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The 2003 HBR List: Breakthrough Ideas for
Tomorrow’s Business Agenda
Bankruptcies, scandals, an unsatisfying stock market – what’s a leader to do?
One way to get your company going is to stop putting out old fires and get
out and light some new ones. Here are some hot ideas we think will help.
Last year was one of intense soul-searching – which isn’t so surprising, given
continued economic uncertainty and a loss of faith in corporate leaders, not to mention
concern over terrorism and international conflict. Even as executives intensify their
focus on growth and profitability, they are struggling to come to terms with their
assumptions about business, leadership, and the people who make organizations work.
Out of that soul-searching, one hopes, will come not only a deeper understanding of
the organization and its place in the world but also a measure of revitalization. And so,
this year’s list of the best business ideas is about moving on; they are ideas that we
hope will stimulate you to think in new ways, even if you’re thinking about old
problems.
As in years past, our list isn’t comprehensive, nor does it offer any quick fixes. It’s our
own very opinionated take on what business executives should be thinking about as
they look to the future. But at the same time, it represents some soul-searching of our
own. The process of choosing the ideas caused us to question some of our own notions
about business and to see the world in a new light. We hope it will prove illuminating
to you as well.
Leaders Don’t Lead Alone
For the past few years, discussions of leadership have focused almost exclusively on
the CEO. Even Jim Collins’s breakthrough archetype of the humble leader, which
served as a counterpoint to the reigning notion of the CEO as superstar, focused on
the leader at the top (see his January 2001 HBR article, “Level 5 Leadership: The
Triumph of Humility and Fierce Resolve”). We only have to glance at the covers of
business magazines to see that our collective craving for symbols of reassuring
leadership continues unabated.
But recent events have highlighted the dangers of relying too much on the man or
woman heading the business. In a handful of high-profile cases – as well as in
countless others that have undoubtedly occurred outside the media spotlight – CEOs
overstepped the bounds of their roles and led their companies into trouble. It’s easy to
vilify those CEOs for their abuses of power and authority, and some of them have been
villains indeed. But we should not forget that top executives aren’t solely to blame for
the sins of their companies. Leaders don’t lead in a vacuum, and others share
responsibility for the firm’s welfare – not only the boards of directors, who are
supposed to monitor and guide the executives they hire, but also the leaders’
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followers.
It has certainly become clear that corporate boards need to reevaluate how they
oversee CEOs. Companies can establish processes that will encourage boards to take a
more active role, but they can’t legislate behavior. Instead, as Jeffrey Sonnenfeld
argued in his September 2002 HBR article, “What Makes Great Boards Great,” good
board supervision ultimately depends on an atmosphere of trust and robust discussion
in the boardroom itself. And while the CEO can help engender such a climate, the
responsibility for creating it ultimately rests with individual directors.
Boards also need to rethink how they hire CEOs. Many directors have facilely equated
leadership with charisma and, thinking they’re seeing the former, have actually hired
the latter. But as Rakesh Khurana, also writing in September, pointed out in “The
Curse of the Superstar CEO,” charisma turns out to be unreliable. In hiring a larger-
than-life, heroic personality, boards are essentially demonstrating a kind of blind faith
that this person alone will be able to alleviate whatever woes the company faces.
Hiring a hero is an abdication. Not only is it naive, it’s irresponsible.
Indeed, when a board rises up and fires a CEO seen to be doing a bad job, the fallacy
of viewing the CEO as solely responsible for a company’s fortunes – good or bad –
often becomes clear. As Margarethe Wiersema showed in the December article, “Holes
at the Top: Why CEO Firings Backfire,” a company rarely performs any better after
dismissing the CEO than it did before. Indeed, Khurana cites research suggesting that
as much as 65% of a company’s performance is driven not by executive decisions but
by the competitive dynamics of its industry and changes in the broader economy. CEO
failure is more often a symptom of underlying corporate malaise, not a cause.
This is not an easy message to hear. It is natural for people to want an authority figure
who will solve their problems, freeing them from responsibility. Indeed, Khurana
argued that the charisma we look for in CEOs is actually a social construct – the
projection of people’s yearnings for a knight in shining armor – rather than any
inherent attribute of an individual. A leader’s followers, often in unconscious
collaboration with the board, confer this quality on the person at the top. In that
sense, they help inflate, if not entirely create, charismatic leaders.
Blind faith in leadership makes it difficult for managers, employees, stockholders, and
directors to identify, let alone prevent, abuses of power by unscrupulous leaders.
Consequently, managers and other professionals throughout an organization need to
discipline themselves to balance trust and skepticism, submission to the leader’s will
and resistance to it. Precisely because of the danger of unconscious collaboration, they
need to take some conscious responsibility for the leaders they have helped create.
That’s hard, as Time’s 2002 Persons of the Year – whistle-blowers Coleen Rowley of
the FBI, Cynthia Cooper of WorldCom, and Sherron Watkins of Enron – could tell you.
But responsibility creates opportunities. It offers the chance for followers to grow
professionally and become more engaged in their work, while safeguarding the
organization against disaster. It’s also an opportunity for the leaders themselves. By
nurturing a strong and autonomous style of “followership,” one in which truth is told
and assumptions are challenged, leaders can help protect themselves from their own
potentially disastrous missteps.
Emotional Intelligence Is Still Smart
In Alfred Sloan’s day, executives would have contemptuously dismissed the idea that
effective leaders must possess a high degree of emotional intelligence, that their
success would depend on self-awareness, self-regulation, motivation, empathy, and
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social skills. But emotional intelligence took the stage in the late 1990s, when a talent
shortage and big stock gains turned ordinary employees into free agents and when
managers were scrambling to capture the hearts and minds of their workforce.
Now, in the wake of the stock and job market collapses, the focus on feelings seems
misplaced. Indeed, it’s tempting to dismiss emotional intelligence altogether. Why
bother to understand the emotions of your employees when they’ll do anything just to
keep their jobs? But that would be a mistake. Emotional intelligence doesn’t just spur
growth and high spirits in boom times; it also protects you in harsh times. In fact,
right now the smartest thing you can do with emotional intelligence is turn it on
yourself.
That doesn’t mean you should ignore your employees’ feelings. Uncertainty can kill
productivity, even when employees are highly motivated to keep their jobs. Showing
compassion and supporting your employees in their acts of compassion can make your
organization more resilient, as Jane Dutton and her colleagues showed in January
2002’s “Leading in Times of Trauma.” But the general mood of reflection that has
characterized business over the past year or so has influenced the way we approach
emotional intelligence as well. Richard Boyatzis, Annie McKee, and Daniel Goleman,
the movement’s founding father, registered this shift in the April article, “Reawakening
Your Passion for Work.” Self-examination, they argued, isn’t self-indulgent: quite the
contrary. Executives who fail to develop self-awareness risk falling into an emotionally
deadening routine that threatens their true selves. Indeed, a reluctance to explore
your inner landscape not only weakens your own motivation but can also corrode your
ability to inspire others.
Or worse. It may jeopardize your career. In June’s “A Survival Guide for Leaders,”
Ronald Heifetz and Marty Linsky observed that leaders often sabotage themselves by
assuming they’re invulnerable. Leaders must watch their backs, the authors warn.
Emotional intelligence can be used not just to produce harmony in the workplace but
also to outwit your enemies by giving you the tools to understand and anticipate them.
That warning is especially apt now, when many CEOs’ heads are rolling. Roderick
Kramer made a similar point in his July article, “When Paranoia Makes Sense.” The
appropriately paranoid person, he said, is sure to be keenly observant, a trait of the
emotionally intelligent. By vigilantly monitoring colleagues’ actions and intentions,
such executives can successfully head off career-derailing mistakes. In hard times, the
soft stuff often goes away. But emotional intelligence, it turns out, isn’t so soft. If
emotional obliviousness jeopardizes your ability to perform, fend off aggressors, or be
compassionate in a crisis, no amount of attention to the bottom line will protect your
career. Emotional intelligence isn’t a luxury you can dispense with in tough times. It’s
a basic tool that, deployed with finesse, is key to professional success.
It’s Messier Than You Think
Call it entropy; call it Murphy’s Law. People and processes just don’t work the way
they’re supposed to. An impressive body of management science tells us how to lead
change, devise incentives, promote collaboration, and eliminate inefficiencies, but our
organizations stay messy. The fact is, organizations are not, in essence, rational.
They’re filled with human beings – each with his or her own vision, biases, agenda,
and feelings.
And they’re getting messier. By its nature, work in a mass-production economy
imposes order and conformity. But work in today’s knowledge economy seeks variety
and innovation. If the orderly assembly line was the symbol of mass production, the
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messy desk is the icon of the information age. Furthermore, getting work done
nowadays depends on getting employees to share information and make informed
decisions – processes fraught with ambiguity and subjectivity.
Messiness can make it hard to get things done. For one, it leads to mysterious foot-
dragging, which can take the form of unarticulated resistance to change, as Eric
McNulty illustrated in October’s Case Study, “Welcome Aboard (but Don’t Change a
Thing).” Or it may manifest itself as stalled negotiations, as James Sebenius described
in his March piece, “The Hidden Challenge of Cross-Border Negotiations,” and Gary
Williams and Robert Miller illustrated in May’s “Change the Way You Persuade.” For
another, organizational messiness makes it difficult to have healthy conversations. A
subordinate who feels even vaguely misunderstood, for instance, may harbor a
growing resentment toward the boss so that it becomes almost impossible to hear any
constructive criticism, as we learned from Jean-François Manzoni’s September article,
“A Better Way to Deliver Bad News.” Or coworkers who experience the workplace in
fundamentally different ways may find it hard to trust one another. In their November
article about the experience of black managers, “Dear White Boss,” Keith Caver and
Ancella Livers showed us that people who seem fulfilled on the job may in fact be
profoundly unhappy.
Perhaps most alarming, the messy reality of corporate life can lead to questionable
business practices by the most well-meaning employees. In another November piece,
“Why Good Accountants Do Bad Audits,” Max Bazerman, George Loewenstein, and Don
Moore showed us that even honest and meticulous auditors sometimes unconsciously
massage numbers in ways that mask a company’s true financial status. It’s a lesson
that extends well beyond accounting: Our deeply held opinions and subliminal desires
cloud our judgment in ways we cannot even hope to understand.
It’s a wonder any work gets done at all.
But before we leap in with more controls and regulations, remember that messiness
isn’t all bad. It can, in fact, be quite beautiful. Much like a Jackson Pollock painting, it
can be confusing and disorderly – defying conventional aesthetics – but at the same
time pulsing and vibrant. Rob Cross and Laurence Prusak’s June article, “The People
Who Make Organizations Go – or Stop,” pointed to the vitality of the informal – and
inherently messy – networks that people rely on to actually get their work done.
Allowing managers to bypass the official hierarchy is discomfiting to senior executives
because informal networks are impossible to govern, but anybody who’s ever actually
worked for a living knows that informal channels are where the real work is done.
No less rational and formal a leader as GM’s Alfred Sloan tolerated a surprisingly loose
division of organizational responsibilities. Officially, he espoused a structure of “federal
decentralization,” in which the day-to-day operations of GM’s car divisions were
carefully separated from strategic planning at headquarters. Yet Sloan understood that
a more flexible organization, where division heads had a prominent place in the overall
direction of the company, was more realistic and, ultimately, more productive. Robert
Freeland, in May’s Forethought article, “When Organizational Messiness Works,” noted
that GM’s decline began shortly after the company reorganized around a clean break
between divisional and corporate responsibilities, which fed an atmosphere of distrust
between headquarters and the field.
In the end, it may be that the solution to the problem of messiness is no neater than
the problem itself. Try to manage it – make every effort to ensure consistency and
enforce standards. But at the same time, make peace with messiness. It’s a fact of
corporate life – one that the Nobel Committee made official when it awarded the 2002
Prize for Economics to Daniel Kahneman, who showed us how incontrovertibly
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irrational we all are. It’s futile to ignore it, unwise to attempt to eliminate it. You can’t
get rid of the mess. But you can learn to live with it – and you may even find beauty in
it.
There’s No Gold in Them Thar Old Hills
In the 1990s, growth suddenly became easy. Communism collapsed in the Soviet
Union and Eastern Europe and opened itself up to freer markets in China,
exponentially increasing the population of potential consumers almost overnight.
Information technology came into its own, as businesses feverishly chased after a
seemingly limitless pot of gold – an innovation rush unlike anything since the invention
of the railroad. But the euphoria was short-lived, and, just as suddenly, it was back to
grinding out growth the old-fashioned way, by adding incrementally to existing product
lines or sales regions. At the new millennium, globalization had created some
opportunities, but companies are now engaging not so much in a gold rush as in a
steady husbandry of developing markets. They are continuing to develop and adopt
new technologies but at a much slower and not so steady pace. Trouble is, the
traditional paths aren’t likely to lead to the sustained, double-digit growth managers
like to promise shareholders.
Significant gains will come only when managers start blurring the line between their
own core assets, functions, and competencies and those of other companies. One way
to do that is to stop seeing your product or service as the sole launching point for
growth. In their July article, “The Growth Crisis – and How to Escape It,” Adrian
Slywotzky and Richard Wise urged managers instead to identify and leverage their
business’s hidden assets to address the unmet needs of their customers. What hidden
assets? They’re usually thought of as features of the business itself, such as customer
relationships, pivotal value chain positions, or the information by-products of current
activities. The challenge is to learn to think of these intangible assets as something
you can sell.
Companies can also use other companies’ assets to grow in a big way. Building on its
unique knowledge of the complex network of players in its industry, Hong Kong-based
Li & Fung transformed itself from an endangered middleman in the apparel industry
into an all-important orchestrator. John Hagel III in his October piece, “Leveraged
Growth: Expanding Sales Without Sacrificing Profits,” argued that other companies can
make use of Li & Fung’s astonishing insight if they embrace the somewhat
uncomfortable idea that in order to grow they needn’t own the assets they depend on.
Once a business has reconceived its own contours, it’s ready to face up to a new kind
of customer. We expect a fair number of our readers were squirming before they got
past the title of C.K. Prahalad’s and Allen Hammond’s September article, “Serving the
World’s Poor, Profitably.” Prahalad and Hammond showed convincingly how common –
and how wrong – it is for managers of large companies to ignore this vast consumer
market. Meanwhile, in the other demographic direction, Brian Johnson and Paul Nunes
argued that marketers have left a huge amount of money on the table by failing to
spot the swelling ranks of consumers who, while not truly wealthy, earn well above
middle-class incomes. It’s been a dead zone for innovation, they wrote in their June
Forethought article, “Target the Almost Rich,” because managers have not questioned
the classic shape of the income distribution curve, even as it has shifted under their
feet.
Shape-shifting isn’t the exclusive prerogative of income distribution curves or even of
entire markets. It belongs to the companies that serve them as well.
Businesses Die, but Companies Can Outlive Them
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As any reader-respecting magazine will do, Harvard Business Review runs periodic
surveys to identify the topics that engage our readers the most. Over the past five
years, two subjects have consistently been at or near the top of the list: leadership
and change. On the face of it, that’s not surprising. Leadership is what HBR’s readers
are supposed to exercise, and changing an organization is one of the toughest
leadership challenges there is.
But behind those preoccupations lies the implicit assumption that any business can,
given the right leadership, live on indefinitely, reshaping itself to thrive under shifting
market or competitive conditions. This assumption chimes with America’s traditional
can-do culture, which has long celebrated the triumph of man over his environment.
Blind adherence to this article of faith carries a danger, albeit a subtle one. In May’s
“Divestiture: Strategy’s Missing Link,” Lee Dranikoff, Tim Koller, and Antoon Schneider
pointed out that companies are reluctant to sell off underperforming businesses. “The
desire to hold on to businesses, particularly successful ones, is strong. A business…
may have strong sentimental attachments for employees or other stakeholders,
representing an important component of a company’s identity.” But, as the authors go
on to document in detail, that kind of fuzzy sentimentality about businesses can
undermine a company’s continued existence. In other forms of investing, it’s obvious
that nailing the right moment to sell is just as important as knowing the right time to
buy; it’s the same for any company holding a portfolio of businesses.
Unlike companies, businesses appear to pass through predictable life cycles, from
robust early growth to maturity and on to decay and death. The length of those life
cycles can vary greatly, depending on, among other things, the stability of demand
within a particular industry. You would expect a brewery, for instance, to last longer
than a software maker, if only because it is more certain that we will keep wanting to
drink beer than that we will continue to use any particular software package.
Regardless of the industry in which they compete, however, some businesses, like
some people, will not reach their expected life spans; they will fall victim to an internal
disability or an inhospitable environment. Indeed, a sense of seeing youth cut short
may well explain the atmosphere of gloom that today pervades the coffee bars of
Silicon Valley, which five years ago buzzed with the derring-do of adolescence.
Naturally, conscientious managers should do all in their power to help their business
units thrive throughout their natural lives. In some cases, as Dranikoff, Koller, and
Schneider explain, that will mean ceding control of a business to another company
whose managerial skills are better suited to the next stage of the business’s life span.
Some companies will be better at managing young businesses; others will be more
adept at shepherding aging ones. The challenge is to know your firm’s strengths and
its limits. Most important of all, you need to maintain a certain coldheartedness in
evaluating your businesses. Attempts to prolong a unit’s life beyond its natural term
are likely to be at once quixotic and destructive.
In the year ahead, we trust that the debate about business life spans will continue.
There remain many unresolved questions: How exactly does a business’s managerial
needs evolve over time? How can you know when to jettison a unit from your
company’s portfolio or when to pick up another? Is a particular business acting as old
or as young as it should? As we pick up the pieces of the old century and set about
building the new, it would be wise to remember that the real business of the general
manager is not his business but his company.
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