arts and culture, the environment, and disaster relief.

There is no comprehensive set of disclosure protocols for company-sponsored foundations in any of the major international standards, such as the Global Reporting Initiative’s sustainability reporting framework. However, there is an extensive set of disclosure protocols for foundations in the nonprofit sector, including having a searchable grants database, sharing a categorized grant list, and providing online access to the 990-PF tax forms they file, which list grant amounts and the names of their recipients.

My analysis of the foundation and corporate websites of the Fortune 100, as well as their foundation and corporate social responsibility (CSR) reports, revealed that the vast majority of the companies do not follow any of the three protocols (a searchable database, a categorized grant list, or online 990-PFs). Only 4.5% of the companies provide a searchable grant database, only 7.5% offer a categorized grants list, and just 7.5% provide online access to their 990-PF filings. Read the rest here.

Tuesday, December 13, 2022

Employee resource groups are more than “food, fun, and flags”

strategy+business, December 13, 2022

by Theodore Kinni

Photograph by MoMo Productions

In 1964, in the aftermath of race riots in Rochester, New York, Joseph Wilson, the CEO who transformed the Haloid Photographic Company into Xerox, invited Black employees to come together to address and remedy racial discrimination within the company. This group evolved into the National Black Employees Caucus, the first employee resource group (ERG). A half-century later, ERGs are a ubiquitous feature of the corporate landscape.

“ERGs have formed within the workplace to support and represent people with identities and demographics related to gender, race, sexual orientation, ability/disability, caregiver roles, military status, religious affiliation, generation, geographic area, job function, and more,” writes diversity, equity, and inclusion consultant and coach Farzana Nayani in The Power of Employee Resource Groups. In this handbook, Nayani offers practical advice to leaders of companies and ERGs who want to ensure that the time and resources they invest in their own groups are well spent.

“There is much debate as to whether affinity groups and ERGs are simply there to celebrate ‘food, fun, and flags,’” writes Nayani. But that’s a reductionist view, she says, one that ignores a host of potential benefits ERGs can provide to employees, companies, and communities. Nayani ticks them off: support, opportunities, and a voice for marginalized employees; enhanced leadership development and innovation pipelines; better employee engagement; increased reputational capital for the company; and more inclusive and socially responsible corporate behaviors that can deliver dividends to the communities in which businesses operate.

The key to achieving these benefits, says Nayani, is forging an explicit connection between a company’s ERGs and its organizational goals in five areas: workforce, workplace, marketplace, community, and suppliers. “Each of these five pillars is an area of focus where employee resource groups can offer contributions and also receive the benefits of efforts focused on the key themes,” she adds. Read the rest here.

Thursday, December 8, 2022

It’s Time to Take Another Look at Blockchain

MIT Sloan Management Review, December 8, 2022

Ravi Sarathy, interviewed by Theodore Kinni

It wasn’t long after the developers of bitcoin first used a distributed ledger to record transactions in 2008 that the blockchain revolution was announced with all the fanfare that usually accompanies promising new technologies. Then, as often happens with emerging technologies, blockchain’s promise collided with developmental realities.

Now, a decade and a half down the road, that early promise is becoming manifest. In his new book, Enterprise Strategy for Blockchain: Lessons in Disruption From Fintech, Supply Chains, and Consumer Industries, Ravi Sarathy, professor of strategy and international business at the D’Amore-McKim School of Business at Northeastern University, argues that distributed ledger technology has matured to the point of enabling a host of applications that could disrupt industries as diverse as manufacturing, medicine, and media.

Sarathy spoke with Ted Kinni, senior contributing editor of MIT Sloan Management Review, about the state of blockchain, the applications that are most relevant now for large companies, and how their leaders can harness the technology before established and new competitors use it against them.

MIT Sloan Management Review: Blockchain has been slow to gain traction in many large companies. What’s holding it back?

Sarathy: Blockchain is a complex technology. It is often secured by an elaborate mathematical puzzle that is energy intensive and requires large investments in high-powered computing. This also limits the volume of transactions that can be processed easily, making it hard to use blockchain in a setting like credit card processing, which involves thousands of transactions a second. Interoperability is another technological challenge. You’ve got a lot of different protocols for running blockchains, so if you need to communicate with other blockchains, it creates points of weakness that can be hacked or otherwise fail.

Aside from the technological challenges, there is the issue of cost and benefit. Blockchain is not free, and it’s not an easy sell. It requires significant financial and human resources, and that’s a problem because it’s hard to convince CFOs and other top managers to give you a few million dollars and a few years to develop a blockchain application when they do not have clear estimates of expected returns or benefits.

Lastly, there are organizational challenges. A blockchain is intended to be a transparent, decentralized network in which everyone talks to each other without any intermediaries organized in a world of hierarchies. Making that transition can require a long philosophical and cultural leap for traditional companies used to a chain of command. Trust, too, becomes a huge issue, particularly when you start adding independent firms to a blockchain. Read the rest here.

Tuesday, December 6, 2022

Preparing Your Company for the Next Recession

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, December 6, 2022

by Donald Sull and Charles Sull

Winter is coming: Inverted yield curves, rising interest rates, and a rash of layoff announcements have convinced many economists that the global economy is headed for a downturn. Recessions are bad for business, but downturns are not destiny.

The worst of times for the economy as a whole can be the best of times for individual companies to improve their fortunes. One study found that lagging companies are twice as likely to overtake industry leaders during a recession, relative to nonrecessionary periods. Another study, of nearly 4,000 global companies before, during, and after the Great Recession, found that the top decile of companies grew earnings by 17% per year during the downturn, while the laggards saw profits stagnate or decline. The difference between the companies in the two groups translated into $6 billion in enterprise value on average.

How can the same recession cause some corporate empires to rise and others to fall? The short answer is that uncertainty surges dramatically during recessions — increasing roughly threefold at the company level compared with the relative calm before or after a downturn.

“Chaos isn’t a pit,” explains Petyr “Littlefinger” Baelish in Game of Thrones. “Chaos is a ladder.” The chaos of a recession, however, is both a pit and a ladder. In the face of uncertainty, some companies retrench. They abandon attractive customers and promising markets, offload valuable assets at fire sales, cut prices, and seek new partners to bolster cash flow. Others start climbing. They seize opportunities and improve their fortunes.

Our research has identified three fundamental ways to manage uncertainty: resilience, local agility, and portfolio agility. Leaders can take a series of steps, such as building a strong balance sheet or diversifying cash flows, to boost an organization’s resilience and ability to withstand environmental shocks. Local agility is the ability of individual business units, functions, product teams, and geographies to respond quickly and effectively to changes in their specific circumstances.

Portfolio agility is an organization’s capability to quickly and effectively shift resources across different parts of the business. While local agility enables individual teams to spot and seize opportunities, portfolio agility enables the company as a whole to double down on its most promising investments. Portfolio agility is, by some estimates, the largest single driver of revenue growth and total shareholder returns for large companies. Quickly and effectively reallocating resources is valuable at any point in the business cycle, but it’s decisive during downturns, when internal cash flows dwindle and access to external funding dries up.

Resilience and agility are effective in isolation, but in combination, their impact is turbocharged. In the midst of a downturn, resilient companies can weather the storm to wait for opportunities to arise. Having a high level of resilience — by building a war chest of cash or obtaining secure access to funding — provides an organization with the wherewithal to fund emerging opportunities, but only if it is agile enough to seize those opportunities. Resilience without agility may ensure survival but will not position a company for future growth. Agile companies without resilience, in contrast, often lack the resources to exploit the opportunities they spot. Read the rest here.

Tuesday, November 29, 2022

Three Ways Companies Are Getting Ethics Wrong

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, November 29, 2022

by David Weitzner

Making business decisions that are both ethically and strategically sound has always been incredibly tricky. Leaders are called upon to act in a manner that is consistent with their personal values, builds solidarity and trust among diverse stakeholders, enhances their company’s reputation, and prevents scandals, while also being mindful of the bottom line.

This leadership challenge is getting ever more complex. Investors are measuring companies against environmental, social, and corporate governance (ESG) indexes. Employees are demanding extensive diversity, equity, and inclusion (DEI) commitments. And customers want to buy brands that are tied to strong corporate social performance (CSP).

As counterintuitive as it might seem in the burgeoning ethical complexity of ESG, DEI, and CSP, a few companies have found that when it comes to ethics, simpler is better. They meet the demands listed above by rejecting the notion that ethics are necessarily complex. They refuse to abdicate their ethical responsibilities; they craft value propositions that do not lean on social value initiatives to obscure or distract from how the company creates financial value; and they are transparent about how they do business with all stakeholders. Read the rest here.

Tuesday, November 15, 2022

In search of clarity

strategy+business, November 15, 2022

by Theodore Kinni

Photograph by Klaus Vedfelt

I’ve never envied CEOs for the hard decisions they must make. There are the career choices that threaten their work­–life balance and families, and the strategic decisions that put companies and employees at risk. And increasingly, there are a broad range of ethical conundrums related to social justice and equity, political ideology and conflict, and environmental sustainability. 

For lucky leaders, these decisions arise infrequently. But when they do, they often require introspection as much as—or more than—algorithmic analysis. After all, how much can AI-powered analytics tell a leader about how to frame a personal and organizational response to the war in Ukraine, Florida’s Parental Rights in Education Act, or the Black Lives Matter movement?

The inherent difficulty of crafting responses to such events is compounded by a couple of conditions. There’s the mantle of power and authority that can make some top leaders reluctant to reach out for help for fear of revealing their vulnerability or appearing indecisive or uninformed. There is the issue of trust, too: even in the most collaborative corporate cultures, senior management team members and other executives have their own agendas and ambitions that can skew their advice to the CEO.

Clearness committees offer leaders a way around these obstacles and through their most difficult decisions. The concept is rooted in the values of the Quakers, the Protestant sect that emerged in England in the 17th century. It has been adapted for a more secular context in the past half-century or so, a process in which Parker J. Palmer, cofounder and senior partner emeritus of the South Carolina–based Center for Courage & Renewal, was instrumental. Read the rest here.

Wednesday, November 9, 2022

Environmental Risks Go Far Beyond Climate Change

Learned a lot lending an editorial hand here:

Boston Consulting Group, November 9, 2022

by James Tilbury, Adrien Portafaix, Rebecca Russell, and Fabien Hassan

Just as investors and other stakeholders now expect companies to reduce greenhouse gas emissions, soon companies will be expected to report and act on a much broader range of nature-related risks. These risks encompass a host of environmental and ecological impacts connected to $44 trillion in economic value generation, or nearly half of the total global GDP, according to the World Economic Forum. Nature-related emergencies—from natural disasters to the extinction of a growing number of plant and animal species—will be business emergencies, too. That is why companies must plan for the coming nature transition now.

What Are Nature-Related Risks?

Managing and mitigating nature-related risks will require a much wider lens than most companies have adopted to date. There are nine planetary boundaries that span our world—the land, sea, and atmosphere—and the life that it supports. Planetary boundaries are the boundaries that humans must stay within to maintain a stable environment and decrease the risk of irreversible environmental change.

The planetary boundary that many are familiar with is climate change, but it is important to note that climate change is one of nine, with the others being biosphere integrity, land-system change, novel entities (such as toxic substances), freshwater change, stratospheric ozone depletion, atmospheric aerosol loading, ocean acidification, and biochemical flows. 

It is only when all nine planet boundaries are taken together, that companies can begin to evaluate their exposure to nature-related risks. To do that effectively, business leaders will need to adopt a mindset of “double materiality”—that is, they will need to think through how business activities may impact each of the boundaries and, as crucially, how each of the boundaries may impact business performance.

Although some companies have greater exposure to environmental and ecological degradation and collapse than others, the leaders of all companies need to adopt a more comprehensive approach to nature-related risks. As with climate change, customers, employees, and governments will demand it. In addition, investors will require it, especially large investors with diverse portfolios that are particularly vulnerable to the systemic threats arising from natural disasters and ecosystem collapse. Read the rest here.

Monday, November 7, 2022

Get Ready for the Next Supply Disruption

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, November 7, 2022

by M. Johnny Rungtusanatham and David A. Johnston

Michael Austin/

The COVID-19 pandemic has ushered in an era of supply chain disruption and unpredictability that has severely challenged many companies’ planning and processes, and revealed how far prevailing practices are from the ideal. An MIT Center for Transportation and Logistics poll conducted online at the onset of the pandemic revealed that only 16% of organizations had an emergency response center — an established best practice for mitigating and recovering from unplanned interruptions in the physical flow of goods.

Unsurprisingly, given the pandemic’s disruptive effects, the same poll found that the highest ambition of supply chain managers was to bolster their risk management protocols and tools. The problem with crisis-driven supply chain initiatives that are focused on protocols and tools is that they are only as effective as the ability of the organization to use them. Having that ability requires the systematic development of capabilities to manage for supply disruptions. These capabilities are combinations of people, policies, processes, and technologies that ensure companies can not only plan for and respond to known business and operating risks but also — and more importantly — manage unknown-but-knowable threats and their associated consequences.

We’ve identified six capabilities that fill this bill: anticipate, diagnose, detect, activate resources for, protect against, and track threats. Together, they constitute the ADDAPT framework, which is based on our research into how public agencies and private enterprises experience and respond to supply disruptions like the COVID-19 pandemic. In medicine, pathology is aimed at understanding the causes and effects of a disease to guide treatment. Similarly, the ADDAPT capabilities help companies understand the causes of supply disruptions and their immediate and long-term effects, in order to both respond to unfolding supply disruptions and prevent their recurrence. Read the rest here.

Tuesday, October 18, 2022

Did Jack Welch Blow Up the Business World?

MIT Sloan Management Review, October 18, 2022

by Theodore Kinni

“The history of the world is but the biography of great men,” wrote 19th-century Scottish historian Thomas Carlyle. With The Man Who Broke Capitalism, New York Times business reporter David Gelles attempts to resuscitate the hoary “great man” theory of leadership in a backhanded sort of way. He calls out the late Jack Welch, the General Electric CEO whom Fortune magazine anointed “manager of the century” in 1999, as the evil mastermind behind the litany of economic woes rooted in shareholder capitalism gone wild, but he pays scant attention to their root causes.

When Welch took up the reins at GE in 1981, it was not a prosperous time in America’s economic history. The post-World War II boom was on its last legs: America’s industrial giants were sinking under their own weight, and foreign companies, especially those from Japan and Germany, were making inroads the size of superhighways into the U.S. consumer market. GE, then one of the nation’s leading companies, was languishing in the slow growth environment too.

If you were in business in the 1980s and ’90s, Gelles’s recounting of Welch’s tenure at GE will be a familiar story. “Neutron Jack” cut head count and instituted an annual employee ranking scheme that required that employees in the lowest decile be fired. The company’s business units had to be No. 1 or 2 in their market or they were jettisoned. Meanwhile, Welch chased new growth opportunities in financial services and media — soon, GE Capital alone accounted for more than half of the company’s profits.

The results? “During [Welch’s] tenure, GE posted annualized share price growth of about 21% a year, far outpacing the S&P 500 even during a historic bull market,” writes Gelles. “When Welch took over, GE was worth $14 billion. Two decades later, the company was worth $600 billion — the most valuable company in the world.” Read the rest here.

Tuesday, September 13, 2022

Manage Your Customer Portfolio for Maximum Lifetime Value

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, September 13, 2022

by Fred Selnes and Michael D. Johnson

Traci Daberko/

Many companies have embraced the importance of creating closer, more valuable relationships with customers. But most do little to actively manage their portfolios of weaker and stronger relationships, other than keeping them diversified. They’re missing significant opportunities.

When we wrote about customer portfolio management (CPM) and our research into customer portfolio lifetime value (CPLV) for this publication in 2005, we emphasized the need to balance a “large, leaky bucket” of weaker customer relationships alongside closer and higher-value customer relationships. But according to our latest research, there is much more that businesses can and should be doing to drive future revenue. These actions depend on both market conditions and a company’s resources.

Growing a company’s customer portfolio requires continual investments across a range of weaker to stronger relationships. Our updated CPLV model shows that a clear understanding of when and how much to invest in, leverage, and defend different customer relationships is an essential determinant of both current and future revenues and costs.

Most companies lack a basis for developing this understanding. Business leaders seeking to optimally manage the ecosystem of customer relationships face a complex problem — and for most, de facto CPM practices are more likely to focus myopically on either current sales or their most valuable customers. However, our model shows that what’s really required is to integrate multiple dimensions (not just scale, but also variances in customers’ needs and wants) and tactics (relationship conversion, leverage, and defense) across the whole customer portfolio.

Our CPM framework and CPLV model enable executives to answer the following key questions as they seek to grow and optimize their company’s customer portfolio:
  • How central is developing customer relationship strength to our strategy and competitive advantage? More specifically, when and how much should we invest in converting weaker relationships to stronger relationships?
  • How do we leverage these investments once relationships are created?
  • How do we protect the relationships we have created to minimize customer churn?
The CPM framework we’ve constructed and applied over the past two decades rests on a fundamental principle: It’s in a company’s best interest to view its market strategy as a long-term investment in the strength of relationships over an entire portfolio of current and future customers. Its core element is the segmentation of customers by their relationship with a brand — progressing from strangers to acquaintances to friends and, finally, to partners.

Our CPLV model illuminates how these relationships relate to the value proposition of a company by predicting a seller’s future revenues from and costs associated with the different relationship segments. These predictions are based on a set of parameters that includes market growth over the course of a product life cycle, unit cost over time, the cost and probability of deepening relationships, relationship premiums, and switching costs and probabilities. By running extensive simulations within the model, we have identified three explicit goals for an effective CPM growth strategy: relationship conversion, relationship leverage, and relationship defense. Read the rest here

Thursday, September 8, 2022

How Smart Products Create Connected Customers

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, September 8, 2022

Jon Krause/

As leaders of legacy product and service companies anchored in traditional value chains seek ways to prosper in the digital economy, one of the most important questions they can ask is, “How can we turn our existing customers into digital customers?” Digital customers don’t simply buy products and services: Their interactions with those products and services generate data that companies leverage to provide them with greater value over time. Those data insights also help companies attract new customers, create fresh revenue streams, and expand the scope of their businesses. This customer-generated data, which is often combined with other data streams, has fueled the growth engines of companies built on digital platforms, like Amazon and Google.

Legacy companies typically collect episodic data from discrete events — the sale of a product or the shipment of a component, for instance. Amazon and Google capture a continuous stream of data at every customer touch point on their platforms that is used to generate a new class of insights that play a more expansive role in their businesses. All of their customers are digital customers. Now, thanks to technologies such as sensors, the internet of things (IoT), and artificial intelligence, legacy firms, too, can transform their customers into digital customers who generate streams of data via their interactions with connected products.

Sleep Number uses sensors in its mattresses to track its customers’ sleeping heart rates and breathing patterns. This data enables the company to identify chronic sleep issues, such as sleep apnea and restless legs syndrome, and expand its business scope beyond mattresses to wellness provision. Sensors on Caterpillar heavy machinery produce data that enables the company to track wear and tear, predict component failures, and create new revenue streams from maintenance services. Chubb is installing sensors in the buildings it insures to detect water leaks before they become claims. In this way, the company is expanding beyond damage compensation to damage prevention.

For all its promise, harnessing value from digital customers also brings new challenges for legacy companies. They must develop new value propositions, build out their data infrastructures and strategies, staff for new digital and product design capabilities and competencies, and rework innovation processes to create a feedback loop using valuable customer interaction data. And they must learn to market and sell their new value proposition to create a new digital customer base — and reap the benefits of their digital transformation. Read the rest here.

Thursday, August 25, 2022

How “Corporate Explorers” Are Disrupting Big Companies From the Inside

Insights by Stanford Business, August 24, 2022

by Theodore Kinni

|iStock/Alexey Yaremenko

The conventional wisdom holds that disruptive innovation is beyond the ken of large, incumbent companies. But then there are companies like Microsoft, which transformed its ubiquitous Office software suite into the Office 365 subscription service. “If Microsoft had done that as a startup, it would be a multi-unicorn,” says Andrew Binns, a founder and director of the strategic innovation consultancy Change Logic. “Office 365 is a whole new business model, but nobody talks about it as disruptive innovation.”

Binns, along with Charles O’Reilly, a professor of organizational behavior at Stanford Graduate School of Business, and Michael Tushman of Harvard Business School, finds that more and more established companies are overcoming the obstacles to innovation with the help of what they call corporate explorers. Corporate explorers are managers who build new and disruptive businesses inside their companies. Sometimes with a formal mandate, sometimes not, they use corporate assets to support and accelerate the development of these new ventures.

Binns, O’Reilly, and Tushman studied a number of these entrepreneurial insiders and report their findings in The Corporate Explorer: How Corporations Beat Startups at the Innovation Game. The book builds on the trio’s continuing research into ambidextrous organizations — companies that succeed over the long haul by simultaneously exploiting their existing businesses and building new ones that drive future growth.

In a recent interview, O’Reilly and Binns described the traits of corporate explorers and the conditions they need to thrive. Read the rest here.