Designing high-performance jobs

Tales of great strategies derailed by poor execution are all too common. That's because some organizations are designed to fail. For a company to achieve its potential, each employee's supply of organizational resources should equal the demand, and the same balance must apply to every business unit and to the company as a whole. To carry out his or her job, each employee has to know the answers to four basic questions: What resources do I control to accomplish my tasks? What measures will be used to evaluate my performance? Who do I need to interact with and influence to achieve my goals? And how much support can I expect when I reach out to others for help? The questions correspond to what the author calls the four basic spans of a job-control, accountability, influence, and support. Each span can be adjusted so that it is narrow or wide or somewhere in between. If you get the settings right, you can design a job in which a talented individual can successfully execute on your company's strategy. If you get the settings wrong, it will be difficult for an employee to be effective. The first step is to set the span of control to reflect the resources allocated to each position and unit that plays an important role in delivering customer value. This setting, like the others, is determined by how the business creates value for customers and differentiates its products and services. Next, you can dial in different levels of entrepreneurial behavior and creative tension by widening or narrowing spans of accountability and influence. Finally, you must adjust the span of support to ensure that the job or unit will get the informal help it needs.     

Do your commitments match your convictions?

How many of us keep pace day to day, up-holding our obligations to our bosses, families, and the community, even as our overall satisfaction with work and quality of life decline? And yet, our common response to the situation is: "I'm too busy to do anything about it now." Unfortunately, unless a personal or professional crisis strikes, very few of us step back, take stock of our day-to-day actions, and make a change. In this article, London Business School strategy professors Donald Sull and Dominic Houlder examine the reasons why a gap often exists between the things we value most and the ways we actually spend our time, money, and attention. They also suggest a practical approach to managing the gap. The framework they propose is based on their study of organizational commitments--the investments, promises, and contracts made today that bind companies to a future course of action. Such commitments can prevent organizations from responding effectively to change. A similar logic applies to personal commitments--the day-to-day decisions we make about how we allocate our precious resources. These decisions are individually small and, therefore, easy to lose sight of. When we do, a gap can develop between our commitments and our convictions. Sull and Houlder make no value judgments about the content of personal commitments; they've devised a somewhat dispassionate tool to help you take a thorough inventory of what matters to you most. It involves listing your most important values and assigning to each a percentage of your annual salary, the hours out of your week, and the amount of energy you devote. Using this exercise, you should be able to identify big gaps--stated values that receive little or none of your scarce resources or a single value that sucks a disproportionate share of resources--and change your allocations accordingly.     

Managing by commitments

What makes a great manager great? Despite differences in their personal attributes, successful managers all excel in the making, honoring, and remaking of commitments. Managerial commitments take many forms, from capital investments to personnel decisions to public statements, but each exerts both immediate and enduring influence on a company. A leader's commitments shape a business's identity, define its strengths and weaknesses, establish its opportunities and limitations, and set its direction. Executives can all too easily forget that commitments are extraordinarily powerful. Caught up in the present, managers often take actions that, while beneficial in the near term, impose lasting constraints on their operations and organizations. When market or competitive conditions change, they can find themselves unable to respond effectively. Managers who understand the nature and power of their commitments can wield them more effectively throughout a company's life cycle. Entrepreneurs can avoid taking actions that imprint a new venture with a dysfunctional character. Managers in established enterprises can buttress past commitments that retain their currency and learn to recognize when commitments have become roadblocks to needed changes. The manager can then replace those roadblocks with new, rejuvenating commitments. That doesn't mean you should try to anticipate all the long-run consequences of every commitment--and it certainly doesn't mean you should shy away from making commitments. But it does mean that before making important decisions about, say, operating processes or partnerships, you should always ask yourself: Is this a process or relationship that we can live with in the future? Am I locking us into a course that we'll come to regret?     

Your loyalty program is betraying you

Even as loyalty programs are launched left and right, many are being scuttled. How can that be? These days, everyone knows that an old customer retained is worth more than a new customer won. What is so hard about making a simple loyalty program work? Quite a lot, the authors say. The biggest challenges include clarifying business goals, engineering the reward structure, and creating incentives powerful enough to change buying behavior but not so generous that they erode margins. Additionally, companies have to sort out the puzzles of consumer psychology, which can result, for example, in two rewards of equal economic value inspiring very different levels of purchasing. In their research, the authors have discovered patterns in what the successful loyalty programs get right and in how the others fail. Together, their findings constitute a tool kit for designing something rare indeed: a program that won't do you wrong. To begin with, it's important to know exactly what a loyalty program can do. It can keep customers from defecting, induce them to consolidate certain purchases with one seller (in other words, win a greater share of wallet), prompt customers to make additional purchases, yield insight into their behavior and preferences, and turn a profit. A program can meet these objectives in several ways--for instance, by offering rewards (points, say, or frequent-flier miles) divisible enough to provide many redemption opportunities but not so divisible that they fail to lock in customers. Companies striving to generate customer loyalty should avoid five common mistakes: Don't create a new commodity, which can result in price wars and other tit-for-tat competitive moves; don't cater to the disloyal by making rewards easy for just anyone to reap; don't reward purchasing volume over profitability; don't give away the store; and, finally, don't promise what can't be delivered.     

The mismanagement of customer loyalty

Who wouldn't want loyal customers? Surely they should cost less to serve, they'd be willing to pay more than other customers, and they'd actively market your company by word of mouth, right? Maybe not. Careful study of the relationship between customer loyalty and profits plumbed from 16,000 customers in four companies' databases tells a different story. The authors found no evidence to support any of these claims. What they did find was that the link between customers and profitability was more complicated because customers fall into four groups, not two. Simply put: Not all loyal customers are profitable, and not all profitable customers are loyal. Traditional tools for segmenting customers do a poor job of identifying that latter group, causing companies to chase expensively after initially profitable customers who hold little promise of future profits. The authors suggest an alternative approach, based on well-established "event-history modeling" techniques, that more accurately predicts future buying probabilities. Armed with such a tool, marketers can correctly identify which customers belong in which category and market accordingly. The challenge in managing customers who are profitable but disloyal--the "butterflies"--is to milk them for as much as you can while they're buying from you. A softly-softly approach is more appropriate for the profitable customers who are likely to stay loyal--your "true friends." As for highly loyal but not very profitable customers--the "barnacles"--you need to find out if they have the potential to spend more than they currently do. And, of course, for the "strangers"--those who generate no loyalty and no profits--the answer is simple: Identify early and don't invest anything.     

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.     

When salaries aren't secret

No one seemed to think Treece McDavitt was a malevolent employee. "Just mischievous," one person said. Whatever her motivation, the day before Treece was to leave RightNow!, an off-price women's fashion retailer, the 26-year-old computer wizard accessed HR's files and e-mailed employees' salaries to the entire staff. Now everyone knows what everyone else is making; they are either infuriated that they are making too little or embarrassed that they are making too much. Salary disparities are out there for everyone to see, and CEO Hank Adamson has to do something to smooth things over. Hank's trusted advisers talk extensively with the CEO about his options, ultimately coming down on two sides. Charlie Herald, vice president of human resources, takes a "You get a lemon, you make lemonade" approach: keep making the salaries public to ensure fairness and to push employees to higher performance, he advises. Meanwhile, CFO Harriet Duval sees the need for damage control: apologize, clean up the company's compensation system, and continue to keep--or at least try to keep--salaries private, she says. Should Hank side with Charlie or Harriet? Or perhaps find a compromise between their two views? What should he do about this serious salary debacle? Four commentators offer their advice on the problem presented in this fictional case study.     

Human due diligence

Most companies do a thorough job of financial due diligence when they acquire other companies. But all too often, deal makers simply ignore or underestimate the significance of people issues in mergers and acquisitions. The consequences are severe. Most obviously, there's a high degree of talent loss after a deal's announcement. To make matters worse, differences in decision-making styles lead to infighting; integration stalls; and productivity declines. The good news is that human due diligence can help companies avoid these problems. Done early enough, it helps acquirers decide whether to embrace or kill a deal and determine the price they are willing to pay. It also lays the groundwork for smooth integration. When acquirers have done their homework, they can uncover capability gaps, points of friction, and differences in decision making. Even more important, they can make the critical "people" decisions-who stays, who goes, who runs the combined business, what to do with the rank and file-at the time the deal is announced or shortly thereafter. Making such decisions within the first 30 days is critical to the success of a deal. Hostile situations clearly make things more difficult, but companies can and must still do a certain amount of human due diligence to reduce the inevitable fallout from the acquisition process and smooth the integration. This article details the steps involved in conducting human due diligence. The approach is structured around answering five basic questions: Who is the cultural acquirer? What kind of organization do you want? Will the two cultures mesh? Who are the people you most want to retain? And how will rank-and-file employees react to the deal? Unless an acquiring company has answered these questions to its satisfaction, the acquisition it is making will be very likely to end badly.     

The end of corporate imperialism

As they search for growth, multinational corporations will have no choice but to compete in the big emerging markets of China, India, Indonesia, and Brazil. But while it is still common to question how such corporations will change life in those markets, Western executives would be smart to turn the question around and ask how multinationals themselves will be transformed by these markets. To be successful, MNCs will have to rethink every element of their business models, the authors assert in this seminal HBR article from 1998. During the first wave of market entry in the 1980s, multinationals operated with what might be termed an imperialist mind-set, assuming that the emerging markets would merely be new markets for their old products. But this mind-set limited their success: What is truly big and emerging in countries like China and India is a new consumer base comprising hundreds of millions of people. To tap into this huge opportunity, MNCs need to ask themselves five basic questions: Who is in the emerging middle class in these countries? How do the distribution networks operate? What mix of local and global leadership do you need to foster business opportunities? Should you adopt a consistent strategy for all of your business units within one country? Should you take on local partners? The transformation that multinational corporations must undergo is not cosmetic--simply developing greater sensitivity to local cultures will not do the trick, the authors say. To compete in the big emerging markets, multinationals must reconfigure their resources, rethink their cost structures, redesign their product development processes, and challenge their assumptions about who their top-level managers should be.     

The superefficient company

Most companies do a great job promoting efficiency within their own walls, streamlining internal processes wherever possible. But they have less success coordinating cross-company business interactions. When data pass between companies, inconsistencies, errors, and misunderstandings routinely arise, leading to wasted work--for instance, the same sales, order entry, and customer data may be entered repeatedly into different systems. Typically, scores of employees at each company manage these cumbersome interactions. The costs of such inefficiencies are very real and very large. In this article, Michael Hammer outlines the activities and goals used in streamlining cross-company processes. He breaks down the approach into four stages: scoping--identifying the business process for redesign and selecting a partner; organizing--establishing a joint committee to oversee the redesign and convening a design team to implement it; redesigning--taking apart and reassembling the process, with performance goals in mind; and implementing--rolling out the new process and communicating it across the collaborating companies. The author describes how several companies have streamlined their supply-chain and product development processes. Plastics compounder Geon integrated its forecasting and fulfillment processes with those of its main supplier after watching inventories, working capital, and shipping times creep up. General Mills coordinated the delivery of its yogurt with Land O'Lakes; butter and yogurt travel cost effectively in the same trucks to the same stores. Hammer says this new kind of collaboration promises to change the traditional vocabulary of corporate relationships. What if you and I sell different products to the same customer? We're not competitors, but what are we? In the past, we didn't care. Now, we should, the author says.     

The customer has escaped

Every company makes choices about the channels it will use to go to market. Traditionally, the decision to sell through a discount superstore or a pricey boutique, for instance, was guided by customer demographics. A company would identify a target segment of buyers and go with the channel that could deliver them. It was a fair assumption that certain customer types were held captive by certain channels--if not from cradle to grave, then at least from initial consideration to purchase. The problem, the authors say, is that today's customers have become unfettered. As their channel options have proliferated, they've come to recognize that different channels serve their needs better at different points in the buying process. The result is "value poaching." For example, certain channels hope to use higher margin sales to cover the cost of providing expensive high-touch services. Potential customers use these channels to do research, then leap to a cheaper channel when it's time to buy. Customers now hunt for bargains more aggressively; they've become more sophisticated about how companies market to them; and they are better equipped with information and technology to make advantageous decisions. What does this mean for your go-to-market strategy? The authors urge companies to make a fundamental shift in mind-set toward designing for buyer behaviors, not customer segments. A company should design pathways across channels to help its customers get what they need at each stage of the buying process--through one channel or another. Customers are not mindful of channel boundaries--and you shouldn't be either. Instead, they are mindful of the value of individual components in your channels--and you should be, too.     

Is your company ready for one-to-one marketing?

One-to-one marketing, also known as relationship marketing, promises to increase the value of your customer base by establishing a learning relationship with each customer. The customer tells you of some need, and you customize your product or service to meet it. Every interaction and modification improves your ability to fit your product to the particular customer. Eventually, even if a competitor offers the same type of service, your customer won't be able to enjoy the same level of convenience without taking the time to teach your competitor the lessons your company has already learned. Although the theory behind one-to-one marketing is simple, implementation is complex. Too many companies have jumped on the one-to-one band-wagon without proper preparation--mistakenly understanding it as an excuse to badger customers with excessive telemarketing and direct mail campaigns. The authors offer practical advice for implementing a one-to-one marketing program correctly. They describe four key steps: identifying your customers, differentiating among them, interacting with them, and customizing your product or service to meet each customer's needs. And they provide activities and exercises, to be administered to employees and customers, that will help you identify your company's readiness to launch a one-to-one initiative. Although some managers dismiss the possibility of one-to-one marketing as an unattainable goal, even a modest program can produce substantial benefits. This tool kit will help you determine what type of program your company can implement now, what you need to do to position your company for a large-scale initiative, and how to set priorities.     

A test for the fainthearted

Just a few years ago, becoming an entrepreneur was pretty simple. All you needed was some idea--any idea--a little experience, and venture capital funds to get you going. Many young people started to believe that entrepreneurship was a viable, even safe, career choice. Older folks, too, underestimated the risks of financing start-ups, and, as a result, they ended up throwing millions of dollars into doomed ventures. The economic downturn has laid waste to those illusions. So now is a good time to ask potential entrepreneurs and their financial backers the hard questions unheeded in the days of the Internet boom: What makes an entrepreneur? What characteristics set successful entrepreneurs apart, enabling them to keep their company alive even when the going gets tough? This article addresses those questions, reminding us that becoming a successful entrepreneur is decidedly not a squeaky-clean affair; you may end up making powerful enemies, risking your own financial security, or even, in extreme cases, looking at jail time. Specifically, the article explores the key qualities that make someone a successful entrepreneur. Walter Kuemmerle has distilled these characteristics into a kind of litmus test of the following five straightforward, albeit disquieting, questions you should ask yourself if you are considering starting your own venture: Are you comfortable stretching the rules? Are you prepared to make powerful enemies? Do you have the patience to start small? Are you willing to shift strategies quickly? Are you a closer? Answering these questions honestly will help you decide if you have what it takes to become an entrepreneur.     

Hedging customers

You are a marketing director with $5 million to invest in customer acquisition and retention. Which customers do you acquire, and which do you retain? Up to a point, the choice is obvious: Keep the consistent big spenders and lose the erratic small ones. But what about the erratic big spenders and the consistent small ones? It's often unclear whether you should acquire or retain them and at what cost. Businesses have begun dealing with unpredictable customer behavior by following the practices of sophisticated investors who own portfolios comprising dozens of stocks with different, indeed divergent, histories and prospects. Each portfolio is diversified so as to produce the investor's desired returns at the particular level of uncertainty he or she can tolerate. Customers, too, are assets--risky assets. As with stocks, the cost of acquiring them is supposed to reflect the cash-flow values they are likely to generate. The authors explain how to construct a portfolio based on the notion that a customer's risk-adjusted lifetime value depends on its anticipated effect on the riskiness of the group it is joining. They also show how this approach was used to identify the best prospects for Myron Corporation, a global leader in the personalized business-gift industry. The concept of risk-adjusted lifetime value has a transforming power: For companies that rely on it, product managers will be replaced by customer managers, and the current method of accounting for profit and loss--which is by product--will be replaced by one that determines each customer's P&L. Once adjusted for risk, those P&Ls will become the firm's key performance and operational metric.     

The perfect message at the perfect moment

Marketers planning promotional campaigns ask questions to boost the odds that the messages will be accepted: Who should receive each message? What should be its content? How should we deliver it? The one question they rarely ask is, when should we deliver it? That's too bad, because in marketing, timing is arguably the most important variable of all. Indeed, there are moments in a customer's relationship with a business when she wants to communicate with that business because something has changed. If the company contacts her with the right message in the right format at the right time, there's a good chance of a warm reception. The question of "when" can be answered by a new computer-based model called "dialogue marketing," which is, to date, the highest rung on an evolutionary ladder that ascends from database marketing to relationship marketing to one-to-one marketing. Its principle advantages over older approaches are that it is completely interactive, exploits many communication channels, and is "relationship aware": that is, it continuously tracks every nuance of the customer's interaction with the business. Thus, dialogue marketing responds to each transition in that relationship at the moment the customer requires attention. Turning a traditional marketing strategy into a dialogue-marketing program is a straightforward matter. Begin by identifying the batch communications you make with customers, then ask yourself what events could trigger those communications to make them more timely. Add a question or call to action to each message and prepare a different treatment or response for each possible answer. Finally, create a series of increasingly urgent calls to action that kick in if the question or call to action goes unanswered by the customer. As dialogue marketing proliferates, it may provide the solid new footing that Madison Avenue seeks.     

The ethical mind. A conversation with psychologist Howard Gardner

Business leadership has become synonymous in the public eye with unethical behavior. Widespread scandals, massive layoffs, and inflated executive pay packages have led many to believe that corporate wrongdoing is the status quo. That's why it's more important than ever that those at the top mend relationships with customers, employees, and other stakeholders. Professor Gardner has spent many years studying the relationship between psychology and ethics at Harvard's Graduate School of Education. In this interview with HBR senior editor Bronwyn Fryer, Gardner talks about what he calls the ethical mind, which helps individuals aspire to do good work that matters to their colleagues, companies, and society in general. In an era when workers are overwhelmed by too much information and feel pressured to win at all costs, Gardner believes, it's easy to lose one's way. What's more, employees look to leaders for cues as to what's appropriate and what's not. So if you're a leader, what's the best way to stand up to ethical pressures and set a good example? First and foremost, says Gardner, you must believe that retaining an ethical compass is essential to the health of your organization. Then you must state your ethical beliefs and stick to them. You should also test yourself rigorously to make sure you're adhering to your values, take time to reflect on your beliefs, find multiple mentors who aren't afraid to speak truth to your power, and confront others' egregious behavior as soon as it arises. In the end, Gardner believes, the world hangs in the balance between right and wrong, good and bad, success and disaster. "You need to decide which side you're on:" he concludes, "and do the right thing."     

Turn customer input into innovation

It's difficult to find a company these days that doesn't strive to be customer-driven. Too bad, then, that most companies go about the process of listening to customers all wrong--so wrong, in fact, that they undermine innovation and, ultimately, the bottom line. What usually happens is this: Companies ask their customers what they want. Customers offer solutions in the form of products or services. Companies then deliver these tangibles, and customers just don't buy. The reason is simple--customers aren't expert or informed enough to come up with solutions. That's what your R&D team is for. Rather, customers should be asked only for outcomes--what they want a new product or service to do for them. The form the solutions take should be up to you, and you alone. Using Cordis Corporation as an example, this article describes, in fine detail, a series of effective steps for capturing, analyzing, and utilizing customer input. First come indepth interviews, in which a moderator works with customers to deconstruct a process or activity in order to unearth "desired outcomes." Addressing participants' comments one at a time, the moderator rephrases them to be both unambiguous and measurable. Once the interviews are complete, researchers then compile a comprehensive list of outcomes that participants rank in order of importance and degree to which they are satisfied by existing products. Finally, using a simple mathematical formula called the "opportunity calculation," researchers can learn the relative attractiveness of key opportunity areas. These data can be used to uncover opportunities for product development, to properly segment markets, and to conduct competitive analysis.     

See your brands through your customers' eyes.

Subaru markets an L.L. Bean Outback station wagon. Dell stamps Microsoft and Intel logos on its computers. Such inter-weaving of different companies' brands is now commonplace. But one of the central tools of brand management-portfolio mapping--has not kept pace with changes in the marketplace. Most conventional brand maps include only those brands owned by a company, arranged along organizational lines with little regard for how the brands influence customer perceptions. In this article, the authors present a new mapping tool--the brand portfolio molecule--that reveals the way brands appear to customers. The brand portfolio molecule includes all the brands that factor into a consumer's decision to buy, whether or not the company owns them. The first step in creating a brand portfolio molecule is to determine which brands should or should not be included. The second step is to classify each brand by asking five key questions: 1) How important is this brand to customers' purchase decisions about the brand you're mapping? 2) Is its influence positive or negative? 3) What market position does this brand occupy relative to the other brands in the portfolio? 4) How does this brand connect to the other brands in the portfolio? 5) How much control do you have over this brand? The last step is to map the molecule using a 3-D modeling program or by hand with pen and paper. Individual brands take the form of atoms, and they're clustered in ways that reflect how customers see them. The usefulness of the tool lies in its ability to show the many forces that influence a customer's buying decision--and to provide a powerful new way to think about brand strategy.     

Why leaders don't learn from success

What causes so many companies that once dominated their industries to slide into decline? In this article, two Harvard Business School professors argue that such firms lose their touch because success breeds failure by impeding learning at both the individual and organizational levels. When we succeed, we assume that we know what we are doing, but it could be that we just got lucky. We make what psychologists call fundamental attribution errors, giving too much credit to our talents and strategy and too tittle to environmental factors and random events. We develop an overconfidence bias, becoming so self-assured that we think we don't need to change anything. We also experience the failure-to-ask-why syndrome and neglect to investigate the causes of good performance. To overcome these three learning impediments, executives should examine successes with the same scrutiny they apply to failures. Companies should implement systematic after-action reviews to understand all the factors that led to a win, and test their theories by conducting experiments even if "it ain't broke."