An Executive Guide to the Spring 2019 Issue
These summaries will help you navigate our new slate of features.
The Only Way Manufacturers Can Survive
Vijay Govindarajan (Tuck School of Business, Dartmouth College) and Jeffrey R. Immelt (Athenahealth, New Enterprise Associates, Desktop Metal)
Although most manufacturers are beginning to flirt with emerging technologies, not one has successfully pulled off a digital transformation. CEOs still have to figure out the art and science of it. This article explores why it’s so difficult for industrial companies in particular and shares key insights from the authors’ deep experience and research. One of the authors (Immelt) spearheaded a digital transformation, among several other major change initiatives, at GE, and the other (Govindarajan) has been studying innovation and change in large companies, including GE, for decades.
GE was probably the first manufacturer to internalize that digital technologies could disrupt its businesses. It faced uphill battles in its efforts to start and sustain its digital transformation, and those experiences provide useful insights for executives wrestling with the challenge. To escape inertia and enable their companies to become digital-industrials, leaders of manufacturers must prevent core competencies from becoming rigidities that inhibit change, integrate digital hires with engineers (who learn, think, and function very differently) to form a new set of capabilities, and champion a shift from a culture of continuous improvement to one of constant innovation.
How Digital Leadership Is(n’t) Different
Gerald C. Kane (Boston College), Anh Nguyen Phillips (Deloitte), Jonathan Copulsky (Northwestern University), and Garth Andrus (Deloitte)
The rapid changes associated with digital disruption can be so disorienting that many of us assume the leadership handbook must be completely rewritten for the digital age. Is this true? Or are greater and greater levels of uncertainty causing us to neglect the essentials? Is it possible that the leadership challenges of the digital world are more the same than different, but we are overly focused on what’s different because we are so alarmed by the threats to the status quo?
There is something to be said for both arguments. Over the past five years, in a joint research project with MIT Sloan Management Review and Deloitte, the authors of this article have studied how business and leadership are changing as a result of digital disruption. They have found that while many core leadership skills remain the same, the particular demands of digital disruption call for certain new skills, as well. Here, they explore which are which and what can be learned from organizations that are digitally maturing — that is, those that have been transformed by digital technologies and capabilities that improve processes, engage talent across the organization, and drive new value-generating business models.
It Pays to Have a Digitally Savvy Board
Peter Weill (MIT Sloan School of Management and MIT Center for Information Systems Research), Thomas Apel (Stewart Information Services Corp.), Stephanie L. Woerner (MIT CISR), and Jennifer S. Banner (Schaad Cos. and BB&T Corp.)
As companies seek to improve their business models, customer experience, operational efficiency, and more through new technologies, their boards must help them move forward at a sufficient pace. Those that do are likely to see better financial results than those that don’t, according to a machine learning analysis of the digital know-how of all the boards of U.S.-listed businesses. After examining data from surveys, interviews, company communications, and the bios of 40,000 directors, the authors of this article found that companies with digitally savvy boards significantly outperformed others on key metrics such as revenue growth, ROA, and market cap growth.
When boards lack digital savvy, they can’t play their critical guiding role. But companies can fix that by understanding what kinds of characteristics to look for in existing and new board members, managing board agendas differently, and cultivating new learning opportunities.
Nondisruptive Creation: Rethinking Innovation and Growth
W. Chan Kim and Renée Mauborgne (INSEAD)
Although disruption is all around us, it isn’t the only way to innovate and grow. Indeed, a single-minded focus on disruption leads companies to overlook another important approach — what the authors call nondisruptive creation. This alternative approach involves creating new markets where none existed before.
Most companies remain stuck in the mindset that in order to create, you must disrupt or destroy, but that’s not the case. Nondisruptive creation breaks our existing frame on innovation and growth and allows us a much broader view of how to generate value. In this article, the authors define the concept, offer a framework to help leaders charged with driving innovation to achieve the kind of growth that best suits their company, explain which strategies trigger nondisruptive creation and which lead to disruption, and examine how managers can identify new problems to solve and new opportunities to seize.
What to Do When Industry Disruption Threatens Your Career
Boris Groysberg (Harvard Business School), Whitney Johnson, and Eric Lin (United States Military Academy)
When industries are disrupted, so are the people who work in them. Companies can shift and enhance their institutional know-how by hiring new people, but it’s difficult for individuals to swap out well-honed skills quickly enough to suit changing markets. Even as they recognize their need to gain new skills, they seldom adapt rapidly, because skills are accumulated slowly through years of formal education, training, and work experience. Learning takes time.
After World War II, managers who climbed the corporate ladder often had an expectation of implicitly guaranteed lifetime employment, inducing them to deepen their institutional knowledge and their commitment to the company. But today, people rarely stick with one organization for a lifetime. And so, as industry volatility has increased, the responsibility for career management has shifted from companies to individuals. In this article, the authors discuss how to diagnose the risks that disruptive industry forces pose to your career — and offer advice on how to mitigate the threats.
To stay ahead of developments that may disrupt your professional life, make two evidence-based diagnoses: How volatile is your industry? And what explains the volatility? Answers to those questions will equip you to disrupt your own career preemptively, if warranted. You might seek a new role in your company, deploy your skills with another company in the same industry, or bolster capabilities that make you attractive across industries.
A Structured Approach to Strategic Decisions
Daniel Kahneman (Princeton University), Dan Lovallo (University of Sydney and McKinsey & Co.), and Olivier Sibony (HEC Paris and Saïd Business School, University of Oxford)
Making strategic decisions — whether you’re considering an acquisition, figuring out whether to launch a new product, or choosing a startup to fund — involves boiling down a large amount of complex information so that you can rate competing options or arrive at a yes-no call on a single path. Such decisions are evaluative judgments and thus are highly susceptible to errors that stem from known cognitive biases or from random factors (known as “noise”).
The unreliability of human judgment has long been recognized and studied, particularly in the context of hiring. For instance, a vast amount of evidence indicates that unstructured interviews lead to evaluations that have very little predictive value. That’s because the interviewer forms a mental model (colloquially known as an “impression”) of a candidate, a process that psychologists have shown has three specific limitations: excessive coherence, a “quick and sticky” quality (we form our models rapidly and alter them slowly), and biased weighting.
The authors draw inspiration from that body of research and experience to suggest a practical, broadly applicable approach to reducing similar errors in strategic decision-making. They outline the core elements of that process, which, like the practice of structured interviewing in hiring, includes assessing attributes one at a time before arriving at a final judgment. The authors explain how to apply this approach to both one-off and recurrent decisions. The process is easy to learn, involves little additional work, and (within limits) leaves room for intuition.
Understanding China’s Next Wave of Innovation
Mark J. Greeven (IMD), George S. Yip (Imperial College Business School), and Wei Wei (GSL Innovation)
In recent years, a handful of Chinese companies have emerged as global innovators and have garnered a lot of attention. This group includes online retail giant Alibaba, appliance maker Haier, search and data technology provider Baidu, and Tencent, a provider of a social communication and gaming ecosystem. Although these businesses are challenging the R&D strategies of foreign multinationals and providing valuable lessons on how to make ideas commercially viable, there’s a less obvious force to be reckoned with in China as well. Thousands of innovative companies are quietly disrupting numerous industries, overtaking incumbents, and developing new products and new business models. From electronics startups to manufacturers of hand tools, these emerging innovators are not easy to spot — yet they pose real threats, often in unexpected places.
The authors interviewed hundreds of executives, entrepreneurs, and investors in China and studied more than 200 Chinese companies in an effort to understand how innovation is being practiced there and how it is changing. Through this research, they identified three types of emerging innovators, each of which presents a different set of challenges for rivals. The authors refer to them as hidden champions, tech underdogs, and change makers. They describe each type of innovator in detail so that companies seeking to operate in China or compete globally can see how each one conducts business and understand what multinationals may be up against in the future. To stay in the game, non-Chinese multinationals must look beyond industry borders, be attuned to these potential threats, and rethink their assumptions about how to innovate successfully.
When Patients Become Innovators
Harry DeMonaco (MIT Sloan School of Management), Pedro Oliveira (Copenhagen Business School), Andrew Torrance (University of Kansas School of Law), Christiana von Hippel (University of California, Berkeley), and Eric von Hippel (MIT Sloan School of Management)
Health care consumers are increasingly able to conceive and develop sophisticated medical devices and services to meet their own needs — often without any help from companies that produce or sell medical products. This “free” patient-driven innovation process enables people to benefit from important advances that are not commercially available. Commercial producers of medical devices and services can benefit, too. For them, patient do-it-yourself efforts can be free R&D that informs and amplifies in-house development efforts.
In this article, the authors examine two examples of free innovation in the medical field: one for managing type 1 diabetes and the other for managing Crohn’s disease. They set these cases within the broader context of the “free innovation” movement that has been gaining momentum in an array of industries and apply the general lessons of free innovation to the specific circumstances of medical innovation by patients. They also explore some of the nuanced questions surrounding patient innovation, such as safety concerns and the legal implications of DIY designs. Even in cases where there are significant safety risks, the authors think it would be a mistake to limit patient innovation. When it addresses medical problems unserved by commercial solutions, they argue, we may well see a net gain in safety and quality of life for the whole population of affected patients. And we can expect safety to improve as low-cost clinical trial methods are developed to enable patient communities to test their own innovations.