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Leadership at Toyota…page 78 How to Stop Suite Crime…page 70 www.hbr.org May 2004 58 Coaching the Alpha Male Kate Ludeman and Eddie Erlandson 70 The HBR Interview Eliot Spitzer: How to Restore the Fiduciary Relationship Louise O’Brien 78 Learning to Lead at Toyota Steven J Spear 92 The Risky Business of Hiring Stars Boris Groysberg, Ashish Nanda, and Nitin Nohria 102 Building Better Boards David A Nadler 18 Forethought Tame the Beast …page 58 33 HBR Case Study Oil and Wasser Byron Reimus 49 Different Voice Passion for Detail: A Conversation with Thoroughbred Trainer D Wayne Lukas 122 First Person Telling Tales Stephen Denning 131 Best Practice Can Absence Make a Team Grow Stronger? Ann Majchrzak et al 148 Executive Summaries 155 Panel Discussion If you still think of Pitney Bowes as the postage-meter people, here's a thought: Today, we're working with nearly every FORTUNE 500 company, engineering solutions that go far beyond the mailroom By optimizing the flow of documents, mail and data that stream into and out of your organization, we can transform it into a powerful tool for advancing business The results can be extraordinary: From more-profitable customer relationships to improved cash flow; a safer, more-secure operation to 24/7 backup in case of disaster The list is virtually endless But, then, so are our ideas Hopefully, we're piqued your curiosity But we can assure you that it will be fully rewarded with a visit to pb.com/solutions Or, if you prefer, a call to 866 DOC FLOW ©2004 Pitney Bowes Inc All Rights Reserved HBR 58 Features 102 May 2004 58 Coaching the Alpha Male 70 Kate Ludeman and Eddie Erlandson Some seven out of ten top executives are alpha males And no wonder – highly intelligent, confident, and successful, alphas are natural leaders who thrive on levels of responsibility most people would find overwhelming But those very strengths can also drive their coworkers crazy That’s why alphas, and the teams that depend on them, need coaching to make the most of their leadership strengths 70 How to Restore the Fiduciary Relationship: An Interview with Eliot Spitzer Louise O’Brien “One jail term is worth a lot of compliance officers,” says New York State attorney general and corporate reformer Eliot Spitzer, who was behind the $1.4 billion global settlement between regulators and banking houses in 2003 What’s really needed, Spitzer suggests, is for all businesses–and not just securities firms – to recognize their fiduciary duty to customers and shareholders 78 Learning to Lead at Toyota Steven J Spear Despite countless attempts to copy Toyota’s famous production system, few companies have been able to match the carmaker’s performance In part, that’s because a special kind of training is needed Here’s how Toyota brought one fast-track management recruit up to scratch 92 The Risky Business of Hiring Stars Boris Groysberg, Ashish Nanda, and Nitin Nohria Before you start your next campaign to lure away a competitor’s star, be warned: She’ll never glow as brightly for you An extensive and penetrating study shows why it’s better to create your own stars than to hire someone else’s 102 Building Better Boards David A Nadler Governance reform isn’t just about cleaning house An ambitious board-building process – one that marshals the right people, agendas, information, and culture – can turn a good board into a great one continued on page COVER ART: DANIEL ADEL 78 92 harvard business review Continental Airlines flies 24/7 They asked Xerox to plot a course to create and track maintenance advisories digitally Result? Paper’s eliminated Uptime’s sky high There’s a new way to look at it Learn more: www.xerox.com/learn Or call: 1- 800 - ASK- XEROX ext LEARN © 2004 XEROX CORPORATION All rights reserved XEROX,® The Document Company® and There’s a new way to look at it are trademarks of XEROX CORPORATION HBR D e pa r t m e n t s May 2004 10 88 FROM THE EDITOR S T R AT E G I C H U M O R Alpha Bets Whether they’re alpha-male CEOs or hotshot stock analysts, corporate stars tend to forget that their success derives from the talents of their teams and the cultures of their workplaces They underestimate the contribution of the many to the success of a few 20 122 Telling Tales Stephen Denning Leaders who spin an effective yarn have the power to persuade and, ultimately, to effect change So what separates the winners from the windbags? Knowing what type of story to tell in a particular situation FORETHOUGHT 18 19 20 21 26 30 Management Lessons from Mars Found In Translation Whining Away the Hours Audit Committees Can’t Add Stock-Outs Cause Walkouts Books in Brief 33 HBR CASE STUDY 33 131 Ann Majchrzak, Arvind Malhotra, Jeffrey Stamps, and Jessica Lipnack The short answer is yes – far-flung teams can be even more productive than those that work face-to-face, if they’re managed correctly An extensive benchmarking study of the most successful virtual teams reveals how they turn distance and diversity into competitive advantage Byron Reimus 49 BEST PRACTICE Can Absence Make a Team Grow Stronger? Oil and Wasser Is it the British–German culture clash that’s tearing apart this international merger of cookie makers? Maybe the real problem is that the “merger of equals” is just a takeover in disguise Or that the two firms’ executives are scared to death of becoming irrelevant in the brave new merged world FIRST PERSON 49 144 LETTERS TO THE EDITOR By exercising the three levers of IT – IT resource management, IT work management, and IT demand management – companies can not only understand, but systematically maximize, IT’s contribution to the business DIFFERENT VOICE Passion for Detail: A Conversation with Thoroughbred Trainer D Wayne Lukas 122 What wisdom can a horse trainer offer to a corporate manager? How to spot talent early and develop it into worldclass form, despite the fact that the talent – equine or human – can be headstrong, sensitive, or, yes, even lazy 148 EXECUTIVE SUMMARIES 155 PA N E L D I S C U S S I O N They Can Take It with Them Don Moyer When knowledge assets sail out the door with employees, companies soon miss what they didn’t know they had 131 harvard business review | ASSET MANAGEMENT | A Passion to Perform Aiming higher Here’s to the head start To the will to win through At Deutsche Bank we share your passion to hit the ground running, to seize the opportunity, to make it happen It’s what makes us one of the world’s leading financial institutions And it’s why the most demanding clients in the US, and around the world, trust us to perform Across disciplines, across regions With absolute dedication, leading-edge insights, powerful solutions Are you ready? ‘Bank of the Year’ IFR Awards 2003 Deutsche Bank Securities Inc., a subsidiary of Deutsche Bank AG, conducts investment banking and securities activities in the United States PRIVATE WEALTH MANAGEMENT www.deutsche-bank.com CORPORATE & INVESTMENT BANKING t o L e t t e r s t h e E d i t o r Getting IT Right The three IT execution principles that Charlie S Feld and Donna B Stoddard articulate in “Getting IT Right” (February 2004) are certainly useful But I can’t help wondering: Why only three principles? Why not four? Or 40? And how exactly are these “gears” interdependent? Companies seeking to enhance business value through IT investments must apply an analytical approach that is rigorous and complete The effective managing of IT involves converting the IT It’s been 40 years since the advent of modern IT, yet few companies it well If you stick to three central principles, you can turn IT from a costly mess into a powerful weapon Getting Right IT by Charlie S Feld and Donna B Stoddard O 72 CAMPBELL LAIRD f all the members of the executive committee, the CIO is the least understood – mostly because his profession is still so young Over the centuries, the fields of manufacturing, finance, sales, marketing, and engineering have evolved into a set of commonly understood practices, with established vocabularies and operating principles comprehended by every member of the senior team By contrast, the field of information technology – born only 40 years ago with the advent of the IBM 360 in 1964 – is prepubescent This generation gap means that, in most organizations, the corporate parent – caught in the linguistic chasm between tech-speak and business-speak – has no idea what its youngest child is up to Management too often shrugs its shoulders, hands the kid a fat allowance, and looks the other way Later on, the company finds it’s paid an outrageous price for the latest technological fad Instead of addressing the problem, many companies just kick the kid out of the house harvard business review february 2004 73 budget into IT resources, translating IT resources into IT output, and delivering business value from that IT output Therefore, to maximize the business value of IT, management has three possible levers: IT resource management, IT work management, and IT demand management, corresponding to the three conversions, respectively There are many techniques for exercising each of these levers For example, the first gear the authors propose is to have a long-term IT plan – an excellent example of a demand management technique that maximizes the ratio of business value to IT output In the arti- cle, Feld and Stoddard highlight the Frito-Lay example: Of all the revamping techniques the company could have focused on, it opted for those that supported the sales effort, which led to increased revenues and reduced costs But there are many other demand management techniques the company could have employed, such as ensuring that the benefits of IT projects exceed their costs, controlling request flows from the business to IT, and applying portfolio management methods that, for example, minimize investments in low-value applications The authors’ second and third gears demonstrate work management techniques A unifying IT platform and a high-performance IT culture aim to improve the ratio of IT output to IT resources The refocusing work done at Delta Air Lines and Burlington Northern and Santa Fe Railroads offers useful illustrations of work management However, those organizations could have used other work management techniques, such as separating projects from services, flattening the organization, and reducing technical variety through standardization The resource management lever (not covered in the article) seeks to obtain the most IT resources per dollar or, conversely, a given amount of IT resources for the fewest dollars Resource management techniques include pooling purchasing power and sending work offshore The three-lever framework I’ve outlined above not only classifies and suggests metrics for initiatives aimed at improving the business value of IT, but it also helps executives prioritize those initiatives Of the three levers, demand management is the most powerful Ob- We welcome letters from all readers wishing to comment on articles in this issue Early responses have the best chance of being published Please be concise and include your title, company affiliation, location, and phone number E-mail us at hbr_letters@hbsp.harvard.edu; send faxes to 617-783-7493; or write to The Editor, Harvard Business Review, 60 Harvard Way, Boston, MA 02163 HBR reserves the right to solicit and edit letters and to republish letters as reprints 144 harvard business review viously, it will not matter how inexpensive IT resources are or how efficiently they produce IT output if that output is not directed at the most worthwhile business opportunities Companies can have a direct line of sight into IT’s business contributions and can maximize them in a systematic way The three levers provide a complete, rigorous framework for all such initiatives – including those described in Feld and Stoddard’s article Eugene G Lukac Partner CSC’s Consulting Group Waltham, Massachusetts Measuring the Strategic Readiness of Intangible Assets The theoretical model that Robert S Kaplan and David P Norton present in their article “Measuring the Strategic Readiness of Intangible Assets” (February 2004) offers a systematic method for determining how these critical resources translate into high performance But the proposed model appears to be in conflict with the simplicity and integration of the Balanced Scorecard, on which the model is based Implementation would be difficult Such a scoring system, based on subjective evaluation, could result in significant organizational conflict and may not be applicable to an entire organization If alignment alone drives an organization’s priorities, cultural conflicts may arise Alignment is more or less a theoretical construct, and while it is important, strategy should be driving the priorities Some friction within an organization can be advantageous, creating internal competition and enhancing the mobilization of intangible assets The measurement process that the authors propose is subjective and, when linked to compensation, could create silos within an organization may 2004 Managers should be cautious about developing a long list of metrics that fit into the areas of human, information, and organizational-readiness capital discussions Companies should identify a short list of key measures that can be easily communicated to all internal stakeholders The authors’ suggested assessments (shown in red, yellow, and green in the article’s accompanying exhibits) may reveal both positive and negative trends; however, such assessments depend on who is interpreting the vision Thus, in an attempt to move intangible assets toward objective measure, the authors have in fact introduced complex subjective measures While the theoretical model the authors present clearly represents an important extension of the Balanced Scorecard, it could more harm than good Students of the executive MBA class of 2004 Hankamer School of Business Baylor University Waco, Texas Kaplan and Norton respond: We appreciate the Baylor EMBA students’ endorsement that our paper represents an important extension of the Balanced Scorecard But we disagree with several of their other statements For example, they refer to our article being “theoretical,” implying that it is neither grounded nor easily applied Both implications are incorrect The strategic readiness model represents a synthesis of the actual experiences of the Balanced Scorecard Collaborative with human resources groups from several dozen organizations during the past four years It is grounded in experience, and it has been readily implemented by many organizations The students imply a potential conflict between strategy and alignment We build on Michael Porter’s observation that a sustainable differentiation strategy arises from creating a unique and inimitable alignment of activities The strategy map helps organizations align their processes, people, systems, and innovation toward shared strategic objectives The students also express concern about the subjectivity of measures that may be required for many intangible assets Precision and verifiability are relevant considerations, but they are hardly primary when choosing measures for strategic objectives We have always preferred, when selecting measures, to be approximately correct rather than precisely wrong In our experience, organizations have relied on a well-developed body of knowledge on testing and measuring employee competencies to quantify the strategic readiness of their human resources The measures are sufficiently objective and valid for managers to use for communication, target setting, resource allocation, and interactive problem solving However, some measures of intangible assets may not be sufficiently free from manipulation to be included in formula-based compensation plans In those cases, elements of compensation can be determined subjectively, which is preferable to having all incentive pay calculated by a formula using measures that are verifiable but incomplete Several managers have told us that the learning and growth perspective is the “black hole” of their Balanced Scorecards We hope that our recent work has shed some light on this and will encourage others to enhance the measurement and alignment of their intangible assets to strategy How We’re Fixing Up Tyco In “How We’re Fixing Up Tyco” (December 2003), author Eric M Pillmore explains that Tyco’s new management assigns top priority to practicing good governance and being a model of ethical 145 LETTERS TO THE EDITOR corporate behavior He forgot to mention that Tyco still doesn’t believe in paying taxes Tyco continues to maintain its official incorporation in Bermuda, where it has no assets American citizens and corporations pay taxes to support the nation’s security, its democracy, and the wellbeing of its people Justice Oliver Wendell Holmes said, “Taxes are what we pay for a civilized society.” Tyco’s new management evidently does not consider this to be a matter that falls within a governance framework The Bermuda matter is only one of numerous issues that Pillmore ignores in his article For instance, he sweeps past the fundamental roles that the board of directors and top management play in good corporate ethics and governance He suggests that all is now fine at Tyco and that the key challenge is to understand that “governance goes beyond the board.” Well, yes, it does, but rank-and-file Tyco employees didn’t bring the company down, Tyco’s leadership did If there is to be a new image, then work must start with the board Given all of the abuse handed out by Tyco’s former chairman and CEO, it is incredible that the board has not sought to curb the power of the top manager Despite all that has happened, Tyco’s board has made Ed Breen both chairman and CEO Tyco has a “lead director,” but this is a far less powerful post than the position of nonexecutive chairman would be In his article, Pillmore declares that “the completion of the Guide to Ethical Conduct was a major milestone in our governance efforts.” The reality is that this guide will be merely a footnote unless the board explicitly demonstrates that Tyco’s code is a living document, that top priority is assigned to the code’s application, and that every aspect of sound corporate ethics is independently and accurately monitored A good start would be a decision by the board to end Tyco’s phony ties to Bermuda Frank Vogl President Vogl Communications Washington, DC 146 Pillmore responds: Tyco adds tremendous economic benefit to the United States by providing about 100,000 service and manufacturing jobs Our expected normalized tax rate for fiscal year 2004 is 27% When you compare that rate to those for similar industrial companies, there is no doubt that Tyco pays its share of taxes The reader’s criticism of Tyco’s Bermuda charter reflects a lack of understanding of our corporate history Tyco became a Bermuda company in 1997, when it merged with another publicly traded company, ADT, which had been a Bermuda-chartered organization since 1984 To facilitate the merger, the transaction was structured so that ADT was the surviving entity, and ADT was subsequently renamed Tyco International Tyco’s Bermuda status is not the result of a flight from taxation but rather the consequence of a legitimate combination of two publicly traded companies The reader would clearly prefer to see a nonexecutive chairman in place, but few well-governed companies have embraced that model In fact, many such companies are opting for the leaddirector approach that Tyco uses As the company’s lead director, Jack Krol, the former chairman of DuPont, helps set the board agendas, facilitates communications between directors, works with the CEO to assure information flow to the board, and chairs an executive session of independent directors at each formal board meeting In those executive sessions, the CEO is not present, and directors are free to discuss any matter By focusing on the issue of “lead director versus nonexecutive chairman,” the reader misses the broader story of Tyco’s innovative reforms aimed at strengthening the independence of the board For example, we took steps to strengthen the board’s ability to independently monitor governance and compliance within the company To that end, we created the position of corporate ombudsman, a post that reports directly to the board’s audit committee, giving the board direct insight into ethics and compliance issues raised by employees and other stakeholders The vice president of corporate auditing also reports to the board’s audit committee, giving the independent directors who make up that committee direct oversight of the internal review of financial accounting within Tyco Similarly, as the senior vice president of corporate governance, I report to the board’s independent nominating and governance committee I will be the first to admit that building a world-class corporate governance structure at Tyco is a work in progress But we have made tremendous strides, and we are well on our way toward reaching our goal of becoming a bestpractice company in the corporate governance arena Cosmetic Psychopharmacology I was disappointed in Ellen Peebles’ article, “Cosmetic Psychopharmacology” (The HBR List, February 2004) In effect, the article promotes the use of drugs in the business world to create “better than well,” or enhanced, behaviors Some of the drugs mentioned are serious medications that can have a profound effect on people’s actions New research has determined, for example, that Paxil may increase the likelihood of violence and suicide in children and teenagers Considering the fact that drug abuse is a major national and international issue, I am incredulous that the editorial staff of HBR would allow such an article to appear among a list of management concepts deemed “Breakthrough Ideas for 2004.” The author does note that “pharmacological Calvinism”leads many to avoid taking drugs But she negates that by saying,“For business, that may be a bigger problem than the danger that some people will pop pills they don’t need.” For an institution that prides itself on instilling ethics, and in today’s business environment, such drug advocacy is particularly inappropriate Dave Gee Self-employed consultant Lafayette, California harvard business review LETTERS TO THE EDITOR It’s Time to Retire Retirement “It’s Time to Retire Retirement”(March 2004), by Ken Dychtwald, Tamara Erickson, and Bob Morison, is a timely clarion call for employers to recognize and capitalize on the value of older workers One need not, however, accept dire predictions of a looming talent shortage to make the business case for attracting and retaining such workers Regardless of future workforce demographics, employers need to determine which attributes of certain older employees translate into unique contributions to their enterprise This perspective is consistent with viewing workers as human capital–in other words, seeing people as a differentiated investment, rather than as a mass undifferentiated expense When engaging in workforce planning, human resource professionals need to systematically apply the notion that “wisdom comes with age” (not- withstanding the many cases where age has come all by its lonesome self) Starting with a definition of wisdom that is specific to their industry, employers need to conduct a wisdom inventory of their workforce The goal of taking such an inventory is to identify those individuals whose employment and life experiences have endowed them with unique insights into their business and who have demonstrated the rare capacity to make sage judgments in changing environments This effort should not be limited to the executive suite or managerial ranks Without a deliberate and carefully executed plan to retain the right individuals in the aging segment of their workforces, employers run the risk of a significant wisdom withdrawal because of premature retirements Such a drain of human capital is likely to harm both the employer (especially if, as the authors note, these high-value workers deploy their capabilities on behalf of competitors) and the individual work- ers, who, if they retire, will be deprived of the fulfillment that comes from being engaged in productive work Our nation will also suffer from the loss of older Americans who still have so much to offer Along with the authors’ proposals for flexible work and retirement arrangements, there is much that employers can to manage this risk, from redesigning compensation and benefit plans, to instating sound retirementplanning programs, to instituting leadership development and training activities that explicitly focus on wisdom as a recognized and transferable quality The authors correctly argue that as millions of boomers reach early retirement age, time is running out Employers need to establish strategies that focus on this vital segment of their workforce William J Arnone Partner, Human Capital Ernst & Young New York Executive Summaries Page 18 FORETHOUGHT Management Lessons from Mars May 2004 Leadership at Toyota…page 78 How to Stop Suite Crime…page 70 NASA’s fabled Faster, Better, Cheaper initiative sped up the agency’s spacecraft development But when missions began to fail, it was faulty organizational learning – not hardware – that was to blame Reprint f0405a www.hbr.org May 2004 Found In Translation 58 Coaching the Alpha Male Kate Ludeman and Eddie Erlandson 70 The HBR Interview Eliot Spitzer: How to Restore the Fiduciary Relationship Louise O’Brien 78 Learning to Lead at Toyota Steven J Spear 92 The Risky Business of Hiring Stars Boris Groysberg, Ashish Nanda, and Nitin Nohria 102 Building Better Boards David A Nadler 18 Forethought Tame the Beast …page 58 33 HBR Case Study Oil and Wasser Companies struggling to rejuvenate tired brands may want to look east SoBe beverages, Nissan, and others are exploiting Westerners’ fascination with products that are – or merely seem – Asian Reprint f0405b Byron Reimus 49 Different Voice Passion for Detail: A Conversation with Thoroughbred Trainer D Wayne Lukas 122 First Person Telling Tales Stephen Denning 133 Best Practice Can Absence Make a Team Grow Stronger? Ann Majchrzak et al 148 Executive Summaries 155 Panel Discussion Whining Away the Hours If they know the unwritten rules about how people in their companies whine, to whom, and about what, managers can determine where not to put their problemsolving energies Reprint f0405c Audit Committees Can’t Add COMING IN JUNE 2004 What Makes an Effective Executive Peter F Drucker University of Chicago’s Roman Weil charges that many audit committee members are financially illiterate – and he has the test results to prove it Reprint f0405d Stock-Outs Cause Walkouts Redefining Competition in Health Care Michael E Porter and Elizabeth Olmsted Teisberg HBR Spotlight: Intangible Assets Sharpening the Intangibles Edge Baruch Lev Capitalizing on Capabilities Dave Ulrich and Norm Smallwood 148 A study of more than 600 retail outlets finds that stock-outs are far more costly than most companies imagine Reprint f0405e Books in Brief HBR reviews four business books: The Empty Cradle: How Falling Birthrates Threaten World Prosperity and What to Do About It; Death by Meeting: A Leadership Fable… About Solving the Most Painful Problem in Business; Religion and the Workplace: Pluralism, Spirituality, Leadership; and The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead harvard business review Page 33 Page 49 H B R C A S E ST U D Y DIFFERENT VOICE Oil and Wasser Passion for Detail: A Conversation with Thoroughbred Trainer D Wayne Lukas Byron Reimus It was supposed to be an amicable “merger of equals,” an example of European togetherness, a synergistic deal that would create the world’s second-largest consumer foods company out of two former competitors But the marriage of entrepreneurial powerhouse Royal Biscuit and the conservative, family-owned Edeling GmbH is beginning to look overly ambitious Integration planning is way behind schedule Investors seem wary But for Royal Biscuit HR head Michael Brighton, the most immediate problem is that he can’t get his German counterpart, Dieter Wallach, to collaborate on a workable leadership development plan for the merged company’s executives And stockholders have been promised details of the new organizational structure, including a precise timetable, in less than a month The CEO of the British company – and of the postmerger Royal Edeling – is furious It’s partly a culture clash, but the problems may run deeper than that The press is harping on details that counter the official merger-of-equals line For instance, seven of the ten seats on the new company’s management board will be held by Royal Biscuit executives Will the clash of cultures undermine this cross-border merger? Commenting on the fictional case study are Robert F Bruner, the executive director of the Batten Institute at the University of Virginia’s Darden Graduate School of Business Administration in Charlottesville; Leda Cosmides and John Tooby, the codirectors of the Center for Evolutionary Psychology at the University of California, Santa Barbara; Michael Pragnell, the CEO and director of the board for the agribusiness firm Syngenta, based in Basel, Switzerland; and David Schweiger, the president of the Columbia, South Carolina–based management consulting firm Schweiger and Associates Reprint r0405a may 2004 What wisdom could a horse trainer have to offer a corporate manager? Let’s start with the fact that the word “manage” has an equine origin It comes from Latin, by way of the Italian maneggiare –“to handle, to train horses.” To find out whether the connection goes any further than etymology, senior editor Julia Kirby interviewed the man who is perhaps the most famous Thoroughbred trainer of all time: D Wayne Lukas Over the course of his 40-year career, Lukas has broken virtually every record in the history of the sport He’s had a horse in every Kentucky Derby for the past 23 years In 14 different years, he has made more money than any other trainer in the United States; his lifetime earnings mark is now approaching an incredible $250 million Although his accomplishments are undeniable, Lukas remains a controversial figure in his industry Early on, he bucked long-standing traditions and came up with a training program unlike anyone else’s His willingness to ship horses across the country to compete in fields where they had better chances of prevailing meant more victories, happier clients, and a reputation for success that brought Lukas even better horses One of the biggest assets a trainer can have is a good eye for selecting not just talented horses but also talented assistants Horse training is a trial-and-error, learnby-experience profession, and a lot of it is handed down There aren’t any books that demonstrate how to train a horse to win the Kentucky Derby Lukas may be famous for holding almost every record in racing, but his ability to develop a whole new generation of great trainers may be his most important legacy Reprint r0405b Harvard Business Review brings you leading management thought and practice The best innovations and ideas at work CA brings you the latest innovations in management software For more information on CA, visit: ca.com/hbr1 today © 2004 Computer Associates International, Inc (CA) Now, Harvard Business Review reprints help you convey the right message to important clients and employees From 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Director of Special Sales Phone: 617-783-7626 Fax: 617-783-7658 E-mail: ftamoshunas@hbsp.harvard.edu H A R V A R D B U S I N E S S S C H O O L Page 58 Page 70 Coaching the Alpha Male How to Restore the Fiduciary Relationship: An Interview with Eliot Spitzer Kate Ludeman and Eddie Erlandson Highly intelligent, confident, and successful, alpha males represent about 70% of all senior executives Natural leaders, they willingly take on levels of responsibility most rational people would find overwhelming But many of their quintessential strengths can also make alphas difficult to work with Their self-confidence can appear domineering Their high expectations can make them excessively critical Their unemotional style can keep them from inspiring their teams That’s why alphas need coaching to broaden their interpersonal tool kits while preserving their strengths Drawing from their experience coaching more than 1,000 senior executives, the authors outline an approach tailored specifically for the alpha Coaches get the alpha’s attention by inundating him with data from 360-degree feedback presented in ways he will find compelling – both hardboiled metrics and vivid verbatim comments from colleagues about his strengths and weaknesses A 360-degree assessment is a wake-up call for most alphas, providing undeniable proof that their behavior doesn’t work nearly as well as they think it does That paves the way for a genuine commitment to change In order to change, the alpha must venture into unfamiliar – and often uncomfortable – psychological territory He must admit vulnerability, accept accountability not just for his own work but for others’, connect with his underlying emotions, learn to motivate through a balance of criticism and validation, and become aware of unproductive behavior patterns The goal of executive coaching is not simply to treat the alpha as an individual problem but to improve the entire team dynamic Initial success creates an incentive to persevere, and the virtuous cycle reverberates throughout the entire organization Reprint r0405c Louise O’Brien Eliot Spitzer’s investigations into the mutual fund and investment-banking industries have made the New York State attorney general the de facto flag bearer of corporate reform His exposure of conflicts of interest between investment bankers and research analysts in Wall Street firms led to the $1.4 billion global settlement between regulators and banking houses in 2003 In this interview, Spitzer describes the challenge of protecting public markets from conflicts of interest, paying particular attention to how such conflicts get institutionalized in an industry.“The cases that have gotten me and my fellow regulators most upset are the ones where we’ve seen senior management being tolerant of rank abuses,” he says.“Because then you know that the entire structure is rotten.” He also points the finger squarely at boards, maintaining that board members are drawn from pools of company and industry insiders He cites “a void in values in a lot of boardrooms,” holding up executive compensation as a powerful example.“Board compensation committees…are selfselected and interwoven – it’s a rigged marketplace.” He continues,“It would be interesting to see what the world would look like if CEO pay packages had to be submitted to shareholder votes.” Spitzer suggests that what’s really needed is for all business leaders to reinstill throughout their organizations the critical notion of a fiduciary duty – whether it is to the shareholder or to the customer Using the mutual fund industry as an example, he also contrasts the value of enforcement with that of regulation and articulates an important – and surprisingly limited – role for government in protecting free markets Reprint r0405d P U B L I S H I N G T H E P O W E R O F I D E A S AT W O R K 17 - - 6 harvard business review Page 78 Page 92 Learning to Lead at Toyota The Risky Business of Hiring Stars Steven J Spear Boris Groysberg, Ashish Nanda, and Nitin Nohria Many companies have tried to copy Toyota’s famous production system – but without success Why? Part of the reason, says the author, is that imitators fail to recognize the underlying principles of the Toyota Production System (TPS), focusing instead on specific tools and practices This article tells the other part of the story Building on a previous HBR article, “Decoding the DNA of the Toyota Production System,” Spear explains how Toyota inculcates managers with TPS principles He describes the training of a star recruit – a talented young American destined for a high-level position at one of Toyota’s U.S plants Rich in detail, the story offers four basic lessons for any company wishing to train its managers to apply Toyota’s system: • There’s no substitute for direct observation Toyota employees are encouraged to observe failures as they occur – for example, by sitting next to a machine on the assembly line and waiting and watching for any problems • Proposed changes should always be structured as experiments Employees embed explicit and testable assumptions in the analysis of their work That allows them to examine the gaps between predicted and actual results • Workers and managers should experiment as frequently as possible The company teaches employees at all levels to achieve continuous improvement through quick, simple experiments rather than through lengthy, complex ones • Managers should coach, not fix Toyota managers act as enablers, directing employees but not telling them where to find opportunities for improvements Rather than undergo a brief period of cursory walk-throughs, orientations, and introductions as incoming fast-track executives at most companies might, the executive in this story learned TPS the long, hard way – by practicing it, which is how Toyota trains any new employee, regardless of rank or function Reprint r0405e With the battle for the best and brightest people heating up again, you’re most likely out there looking for first-rate talent in the ranks of your competitors Chances are, you’re sold on the idea of recruiting from outside your organization, since developing people within the firm takes time and money But the authors, who have tracked the careers of high-flying CEOs, researchers, software developers, and leading professionals, argue that top performers quickly fade after leaving one company for another To study this phenomenon in greater detail, the authors analyzed the ups and downs of more than 1,000 star stock analysts, a well-defined group for which there are abundant data The results were striking After a star moves, not only does her performance plunge, but so does the effectiveness of the group she joins – and the market value of her new company Moreover, transplanted stars don’t stay with their new organizations for long, despite the astronomical salaries firms pay to lure them from rivals Most companies that hire stars overlook the fact that an executive’s performance is not entirely transferable because his personal competencies inevitably include company-specific skills When the star leaves the old company for the new, he cannot take with him many of the resources that contributed to his achievements As a result, he is unable to repeat his performance in another company – at least not until he learns to work the new system, which could take years The authors conclude that companies cannot gain a competitive advantage or successfully grow by hiring stars from outside Instead, they should focus on cultivating talent from within and everything possible to retain the stars they create Firms shouldn’t fight the star wars, because winning could be the worst thing that happens to them Reprint r0405f Insightful “This is an important book that will have a significant impact on how corporations think about IT and its role in business strategy.” Tony Comper, CEO of BMO Financial Group “Carr forces us to reexamine some of our most basic assumptions about IT and business value.” John Hagel, management consultant and author, Out of the Box Act now Bruch and Ghoshal argue that the most effective managers succeed because they harness personal willpower through a potent combination of energy and focus This book reveals a range of strategies for harnessing willpower to improve both individual and organizational performance Available wherever books are sold, including: THE CENTER FOR HBS PRESS BOOKS AT BARNES & NOBLE ROCKEFELLER CENTER, 5TH AVE & 48TH ST., NYC may 2004 HARVARD BUSINESS SCHOOL PRESS www.HBSPress.org EXECUTIVE SUMMARIES Page 102 Page 122 Page 131 Building Better Boards F I R ST P E R S O N B E ST P R A C T I C E David A Nadler Telling Tales Companies facing new requirements for governance are scrambling to buttress financial-reporting systems, overhaul board structures – whatever it takes to comply But there are limits to how much good governance can be imposed from the outside Boards know what they ought to be: seats of challenge and inquiry that add value without meddling and make CEOs more effective but not all-powerful A board can reach that goal only if it functions as a high-performance team, one that is competent, coordinated, collegial, and focused on an unambiguous goal Such entities don’t just evolve; they must be constructed to an exacting blueprint – what the author calls board building In this article, Nadler offers an agenda and a set of tools that boards can use to define and achieve their objectives It’s important for a board to conduct regular self-assessments and to pay attention to the results of those analyses As a first step, the directors and the CEO should agree on which of the following common board models best fits the company: passive, certifying, engaged, intervening, or operating The directors and the CEO should then analyze which business tasks are most important and allot sufficient time and resources to them Next, the board should take inventory of each director’s strengths to ensure that the group as a whole possesses the skills necessary to its work Directors must exert more influence over meeting agendas and make sure they have the right information at the right time and in the right format to perform their duties Finally, the board needs to foster an engaged culture characterized by candor and a willingness to challenge An ambitious board-building process, devised and endorsed both by directors and by management, can potentially turn a good board into a great one Reprint r0405g; HBR OnPoint 693x; OnPoint collection “Building the Best Boards” 6948 Stephen Denning Can Absence Make a Team Grow Stronger? 152 A carefully chosen story can help the leader of an organization translate an abstract concept into a meaningful mandate for employees The key is to know which narrative strategies are right for what circumstances Knowledge management expert Stephen Denning explains that, for optimal effect, form should follow function Challenging one professional storyteller’s view that more is better, Denning points out that it’s not always desirable (or practical) to launch into an epic that’s jam-packed with complex characters, cleverly placed plot points, an intricate rising action, and a neatly resolved denouement True, if listeners have time and interest, a narrative-savvy leader can use a vividly rendered tale to promote communication between management and staff, for instance, or even to foster collaboration – especially when the story is emotionally moving However, if the aim is to motivate people to act when they might not be inclined to so, it’s best to take an approach that’s light on detail Otherwise, the particulars can bog listeners down and prevent them from focusing on the message Drawing on his experiences at the World Bank and observations made elsewhere, the author provides several dos and don’ts for organizational storytellers, along with examples of narratives that get results The sidebar “A Storytelling Catalog” presents seven distinct types of stories, the situations in which they should be told, and tips on how to tell them Many of these aren’t even stories in the “well-told” sense – they run the rhetorical gamut from one-liners to full-blown speeches – but they succeed because they’re tailored to fit the situation So even though it’s common in business to favor the analytical over the anecdotal, leaders with the strength to push past some initial skepticism about the enterprise of storytelling will find that the creative effort pays off Reprint r0405h Ann Majchrzak, Arvind Malhotra, Jeffrey Stamps, and Jessica Lipnack Some projects have such diverse requirements that they need a variety of specialists to work on them But often the bestqualified specialists are scattered around the globe, perhaps at several companies Remarkably, an extensive benchmarking study reveals, it isn’t necessary to bring team members together to get their best work In fact, they can be even more productive if they stay separated and all their collaborating virtually The scores of successful virtual teams the authors examined didn’t have many of the psychological and practical obstacles that plagued their more traditional, faceto-face counterparts Team members felt freer to contribute – especially outside their established areas of expertise The fact that such groups could not assemble easily actually made their projects go faster, as people did not wait for meetings to make decisions, and individuals, in the comfort of their own offices, had full access to their files and the complementary knowledge of their local colleagues Reaping those advantages, though, demanded shrewd management of a virtual team’s work processes and social dynamics Rather than depend on videoconferencing or e-mail, which could be unwieldy or exclusionary, successful virtual teams made extensive use of sophisticated online team rooms, where everyone could easily see the state of the work in progress, talk about the work in ongoing threaded discussions, and be reminded of decisions, rationales, and commitments Differences were most effectively hashed out in teleconferences, which team leaders also used to foster group identity and solidarity When carefully managed in this way, the clash of perspectives led not to acrimony but, rather, to fundamental solutions, turning distance and diversity into competitive advantage Reprint r0405j harvard business review Re p r i n t s a n d S u b s c r i p t i o n s Subscriber Online Access Article Reprints and Permissions Harvard Business Review now offers subscribers free online access to the current issue at www.hbrweb.org Enter your subscriber ID – the string of letters and numbers above your name on the mailing label For help, please contact the customer service office listed below Reprint numbers appear at the end of articles and executive summaries Contact our customer service team to order reprints or to obtain permission to copy, quote, or translate Harvard Business Review articles Reprints are available in hard copy, as electronic downloads with permission to print, and in customized 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Don't miss another issue— go to www.hbrweb.org and subscribe today! by Don Moyer They Can Take It with Them P a n e l D i s c u s s i o n Knowledge is the sum of education and experience People coming into a company already possess knowledge; they gain more as they their jobs In the process, not only employees but also their companies get smarter Trouble is, businesses often fail to capture what employees know, letting valuable competitive assets fade or sail out the door In time, organizations come to miss what they didn’t know they had.“The chief financial officer can tell you how big the company’s payroll is but cannot tell you the replacement cost of employees’ skills, much less whether they are appreciating or depreciating,” explains one student of intellectual capital Companies must recognize tacit knowledge, make it explicit, and find ways to share it And because sometimes more is more, companies must also work hard to develop employees’ knowledge The kind likely to make the business some money deserves extra-special attention Don Moyer can be reached at don@amsite.com may 2004 155 The tenacity never to accept no as an answer The integrity to give it as one Investments and services offered through Morgan Stanley & Co Incorporated, member SIPC Employee names have been changed to protect their privacy Morgan Stanley and One Client At A Time are service marks of Morgan Stanley © 2004 Morgan Stanley Leadership It’s what we’re all about We are committed to putting the interests of our clients first So if we feel the word “no” is justified in evaluating a proposal on their behalf, we’ll say it It is this sort of frankness that helps us earn their trust Let our objective thinking work for you ... the authors’ and not necessarily those of Harvard Business Review, Harvard Business School, or Harvard University Authors may have consulting or other business relationships with the companies... our Web site at www.hbr.org; write to The Editor, Harvard Business Review, 60 Harvard Way, Boston, MA 02163; or send e-mail to hbr_editorial@hbsp .harvard. edu Unsolicited manuscripts will be returned... E C E D 800-692-3932 | 212-854-3395 60 Harvard Way, Boston, MA 02163 617-783-7410; fax: 617-783-7493 www.harvardbusinessonline.org Volume 82, Number May 2004 Printed in the U.S.A publisher Cathryn
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