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Rapid-Fire Fulfillment

By Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca, From the HBR November 2004 Issue

When a German wholesaler suddenly canceled a big lingerie order in 1975, Amancio Ortega thought his fledgling clothing company might go bankrupt. All his capital was tied up in the order. There were no other buyers. In desperation, he opened a shop near his factory in La Coruña, in the far northwest corner of Spain, and sold the goods himself. He called the shop Zara.

Today, over 650 Zara stores in some 50 countries attract well-heeled customers in luxury shopping districts around the world, and Senor Ortega is arguably the richest man in Spain. The clothing company he founded, called Inditex, has been growing ever since he opened that first Zara shop. From 1991 to 2003, Inditex’s sales—70% of which spring from Zara—grew more than 12-fold from €367 million to €4.6 billion, and net profits ballooned 14-fold from €31 million to €447 million. In May 2001, a particularly tough period for initial public offerings, Inditex sold 25% of its shares to the public for €2.3 billion. While many of its competitors have exhibited poor financial results over the last three years, Zara’s sales and net income have continued to grow at an annual rate of over 20%.

The lesson Ortega learned from his early scare was this: To be successful, “you need to have five fingers touching the factory and five touching the customer.” Translation: Control what happens to your product until the customer buys it. In adhering to this philosophy, Zara has developed a superresponsive supply chain. The company can design, produce, and deliver a new garment and put it on display in its stores worldwide in a mere 15 days. Such a pace is unheard-of in the fashion business, where designers typically spend months planning for the next season. Because Zara can offer a large variety of the latest designs quickly and in limited quantities, it collects 85% of the full ticket price on its retail clothing, while the industry average is 60% to 70%. As a result, it achieves a higher net margin on sales than its competitors; in 2001, for example, when Inditex’s net margin was 10.5%, Benetton’s was only 7%, H&M’s was 9.5%, and Gap’s was near zero.

Zara defies most of the current conventional wisdom about how supply chains should be run. In fact, some of Zara’s practices may seem questionable, if not downright crazy, when taken individually. Unlike so many of its peers in retail clothing that rush to outsource, Zara keeps almost half of its production in-house. Far from pushing its factories to maximize their output, the company intentionally leaves extra capacity. Rather than chase economies of scale, Zara manufactures and distributes products in small batches. Instead of relying on outside partners, the company manages all design, warehousing, distribution, and logistics functions itself. Even many of its day-to-day operational procedures differ from the norm. It holds its retail stores to a rigid timetable for placing orders and receiving stock. It puts price tags on items before they’re shipped, rather than at each store. It leaves large areas empty in its expensive retail shops. And it tolerates, even encourages, occasional stock-outs.

During the last three years, we’ve tried to discover just how Zara designs and manages its rapid-fire supply chain. We conducted a series of interviews with senior managers at Inditex and examined company documents and a wide range of other sources. We were particularly curious to see if Zara had discovered any groundbreaking innovations. We didn’t find any. Instead, we found a self-reinforcing system built on three principles:

Close the communication loop.

  • Zara’s supply chain is organized to transfer both hard data and anecdotal information quickly and easily from shoppers to designers and production staff. It’s also set up to track materials and products in real time every step of the way, including inventory on display in the stores. The goal is to close the information loop between the end users and the upstream operations of design, procurement, production, and distribution as quickly and directly as possible.

Stick to a rhythm across the entire chain.

  • At Zara, rapid timing and synchronicity are paramount. To this end, the company indulges in an approach that can best be characterized as “penny foolish, pound wise.” It spends money on anything that helps to increase and enforce the speed and responsiveness of the chain as a whole.

Leverage your capital assets to increase supply chain flexibility.

  • Zara has made major capital investments in production and distribution facilities and uses them to increase the supply chain’s responsiveness to new and fluctuating demands. It produces complicated products in-house and outsources the simple ones.

It took Zara many years to develop its highly responsive system, but your company need not spend decades bringing its supply chain up to speed. Instead, you can borrow a page from Zara’s playbook. Some of Zara’s practices may be directly applicable only in high-tech or other industries where product life cycles are very short. But Ortega’s simple philosophy of reaping profits through end-to-end control of the supply chain applies to any industry—from paper to aluminum products to medical instruments. Zara shows managers not only how to adjust to quixotic consumer demands but also how to resist management fads and ever-shifting industry practices.

Close the Loop

In Zara stores, customers can always find new products—but they’re in limited supply. There is a sense of tantalizing exclusivity, since only a few items are on display even though stores are spacious (the average size is around 1,000 square meters). A customer thinks, “This green shirt fits me, and there is one on the rack. If I don’t buy it now, I’ll lose my chance.”

Such a retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Zara’s designers create approximately 40,000 new designs annually, from which 10,000 are selected for production. Some of them resemble the latest couture creations. But Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lower prices. Since most garments come in five to six colors and five to seven sizes, Zara’s system has to deal with something in the realm of 300,000 new stock-keeping units (SKUs), on average, every year.

This “fast fashion” system depends on a constant exchange of information throughout every part of Zara’s supply chain—from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy that can bog down communication between departments. But Zara’s organization, operational procedures, performance measures, and even its office layouts are all designed to make information transfer easy.

Zara’s single, centralized design and production center is attached to Inditex headquarters in La Coruña. It consists of three spacious halls—one for women’s clothing lines, one for men’s, and one for children’s. Unlike most companies, which try to excise redundant labor to cut costs, Zara makes a point of running three parallel, but operationally distinct, product families. Accordingly, separate design, sales, and procurement and production-planning staffs are dedicated to each clothing line. A store may receive three different calls from La Coruña in one week from a market specialist in each channel; a factory making shirts may deal simultaneously with two Zara managers, one for men’s shirts and another for children’s shirts. Though it’s more expensive to operate three channels, the information flow for each channel is fast, direct, and unencumbered by problems in other channels—making the overall supply chain more responsive.

In each hall, floor to ceiling windows overlooking the Spanish countryside reinforce a sense of cheery informality and openness. Unlike companies that sequester their design staffs, Zara’s cadre of 200 designers sits right in the midst of the production process. Split among the three lines, these mostly twentysomething designers—hired because of their enthusiasm and talent, no prima donnas allowed—work next to the market specialists and procurement and production planners. Large circular tables play host to impromptu meetings. Racks of the latest fashion magazines and catalogs fill the walls. A small prototype shop has been set up in the corner of each hall, which encourages everyone to comment on new garments as they evolve.

The physical and organizational proximity of the three groups increases both the speed and the quality of the design process. Designers can quickly and informally check initial sketches with colleagues. Market specialists, who are in constant touch with store managers (and many of whom have been store managers themselves), provide quick feedback about the look of the new designs (style, color, fabric, and so on) and suggest possible market price points. Procurement and production planners make preliminary, but crucial, estimates of manufacturing costs and available capacity. The cross-functional teams can examine prototypes in the hall, choose a design, and commit resources for its production and introduction in a few hours, if necessary.

Zara is careful about the way it deploys the latest information technology tools to facilitate these informal exchanges. Customized handheld computers support the connection between the retail stores and La Coruña. These PDAs augment regular (often weekly) phone conversations between the store managers and the market specialists assigned to them. Through the PDAs and telephone conversations, stores transmit all kinds of information to La Coruña—such hard data as orders and sales trends and such soft data as customer reactions and the “buzz” around a new style. While any company can use PDAs to communicate, Zara’s flat organization ensures that important conversations don’t fall through the bureaucratic cracks.

Once the team selects a prototype for production, the designers refine colors and textures on a computer-aided design system. If the item is to be made in one of Zara’s factories, they transmit the specs directly to the relevant cutting machines and other systems in that factory. Bar codes track the cut pieces as they are converted into garments through the various steps involved in production (including sewing operations usually done by subcontractors), distribution, and delivery to the stores, where the communication cycle began.

The constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supply chains (and all open-loop information systems) to amplify small disturbances. A small change in retail orders, for example, can result in wide fluctuations in factory orders after it’s transmitted through wholesalers and distributors. In an industry that traditionally allows retailers to change a maximum of 20% of their orders once the season has started, Zara lets them adjust 40% to 50%. In this way, Zara avoids costly overproduction and the subsequent sales and discounting prevalent in the industry.

The relentless introduction of new products in small quantities, ironically, reduces the usual costs associated with running out of any particular item. Indeed, Zara makes a virtue of stock-outs. Empty racks don’t drive customers to other stores because shoppers always have new things to choose from. Being out of stock in one item helps sell another, since people are often happy to snatch what they can. In fact, Zara has an informal policy of moving unsold items after two or three weeks. This can be an expensive practice for a typical store, but since Zara stores receive small shipments and carry little inventory, the risks are small; unsold items account for less than 10% of stock, compared with the industry average of 17% to 20%. Furthermore, new merchandise displayed in limited quantities and the short window of opportunity for purchasing items motivate people to visit Zara’s shops more frequently than they might other stores. Consumers in central London, for example, visit the average store four times annually, but Zara’s customers visit its shops an average of 17 times a year. The high traffic in the stores circumvents the need for advertising: Zara devotes just 0.3% of its sales on ads, far less than the 3% to 4% its rivals spend.

Empty racks at Zara don’t drive customers to other stores. Being out of stock in one item helps sell another.

Stick to a Rhythm

Zara relinquishes control over very little in its supply chain—much less than its competitors. It designs and distributes all its products, outsources a smaller portion of its manufacturing than its peers, and owns nearly all its retail shops. Even Benetton, long recognized as a pioneer in tight supply chain management, does not extend its reach as far as Zara does. Most of Benetton’s stores are franchises, and that gives it less sway over retail inventories and limits its direct access to the critical last step in the supply chain—the customers.

This level of control allows Zara to set the pace at which products and information flow. The entire chain moves to a fast but predictable rhythm that resembles Toyota’s “Takt time” for assembly or the “inventory velocity” of Dell’s procurement, production, and distribution system. By carefully timing the whole chain, Zara avoids the usual problem of rushing through one step and waiting to take the next.

The precise rhythm begins in the retail shops. Store managers in Spain and southern Europe place orders twice weekly, by 3:00 pm Wednesday and 6:00 pm Saturday, and the rest of the world places them by 3:00 pm Tuesday and 6:00 pm Friday. These deadlines are strictly enforced: If a store in Barcelona misses the Wednesday deadline, it has to wait until Saturday.

Order fulfillment follows the same strict rhythm. A central warehouse in La Coruña prepares the shipments for every store, usually overnight. Once loaded onto a truck, the boxes and racks are either rushed to a nearby airport or routed directly to the European stores. All trucks and connecting airfreights run on established schedules—like a bus service—to match the retailers’ twice-weekly orders. Shipments reach most European stores in 24 hours, U.S. stores in 48 hours, and Japanese shops in 72 hours, so store managers know exactly when the shipments will come in.

When the trucks arrive at the stores, the rapid rhythm continues. Because all the items have already been prepriced and tagged, and most are shipped hung up on racks, store managers can put them on display the moment they’re delivered, without having to iron them. The need for control at this stage is minimized because the shipments are 98.9% accurate with less than 0.5% shrinkage. Finally, because regular customers know exactly when the new deliveries come, they visit the stores more frequently on those days.

This relentless and transparent rhythm aligns all the players in Zara’s supply chain. It guides daily decisions by managers, whose job is to ensure that nothing hinders the responsiveness of the total system. It reinforces the production of garments in small batches, though larger batches would reduce costs. It validates the company policy of delivering two shipments every week, though less frequent shipment would reduce distribution costs. It justifies transporting products by air and truck, though ships and trains would lower transportation fees. And it provides a rationale for shipping some garments on hangers, though folding them into boxes would reduce the air and truck freight charges.

These counterintuitive practices pay off. Zara has shown that by maintaining a strict rhythm, it can carry less inventory (about 10% of sales, compared to 14% to 15% at Benetton, H&M, and Gap); maintain a higher profit margin on sales; and grow its revenues.

Leverage Your Assets

In a volatile market where product life cycles are short, it’s better to own fewer assets—thus goes the conventional wisdom shared by many senior managers, stock analysts, and management gurus. Zara subverts this logic. It produces roughly half of its products in its own factories. It buys 40% of its fabric from another Inditex firm, Comditel (accounting for almost 90% of Comditel’s total sales), and it purchases its dyestuff from yet another Inditex company. So much vertical integration is clearly out of fashion in the industry; rivals like Gap and H&M, for example, own no production facilities. But Zara’s managers reason that investment in capital assets can actually increase the organization’s overall flexibility. Owning production assets gives Zara a level of control over schedules and capacities that, its senior managers argue, would be impossible to achieve if the company were entirely dependent on outside suppliers, especially ones located on the other side of the world.

The simpler products, like sweaters in classic colors, are outsourced to suppliers in Europe, North Africa, and Asia. But Zara reserves the manufacture of the more-complicated products, like women’s suits in new seasonal colors, for its own factories (18 of which are in La Coruña, two in Barcelona, and one in Lithuania, with a few joint ventures in other countries). When Zara produces a garment in-house, it uses local subcontractors for simple and labor-intensive steps of the production process, like sewing. These are small workshops, each with only a few dozen employees, and Zara is their primary customer.

Zara can ramp up or down production of specific garments quickly and conveniently because it normally operates many of its factories for only a single shift. These highly automated factories can operate extra hours if need be to meet seasonal or unforeseen demands. Specialized by garment type, Zara’s factories use sophisticated just-in-time systems, developed in cooperation with Toyota, that allow the company to customize its processes and exploit innovations. For example, like Benetton, Zara uses “postponement” to gain more speed and flexibility, purchasing more than 50% of its fabrics undyed so that it can react faster to midseason color changes.

All finished products pass through the five-story, 500,000-square-meter distribution center in La Coruña, which ships approximately 2.5 million items per week. There, the allocation of such resources as floor space, layout, and equipment follows the same logic that Zara applies to its factories. Storing and shipping many of its pieces on racks, for instance, requires extra warehouse space and elaborate material-handling equipment. Operating hours follow the weekly rhythm of the orders: In a normal week, this facility functions around the clock for four days but runs for only one or two shifts on the remaining three days. Ordinarily, 800 people fill the orders, each within eight hours. But during peak seasons, the company adds as many as 400 temporary staffers to maintain lead times.

Even though there’s ample capacity in this distribution center during most of the year, Zara opened a new €100 million, 120,000-square-meter logistics center in Zaragoza, northeast of Madrid, in October 2003. Why is Zara so generous with capacity? Zara’s senior managers follow a fundamental rule of queuing models, which holds that waiting time shoots up exponentially when capacity is tight and demand is variable (see the exhibit “For Fast Response, Have Extra Capacity on Hand”). By tolerating lower capacity utilization in its factories and distribution centers, Zara can react to peak or unexpected demands faster than its rivals.

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Strategy & the Fat Smoker

By David Maister

Much of what professional firms do in the name of strategic planning is a complete waste of time, no more effective than individuals making New Year’s resolutions.

The reasons are the same in both situations. Personally and professionally, we already know what we should do: lose weight, give up smoking, exercise more. In business, strategic plans are also stuffed with familiar goals: build client relationships, act like team players, provide fulfilling, motivating careers.

We want the benefits of these things. We know what to do, we know why we should do it and we know how to do it. Yet we don’t change, most of us, as individuals or as businesses.

The problem is that many change efforts are based on the assumption that all you have to do is to explain to people that their life could be better, be convincing that the goals are worth going for and show them how to do it.

This is patently false. If this were true, there would be no drug addicts in the world, no alco-holics, no bad marriages: “Oh, I see, it’s not good for me? Ah, well then, I’ll stop, of course!” What nonsense!

And yet strategic plans and annual speeches by CEOs, managing partners, management consultants and others continue to have this same useless structure: “Look at how fabulous it would be if you were a fit, non-smoking exerciser, David!” My usual response? “True, but please shut up and go away.”

And that’s the response of most audiences to the manager’s or consultant’s latest vision or strategy. “We knew all this a long time ago. Why don’t you ask us why we don’t do it?”

Now there’s an interesting question!

Why We Don’t Do It

The primary reason we do not work at areas in which we know we need to improve is that the rewards (and pleasures) are in the future; the disruption, discomfort and discipline needed to get there are immediate.

To reach our goals, we must first change our lifestyle, our daily habits, now. Then we have to have the courage to keep up the new habits and not yield to all the old familiar temptations. Then, and only then, we get the benefits.

As human beings, we are not good at such decisions. We start self-improvement programs with good intentions, but if they don’t pay off immediately, or if a temptation to depart from the program arises, we abandon our efforts completely—until the next time we pretend to be on the program.

That’s our pattern. Try a little, succumb to temptation, give up. Repeat until totally frustrated. Unfortunately, there is rarely, if ever, a benefit from dabbling or trying a little of a new strategy.

You can’t get half the benefits of a better marriage by cutting out half your affairs; you don’t cure half the problems of alcoholism by cutting out half the drinks; and you don’t much reduce the risks of lung cancer by cutting out half the cigarettes.

So it is with business strategy: you can’t achieve a competitive differentiation through things you do “reasonably well, most of the time.” Not only can you not dabble, but you also cannot have short-term strategies (an oxymoron, if ever there was one). The pursuit of short-term goals is inherently anti-strategic and self-defeating.

As Jean Nidetch (the founder of Weight Watchers) believed, the pursuit of quick weight loss is always self-defeating and ill-advised. If you don’t understand from the beginning that you have to change your lifestyle, now and forever, then you are wasting your time. Any initial weight you lose will be put right back on.

What’s more, repeated, short-lived efforts at weight loss are actually detrimental to long-run success since, among other reasons, they breed cynicism and the attitude of “We can’t do this. We’ve tried and failed before.”

Millions of people and countless businesses have proved her insight exactly correct. You are either seriously on the program, really living what you have chosen, or you are wasting your time.

Strategy Is the Diet, Not the Goal

Debating which goals to pursue (whether you wish to choose losing weight, giving up smok-ing, ceasing to drink or starting to exercise) is a nonsensical process if you lack the discipline to stick with the (different) diet and exercise programs that each of these requires. The only meaningful debate is which diet you are really ready to get on.

Giving up smoking may be better for you (or a better competitive strategy), but if you’re not willing to make the changes that that specific goal requires, its relative importance is irrelevant.

It’s the same in business. Discussing “strengths, weaknesses, opportunities and threats” (to take only the oldest and most familiar of the strategic planning exercises) is fun, but gets nowhere near the real questions.

Improving the quality of the analysis is not where the problem lies. The necessary outcome of strategic planning is not analytical insight but resolve.

The essential questions of strategy are these: “Which of our habits are we really prepared to change, permanently and forever? Which lifestyle changes are we really prepared to make? What issues are we really ready to tackle?”

Now that’s a different tone of conversation and discussion (and the reason the real debate is so often avoided). Discussing goals is stimulating, inspiring and energizing. Discussing what disciplines you are prepared to accept to get to a goal feels tough, awkward, annoying, frightening and completely unpleasant.

An Illustration

As an example, consider the familiar strategic topic of aiming for competitive differentia-tion through excellence in client service. Here are three real-world examples of programs to achieve this goal:

Once a quarter, an email is sent by the CEO to all active clients (without consultation with the lead people serving those clients), asking them to click on one of three buttons in the email: green if they are satisfied with the way their work is being handled, amber if they have some concerns, and red if they are unhappy.

The CEO personally reviews all the email replies, every day, following up on every single one that is not a green. Every quarter, the group averages on this score are published for each operating unit within the firm (every office, every discipline area) and distributed to everyone in the organization. Even the mail room clerks can see each quarter how well the senior vice presidents in each group are doing on client satisfaction.

At compensation-setting time, the relevant senior management group conducts a phone or face-to-face interview with every client that partner has served in the last year (or a scientifi-cally chosen random sample if the numbers are too high to be practical).

These client assessments carry a significant (40 to 60 percent) weighting in pay. You can’t get paid for selling or doing more volume unless it is more volume of highly satisfied clients. There is no reward for more volume of only moderately satisfied clients.

The organization adopts and publicizes an unconditional satisfaction guarantee, allowing clients to pay only what they thought the work was worth if they were disappointed.

These are just three examples of how to enforce the same strategic idea. Other ideas may be superior. The debate you would need to have in your firm, if you really want to pursue this or any other strategic goal, would be a series of questions:

Which diet, if integrated into our normal running of the firm, would actually get us to perform at a higher level, enough to achieve the benefits we seek?

Which would we be prepared to adopt as a central part of our regular lifestyle?

If we don’t like any of these diets, can anyone think of another that will have as much force as these, but that we could live with more easily?

Substitutes are allowed. No one diet idea is without flaw, and there are drawbacks to every program. If asked what the best way to lose weight is, the only sensible answer is: “Whatever diet you will stick to!”

However, if there is no specific diet that all your people can agree to follow, then you must conclude that you are not really willing or able to pursue that strategic goal.

Which is no shame. Life offers many opportunities to do quite well being competent. You don’t have to strive for excellence. It’s just that if you are not willing to do what it takes to achieve excellence, you should probably just shut up about it (internally and externally) and stop pretending!

There is no business benefit in claiming to pursue a goal that everyone can tell you don’t have the guts to pursue. It not only makes you look foolish to clients, staff and colleagues, but it also deeply demoralizes people and breeds cynicism. Declaring your commitment to strategies that you don’t follow will lower your organization’s energy and its profits.

What Gets People on the Diet?

If all business improvement is like curing a fat smoker or helping an alcoholic recover, what, then, actually gets people and organizations to change?

We all know the main thing that works: a major crisis! If revenues drop off sharply, it’s amazing how quickly businesses can act to deal with known inefficiencies and bad habits they could have tackled years ago.

And when the first heart attack comes, it’s amazing how many people suddenly find the self discipline to start living right.

That’s close to what happened to me. Until March 2005, I was a fat smoker. I had been over-weight for most of my life and smoked a pack a day for 37 years. I don’t say that as a confession. I never pretended that getting fit was my strategy.

Then, a variety of medical conditions put me into the hospital with a kidney malfunction. In the five months that followed, I stopped smoking, started exercising and lost 30 pounds.

This was all wonderful news for me and an amazing and welcome surprise to my family and friends, but a depressing conclusion for any theory of change.

Do people and institutions really have to wait until something very serious happens to them to fix things they have known about for years? Isn’t there any hope of a better way?

We know only a few things about getting people to change before the heart attack comes, but here are some.

  1. It’s About a Permanent Change in Lifestyle

A major source of failure in implementing sensible business strategies is that we underesti-mate how much effort is truly required to bring about significant improvement.

A major reason that only a small proportion of those who try to implement strategic pro-grams (or stick to diets) ever obtain the benefits they seek is that too many individuals and businesses think of improvement (and strategy) as a distinct schedule of activities, separate (and sometimes separately accounted for) from regular business activities. In other words, there’s real life, and then there’s the diet.

Viewed that way, all improvement programs are doomed to failure. As I discuss in the “Natural Manager” episode of my Masterclass on Business podcast series, my trainer Jerry (Dyelry) Labbate points out that you don’t really get the sustained benefits of being an exerciser until it has become as natural and permanent a part of your life as brushing your teeth and taking a shower each day. Anything less than that will put in jeopardy any short-term gains you might obtain with bursts of activity. It’s about routines, not special events.

  1. You Must Change the Core Scorecards

Strategy, if is to be lived and achieved, is about modifying the very rules of daily living and scorekeeping. You must scheme carefully about how new tracking measures of the strate-gies you pursue are published and disseminated.

If you are trying to lose weight, you must get on the scale regularly. If you do not, it is too easy to let yourself go and fool yourself as to how you are doing. But if you are the only one to see what the measurement says, the force for change will be minimal.

We all forgive ourselves too easily. We all find it quite easy to live with guilt. Even high lev-els of guilt don’t change people. Embarrassment, even in small doses, is far more effective.

How much more forceful it would be if you let your spouse see, each time, what you weigh!

Or better yet, what about letting your children monitor your progress?

So it is in professional life. When I was a teacher at the Harvard Business School, every course taught there was evaluated by the students at the end of every semester, and the results were published to everyone on campus. There was no doubt at that institution as to what the strategy was!

  1. Leadership: Get Serious, or Get Out of the Way

Organizations often rush to figure out how the troops need to change to live the new standards. However, this is not the first task. Perhaps the single biggest difficulty in getting an organization to stick to the diet is convincing them that top management really wants them to.

For example, if a group within the firm faces a trade-off between a lesser volume of high-quality work and a greater volume of “acceptable-quality” work, it is critical that they understand without ambiguity what choice firm leaders wish them to make. If they believe that management, when push comes to shove, wants the second alternative, they will never stretch to engage in strategic behaviors themselves.

If the leadership of the organization wants the people in it to believe that a new strategy is being followed, they must figure out a way for it to be credible that they, top management, have actually changed their thinking and are prepared to change the way they act, measure and reward.

I have countless examples of failure to do this. I was asked by one firm to run a program for their middle managers on how to be more effective as managers, but my instructions included this: “Please don’t raise the topic of how well we ourselves manage these middle managers. We know we do that terribly, but we’re not ready to discuss that. Keep their at-tention on what they could do better. We want them to change first.”

Can you imaging a process less likely to get the people in the organization to actually live to higher standards?

A similar event happened when I was asked to moderate a discussion in a firm that wanted the people in its different regions to work for the good of the institution, not just their own region. Unfortunately, as I ran this discussion, the CEO at the back of the room became more and more agitated.

I later found out that he had turned to his second in command and said, “This guy keeps talking about what we in management need to change to become a one-firm firm. We wanted him to talk about what the people out in the field need to do.” Not surprisingly, they never achieved collaboration, and I was never invited back to that firm!

This illustrates, by the way, the fatal flaw in using all outside speakers and consultants.

Whether or not they are convincing, educational or inspirational, the question on the audience’s mind is, “Do our leaders believe this and are they actually going to run the firm that way?”

All too often, the audience is given no evidence of the firm’s leadership commitment to the ideas, and the whole exercise becomes a waste of money and time. I have been told more times than I care to remember that the reaction to one of my presentations has been, “This all makes terrific sense, but there’s no way we’ll ever do these things around here.”

If people are to make the right strategic decision in every location of the firm, in every operating group and at every level, then they must absolutely trust that management will back them up and reward them (or at least not punish them) for acting in accordance with the declared strategy. A large part of really bringing about strategic change is designing some action or new system that visibly, inescapably and irreversibly commits top management to the strategy.

I have sometimes asked firm leaders whether they are willing to announce to their people, right up front, that they will resign their roles if measurable progress is not made on the strategic plans they advocate. Such a commitment has had a dramatic impact where it has been made.

  1. Principles Are More Effective Than Tactics

Since successful implementation of a strategy requires both sustained commitment over time and broad participation across the whole organization, strategies in business, like diets and alcohol recovery, are implemented much better when the ideas are presented as matters of principle, not just as matters of expediency.

If strategic rules are justified only in terms of outcomes (“exercise daily in order to look good”), the diet will always be seen as a punishment on the way to an uncertain and pos-sibly unattainable reward. Accordingly, it will always be resented.

If, however, diet achieves the force of moral principle (such as “treating clients and employees with respect is a value around here, not just a tactic”), the odds are significantly higher that successful implementation will be achieved.

As I reported in True Professionalism and Practice What You Preach, managers who get things done are people who are seen to have an ideology—their people believe that they believe in something.

This is because buy-in and excellent implementation result from a sense of not wanting to let people down. My physical trainer reports that some of his clients tell him that they keep up their exercise programs between meetings because they “don’t want to disappoint him.”

  1. People Must Volunteer

Even though it is the leader’s job to offer an ideology around which people can rally, it is by itself only a necessary, but not sufficient, first step.

Among the most powerful revelations of any successful recovery or self-improvement program, perhaps the most important is this: it only works when the individual is doing it for himself or herself and has made a personal choice to do it.

It doesn’t work if the person is doing it only for their spouse, or for his or her children, or to gain the good opinion of others. To sustain the effort, an individual has got to make a personal choice that the change is being made for him- or herself.

The motivation must be intrinsic. Since the essence of successful strategic change is not technique, but will. If you prefer, you can call it determination, commitment or resolve.

To achieve any goal, you must really want the goal. The common questions presented when discussing strategies and strategic change are these: “Do we have to do this? Why, when things are going so well, do we need to accept more discipline into our lives?”

The answer, of course, is that you don’t have to do anything you don’t want to do. Strategy in a professional business is a choice that each individual has to make about whether he or she wants to put more effort into his or her life and career in order to get somewhere new.

In professional firms, it is dangerous to assume that every person, or every partner, does. That’s why most firms (and most individuals) don’t pull off their strategies: not everyone in the firm actually wants to try that hard. They will say they want to be the clear market leader in their field; they are just not willing to do what that takes.

It’s valid for them to make this choice. After all, I was a fat smoker for 37 years and felt I had the right to remain so. For me and for others, the single biggest barrier to making change is the feeling that “it’s OK so far.” People don’t disagree that the future state of be-ing a non-smoker would be beneficial, but they resist when they are told that they have to do it.

Brad Robitaille, a Canadian lawyer, points out that while execution of a strategic plan is hard work, it must be hard work that a person loves to do, because only passion creates the determination to continue. He also notes that “no one can instill passion in anyone else’s heart.” It must come from within. If the hard work inherent in executing the disciplines of strategy is merely a by-product of duty and obligation, then the battle is lost before it has even begun.

One of a leader’s roles is to act as a coach, drawing people’s attention to what is not perfect about the status quo (i.e., creating dissatisfaction), whether things could actually be better, and whether the desired change is both achievable and desirable. But it’s subtle stuff—the leader must be skilled in not only knowing the answers to these questions, but also in the process of helping others think it through to a personal conclusion.

  1. People Must Get On or Off the Bus

Every individual can, and must, make a personal choice. But then the organization must decide how to respond to those individual choices. For an organization, strategy cannot be what “most of us, most of the time” do. You’ll never be good enough as a firm if participation in your firm’s definition of excellence is optional.

If a number of top people have clearly not signed up for the journey or are clearly not true believers, no number of systems or amount of inspired speech making will get the organization there. Strategy making in professional firms is as often about getting some senior people to leave as it is about bringing new people in.

Jim Collins in Good to Great called this “getting the right people on and off the bus” and identified it as the first step in all programs for strategic greatness.

Everyone in the organization has to decide if they want to try hard enough to sacrifice some of the present to achieve a better tomorrow. They may do so if they believe the effort is serious. They definitely will not if they think those at the top are undecided or are divided.

Professional firms are afraid of this conclusion. They try to work around the skeptics, the non-believers and the non-participants in their senior ranks, preferring to hold on to revenue volume rather than achieve a senior team who all want to go to the same place and have the same resolve to get there. That’s fine, but you can’t call it strategy.

As all married couples who try dieting know, it’s hard enough to stay the course and resist temptation when you are both attempting to do the right thing. It’s nigh impossible if those around you continue to indulge and there are temptations (food, alcohol, etc.) all around. You either pull this off together, or you will lose the resolve and you will fail.

Notice, it’s absolutely not about how we can force people to do what we want. It’s about how we can make sure that people have opted in and that those who do not wish to be on the program have opted out—of the firm!

People absolutely need the mutual support (and social structure) that comes from doing this together, in common cause. People need to help each other through the tough times (“Come on, one last repetition of the training circuit”) instead of being part of a forgiving culture that keeps discouraging extra effort. (“Oh, that’s OK, you can skip exercise today. You deserve a break.”)

Again, that’s why other researchers and I keep discovering that the most successful organizations have an ideology. There is a McKinsey way, a Goldman Sachs approach and a Bain philosophy, to take only three examples of firms with strong ideologies, clear strategies and the financial success to match.

At these firms, if you don’t subscribe to the ideology, you don’t stay and argue or act as a silent dissenter. You walk. Or, eventually, you’re asked to walk.

Managing the Process of Change

None of this is meant to say that firms must change overnight. It truly is, like alcoholic recovery, a process of “first make a lifetime commitment, then take it one day at time.”

Once we know what the agreed-upon diet is, there is a need for skilled coaching in leading individuals and teams through the struggle to attain the goals they have committed to.

I have described this process elsewhere: my article “A Great Coach in Action” and my book, First Among Equals, both explore this topic in depth. But it is worth reviewing the highlights of what we know about diet and exercise program management here.

The key is to manage with a philosophy of “It’s OK to stumble; it’s only a sin if you don’t get back on the program.” The primary goal of the beginning stage of a change program is to get people to believe that it is doable and that all we are asking is that they try. This means early successes.

All that wise leaders (and good trainers) talk about is the next small step. And they celebrate like crazy each small accomplishment. They focus on requiring improvement, not on requiring excellence. “As long as you are improving, you’re with the program, and one of us!”

Managing a weight loss program often means you stop talking about the ultimate goal. If you keep reminding me that I need to lose 50 pounds, it is as likely to backfire and make me give up as it is to energize me.

But what if someone says to me, “Let’s just focus on losing one pound in a week, David. Do you think you can do that? That doesn’t sound impossible, does it?” My reaction to that will be a lot different. Yet, of course, one pound a week is 50 pounds in a year. An alcoholic is daunted by a lifetime of abstinence, but he or she can manage to not drink just for today.

Michael Webb, a sales consultant, points out that short-term goals (“Lose a pound a week”) only take on value in the context of principles, which are long-term. First, one establishes what is important; then, you get people to do a little of it, a little more and so on. It is commitment to a process of continuous improvement on things that matter.

In my article “The Courage to Have a Strategy,” I described this as an attitude of “Rome wasn’t built in a day, but we are building Rome.” It can be described as a managerial style of insistent patience.

Encouragement is an essential ingredient in the recipe. When I began exercising, it was so-bering to realize how much I needed my trainer’s words (“Good, good, David”) when I had just been able to complete an exercise for the first time.

At one level, I knew I was pathetically bad, but it really did help to hear his constant encouragement: “You’re doing much better, David. You might not be able to feel it, but as a trainer I can see it.”

I don’t know how much of it was him being falsely optimistic, and I am sure it was all a well-practiced mind game.

But, as every good trainer knows, that’s the point. We all need to play mind games with ourselves when we struggle to build new achievements and habits into our lives. (“If I can just finish this first one, I’ll reward myself with a break. Let me just get this first one done!”)

It also means making a game of strategic programs. Educated professionals may scoff, but it’s profoundly rooted in the human psyche that if you can make a game of something, it helps to sustain strenuous effort.

Hence all the hoopla of various strategic initiatives such as “Six Sigma,” “quality is free” and similar fads; business jargon; and prizes, rewards and “black belt” recognition programs.

There’s a reason such things work, even among cynical people. They help to make a “mind game” of the whole thing, creating a framework on which we hang the mind-distracting habits. (“If I can just do this one thing, I can make it. If I change the way I do that, I will be better able to stick to things.)

Good trainers know that life-changing improvement can and does fail by rushing to either of the two extremes: establishing improvement goals that are too ambitious or take too long to achieve, thus leading to frustration and abandonment of the program, or failing to establish any pressure to improve, allowing people to pretend that they plan to get on the program, but just not today.

The good news in all of this is that, in the world at large, there is experience in helping people make significant improvement in their lives. There are well-documented methodologies; they are just not the ones we usually associate with the business world.

If we are prepared to rethink how we view strategy and business life, then people can achieve things they never thought possible. If I can become a fit, non-smoking exerciser, there’s truly no limit!

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How Managers Drive Results and Employee Engagement at the Same Time

Is it possible to be a high-standards, results-driven leader while at the same time building an engaged, fun-to-work-with team? Many people would contend that doing either of these things well makes it almost impossible to succeed at the other. And yet our examination of 360-degree assessment data from more than 60,000 leaders showed us that leaders who were rated in the top quartile of both skills ranked in the 91st percentile of all leaders. It seems that not only is it possible to do both things well, but the best leaders are the very ones who manage to do both.

But there aren’t very many of them — specifically, we isolated leaders who ranked in the top quartile on both driving for results and people skills. We found that only 13% of leaders in our data set fit this profile. Still, this left us with a data set of 7,800 leaders to analyze.

To explore the specific attributes and behaviors of these leaders, we looked more closely at this subset of our data. We found that younger leaders excelled in this ability to run an effective and fun team environment. We found that leaders who were under 30 years of age were two to three times as likely to be effective at both results and engagement than their older compatriots. Nearly one-third of the group under 30 years of age achieved both priorities well. Around age 40, it seems, leaders appear to have made their choice between being results driven or interpersonally strong. From there forward, only 10% of leaders in any age group would do both things well.

Why? Perhaps younger people place a heavier value on work relationships than older generations do. Certainly, that seems true anecdotally: Young people do seem more interested in having close, personal friendships with their colleagues, while older workers seem more likely to say, “Work is work, and life is life, and never the twain shall meet,” perhaps because those older colleagues know more people outside of work. Perhaps older colleagues feel less of a need to rely on soft skills, assuming that colleagues will be influenced by their greater experience.

But we also wondered if the results we found correlated not with age (or not only with it), but with position. And indeed, that’s what we found.

Supervisors are much more likely to carry both capabilities than senior managers, we found. In fact, supervisors are twice as likely to do both things well than senior managers. In this case we did see some decline in both skills with age, but people skills declined more than drive for results as leaders moved from supervisor to top management. Both skills decline with age, and age and position are strongly correlated with each other. It’s also more likely that people with less power, such as supervisors, feel they have to rely on their people skills if they’re going to get the results they want. The thing is, older or more powerful managers would also benefit from emphasizing their people skills, even if they don’t realize it.

To understand how some leaders are able to perform both capabilities well, we compared the results for the group in the top quartile of both skills to all other leaders in the data set. We analyzed 40 behaviors and performed a statistical test (t-test) contrasting both group’s results. By analyzing the items showing the most significant differences, we performed a factor analysis and identified six clustered groups. These appear to be the behaviors that enable that 13% of leaders to consistently use both sets of leadership skills.

We labelled these clusters “behavioral bridges,” because the evidence suggests they enable leaders to simultaneously drive for results and practice good interpersonal skills. Obviously, these outcomes single out leaders as possessing six powerful skills that allow them to perform at a much higher level than those who lack these traits.


1. Communicates clear strategy and direction

  • Drives for results. Peak results hinge on everyone having clarity about the direction and understanding the strategy to achieve it.
  • People skills. When people are lost or confused, they quickly become dissatisfied. Leaders who communicate well and provide clear direction have a much more engaged team.

2. Inspires and motivates

  • Drives for results. More than three-quarters of leaders (78%) were rated higher on their ability to drive for results than on their ability to inspire and motivate others. We often refer to driving for results as “push” and to inspiring as “pull.” When a leader has the ability to drive hard for results and at the same time inspire high effort and performance, they are much more likely to achieve results.
  • People skills. Inspiring behavior unleashes the energy within people to do their best work. Most of us want to make a positive difference in our work and the world. Leader who can inspire and generate loyalty, commitment, passion, and enthusiasm in their team members excel at creating a positive work environment.

3. Establishes stretch goals

  • Drives for results. Setting stretch goals that team members accept has the ability to get others to work harder and raise the bar.
  • People skills. When stretch goals are collaboratively set with a team, amazing things happen. Work becomes fun. Everyone is all in. People feel valued and competent.

4. Has high integrity and inspires trust

  • Drives for results. If a leader who is not trusted sets stretch goals, team members will often assume they are being manipulated and taken advantage of by their manager. A trusted leader’s motives are beyond reproach.
  • People skills. A key component of building positive relationships with others is being trusted. To be trusted, leaders need to “walk their talk.” They never ask their team members to do something that they are not willing to do themselves.

5. Develops others

  • Drives for results. Leaders who care about the development of subordinates and who also take the time to develop these people reap the benefits in the results produced. Well-trained people are far more productive.
  • People skills. Most people want the opportunity to develop new skills and competencies. Leaders who are focused on helping team members develop are always viewed in a very positive light. Developing others has the twofold impact of elevating performance and creating a culture that is fun and engaging. It also attracts more people who want to work in it.

6. Is coachable

  • Drives for results. Leaders who resist feedback are much like the emperor with no clothes. Since they do not seek or want feedback, people see do not speak up. Problems slip through the cracks. Deadlines are missed. However, if a leader seeks feedback and is receptive to advice, colleagues will not stand by if they see that leader is about to make a mistake.
  • People skills. Leaders who ask for feedback from others and work to make improvements are highly respected. Their coachability is an example to everyone.

Having the ability to simultaneously drive for results and practice excellent people skills is a powerful combination that has a dramatic impact on a leader’s effectiveness. As noted earlier, we found that leaders who possess both of these skills were rated in the 91st percentile in their overall leadership effectiveness. Hopefully, you can identify one or two of these six behavioral bridges that will help you achieve this magic combination as well.

Published in Harvard Business Review the first time on June the 19th, 2017 by Jack Zenger and Joseph Folkman


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Managing Your Mission-Critical Knowledge

When executives talk about “knowledge management” today, the conversation usually turns very quickly to the challenge of big data and analytics. That’s hardly surprising: Extraordinary amounts of rich, complicated data about customers, operations, and employees are now available to most managers, but that data is proving difficult to translate into useful knowledge. Surely, the thinking goes, if the right experts and the right tools are set loose on those megabytes, brilliant strategic insights will emerge.

Tantalizing as the promise of big data is, an undue focus on it may cause companies to neglect something even more important—the proper management of all their strategic knowledge assets: core competencies, areas of expertise, intellectual property, and deep pools of talent. We contend that in the absence of a clear understanding of the knowledge drivers of an organization’s success, the real value of big data will never materialize.

Yet few companies think explicitly about what knowledge they possess, which parts of it are key to future success, how critical knowledge assets should be managed, and which spheres of knowledge can usefully be combined. In this article we’ll describe in detail how to manage this process.

Map Your Knowledge Assets

The first step is to put boundaries around what you’re trying to do. Even if you tried to collect and inventory all the knowledge floating around your company—the classic knowledge-management approach—you wouldn’t get anything useful from the exercise (and you’d suffer badly from cognitive overload). Our goal is to help you understand which knowledge assets—alone or in new combinations—are key to your future growth. We would bet heavily that if your company has a knowledge-management system, it doesn’t adequately parse out your mission-critical knowledge.

Identifying and mapping strategic knowledge is iterative. In our work with organizations we generally start by assembling a multifunctional team—at the organizational, divisional, or business unit level—to articulate what the members consider to be key dimensions of the company’s competitive performance and the knowledge that underpins them. It can be useful to shape this conversation by giving individuals assignments in advance. Senior managers might be asked to outline the business model and high-level critical knowledge, such as areas of advanced expertise, intellectual property, and the relationships with customers, suppliers, and distributors that make that model successful. Market researchers and sales managers might be asked to delineate the attributes of new products and services that customers will need in the near future. Technical and operations managers might describe organizational routines that support needed areas of expertise. And so on. (The right mix of people will depend on the business context and how clearly the senior team has thought through its future strategy.)

This step alone can be quite challenging the first time around. When we worked with a group of decision makers at ATLAS, the major particle physics experiment at the European Organization for Nuclear Research (CERN), we interviewed many stakeholders to get a holistic view of the knowledge underpinning its success and then surveyed nearly 200 other members of the organization. Ultimately we mapped only a portion of the ATLAS knowledge base, but in the process we whittled down a list of 26 knowledge domains to the eight that were deemed most important to organizational outcomes.

Absent a clear understanding of your knowledge assets, big data’s value won’t materialize.

Your list of key assets should ultimately include some that are “hard,” such as technical proficiency, and some that are “soft,” such as a culture that supports intelligent risk taking. You may also have identified knowledge that you should possess but don’t or that you suspect needs shoring up. This, too, should be captured.

The next step is to map your assets on a simple grid along two dimensions: tacit versus explicit (unstructured versus structured) and proprietary versus widespread (undiffused versus diffused). The exhibit “What Kind of Knowledge Is This?” which includes a mapping grid, will help you figure out where to place your knowledge assets on your own map. (We owe a debt to Sidney G. Winter, Ikujiro Nonaka, and the late Max Boisot for their work on these dimensions. Had he lived, Boisot would have been a coauthor on this article.)

What Kind of Knowledge Is This?
You can plot your mission-critical knowledge on a map like the one below.

Use these categories to help place your assets along the y axis from bottom to top:
  • An expert can use the knowledge to perform tasks but cannot articulate it in a way that allows others to perform them.
  • Experts can perform tasks and discuss the knowledge involved with one another.
  • People can perform tasks by trial and error.
  • People can perform tasks using rules of thumb, but causal relationships aren’t clear.
  • It’s possible to identify and describe the relationship between variables involved in doing a task so that general principles become clear.
  • The relations among variables are so well known that the outcome of actions can be calculated and reliably delivered with precision. (Knowledge assets covered under patents or other forms of copyright protection generally fit here.)
Use these categories to help place your assets along the x axis from left to right:
  • Only one person in the organization has this knowledge.
  • A few people in the organization have this knowledge.
  • Many people in one part of the organization have this knowledge.
  • People throughout the organization have this knowledge.
  • Many people in the industry have this knowledge.
  • Many people both inside and outside the industry have this knowledge.


Unstructured versus structured.

Unstructured (tacit) knowledge involves deep, almost intuitive understanding that is hard to articulate; it’s generally rooted in great expertise. World-class, highly experienced engineers may intuit how to solve technical problems that nobody else can (and may be unable to explain their intuition). Rainmakers in a strategy consulting firm know in their bones how to steer a conversation or a discussion, develop a relationship, and close a deal, but they would have trouble telling colleagues why they made a particular move at a particular moment.

Structured (explicit or codified) knowledge is easier to communicate: A company that’s expert in the use of discovery-driven planning, for example, can bring people up to speed on that methodology quickly because it has given them recourse to a common language, rules of thumb, and conceptual frameworks. Some knowledge is so fully structured that it can be captured in patents, software, or other intellectual property.

Undiffused versus diffused.

To what extent is the knowledge spread through—or outside—the company? One division may have expertise in negotiating with officials of the Chinese government, for example, which another division totally lacks. That knowledge is obviously undiffused. But most companies have certain broadly shared competencies: Those in the consumer packaged goods industry tend to have companywide strength in developing and marketing new brands; and many employees in the defense industry know a lot about bidding on government contracts. Some knowledge, of course, is diffused far beyond the boundaries of the organization.

Interpret the Map

Simply mapping your knowledge assets and then discussing the map with your senior team can uncover important insights and ideas for value creation, as our experience with decision makers at Boeing and ATLAS demonstrate.

Global sourcing at Boeing.

Sourcing managers at Boeing were aware that their relationships with internationally dispersed customers, suppliers, and partners were changing. The whole ecosystem was sharing in the creation of new aircraft technologies and services and in the associated risks. Future success would depend on learning to manage this interdependence.

With that insight in mind, the managers mapped the critical knowledge assets in their global sourcing activities, which ultimately resulted in a research paper that one of us (Martin Ihrig) coauthored with Sherry Kennedy-Reid of Boeing. They saw that cost-related knowledge—performance metrics, IP strategy, and supply-base management—was well structured and widely diffused. However, knowledge about supplier capabilities, although codified, had not spread throughout the Boeing sourcing community. And other knowledge that was important to future value creation—how to leverage Boeing’s potent and technically sophisticated culture for effective communication and negotiation, determine Boeing’s business needs and global sourcing strategy, and, most important, assess the geopolitical influences on global sourcing decisions—was neither codified nor widely shared.

Taken together, these observations suggested that Boeing was placing greater emphasis on technical efficiencies, such as improving processes and productivity, than on strategic growth, such as creating research initiatives with suppliers or building a shared innovation platform. As Boeing’s business became progressively more intertwined with that of its ecosystem partners, the development of knowledge assets would need to change.

Insights from this mapping exercise enabled the team to recommend several initiatives aimed at developing and disseminating tacit knowledge, such as a program to help employees who had a deeper understanding of geopolitical influences to put some structure around their knowledge and pass it on to others in the company, and a program to identify the capabilities of key suppliers and determine how Boeing could work more strategically with them.

Advanced physics at CERN.

The experimental work done at ATLAS is carried out by thousands of visiting scientists from 177 organizations in 38 countries, working without a traditional top-down hierarchy. This extraordinary operation has had spectacular results, including the discovery of the Higgs boson, for which Peter Higgs and François Englert were awarded a Nobel Prize in 2013. Our mapping of ATLAS’s knowledge base was done in a research partnership with Agustí Canals, Markus Nordberg, and Max Boisot.

Our team had a surprising insight when a study of that map revealed that “overview of the ATLAS experiment” was one of the top eight knowledge domains. We hadn’t given much thought to that domain, but we quickly realized how central it was to a knowledge-development program like ATLAS. Changes in the overall direction of a project can’t easily be codified when the project is so complex. The direction is continually evolving, and not necessarily in a linear fashion, as the technical and scientific work advances; but individual researchers can’t adapt their work accordingly when they don’t know what that direction is. ATLAS requires that huge numbers of people, from many countries and cultures, understand what others are learning and how it affects the overall technical direction.

Without the knowledge map, the leadership team at ATLAS would have predicted that scientific and technical knowledge were regarded as mission critical—indeed, most existing resources went to helping those domains make progress. But we found it extraordinary that the soft domains of project management and communication skills also emerged as central to ATLAS’s performance. Retrospectively, that made sense: A consensus on overall direction depends on the successful sharing of knowledge among specializations and between scientists as they cycle back to their home organizations and new people take their place. These important soft domains were much less developed and not well diffused; clearly, they needed more resources and attention.

Identify New Opportunities

Mapping knowledge assets and discussing their implications often leads directly to strategic insights, as it did at Boeing and ATLAS. But we also find it helpful to systematically explore what would happen if knowledge were moved around on the map or different spheres of it were combined. Here are some examples:

Selectively structure tacit knowledge (move it up on your map’s Y axis).

The proprietary knowledge assets in the lower left corner of your map are often the most important knowledge your company has—the deep-seated source of future strategic advantage. You need to think about which of them can and should become more structured so that (for example) your basic research will lead to the creation of bona fide intellectual property that can be developed into new products, licensed, or otherwise monetized. Structuring tacit knowledge often involves capturing expert employees’ insights with the ultimate goal of disseminating them to many more people in the company. In general, speeding up codification will increase the value of knowledge. But making the tacit explicit can also be dangerous. The more codified the knowledge is, the more easily it may be diffused and copied externally.

When you’re trying to decide what to structure further and what to keep tacit, it can be useful to distinguish between product and process. Suppose you’ve decided that your expertise in some technical domain can be codified into intellectual property. You may want to capture some of your process knowledge—whether it’s an engineer’s know-how or the conversational routines your marketing people use to tease out emerging customer needs—only informally. That way, even if a patent expires or codified knowledge is leaked, essential experience stays within the company.

Disseminate knowledge within the company (move it to the right on your map’s X axis).

Purposefully deciding which knowledge to diffuse internally can pay huge dividends. Very often one division is wrestling with a problem that another division has solved, and close study of the map will reveal the potential for productive sharing—as it would with the exemplary business unit’s expertise in negotiating with the Chinese. Productive sharing can also be done between functions: Korean chaebols (conglomerates) expend considerable money and effort to ensure that knowledge is transferred from company to company as well as from headquarters to subsidiaries.

The ease of knowledge sharing is directly proportional to the degree of knowledge codification, of course: A written document or spreadsheet is easier to share than tacit experience accumulated over many years. Some tacit knowledge can’t be codified but can be shared. One powerful way to do so internally is to run workshops that bring together people who have subject matter expertise with people facing a particular problem for which that expertise is relevant. Apprenticeship programs, too, have long been an effective way to transfer difficult-to-codify tacit knowledge.

Diffuse knowledge outside the company (move it farther right on your map’s X axis).

The most straightforward way to create value through knowledge dissemination is to sell or license your intellectual property. DuPont, for example, commercializes only a small fraction of the hundreds of patents it owns; the rest can be licensed, sold, or shared with other companies. Even companies without patents can often identify new markets for existing IP. This magazine is an example: Reprints of HBR articles have been sold to MBA and corporate learning programs for decades. A few years ago someone had the idea of collecting the best of those articles in “Must Read” collections for individual buyers, and a profitable business was born.

Some companies give away knowledge and still make a big profit.

Many companies are experimenting with less familiar ways of sharing knowledge across organizational boundaries. If suppliers, customers, and even competitors that work together on projects are creating value within your ecosystem, as at Boeing, this is worth considering. But you should keep in mind what knowledge must be protected; your map of assets will help you make those judgment calls.

Some companies even give away knowledge, ultimately making more money than they would if they kept it proprietary. In the early 1990s Adobe Systems saw an opportunity to develop a file-sharing format that would retain the text, fonts, images, and other graphics in a document no matter what operating system, hardware, or software was used to send and view it. Adobe was among the first to develop the idea behind the PDF. It then structured that knowledge in the form of the Adobe Acrobat PDF Writer and Adobe Reader. It shared the Reader on the internet, thereby creating demand for the Writer (at $300 and up), which was free from competition for years and remains one of Adobe’s leading products. Similarly, McKinsey shares selected insights through McKinsey Quarterly, generating demand for its proprietary problem-solving skills.

The recent decision of the business magnate and inventor Elon Musk to share Tesla Motors patents with anyone who wants to use them was also very astute. Clearly, Musk believes that Tesla (like Adobe) will make more money if more people build on the platform he has provided. His decision also recognizes that in order to thrive, Tesla (like Boeing) needs to create a strong ecosystem. It’s a vote of confidence in the company’s capacity to protect enough tacit knowledge to stay ahead of the competition. (Musk told a reporter for Bloomberg Businessweek, “You want to be innovating so fast that you invalidate your prior patents, in terms of what really matters. It’s the velocity of innovation that matters.”) This is one of the most interesting examples of open innovation that we’ve seen: Musk is betting not just that he can pull more partners into the world of electric cars but that he can pull the mainstream automobile industry into a more responsible position with respect to climate change.

Contextualize knowledge (move it down on your map’s Y axis).

Codified knowledge can be applied in less structured spaces in a variety of ways. Sometimes it’s a matter of taking well-established routines and applying them to new businesses. This approach is central to the growth strategies of many companies. Procter & Gamble, for instance, uses world-class brand-building competencies when it moves into new markets and develops new products. Similarly, Goldman Sachs rapidly generates new investment banking offerings by applying its analytics capabilities to changes in financial market conditions.

Contextualization can also come from combining structured and unstructured knowledge. The people who originally tried to build knowledge-management systems for consulting firms quickly discovered that most consultants used codified information as a networking tool: They would notice who wrote an article on sourcing from Indonesia (for example) and then talk with that person directly, picking her brain for more-tacit insights. Indeed, many companies build competitive advantage on just such combinations.

To be applied in a new setting, codified knowledge must generally be contextualized. If Boeing USA comes up with a new production process and then ships the related knowledge to China in the form of supporting documents, Chinese engineers have to assimilate the knowledge and adapt it to their context.

Discover new knowledge (move it to the left on your map’s X axis).

The most challenging—and highest-potential—opportunities often come from spotting connections between disparate areas of expertise (sometimes inside the company, sometimes outside it). The analytic techniques that can turn big data into big knowledge are used partly in hopes of finding such unexpected connections.

In the pursuit of innovation, flashes of insight can come from many sources. Sometimes a new technology embedded in an existing product makes it possible to change your value proposition. That happened when Rolls-Royce’s jet engine sensors provided the company with new performance data, which in turn made it more profitable to sell power by the hour than to sell engines outright. Thinking about someone else’s business model can lead to strategic insights as well. After managers at CEMEX studied how FedEx, Domino’s, and ambulance squads operate, they decided to charge for delivering truckloads of ready-mix concrete within a specified time window rather than for cubic meters of the product. Changes in the external environment can create new opportunities. Subway went from an also-ran to a high-growth fast-food business when it capitalized on consumers’ growing interest in tasty, more-nutritious, low-calorie food. Your company may have developed valuable process expertise that you could sell through consulting to other companies even outside your industry. IBM has done that many times over.

It’s not easy to systematize this part of the knowledge-development process, which arises to some extent from intuition, tacit knowledge, and time spent studying the map. The ATLAS team’s insight about the importance of soft skills is an example. So is Boeing’s insight that becoming part of an interdependent ecosystem had major implications for what kinds of knowledge would have to be developed. A small publishing industry that is devoted to helping companies make innovative connections of this kind includes the book MarketBusters: 40 Strategic Moves That Drive Exceptional Business Growth, which one of us (Ian MacMillan) wrote with Rita McGrath; William Duggan’s Strategic Intuition: The Creative Spark in Human Achievement; and Frans Johansson’s The Medici Effect: What Elephants and Epidemics Can Teach Us About Innovation.

One thing we can assure you: Your competitors will have access to the same kinds of data and general industry knowledge that you do. So your future success depends on developing a new kind of expertise: the ability to leverage your proprietary knowledge strategically and to make useful connections between seemingly unrelated knowledge assets or tap fallow, undeveloped knowledge.

Companies invest tens of millions of dollars to develop knowledge but pay scant attention to whether it contributes to future competitive advantage. The process we’ve outlined here is meant to prevent that lapse. Once you’ve mapped your mission-critical knowledge assets, the challenge is to be disciplined about which of them to develop and exploit, keeping future growth front and center. (Remember, strategy always includes deciding what not to do.) If your company thoughtfully manages its knowledge portfolio, it will achieve a distinct competitive advantage.

By Martin Ihrig and Ian MacMillan. A version of this article appeared in the January–February 2015 issue of Harvard Business Review.
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Cracking the Code of Sustained Collaboration

Ask any leader whether his or her organization values collaboration, and you’ll get a resounding yes. Ask whether the firm’s strategies to increase collaboration have been successful, and you’ll probably receive a different answer.

“No change seems to stick or to produce what we expected,” an executive at a large pharmaceutical company recently told me. Most of the dozens of leaders I’ve interviewed on the subject report similar feelings of frustration: So much hope and effort, so little to show for it.

One problem is that leaders think about collaboration too narrowly: as a value to cultivate but not a skill to teach. Businesses have tried increasing it through various methods, from open offices to naming it an official corporate goal. While many of these approaches yield progress—mainly by creating opportunities for collaboration or demonstrating institutional support for it—they all try to influence employees through superficial or heavy-handed means, and research has shown that none of them reliably delivers truly robust collaboration.

What’s needed is a psychological approach. When I analyzed sustained collaborations in a wide range of industries, I found that they were marked by common mental attitudes: widespread respect for colleagues’ contributions, openness to experimenting with others’ ideas, and sensitivity to how one’s actions may affect both colleagues’ work and the mission’s outcome. Yet these attitudes are rare. Instead, most people display the opposite mentality, distrusting others and obsessing about their own status. The task for leaders is to encourage an outward focus in everyone, challenging the tendency we all have to fixate on ourselves—what we’d like to say and achieve—instead of what we can learn from others.

Daunting as it may sound, some organizations have cracked this code. In studying them I’ve identified six training techniques that enable both leaders and employees to work well together, learn from one another, and overcome the psychological barriers that get in the way of doing both. They all help people connect more fully and consistently. They impress upon employees that there’s a time to listen and explore others’ ideas, a time to express their own, and a time to critique ideas and select the ones to pursue—and that conflating those discussions undermines collaboration.

1. Teach People to Listen, Not Talk

The business world prizes good self-presentation. Employees think a lot about how to make the right impression—how to frame their arguments in discussions with bosses, get their points across in meetings, persuade or coerce their reports to do what they want. (Many also spend serious money on speaking coaches, media trainers, and the like.) This is understandable, given the competitive nature of our workplaces, but it has a cost. My research suggests that all too often when others are talking, we’re getting ready to speak instead of listening. That tendency only gets worse as we climb the corporate ladder.

We fail to listen because we’re anxious about our own performance, convinced that our ideas are better than others’, or both. As a result we get into conflicts that could be avoided, miss opportunities to advance the conversation, alienate the people who haven’t been heard, and diminish our teams’ effectiveness.

When we really listen, on the other hand, our egos and our self-involvement subside, giving everybody the space to understand the situation—and one another—and to focus on the mission. Listening can be improved by these practices:

Ask expansive questions.

This is one of the behaviors encouraged at the animation studio Pixar. People stepping into managerial roles are required to take, among other courses, a 90-minute lunchtime class on the art of listening, which is held in a conference room decorated with posters of movie characters reminding participants to “Stay curious” and “Build on others’ ideas.”

In the class, participants discuss the qualities of great listeners they’ve known (such as generosity in acknowledging the points of others) and practice “active listening.” That means suppressing the urge to interrupt or dominate a conversation, make it about yourself, or solve your conversation partners’ problems, and instead concentrating on the implications of their words. In one exercise participants practice asking their partners open-ended “what” and “how” questions—which prompt people to provide more information, reflect on their situations, and feel more heard—rather than yes-or-no questions, which can kill conversations. For instance, instead of saying to someone “Did you try asking others who’ve worked on similar projects for advice?” participants are coached to ask “In what ways have you reached out to others for advice?”

Focus on the listener, not on yourself.

In another exercise, two coaches act out conversations to illustrate the difference between active listening and not really listening. One coach might say: “I’ve been so sick, and our calendar is so full, and I have this trip planned to see my family. There’s so much to do and I just don’t know how I’m going to pull it all off.” In the not-listening interaction, the other coach responds, “At least you get to go to Europe” or “I’m going to Croatia in two weeks, and I’m really excited.” In the active-listening version, she says, “That sounds really stressful—like you’ll feel guilty for leaving work and guilty if you don’t visit your family.” The coaches then ask the class to share their reactions and try the more effective approach in pairs.

Engage in “self-checks.”

The American roofing-systems unit of Webasto, a global automotive-equipment manufacturer, has developed a good approach to raising employees’ awareness. When Philipp Schramm became its CFO, in 2013, the unit’s financial performance was in a downward spiral. But that was not its only problem. “Something was dysfunctional,” recalls Schramm. “There was no working together, no trust, no respect.” So in 2016 he introduced the Listen Like a Leader course, which features various exercises, some of which are similar to Pixar’s.

Several times throughout the course participants engage in self-checks, in which they critique their own tendencies. People work in small groups and take turns sharing stories about times they’ve failed to listen to others and then reflect on common trends in all the stories.

The self-checks are reinforced by another exercise in which people pair up for multiple rounds of role-playing intended to help participants experience not being heard. One employee is told to describe an issue at work to the other. The listener is instructed to be inattentive during the first round, to parrot the speaker (repeat his or her statements) during the second, and to paraphrase the speaker (restate the message without acknowledging the speaker’s feelings or perspective) during the third. Employees play both roles in each round. The idea is to demonstrate that hearing someone’s words is not enough; you also need to take in the speaker’s tone, body language, emotions, and perspective, and the energy in the conversation. At the end they discuss what that kind of listening can accomplish and how one feels when truly listened to.

Become comfortable with silence.

This doesn’t mean just not speaking; it means communicating attentiveness and respect while you’re silent. And it’s a challenge for those who are in love with the sound of their own voices. Such people dominate discussions and don’t give others who are less vocal or who simply need more time to think an opportunity to talk.

In another exercise at Webasto, people sit in on a conversation simply to listen. They’re instructed to avoid negative nonverbal behavior—such as rolling their eyes when they disagree with someone. The course motto “I am the message!” serves as a reminder to use positive body language when interacting with colleagues.

In successful collaborations, judgment gives way to curiosity.

After taking the Listen Like a Leader class, employees have reported better interactions with their colleagues. Jeff Beatty, a program manager, reflected: “I thought leading was steamrolling people who got in your way—it was about aggressiveness and forcefulness. After going through the class, I can’t believe that my wife has put up with me for 30 years.”

2. Train People to Practice Empathy

Think about the last time you were in a conflict with a colleague. Chances are, you started feeling that the other person was either uncaring or not very bright, my research suggests. Being receptive to the views of someone we disagree with is no easy task, but when we approach the situation with a desire to understand our differences, we get a better outcome.

In successful collaborations, each person assumes that everyone else involved, regardless of background or title, is smart, caring, and fully invested. That mindset makes participants want to understand why others have differing views, which allows them to have constructive conversations. Judgment gives way to curiosity, and people come to see that other perspectives are as valuable as theirs. A couple of approaches can help here.

Expand others’ thinking.

At Pixar an exercise called “leading from the inside out” has participants present a relevant challenge to their collaborators on a project. Then their teammates ask questions but are instructed not to use them as a means of touting their own ideas. Instead, they’re supposed to help the presenter think through the problem differently, without offering judgment about the presenter’s perceptions or approach or those of other questioners. If a presenter describes the challenge of getting a team member to speak up more often in brainstorming meetings, for instance, the questioners could ask, “How has his behavior changed?” or “Are there other contexts where this person is more talkative?” If questioners try to sneak in their ideas or opinions, a coach will ask them to rephrase their questions. “We realize that, though simple, these techniques are hard to implement on a regular basis,” Jamie Woolf, Pixar’s leadership development manager, who serves as one of the two main coaches, told me. “So, when someone is, consciously or not, trying to promote his or her point of view, we intervene so that we give the person an opportunity to apply the technique correctly and others the opportunity to learn.”

With this approach, ideas get full attention and consideration. Creative solutions are generated, and team members feel that they’ve been truly heard.

Look for the unspoken.

An advertising and publicity firm I studied uses a similar approach but also trains participants to pay attention to what people are not saying. If a member of the creative team presents an idea for how to shape an ad campaign to the client’s needs, for instance, the colleagues listening are tasked with trying to understand his or her state of mind. During one session I observed, a colleague said to a presenter, “I noticed your voice was somewhat tentative, as if you were feeling uncertain about your idea. What are some of the strengths and weaknesses you see in it?”

When team members focus on conveying empathy more than on sharing their opinions, I’ve found, everyone feels more satisfied with the discussion. Showing empathy also makes others more likely to ask you for your point of view. Collaboration proceeds more smoothly.

While listening and empathizing allow others more space in a collaboration, you also need the courage to have tough conversations and offer your views frankly. The next three techniques focus on getting people there.

3. Make People More Comfortable with Feedback

Good collaboration involves giving and receiving feedback well—and from a position of influence rather than one of authority. The following methods can help.

Discuss feedback aversion openly.

One of Pixar’s classes trains new managers to provide feedback more often and effectively and also to get better at absorbing it. Coaches first explain that aversion to feedback is common. As givers of it, we want to avoid hurting others. (Even when we know our feedback can be helpful, my research has found, we choose not to provide it.) As recipients, we feel tension between the desire to improve and the desire to be accepted for who we are. The ensuing open discussion of reservations and challenges around feedback helps participants feel less alone.

Make feedback about others’ behavior direct, specific, and applicable.

At Pixar and other organizations, employees are asked to follow three rules for feedback: Be straightforward in both how you address a person and what you say about him or her; identify the particular behavior that worked (or didn’t); and describe the impact of the behavior on you and others. These practices help counteract a common problem: People’s feedback is too general. In an exercise Pixar designed to overcome it, participants are asked to think of a time when they might have offered positive feedback but didn’t, and then write down what they could have said, following the three rules. Next they practice delivering that feedback to a classmate and reflect on the experience. (In another exercise they do the same with critical feedback.) Recipients are asked to talk about their experience getting the feedback.

Give feedback on feedback.

In this exercise a volunteer reads a piece of feedback that he or she has drafted to the group. The other participants are then asked to identify ways to improve it. If the volunteer says, “You keep missing deadlines,” for instance, the colleagues might suggest more specificity—perhaps “You missed three deadlines in the past month.”

This practice is important because even when we overcome our aversion to giving feedback, we tend not to be specific or direct. As Pixar’s Woolf told me, “Often leaders come to see me right before an important meeting they’re about to have and say, ‘Can I rehearse a bit more? I’m afraid of backpedaling and sugarcoating.’ After some rehearsing they’re able to walk into meetings with greater confidence and more clarity on how they’ll say what they want to say.”

Add a “plus” to others’ ideas.

Whenever a Pixar employee comments on a colleague’s idea or work during a brainstorming session, he or she must offer a “plus”—a suggestion for an improvement that doesn’t include judgment or harsh language. Pixar employees told me that this approach draws on three principles of improv comedy: First, accept all offers—that is, embrace the idea instead of rejecting it. Second, to ensure that you’re building on someone’s idea, say “Yes, and…” rather than “Yes, but…” Third, make your teammate look good by enhancing the scene or project he or she has started.

Provide live coaching.

Though tactics like plussing are well understood at Pixar, it isn’t always easy for employees at the company to put them into practice. For this reason, coaches there attend brainstorming meetings to reinforce good approaches and point out lapses. If a comment or a question doesn’t show “collaborative spirit,” the coach will ask that it be rephrased. Live coaching can be difficult—people are sometimes visibly annoyed by the interruptions—but coaches have learned to pay attention to the personalities in the room and adapt accordingly. For example, rather than asking a director to reframe a comment, a Pixar coach might ask him or her to describe the interaction that just occurred: what worked and what didn’t. “In the moment the feedback may not feel good,” Woolf told me. “As with medicine, it often takes a while for people to see the benefits. But they come to realize that feedback is a gift and is key to their personal development.”

4. Teach People to Lead and Follow

A lot of attention is paid, in the literature and in the practice of management, to what makes a truly effective leader. There has been much less consideration of how to follow, though that, too, is an important skill. In interviews at American Express, I learned that the company’s best collaborators—those known for adding value to interactions and solving problems in ways that left everyone better off—are adept at both leading and following, moving smoothly between the two as appropriate. That is, they’re good at flexing.

During the 17-day campaign to find and rescue a group of boys and their soccer coach from a rapidly flooding cave in Thailand in 2018, more and more people arrived on the scene to help: hydraulic engineers, geologists, divers, SEAL teams, NASA experts, doctors, and local politicians. Only through flexing were these collaborators able to contribute all they could and get the most out of those around them. At one point, for example, an inexperienced engineer proposed an unorthodox plan to use large tubes on the mountain above the cave to divert some of the rainwater that was making diving unsafe. Rather than dismissing the idea, senior engineers flexed, giving it the consideration it deserved. After testing revealed the idea’s promise, it was implemented, and the water stopped rising.

Because flexing requires ceding control to others, many of us find it difficult. A few simple exercises can make people more likely to flex:

Increase self-awareness.

In some of my classes, I ask students to rate themselves relative to their classmates in three areas: their ability to make good decisions, their ability to get along well with others, and their honesty. Then I ask them to compute their average across the three. Most people’s average is higher than 50% and typically in the 70th or 80th percentile, which demonstrates to the students how self-perceptions are often inflated. After all, it’s impossible for a majority of respondents to merit better-than-average ratings across all three desirable dimensions. Unfortunately, our overly optimistic self-perceptions drive our decisions about whether to allow others to have control. So it helps to build self-awareness using this kind of exercise.

Learn to delegate.

This isn’t important just for leaders; it’s also critical for people working on collaborations where multiple experts come together, such as the Thai cave rescue, and on cross-functional team projects. In a training session to help new Pixar managers delegate, participants discuss why it’s so difficult to pass the torch to others and the main reasons we tend to micromanage: It’s hard to let go of control, and we feel responsible for the outcome and are aware that the task needs to get done “right.” So we focus on the short-term results rather than the long-term goal of developing others through delegation. We favor getting the job done—fast—over the reasons for delegating (allowing others to feel engaged and to grow, and allowing ourselves more time and probably higher productivity in the long run). The coaches talk about cases of delegation gone wrong—whose central lesson is the need for trust—and present a four-quadrant chart, the “skill-will model,” which explains how to tailor delegation to the abilities and motivation of those being handed control.

5. Speak with Clarity and Avoid Abstractions

In any collaboration there are times for open discussion of ideas and times when someone, regardless of whether he or she is a leader, needs to cut through the confusion and clearly articulate the path forward. When we communicate with others, psychological research shows, we are often too indirect and abstract. Our words would carry more weight if we were more concrete and provided vivid images of goals. And our statements would also be judged more truthful.

Communication classes both at Pixar and at a large pharmaceutical company I studied included this role-playing exercise: Participants were instructed to think about something they needed to tell a team member and then ask themselves, “What am I trying to accomplish?” They were given time to practice their message. After they delivered it, the person playing the teammate told them whether they in fact had conveyed it with clarity and purpose. And if the teammate couldn’t understand why the conversation was happening, the participant was prompted to ask why and then to reframe the statement to be clearer and more specific and include a purpose. Take a statement like “The project led by our marketing colleagues needs more resources and attention to get to the finish line.” That might be revised as “The project that our marketing colleagues John and Ashley are leading needs an additional $5,000 and two more members to be completed by the end of the month. I believe two of us should volunteer to help, since meeting the deadline is important to maintaining a good relationship with our client.”

6. Train People to Have Win-Win Interactions

I often ask students to work in pairs to think through how to divide an orange. Each partner is told, without the other’s knowledge, a reason for wanting the fruit: One needs to make juice, and the other needs the peel for a muffin recipe. If they fail to explore each other’s interests, as most pairs do, the partners may end up fighting over the orange. Or they may decide to cut it in half, giving each side an equal if smaller-than-ideal share. Some people even quit when they can’t get the whole orange.

When we communicate, we are often too indirect and abstract.

Only a few pairs arrive at the optimal solution, in which one person gets the peel, the other gets the juice, and both are satisfied. How did they get there? By investigating each other’s needs.

This approach is the key to win-win interactions. In the successful collaborative projects I examined, people were open about their personal interests and how they thought they could contribute to solving the problem. Such transparency allows participants to explore everyone’s vision of winning and, ultimately, get more-favorable results.

Many organizations I’ve studied teach leaders and employees to find win-win solutions through exercises in which each participant has information that others lack—as is true in most real-world collaborations—and all are asked to try to reach the best deal possible for everyone. Afterward, the instructors suggest techniques that could have helped the parties discover one another’s interests better—such as asking questions and listening carefully—and produce more-successful deals. Sometimes the conversations are videotaped and shown to participants after they’ve had the chance to guess how much of the airtime they got in discussions.

By balancing talking (to express your own concerns and needs) with asking questions and letting others know what your understanding of their needs is, you can devise solutions that create more value. With a win-win mindset, collaborators are able to find opportunities in differences.


Because the six techniques are mutually supportive and even interdependent, it’s ideal for employees to learn and regularly use them all. It’s difficult to have win-win interactions if you spend most of your time talking, and it’s tough to learn about others’ interests if you don’t approach interactions with empathy. And conversations won’t be productive if you only listen and don’t offer your views—a balance is required.

The techniques also create a positive dynamic: Teammates with whom they’re practiced start feeling more respected and in turn are more likely to show others respect. And respect, my research shows, fuels enthusiasm, fosters openness to sharing information and learning from one another, and motivates people to embrace new opportunities for working together.

But this dynamic must be set in motion by those in charge. Many leaders—even ones steeped in enlightened management theory—fail to consistently treat others with respect or to do what it takes to earn it from others.

Leaders who are frustrated by a lack of collaboration can start by asking themselves a simple question: What have they done to encourage it today? It is only by regularly owning their own mistakes, listening actively and supportively to people’s ideas, and being respectful but direct when challenging others’ views and behavior that they can encourage lasting collaboration. By training people to employ the six techniques, leaders can make creative, productive teamwork a way of life.


By Francesca Gino From the HBR November–December 2019 Issue
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Learning to Lead at Toyota

By Steven Spear

Toyota is one of the world’s most storied companies, drawing the attention of journalists, researchers, and executives seeking to benchmark its famous production system. For good reason: Toyota has repeatedly outperformed its competitors in quality, reliability, productivity, cost reduction, sales and market share growth, and market capitalization.

By the end of last year it was on the verge of replacing DaimlerChrysler as the third-largest North American car company in terms of production, not just sales. In terms of global market share, it has recently overtaken Ford to become the second-largest carmaker. Its net income and market capitalization by the end of 2003 exceeded those of all its competitors. But those very achievements beg a question: If Toyota has been so widely studied and copied, why have so few companies been able to match its performance?

In our 1999 HBR article, “Decoding the DNA of the Toyota Production System,” H. Kent Bowen and I argued that part of the problem is that most outsiders have focused on Toyota’s tools and tactics—kanban pull systems, cords, production cells, and the like—and not on its basic set of operating principles. In our article, we identified four such principles, or rules, which together ensure that regular work is tightly coupled with learning how to do the work better. These principles lead to ongoing improvements in reliability, flexibility, safety, and efficiency, and, hence, market share and profitability.

As we explained in the article, Toyota’s real achievement is not merely the creation and use of the tools themselves; it is in making all its work a series of nested, ongoing experiments, be the work as routine as installing seats in cars or as complex, idiosyncratic, and large scale as designing and launching a new model or factory. We argued that Toyota’s much-noted commitment to standardization is not for the purpose of control or even for capturing a best practice, per se. Rather, standardization—or more precisely, the explicit specification of how work is going to be done before it is performed—is coupled with testing work as it is being done. The end result is that gaps between what is expected and what actually occurs become immediately evident. Not only are problems contained, prevented from propagating and compromising someone else’s work, but the gaps between expectations and reality are investigated; a deeper understanding of the product, process, and people is gained; and that understanding is incorporated into a new specification, which becomes a temporary “best practice” until a new problem is discovered. (See, at right, the sidebar “The Power of Principles.”)

The Power of Principles

The insight that Toyota applies underlying principles rather than specific tools and processes explains why the company continues to outperform its competitors. Many companies have tried to imitate Toyota’s tools as opposed to its principles; as a result, many have ended up with rigid, inflexible production systems that worked well in the short term but didn’t stand the test of time. Recognizing that TPS is about applying principles rather than tools enables companies that in no way resemble

Toyota to tap into its sources of success. Alcoa, a company whose large-scale processes—refining, smelting, and so on—bear little resemblance to Toyota’s discrete-parts fabrication and assembly operations, has based its Alcoa Business System (ABS) on the TPS rules. Alcoa claims that ABS saved the company $1.1 billion from 1998 to 2000, while improving safety, productivity, and quality.

In another example, pilot projects applying the rules at the University of Pittsburgh Medical Center and other health care organizations have led to huge improvements in medication administration, nursing, and other critical processes, delivering better quality care to patients, relieving workers of nonproductive burdens, as well as providing costs savings and operating efficiencies.

It is one thing to realize that the Toyota Production System (TPS) is a system of nested experiments through which operations are constantly improved. It is another to have an organization in which employees and managers at all levels in all functions are able to live those principles and teach others to apply them. Decoding the DNA of Toyota doesn’t mean that you can replicate it.

So how exactly does a company replicate it? In the following pages, I try to answer that question by describing how a talented young American, hired for an upper-level position at one of Toyota’s U.S. plants, was initiated into the TPS. His training was hardly what he might have expected given his achievements. With several degrees from top-tier universities, he had already managed large plants for one of Toyota’s North American competitors. But rather than undergo a brief period of cursory walk-throughs, orientations, and introductions that an incoming fast-track executive might expect, he learned TPS the long, hard way—by practicing it, which is how Toyota trains any new employee regardless of rank or function. It would take more than three months before he even arrived at the plant in which he was to be a manager.

Our American hotshot, whom we’ll call Bob Dallis, arrived at the company thinking that he already knew the basics of TPS—having borrowed ideas from Toyota to improve operations in his previous job—and would simply be fine-tuning his knowledge to improve operations at his new assignment. He came out of his training realizing that improving actual operations was not his job—it was the job of the workers themselves. His role was to help them understand that responsibility and enable them to carry it out. His training taught him how to construct work as experiments, which would yield continuous learning and improvements, and to teach others to do the same.

The Program

Dallis arrived at Toyota’s Kentucky headquarters early one wintry morning in January 2002. He was greeted by Mike Takahashi (not his real name), a senior manager of the Toyota Supplier Support Center (TSSC), a group responsible for developing Toyota’s and supplier plants’ competency in TPS. As such, Takahashi was responsible for Dallis’s orientation into the company. Once the introductory formalities had been completed, Takahashi ushered Dallis to his car and proceeded to drive not to the plant where Dallis was to eventually work but to another Toyota engine plant where Dallis would begin his integration into the company. That integration was to involve 12 intensive weeks in the U.S. engine plant and ten days working and making observations in Toyota and Toyota supplier plants in Japan. The content of Dallis’s training—as with that of any other Toyota manager—would depend on what, in Takahashi’s judgment, Dallis most needed.

Back to Basics.

Bob Dallis’s first assignment at the U.S. engine plant was to help a small group of 19 engine-assembly workers improve labor productivity, operational availability of machines and equipment, and ergonomic safety.1 For the first six weeks, Takahashi engaged Dallis in cycles of observing and changing individuals’ work processes, thereby focusing on productivity and safety. Working with the group’s leaders, team leaders, and team members, Dallis would document, for instance, how different tasks were carried out, who did what tasks under what circumstances, and how information, material, and services were communicated. He would make changes to try to solve the problems he had observed and then evaluate those changes.

Dallis was not left to his own devices, despite his previous experience and accomplishments. Meetings with Takahashi bracketed his workweek. On Mondays, Dallis would explain the following: how he thought the assembly process worked, based on his previous week’s observations and experiences; what he thought the line’s problems were; what changes he and the others had implemented or had in mind to solve those problems; and the expected impact of his recommendations. On Fridays, Takahashi reviewed what Dallis had done, comparing actual outcomes with the plans and expectations they had discussed on Monday.

In the first six weeks, 25 changes were implemented to individual tasks. For instance, a number of parts racks were reconfigured to present materials to the operators more comfortably, and a handle on a machine was repositioned to reduce wrist strain and improve ergonomic safety. Dallis and the rest of the group also made 75 recommendations for redistributing their work. These were more substantial changes that required a reconfiguration of the work area. For instance, changing the place where a particular part was installed required relocating material stores and moving the light curtains, along with their attendant wiring and computer coding. These changes were made with the help of technical specialists from the maintenance and engineering departments while the plant was closed over the weekend, after Dallis’s fifth week.

Dallis and Takahashi spent Dallis’s sixth week studying the group’s assembly line to see if the 75 changes actually had the desired effects. They discovered that worker productivity and ergonomic safety had improved significantly, as shown in the exhibit “The U.S. Engine Plant Assembly Line—Before and After.” Unfortunately, the changes had also reduced the operational availability of the machines. This is not to say that the changes that improved productivity and ergonomics made the machines malfunction more often. Rather, before the changes were made, there was enough slack in the work so that if a machine faulted, there was often no consequence or inconvenience to anyone. But with Dallis’s changes, the group was able to use 15 people instead of 19 to accomplish the same amount of work. It was also able to reduce the time required for each task and improve workload balance. With a much tighter system, previously inconsequential machine problems now had significant effects.

After Dallis had improved the human tasks in the assembly line, Takahashi had him switch to studying how the machines worked. This     took another six weeks, with Takahashi and Dallis again meeting on Mondays and Fridays. Takahashi had Dallis, holder of two master’s degrees in engineering, watch individual machines until they faulted so that he could investigate causes directly. This took some time. Although work-method failures occurred nearly twice a minute, machine failures were far less frequent and were often hidden inside the machine.

But as Dallis observed the machines and the people working around them, he began to see that a number of failures seemed to be caused by people’s interactions with the machines. For instance, Dallis noticed that as one worker loaded gears in a jig that he then put into the machine, he would often inadvertently trip the trigger switch before the jig was fully aligned, causing the apparatus to fault. To solve that problem, Dallis had the maintenance department relocate the switch. Dallis also observed another operator push a pallet into a machine. After investigating several mechanical failures, he realized that the pallet sometimes rode up onto a bumper in the machine. By replacing the machine’s bumper with one that had a different cross-section profile, he was able to eliminate this particular cause of failure. Direct observation of the devices, root-cause analysis of each fault, and immediate reconfiguration to remove suspected causes raised operational availability to 90%, a substantial improvement though still below the 95% target that Takahashi had set for Dallis.

The Master Class

After 12 weeks at the U.S. engine plant, Takahashi judged that Dallis had made progress in observing people and machines and in structuring countermeasures as experiments to be tested. However, Takahashi was concerned that Dallis still took too much of the burden on himself for making changes and that the rate at which he was able to test and refine improvements was too slow. He decided it was time to show Dallis how Toyota practiced improvements on its home turf. He and Dallis flew to Japan, and Dallis’s first three days there were spent working at Toyota’s famous Kamigo engine plant—where Taiichi Ohno, one of the main architects of TPS, had developed many of his major innovations. On the morning of their arrival, Takahashi unleashed the first of several surprises: Dallis was to work alongside an employee in a production cell and was to make 50 improvements—actual changes in how work was done—during his time there. This worked out to be one change every 22 minutes, not the one per day he had been averaging in his first five weeks of training.

The initial objective set for Dallis was to reduce the “overburden” on the worker—walking, reaching, and other efforts that didn’t add value to the product and tired or otherwise impeded the worker and lengthened cycle times. Dallis’s workmate could not speak English, and no translator was provided, so the two had to learn to communicate through the physical environment and through models, drawings, and role-playing. Afterward, Dallis speculated that the logic of starting with “overburden” was to get buy-in from the worker who was being asked to do his regular job while being interrupted by a non-Japanese-speaking stranger. There is also semantic significance in the phrasing: Focusing on “overburden” emphasizes the impact of the work design on the person. By contrast, focusing on “waste” suggests that the person is the problem.

Dallis applied the approach he had learned at the U.S. engine plant. On day one, he spent the first three hours observing his new workmate, and by the shift’s end proudly reported that he had seven ideas, four of which he and his workmate had implemented. Then Takahashi unleashed his next surprise: He told Dallis that two Japanese team leaders who were going through the same training—people with jobs far less senior than the one for which Dallis was being prepared—had generated 28 and 31 change ideas, respectively, within the same amount of time. Somewhat humbled, Dallis picked up the pace, looking for more opportunities to make improvements and trying even more “quick and dirty” methods of testing ideas: bolting rather than welding things, taping rather than bolting, and holding rather than taping—anything to speed up the rate of feedback. By 11 am on the second day, he and his coworker had built the list to 25 ideas. Takahashi would visit the machine shop while they were working, ask what Dallis was concentrating on, and then follow up with very specific queries about the change idea. “Before I could give a speculative answer,” recalled Dallis, “he sent me to look or try for myself.”

Dallis found that his ability to identify and resolve problems grew with practice, and by the morning of the third day, he had moved from examining the details of individual work routines to looking at problems with how the production cell as a whole was laid out and the effects on workers’ physical movements: “There were two machines, with gauges and parts racks. A tool change took eight steps on one and 24 on the other. Was there a better layout that would reduce the number of steps and time? We figured out how to simulate the change before getting involved with heavy machinery to move the equipment for real,” Dallis said. By the time the three days were up, he had identified 50 problems with quality checks, tool changes, and other work in his machine shop—35 of which had been fixed on the spot. (The effects of these changes are summarized in the exhibit “The Kamigo Report Card.”)

Takahashi had Dallis conclude his shop-floor training by presenting his work to the plant manager, the machine shop manager, and the shop’s group leaders. Along the way, Dallis had been keeping a careful log of the changes and their effects. The log listed operations in the shop, the individual problems Dallis had observed, the countermeasure for each problem, the effect of the change, and the first- and second-shift workers’ reactions to the countermeasure. (For a snapshot of the log, see the exhibit “Excerpts from Dallis’s Log.”) Photographs and diagrams complemented the descriptions. “During the presentations,” Dallis reported, “the plant’s general manager, the machine shop’s manager, and its group leaders were engaged in what [I and the other] ‘lowly’ team leaders said. Two-thirds [of the audience] actively took notes during the team leaders’ presentations, asking pointed questions throughout.”

After Dallis made his presentation, Takahashi spent the remaining week showing him how Toyota group leaders—people responsible for a few assembly or machining teams, each with three to seven members—managed and presented their improvement projects. In one case, a group leader was exploring ways of reducing machine changeover times and establishing a more even production pace for an injection-molding process. In another, a group leader was looking for ways to reduce downtime in a machining operation. In all the presentations, the group leaders explained the problems they were addressing, the processes they used to develop countermeasures, and the effect these countermeasures had on performance. Dallis quickly realized that people at all levels, even those subordinate to the one for which he was being developed, were expected to structure work and improvements as experiments.

Lessons Learned

Although Takahashi at no point told Dallis exactly what he was supposed to learn from his experience, the methodology of the training just described is so consistent and specific that it reveals at least four fundamental principles underlying the system. Together with the rules we described in our 1999 article, the following lessons may help explain why Toyota has remained the world’s preeminent manufacturer.

Lesson 1

There’s no substitute for direct observation.

Throughout Dallis’s training, he was required to watch employees work and machines operate. He was asked not to “figure out” why a machine had failed, as if he were a detective solving a crime already committed, but to sit and wait until he could directly observe its failure—to wait for it to tell him what he needed to know.

Dallis was asked not to figure out why a machine had failed but to sit and wait until he could directly observe its failure—to wait for it to tell him what he needed to know.

One of the group leader presentations at Kamigo described this principle in action. In a project to improve machine maintenance, it became clear to the group that machine problems were evident only when failures occurred. In response, the shop’s group leaders had removed opaque covers from several machines so that operators and team leaders could hear and see the inner workings of the devices, thus improving their ability to assess and anticipate problems with the machines. This is a very different approach from the indirect observation on which most companies rely—reports, interviews, surveys, narratives, aggregate data, and statistics. Not that these indirect approaches are wrong or useless. They have their own value, and there may be a loss of perspective (the big picture) when one relies solely on direct observation. But direct observation is essential, and no combination of indirect methods, however clever, can possibly take its place.

Dallis’s previous experience managing plants might have prepared him to look at operations of greater scale and scope, but had Takahashi given him a project with greater scope, Dallas might not have learned to observe with such precision. Dallis’s first six weeks at the U.S. engine plant meant that he had up to 23,824 opportunities to observe complete work cycles. Because his work was limited to a 19-person line, he could view more than a thousand work cycles per person. That gave him deep insight into the line’s productivity and safety.

Lesson 2

Proposed changes should always be structured as experiments.

In the scientific method, experiments are used to test a hypothesis, and the results are used to refine or reject the hypothesis. Dallis’s problem solving was structured so that he embedded explicit and testable assumptions in his analysis of the work. Throughout his training, therefore, he had to explain gaps between predicted and actual results. In his meetings with Takahashi at the U.S. engine plant, for example, he was required to propose hypotheses on Monday and the results of his experiments on Friday. In Japan, he had to present his changes as tests of causal relationships, stating the problem he saw, the root cause he suspected, the change he had made, and the countermeasure’s actual effect on performance.

Of course, many people trying to improve a process have some idea of what the problems are and how to fix them. The difference with TPS—and this is key—is that it seeks to fully understand both the problem and the solution. For example, any manager might say, “Maybe the parts rack should be closer to the assembler’s hand. If we move it here, I’ll bet it’ll shave a few seconds off the cycle.” Were he to try this and find that it saved six seconds, he would probably be quite pleased and consider the problem solved.

But in the eyes of a Toyota manager like Takahashi, such a result would indicate that the manager didn’t fully understand the work that he was trying to improve. Why hadn’t he been more specific about how far he was going to move the rack? And how many seconds did he expect to save? Four? If the actual savings is six seconds, that’s cause for celebration—but also for additional inquiry. Why was there a two-second difference? With the explicit precision encouraged by Takahashi, the discrepancy would prompt a deeper investigation into how a process worked and, perhaps more important, how a particular person studied and improved the process.

Lesson 3

Workers and managers should experiment as frequently as possible.

At Toyota, the focus is on many quick, simple experiments rather than on a few lengthy, complex ones. This became particularly evident when Dallis went to Japan. Whereas in the United States he made 25 changes in six weeks (before the weekend blitz during which 75 were completed), in Japan he had to make 50 changes in 2½ shifts, which meant an average of one change every 22 minutes. This encouraged Dallis to learn from making small incremental changes rather than large system-design changes. He would observe work actually being done, quickly see where struggles were occurring, then rapidly test his understanding by implementing a countermeasure, thereby accelerating the rate at which he discovered “contingencies” or “interferences” in the process. This is precisely the way Toyota workers practice process improvement. They cannot “practice” making a change, because a change can be made only once. But they can practice the process of observing and testing many times.

To ensure that Dallis received the practice he needed and that he internalized his understanding of it, Takahashi structured Dallis’s training so that the complexity of his experiments increased gradually. When Dallis started at the U.S. engine plant, he conducted “single factor” experiments, changing small, individual work elements rather than taking a system perspective. What’s more, his efforts there started with individual work methods, progressing to more complex and subtle machine problems only when he had developed his observation and problem-solving skills over the six weeks. Thus, he moved from problems that were easier to observe to those that were harder. If each learning cycle is kept small and bounded, then the learner can make mistakes and the consequences will not be severe. This approach increases the learner’s willingness to take risks and learn by doing. Dallis’s training at Kamigo mirrored this progression: He began, once again, with work-method issues of “overburden” before moving on to machines.2

Lesson 4

Managers should coach, not fix.

Dallis’s training not only gave him insight into how Toyota delivers continuous improvement but also helped him understand the unique relationships between Toyota’s managers and workers. Dallis himself had been rewarded by his previous employer for being a problem solver, albeit one with a more participative and inclusive approach than most. What he saw at Toyota, by contrast, was workers and low-level managers constantly solving problems. Indeed, the more senior the manager, the less likely he was to be solving problems himself.

Toyota managers act as enablers. Throughout Dallis’s training, Takahashi—one of Toyota’s most senior operational managers—positioned himself as a teacher and coach, not as a technological specialist. He put Dallis through experiences without explicitly stating what or how he was to learn. Even when specific skills were imparted, these were purely to assist Dallis’s observation and experimentation. For instance, Takahashi showed Dallis how to observe an individual worker in order to spot instances of stress, wasted effort, and so on, and he explicitly advised Dallis on how to develop prototypes. But at no point did he suggest actual process improvements. Rather, he directed Dallis on how to find opportunities for those improvements (as in, study this person or that machine, looking for various types of stress, strain, or faults) and on how to develop and test possible countermeasures.

Takahashi also gave Dallis the resources he needed to act quickly. For example, at Kamigo, Dallis had the help of a maintenance worker to move equipment, create fixtures, relocate wires and pipes, and provide other skilled trade work so that he could test as many ideas as possible. Takahashi and the shop manager also came to the cell of the machining operation to review Dallis’s ideas; they gave him tips on piloting his changes before asking support workers to make parts or relocate equipment. When Dallis wanted to rotate some gauges that tested parts, the shop manager showed him how to quickly and inexpensively make cardboard prototypes to test location, orientation, size, and so on.

The result of this unusual manager–worker relationship is a high degree of sophisticated problem solving at all levels of the organization. Dallis noted, “As a former engine-plant person, I saw a line [at Kamigo] that was 15 years old but that had the capacity to build 90 different engine types. It was amazing that they solved so many problems with such simple equipment. Behind the changes was some pretty deep thinking.” The basic company philosophy is that any operating system can be improved if enough people at every level are looking and experimenting closely enough. (After all, if only the big shots were expected to make changes, all that “little” stuff would get overlooked.) The fact that Dallis, after just three months at the U.S. engine plant, was able to empower others to implement 50 improvements at Kamigo, one of Toyota’s top plants, offers insight into why Toyota stays ahead of its competitors.3

“I saw a line [at Kamigo] that was 15 years old but that had the capacity to build 90 different engine types.”

Back to America

To see if Dallis had learned the right lessons from his training, Takahashi sent him back to the U.S. engine plant where his instruction had begun. As we have seen, Dallis had already helped make substantial improvements in the assembly line’s labor productivity and ergonomic safety before going to Japan. But he hadn’t been able to raise operational availability to 95%. Now, upon Dallis’s return to that plant, Takahashi had him attempt this goal again. However, there was a marked departure from Dallis’s earlier approach, in which he primarily saw himself as a problem solver.

With Takahashi’s help, Dallis worked with the line’s group leader and assistant manager in order to develop the problem-solving skills of the line’s team members and team leaders. The point was for the team to learn to solve little problems simultaneously so that the line could recover quickly when problems occurred. For instance, the team realized that it had difficulties in keeping track of what work needed to be done and in identifying problems as they occurred. It therefore had to improve its “visual management” of the work—what was going well, what was going wrong, and what needed to be done. Dallis sat down with the group leader and assistant manager and set out a schedule for identifying specific problems and allocating responsibility for them across the team. As the team members observed and developed countermeasures, Dallis would drop by much as Takahashi had done, asking them specific questions that would oblige them to observe their allotted problems more closely as they happened. To its delight, the group hit its mark ahead of schedule and raised operational availability to 99%.

Dallis had returned to America with an altered focus. He had realized from the way Takahashi had managed his training, and from what he’d seen of others’ training, that the efforts of a senior manager like himself should be aimed not at making direct improvements but at producing a cadre of excellent group leaders who learn through continuous experimentation. The target of 95% operational availability at the U.S. engine plant was the same, but he now knew whose target it really was, and it wasn’t his. At this point, Takahashi finally released Dallis from his training to take on his full-time managerial responsibilities.

For anyone trying to understand how the Toyota Production System really works, there is probably no substitute for the kind of total immersion that Dallis received. TPS is a system you have to live to fully understand, let alone improve. Besides, anyone like Dallis coming into Toyota from the outside, regardless of his or her experience, is coming into an organization with a long history of making improvements and modifications at a pace few organizations have ever approached. No one can expect to assimilate—let alone recreate—such a strong and distinct culture in just a few weeks or even a few months. Nevertheless, any company that develops and implements a training program such as the one Dallis participated in is sure to reap enormous dividends. The organization that applies the rules in designing its operations and that trains its managers to apply those rules will have made a good start at replicating the DNA of the Toyota Production System.

1. Operational availability equals machine run time/machine use time. For instance, if a machine requires eight minutes of process time to grind a surface, but, because of jams and other interruptions, ten minutes are actually spent from start to finish, then operational availability would be 80%. Ideally, operationally availability would be 100%—that is, the machine always runs when it is needed.

2. The incremental approach was also helpful to Takahashi, who used it to teach Dallis. He directly observed Dallis’s work by creating short learning cycles with rapid feedback so that he could continually reassess Dallis’s knowledge and skills, both to provide feedback in order to help him learn and to design the next learning increment.

3. According to Takahashi, the expectation was that group leaders at Kamigo—managers who supervised several operating shops or cells—would spend 70% of their time doing process improvement work. This time would often be shared among three to four teams, implying that team leaders—people managing one shop or cell—were expected to spend a minimum of 20% of their time on improvement work.

A version of this article appeared in the May 2004 issue of Harvard Business Review.

Steven Spear is a senior lecturer at MIT’s Sloan School of Management and a senior fellow at the Institute for Healthcare Improvement.
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The Inconvenient Truth About Change Management

The Idea in Brief

In 1995, John Kotter published research that revealed only 30 percent of change programs are successful. Fast forward to 2008. A recent McKinsey & Company survey of business executives indicates that the percent of change programs that are a success today is… still 30%. The field of ‘change management’, it would seem, hasn’t changed a thing.

Digging deeper into why change programs fail reveals that the vast majority stumble on precisely the thing they are trying to transform: employee attitudes and management behavior. Conventional change management prescribes addressing these behavioral and attitudinal changes by putting in place four basic conditions:

  • a compelling story,
  • role modeling,
  • reinforcement systems, and
  • the skills required for change

These prescriptions are well grounded in psychological research and make good common sense – which, we believe, is precisely where things fall apart. The inconvenient truth of human nature is that people are irrational in a number
of predictable ways. The prescription is right, but rational managers who attempt to put the four conditions in place by applying their “common sense” intuition typically misdirect time and energy, create messages that miss the mark, and
experience frustrating unintended consequences.

In the same way that the field of economics has been transformed by an understanding of uniquely human social, cognitive and emotional biases, so too the practice of change management is in need of a transformation through an improved understanding of the irrational (and often unconscious) nature of how humans interpret their environment and choose to act.


In the same way that the field of economics has been transformed by an understanding of uniquely human social, cognitive and emotional biases, so too the practice of change management is in need of a transformation through an improved understanding of the irrational (and often unconscious) nature of how humans interpret their environment and choose to act.


The Idea in Practice

a) Creating a compelling story

#1: What motivates you doesn’t motivate (most of) your employees. Research confirms that there are at least five sources of meaning for humans at work: impact on society, the customer, the company/shareholder, the working team, and “me” personally. What’s more, workforces are evenly split as to which of these is a primary motivator. “Telling five stories at once” is the key to unleashing maximum energy for change.

#2: You’re better off letting them write their own story. Research indicates that when employees choose for themselves (versus “being told”), they are more committed to the outcome by a factor of almost five to one. Time communicating the message should be dramatically rebalanced towards listening versus telling.

#3: It takes both “+” and “–” to create real energy. Deficit-based approaches (“solve the problem”) to change can create unproductive fatigue and resistance. Constructionist-based approaches (“capture the opportunity”) generate more excitement and enthusiasm, but lead to risk-averse solutions. By moving beyond this dichotomy and pursuing both approaches simultaneously, managers can neutralize these downsides and maximize impact in mobilizing the organization.

b) Role modeling

#4: Your leaders believe they already “are the change.” Most executives have the will and skill to role model, but don’t actually know “what” they should change due to their self-serving biases (if they didn’t think what they were doing was right, they wouldn’t be doing it). Smart use of concrete 360-degree behavioral feedback can break through this barrier.

#5: Influence leaders aren’t that influential. It is not enough to invest in a few rather than in many as a way of catalyzing desired changes, no matter how appealing the idea is. New research shows social “contagions” depend less on the persuasiveness of “early adopters” and more on how receptive the “society” is to the idea. While influence leaders are important, we warn against overinvesting in them – your effort is better spent elsewhere.

c) Reinforcing mechanisms

#6: Money is the most expensive way to motivate people. A change program’s objectives should be linked to employee compensation to avoid sending mixed messages. Little upside is gained, however, due to a number of practical considerations. There is a better, and less costly, way. Small, unexpected rewards have disproportionate effects on employees’ motivation during change programs.

#7: A fair process is as important as a fair outcome. Employees will go against their own self-interest if the situation violates other notions they have about fairness and justice. Careful attention should be paid to achieve a fair process and fair outcomes in making changes to company structures, processes, systems and incentives.

d) Capability building

#8: Employees are what they think. Behaviors drive performance. Mindsets (the thoughts, feelings and beliefs held by employees) drive behaviors. Capability building should focus on technical skills as well as shifting underlying mindsets that enable the technical skills to be used to their fullest.

#9: Good intentions aren’t enough. Even with good intentions, it is unlikely employees will apply new skills and mindsets unless the barriers to practice are lowered. The odds can be improved by using “field and forum” approaches linked to trainees’ day-to-day accountabilities reinforced by quantifiable, outcome-based hurdles along the way.

Show me the money!

Where we have tested these inconvenient truths in practice versus more rational, conventional approaches to influencing behavior we have found they achieve significant positive results. For example, in 18-month longitudinal studies using control and experimental group methodologies we achieved a 19 percent lift in profit per banker versus 8 percent and a 65 percent reduction in call center customer churn versus 35 percent with conventional approaches alone.

Socrates: “The secret of change is to focus all your energy, not on fighting the old, but on building the new”                                                                                                                                                                                                                                                                                                                                                         Marissa Mayer: “Geeks are people who love something so much that all the details matter”                                                                                                                                                                                                                                                                                                                                                         Charles Darwin: “It’s not the strongest of the species that survives, nor the most intelligent, but the ones most responsive to change”                                                                                                                                                                                                                                                                                                                                                         Socrates: “The secret of change is to focus all your energy, not on fighting the old, but on building the new”                                                                                                                                                                                                                                                                                                                                                         Winston Churchill: “Let our advance worrying become advance thinking and planning”                                                                                                                                                                                                                                                                                                                                                         Jeff Daly: "Two monologues do not make a dialogue"                                                                                                                                                                                                                                                                                                                                                         Mahatma Gandhi: “Happiness is when what you think, what you say, and what you do is in harmony”                                                                                                                                                                                                                                                                                                                                                         Dwight D. Eisenhower: “Planning is everything. the plan is nothing”                                                                                                                                                                                                                                                                                                                                                         Benjamin Franklin: “Well done is better than well said”                                                                                                                                                                                                                                                                                                                                                         Aristotle: “We are what we repeatedly do. Excellence then, is not an act, but a habit”                                                                                                                                                                                                                                                                                                                                                         Gandhi: "Be The Change You Want To See In The World”                                                                                                                                                                                                                                                                                                                                                          Marissa Mayer: “Geeks are people who love something so much that all the details matter”                                                                                                                                                                                                                                                                                                                                                         Jeff Bezos: “Your brand is what people say about you when you’re not in the room”                                                                                                                                                                                                                                                                                                                                                         Theo Gold: “You cannot become stronger without resistance”                                                                                                                                                                                                                                                                                                                                                         Jack Welch: “Before you are a leader, success is all about growing yourself. When you become a leader, success is all about growing others”                                                                                                                                                                                                                                                                                                                                                         Stephen Covey: “The key is not to prioritize what’s on your schedule, but to schedule your priorities”                                                                                                                                                                                                                                                                                                                                                         Mahatma Gandhi: “Happiness is when what you think, what you say, and what you do is in harmony”                                                                                                                                                                                                                                                                                                                                                         Franklin D. Roosevelt: “The only limit to our realization of tomorrow will be our doubts of today”                                                                                                                                                                                                                                                                                                                                                         Gandhi: "Be The Change You Want To See In The World”                                                                                                                                                                                                                                                                                                                                                          George Halas: “Nobody who ever gave his best, regretted it”                                                                                                                                                                                                                                                                                                                                                         Socrates: “The secret of change is to focus all your energy, not on fighting the old, but on building the new”                                                                                                                                                                                                                                                                                                                                                         Mahatma Gandhi: “Happiness is when what you think, what you say, and what you do is in harmony”                                                                                                                                                                                                                                                                                                                                                         Henry Ford: “Coming together is the beginning, staying together is progress, and working together is success”                                                                                                                                                                                                                                                                                                                                                         Bill Copeland: “The trouble with not having a goal is that you can spend your life running up and down the field and never score.”                                                                                                                                                                                                                                                                                                                                                         Mark Hurd: "AI and its offshoot, machine learning, will be a foundational tool for creating social good as well as business success"                                                                                                                                                                                                                                                                                                                                                         Warren Buffett: “It takes 20 years to build a reputation and five minutes to ruin it.  If you think about that, you’ll do things differently”                                                                                                                                                                                                                                                                                                                                                         John Wooden: “Do not let what you cannot do interfere with what you can do”                                                                                                                                                                                                                                                                                                                                                         Stephen Covey: “The key is not to prioritize what’s on your schedule, but to schedule your priorities”                                                                                                                                                                                                                                                                                                                                                         W. Edwards Deming: “Without data, you’re just another person with an opinion”                                                                                                                                                                                                                                                                                                                                                         Tom Peters: “The Marketplace is so demanding that we burn the policy manuals and knock off the incessant memo writing; there’s just no time. It also demands we empower everyone to constantly take initiatives. It turns out stories are a – if not the – leadership answer to both issues”                                                                                                                                                                                                                                                                                                                                                         Peter Drucker: “Accept the fact that we will have to treat almost anybody as a volunteer”                                                                                                                                                                                                                                                                                                                                                         Bill Gates: “We all need people who will give us feedback. That’s how we improve”                                                                                                                                                                                                                                                                                                                                                         Jack Welch: “Before you are a leader, success is all about growing yourself. When you become a leader, success is all about growing others”                                                                                                                                                                                                                                                                                                                                                         Bill Gates: “We all need people who will give us feedback. That’s how we improve”                                                                                                                                                                                                                                                                                                                                                         Warren Buffett: “It takes 20 years to build a reputation and five minutes to ruin it.  If you think about that, you’ll do things differently”                                                                                                                                                                                                                                                                                                                                                         Steve Jobs: “Innovation is saying no to a thousand things”                                                                                                                                                                                                                                                                                                                                                         Tom Peters: “The Marketplace is so demanding that we burn the policy manuals and knock off the incessant memo writing; there’s just no time. It also demands we empower everyone to constantly take initiatives. It turns out stories are a – if not the – leadership answer to both issues”                                                                                                                                                                                                                                                                                                                                                         Steve Jobs: “Innovation is saying no to a thousand things”                                                                                                                                                                                                                                                                                                                                                         Buddha: “The mind is everything. What you think you become”                                                                                                                                                                                                                                                                                                                                                         Jack Welch: “Before you are a leader, success is all about growing yourself. When you become a leader, success is all about growing others”                                                                                                                                                                                                                                                                                                                                                         Stephen Hawking: “Intelligence is the ability to adapt to change”                                                                                                                                                                                                                                                                                                                                                         Franklin D. Roosevelt: “The only limit to our realization of tomorrow will be our doubts of today”                                                                                                                                                                                                                                                                                                                                                         Albert Einstein: “A person who never made a mistake never tried anything new”                                                                                                                                                                                                                                                                                                                                                         Albert Einstein: “A person who never made a mistake never tried anything new”                                                                                                                                                                                                                                                                                                                                                         W. Edwards Deming: “Without data, you’re just another person with an opinion”                                                                                                                                                                                                                                                                                                                                                         Bruce Schneier: "The internet is no longer a web that we connect to. Instead, it’s a computerized, networked, and interconnected world that we live in. This is the future, and what we’re calling the Internet of Things"