GlobalThe free business magazine featuring articles from the world's most prestigious business schools.

Also including articles from:OXFORD, COLUMBIA & HARVARD

The free business magazine featuring

articles from the world's most

prestigious business schools.

Quarterly: March, June, September,

December.

All articles are authorized reproductions

Global

December 2011h t t p : / /www. G l o b a l B u s M a g . c o m /i n f o @ g l o b a l b u s m a g . c o mPapegaaistraat 76,9000 GentBelgium

INSIDE this issueToday's Marketing Challenge: Turning the Data Deluge into Competitive

Advantage 4

From Dream to Nightmare 10

Optimal Mix. Managing a Portfolio of Supply Contracts 13

Turning conventional management upside down 16

Responsible business conduct: Re-shaping global business 21

Startup state of mind 23

Mastering the Art of Motivation 25

Entrepreneurial Egos 27

The Power of Collective Ambition 28

Too much demand, too little space: Chinese VOGUE 36

Today's Marketing Challenge: Turning the Data Deluge into Competitive AdvantagePublished: November 09, 2011 in Knowledge@Wharton

In a new paper titled, "Closing the Marketing Capabilities Gap," Wharton professor George Day addresses the disconnect between the demands of markets and the ability of firms to meet those demands. Such a gap, he points out, is "costing firms profitability now and competitiveness in the future." Using Day's paper -- and also a new IBM study based on conversations with 1,700 chief marketing officers worldwide -- Day and colleague David Reibstein talked with Knowledge@Wharton about the growing flood of data, new knowledge sharing technology, the socially networked and ever demanding consumer, and how some companies are successfully building their customer base, among other topics.

An edited transcript of the conversation follows.

Knowledge@Wharton: George and Dave, thanks for joining us. George, your paper is called “Closing the Marketing Capabilities Gap.” What exactly is that gap and why is it so important that companies address it?

George Day: As I reflect on the title, I am beginning to think a better title would be “Narrowing the Marketing Capabilities Gap.” The gap is a consequence of two things. One is what you might call a data deluge, the information explosion, where we have a doubling of the amount of data – not information, necessarily, or wisdom – but the amount of data stored every 18 months. This is an exponential increase in the data available to companies. At the same time, our best guess on the ability of companies to actually use this data … is that it is growing at about two percent a year. That’s the gap I’m looking at here. So we’re overwhelmed, we’re confused by the consequences of a term I love -- which is the “splinternet” -- [meaning] the fragmenting media, and by the tremendous decomposition of mass markets into little niches. And, of course, media choices are proliferating rapidly. It’s overwhelming companies and also individuals. We’re all struggling with this tremendous overload.

Knowledge@Wharton: Dave, what are the traps that companies fall into trying to manage all this data?

David Reibstein: One of the things that I think is really interesting is thinking about the history of how this gap happened. What George was just referring to, which is absolutely right, is this huge proliferation of choices that customers have, options that companies have, and then the abundance of data. But let’s back up just a little bit and think about who was in marketing and who has been doing this in the past. Much of it

has been people who have risen up through sales and have a sales orientation. They were very good interpersonally, very good at working and talking to customers. Or they were people who could identify and feel what the customer felt. But what’s happened is we don’t need to rely on the “pearls of the tongue,” or the empathy that the marketer needs. We have information.

So the new marketer today is very different from the marketer of the past. I think one of the traps is falling into doing things the old way and trying to unlearn the way that we used to do marketing. Today it is so much more data driven.

Knowledge@Wharton: There are many new developments in knowledge sharing technology, like micro-targeting and communities of users and all the social networking tools. What are the best examples of these technologies and who is using them in the most advantageous ways?

Day: Let me set the frame for a broader way of thinking about how companies cope, and then see how they’re able to take these technologies. I have two ideas. One is that technology is creating the problem. It’s also going to be the solution to the problem. So social networking, knowledge sharing, mini-Googles that companies are creating for their own data bases are obviously the paths to the solution. But they will only work if the organization is inclined to use them and is prepared to use them.

So I am looking at three different capabilities that companies will need in order to effectively use all this new technology for sorting through, sharing and interpreting data. The first one is what I call “vigilant market learning.” That is the ability to see things sooner, to capture the right information, as opposed to treating all information as equally important. It is sorting out which signals you really should pay attention to. That’s a significant capability – it requires a

[certain kind of] leadership, highly networked and so forth. Second is the notion of adaptive market experimentation. This is a capability companies have to master. And where it’s B to B [business to business], B to C [business to consumers], it’s companies like Quicken doing 600 experiments every year with its customers, and learning systematically from it. So we have a lot of interesting tools on predicted analytics and so forth that our colleagues Peter Fader and Eric Bradlow are working on here to try to unlock the lessons from those experiments.

But the other thing I think is important about companies that use these tools well is they don’t try to do it all themselves. What I’ve been fascinated by is what I’m now calling “open marketing,” which is a direct lift from “open innovation.” This is the notion that if you want to do search engine optimization or predictive analytics, it’s probably not a good idea to try to build that capability in-house. Rather, you find a really good partner who is able to help you with this, to apply this – and has the right kind of talent. The reason you have to partner in part is that the talent is very hard to find. In an era of high unemployment, there’s a desperate need for qualified, creative, analytical people -- kind of the two ideas coming together. But we have a talent crisis, and companies are struggling to find people to do that. The answer, I think, is to find the right partners.

Knowledge@Wharton: Who are these partners? Are they other companies? Are they individuals that you hire?

Day: There are at least 12 kinds of partners, anywhere from specialists … all the way to one of the big three integrated advertising agencies which have a host of creative shops, marketing research firms with the specialized talent built into them that they can spread around and build up experience in lots of different situations.

Reibstein: So you asked, Robbie, specifically who’s doing a good job of trying to use the new

tools and trying to take advantage of them. George mentioned Quicken. Let me add to that. I would say Amazon falls in that category. They’re constantly experimenting, and the web page that you get and the web page that I get might be very, very different -- not just based on our history, but because we’re coming in and they’re going to try something different. It’s a whole test-and-learn mentality. I’m going to test something out, see what works, deploy it. And that could happen all within the same day. In fact, you could be doing hundreds of these every day. Say I buy a blue sweater and you buy a blue sweater. You come back and they’re going to give you a yellow sweater and see if you [go for] it. That’s what it is that is being featured. And for me they’re going to give me – what would go well with a blue sweater? Black slacks. And they’re going to see which works better. Do that quickly with a couple thousand people, learn from that, deploy.

Knowledge@Wharton: In fact, in your paper, George, you quote [Amazon CEO] Jeff Bezos as saying, “Rather than ask what we’re good at and what else we can do with that skill, ask who are your customers, what do they need? And then say we’re going to give that to them, regardless of whether we have the skills to do so. And we will learn those skills.” But Amazon has the luxury of being able to do these millions of tests to find out what consumers need, even before consumers themselves know what they need. Other companies don’t have that capability.

Reibstein: There’s an interesting property that Amazon has and other companies have that are taking advantage of this ability -- which is dealing with customers individually. So there are lots of companies that sell through distributors, who sell to other distributors and are not really in

touch with the end customer. Amazon is in touch with exactly who their ultimate customer is. Certainly online businesses have that ability. But actually, if you think about it, cellular companies have that ability as well, because they know exactly who that individual customer is. Banks have that capability. [They are] companies that have the individual level data, which takes us back to the earlier problem -- this abundance of data. The question is, who’s able to really take advantage of it.

Let me go to the other extreme, which is to take a company like Unilever. Unilever sells through … distributors to retailers or directly to retailers, who end up then selling to consumers. They don’t have that individual consumer level data.

But what they have started doing, and doing very effectively, is working on a lot of social media. The whole Dove campaign that got tons of publicity was something that was primarily created online. They created ads that were never shown on broadcast television. It was really by spreading [the message] through YouTube and through other social media that [they were able to] reach a massive audience. It has been a very clever [strategy] for a company that doesn’t have that individual level data.

Knowledge@Wharton: George, there’s a follow-up question to that. So consumers are obviously increasingly vocal, chatty – they get online and they’re constantly spreading their opinions about products and services. How can companies figure out which comments are important and need immediate action, and which are just noise?

Day: There’s a lot of interesting technology to, first of all, capture these blog comments, and then edit them and see if there are patterns. So if you go on to Google, you can see patterns of recurring use of a term. What you’re looking for

is literally clearing out all of the noise and concentrating on what’s the signal that we really want to look at. It might be a complaint about product performance. I remember one of the very earliest ones was an experience Procter & Gamble had as it brought out – remember Febreze?

Knowledge@Wharton: Yes.

Day: Everybody knows Febreze. It almost failed because, early in its launch, a woman got on, blogged and said, “Febreze killed both of my canaries.” This spread through the Internet. P&G had a very good way of capturing that. They figured out who she was, because they sent an e-mail saying, “What can we do?” They rushed a team out, talked to her and after a while discovered – and she agreed – that the canaries just died of old age. This meant they were able to stop that really threatening message going out over the toxic effects of Febreze. They actually turned it into an opportunity on the Internet. And it’s that ability to capture these signals, understand them and act on them quickly. But we’ve got lots of examples of blog messages that have been ignored for way too long and just go viral. It doesn’t take very long.

Reibstein: Which takes me back to your question. I want to build on what George said related to your question. You said, “How do you determine which ones to respond to?” I think part of the message ends up becoming, “Every customer becomes important,” in part because, today, every customer has a microphone, or a megaphone, I guess I should say, because it is easier to broadcast your message. You could have said, “There’s not a massive number of people claiming their canaries are dying from Febreze. Let’s ignore it.” But, as George points out, it goes viral and suddenly it starts becoming this big publicity…. If we ignore it, then it could be very, very dangerous. So every customer starts becoming important, and you need to be addressing all of them. That requires a whole different skill set.

Day: So this gets back to the issue, “How do you build the skill set, the technologies?” Most companies would be ill-advised to try to do it themselves. It’s an extremely sophisticated kind of analysis. That’s where partners come in. Finding the right partners, building a relationship with them -- those are difficult management challenges. The good companies will do it.

Broadly, this leads us into the question of how do you then think about this marketing capabilities gap? The answer is, most companies are not going to be able to close it. All their aspiration should be is to close it faster than their competitors. Get ahead. Line up the right partners. Build a capability to do these kinds of test-and-learn experiments. Stay ahead of the competition. By the way, just a side-bar to this: One of the things that I’m fascinated by is that there are only so many good partners out there. I think what we’re going to see in this open marketing arena is that the smart companies are going to get there first. They’re going to lock up the good partners, and the later entrants who say, “Oh, this is a good idea,” won’t have the pick of the partners.

Knowledge@Wharton: Should we worry about consumers’ short attention spans? I mean, they’re trying to absorb these thousands of messages thrown at them. At some point, consumers just tune you out. How do companies avoid that? How do they avoid being ignored by potential customers?

Reibstein: That is always a threat. It’s been a threat for a long time. But because we have so many different channels to try and reach customers, it’s become more of a threat. The responsiveness to banner ads is down, just because the number of them has gone up. I think part of the answer goes back to really customizing the message in your communications to the individual customer so

that what you’re saying resonates with them. Historically, we’re going to post it out there for a large number of people. Our message comes from the history again of mass media. We’re going to put out a mass message versus talking specifically to Robbie, or talking specifically to individuals about what it is they might need.

Day: But at the extreme, not only is the message tailored, but the whole product offering.

Reibstein: Absolutely.

Day: So you get exactly what you want. Now customers will pay attention because they understand that you’re solving precisely their problem. Why does Zappos do so well in an otherwise crowded category? Because they are very good at customer service, and they give the customers exactly what they want. Customers can solve their problems very easily on Zappos.

Knowledge@Wharton: Right. Weren’t they one of the first to offer free shipping back and forth?

Day: Yes. So you can order three pairs of shoes to get the one that you really want to keep.

Knowledge@Wharton: Exactly. And not pay any penalty. George, you sent me a study from IBM called “From Stretched to Strengthened,” in which IBM talked to more than 1700 chief marketing officers worldwide. At one point, the study advises CMOs to understand individuals as well as markets, to establish customer intimacy, to focus on relationships and not just transactions. How do you do that in such a huge global online marketplace?

Day: That’s where technology becomes our friend. We can build deep insights into customers, if they choose to let us. They may not.

They may want a transactional relationship. But by and large -- let’s just take Zappos because it’s a very familiar example – Zappos knows a lot about its customers and it reaches out to them. Let’s take another company which I think has done a masterful job of addressing that, and that’s Tesco, with their Club Card in the U.K. They have 14 million customers who have given Tesco permission to capture all the data about every transaction, all their demographics, background information. So Tesco knows an enormous amount about these people. It can then tailor messages precisely to their geographic area and to them individually. So a newly wed couple gets a certain set of offerings. A family with a new baby gets offers.

Knowledge@Wharton: But at some point, don’t you think customers are going to stop giving that permission?

Reibstein: There’s a concern about too much intrusion. “I want to guard my privacy.” I think we’re going to go through some waves of people saying, “No, I want to be private” and other people saying, “Wait a minute. I’m being better served by companies knowing some information about me.” My belief is that the only people who should receive coupons for baby diapers are people with babies. Right? You could go through the whole list of the only people who are going to get specific offers are ones who are in need of it. We see the phenomenon of Groupon going on right now. The number of promotions that I get for Brazilian blow-outs is just amazing. And for tooth-whitening and for things that I’m not particularly interested in right now. That’s just wasted messaging going on. I wish they knew more about me so that I wouldn’t get all the noise.

Knowledge@Wharton: So would you give them that information so they could, in fact, learn more about you?

Reibstein: As I said, we’re going to see these waves of people discovering, “I want to be

private, but on the other hand I am much better served, I get much less of this noise if people know more about me.” I think there’s going to be a bifurcation of those who say, “Bring it on.” And others who say, “I want to protect.” Those who are asking for protection of their information are going to be observing the others. I think we will see an evolution towards more disclosure, not less disclosure.

Day: Just to put a wrapper around this, what’s a relationship? It’s a perception of mutual understanding and mutual benefits. So customers will only give the company permission if they think it’s in their best interests.

Knowledge@Wharton: So they have control over this?

Day: They have control. Why does Tesco get permission to collect all this information and to use it to target, as Dave was suggesting, very specific messages? The answer is a rebate. What’s neat about Tesco is that every quarter, [customers] get a rebate based upon a percentage of the value of the purchases they have made in that quarter. That’s a reminder that this is a very good two-way relationship.

Knowledge@Wharton: I have two more questions. Dave, the IBM study also quotes CMOs saying that return on marketing investment is the primary measure of effectiveness. This is nothing new. It’s something you’ve talked about a lot. But how do you prove that value? How do you come up with some numbers? Or are numbers not the answer?

Reibstein: People are stuck on this return on marketing investment. They do that, in part, because it integrates with the rest of the financial communications of the company because you’ve got an ROI that is measured in all sorts of investments. So it’s a basis for a comparisoning

across. But I think what we need to do -- and what our current accounting systems are not very good at doing right now -- is capture the long-term contributions of marketing. So we have things like a brand, which only shows up on our books if we acquire a brand. If we build it, it doesn’t show up officially on our books. But that doesn’t mean that we can’t measure it and can’t measure what the value of that particular brand is. Again, there are partners. There are various companies that assist in helping with that particular measurement.

But maybe even better than brand is looking at the long-term value of a customer. That’s not saying, “Just what is it that they bought right now and how much should I make in that transaction?” But [rather], “I want to think about that relationship -- that relationship I have with that customer that is today and hopefully out into the future.” So when someone buys a BMW, the value of the customer who bought the BWM is not what I just sell him right now and the service that he is going to have, but it’s also what is the probability that he is going to buy a BMW out into the future? What companies are going to move more towards looking at that longer term? I raise this in the context – I haven’t forgotten your question, the return on marketing investment which is sort of looking backwards. “How much did I make from that?” It’s not looking enough forward towards that future revenue stream that’s going to come by having gotten this customer, solidified my relationship, increased the probability that [he or she] is going to be buying out into the future.

Knowledge@Wharton: George, I’ll throw this out at you. The IBM report at one point uses a very strong image. It says, “Just as X-rays transformed medicine by letting doctors see through human tissue, so the new information and communication technologies are revolutionizing business by letting

customers and citizens peer through corporate walls.” What is the one single best thing a company can do to turn consumers’ ability to see through corporate walls into a competitive advantage?

Day: To essentially create transparency, to focus largely on the building of relationships based upon mutual benefits, mutual understanding. The company has to really invest to understand those customers and then create offers that are exactly tailored to their requirements, so that they feel they are being listened to and that their [needs] are being met. This is this notion of mutual commitment based upon mutual rewards. I don’t mind you getting a benefit from this, but it’s got to be worth my while.

Knowledge@Wharton: Thank you both for coming.

"Republished with permission from Knowledge@Wharton (http://knowledge.wharton.upenn.edu), the online research and business analysis journal of the Wharton School of the University of Pennsylvania."

FROM DREAM TO NIGHTMARELessons learned from an executive's onboarding process

By Executive-in-Residence Kees van der Graaf and Professor Suzanne de Janasz

While leadership transitions can be revitalizing, they often prove difficult for both the incoming leader and his or her new team. Although we all know that communication is key in any changeover situation, too often, it gets lost in the shuffle. News of a new boss can send waves of uncertainty, confusion and even resentment through an organization. To get the transition and the team back on track, an incoming leader’s first task often involves forging effective relationships.

I learned that I would be the next director of Unilever’s Foods Division in the back of the co-chair’s car on the way home from a black-tie dinner. I had been sounded out about the opportunity a year earlier, but at the time, it was stressed that it was strictly confidential and absolutely nothing was being offered. The appointment meant a seat on Unilever’s board and executive committee and responsibility for a division that was more than half the size of Unilever. I was stunned. It had never occurred to me that I would be a candidate, especially since my position was a full layer away from the board. It was a dream come true.

My dream, however, quickly turned into a nightmare when I went to my first Foods executive meeting the next morning. Most of the Foods executives, who had learned about my appointment secondhand that morning, greeted me with ice-cold congratulations. I felt horrible. They were also upset by the injustice that a subordinate of one of them was the new boss. Unfortunately, the new CEO (my predecessor) had been too busy dealing with the press after the announcement hit the newswires to give his attention to the internal communications or to attend the meeting with the Foods executive. When I took a seat at the table in the meeting room, the others sat as far away from me as possible. They were closing ranks on me. At that point, the HR VP and I decided to stop the meeting and develop a process to get me fully introduced to the team.

A session for the entire executive team was organized the evening before the next Foods executive meeting. The purpose of the session was to help me build an effective relationship with the team by positioning myself properly and addressing any misconceptions they may have had about me and my leadership style. Before the session, each team member was interviewed by the HR VP, and a list of general questions was prepared for me to address. At the session, I shared my motives, beliefs, drivers, values and behaviors. I also spoke about my family and the FSHD Foundation, which my wife and I started after our oldest son, Bart, was diagnosed with FSHD.[1] After sharing my lifeline and addressing the questions, I felt the atmosphere in the room begin to change.

The HR VP ended the session with a summary and asked each team member, one by one, if there was sufficient mutual ground for a fruitful cooperation between us. In the end, all agreed they should not have offloaded their frustration about the communication process on me. There was some handshaking and hugging, and over dinner, the team toasted me as their new leader.

That night, I was dreaming again.[2]

Lessons learned

Communicate,communicate,communicateIn this case, communication was governed by the rules of the stock market. Leadership changes at Unilever were and still are considered price sensitive information, which means the company is obliged, by law, to inform the stock exchanges immediately. Despite the rules, one should always respect the feelings of those who are personally affected by a decision, ensuring that they hear the news directly from the boss. In today’s world, with e-mail and SMS messages, it requires little effort to prepare messages that will go out to individuals at a pre-determined time. However, don’t hide behind electronic walls when the news is challenging to deliver or conflict is expected. Choose the medium that’s most appropriate for the message.

Trust your team. Trust creates a more pleasant and productive business climate. It is possible to share confidential information with a member of your team if you trust the individual not to breach the confidentiality. If you don’t trust the individual, then maybe he or she should not be part of your team … or organization. Trust is a two-way street. Be the first to trust, by showing your consistency, humility and willingness to share and listen. Others are more likely to reciprocate your trust.

Put the proverbial fish on the table. Once the damage is done, and particularly if the team is closing ranks on you, it is sometimes best to share your perceptions and validate them with the group. For example, “Judging from the obvious tensions that are being displayed, I sense that you are surprised and upset about the news. Correct?” This approach could invite a tense discussion, but ignoring the underlying conflict would not bring about a productive discussion. Allowing the team to air its grievances can be a good place to start when a new leader is trying to earn the team’s trust and respect … and vice versa.

Demonstrate humility and empathy. In these kinds of situations, it is important to show both humility and empathy. For example, “Some of you are surprised by my appointment. If I were in your shoes, I’d be surprised too. Besides wondering why I hadn’t been selected for the position, I’d be thinking, ‘Who is this guy, and how is he going to lead us?’ How many of you are wondering the same thing?” It may be counterintuitive, but humility actually raises your credibility as a leader.

Be courageous. Be prepared to discuss your experiences, but with an eye toward showing your readiness and expertise to lead the new team. In a defining moment, it is important to demonstrate your leadership through courage, a willingness to address conflict directly and respectfully and an ability to build your team by listening to their concerns, wishes and expectations for the future. It is important to show that you are willing to listen without being defensive, willing to learn and that you have some concrete ideas about the future of the business.

Be authentic. By showing your real self– your motives, beliefs, drivers, values and behaviors – you will be perceived as being more authentic. Say what you mean, mean what you say, and walk your talk. If your subordinates perceive that you are less than authentic, they will push back. If they do, accept their feedback graciously; it is a gift. “So you’re saying that I’m not delivering on my promise? Say more about that.” And after you’ve heard the specific feedback, summarize to show you heard, and then thank the person. “So you’re saying that when I did this, it conflicted with my earlier message. I’m sorry about that, and I appreciate your pointing it out. I’ll look into ways to remedy this situation, and will let you know by Friday.”

Encourage the team to share information. Once the team is back on steady ground, the next step would be to ask your team members to share their views about what is working well and not so well in their business units. Listen, paraphrase to confirm your understanding, and probe for

more depth and examples when appropriate. “What about working with the production manager is problematic? Can you share an example so I can better understand the problem and how it might be overcome?” By encouraging them to share this information, they will begin to look at future challenges as a cohesive management team. Moreover, by allocating resources and authority to address current and future challenges, the team will feel empowered to act, and become engaged in the process and outcomes of their improvement efforts.

While proper communication can help temper negative reactions in these types of situations, we all know that it often falls between the cracks. Therefore, if the damage has been done, it is critical that the new leader get the team back on track as soon as possible because the fact is a leader is not a leader without any followers.

Kees van der Graaf, Executive-in-Residence at IMD and Co-Director, IMD’s Global CEO Center – Leading in a Connected Future, is the author of Defining Moments: What Every Leader Should Know about Balancing Life (2011).

Suzanne de Janasz, Professor of Leadership and Organization Development at IMD, is the author of Interpersonal Skills in Organizations – Fourth Edition (2012) and Negotiation and Dispute Resolution (2013).

[1] FSHD or Facio Scapulo Humeral Dystrophy is a rare, hereditary form of muscular dystrophy caused by a genetic defect. [2] Partially adapted from van der Graaf, Kees. Defining Moments: What Every Leader Should Know about Balancing Life. Lausanne: IMD, 2011.

The article above is republished courtesy of http://www.imd.org/research/challenges/

Optimal MixManaging a Portfolio of Supply Contracts Research by Dan Adelman and Shanshan Wang

Dan Adelman is professor of operations management at the University of Chicago Booth School of Business.

Shanshan Wang, PhD '11, is a former doctoral student at the University of Chicago Booth School of Business.

The right mix of long- and short-term contracts can lead to a bigger profit.

When an oil refining company spends billions of dollars to build or upgrade a refinery, one of its main concerns naturally is how to get a good return on such a massive investment. In particular, the company would like to make sure that it sells the refinery's products—mostly gasoline—in markets that would maximize its profit. A guaranteed long-term contract to supply gasoline seems most desirable, but the company may also want the flexibility of pursuing higher profit margins offered by shorter term contracts.

This is the dilemma faced by BP, one of the world's largest oil and gas companies, as it completes a multi-billion dollar upgrade of its Whiting refinery in Indiana that is expected to increase the refinery's production by 1.7 million gallons of gasoline and diesel a day. To help BP find the best way to sell the refinery's output year after year, Chicago Booth professor Dan Adelman and Shanshan Wang, PhD '11, developed a model that would allow gasoline companies to optimally adjust their portfolio of supply contracts over time, in anticipation of changing market conditions. This model is discussed in their recent study titled "Contract

Portfolio Optimization for a Gasoline Supply Chain." While the work is motivated by BP, it has broad application to gasoline suppliers across the industry, which generates around $300 billion in annual revenue in the United States.

Gasoline, which is produced by processing crude oil in a refinery, is marketed to three distinct channels. The first is the branded channel where gasoline with specialty additives is sold through stations that bear the name of a major supplier such as BP, and are owned by independent firms or so-called branded "jobbers." A BP jobber is obligated to sell only BP gasoline and BP is obligated to supply all the gasoline that the stations need. The contract typically runs for 10 years but virtually lasts forever, since an industry law called the Petroleum Marketing Practices Act prohibits BP from terminating the contract.

Gasoline also can be sold as a generic commodity through the unbranded channel, such as gas stations at Costco, Walmart, and Safeway. These outlets will typically negotiate a price to buy a specific volume of gasoline from a supplier for one year.

The spot market is the third channel, and that is where the major suppliers, unbranded jobbers, and other distributors come together to buy and sell gasoline. Refiners can sell any leftover product to the spot market after satisfying their contract commitments.

The key to maximizing profit is in choosing how much of the refinery's output should be sold to each channel given the uncertainty in the price and demand for gasoline. "If BP sells its gasoline through an inappropriate mix of channels, then it may either not sell out its capacity or end up selling at a much lower profit," says Adelman. Indeed, Adelman and Wang find that by adjusting the share that each channel receives over time to reflect changing business conditions, as opposed to a strategy of simply fixing the shares, the company's expected profit can increase by more than 40 percent under some

scenarios.

The Suppliers' Dilemma

There has been an ongoing debate within BP about how to sell the refinery's production, according to the authors. One group holds the view that the refinery's output should be sold through the branded channel as much as possible, while the other group favors putting more weight on other markets.

Entering into a long-term contract with branded jobbers seems very appealing, because it lowers the risk that the refinery will be unable to find an outlet for its products. Especially after spending billions of dollars on a refinery, the company may feel more secure if it commits its production to a very stable source of demand.

However, BP might be leaving profit opportunities on the table if it commits solely to the branded channel. Given the volatility in the price of crude oil in recent years and changing market conditions within the different channels, profit margins sometimes may be higher in the unbranded outlets and in the spot market. BP cannot take advantage of such attractive profit margins if it has committed its gasoline to branded stations only.

But there also is a downside to relying heavily on the unbranded channel. A short-term contract means that Walmart, Costco, and other retailers are free to shop around after their contract expires. They can easily turn to another refining company to buy unbranded gasoline. "There's a risk that if you reserve that capacity, you might be stuck with excess capacity," Adelman says.

Selling in the spot market where gasoline prices are updated in real time is always an option, but buying and selling large volumes can impact prices quite significantly since the spot market is relatively small and illiquid. Thus, if BP decides to sell its leftover capacity to the spot market, then gasoline spot prices likely will go down, which will hurt the company's profit. Similarly,

BP can buy from the spot market if it runs out of gasoline to supply its branded stations, but that transaction will drive its purchase price higher.

Profit margins can vary not only across branded, unbranded, and spot market channels, but also across geographic cities. Likewise, the demand for unbranded gasoline, which is another source of uncertainty, also will differ across channels and cities. BP cannot know beforehand whether demand and profit margins will be higher in the branded or unbranded markets of Des Moines or Chicago, for example. Thus, BP may be better off if it does not commit all of its output to the branded channel, to give the company flexibility to move its products to the most profitable markets.

Choosing Market Shares

Adelman and Wang analyzed a dynamic forward-looking model that anticipates future price movements across the three channels and generates an optimal mix of contracts that maximizes the company's expected profit. Specifically, the model can tell the company how it should shift its contracts over time between the branded and unbranded channels.

The study finds that a gasoline supplier is much better off if it adjusts the shares supplied to each channel as market conditions change, rather than adhering to a static policy of keeping the same shares year after year. For instance, if BP decides today that it will satisfy 15 percent of the branded market and sell five million gallons to the unbranded channel each year, then it could increase its expected profit by 46.3 percent if it adjusts this share and quantity over time using the study's forward-looking model. A more aggressive branded market share of 25 percent also results in substantial gains of between 7.2 and 43.3 percent, depending on the initial unbranded quantities, if the portfolio of contracts is rebalanced over time.

Both the conservative and aggressive branded

marketing strategies result in a much higher expected profit at different levels of unbranded commitments if shares are dynamically adjusted. This is because of the flexibility to reallocate capacity. Allocating too much or too little to the branded market requires a high volume of costly spot trading to get rid of leftover products or to cover unmet obligations. Thus, finding the right mix of branded and unbranded contracts as business conditions change can reduce the company's reliance on the spot market and increase expected profit.

Adelman and Wang also developed a retrospective model that BP has recently adopted. The model guides the company's supply chain optimization strategy for the entire Midwest. It tells BP what it should have done differently if it could do things over again, by calculating the optimal shares in the past for each channel and city. The results suggest how the company might adjust its market shares in the future.

For example, suppose that Cleveland's branded BP stations got 64 percent of all the BP gasoline that went to that market during a certain period. The company can run the model to find out whether it actually sold too much or too little. If it turns out that the optimal share for the branded channel in Cleveland was only 43 percent because profit margins and demand were better elsewhere, then the company knows that it ought to consider shedding some of its exposure to the branded market in order to increase profit. While BP cannot terminate its contracts with branded jobbers any time it wants to, some jobbers may want to defect to other gasoline suppliers, and at that point BP knows that it is in its best interest to let them go.

Companies around the world sell their products through different types of contracts, so the challenge of optimizing a portfolio of these contracts in order to sell at capacity and to maximize profit is not unique to BP. However, it is a topic that has not been discussed much in academic studies. "This paper brings attention to

the fact that we can build models to help firms optimize their contract portfolios," Adelman says.

"Contract Portfolio Optimization for a Gasoline Supply Chain."* Dan Adelman and Shanshan Wang.

*Dan Adelman and Shanshan Wang thank Amy Roth, '00, at BP for making this research possible.

The article above is republished courtesy of www.ChicagoBooth.edu/capideas.

Turning conventional management upside down

Anand Pillai, Senior Vice President and Global Head of Quality, Talent Transformation and Intrapreneurship Development at HCL Technologies talks to BSR about his views on business and leadership.

Tell us about HCL Technologies.

HCL Technologies was founded in 1976 and is based in Noida, India. Worldwide, the company employs more than 80,000people and operates in 31 countries. HCL offers an integrated portfolio of services, tied mainly to IT solutions but also including infrastructure management, engineering and business process outsourcing (BPO) services. The company is involved in work in many industries, including aerospace and defence, consumer electronics, energy and utilities, health care, media and entertainment, retail, transportation as well as travel and hospitality.

You’ve been very much in demand around the world, judging from your travel schedule, because of HCL’s ‘Employees First, Customers Second’ philosophy. Has the response been what you had hoped?

Yes. For example, I’ve just returned from Dallas and the kind of traction from Employees First, Customers Second is truly amazing. Employees First, Customers Second: Turning Conventional Management Upside Down was authored by our CEO, Vineet Nayar. That motto has been the guiding light ever since we started our transformation journey in 2005.It places employees on top of the organisation and provides them with all the requisite support to succeed. This has helped tide us over every situation and build a strong, committed and passionate workforce.

Has HCL won business as a result of this philosophy?

When one chief information officer read the book, he said, “This company is doing things differently; let me hear more.” So we did three workshops for his staff in a little more than three months, and that tilted the balance in our favour. Compared to eight months ago, we now have more than three times the business we were doing with that company.

Do you think there’s an appetite in Western companies to learn from Indian companies?

Absolutely. The biggest war being fought the world over is the war for talent. But attracting talent is one thing; helping them to be (and stay) productive is what makes the most difference. Our approach to employees and clients helps us achieve more. That is something everyone is interested in these days, everywhere.

How would you describe your job in relation to winning that war?

My job is basically getting the ‘three E’s’ to our employees. That is, my work centres on engaging, empowering and enabling our employees in such a manner that we can deliver non-union productivity.

What do you mean by ‘non-union productivity’?

Unions are known for producing the same amount of work from the same number of employees in company after company. Unions standardise the work to be done and how many employees it takes to do it. But the work world is changing. If X number of people are giving Y output for a particular project — and if new business conditions or a new economic situation requires twice the output — conventional wisdom would say that 2X the number of people are required to give that 2Y output. This happens frequently, but few companies can afford to double their workforce as if they were conforming to union standards. Those business conditions could be a shortage of talent or an economic situation that is forcing a firm to do more with less. Or a new business model might create a situation in which, in order to move up the competitive value chain, a company has to deliver more from the same number of employees. We have become known as the company that not only achieves 2Y output with less than 2X the number of employees — and we help other companies do the same.

How do you change that equation of X people and Y output?

Through engaging, empowering and enabling the employees, we are getting a little more than 1.2X or 1.3X number of people giving that 2Y output. My job in the company is to enable, empower and engage our employees in our platinum, gold and silver accounts so that our customers see the differential, see the non-union productivity from our employees.

Do you encounter much cynicism and scepticism as you travel around the world speaking to executives?

Absolutely. One reason is that, for good or bad, Indian companies are not credited with thought leadership. If you look at any management book,

it is always an American company that is coming out with something new. Now there is an Indian company that has produced something dramatically new. And I’m not talking of something that happened just one year ago. We’ve got six years of track record to prove what we have done and reliable data to support the impact this business philosophy created on our business results, customers and employees.

What do you say to people who are cynical and sceptical? How do you convert them?

I remember that, when we announced this initiative in 2005 in the midst of about 400 customers, some were unhappy and in fact walked out of the meeting. But we believed (then and now) that employees are our greatest asset and if we have an engaged, empowered and enabled employee, that employee will go beyond the call of duty to satisfy customers, which benefits everyone in the end. So, yes, people are initially cynical, they’re initially sceptical, until we present them the business case and present them the data, which is easily verifiable.

Now, many companies are clamouring to learn about what you’re doing, but where are you looking for inspiration, new ideas?

I want to learn how other companies have faced similar challenges and what it is that they did to overcome these challenges. Southwest Airlines would be a classic example. It has a long history of considering employees as ‘the first customer’. So HCL and Southwest have much to teach each other.

And other Indian companies?

Believe it or not, there are a lot of companies in India that are far more employee-focused than we are. I have to be frank, however, that focusing on employees, by itself, does not lead to employee empowerment, employee engagement

or employee enablement.

Why not?

Because if you are pampering the employee, if you are giving all the delights and benefits to the employee — without empowering him, without enabling her and without engaging him or her — I don’t think it is in the interest of the employee and the organisation. This kind of culture would not focus on transforming talent, developing intrapreneurs, unleashing employee potential to the fullest. And then equipping people with the necessary tools to help them put their ideas into implementation so that they can generate delight for the customer. It is like us as parents pampering, delighting or giving the best we can for our children. Sometimes the best that we should do for them is, basically, to get them to stand on their own feet, to do things on their own, to find the tools they need, to find the motivation from within and to be empowered to take decisions, rather than coming back to us continually for guidance and support.

HCL deployed some of the thinking in Blue Ocean Strategy, the 2005 book by W. Chan Kim and Renée Mauborgne. Can you share how that happened?

In 2005, we as a company looked at the market and found that we were getting into an increasingly commoditised space and we needed to differentiate ourselves. ‘Blue Ocean’ is a classic strategy for us to differentiate ourselves in an already crowded market. We chose areas where we are competing against the biggies, and we said this is where we need to differentiate ourselves. When we looked at the market, we found it was increasingly employer-centric; we recognised ourselves as being the same way, and we said let us see how we can turn this around. When we looked at employee recruitment year on year, we found that increasingly the Gen Y workforce were coming in and very little was being done to really engage, enable or empower them to be more productive.

Using a diagram, we drew on the X axis the value we provide customers (from low to high) and on the Y axis, the cost or effort required to provide value (again, from low to high). Then, we started populating our own grid. As the Blue Ocean authors would say: eliminate, reduce, raise or create. Each one of our business lines learned to eliminate those things that are low in value and high in cost or effort, to reduce those things that are low in value and low in cost and effort, to increase or raise that which is high in value and high in cost or effort and to create that which is low in cost or effort but high in value.

Where did that analysis lead you?

Overall for the company, what came out as a ‘raise’ was this issue of employee empowerment, employee engagement and employee enablement. These E’s are high in value for the customer and high in value for the employee. But, at the same time, they are high in cost for the organisation. If I have to empower a relatively junior person, there is a risk in that he or she may make a mistake and that can prove costly for the organisation. So, empowering is actually a very costly exercise for the organisation, as is enabling and engaging. But we raised them well above the industry standard because they were seen to be high value by the customers and by the employees themselves.

Levels of engagement among employees in companies in the West and throughout the world are actually very low, aren’t they?

Absolutely. If you look at so many of these organisations, you will find abysmally low levels of engagement, anywhere from 15 per cent to 17 per cent. A worldwide study by the Gallup organisation found that, annually, the cost of disengaged employees for the US economy is $26 billion. And this was only among the organisations that participated in the survey. So $26 billion is the cost of what we call ‘quit-but-stay’ employees. They have mentally quit,

they’ve emotionally quit, but they’re physically staying on in the organisation.

How has ‘employees first, customers second’ affected employees in terms of engagement? Does everyone rally to this motto?

We have found that employees fall into the categories of transformers, fence sitters and lost souls. Transformers are the go-getters. These are the people who are self-motivated, smart and observant. Working in the right direction in line with the organization’s vision, mission and values. Then, there are the fence sitters, employees who are saying, “Hey, wait a minute, there is something new on the horizon. Either the CEO is using a marketing gimmick or he is on steroids. He is saying employees first, customers second. I don’t know if this will work or not, so I want to wait and watch.” Then, there is the third category of people, the lost souls, who just spread negativity and don’t care if they miss out on the opportunity being offered to them.

Recession can reduce employee productivity. Has the current business environment affected your philosophy?

Companies can maintain productivity by giving employees power and responsibility and endowing them with various tools to excel. They’ll feel more responsible, committed and more valued by the organisation. That is a sound approach (in fact, the best approach) in any economy.

Given current economic challenges, what specific measures are you taking at HCL?

The current environment has increased our focus on utilisation and customised training programmes. We have also introduced a number of new initiatives to allow employees to enhance their skills. For example, following our ‘blue ocean’ strategy, our goal has been to find and

create new markets and find opportunities in new geographies. Operating in new markets has its challenges, but we also have a number of programmes that are customised to the needs of a region, which will assist employees to excel.

For instance, the Cultural Sensitisation Academy enables employees to work effectively with different types of people and, at the same time, recognise and appreciate the cultural differences within their own organisation. As we move into newer geographies and customer bases, we will invest more in creating new academies. For instance, we have just created one academy in the insurance practice called the actuarial science academy. We realised that just having an insurance specialisation is not good enough — we needed to have a micro-specialisation in the science of probability.

What other growth opportunities are you offering employees?

Our Learning Management System reaches employees, irrespective of time and geographical boundaries. The e-learning portal, iLearn, is a one-stop shop for all training programmes. Employees can simply log in and register themselves for the course they wish to join. We have also put together our Top Gun Academy, which is a next-generation leadership development programme. People are selected for this academy on the basis of both potential and performance; but potential is given more preference because a person may be performing very well in a particular role, but if he or she does not have potential, scaling up to the next level will be difficult.

You also took the standard 360-degree performance review and added some innovative changes. What were they?

At HCL, we make the standard 360-degree appraisal process for all the top management open to review by any employee in the company. Based on my appraisal, I draw up an individual

development action plan for next year; and I send this out to my circle of influence, all the people with whom I work directly and indirectly. This way, I hold myself accountable to everyone I work with. Accountability to the employees is what we practise. In this way, value is created at the bottom of the pyramid, between the customer and the employee. So bringing the bottom to the top is important — and, thus, our top management is completely accountable to all the employees. This creates an environment of trust through transparency.

Is there a way to monitor how employees feel about their own level of engagement and interest?

We use a unique learning assessment tool called EPIC, which stands for Employee Passion Indicative Count. We believe that every individual is motivated and driven by one passion or another, such as challenge, diversity, specialisation or tangible rewards. To find out what drives our employees, we designed an instrument that measures people’s passions or, rather, helps people know what their passion drivers are. With this instrument, which is rolled out once per year, people can measure how they have improved or grown in their passion.

It comes back to engagement, doesn’t it?

You cannot build a learning organisation unless employees are engaged, and that means more than just interested. I have three things that I recommend to any organisation. First, get top management ownership of the idea of employee engagement and empowerment. Second, make sure that employees at lower levels are motivated to learn and participate in the engagement effort. And third, try to get some immediate demonstrable results, some early wins, so people maintain their interest.

Learn more about Anand Pillai (or contact him) via http://anandpillai.in/blog/.

The article above is republished courtesy of London Business School and Business Strategy Review; http://bsr.london.edu/lbs-article/635/index.html

Responsible business conduct: Re-shaping global businessby John Evans *

The Guidelines for Multinational Enterprises of the Organisation for Economic Co-operation and Development (OECD) is the Organisation’s flagship instrument for responsible business conduct. The Guidelines provide non-binding recommendations to multinational enterprises (MNEs), drawn up and implemented by governments. Updated in 2011, they consist of principles and standards in such areas as sustainable development, governance, disclosure, human rights, employment and industrial relations, the environment, anti-corruption, consumer interests, and taxation. The 42 adhering governments are required to promote the Guidelines and to contribute to the resolution of issues arising under the Guidelines, including by setting up a complaints mechanism -- “National Contact Points” (NCPs) -- to which trade unions and non-governmental organizations (NGOs) are able to submit specific instances concerning alleged breaches of the Guidelines.

Manfred Schekulin stated that the Guidelines are the most “comprehensive government-backed” instrument for responsible business conduct and that the recent Update achieved its objective of “redefining the ‘gold standard.’” [1]

I agree that the Guidelines are special. The government-backed complaints mechanism sets them apart from other instruments, significantly increasing their potential to close global governance gaps and to ensure that the fruits of FDI are more equally shared among countries and between labor and capital. However, this potential has not been fulfilled. While, at their best, NCPs have contributed to the timely and effective resolution of issues raised under the

Guidelines, at their worst, NCPs -- shielded from outside scrutiny -- have failed even to answer their mail.

I also agree that the Update delivered significant improvements in the content of the Guidelines, in particular by establishing due diligence as an over-arching principle for responsible business conduct, requiring enterprises to “identify, prevent, mitigate and account for how they address their actual and potential adverse impacts;” [2] clarifying that the Guidelines apply to the full range of business relationships, including throughout supply chains; adding a chapter on human rights; and requiring companies to pay best possible wages at least adequate to meet the basic needs of workers and their families. Importantly, the Council Decision on the Implementation Procedures also included a new instruction to governments to make available the necessary human and financial resources so that NCPs “can effectively fulfil their responsibilities.” However, overall, the Update did not do enough to strengthen the rules governing the functioning of NCPs, falling short in two key areas:

- Weak authority of the NCPs. The best performing NCPs play two distinct roles: offering their good offices for mediation and, where this fails, making an assessment of a company’s observance of the Guidelines (determination). These mediation and determination roles are inter-dependent: mediation is the “carrot” and the threat of determination the “stick” to bring parties to the NCP mediation table. While the Update strengthened mediation, it failed to strengthen determination, thus leaving the NCP system weak.

- Lack of oversight. Peer review, pioneered by the OECD, is an examination of a government’s performance by its peers; it derives its strength from peer pressure. The peer review system of the OECD Anti-bribery Convention is widely regarded as a model, underpinning the strength

of OECD’s flagship anti-corruption instrument. Yet, despite this best practice, the Update rejected mandatory peer review in favor of voluntary peer evaluation. It also failed to require NCPs to set up steering or review boards so as to strengthen national level oversight.

The Update has generated high expectations. For the Guidelines to be regarded as the “gold standard,” however, by those workers and communities around the world whose lives and livelihoods are affected by MNEs, the Guidelines have to make a difference on-the-ground. This depends on NCPs significantly improving their performance: namely handling cases in a transparent, impartial, predictable, and equitable manner. Now that the latest round of multilateral negotiations is over, adhering governments need to address the remaining deficits. In particular, they should meet their commitments on resources, strengthen their determination role and set up national oversight mechanisms, in line with NCP best practice, and sign up for rigorous transparent and participatory country peer review, based on OECD best practice. And the OECD should take steps to strengthen accountability and transparency by expanding the reporting requirements of NCPs to reflect their new commitments and procedures and by introducing more regular reporting by NCPs at meetings and on-line.

It is essential that governments meet their responsibilities to ensure that the updated Guidelines fulfil their potential to promote responsible business conduct in a global context. I join Manfred Schekulin in calling for a sustained effort on the part of the OECD and adhering governments to close global governance gaps that leave millions of women and men around the world working in conditions of poverty, hardship and insecurity and denied access to their fundamental rights. This is long overdue.

* John Evans (evans@tuac.org) is General Secretary of the Trade Union Advisory Committee to the OECD (TUAC), the voice of labor at the OECD. TUAC works to ensure that the perspective of workers is taken into account in OECD policy-making. TUAC leads trade union activities on the Guidelines. The author wishes to thank James Baker, Paul Hohnen and Benjamin Moxham for their helpful comments on an earlier text. The views expressed by the author of this Perspective do not necessarily reflect the opinions of Columbia University or its partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.

[1] Manfred Schekulin, “Shaping global business conduct: The 2011 update of the OECD Guidelines for Multinational Enterprises,” Columbia FDI Perspectives, No. 47 (September 26, 2011).

[2] “Commentary on general policies,” in OECD Guidelines for Multinational Enterprises, 2011,” para. 14, available at http://www.oecd.org/document/28/0,3746,en_2649_34889_2397532_1_1_1_1,00.html.

John Evans, ‘Responsible business conduct: Re-shaping global business,’ Columbia FDI Perspectives, No. 50, November 7, 2011. Reprinted with permission from the Vale Columbia Center on Sustainable International Investment (www.vcc.columbia.edu).

Startup state of mindby Kirk Kardashian

Question: What do these ideas have in common: virtual-patient software for training medical school students; an in-ear noise-reduction system for pilots in the military; and a board game where players build words using string, glass beads, and colored cubes?

Answer: Each is the basis of a successful company founded with the advice and consultation of the Dartmouth Entrepreneurial Network (DEN). In the order in which they appear: iInTime, Sound Innovations, and Morphology.

Gregg Fairbrothers D’76, an adjunct professor of business administration at Tuck, is the founding director of DEN, which has worked with more than 300 people in the Dartmouth community to turn innovative ideas into real products and companies. At Tuck, he teaches the popular Introduction to Entrepreneurship course, which anyone with a Dartmouth or Dartmouth Hitchcock Medical Center email address can audit. He also teaches entrepreneurship courses to second-year Tuck students and students at Dartmouth Medical School (DMS).Now Fairbrothers and co-author Tessa Winter D’09 have taken everything from those experiences and courses and put it in one book: “From Idea to Success: The Dartmouth Entrepreneurial Network Guide For Startups.” It’s divided into three sections: The Framework, Building Your Idea, and Managing the Company, and the authors cover everything from the broad themes of entrepreneurial qualities to financing, law, social entrepreneurship, and sales. Sprinkled throughout the chapters are vignettes—“What I Know Now That I Wish I Had Known Then”—by founders of successful companies advised by DEN.

Fairbrothers has been thinking like an entrepreneur ever since he was a Dartmouth

undergraduate. All he wanted then was to buy a farm near Hanover and live the rural life. But he needed startup money for that venture, so he decided to capitalize on his aptitude for natural science by joining Texaco as a geologist. He left after a few years and joined a much smaller oil and gas exploration firm, now called Samson Resources Company, which he helped grow into a large multinational business, opening new subsidiaries in Canada, Russia, Australia, and Venezuela.

Fairbrothers bought his farm in 1983—a hilltop place five miles from Hanover—and moved there after he retired, in 1999. It wasn’t long before he realized that Dartmouth, Tuck, DMS, and Thayer were fertile ground for innovation and entrepreneurs, so Fairbrothers approached former Dartmouth president James Wright and current Tuck School dean Paul Danos about starting DEN. “I said, ‘You need a resource at this college to be your interface to commercialism and entrepreneurial education,’” he explains. “This wave is coming.” He started DEN in 2001 and, three years later, founded the Dartmouth Regional Technology Center (DRTC), an independent not-for-profit incubator for startup companies that need office and laboratory space to get up and running. Together, DEN and DRTC offer something rare yet valuable: a seamless link between advising and company formation services, and physical space for ideas to be honed and tested.

“From Idea to Success” adds yet another resource to the mix, but Fairbrothers cautions that a book can only take one so far. “Learning how to be entrepreneurial is very experiential,” he says. “It’s not like some academic subject where there’s a canon of information.”

We sat down with Fairbrothers to learn more about what it takes to add social value to a crowded marketplace.

How do you define “entrepreneur?”

Right off the bat, you’re thinking of it as a noun. I think the focus should be on the adjective— “entrepreneurial.” The former is binary: are you an entrepreneur or not? That’s a false dichotomy. The latter is a set of characteristics and a way of doing things and a way of thinking. It’s taking nothing and turning it into something. It’s looking for opportunities and being willing to take risks. That’s a life skill, not a profession, and it can be used in all professions. I want the reader to learn to be entrepreneurial and go out and apply that wherever they end up.

In the introduction, you say that entrepreneurs are vital to the success of the U.S. economy. Why is that?

Growth comes from opportunity. Growth doesn’t come from doing more of the same thing. Innovation is how things get better. The book is not about just making money. It’s about adding social value, and the theory is if you add social value and do it intelligently as a businessperson, you ought to be able to make really good money. That’s the business execution side of it. But there are a lot of things you can do entrepreneurially that add a lot of value but are not-for-profit businesses, and the book talks about them too. The same principles apply, the same practices work.

What is it about this economic climate that makes entrepreneurs especially important?

Innovation is a function of politics, culture, science and technology, and initiative. Politically speaking, you’ve got to have a system that allows for this to happen. There’s a reason why in societies without a rule of law, without protection of private property, it’s hard to innovate. There’s also got to be a culture that embraces change and thinks new stuff is exciting. We understand where science and technology come in. Then there’s initiative: somebody’s actually got to do something, otherwise this is all just dry tinder sitting around. Change is the match that lights the

tinder. Change is the condition that allows for opportunities to flourish. In static environments, it’s very hard to do new things. Today, between the cultural and technological shifts we’ve experienced, and now this massive economic shift, all of these create change, which opens the door for people to be innovative. That’s why the entrepreneur is the only hope for adding social value: all the other forces are trying to preserve the status quo.

In the book, you make a point to say that being entrepreneurial involves being careful with what you think you know versus what you only suppose. Why is that so important to being entrepreneurial?

I’ll go back to the definition of business: a human activity in which judgments are made based on messy, incomplete, and incoherent data. So you have two problems with the data: validity and relevance. That’s why you need to be so careful about what you think you know and what you don’t. If you take all data as equal, you’re going to be wrong, because some of it isn’t relevant and a good share of it is bad. That’s the average day for a businessperson.

You take some time in the book to explain the elevator pitch. What is it and why is it so hard to do right?

Almost all ideas have some kind of value. Most of the business execution plans are plausible. By comparison, the number of people who can talk about their idea in a way that a listener can hear it, understand it, and repeat it a week later without assistance to a third party—we’re in single digits, percentage wise. If you can’t get attention and buy-in at a conceptual level, you’re never going the rest of the way.

Where do most promising entrepreneurs stumble or fail?

There are several pitfalls. First, they start with

the wrong definition of what they’re trying to do. Second, they often fail to talk to the customer and really focus on how is this valuable enough to be self-sustaining. There’s a fundamental confusion of the value of an idea and the value of execution; it’s all about the execution. Finally, there’s an incredible insensitivity to how important the team is. People don’t spend enough time thinking about who is on the team, what are their skills, and how they might work together.

The article above is republished courtesy of http://www.tuck.dartmouth.edu/

Mastering the Art of Motivation

"As an employer, you can force compliance, but never commitment," Loescher said

.“It’s not that I’m lazy, it’s that I just don’t care.”

With those words, Peter Gibbons, the apathetic tech worker in “Office Space,” became a hero to millions of workers uninspired by their jobs.

So what is an employer to do to overcome workplace inertia?

Senior Lecturer of Management Kristie Loescher says it starts with building relationships and getting to know an employee’s fears, preferences and goals. She shared tips and research during a Nov. 8 Knowledge To Go webinar titled, “Motivating Employees: Beyond Carrots and Sticks.”

Loescher’s talk centered on three key themes:

• Motivation requires a relationship

• True change and learning comes from inside a person

• A change of behavior is as much emotional

as it is intellectual

Regarding the first theme of establishing a relationship, Loescher urged managers to assume that employees are competent, trustworthy, willing to cooperate. It’s important to find something to value in each individual.

“If you treat people like they are lazy and shiftless, that is what you are going to get,” Loescher said. “That is not the basis of a positive relationship.”

Loescher went on to outline three personality types that each find motivation in different areas.

• High-achievers (7-10 percent of the population): terrified of failure and often have what Loescher called an “I love me” wall displaying awards and accomplishments.

• Affiliators: (the majority of the population): motivated by working with people they know and trust. Their greatest fear is being alone or disliked. Office is full of personal mementos and family photos.

• Power-motivated (15-20 percent of the population): want to have an impact, impress those in power, and beat competitors. Office may contain autographed items or photos with VIPs.

These three motivational types reveal that a one-size-fits-all approach to motivating employees will never work. For instance, a high-achiever may clamor for a spot on a new project if it means special recognition, while an affiliator may resent being removed from a team he works well with.

In order to truly inspire someone to perform better, they need things like autonomy, feedback, purpose and the ability to identify closely with their task. For example, Loescher suggested that assembly-line workers be given the opportunity to see the final product they’re helping build.

One commonly misunderstood motivator is money, Loescher said. In fact it’s not really much of a motivator at all. Employees tend to think of salary and other factors like status and benefits as elements that must be present, but often it’s just enough to keep someone from leaving. Pay people enough so that they don’t have to think about it and can focus on the work, Loescher said.

Because in the end, as Dwight Eisenhower once said, “Motivation is the art of getting people to do what you want them to do because they want to do it.”

The article above is republished courtesy of http://mccombstoday.org/

Entrepreneurial EgosBusiness at Oxford

Want a job with no structure and no stability? Where the hours mean you will neglect your family, your friends and even your health? Where you will have to run things on a shoestring under extreme time pressure? And where there is a high risk you will fail and face unemployment? Entrepreneurship may be cool these days, but the downside is obvious, to most of us at least.

So what is it about an entrepreneur that makes them overlook the high failure rates among start-ups and the enormous personal sacrifices people make to set up their own ventures? Blind optimism? Over-confidence? Excessive risk taking? A hatred of corpocracy? Or all of the above? And, given the value of successful entrepreneurs to the economy, is there any way to predict who will become and succeed as an entrepreneur?

Nir Vulkan, Reader in Business Economics at the Saïd Business School and Director of the Oxford Centre for Entrepreneurship and Innovation, together with Sabrina Boewe, a Research Associate at the Institute for Entrepreneurial Studies and Innovation Management at Humboldt University in Berlin, are contributing to a growing body of research that investigates the role that personality plays in entrepreneurship

and in economic decision-making more broadly.

‘Research in this field,’ Vulkan explains, ‘typically looks at how entrepreneurs differ from others, for example by using the Five Factor Model of personality developed by Costa and McCrae’ (OCEAN: openness to experience, conscientiousness, extraversion, agreeableness and neuroticism). This scale is able to predict with reasonable accuracy how we will solve problems, perceive situations or perform at work.

While there is some conflicting evidence, a recent review of 23 studies on the personality of entrepreneurs revealed consistent differences between entrepreneurs and others on four of the ‘Big Five’ personality traits. Entrepreneurs scored significantly higher than others on conscientiousness (self-discipline and motivation) and openness to experience, and significantly lower than others on agreeableness (concern for social harmony) and neuroticism.

Building on this research, Vulkan and Boewe are designing a series of experiments to investigate the interaction between personality, context and economic incentives in entrepreneurial decision-making. The first of these experiments, carried out in the early part of 2011, considered the bargaining behaviour of entrepreneurs.

Vulkan and Boewe invited 55 entrepreneurs and 140 non-entrepreneurs to complete a range of personality questionnaires designed to measure their aggression, conscientiousness, anxiety and (using the Rotter Scale) the extent to which they believe they can control the events that affect them. Participants were then asked to undertake a series of negotiations using live Google Talk, buying and selling equipment to different people – some entrepreneurs and some non-entrepreneurs. ‘It was a bit like “The Apprentice” – we gave them a series of tasks and saw how they did,’ Vulkan says.

Vulkan and Boewe then analysed the results, looking at who made most money, who

The Power of Collective AmbitionBy Douglas A. Ready and Emily Emily Truelove

© 2011 Harvard Business Publishing

From Harvard Business Review

‘WE HAVE 34,000 EMPLOYEES WHO GET UP EVERY MORNING THINKING ABOUT HOW TO SERVE OUR GUESTS EVEN BETTER THAN THE DAY BEFORE.’

SIDEBAR 1: IDEA IN BRIEF

Against all odds, some companies come through hard times stronger than ever.

Sephora was nearly out of business a decade ago, yet the beauty retailer is now opening an average of two stores a week – a turnaround launched at an especially low moment for consumer luxuries.

For the Four Seasons hotel chain, bookings are up dramatically since 2008, even though the recession struck a considerable blow at luxury travel.

The French food giant Danone struggled for decades to make its mark in the United States, fighting Americans’ lack of interest in yogurt. Now the company is poised to triple its U.S. growth over the next few years.

How do they do it? Instead of focusing on one goal, employees shape a collective ambition: a shared sense of purpose, how the company will fulfill it and track progress, and how leaders and others will behave every day as they achieve and sustain excellence.

completed the most negotiations, who was quicker at styles of negotiation and at flexibility in negotiating style. ‘The style and substance of the interviews was very interesting,’ Boewe says. ‘There were huge differences in how people behaved. Some people flattered the others and made jokes to make the negotiation less “at arm’s length”, while others were more formal.’

Although analysis is ongoing, the pair’s preliminary results show that:

• In line with previous research, entrepreneurs scored more highly on openness, extraversion and internal locus of control than non-entrepreneurs.

• Entrepreneurs made the first offer in the negotiation process less often than non-entrepreneurs.

• Entrepreneurs made a higher profit when in the role of buyers, but when they were in the role of sellers, there was no difference in performance between entrepreneurs and non-entrepreneurs.

• A higher score on agreeableness leads to a lower profit in negotiations, while a higher internal locus of control leads to a higher profit in negotiations.

‘The early results indicate that entrepreneurs understand the rules of negotiation better than non-entrepreneurs,’ says Vulkan, ‘and that entrepreneurs will strike a better bargain in certain situations. Further analysis will help to clarify why this is the case.’

So if you aspire to be an entrepreneur and are an incurable extravert, love novelty and new experiences, are emotionally stable and don’t care too much about keeping the peace, the pay-off may just be worth the sacrifices in the end.

The article above is republished courtesy of http://www.sbs.ox.ac.uk/

The latest recession hit hard, and many businesses suffered serious damage. But some came out stronger than ever. There were winners even in industries where you might have expected the most serious blows – luxury businesses like hospitality and beauty, for instance. A handful of players, in those industries and others, not only weathered the storm but found a renewed sense of purpose. How did they become the exceptions?

Look at the Four Seasons hotel chain. In 2008, with the world economy on the brink of recession, the company was already facing a troubling transition. The beloved founder and chairman, Isadore Sharp, was ready to step aside from his day-to-day duties and assume more of an advisory role. COO Katie Taylor would become the company’s first CEO. The hospitality industry was in shambles, particularly at the high end, as vacationers canceled and business travelers sought cheaper options. Four Seasons held firm on room rates, but occupancy dropped and the company slashed the staff at headquarters. Sharp’s move added to the concern. Yet under his guidance, Taylor and her team not only got the company back on track but positioned it for leadership once again. Today bookings are up dramatically from 2008, and employee engagement scores are higher than ever.

Or consider Standard Chartered Bank, which thrived even as its peers received bailouts, suffered debilitating reputational blows, or simply closed up shop. Or the beauty retailer Sephora, on the brink of extinction a decade ago and now opening an average of two stores every week.

We have spent the past three years studying companies across industries that have defied conventional logic. We developed and administered a survey to 45 companies around the world; interviewed dozens of CEOs, senior executives, and midlevel managers; and conducted workshops to construct a model that

captures how they’ve succeeded.

That model is expressed in what we call collective ambition – a summary of how leaders and employees think about why they exist, what they hope to accomplish, how they will collaborate to achieve their ambition, and how their brand promise aligns with their core values. These companies don’t fall into the trap of pursuing a single ambition, such as profits; instead, their employees collaborate to shape a collective ambition that supersedes individual goals and takes into account the key elements required to achieve and sustain excellence.

In this article, we’ll describe those elements and why they matter – and why one matters most of all. (Spoiler: It’s purpose.) Drawing on the companies we’ve studied, we’ll show how some of them focus on two priorities – what we call the glue (collaborative engagement) and the grease (disciplined execution) – to achieve their collective ambition. Our hope is that their journeys will inspire you to do the same.

THE ELEMENTS OF COLLECTIVE AMBITION

We’re not starting from scratch with the concept of collective ambition. For decades, organizational scholars have studied what makes for a company that is both sustainably profitable and engaged with employees and other stakeholders. But many organizations tackle engagement in a one-off fashion or define it too narrowly (for instance, as the degree to which employees feel engaged with their work) rather than creating a compelling story of the company’s future and a collaborative process for building the capabilities to achieve it.

So, what elements does a company’s collective ambition comprise? Some are drawn from prior studies; others we’ve gleaned from our recent research. All seven must be carefully integrated. They are as follows.

PURPOSE: your company’s reason for being; the core mission of the enterprise.

VISION: the position or status your company aspires to achieve within a reasonable time frame.

TARGETS AND MILESTONES: the metrics you use to assess progress toward your vision.

STRATEGIC AND OPERATIONAL PRIORITIES: the actions you do or do not take in pursuit of your vision.

BRAND PROMISE: the commitments you make to stakeholders (customers, communities, investors, employees, regulators, and partners) concerning the experience the company will provide.

CORE VALUES: the guiding principles that dictate what you stand for as an organization, in good times and bad.

LEADER BEHAVIORS: how leaders act on a daily basis as they seek to implement the company’s vision and strategic priorities, strive to fulfill the brand promise, and live up to the values.

Clearly defined, these elements can help leaders spot areas of misalignment and launch initiatives to address them. They might find, for example, that although leaders are energized by the concept of community impact, their bonuses are pegged to top-line growth. This disconnect may make it hard to inspire them to behave in a way that suits the organization’s purpose and vision. (See the sidebar “The Seven Elements in Action” for an example of how a global biopharmaceutical firm defined these elements.)

SIDEBAR 2: THE SEVEN ELEMENTS IN ACTION

For a closer look at how a company might define the seven elements of collective ambition, let’s consider a global biopharmaceutical firm, in which the CEO and his top team convened a conference dedicated to this task. The goal was to present the company as a whole with a compelling sense of purpose, a clear vision and strategy, and a brand promise that reflected its core values.

PURPOSE

To make significant scientific contributions to global health and well-being

VISION

To become the premier biopharmaceutical company in the world and a leading provider of nutrition services

TARGETS AND MILESTONES

Evidence of tangible progress will include membership among the top three companies in its field in China and India; holding the first or second spot in securing new patents in each of those markets; and becoming a preferred partner for the world’s leading teaching and research hospitals.

STRATEGIC AND OPERATIONAL PRIORITIES

Reducing costs annually by 2 percent without diminishing quality; reducing cycle time in new-product rollouts by 5 percent a year; consolidating IT systems from recent acquisitions so that field staff receives timely information superior to that of benchmarked competition

BRAND PROMISE

“Team up for a healthier world.” For instance, communities where the company does business will experience better health care; employees will work collaboratively to address major global health challenges.

CORE VALUES

Integrity, innovation, and collaboration. This means, for instance, that all constituencies should trust that products will be sold with transparency and that the company will provide opportunities for both individual and organizational growth.

LEADER BEHAVIORS

Leaders are expected to demonstrate respect for individuals, a drive to succeed, and flexibility even in turbulent times.

Articulating these elements of collective ambition gave everyone in the organization a better sense of the company’s purpose and how he or she could contribute to it. This summary became a framework for identifying milestones and making strategic and operational choices.

We use a design of concentric circles to represent collective ambition. We think of it as a compass. Purpose is at the center. The outermost ring contains the leader behaviors that enable progress. Vision, brand promise, strategic and operational priorities, and values lie in between, along with the targets and milestones that will measure your progress in each element. As you can see in the exhibit “The Four Seasons Compass,” the hotel chain clarified its once-fuzzy vision by assigning to it the targets of achieving a first-choice ranking among guests, being the best employer, and being the industry’s number one builder of sustainable value.

THE GLUE AND THE GREASE

Shaping a collective ambition isn’t simply about crafting an inspiring story. The point is to build engagement as a means to an end: to make the purpose personal. In other words, shaping your collective ambition is an opportunity to build or strengthen the organizational glue. It’s also a chance to launch enterprise-wide change initiatives, which require disciplined execution – the grease. Glue and grease exist in parallel, but we’ll describe each in turn.

THE GLUE. The ongoing stability of Standard Chartered Bank despite a grueling recession can be attributed partly to serendipity. The bank had limited exposure in the United States, for instance, where the crisis hit first and hard. But with more than 85,000 employees representing 125 nationalities, SCB used the crisis as an opportunity to bind diverse and dispersed stakeholders by recommitting to the principles that had made it great in the first place. In short, it strengthened its glue.

Going into the recession, the bank had a strong purpose, which was to maintain a positive presence for all its stakeholders, and a vision for the future: to be the world’s best international bank, leading the way in Asia, Africa, and the Middle East. But although employees were clear on why their work mattered, most of the world – including many key stakeholders – couldn’t articulate just what made the bank unique. Its leaders sensed that the performance of SCB exceeded its reputation.

To address this, CEO Peter Sands created a task force in 2009 to travel the world, meeting with thousands of customers, employees, regulators, shareholders, and communities where the bank did business. Diverse as they were, the stakeholders consistently regarded the bank as an ethical partner that was in it for the long haul. The company had stayed put in bad times, such as the Asian financial crisis, when many banks pulled out of certain communities. On the basis

of this evidence, SCB articulated its new brand promise: to stay around for the long term and to do good for communities. The bank called it “Here for Good” – double meaning intended. A senior executive in Southeast Asia explained it this way: “Our local connections are very deep, in part because we make a big effort to develop local talent and also because we’ve been in our markets so much longer than other multinationals. It is not uncommon for me to meet a customer who says, ‘You gave my grandfather a loan 50 years ago, and you’ve stood by my family business in good and bad times. We wouldn’t go to another bank.”'

Sands and his executive team worked to ensure that the new promise was kept. The first priority was to introduce it to employees, the people who deliver the promise day in and day out. SCB held town hall meetings throughout the world; they included a documentary-style video clip showing real people talking about their experiences with the bank, such as a farmer in Sri Lanka who used its services to help fund his children’s education. The clip moved and rallied employees, particularly when it started to appear on television in key markets.

The cynicism that accompanies many rebranding efforts was largely absent at SCB, mostly because “Here for Good” captured what was already there. This exercise was about strengthening the glue that would make the promise real for all stakeholders. To customers, for example, SCB’s commitment is a promise that they will be offered fair deals and treated as partners. Whether lending to cocoa farmers in Ghana (SCB helps sustain employment for more than 70,000 Ghanaian farmers) or to big pharma companies in Europe, SCB assists customers in building their businesses for the long term.

The bank also does business only with customers that comply with a country’s regulatory guidelines. SCB views regulators as partners in building healthy business environments, which in turn lead to great opportunities for the bank –

good for business, good for the community. Take the UAE, where many international banks fail to meet the country’s Emiritisation quotas and willingly pay fines. SCB instead thinks of the quotas as crucial to developing local talent. In Nigeria the bank has helped educate regulators on best practices – all in the name of building the region’s human and economic capital.

SCB has also begun to bake “Here for Good” into its core business processes. For example, loan applicants must write a paragraph about why SCB should trust that they, too, will be here for good. A manufacturer seeking a loan for a new factory might be expected to include a commitment to sustainable waste-disposal practices.

SCB’s community initiatives are well entrenched in the company’s brand and culture – a sign that the bank’s promise is more than just words. Whether building health centers for the blind in India, sponsoring the Liverpool Football Club, or giving people time off to volunteer for causes that matter to them (one employee spoke to us of his work at a stable for rescued horses), SCB is part of the fabric of the communities in which it operates. Seeing colleagues get involved in philanthropic efforts is energizing, employees say, and builds their allegiance to the bank.

Although the new brand promise has had an overwhelmingly positive effect, SCB’s executives are realistic – cautious, even – about claiming victory. “We have been here for good, and we want to be in the future,” an executive notes. “At the same time, we’re trying not to be too brazen about it because we don’t want to become a target or have people waiting for us to fail. We have demonstrated that a bank can be a force of great good, but we also know the limits.” In other words, you can’t prepare for all unanticipated consequences. A manufacturer applying for a loan might commit to sustainable waste disposal but end up selling a product that includes a potentially dangerous chemical.

In its rebranding initiative, SCB included all the components of our collective ambition compass, with a similar intention of integrating and aligning purpose, vision, targets, strategic and operational priorities, brand promise, core values, and leader behaviors. All were integral to the effort. The bank’s campaign was a good fit because, as Sands said, “‘Here for Good’ is not only true of Standard Chartered already but also aspirational and, quite frankly, inspirational for us all.” It was the organizational glue that reminded people why they came to work every day. Going forward, the bank’s challenge is to remember, not abandon, its roots.

THE GREASE. Collaborative engagement, the glue, creates a unified culture prepared for disciplined execution – the grease that drives productive change.

Let’s look again at Four Seasons, during the fraught time when Katie Taylor took over as CEO. She first needed to strengthen the glue, so she took a team of executives out of their day jobs for six months and charged them with visiting guests, employees, and stakeholders around the world to get an up-to-date picture of the business. The team’s presentation of what it had learned confirmed that guests valued the luxury experience and employees had a shared sense of purpose. But the presentation was theoretical and, as one employee put it, “overly intellectual.” Employees were unmoved, left without an idea of how to translate the findings into day-to-day efforts. Organizational glue is important but insufficient: Without everyday solutions, new promises are easily abandoned.

Working with our compass, Taylor and her team organized their findings in a more tangible framework, consistent with the company’s purpose and values but with a bias for action. Now Four Seasons was ready to create the grease – a methodical plan, detailed in a series of work initiatives that were aligned with the company’s purpose: to create the world’s best hospitality experiences.

For example, one of the company’s teams led an initiative called “Who gets to be a leader around here?” The aim was to transform what had been a relatively informal approach to promoting people into a robust system for evaluating potential and performance and making promotions on the basis of them. This was important for ensuring that Four Seasons had the right people in the right roles and was developing, rewarding, and retaining them. After all, when service is your competitive advantage, your people are essential.

As Taylor put it: “We have 34,000 employees who get up every morning thinking about how to serve our guests even better than the day before. So while all of this trouble is swirling around us, our brand promise of providing the most exceptional guest experience wherever and whenever you visit us is instilled in the hearts and minds of our dedicated employees. They are the ones who fulfill that promise day in and day out.”

PUTTING PURPOSE FIRST

Whether you use the compass we’ve provided or some other tool to create your company’s story, we recommend that you place purpose at the heart. Purpose is the center around which vision, strategy, brand, values, and leader behaviors must orbit.

Remember – a purpose doesn’t have to be about saving the world. Providing excellent entertainment or banking services is just as meaningful a purpose as improving health care in emerging economies – as long as it is an authentic representation of why your company exists. A purpose statement is your starting point for differentiation and engagement.

Let’s consider how Sephora, one of the world’s leading beauty retailers, developed its purpose. The company was founded in France in 1969 by Dominique Mandonnaud. He thought that shopping for cosmetics should be fun, so he

designed Sephora’s stores to be entertaining places where customers could test products before buying them. The concept took off – and so did competitors’ adeptness in copying it. Sephora increased the number of brands it carried, hoping to differentiate itself. But the company soon learned that carrying a wide range of cosmetic, fragrance, and skin care brands in addition to its private label was not enough to stay ahead of the pack. It needed something hard to copy.

Sephora is part of LVMH, the world’s leading luxury products group. In 2003 LVMH was considering selling Sephora because of its troubles but instead brought in a new CEO, Jacques Levy, to turn the company around. After studying customers’ preferences, Levy and his senior team realized that Sephora’s competitive advantage wasn’t in the store layout or the brands it carried; it was in the fun and playful shopping experience the company had always delivered. In a nod to the past and an acknowledgment of what future success would require, Levy and his team crafted a new purpose statement: “To provide customers with the most entertaining shopping experience of the retail industry – giving them a moment of relaxation and discovery, enabling them to experiment and play with their beauty.”

Although purpose is the source from which all the other elements of collective ambition flow, it is critical to integrate all seven elements. For example, Sephora determined that if its purpose was to provide an entertaining shopping experience, its strategy should be to deliver exceptional service – not conventional great service but service in line with the company’s core values of freedom, emotional connection, excellence, and boldness.

Purpose, strategy, and values play a role in everything Sephora does. Consider the training at Sephora University, which encourages employees to use their own means to reach desired ends. For example, a booklet that

explains the “Sephora Management Style” provides a list of principles, examples of how current employees are successfully demonstrating each principle, and a space for trainees to write how they will do the same. A trainee might consider applying a product to customers’ faces or to her own to help people play with their beauty and have fun in the process.

One of the world’s largest food companies, Danone, and its U.S. business, Dannon Milk Products, provides another example of the centrality of purpose. Launched during World War II, Dannon struggled for decades to make its mark, mostly because Americans eat only one-fifth as much yogurt as is consumed in some European markets. The company enjoyed relative vigor in the early 2000s as Americans embraced low-carb diets, but growth fell off again with the financial crisis.

In 2009 Danone appointed the Argentinian Gustavo Valle president and CEO of the U.S. business. Valle had engineered a turnaround in Brazil by focusing employees on vision and purpose, and he wasted no time in pursuing this approach at Dannon. His idea was not to project the past onto the future but to see the future as one of boundless possibility – and then to act as if the company were already there. Dannon employees were aligned with the company’s purpose, as laid out in its mission statement: “Dannon is committed to bringing health to the greatest number of people across America through our products’ benefits.” But they lacked a true commitment to achieving that purpose.

Valle declared a goal of tripling Dannon’s business by 2014 by focusing on culture, communications, and cross-unit collaboration. “If we want to become the largest business unit of Danone, we have to start acting like it,” he said. “And if I want to be the CEO of a multibillion-dollar business, I have to start acting like one. There’s a big opportunity. And if we want to seize it, we have to work differently.”

Since then, Valle has established the Danone Leadership College, which includes workshops emphasizing employees’ responsibility for their own contributions to Dannon’s transformation. It’s a work in progress, but by framing initiatives in terms of purpose, Valle has effected some cultural change. For instance, there’s evidence of mind-set shifts inside functional areas: The vice president of supply chain told us that he would be willing to accept less efficiency if it meant helping sales. “We’re more in it together,” he said.

Dannon is easing up on the notion of a zero-sum game (growing by stealing market share from others) and focusing instead on building the category. The company’s marketing efforts have shifted as well, from one-way campaigns that dismiss consumer complaints about, say, aspartame or sugar in yogurt marketed to children to social media campaigns that engage consumer feedback. It’s early days, but Valle sees his vision as achievable, as long as employees adhere to the company’s purpose and work together to bring it to life.

There’s no easy path to excellence, no guru who can show you the way in an hour’s speech. It’s up to you and your team. The good news is that it’s not terribly complicated. Commit to collaborating to shape a powerful story about why people should come to work and how they can pull together to build a future. The glue and the grease – combined with a dose of good old-fashioned discipline – will allow the team to unleash your company’s collective ambition.

(Douglas A. Ready is a professor of leadership at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, and the founder of the International Consortium for Executive Development Research, a global network of leadership development professionals. Emily Truelove, a former researcher at ICEDR, is a PhD student at MIT Sloan School of Management. She is the co-author of a book on the relationship between

leadership and innovation, to be published by Harvard Business Review Press in 2012.)

The article above is republished courtesy of : copyright: © 2011 Harvard Business Publishing/Distributed by The New York Times Syndicate.

Too much demand, too little space: Chinese VOGUE--- by Shellie Karabell ---

China’s booming luxury goods market means even the fashion industry’s flagship publication is working flat out to keep pace.

The diminutive Angelica Cheung presides over Vogue China from her office in one of Beijing’s many tower blocks. She is funny, incisive, and charming – as only the head of the country’s most outrageously successful publication can be. This is a woman who – in the midst of a crisis that has pitted publishers against each other in a to-the-death fight for advertising ink – actually needs to continually increase editorial volume to keep up with advertising demands. Vogue China currently runs at 300 editorial pages each month, in comparison with American Vogue’s approximately 100 pages of editorial copy.

“There is so much demand for the prime advertising positions,” Cheung told INSEAD Knowledge in Beijing recently, “that we’re under continuous pressure to keep up with the content.” In short, Angelica Cheung and Vogue have detonated the explosion of China’s demand for luxury.

Vogue China debuted in September, 2005 – September being the month the fashion industry presents its fall-winter collections in the edition that’s fondly known as “the fashion bible” of the year. The initial run of 300,000 copies sold out, necessitating a second printing.

Commanding the luxury market

This is not surprising for a country predicted by no less than the Hurun Report to boast nearly a million millionaires, who – along with a

burgeoning middle class – are expected to consume nearly half of the world’s luxury goods by 2020, worth some US$27 billion. Vogue’s readership reflects the profile of the Chinese luxury consumer.

“Our readership is relatively young,” explains Cheung. “Our target readership is mainly from 20-40, and our average age reader is about 30, and most of these are women. Obviously

you have the top tier – rich men’s wives and daughters – but there is a large chunk of women who have made their own fortune. These are entrepreneurs, senior executives – there are a lot of working women in our readership portfolio. And then there’s the third tier: students. Unlike the other 17 Vogues in the world, we have quite a big chunk of younger readers who are not in that consumption bracket yet – meaning they don’t have the money to buy Chanel every day – but they aspire to that kind of lifestyle.”

Cheung sees her job as not just catering to Chinese luxury tastes but refining that taste and training luxury consumer wannabee’s. “What happened in China over the past five or six years is what has happened in the Western world in the past 50 or 60 years. So in a couple of years’ time, these younger readers will transform into totally different kinds of consumers,” Cheung predicts. “So it is very important for the magazine to educate the readers who are not major spenders…yet.”

There is a discernible pattern to initial luxury purchases among the Chinese, it seems. “China is a kind of logo-maniac kind of market,” says Cheung. “I have friends who only knew Louis Vuitton a few years ago; today they are wearing Balenciaga, Balmain, they go to shows, they know what is going on.”

High prestige brands

“For now, Western brands – mostly European – are seen as the most prestigious and desirable to the Chinese,” confirms INSEAD Assistant Professor of Organisational Behaviour Frederic Godart, a keen observer of the luxury goods industry. “So it’s not surprising that France is the favoured Chinese travel destination.”

Each year brings a host of new wealthy customers to the market in China and while these new arrivals may have the money to buy luxury goods, they lack…well…taste. “When these people suddenly have money, they want to treat themselves well, and their first reaction is to buy the most obvious thing – which are the products with logos,” explains Cheung.

Godart elaborates: “Chinese consumers see luxury goods as a way to express status more than their own style and identity,” he says, “though there are signs this could change in the next decade or so as customers get more acquainted with luxury products.”

Bridging that gap and educating the public is one of Cheung’s missions as Editor of Vogue. “I feel there is a certain sweetness in this lack of knowledge,” she says of China’s new luxury customers. “They were probably working in fields or mines just a few years ago and I feel that the attitude should be to help them, to guide them, let them experience and then they will know better what suits them. If they don’t have that entry point to experiment, they will never know. You don’t sneer at these people. You help them and through including them, you educate them better and they will become more

sophisticated.”

But while Western luxury goods makers are fretting over how many more shops to open and how to properly translate their names to Chinese if at all – the Chinese themselves are developing home-grown luxury brands that could soon be vying for boutique space in Paris, Milan, London and New York. The Chinese competition is coming on two racks.

Home-grown brands

“There are the big fashion enterprises – White Collar, Erdos, and the like,” explains Cheung. “They started doing basic trousers, tops, shirts and dresses and then they moved on. These are huge businesses, and they want to upgrade themselves. Then there are the new young fashion creators who themselves are the product of the new China.”

Chinese entrants like Uma Wang are leading a wave of home-grown luxury brands. Photo credit: Uma Wang

“Their parents were wealthy enough to send them overseas to Central St Martins (London) and Parsons (New York) to study fashion design, where they mingled with the international creative community,” says Cheung. “When they came back, they were full of ideas and they had courage. They wanted to start their own brands. They don’t have the experience but they have the

guts and the ideas and some talent.” Who are these new entrants? “Uma Wang,” says Cheung. “I took her to Milan Fashion Week last season and she received a really good response with her collection. Then there is Zou You in Beijing – another designer whom I also took to Milan.”

So the future looks bright on both the consumer and the creator fronts in China.

“The middle class (in China) is growing, so the whole industry will grow along with it” opines Cheung. “Different brands keep opening shops and somehow they all have business. …Now we are still in the first few years when people are grabbing Vuitton bags and Chanel shoes …but what will we do for the second phase? We need to anticipate what the consumers will become in ten years’ time when they already have everything. So I think the planning needs to start now.”

And no doubt Vogue China will be part of the plan.

The article above is republished courtesy of INSEAD Knowledge http://knowledge.insead.edu

Con

t ac t

: i n

f o@

g l ob a l b

u smag . c o m - w w w. g l o b a l b u s m a g . c o m