Surviving your new CEO

Almost 50% of the largest American firms will have a new CEO within the next four years; your company could very well be next. Senior executives know that a CEO transition means they're in for a round of firings, organizational reshuffles, and other unwelcome career changes. When your career suddenly depends on the views of a person you may not know, how worried should you be? According to the authors--very. They investigated the 2002-2004 CEO turnover rates of the top 1,000 U.S. companies and interviewed more than a dozen CEOs, each of whom had taken over at least one very large organization. Their study reveals that when a new CEO takes charge, remaining top managers are more likely than not to be shown the door. Those who leave often land in a lower position at a new company, work in a much smaller firm, or retire altogether. The news is not all grim, however. The interviewees offer some pointers on how to create a good impression and maximize your chances of survival and success under the new regime. Some of that advice may surprise you. One CEO pointed out, for instance, that "managers do not realize how much the CEO is looking for teammates on day one. I am amazed at how few people come through the door and say, 'I want to help. I may not be perfect, but I buy into your vision:" Other recommendations are more intuitive, such as learning the new CEO's working style, understanding her agenda, and helping her look good in her new position by achieving positive operating results--and soon. Along with the inevitable stresses, the authors point out, CEO transitions can provide opportunities. Whether you reinvigorate your career within your company or find fulfillment elsewhere, the key lies in deciding what you want to do--and then doing it right.     

Capitalizing on capabilities

By making the most of organizational capabilities--employees' collective skills and fields of expertise--you can dramatically improve your company's market value. Although there is no magic list of proficiencies that every organization needs in order to succeed, the authors identify 11 intangible assets that well-managed companies tend to have: talent, speed, shared mind-set and coherent brand identity, accountability, collaboration, learning, leadership, customer connectivity, strategic unity, innovation, and efficiency. Such companies typically excel in only three of these capabilities while maintaining industry parity in the other areas. Organizations that fall below the norm in any of the 11 are likely candidates for dysfunction and competitive disadvantage. So you can determine how your company fares in these categories (or others, if the generic list doesn't suit your needs), the authors explain how to conduct a "capabilities audit," describing in particular the experiences and findings of two companies that recently performed such audits. In addition to highlighting which intangible assets are most important given the organization's history and strategy, this exercise will gauge how well your company delivers on its capabilities and will guide you in developing an action plan for improvement. A capabilities audit can work for an entire organization, a business unit, or a region--indeed, for any part of a company that has a strategy to generate financial or customer-related results. It enables executives to assess overall company strengths and weaknesses, senior leaders to define strategy, midlevel managers to execute strategy, and frontline leaders to achieve tactical results. In short, it helps turn intangible assets into concrete strengths.     

Seven surprises for new CEOs

As a newly minted CEO, you may think you finally have the power to set strategy, the authority to make things happen, and full access to the finer points of your business. But if you expect the job to be as simple as that, you're in for an awakening. Even though you bear full responsibility for your company's well-being, you are a few steps removed from many of the factors that drive results. You have more power than anybody else in the corporation, but you need to use it with extreme caution. In their workshops for new CEOs, held at Harvard Business School in Boston, the authors have discovered that nothing--not even running a large business within the company--fully prepares a person to be the chief executive. The seven most common surprises are: You can't run the company. Giving orders is very costly. It is hard to know what is really going on. You are always sending a message. You are not the boss. Pleasing shareholders is not the goal. You are still only human. These surprises carry some important and subtle lessons. First, you must learn to manage organizational context rather than focus on daily operations. Second, you must recognize that your position does not confer the right to lead, nor does it guarantee the loyalty of the organization. Finally, you must remember that you are subject to a host of limitations, even though others might treat you as omnipotent. How well and how quickly you understand, accept, and confront the seven surprises will have a lot to do with your success or failure as a CEO.     

Getting it right the second time

Once a business performs a complex activity well, the parent organization often wants to replicate that success. But doing that is surprisingly difficult, and businesses nearly always fail when they try to reproduce a best practice. The reason? People approaching best-practice replication are overly optimistic and overconfident. They try to perfect an operation that's running nearly flawlessly, or they try to piece together different practices to create the perfect hybrid. Getting it right the second time (and all the times after that) involves adjusting for overconfidence in your own abilities and imposing strict discipline on the process and the organization. The authors studied numerous business settings to find out how organizational routines were successfully reproduced, and they identified five steps for successful replication. First, make sure you've got something that can be copied and that's worth copying. Some processes don't lend themselves to duplication; others can be copied but maybe shouldn't be. Second, work from a single template. It provides proof success, performance measurements, a tactical approach, and a reference for when problems arise. Third, copy the example exactly, and fourth, make changes only after you achieve acceptable results. The people who developed the template have probably already encountered many of the problems you want to "fix," so it's best to create a working system before you introduce changes. Fifth, don't throw away the template. If your copy doesn't work, you can use the template to identify and solve problems. Best-practice replication, while less glamorous than pure innovation, contributes enormously to the bottom line of most companies. The article's examples--Banc One, Rank Xerox, Intel, Starbucks, and Re/Max Israel--prove that exact copying is a non-trivial, challenging accomplishment.     

How market smarts can protect property rights

Intellectual property comprises an ever-increasing fraction of corporate wealth, but what's the good of that if an ever-increasing fraction of the property is copied or stolen? Faced with developing countries' limited and inadequately enforced patent and copyright laws, some companies are resorting to market-based strategies to protect their intellectual property. These include preempting or threatening competitors, embedding intellectual property in environments that can be protected, bundling insecure intellectual property with its more secure cousins, and actually entering the businesses that pose a threat. The authors urge companies coping with weak property rights to follow a decision tree when choosing which strategies to use and when: Start by thinking of the strategies that will protect your business's core. If, for example, a first-mover advantage is within reach, making yourself more committed to intellectual property could be the answer. If you and your rivals are equally matched, ask yourself, "Can those that threaten me with copying be copied in turn?" The knowledge that each of you can hurt the other may dampen the competitive intensity or even lead to voluntary sharing of property. If these solutions fail or don't apply, try forging a connection with a product or business closely related to your own. Doing so may prevent a valued asset from falling into a rival's hands or make the asset harder to misappropriate. This approach can even help you expand your piece of the market pie or reduce the cost of making the threatened product, perhaps to the point where you can compete against pirated goods. Finally, if there still doesn't seem to be a way of making money from your threatened product, you may choose to move into the very business that has hurt your own. Such strategies are behind the economics of successful companies like Intel and NBC, say the authors.     

The ten deadly mistakes of wanna-dots

Increasingly, it seems, there are just two types of companies left in the world: dot-coms, born on the Internet, and "wanna-dots," established organizations that are seeking to incorporate the Internet into their businesses. Some wanna-dots manage the deep mind-shift required to cross the digital divide. These are the pacesetters--the first movers and fast followers that exhibit organizational curiosity and the desire to innovate. But most wanna-dots are laggards; they don't rise to the challenge with the same resolve. In a global research effort involving more than 800 companies, the author uncovered so many wanna-dots making the same kinds of mistakes that it almost seemed they were following a How Not to Change guide. In this article, Kanter creates just such a guide, offering ten pieces of antiadvice that expose the tendency of wanna-dots to make only cosmetic changes when deep transformation is required. Beyond delineating what not to do, Kanter serves up two examples of wanna-dots that got it right. First, Williams-Sonoma, which successfully made up for a slow start to create a strong Web presence. Second, Honeywell, a pacesetter led by e-believers from the start, which still found the road to the Web a challenging one. For companies not born digital, the fundamental problem is change. And the real place to look for change is not on the Internet but inside your company--at your own organizational culture and your attitude toward change.     

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.     

Sense and reliability. A conversation with celebrated psychologist Karl E. Weick. Interview by Diane L. Coutu

Most of us see the organizations we operate in--our schools or companies, for instance--as monolithic and predictable, subjecting us to deadening routines and demanding dehumanizing conformity. But companies are more unpredictable and more alive than we imagine, according to Karl Weick, a psychology professor at the University of Michigan and an expert on organizational behavior. Weick says executives can learn a lot about managing the unexpected from organizations that can't afford surprises in the workplace--nuclear plants, firefighting units, or emergency rooms, for instance. In this conversation with HBR senior editor Diane Coutu, Weick examines the characteristics of these high-reliability organizations (HROs) and suggests ways that other organizations can implement their practices and philosophies. The key difference between high-reliability organizations and other companies is the mindfulness with which people in most HROs react to even very weak signs that some kind of change or danger is approaching. For instance, nuclear-plant workers Weick has studied immediately readjust dials and system commands when an automated system doesn't respond as expected. Weick contrasts this with Ford's inability to pick up on weak signs in the 1970s that there were lethal problems with the design of the Pinto gas tank. HROs are fixated on failure. They eschew plans and blueprints, looking instead for the details that might be missing. And they refuse to simplify reality, Weick says. Indeed, by cultivating broad work experiences and enlarging their repertoires, generalist executives can avoid getting paralyzed by "cosmology episodes"--events that make people feel as though the universe is no longer a rational, orderly system.     

Where value lives in a networked world

While many management thinkers proclaim an era of radical uncertainty, authors Sawhney and Parikh assert that the seemingly endless upheavals of the digital age are more predictable than that: today's changes have a common root, and that root lies in the nature of intelligence in networks. Understanding the patterns of intelligence migration can help companies decipher and plan for the inevitable disruptions in today's business environment. Two patterns in network intelligence are reshaping industries and organizations. First, intelligence is decoupling--that is, modern high-speed networks are pushing back-end intelligence and front-end intelligence toward opposite ends of the network, making the ends the two major sources of potential profits. Second, intelligence is becoming more fluid and modular. Small units of intelligence now float freely like molecules in the ether, coalescing into temporary bundles whenever and wherever necessary to solve problems. The authors present four strategies that companies can use to profit from these patterns: arbitrage allows companies to move intelligence to new regions or countries where the cost of maintaining intelligence is lower; aggregation combines formerly isolated pieces of infrastructure intelligence into a large pool of shared infrastructure provided over a network; rewiring allows companies to connect islands of intelligence by creating common information backbones; and reassembly allows businesses to reorganize pieces of intelligence into coherent, personalized packages for customers. By being aware of patterns in network intelligence and by acting rather than reacting, companies can turn chaos into opportunity, say the authors.     

Earnings Preannouncement Strategies

We examine the disclosure strategies managers follow when theyd preannounce quarterly earnings shortly before formal earnings announcements. We document that managers with bad news release essentially all of their news at the preannouncement date, while managers with good news only release about half of their news. Controlling for the combined news released at the preannouncement and earnings announcement dates, firms with negative earnings announcement surprises have significantly lower excess returns for the period from just before the preannouncement to just after the earnings announcement. This finding is consistent with the observed disclosure strategies whereby managers attempt to avoid negative earnings announcement surprises, and suggests that how information is presented can affect the market's reaction to that information.     

The innovation value chain

The challenges of coming up with fresh ideas and realizing profits from them are different for every company. One firm may excel at finding good ideas but may have weak systems for bringing them to market. Another organization may have a terrific process for funding and rolling out new products and services but a shortage of concepts to develop. In this article, Hansen and Birkinshaw caution executives against using the latest and greatest innovation approaches and tools without understanding the unique deficiencies in their companies' innovation systems. They offer a framework for evaluating innovation performance: the innovation value chain. It comprises the three main phases of innovation (idea generation, conversion, and diffusion) as well as the critical activities performed during those phases (looking for ideas inside your unit; looking for them in other units; looking for them externally; selecting ideas; funding them; and promoting and spreading ideas companywide). Using this framework, managers get an end-to-end view of their innovation efforts. They can pinpoint their weakest links and tailor innovation best practices appropriately to strengthen those links. Companies typically succumb to one of three broad "weakest-link" scenarios. They are idea poor, conversion poor, or diffusion poor. The article looks at the ways smart companies - including Intuit, P&G, Sara Lee, Shell, and Siemens- modify the best innovation practices and apply them to address those organizations' individual needs and flaws. The authors warn that adopting the chain-based view of innovation requires new measures of what can be delivered by each link in the chain. The approach also entails new roles for employees "external scouts" and "internal evangelists," for example. Indeed, in their search for new hires, companies should seek out those candidates who can help address particular weaknesses in the innovation value chain.     

Countering the biggest risk of all

Corporate treasurers and chief financial officers have become adept at quantifying and managing a wide variety of risks: financial (for example, currency fluctuations), hazard (chemical spills), and operational (computer system failures). To defend themselves, they use tried-and-true tools such as hedging, insurance, and backup systems. Some companies have even adopted the concept of enterprise risk management, integrating available risk management techniques in a comprehensive, organization-wide approach. But most managers have not addressed in a systematic way the greatest threat of all--strategic risks, the array of external events and trends that can devastate a company's growth trajectory and shareholder value. Strategic risks go beyond such familiar challenges as the possible failure of an acquisition or a product launch. A new technology may overtake your product. Gradual shifts in the market may slowly erode one of your brands beyond the point of viability. Or rapidly shifting customer priorities may suddenly change your industry. The key to surviving these strategic risks, the authors say, is knowing how to assess and respond to them. In this article, they lay out a method for identifying and responding to strategic threats. They categorize the risks into seven major classes (industry, technology, brand, competitor, customer, project, and stagnation) and describe a particularly dangerous example within each category. The authors also offer countermeasures to take against these risks and describe how individual companies (American Express, Coach, and Air Liquide, among them) have deployed them to neutralize a threat and, in many cases, capitalize on it. Besides limiting the downside of risk, strategic-risk management forces executives to think more systematically about the future, thus helping them identify opportunities for growth.     

Competing on talent analytics

Do investments in your employees actually affect workforce performance? Who are your top performers? How can you empower and motivate other employees to excel? Leading-edge companies such as Google, Best Buy, Procter & Gamble, and Sysco use sophisticated data-collection technology and analysis to answer these questions, leveraging a range of analytics to improve the way they attract and retain talent, connect their employee data to business performance, differentiate themselves from competitors, and more. The authors present the six key ways in which companies track, analyze, and use data about their people-ranging from a simple baseline of metrics to monitor the organization's overall health to custom modeling for predicting future head count depending on various "what if" scenarios. They go on to show that companies competing on talent analytics manage data and technology at an enterprise level, support what analytical leaders do, choose realistic targets for analysis, and hire analysts with strong interpersonal skills as well as broad expertise.     

Developing your leadership pipeline

Why do so many newly minted leaders fail so spectacularly? Part of the problem is that in many companies, succession planning is little more than creating a list of high-potential employees and the slots they might fill. It's a mechanical process that's too narrow and hidebound to uncover and correct skill gaps that can derail promising young executives. And it's completely divorced from organizational efforts to transform managers into leaders. Some companies, however, do succeed in building a steady, reliable pipeline of leadership talent by marrying succession planning with leadership development. Eli Lilly, Dow Chemical, Bank of America, and Sonoco Products have created long-term processes for managing the talent roster throughout their organizations--a process Conger and Fulmer call succession management. Drawing on the experiences of these best-practice organizations, the authors outline five rules for establishing a healthy succession management system: Focus on opportunities for development, identify linchpin positions, make the system transparent, measure progress regularly, and be flexible. In Eli Lilly's "action-learning" program, high-potential employees are given a strategic problem to solve so they can learn something of what it takes to be a general manager. The company--and most other best-practice organizations--also relies on Web-based succession management tools to demystify the succession process, and it makes employees themselves responsible for updating the information in their personnel files. Best-practice organizations also track various metrics that reveal whether the right people are moving into the right jobs at the right time, and they assess the strengths and weaknesses not only of individuals but of the entire group. These companies also expect to be tweaking their systems continually, making them easier to use and more responsive to the needs of the organization.     

A survival guide for leaders

Let's face it, to lead is to live dangerously. While leadership is often viewed as an exciting and glamorous endeavor, one in which you inspire others to follow you through good times and bad, such a portrayal ignores leadership's dark side: the inevitable attempts to take you out of the game. This is particularly true when a leader must steer an organization through difficult change. When the status quo is upset, people feel a sense of profound loss and dashed expectations. They may need to undergo a period of feeling incompetent or disloyal. It's no wonder they resist the change and often try to eliminate its visible agent. This "survival guide" offers a number of techniques--relatively straightforward in concept but difficult to execute--for protecting yourself as you lead such a change initiative. Adapted from the book Leadership on the Line: Staying Alive Through the Dangers of Leading (Harvard Business School Press, 2002), the article has two main parts. The first looks outward, offering tactical advice about relating to your organization and the people in it. It is designed to protect you from those who would push you aside before you complete your initiatives. The second looks inward, focusing on your own needs and vulnerabilities. It is designed to keep you from bringing yourself down. The hard truth is that it is not possible to experience the rewards and joys of leadership without experiencing the pain as well. But staying in the game and bearing that pain is worth it, not only for the positive changes you can make in the lives of others but also for the meaning it gives your own.     

The Effects of Unanticipated Macroeconomic News on Debt Markets

We examine the effects of unanticipated macroeconomic news on two interest rate futures using intraday data. The surprises are identified on the basis of their potential effects on debt markets (positive or negative) and by their size (large, medium, or small). The results show distinct ex‐post return patterns associated with different categories of news surprises. For example, large surprises have the strongest immediate effects whereas negative surprises have the longest persisting effects. Tests that examine the separate effects of each announcement suggest that debt responses vary with the size and potential effect of the news surprise in each announcement.     

Finding your next core business

How do you know when your core needs to change? And how do you determine what should replace it? From an in-depth study of 25 companies, the author, a strategy consultant, has discovered that it's possible to measure the vitality of a business's core. If it needs reinvention, he says, the best course is to mine hidden assets. Some of the 25 companies were in deep crisis when they began the process of redefining themselves. But, says Zook, management teams can learn to recognize early signs of erosion. He offers five diagnostic questions with which to evaluate the customers, key sources of differentiation, profit pools, capabilities, and organizational culture of your core business. The next step is strategic regeneration. In four-fifths of the companies Zook examined, a hidden asset was the centerpiece of the new strategy. He provides a map for identifying the hidden assets in your midst, which tend to fall into three categories: undervalued business platforms, untapped insights into customers, and underexploited capabilities. The Swedish company Dometic, for example, was manufacturing small absorption refrigerators for boats and RVs when it discovered a hidden asset: its understanding of, and access to, customers in the RV market. The company took advantage of a boom in that market to refocus on complete systems for live-in vehicles. The Danish company Novozymes, which produced relatively low-tech commodity enzymes such as those used in detergents, realized that its underutilized biochemical capability in genetic and protein engineering was a hidden asset and successfully refocused on creating bioengineered specialty enzymes. Your next core business is not likely to announce itself with fanfare. Use the author's tools to conduct an internal audit of possibilities and pinpoint your new focus.     

Failing by design

It's hardly news that business leaders work in increasingly uncertain environments, where failures are bound to be more common than successes. Yet if you ask executives how well, on a scale of one to 10, their organizations learn from failure, you'll often get a sheepish "Two-or maybe three" in response. Such organizations are missing a big opportunity: Failure may be inevitable but, if managed well, can be very useful. A certain amount of failure can help you keep your options open, find out what doesn't work, create the conditions to attract resources and attention, make room for new leaders, and develop intuition and skill. The key to reaping these benefits is to foster "intelligent failure" throughout your organization. McGrath describes several principles that can help you put intelligent failure to work. You should decide what success and failure would look like before you start a project. Document your initial assumptions, test and revise them as you go, and convert them into knowledge. Fail fast-the longer something takes, the less you'll learn-and fail cheaply, to contain your downside risk. Limit the number of uncertainties in new projects, and build a culture that tolerates, and sometimes even celebrates, failure. Finally, codify and share what you learn. These principles won't give you a means of avoiding all failures down the road-that's simply not realistic. They will help you use small losses to attain bigger wins over time.     

It's so hard to be fair

When employees believe they are being treated fairly-when they feel heard, when they understand how and why important decisions are made, and when they believe they are respected-their companies will benefit. Research shows that practicing process fairness reduces legal costs from wrongful-termination suits, lowers employee turnover, helps generate support for new strategic initiatives, and fosters a culture that promotes innovation. What's more, it costs little financially to implement Yet few companies practice it consistently. Joel Brockner examines this paradox, exploring psychological and other reasons that cause managers to resist embracing process fairness. The fact that it's relatively inexpensive to implement, for instance, may be why some numbers-oriented executives undervalue it. Many managers believe that they practice process fairness, but 360-degree feedback tells another story. Some corporate policies actually undermine it--such as when the legal department won't let managers fully explain decisions for fear that disclosure could expose the firm to lawsuits. And, frequently, managers simply follow the all-too-human tendency to avoid uncomfortable situations. But the good news is that organizations can take concrete steps to promote greater process fairness. Many studies have shown that training programs make a big difference, and the author describes the most effective format. In addition, warning your managers that they may experience negative emotions when practicing fair process will help prepare them to cope with those feelings. Finally, role modeling fair process on the executive level will help spread the practice throughout the organization. The fact is, process fairness is the responsibility of all executives, at all levels and in all functions; it cannot be delegated to HR. The sooner managers realize that and work to make it a company norm, the better off the organization will be.     

Emerging market exchange rates during quantitative tapering: The effect of US and domestic news

We analyze the impact of domestic and US-based news announcements of a large set of economic and policy-related fundamentals on the US dollar versus the Turkish lira exchange rate from 2013 to 2016. Since exchange rate behavior is closely related to political trust, we also incorporate the effect of domestic and global political uncertainty, using country indices based on Google search results. Contrary to previous findings, our results reveal that surprises related to the domestic economy have a greater effect on the exchange rate compared to surprises related to the US economy. Most important are the surprises related to domestic inflation and monetary policy, as well as foreign employment, while political uncertainty plays a minor role. There is also an asymmetry in the market response. Bad news about the US economy has more impact than good news, and good news about the domestic economy has more impact than bad news.