The new boundaries of the "boundaryless" company

In an economy founded on innovation and change, one of the premier challenges of management is to design more flexible organizations. For many executives, a single metaphor has come to embody this managerial challenge and to capture the kind of organization they want to create: the "corporation without boundaries." According to Larry Hirschhorn and Thomas Gilmore of the Wharton Center for Applied Research, managers are right to break down the boundaries that make organizations rigid and unresponsive. But they are wrong if they think that doing so eliminates the need for boundaries altogether. Once the traditional boundaries of hierarchy, function, and geography disappear, a new set of boundaries becomes important. These new boundaries are more psychological than organizational. They aren't drawn on a company's organizational chart but in the minds of its managers and employees. And instead of being reflected in a company's structure, they must be "enacted" over and over again in a manager's relationships with bosses, subordinates, and peers. In this article, Hirschhorn and Gilmore provide a guide to the boundaries that matter in the "boundaryless" company. They explain how these new boundaries are essential for both managers and employees in coping with the demands of flexible work. They describe the typical mistakes that managers make in their boundary relationships. And they show how executives can become effective boundary managers by paying attention to a source of data they have often overlooked in the past: their own gut feelings about work and the people with whom they do it.     

Implicit incentives and reputational herding by hedge fund managers

Several theories of reputation suggest that managers' incentives affect their propensity to engage in herding behavior. This paper investigates these theories by tracking hedge fund managers' herding behavior over their careers. I first examine managerial incentives for herding, and show that more senior managers that deviate from the herd have a significantly higher probability of failure and do not experience higher fund inflows than their less-senior counterparts. These implicit incentives should encourage managers to herd more as their careers progress. I find strong support for this hypothesis: using a number of proxies for herding, I show that more experienced managers herd more than less-experienced managers. Finally, I examine performance differences between more and less-experienced managers, and find that while more experienced managers underperform less-experienced managers, this underperformance does not appear to be caused by differences in herding. Overall, these results are in direct contrast with studies of mutual fund managers, reflecting important difference in implicit incentives between the two industries.     

Managerial Career Concerns and Risk Management

We present a dynamic model of corporate risk management and managerial career concerns. We show that managers with low (high) initial reputation have high (low) career concerns about keeping their jobs and receiving all future income. These managers are more likely to speculate (hedge) early in their careers. In the later stage of their careers when managers have less career concerns, there is no speculative motive for self interested managers. On the other hand, highly reputable managers have minimal career concerns and they engage in neither hedging nor speculation early in their careers, but they may choose to hedge after poor early performance.     

Work and life: the end of the zero-sum game

Most companies view work and personal life as competing priorities in a zero-sum game, in which a gain in one area means a loss in the other. From this traditional perspective, managers decide how their employees' work and personal lives should intersect and often view work-life programs as just so much social welfare. A new breed of managers, however, is trying a new tack, one in which managers and employees collaborate to achieve work and personal objectives to everyone's benefit. These managers are guided by three principles. The first is to clearly inform their employees about business priorities and to encourage them to be just as clear about personal priorities. The second is to recognize and support their employees as whole people, not only acknowledging but also celebrating their roles outside the office. The third is to continually experiment with the way work gets done, looking for approaches that enhance the organization's performance and allow employees to pursue personal goals. The managers who are acting on these principles have discovered that conflicts between work and personal priorities can actually be catalysts for identifying inefficiencies at the workplace. For example, one manager and his staff found a way to accommodate the increased workload at their 24-hour-a-day command center while granting the staff more concentrated time off. So far, these managers have usually been applying the principles without official sanction. But as the business impact of their approach becomes better appreciated, the authors predict, more and more companies will view these leaders as heralds of change.     

Competent jerks, lovable fools, and the formation of social networks

When looking for help with a task at work, people turn to those best able to do the job. Right? Wrong. New research shows that work partners tend to be chosen not for ability but for likability. Drawing from their study encompassing 10,000 work relationships in five organizations, the authors have classified work partners into four archetypes: the competent jerk, who knows a lot but is unpleasant; the lovable fool, who doesn't know much but is a delight; the lovable star, who's both smart and likable; and the incompetent jerk, who.. .well, that's self-explanatory. Of course, everybody wants to work with the lovable star, and nobody wants to work with the incompetent jerk. More interesting is that people prefer the lovable fool over the competent jerk. That has big implications for every organization, as both of these types often represent missed opportunities. Because they are liked by a disproportionate number of people, lovable fools can bridge gaps between diverse groups that might not otherwise interact. But their networking skills are often developed at the expense of job performance, which can make these employees underappreciated and vulnerable to downsizing. To get the most out of them, managers need to protect them and put them in positions that don't waste their bridge-building talents. As for the competent jerks, too often their expertise goes untapped by people who just can't put up with them. But many can be socialized through coaching or by being made accountable for bad behavior. Others may need to display their competence in more isolated settings. Intriguingly, managers aren't limited to leveraging people that others like and changing those that others loathe. They also can create situations in which people are more apt to like one another, whatever their individual qualities.     

How to kill creativity

In today's knowledge economy, creativity is more important than ever. But many companies unwittingly employ managerial practices that kill it. How? By crushing their employees' intrinsic motivation--the strong internal desire to do something based on interests and passions. Managers don't kill creativity on purpose. Yet in the pursuit of productivity, efficiency, and control--all worthy business imperatives--they undermine creativity. It doesn't have to be that way, says Teresa Amabile. Business imperatives can comfortably coexist with creativity. But managers will have to change their thinking first. Specifically, managers will need to understand that creativity has three parts: expertise, the ability to think flexibly and imaginatively, and motivation. Managers can influence the first two, but doing so is costly and slow. It would be far more effective to increase employees' intrinsic motivation. To that end, managers have five levers to pull: the amount of challenge they give employees, the degree of freedom they grant around process, the way they design work groups, the level of encouragement they give, and the nature of organizational support. Take challenge as an example. Intrinsic motivation is high when employees feel challenged but not overwhelmed by their work. The task for managers, therefore, becomes matching people to the right assignments. Consider also freedom. Intrinsic motivation--and thus creativity--soars when managers let people decide how to achieve goals, not what goals to achieve. Managers can make a difference when it comes to employee creativity. The result can be truly innovative companies in which creativity doesn't just survive but actually thrives.     

The post-capitalist executive. Interview by T George Harris

For half a century, Peter F. Drucker has influenced senior executives across the globe with his rare insight into socioeconomic forces and practical advice for navigating often turbulent managerial waters. In his latest contribution to HBR, Drucker discusses the impact of the ideas in his latest work, Post-Capitalist Society, on the day-to-day lives and careers of managers. Drucker argues that managers must learn to negotiate a new environment with a different set of work rules and career expectations. Companies currently face downsizing and turmoil with increasing regularity. Once built to last like pyramids, corporations are now more like tents. In addition, businesses in the post-capitalist society grow through many and varied complicated alliances often baffling to the traditional manager. Confronted by these changes, managers must relearn how to manage. In the new world of business, information is replacing authority as the primary tool of the executive. And, Drucker advises, one embarks on the road toward information literacy not by buying the latest technological gadget but by identifying gaps in knowledge. As companies increasingly become temporary institutions, the manager also must begin to take individual responsibility for himself or herself. To that end, the executive must explore what Drucker calls competencies: a person's abilities, likes, dislikes, and goals, both professional and personal. If executives rise to these challenges, a new organizational foundation will be built. While a combination of rank and power supported the traditional organization, the internal structure of the emerging organization will be mutual understanding and trust.     

Fair process: managing in the knowledge economy

Unlike the traditional factors of production--land, labor, and capital--knowledge is a resource that can't be forced out of people. But creating and sharing knowledge is essential to fostering innovation, the key challenge of the knowledge-based economy. To create a climate in which employees volunteer their creativity and expertise, managers need to look beyond the traditional tools at their disposal. They need to build trust. The authors have studied the links between trust, idea sharing, and corporate performance for more than a decade. They have explored the question of why managers of local subsidiaries so often fail to share information with executives at headquarters. They have studied the dynamics of idea sharing in product development teams, joint ventures, supplier partnerships, and corporate transformations. They offer an explanation for why people resist change even when it would benefit them directly. In every case, the decisive factor was what the authors call fair process--fairness in the way a company makes and executes decisions. The elements of fair process are simple: Engage people's input in decisions that directly affect them. Explain why decisions are made the way they are. Make clear what will be expected of employees after the changes are made. Fair process may sound like a soft issue, but it is crucial to building trust and unlocking ideas. Without it, people are apt to withhold their full cooperation and their creativity. The results are costly: ideas that never see daylight and initiatives that are never seized.     

AN INTRODUCTION TO GAME THEORY AND BUSINESS STRATEGY

Sound managerial decision making often requires “putting yourself behind your rivals' desk.” Assuming rivals are rational and acting in their selfinterest, what decisions are they likely to make and how are they likely to respond to your actions? A complicating factor is that rivals' optimal choices typically will depend on their expectations of what you will do; their expectations in turn depend on their assessments of your expectations about them. This type of circularity or recursive thinking might appear to make the overall problem completely intractable. Yet, this situation is precisely where game theory is most useful. This article introduces the basic elements of game theory within the context of business strategy and shows how managers might use these tools in decision making. This analysis also provides managers with a richer understanding of competition within different market settings. For example, it provides insights into why there is fierce competition in some concentrated industries (such as commercial aircraft), but not in others. Although the authors focus primarily on interactions among rival firms in product markets, these concepts also are useful to managers when dealing with other parties, such as suppliers, employees, or gov‐ernment officials.     

Job sculpting: the art of retaining your best people

Hiring good people is tough, but keeping them can be even tougher. The professionals streaming out of today's MBA programs are so well educated and achievement oriented that they could do well in virtually any job. But will they stay? According to noted career experts Timothy Butler and James Waldroop, only if their jobs fit their deeply embedded life interests--that is, their long-held, emotionally driven passions. Butler and Waldroop identify the eight different life interests of people drawn to business careers and introduce the concept of job sculpting, the art of matching people to jobs that resonate with the activities that make them truly happy. Managers don't need special training to job sculpt, but they do need to listen more carefully when employees describe what they like and dislike about their jobs. Once managers and employees have discussed deeply embedded life interests--ideally, during employee performance reviews--they can work together to customize future work assignments. In some cases, that may mean simply adding another assignment to existing responsibilities. In other cases, it may require moving that employee to a new position altogether. Skills can be stretched in many directions, but if they are not going in the right direction--one that is congruent with deeply embedded life interests--employees are at risk of becoming dissatisfied and uncommitted. And in an economy where a company's most important asset is the knowledge, energy, and loyalty of its people, that's a large risk to take.     

Becoming the boss

Even for the most gifted individuals, the process of becoming a leader is an arduous, albeit rewarding, journey of continuous learning and self-development. The initial test along the path is so fundamental that we often overlook it: becoming a boss for the first time. That's a shame, because the trials involved in this rite of passage have serious consequences for both the individual and the organization. For a decade and a half, the author has studied people-particularly star performers-making major career transitions to management. As firms have become leaner and more dynamic, new managers have described a transition that gets more difficult all the time. But the transition is often harder than it need be because of managers' misconceptions about their role. Those who can acknowledge their misconceptions have a far greater chance of success. For example, new managers typically assume that their position will give them the authority and freedom to do what they think is best. Instead, they find themselves enmeshed in a web of relationships with subordinates, bosses, peers, and others, all of whom make relentless and often conflicting demands. "You really are not in control of anything, says one new manager. Another misconception is that new managers are responsible only for making sure that their operations run smoothly. But new managers also need to realize they are responsible for recommending and initiating changes-some of them in areas outside their purview-that will enhance their groups' performance. Many new managers are reluctant to ask for help from their bosses. But when they do ask (often because of a looming crisis), they are relieved to find their superiors more tolerant of their questions and mistakes than they had expected.     

Let first-level supervisors do their job

Performing well as a first-level supervisor is like walking the circus high wire. In both positions, the ability to maintain one's balance when shifting forces pull in opposite directions is a measure of one's success. First-level supervisors must be able to harmonize the demands of management, the demands of the collective work force (often represented by unions), and the demands of workers with the requirements for doing the tasks at hand. These needs are more often than not conflicting and even at times mutually exclusive. First-level supervisors usually have mixed emotions about their situation and often lose their sense of identity as they try to perform this precarious balancing act. Today these supervisors are part of management, but chances are they were once among the employees they are now trying to supervise. Although first-level supervisors have the responsibility for implementing the goals of upper management, their organizational authority to carry out the necessary actions is frequently unclear and often insufficient. By allowing these lowest-level managers to use the levers of influence inherent in their position, higher-level managers will be improving the performance of the whole organization.     

Leading in times of trauma

An employee is diagnosed with cancer or loses a family member unexpectedly. An earthquake destroys an entire section of a city, leaving hundreds dead, injured, or homeless. At time like these, managerial handbooks fail us. After all, leaders can't eliminate personal suffering, nor can they ask employees who are dealing with these crises to check their emotions at the door. But compassionate leadership can facilitate personal as well as organizational healing. Based on research the authors have conducted at the University of Michigan and the University of British Columbia's CompassionLab, this article describes what leaders can do to foster organizational compassion in times of trauma. They recount real-world examples, including a story of personal tragedy at Newsweek, natural disasters that affected Macy's and Malden Mills, and the events of September 11, 2001. During times of collective pain and confusion, compassionate leaders take some form of public action, however small, that is intended to ease people's pain and inspire others to act. By openly demonstrating their own humanity, executives can unleash a compassionate response throughout the whole company, increasing bonds among employees and attachments to the organization. The authors say compassionate leaders uniformly provide two things: a "context for meaning"--creating an environment in which people can freely express and discuss how they feel--and a "context for action"--creating an environment in which those who experience or witness pain can find ways to alleviate their own and others' suffering. A leader's competence in demonstrating and fostering compassion is vital, the authors conclude, to nourishing the very humanity that can make people--and organizations--great.     

The enemies of trust

Researchers have established that trust is critical to organizational effectiveness. Being trustworthy yourself, however, does not guarantee that you are capable of building trust in an organization. That takes old-fashioned managerial virtues like consistency, clear communication, and a willingness to tackle awkward questions. It also requires a good defense: You must protect trust from its enemies. Any act of bad management erodes trust, so the list of potential enemies is endless. Among the most common enemies of trust, though, are inconsistent messages from top management, inconsistent standards, a willingness to tolerate incompetence or bad behavior, dishonest feedback, a failure to trust others to do good work, a tendency to ignore painful or politically charged situations, consistent corporate underperformance, and rumors. Fending off these enemies must be at the top of every chief executive's agenda. But even with constant vigilance, an organization and its leaders will sometimes lose people's trust. During a crisis, managers should enlist the help of an objective third party--chances are you won't be thinking clearly--and be available physically and emotionally. If you "go dark" in the face of a crisis, employees will worry about the company's survival, about their own capacity to cope, and about your abilities as a leader. And if trust has broken down so badly that your only choice is to start over, you can do so by figuring out exactly how the breach of trust happened, ascertaining the depth and breadth of the loss, owning up to the loss instead of downplaying it, and identifying as precisely as possible the specific changes you must make to rebuild trust.     

Customer value propositions in business markets

Examples of consumer value propositions that resonate with customers are exceptionally difficult to find. When properly constructed, value propositions force suppliers to focus on what their offerings are really worth. Once companies become disciplined about understanding their customers, they can make smarter choices about where to allocate scarce resources. The authors illuminate the pitfalls of current approaches, then present a systematic method for developing value propositions that are meaningful to target customers and that focus suppliers' efforts on creating superior value. When managers construct a customer value proposition, they often simply list all the benefits their offering might deliver. But the relative simplicity of this all-benefits approach may have a major drawback: benefit assertion. In other words, managers may claim advantages for features their customers don't care about in the least. Other suppliers try to answer the question, Why should our firm purchase your offering instead of your competitor's? But without a detailed understanding of the customer's requirements and preferences, suppliers can end up stressing points of difference that deliver relatively little value to the target customer. The pitfall with this approach is value presumption: assuming that any favorable points of difference must be valuable for the customer. Drawing on the best practices of a handful of suppliers in business markets, the authors advocate a resonating focus approach. Suppliers can provide simple, yet powerfully captivating, consumer value propositions by making their offerings superior on the few elements that matter most to target customers, demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer's business priorities.     

Let's put consumers in charge of health care

Businesses spend billions on health insurance. And what do they get for their money? A lot of unhappy employees. Workers fret about the quality of the care they receive, the burden of their out-of-pocket expenses, and the gaps in their coverage. For businesses, health care has become a lose-lose proposition: They pay way too much, and they get way too little. The problem is that the health care industry has been shielded from consumer pressure--by employers, insurers, and the government. As a result, costs have exploded even as choices have narrowed. But if companies embrace a new model of health coverage--one that places control over both costs and care directly into the hands of employees--the competitive forces that spur productivity and innovation in consumer markets can be loosed upon the inefficient, tradition-bound health care system. Moving to consumer-driven health care requires that companies revamp their health benefits in six ways: Give employees incentives to shop intelligently; offer a real choice of insurance plans; charge employees prices that accurately reflect the company's costs; let providers set their own prices; adjust payments for each enrollee based on need; and provide relevant information. Putting consumers in charge of health care may seem like a radical approach. But individuals are highly motivated to educate themselves about their health, their insurance, and their care, and they want to seek the most value for their money. Promoting that economic dynamic--the same that fuels consumer markets everywhere--is the best way to enhance the health care industry's productivity and quality.     

The young and the clueless

It's natural to promote your best and brightest, especially when you think they may leave for greener pastures if you don't continually offer them new challenges and rewards. But promoting smart, ambitious young managers too quickly often robs them of the chance to develop the emotional competencies that come with time and experience--competencies like the ability to negotiate with peers, regulate emotions in times of crisis, and win support for change. Indeed, at some point in a manager's career--usually at the vice president level--raw talent and ambition become less important than the ability to influence and persuade, and that's the point at which the emotionally immature manager will lose his effectiveness. This article argues that delaying a promotion can sometimes be the best thing a senior executive can do for a junior manager. The inexperienced manager who is given time to develop his emotional competencies may be better prepared for the interpersonal demands of top-level leadership. The authors recommend that senior executives employ these strategies to help boost their protégés' people skills: sharpen the 360-degree feedback process, give managers cross-functional assignments to improve their negotiation skills, make the development of emotional competencies mandatory, make emotional competencies a performance measure, and encourage managers to develop informal learning partnerships with peers and mentors. Delaying a promotion can be difficult given the steadfast ambitions of many junior executives and the hectic pace of organizational life. It may mean going against the norm of promoting people almost exclusively on smarts and business results. It may also mean contending with the disappointment of an esteemed subordinate. But taking the time to build people's emotional competencies isn't an extravagance; it's critical to developing effective leaders.     

Strategy as revolution

How often does the strategic-planning process start with senior executives asking what the rest of the organization can teach them about the future? Not often enough, argues Gary Hamel. In many companies, strategy making is an elitist procedure and ?strategy? consists of nothing more than following the industry's rules. But more and more companies, intent on overturning the industrial order, are rewriting those rules. What can industry incumbents do? Either surrender the future to revolutionary challengers or revolutionize the way their companies create strategy. What is needed is not a tweak to the traditional strategic-planning process, Hamel says, but a new philosophical foundation: strategy is revolution. Hamel offers ten principles to help a company think about the challenge of creating truly revolutionary strategies. Perhaps the most fundamental principle is that so-called strategic planning doesn't produce true strategic innovation. The traditional planning process is little more than a rote procedure in which deeply held assumptions and industry conventions are reinforced rather than challenged. Such a process harnesses only a tiny proportion of an organization's creative potential. If there is to be any hope of industry revolution, senior managers must give up their monopoly on the creation of strategy. They must embrace a truly democratic process that can give voice to the revolutionaries that exist in every company. If senior managers are unwilling to do this, employees must become strategy activists. The opportunities for industry revolution are mostly unexplored. One thing is certain: if you don't let the revolutionaries challenge you from within, they will eventually challenge you from without--in the marketplace.     

In praise of hierarchy

Hierarchy has not had its day. After 3,000 years as the preferred structure for large organizations, managerial hierarchy is still the most natural and effective organizational form that a big company can employ. Now, as in the past, the key to organizational success is individual accountability, and hierarchy preserves unambiguous accountability for getting work done. Unfortunately, hierarchy is widely misunderstood and abused. Pay grades are confused with real layers of responsibility, for example, and incompetent bosses abound. As a result, many experts now urge us to adopt group-oriented or "flat" structures. But groups are never held accountable as groups for what they do or fail to do, and groups don't have careers. The proper use of hierarchy derives from the nature of work. As organizational tasks range from simple to very complex, there are sharp jumps in the level of difficulty and responsibility. Surprisingly, people in hundreds of companies in dozens of countries agree on where these jumps take place. They are tied to an objective measure-the time span of the longest task or program assigned to each managerial role-and they occur at 3 months, 1 year, 2 years, 5 years, 10 years, and 20 years. As the time span increases, so does the level of experience, knowledge, and mental stamina required to do the work. This increasing level of mental capacity lets companies put people in jobs they can do, it allows managers to add value to the work of their subordinates, it creates hierarchical layers acceptable to everyone in the organization, and it allows employees to be evaluated by people they accept as organizational superiors. Best of all, understanding hierarchy allows organizations to set up hierarchies with no more than seven layers-often fewer-and to know what the structure is good for and how it ought to perform.     

Managers, Workers, and Corporate Control

If management has high private benefits and a small equity stake, managers and workers are natural allies against takeover threats. Two forces are at play. First, managers can transform employees into a “shark repellent” through long‐term labor contracts and thereby reduce the firm's attractiveness to raiders. Second, employees can act as “white squires” for the incumbent managers. To protect their high wages, they resist hostile takeovers by refusing to sell their shares to the raider or by lobbying against the takeover. The model predicts that wages are inversely correlated with the managerial equity stake, and decline after takeovers.