The Truth About Corporate Transformation

Learned a lot editing this article from the BCG Henderson Institute:

MIT Sloan Management Review, January 31, 2018

by Martin Reeves, et. al.

Corporate transformation sits atop the strategic agenda for many CEOs. While transformation is ideally undertaken preemptively, in practice it is much more commonly a reaction to changing — and challenging — circumstances. Such transformations represent a fundamental and risk-laden reboot of a company, with the goal of achieving a dramatic improvement in performance and altering its future trajectory.

Given the stakes, we were startled to find that the research underpinning the design and execution of corporate transformations is surprisingly thin. As a result, transformations are often guided by beliefs that, while seemingly plausible, are more anecdotal than empirical in nature. It’s time for a more evidence-based approach.

To study corporate transformation and its success factors, we analyzed financial and nonfinancial data of all U.S. public companies with $10 billion or more market cap between 2004 and 2016. We identified companies with a demonstrated need for fundamental change, namely, those companies with an annualized deterioration, relative to their industry average, in total shareholder return (TSR) of 10 percentage points or more over two years. This definition provided us with a large data set for empirical analysis including more than 300 companies across different industries over more than a decade.

Further, we trained a proprietary algorithm to quantify the strategic orientation of companies, based on semantic patterns within the “Management’s Discussion and Analysis” section of 70,000 10-K filings. We built a prediction model to identify formalized transformation programs, based on restructuring costs and major corporate announcements (as reported by Standard & Poor’s Financial Services LLC). And we conducted a multivariate regression analysis to determine the impact of a number of factors on change in TSR during transformations...Read the rest here.

How to Lead Cynics

strategy+business, January 30, 2018

by Theodore Kinni

We (and by we, I mean a random sample of American adults) have a pretty cynical opinion of you (and by you, I mean business executives). According to a Gallup poll conducted in December, 28 percent of us rate your honesty and ethical standards as low or very low, 54 percent rate them as average, and just 16 percent rate your honesty and ethics as high or very high. To put this in perspective, business executives rank just below lawyers. Among the 22 professions covered in the survey, only advertising practitioners, members of Congress, car salespeople, and lobbyists rank lower.

It’s certainly not my place or my intention to impugn the honesty and ethics of any single business leader, or any professional for that matter. But there is clearly a lot of cynicism out there these days. So if you’re not good at leading cynical people, chances are you’re not good at leading a lot of the people you’re supposed to be leading.

I like to think I know a bit about what it takes to lead cynical people because I’m one of them, by nature and by nurture. Often, business leaders are advised not to hire people like me. The conventional wisdom holds that cynics’ jaundiced world view makes us too difficult to be led. Worse, our rotten attitudes are going to infect our coworkers.

This is untrue. It’s possible that a small number of us are truly irredeemable cynics. But most of us are not. “Scratch any cynic and you will find a disappointed idealist,” as George Carlin, the late, great comedian (and a world-class cynic), put it. Cynics can make great employees, but only if you can allay our suspicions about your motives and reignite our idealism. To achieve that, I earnestly propose three simple guidelines. Read the rest here.

When a Japanese Company Adopted English as a First Language

strategy+business, January 23, 2018

by Theodore Kinni

On March 1, 2010, Hiroshi Mikitani, the founder and CEO of Rakuten, a Japan-based e-retailer, announced that henceforth English would be the official language of the company’s 10,000 employees. Moreover, declared Mikitani, who often was billed as Japan’s Jeff Bezos, any employee who didn’t become fluent in English within two years would face demotion.

The initiative, dubbed “Englishnization” by Mikitani, shocked Rakuten’s 7,000 or so Japanese employees — 95 percent of whom did not speak their employer’s newly established lingua franca. It also made headlines around the world, and drew some domestic fire: “It’s stupid for a Japanese company to only use English in Japan when the workforce is mainly Japanese,” said Honda Motors CEO Takanobu Ito. (Five years later, Ito would be out and English would be in at Honda, too.)

Rakuten’s Englishnization didn’t shock Tsedal Neeley, author of The Language of Global Success: How a Common Tongue Transforms Multinational Organizations. “By mandating English,” writes the associate professor at Harvard Business School, “Rakuten was prepared to join the approximately 52 percent of multinational companies that had adopted a language different from that of their originating country in order to better meet global expansion and business needs.”

In The Language of Global Success, Neeley reports the results of her five-year longitudinal study of the initiative, which began a couple of months after Mikitani’s announcement. She also ticks off the reasons companies need a lingua franca. Communication and knowledge exchange top the list. Rakuten was operating in a fast-moving and highly competitive sector. And by 2010, the 13-year-old company was pursuing a strategy of global expansion. It was clear to Mikitani that the language barriers within Rakuten were bogging down everything — integration of acquisitions, management of business units in 27 countries, the minutiae of daily work. For instance, an email from an English-speaking employee in the U.S. to a Japanese colleague required translation, as did the reply and any additional messages — and the translations themselves often required interpretation. As you might guess, even simple exchanges could drag on for days. Read the rest here.

Five Principles for Organizing Collective Intelligence

Sloan Management Review, January 3, 2017

by Theodore Kinni

Collective intelligence is nothing new. Back around 400 BC, the Greek historian Thucydides described how a “great many” soldiers counted the bricks in the wall of a besieged town and their individual totals were compared to determine the correct height for the assault ladders needed to capture it.

Geoff Mulgan, CEO of Nesta, the U.K.’s National Endowment for Science, Technology and the Arts, and a senior visiting scholar at Harvard University’s Ash Center, relates the story in his insightful new book, Big Mind. The book is about how the “collective” in collective intelligence works. That is, of course, a very timely topic now that technology has not only enabled us to muster larger collectives of intelligence than ever, but also has expanded them to include smart machines. Witness the entire open-source movement.

Big Mind is notable for a number of reasons. One of them is that we don’t have a lot of guides for managing and optimizing collective intelligence, in contrast to the shelves and shelves of books describing how to optimize the output of individual brains. Another reason is the five fundamental principles that Mulgan offers, in the excerpt below, in a nuanced answer to the question: “What is it, at the micro and macro levels, that allows collective intelligence to flower?” Read the excerpt here