High-growth companies don’t go it alone. Increasingly, they are achieving results by creating and orchestrating digitally connected ecosystems — coordinated networks of enterprises, devices, and customers — that create value for all of their participants.1

Companies whose dominant business model is ecosystem driver — in both B2B and B2C domains, such as energy management, home ownership, and financial services — experienced revenue growth approximately 27 percentage points higher than the average for their industries, and had profit margins 20 percentage points above the average for their industries, according to our research.2 That 2019 global survey of 1,311 executives also found that successful drivers achieve outsized results by attracting the partners needed to provide complementary — and competing — products and services that make their ecosystems seamless “one-stop shopping” destinations for customers.

Complementary offerings make it easier for customers to obtain comprehensive solutions to their problems. For example, when China’s largest insurer, Ping An, realized that its customers wanted not only insurance but also a means of addressing their medical and well-being needs, it created Good Doctor. The Good Doctor platform offers 24-7 one-stop health care services that are provided by pharmacies, hospitals, and about 10,000 doctors. In September 2019, Good Doctor reported serving more than 62 million customers monthly. Moreover, nearly 37% of Ping An customers used more than one of its services in 2019 — an important measure of ecosystem success.3

Successful ecosystem drivers also offer their customers greater choice, even when that entails featuring competing offers. In Australia, real estate platform driver Domain partners with about 35 mortgage lenders to offer homebuyers more loan choices. In the second half of 2019, the company’s Consumer Solutions segment, which consists of its loans, insurance, and utilities connections businesses, grew revenue by 72%.4

As all of this suggests, a strong partnering capability is required to successfully grow digital ecosystems. This capability must be designed to support digital partnering, which is not the same as the traditional handshake and bespoke partnering of the physical world. Traditional partnering often includes exclusive relationships, long-term contracts, and deep integrations, all of which take time to establish and require strategic commitment. Digital partnering creates growth by adding more products and customers via digital connections with other companies that enable fast response to customer needs. It requires the ability to determine and agree with partners about who will create value, how revenue will be apportioned, and what data will be shared; it also requires the capacity to quickly add partners’ products and services via plug-and-play connections that offer immediate order and payment processing, and sometimes delivery as well.

This ability varies widely across sectors (see “Industries Vary in Their Development of Digital Partnering Capabilities”), but in several industries in our survey, the average market share of ecosystems increased with digital partnering capabilities. In manufacturing, average market share rose from 50% to 62%. In services, it rose from 21% to 35%, and in retail, travel, and hospitality, it rose from 10% to 75%. Moreover, we found that companies with above-average reach (new customers) and range (new products and services) thanks to digital partnering enjoyed revenue growth at 9.8 percentage points above their industry average, while companies that did not partner grew at 7.7 percentage points below their industry average.5

To better understand digital partnering in ecosystems, we studied the practices and results of ecosystem drivers. We found that the more successful drivers attended to two principal partnering capabilities: digital readiness and curation.6 Digital ecosystems in the top quartile on digital readiness had an average market share that was 110% higher than the average market share of the bottom quartile. Ecosystems in the top quartile on curation had an average market share that was 128% higher than the average market share of the bottom quartile.

Digital Readiness

Partnering in digital ecosystems requires drivers and their partners to be fully prepared to create and extract value. Financial services giant Fidelity Investments began to focus on capabilities required for digital partnerships in 2017 and now offers a marketplace in its personal investments business; a wellness platform in its workplace services business; and Wealthscape Integration Xchange, a storefront in its institutional business.7 Its experience illustrates how successful digital partnering requires digital readiness that consists of three key characteristics: being distinctive, being digitally organized, and being open.8

Distinctive. To attract partners, a digital ecosystem needs to provide differentiated value that enables it to stand out from its competitors. This value may come in various forms, such as a trusted brand, compelling offerings, low prices, or a superlative customer experience.

As a well-established incumbent, Fidelity was able to leverage its market-leading offerings, its scale, and the trust of tens of millions of existing customers to its new ecosystem. It used these differentiating factors to attract ecosystem partners that could provide additional services and unique value to Fidelity’s customers. For example, as personal investors navigate life events, they can easily access a variety of offerings, such as student loan refinancing and mediation and legal services, through the company’s digital partners. Wealth management companies can access Fidelity solutions and more than 175 third-party technologies, including customer relationship management, financial planning, and portfolio management, in the Wealthscape Integration Xchange.9

Digitally organized. Drivers and their partners need operating models that are optimized for digital ecosystems. This usually requires them to revamp processes used in traditional partnerships, such as procurement, quality control, and legal, and making them more digital and connected. High-performing drivers also eliminate internal silos, use agile methodologies, and leverage data analytics — all of which help them to design for speed and agility when working with digital partners.

At Fidelity, senior executives led cross-business teams to execute 11 fast-track initiatives to bolster its enterprise capabilities, including digital marketplaces and a strategy to API-enable enterprise core capabilities. The company is also undertaking a broad-based cultural shift to encourage partnering, agile teams, and the democratization of data.10

Open. It is easy to connect with good ecosystem drivers and partners. They are able to share their distinctive core capabilities and quickly scale digital partnerships via APIs. We found that digital connections between companies via APIs have significantly increased in the past two years. In 2017, companies shared, on average, 24% of their core capabilities externally via APIs; in 2019, the average had risen to 37% — a 54% increase.11

As Fidelity’s brokerage business transformed from a mainframe environment to a cloud environment, the company built enterprisewide capabilities that promote openness by launching an API store and establishing companywide standards designed to make the APIs easily consumable both internally and externally. In the Wealthscape Integration Xchange storefront, for example, B2B customers can create a custom platform that includes Fidelity’s core services and single sign-on, account opening, and transfer-of-assets functionality with many of the company’s digital partners.12

Curation

To grow through partnering, ecosystem drivers must be thoughtful curators of the products and services they offer. Curation enables drivers to coordinate effectively with their digital partners while creating and growing an ecosystem. Our study found that ecosystems with larger market shares had more open designs (that is, a broader set of companies was invited to partner, offering a wide selection of products to customers). They also spanned multiple ecosystem domains. For instance, Amazon’s ecosystem includes shopping, selling, purchasing, and operations domains, and Siemens Healthineers spans health, finance, daily life, and education domains. In China, WeChat is the go-to ecosystem for a variety of daily activities in the lives of its users.

Bayer subsidiary The Climate Corp. has grown its digital agriculture platform, FieldView, from 5 million paid subscription acres in 2015 to more than 95 million acres in 2019.13 To do so it has curated offerings from about 65 partners, with services such as satellite imaging, soil assessment, and drone mapping, that it integrates into reports, recommendations, and planting programs that help farmers optimize their crop yields. FieldView demonstrates that good curation is composed of three key characteristics: joint goals, sharing benefits, and sharing information.14

Joint goals. The drivers of successful ecosystems establish a shared vision that serves as the foundation for value creation and governance in the ecosystem.

The Climate Corp. curates a diverse ecosystem of services such as analytics, planting prescriptions that can be downloaded to farm equipment, and crop insurance, among others, provided by partners that are complementors and competitors. The company seeks partners that share its vision: “A digital agriculture ecosystem where farmers, globally, can easily access a broad and interconnected set of tools, services, and data to optimize all of their decisions on the farm.”15 Farmers can select from multiple partner offerings on the platform and choose which partners can access their data. Climate ensures a consistent experience for farmers and provides data in one place, leveraging the ecosystem data to improve agronomic recommendations.16

Sharing benefits. Successful ecosystem drivers clarify who captures what value and develop mutually beneficial relationships with their partners. In addition to revenue, these benefits often include customer stickiness, engagement, and visibility. Many of the companies we studied experimented with digital partnering to complement their core offering by curating products of interest to their customers. These offerings were important for meeting customer expectations for more choice, according to executives we interviewed, but they also pointed out that improving customer experience has not necessarily translated into big revenue gains. Instead, it has produced higher levels of customer engagement and stickiness. Similarly, ecosystem partners can benefit from associating with a driver and gaining visibility with their customer base and within their industry.

Climate created an open ecosystem to bring more value to customers and drive innovation in the agriculture industry. The company makes it easy for partners to join the platform through APIs on its developer platform, but there is a rigorous vetting process. A shared incentive for potential partners that may compete with one another to join the FieldView platform is the opportunity for more revenue through visibility and access to Climate’s global base of farmer customers. In other cases, businesses join the platform because their retail partners and farmer customers request integration.17

Sharing information. In digital ecosystems, data is a valuable currency that gives rise to potentially contentious issues, such as access to the identity of customers and their activities. Successful ecosystem drivers define who gets what information and establish guidelines for how it will be shared — both digitally and ethically.

In the FieldView ecosystem, all partners, whether a startup or major company, must agree that farmers will control their own data and choose the partners with whom they will share data. Climate recently terminated a partnership with Tillable, a farmland lease and rental management platform, over concerns that the company may have used FieldView data without the farmers’ consent. In doing so, Climate emphasized data privacy and its guiding principle to make it easy and safe for farmers to share their own data with the digital partners they choose.18

Digital Partnering for Competitive Advantage

None of the six characteristics of digital readiness and curation are easy to attain and sustain, which may explain much of the variation in the performance of ecosystems. Our research found that the top quartile of ecosystems won an average market share of 72%, while the bottom quartile had only a 3% average market share.

Today, at least, digital ecosystems are a winner-takes-most proposition. Effective partnering helps drive that proposition. Both drivers and participants in digital ecosystems stand to gain the most benefits by putting their digital houses in order so that their distinctive value propositions can be easily integrated with complementary offerings, and by choosing partners with shared goals in ecosystems set up to share benefits and information among participants.

For the past two decades, companies have assumed that they know the disruption playbook. It’s an S curve of progress: a series of cumulative advances as a new value proposition progresses to outperform a given industry’s prevalent offers. A company introduces gradual improvements in a new, innovative value proposition. Initially, the offering is not attractive to mainstream users and established incumbents, but eventually it becomes good enough and then achieves market dominance. Disruption of the incumbent is complete.

This perspective on disruption provides a valuable guide with respect to how investment returns on innovative efforts may unfold over time. Progress during early efforts tends to be slow, followed by takeoff and a period of sustained growth.

The launch of Netflix’s DVD-by-mail service at the turn of the century represents a classic example. The service was initially targeted at movie enthusiasts who were early DVD adopters. These were consumers who agreed that the trade-off of selecting films through online search was worth the wait (often several days) for the movies to arrive in red envelopes in the mail. At the time, this value proposition was not attractive compared with the mainstream video rental market. However, as Netflix improved its offer — via an unlimited subscription service, an online recommendation engine, a more efficient distribution network, and newer and original content — the company was able to disrupt video rental incumbents such as Blockbuster.

But this view of disruption is oversimplified or, at a minimum, incomplete. What the prevailing imagery for S-curve progress misses is the fact that there is significant uncertainty regarding the rate of progress within the new disruptive value proposition. Some innovations can reach mainstream status in a matter of years, whereas others may take decades. And others, despite their disruptive potential, may never reach fruition. Video streaming services took off rapidly around the globe in a matter of years. In contrast, it has taken online degree programs more than a decade to establish a strong foothold in the education sector. And gene therapy, touted as a major advance in personalized medicine for several decades, has yet to take off.

The importance of factoring in uncertainty to understand the trajectory and impact of a disruptive value proposition on either a startup or an incumbent can’t be overemphasized. When it’s not anticipated, an otherwise promising upstart might leap forward with a product or service based on the assumption of a strong product-market fit without ever finding its audience. Or an incumbent can find itself taking its eye off its bread-and-butter existing products and services based on the assumption that a new innovation will skyrocket to success and provide the growth engine for the future. Neither path is a good one.

Uncertainty and disruption are two sides of the same coin; they can’t be separated. And yet much of the established thinking around managing disruption focuses on incumbents grappling with the threat of market incursions and identifying opportunities to develop their own, and on new entrants managing the opportunities around disruption.1

Although it’s true that the progression of each disruptive innovation may be shaped by the specific strategies of incumbents and entrants, decision makers should bear in mind that there is substantial uncertainty around whether a disruptive value proposition will materialize in the first place. Why is this important? Because an explicit consideration of uncertainty can help decision makers recognize the risks that surround the execution of the disruptive strategy. It can help them set more realistic market-growth expectations and evaluate strategic contingencies that can be experimented with and validated.

In our ongoing research, we have found three key sources of uncertainty — around technology, ecosystems, and business models — that are pivotal to understanding the process of disruption. When companies carefully consider these sources of uncertainty and how to address them, they can better position themselves to manage disruption and achieve superior performance outcomes. When entrepreneurs and executive teams overlook these factors, it opens up their companies to foreseeable challenges, such as the following:

• Failing to recognize the time and the extent of resources that might be required for the disruptive value proposition to take hold. This can lead to misjudgments about investments in a disruptive innovation initiative, such as giving up too early or sustaining significant spending too long, or starving other, more viable initiatives of resources and attention.
• Focusing on the new technology or the new business model while overlooking the challenges within the company’s ecosystem of suppliers, business partners, and customers that may be critical to the realization of the new value proposition. This can lead to prematurely optimistic projections about the potential of a disruptive innovation and risks wasting resources.
• Missing opportunities they could otherwise identify and seize around business model innovation across different markets. The risk here is that a company limits the potential appeal of a disruptive innovation or narrows the innovation’s paths to market without examining all the possible variations around the business model.

These uncertainties do not influence every company to the same degree, of course. Startups tend to be adept at experimenting with new technologies and business models, even though they may be resource-constrained. In contrast, established companies tend to be endowed with significant resources but face significant adjustment costs when they pursue disruptive value propositions while managing their core business. (Although startups and established companies often compete, collaboration can help both manage the uncertainties of disruption. See “The Potential for Collaboration in the Face of Uncertainty.”) But without a deep understanding of how uncertainty can affect the speed and resource-intensiveness of the disruptive arc of development, startups and incumbents alike can find themselves failing at what otherwise might have been a successful disruptive innovation.

Three Sources of Uncertainty

How is it that otherwise savvy companies tend to overlook or ignore potential sources of uncertainty? They might not be looking in the right places, or they may be locked into a specific strategic perspective too early. Our research has identified three key sources of uncertainty surrounding the question of whether the disruptive value proposition will reach fruition in a given market.

1. The enabling technology. Questions can persist about whether the technology that is enabling the disruptive value proposition can achieve the performance-cost threshold required for adoption by mainstream users (that is, for achieving product-market fit). For example, for commercial space travel, there are technological questions related to performance and cost, and although a large number of companies are pursuing the new value proposition, it remains unclear which technological design may be most feasible.

2. The surrounding ecosystem. Uncertainty may also stem from not knowing whether actors in the ecosystem will contribute to the disruptive value proposition through supporting investments, complementary innovations, or standards and regulation. For example, there remain important gaps in understanding regarding the use of augmented reality for instruction and training; it’s unclear whether there will be sufficient complementary content and suitable hardware devices for users to benefit from the new value proposition and how such virtual offerings might be regulated.

3. The business model design. Finally, there can be unsettled issues around the viability of the business model. Will the revenue and profit streams reach sustainable levels for the companies pursuing the disruptive value proposition? For example, there is significant uncertainty around whether the business model for autonomous vehicles looks more like traditional private and fleet vehicle ownership or like a fee-based mobility-as-a-service offering.

These uncertainties are not isolated. As our research on gene therapy has revealed, they can sometimes combine to heighten the challenge of commercializing innovations with disruptive value propositions.2

Gene Therapy’s Suspenseful Story

Gene therapy has faced challenges since its emergence in the 1980s. It has the potential to be a game changer for patients with genetic disorders that have no known cure, because it promises to cure the diseases by fixing defective genes instead of treating symptoms. When seen through the lens of the three uncertainties, however, it’s clear that the path to disruption is a steep climb.

Early attempts in gene therapy development proved ineffective, and some clinical trials led to severe patient side effects and deaths, raising questions about the time and resources required to bring this innovation to market. The business model for gene therapy is also unsettled. Because the treatments can mean a permanent cure or less frequent treatments than prevailing methods, calculating pricing and insurance reimbursements has proved difficult. Companies have discussed several business models, including a pay-per-treatment approach, payments spread over a fixed time line, or a pay-for-performance model in which payments are halted if the treatments have stopped working.3 Gene therapy also confronts significant ecosystem uncertainty. Treatments need to be administered by trained physicians in specialized settings, and they need to be reimbursed by insurance plans. But the availability of trained physicians, gene therapy facilities, and insurance plans that provide coverage is difficult to establish.

Even when a gene therapy treatment wins approval, it can face a cloudy future. A recent case illustrates the challenge: Gene therapy company uniQure pursued a treatment for lipoprotein lipase deficiency, a rare disorder that prevents a person who lacks certain proteins from breaking down fat molecules. The company and health care insurers found it difficult to price the treatment for such a small patient population. UniQure, which had won European approval for the treatment, subsequently withdrew it because of the pricing challenges and the rarity of the disease.4 The fate of this treatment is emblematic of the obstacles other gene therapy companies face. The disruptive potential of their innovations is enormous, but even after a company overcomes the technological and R&D hurdles and creates a new offering, it must confront business model uncertainties.

The life-and-death implications of gene therapy as a potential disruption make it a dramatic example. But this analysis of uncertainties is applicable whenever products and services with a disruptive value proposition emerge. Using this lens to assess the circumstances in which their company enters a particular market enables leaders to make precise decisions about resource allocation and timing — and guides their expectations about returns.

Considerations for Established Companies and Startups

How might established enterprises and startups be affected by these sources of uncertainty? Their motivations for pursuing disruptive innovations differ, and their strategies are shaped by their available resources and how they measure performance. So each type of company must weigh different considerations.

While nearly all disruptive startups are motivated by the possibility of replacing the industry’s status quo, many of them confront resource constraints in their efforts to develop a disruptive value proposition. In the case of gene therapy, startups have attracted a lot of attention, but many could not continue in the face of technology setbacks as their resources and new sources of funding dried up. Highly promising gene therapy startups like Introgen Therapeutics and NeuroLogix ultimately filed for bankruptcy in the U.S.

Established market leaders face other challenges. Although they typically have significant resources available to explore disruptive innovations, they cannot focus solely on this quest. They have to simultaneously manage their core business and measure progress against prevailing key performance indicators (KPIs) and short-term investor expectations. And established companies also may be industry incumbents facing a direct threat from a disruptive innovation or from players active in adjacent industries who see their own opportunity to grow in a related industry at the incumbent’s expense. In our research, we saw evidence of several established pharmaceutical companies, such as GlaxoSmithKline and Merck, investing in gene therapy research but holding back its commercialization because of business model and ecosystem uncertainty.

Analyzing a company’s resource availability and the need to manage performance carries over to the three key uncertainties for disruption.

Resolving technological uncertainty requires significant resources over time to achieve the performance-cost threshold necessary for product-market fit. Given that startups tend to be resource-constrained, they may be more adversely affected by this type of uncertainty. For example, in the case of companies pursuing new solar power technologies, many promising startups had to exit the industry once they lost the technology race to alternative solutions, whereas many established firms were able to continue directing significant resources toward the emerging market opportunities.5 For example, Solyndra entered the renewable energy market with a promising solar power technology called copper indium gallium selenide, but it ended up losing the battle for market dominance to crystalline silicon, resulting in an abrupt bankruptcy.6

Resolving ecosystem uncertainty represents a coordination dilemma, given that business leaders need to manage significant investments across multiple actors, including business partners, suppliers, customers, and regulators. Failure to account for critical actors such as regulators and creators of complementary innovations can cause progress bottlenecks and constrain the value proposition of the disruptive innovation. In such situations, startups may have a steeper challenge: Not only are they resource-constrained, but they may also lack scale and credibility among members of the ecosystem to influence their supportive actions.

Consider the case of Better Place, with its disruptive value proposition around electric cars. Its model to offer battery-charging and -swapping services in addition to selling vehicles helped resolve the technological uncertainty for motorists for whom the low battery performance and high cost of electric cars did not offer a strong value proposition. But, as it pursued its growth trajectory across different geographies, Better Place was unable to orchestrate the ecosystem and align the different actors — including customers and the governments in its targeted markets of Denmark and Israel — and sold only about 1,300 cars before going bankrupt in 2013.7

Autonomous vehicles are another example of a potential auto industry disrupter, with a number of established automakers launching deliberate, collaborative efforts to develop an ecosystem. BMW, for one, is working with Mobileye (Intel’s vision-safety venture) and Fiat Chrysler, as well as parts suppliers like Aptiv, Continental AG, and Magna International, with the goal of commercialization by 2021.

Resolving business model uncertainty requires continuous experimentation and the ability to reconfigure one’s approach to unlock the potential of the disruptive innovation for the innovation’s users and the innovating companies. Established companies are more likely to struggle with such uncertainty because experimenting with new profit formulas runs counter to existing metrics. Executives face pressure to meet KPIs. Scrutiny by investors and analysts, meanwhile, typically rewards sustaining rather than disrupting profit models. Conversely, startups are not entrenched in prevailing business models and may be better equipped to manage business model uncertainty.

The recent struggles of electric utilities to adapt to more decentralized business models exemplify the challenges for established companies. In a decentralized model, users (such as homeowners) consume electricity that is generated at or near the point of use, often through a combination of rooftop solar photovoltaic systems, batteries, and digital management of the electricity grid. Incumbent companies that were entrenched in the old, centralized business model had lower performance outcomes when pursuing the disruptive value propositions.8

For example, NRG, a U.S.-based energy incumbent, reported large losses from its pursuit of a decentralized model, resulting in the CEO’s firing. His departure was followed by a number of articles in the trade press describing the internal conflicts between the centralized and decentralized businesses, unforeseen delays, cost overruns during the implementation of the decentralized model, and the extensive competition NRG faced from new entrants.9 Incumbent energy companies elsewhere, such as AGL in Australia and RWE in Germany, have faced similar challenges.

Managing the Uncertainty of Disruption

Pursuing a disruptive innovation means taking on risk that the effort may fail. Analyzing the uncertainties that any disruption faces, however, can help you mitigate those risks by making informed decisions about the supporting technology, the surrounding ecosystem, and the business model foundation required for success.

The following five questions can help innovators — incumbent companies and startups — manage uncertainty.

1. What are the opportunities for a disruptive value proposition? Opportunities can be related to creating new markets, such as space tourism, or penetrating existing markets, such as global tourism.

2. Where are the key sources of uncertainty — technology, ecosystem, and business model — in different markets? Uncertainty doesn’t have to be prevalent across all areas. It is typically a subset of the three sources that can create bottlenecks for market growth. Management practices such as scenario planning and discovery-driven planning can be more effective if they explicitly incorporate the different sources of uncertainty.

3. How can the different sources of uncertainty be addressed? Experimentation with respect to customers and others in the ecosystem, business models, and technology choices can be valuable in resolving uncertainty. However, if uncertainty is severe across the three sources, decision makers may need to say no to investments at the outset or stop specific disruptive innovation initiatives.

4. Can I pursue this disruption on my own, or do I need strategic partners in the ecosystem to help resolve uncertainty? Identification of ecosystem activities and actors where uncertainty resides — and coordination among them — can be a critical aspect of managing such uncertainty.

5. How can I align partners to cocreate value? Partners can have different business models and motivations around the disruptive value proposition. It is important to identify which partners may have mutually beneficial objectives and to ensure that those objectives are aligned for the long run.

This exercise widens leaders’ perspectives on the opportunities before them. By openly considering these questions, leaders improve their ability to identify the risks of any strategy to develop a disruptive innovation. Based on the answers to these questions, they can make more nuanced decisions about their plans — which innovations to pursue, how much to invest, which partners to collaborate with, and the timing for all of these choices — than they otherwise would. They can revisit their evaluations and adjust their investments and the timing of them. And they can calibrate their expectations for progress on a particular value proposition and whether it has the potential to disrupt an established market based on additional evidence and insights.

Well-established cases show what’s possible for both established companies and startups. For the iPhone, Apple managed ecosystem uncertainty (What parties will work with us on this disruption? How?) through the creation and maintenance of its App Store and its calibrated rollout of available telecommunications carriers. Apple also navigated business model uncertainty in part through its use of exclusive vendors when rolling out the iPhone. Tesla has managed technology uncertainty by investing in batteries and software in order to offer a high-performance electric car. Regarding questions about its business model, Tesla set up direct sales. And the company is working to manage ecosystem uncertainty (how to keep electric cars charged) by developing infrastructure through initiatives like its Supercharger network of charging stations.

Disruptive innovations have made us more productive, better informed, and more mobile. They improve our health. They entertain us. And there are many more disruptive innovations to come — indeed, the next one may be at your company. To prepare for the best possible outcome, it’s important to understand not only the reach of an innovative idea but also the risks that lie in its path to realization. With our eyes open to confront uncertainties around the technology, ecosystem, and business model of each potential disruption, we can better understand what to expect along the way and better devote the time and resources to strengthen our chances of success.

“Strategy, at its heart, is about choice,” write the authors of “Turning Strategy Into Results,” an article featured below, which takes a keen look at how leaders translate the complexity of strategy into guidelines that are simple and flexible enough to execute.

A winning strategy for an organization is not based on an individual choice but an expansive, countless number of decisions happening every day across all parts of a business — product, customers, technology capabilities, and more.

In this collection of a dozen of the most popular MIT Sloan Management Review articles on strategy, renowned researchers and academic voices examine the critical choices managers make in companies every day. From insights on goal setting and communicating strategic priorities effectively, to testing and scaling new business models, these articles will help leaders sharpen their strategic thinking to face new challenges.

1. With Goals, FAST Beats SMART

Donald Sull and Charles Sull

The conventional wisdom of goal setting is so deeply ingrained that managers rarely stop to ask if it works. The traditional approach to goals — the annual cycle, privately set and reviewed goals, and a strong linkage to incentives — can actually undermine the alignment, coordination, and agility that’s needed for a company to execute its strategy.

2. A Structured Approach to Strategic Decisions

Daniel Kahneman, Dan Lovallo, and Olivier Sibony

Reducing errors in judgment requires a disciplined process. The authors provide leaders with a framework that is easy to learn, involves little additional work, and (within limits) leaves room for the leaders’ intuition.

3. The Shareholders vs. Stakeholders Debate

H. Jeff Smith

An age-old question has never been more relevant than it is today: Should companies seek only to maximize shareholder value or strive to serve the often-conflicting interests of all stakeholders?

4. Turning Strategy Into Results

Donald Sull, Stefano Turconi, Charles Sull, and James Yoder

Businesses develop strategies to address complex, multilayered business environments and challenges — but to execute a strategy in a meaningful way, they must produce a set of specific priorities focused on achieving clear goals. Rather than trying to boil the strategy down to a pithy statement, it’s better to develop a small set of priorities that everyone gets behind to produce results.

5. The Truth About Corporate Transformation

Martin Reeves, Lars Fæste, Kevin Whitaker, and Fabien Hassan

Analysis reveals that conventional wisdom about big, risky change initiatives is often wrong. In this article, the authors provide a number of factors that can help large companies beat the odds.

6. The Four Models of Corporate Entrepreneurship

Robert C. Wolcott and Michael J. Lippitz

Companies have four ways of building businesses from within their organizations. Each approach provides certain benefits — and raises specific challenges.

7. Scenario Planning: A Tool for Strategic Thinking

Paul J.H. Schoemaker

Among the many tools a manager can use for strategic planning, scenario planning stands out for its ability to capture a whole range of possibilities in rich detail. By identifying basic trends and uncertainties, a manager can construct a series of scenarios that will help to compensate for the usual errors in decision-making — overconfidence and tunnel vision.

8. Beat the Odds in M&A Turnarounds

Martin Reeves, Lars Fæste, Daniel Friedman, and Hen Lotan

While M&A deals and turnarounds are individually hard to pull off, combining the two can be even more challenging. Yet an analysis of roughly 1,400 M&A-based turnarounds showed that six management actions can help acquiring companies improve their odds of success.

9. Strategic Decisions for Multisided Platforms

Andrei Hagiu

Some of the fastest-growing businesses in recent decades — companies such as Facebook, eBay, and LinkedIn — are multisided platforms that enable interactions between two or more sets of participants. But the spectacular success of many of these companies isn’t easy to duplicate. Building a multisided platform business requires savvy decisions on everything from design to governance to pricing.

10. The End of Scale

Hemant Taneja with Kevin Maney

For more than a century, economies of scale made the corporation an ideal engine of business. But now, a flurry of important new technologies, accelerated by AI, is turning economies of scale inside out. Business in the century ahead will be driven by economies of unscale, in which the traditional competitive advantages of size are turned on their head.

11. Your Company Doesn’t Need a Digital Strategy

George Westerman

With new technologies entering the market every day, it can be exciting to look to what’s next for AI, robots, and the internet of things, but the focus on technology can steer the conversation in a dangerous direction. In various industries, including banking, paint, and shipbuilding, digital leaders are finding that technology’s value comes from doing business differently because technology makes it possible.

12. Six Steps to Communicating Strategic Priorities Effectively

Donald Sull, Stefano Turconi, and Charles Sull

Leaders can signal their commitment to a strategy by clearly communicating their strategic priorities to external stakeholders. Clear, credible priorities linked to explicit metrics offer a framework for assessing progress toward the company’s goals.

Early in 2020, wireless sound-system manufacturer Sonos announced that it would no longer provide support for some of its oldest products: wireless speakers launched between 2006 and 2009. The company argued in an official blog post that the wireless speakers had been “stretched to their technical limits in terms of processing power” and “would no longer receive software updates or new features.” Moreover, systems containing both new and legacy products would no longer receive updates, making perfectly functional devices more-or-less useless, according to some critics. Hordes of angry users took to Twitter under the hashtag #SonosBoycott and argued that loyal early adopters were being punished. It did not take long for Sonos’s CEO to reach out, stating “We heard you. We did not get this right from the start,” and promising continued technical support for older devices.

This example illustrates a strategy hijack — that is, a situation in which groups of dissatisfied customers overtake the control of an organization’s strategy. Sonos is far from alone in having its strategy hijacked: Adidas, Coca-Cola, Carlsberg, H&M, and Lego, to mention a few examples, have had to adjust strategies in response to consumer backlash.

Our research explores the underlying causes of strategy hijacks, the changing nature of consumer-company dynamics, and resulting implications for leaders. Together, our findings suggest a fundamental shift in power dynamics in the realm of strategy stemming from technological and social developments that have changed how companies and customers interact. Thanks to the connectedness of social media, it’s becoming much easier for consumers to unite against companies — and thanks to the transparency of widely available data, it’s now also much easier for consumers to keep an eye on company behaviors.

Why Are Strategy Hijacks So Prevalent Now?

We argue that strategies increasingly become hijacked due to significant technological developments and fundamental changes in consumer behavior. Specifically, customers have become more entitled, engaged, and entangled. (See “Three Dimensions of Customer Behavior.”)

Let’s explore each of these dimensions of the modern customer.

Entitled. Customers become more entitled due to both technological and competitive developments. Technological developments have accelerated customer demands, both in terms of customization, real-time responsiveness, and customer centricity. Moreover, companies increasingly compete with each other to fulfill consumer needs. In many ways, the situation can be described as “the Red Queen’s race,” in which companies run faster and faster just to stay in place. As a result, what were extraordinary, nice-to-have features meant to delight customers have become taken-for-granted baseline features that are expected by customers. Failure to deliver on the features expected by customers triggers strong responses. In other words, customers have become entitled.

A symptomatic example of customer entitlement arose when Mondelez International announced that it was changing the iconic shape of its globally recognized chocolate bar, Toblerone, by leaving out every other mountain peak, thereby reducing the weight of its 170-gram bar to 150 grams. The company blamed rising ingredient prices and indicated that the new shape would allow it to maintain the same price. The announcement fueled immediate attention and outrage online, as illustrated by a Google Trends search around the day of the announcement (see below).

When we first read the strategic announcement from Mondelez, we predicted that Toblerone’s consumers would “hijack” the company’s strategy and force it to revert to the initial shape — and we were right. Companies can’t scale down performance on taken-for-granted expectations, illustrated by Mondelez’s 2018 reintroduction of the Toblerone bar — in its original shape and even bigger than before.

Engaged. Companies increasingly want to engage their customers, and technology has been a driving force in connecting consumers to companies and each other. Users have been given tools to codevelop products with companies, online communities have applied themselves to problem-solving product features, and loyalty programs and analytics have helped companies understand consumer behaviors and deepen consumer ties to products. Consequently, many customers develop deep, personal relationships with organizations and brands. While such engagement is important for satisfaction and loyalty, it can also result in dissatisfaction if the organization acts in ways that are incongruent with customers’ ideals.

For instance, the Swedish clothing brand H&M recently faced consumer backlash around potential “greenwashing” following accusations that the company burned unsold clothes despite issuing ambitious sustainability statements. H&M experienced further backlash some time later when the company ran an advertisement that many consumers regarded as racist. Whether their critics were right or wrong in their outrage, consumer engagement always entails the risk of turning sour. When you develop a relationship with consumers, you similarly provide them a stake in your business.

Entangled. Social media has increasingly entangled customers and companies in intricate, interconnected networks. Companies increasingly want to connect with customers on social media and seek positive word-of-mouth communication among consumers. Customers, too, desire this type of connection and, consequently, are immersed in virtual networks of fellow consumers, businesses, and other stakeholders — all trying to influence each other. As a result, changes desired by consumers or other stakeholders cannot be isolated but spread like ripples in the water in these entangled networks.

This was evident in the complicated case of Lego, Shell, and Greenpeace, in which each organization and its consumers was entangled in networks and connected via social media. In 2014, Greenpeace began to pressure Lego to end its partnership with Shell by launching a YouTube video showing a Lego universe slowly drowned in oil. The video quickly went viral and obtained widespread support among consumers. After three months of aggressive campaigning, the Danish toy company announced that it would not renew its contract with Shell.

What Can Strategists Do?

Strategy is about making choices and accepting trade-offs. But when customers hijack your strategy, they make choices on your behalf and, ultimately, change or even reverse your strategies. What can strategists do in such situations? We offer four pieces of advice.

Predict and preempt. Ideally, strategists must recognize that plans may be in danger of being hijacked by customers and take preemptive measures to counteract such resistance. We were able to accurately predict the troubles that Mondelez would face when it decided to change Toblerone. Had the relevant managers done the same, effective preemptive measures might have been put in place, perhaps by launching a “Toblerone light” version alongside the conventional Toblerone. By doing so, the company would have avoided taking customers by surprise and in fact would’ve offered consumers an additional choice — reducing the risk of a hijack. The simple rule is: Think it through and take the risk out.

React and revert. If a strategy has already been hijacked, the company must react and, if necessary, revert to the initial position. This response was demonstrated by the Danish brewer, Carlsberg, after launching a new signature beer bottle to replace its standard bottle. Both consumers and distribution partners (especially bar owners) vehemently protested. After three months, Carlsberg’s management team, swayed by customer pressure, lowered its prices for the new bottle. Yet, this was not enough to satisfy consumers, and in the end, Carlsberg relaunched its standard bottle in the Danish market. Companies need to be similarly flexible and keep U-turn options open.

Monitor and mobilize. Companies must continuously monitor sentiments among their customer base and, when applicable, try to mobilize customers around the new strategy. In a surprising turn, consumers have actually begun to show interest in New Coke, the infamous marketing failure popularized by the 1980s nostalgia of the hit series Stranger Things on Netflix. Coca-Cola has partnered with Netflix to capitalize on this sentiment by bringing back New Coke for a brief time. In so doing, Coca-Cola not only utilizes its ability to monitor consumer sentiments, it also mobilizes those sentiments for its own benefit.

Divide and diversify. Another key element of dealing with hijacked strategies is to unbundle the overall strategy into separate projects. The organizations considered here typically did two things at once: They introduced a new product and removed an old one, thereby creating room for a hijack. By treating the two issues as two strategic projects, organizations can simultaneously address different consumer segments and buy themselves time to execute the projects at different speeds. For instance, had Carlsberg introduced the new bottle alongside its old bottle, and only discontinued the old bottle when and if consumers embraced the new one, the company’s strategy probably would not have been hijacked.

When consumers become more entitled, engaged, and entangled, your strategy runs the risk of getting hijacked. When customers hijack a strategy, the strategy’s trajectory starts to resemble that of a boomerang returning after being thrown. While this return is an excellent quality for a toy, it is very expensive for a company’s marketing strategy. Corporate managers can decide to trade out a potential boomerang for an arrow that will hit the target. By following these recommended practices — anticipating future hijacks, navigating once your strategy is hijacked, using consumer sentiment to your advantage, and simultaneously managing different interests among consumers — your strategy’s trajectory will transform from a boomerang into an arrow that is energized by the masses to meet your consumer target.

The COVID-19 pandemic has completely disrupted how most global enterprises operate. With new priorities comes an urgent and strategically important challenge: ensuring that enough of the right people are working on the right opportunities at the right time, all while operating in an investment-constrained environment. Organizations should have visibility into their workforce capabilities and deployments to make informed decisions about how to optimally allocate their workforces.

Based on recently released research on opportunity marketplaces,i we contend that market mechanisms can be a faster and more effective way to address this challenge than traditional workforce planning and deployment methods. There is evidence of organizations using marketplaces to accelerate the redeployment of employees and workers to business-critical roles and projects in a variety of industries and circumstances. These marketplaces can also have a beneficial effect on workers: They can sustain employment, reveal untapped worker capabilities, and motivate workers in new ways.

Schneider Electric is a case in point. In 2018, the company created a platform-based open talent market, in part to retain workers: Managers listed opportunities for side projects, training, and mentoring, and workers pursued those opportunities according to their interests and availability. When the pandemic started, Schneider’s marketplace became essential to getting work done. “We’re relying tremendously on our open talent markets,” says Andrew Saidy, vice president of talent digitization. “The pace of employee registrations we’re seeing is unprecedented; more projects are being posted. With the crisis, you have budget cuts here, you have roles being frozen there. But managers still have projects that they need to deliver, so they need helping hands.” Schneider also encouraged managers to split positions affected by a hiring freeze into different projects and post them on the exchange, offering more opportunities to more workers.

Henry Ford Health System is building a talent market to shift capacity from the local hospital level to a cross-system network level. The Michigan-based health care provider is composed of six hospitals, multiple ambulatory sites, and clinics. Pre-COVID-19, office staffing occurred locally rather than centrally. If someone in a given hospital called in sick, someone else within that hospital would fill in. Now, with staffing needs exceeding the capacity of any one hospital or clinic, Henry Ford developed a centralized staffing command center. If a talent need can’t be met at the local level, the request is moved to the Flexible Staffing Command Center where the need can be addressed across the health system or in some cases externally via collaboration with outside partners. The command center is a platform that connects to the company's human resource management system, enabling managers to request resources or note staff as available. Those who participate complete a profile with background information on their skills, including the languages they speak and licenses they hold, to help managers assess their fit for specific roles. Ultimately, this has increased business leaders’ access to more resources and people, and workers have had more opportunities for work.

In this pandemic market environment, opportunity marketplaces represent a step change in companies’ ability to efficiently and effectively match labor with tasks.

Our report, “Opportunity Marketplaces: Aligning Workforce Investment and Value Creation in the Digital Enterprise,” shows that such digital platforms can improve data-driven decision-making and align talent quickly to new priorities.ii In this pandemic market environment, they represent a step change in companies’ ability to efficiently and effectively match labor with tasks. They can also overcome information constraints: The typical brew of HR information about workers, such as job descriptions, résumés, and skill inventories, offers only a partial view of worker capabilities. What’s more, these markets offer options that promote personal agency and enhance trust between an organization and its workers. For companies looking to thrive in — and beyond — the current crisis, opportunity marketplaces represent a powerful tool for advancing the interests of management and workers.

Value Creation With Opportunity Marketplaces Beyond the Current Environment

At their core, opportunity marketplaces are platforms and systems that enable talent to pursue opportunities that are valuable to both themselves and their organizations. Our ongoing research documents the slow emergence of these platforms pre-COVID-19 and their rapid proliferation during the pandemic.

Opportunity marketplaces come in different shapes and sizes. Some are entirely internal, as is the case with Schneider’s internal talent market. Other opportunity marketplaces cross organizational boundaries. Examples — Henry Ford among them — are legion across the business landscape. The Wall Street Journal identified several supermarket chains in the U.S. and Europe that recently created an exchange to bring on furloughed or laid-off workers from food-service and hospitality companies.iii In industry after industry, companies that have furloughed workers are actively referring their own employees for temporary roles at other businesses that need more staff to handle increased demand.

To be clear, opportunity marketplaces are not simply tools for managing redeployments in a crisis or as a retention mechanism. They also help companies execute growth strategies. One large global bank is using its marketplace to allocate excess workforce capacity to better support regions where the business anticipates postcrisis growth.

Opportunity marketplaces appear to offer distinct advantages that are expected to outlast the current crisis. A distinctive benefit is their ability to uncover, display, and communicate worker skill sets and capabilities that managers either are less familiar with or simply don’t know about. Former Hewlett-Packard CEO Lew Platt is said to have once remarked, “If only HP knew what HP knows, we’d be three times more productive.”iv Opportunity marketplaces offer companies the ability to learn more about the competencies and capabilities it already has. That understanding, in turn, improves management’s ability to direct talent where it can generate the most value. Many organizations are finding that source of learning to be an ongoing source of value. Given that it could be five years before employment levels return to pre-COVID-19 levels, some leaders are already applying their deeper understanding of worker interests, talents, and capabilities.v Their encouraging results show that opportunity marketplaces can boost worker loyalty, improve an organization’s brand reputation, and advance the acquisition of new talent when priorities shift.

Successful opportunity marketplaces both demand and elicit agency from workers.

These markets also offer a window into who is willing to take on new projects or, in Saidy’s words, act as “owners” of their careers and roles. This information can be a valuable source of insight into a company’s morale and entrepreneurial spirit. Workers’ willingness to take advantage of opportunity is distinct from, but likely just as important as, providing new opportunities to workers. Attending to one without the other can doom market initiatives. Successful opportunity marketplaces both demand and elicit agency from workers.

Three Keys to Developing an Opportunity Marketplace

Deriving strategic value from opportunity marketplaces often depends on having an effective platform that is capable of listing and communicating opportunities. Managers can use the platform to make opportunities available and accept workers who willingly choose to pursue these opportunities.

1. Commit to digital platforms that support opportunity marketplaces. Despite the challenges and constraints most organizations currently face, leaders have several options for developing the technology platforms necessary to establish an opportunity marketplace now. Many companies can build off their existing human capital management systems to get started. Henry Ford was able to set up its command center within two weeks using this approach. Some providers offer cloud-based solutions that enable organizations to develop a platform relatively quickly and cost-effectively.

2. Clearly communicate and reinforce expected behavior change. Developing and implementing the platform technology is arguably the easiest part of the development process. A more difficult prerequisite for opportunity marketplaces may be behavioral: changing the minds and practices of managers and employees. Opportunities should be listed and pursued. Reluctant managers won’t add opportunities. Hesitant workers won’t participate in the exchanges. Understanding and managing the dynamic between worker agency and management’s provision of opportunity is crucial. The figure below illustrates how tensions between these factors can undermine the effectiveness of opportunity marketplaces. For instance, creating an environment where managers are comfortable requesting help from different corners of the organization (and beyond) is a natural part of the marketplace-building exercise but can be a cultural challenge. Senior leadership should help managers become comfortable offering opportunities and ensure that workers are comfortable taking the initiative to sign up. At Schneider, Saidy is emphatic that the company’s talent market has empowered leaders and managers to better embrace and enact Schneider’s core values.

3. Recognize that opportunity marketplaces are a strategically valuable source of data about your workforce. Opportunity marketplace design rests on the design of data systems that continually help identify which opportunities are (and should be) listed, who is listing the opportunities, where the opportunities are happening, and who is taking advantage of them. These markets signal the most sought-out tasks and projects, the managers who are sought out most, and the employees who are engaged on the platform. Ensuring that this data is incorporated into performance management systems in a transparent way — and, more broadly, integrated into executives’ understanding of their workforces — can be key. Proper governance of this data, such as ensuring its display on executive dashboards, conditions the overall value of opportunity marketplaces to the enterprise.

Opportunity marketplaces tap into all of the organization’s talent, protect employment, build loyalty, and enable the organization to effectively respond to shifting priorities in the short term and thrive in the long run.

The Time to Begin Is Now

Opportunity marketplaces can be valuable during growth times, but they can be just as relevant — perhaps even more so — in times of market uncertainty. Some leaders may believe that layoffs are the only way to respond to significant short-term market challenges. However, opportunity marketplaces offer an alternative. They can tap into all of the organization’s talent, protect employment, build loyalty, and enable the organization to effectively respond to shifting priorities in the short term and thrive in the long run. For leaders thinking beyond survival, opportunity marketplaces can be an invaluable tool for better understanding their workforces, building new capabilities, and learning how to more effectively execute their strategies.

A United Nations agency with a sweeping mission and sprawling global presence may not appear to be the most likely place where companies can learn new techniques for accelerating innovation — but appearances can be deceiving. The United Nations Development Programme (UNDP), an organization of 17,000 employees spanning 170 countries, focuses on solving the world’s most complex problems — ending poverty, ensuring healthy lives and well-being, providing affordable and clean energy, reducing inequalities, and more — through local, regional, and global initiatives and an annual budget of $5 billion.1 In our exploratory research,2 we have found that this organization is making exceptionally progressive innovation moves both at its headquarters and in the field by building and sustaining one of the world’s largest networks of accelerator labs — 60 of them, serving 78 countries.3

That’s why the agency provides such an instructive example for businesses. Usually, managers think about building an ecosystem for innovation, and most research-based advice focuses on challenges and opportunities that arise in that setting.4 But UNDP has gone much further, creating a large network of ecosystems that revolve around its labs, and building connections with local partners while also helping the labs coordinate with one another. In short, it’s solving the acceleration problem with a portfolio mindset, employing the power of the collective, and it’s doing so at an unprecedented scale.

Business leaders can take a similar approach to address innovation challenges across teams, units, and regions — and to tackle projects that would benefit from both local and global expertise. For inspiration, we’ll consider a few examples of multinational companies that have recently deployed their own networks of ecosystems. But first, let’s look at how the UNDP model evolved into what it is today and what it’s been able to accomplish so far. People tend to assume that all large government-related organizations are highly centralized, under-resourced, and sluggish, especially when it comes to trying anything new. However, over the past few years, under fresh leadership, UNDP has been learning from early mistakes and creating a new organizational structure to more effectively and efficiently ramp up its efforts in the area of sustainable development.

It’s a story of major change, to be sure. But similar outcomes are within reach for companies with bureaucratic obstacles to overcome as they try to build their own networks of ecosystems to accelerate innovation.

Evolution of a Portfolio Model

To derive management insight from the UNDP model, it’s useful to consider how it came to be and what initial innovation efforts looked like, some lessons learned from those, and the organization’s shift to a portfolio approach.

Early, fragmented local efforts. Despite the agency’s early tendencies toward risk aversion and bureaucracy, pockets of innovation existed in UNDP before it launched the Accelerator Labs initiative. Some were officially dubbed innovation labs, while others were small, independent teams acting on their own.

Generally, members of these groups weren’t hired as innovation people per se. Rather, they tackled innovation projects on the side. They often accomplished good things locally, but their efforts lacked broader impact because they were isolated, and so they weren’t successful in the eyes of UNDP leaders. For example:

• In the country of Georgia, the government was using voice phone calls to alert citizens during disasters, which meant deaf people were not benefiting. So an innovation lab jointly operated by UNDP and the government brought the government’s disaster management team and people with disabilities together to cocreate solutions. Two of their ideas were prototyped and deployed: a text-based service and video calling to enable communication via sign language. Although the project addressed an important problem in practical ways, it went no farther than Georgia.
• In Egypt, a lab organized a five-day social innovation camp to rally young people to improve the economic situation of fishermen in sustainable ways. Young women and men worked with local innovation groups and the Ministry of Local Development to develop solutions such as technologies to improve fish stocking, new designs for recycling fish waste, and efficient tools for shrimp peeling. But because those solutions stayed local, the lab’s work wasn’t perceived by UNDP leaders to have the kind of impact that would be appreciated by ministers of employment or finance.
• In Croatia, employees in the local UNDP office sought money for solar panels to generate energy for children’s schools. The team worked with local leaders to adopt a new crowdfunding model. It worked, but the effort to promote crowdfunding for projects in other regions stalled because it fell outside mainstream UNDP funding processes.
• For tuberculosis patients in Moldova, a team launched a two-year randomized trial to improve drug administration adherence. It worked with a telecommunications provider so that doctors could use Skype to see patients taking medications. The project achieved its goals, and the team even received external funding. But UNDP didn’t broadly adopt the methodologies because the team was neither aligned with head office priorities nor visible to management.

In these regions, entrepreneurial UNDP employees embarked on reasonable projects by identifying clear problems, developing innovative solutions (often with local partners), and implementing them. Yet they didn’t create enduring change elsewhere, nor did they address the large-scale multidimensional problems that are core to UNDP’s mission.

Lessons from those initial projects. As UNDP leaders designed their new Accelerator Labs network, they incorporated the following four lessons gleaned from those early efforts:

• Align project choice with broader goals and activities. In some cases, the early teams embarked on experiments unrelated to anything else underway in their local offices or across the organization. They invested in innovation projects, developed new skills, collaborated with government agencies, and even found new funding. But since they didn’t build on existing organizational priorities, they didn’t change the way UNDP worked. Their projects were seen as one-off or ad hoc.
• Stay visible to management. Initially, the innovation labs and teams believed it would be beneficial to stay under the radar, both in their local offices and in the larger UNDP organization, so they could test new approaches without encountering political roadblocks. They followed long-standing advice that suggested innovators should separate themselves from the mainstream as they experimented.5 However, this strategy backfired because they weren’t close to power centers in their organizations. They would have done much better to remain visible to local management or headquarters (ideally both).
• Connect with internal experts. The innovation labs and teams felt that their mandate was to bring new ideas and knowledge into the organization. Thus, they consulted with external specialists but often neglected experts inside the organization. Even though U.N. offices had relevant expertise in disaster risk, governance, development, and other areas, innovators ignored it, fearing that internal feedback would stall them. However, not surprisingly, weak integration between new and existing U.N. operations hindered adoption of the new efforts. Experts in U.N. offices resisted new solutions because they hadn’t been given an opportunity to vet them, contribute ideas, or participate in their implementation.
• Coordinate across geographies. The original innovation labs and teams were geographically isolated. They weren’t part of a larger network that could support sharing, cocreation, and learning. This resulted in weak or nonexistent integration across cities, countries, and regions. Essentially, even though UNDP was a global organization, leaders realized that they weren’t reaping the benefits of scale and scope.

The lessons applied: Shifting to a network of ecosystems. In 2018 and into 2019, new leaders at UNDP recognized that they needed a better approach to innovation and organizational learning to accelerate their impact on sustainable development. So they decided to build a network of accelerators across the globe. The Accelerator Labs interact with businesses, local governments, citizens, schools and universities, other NGOs, and their local UNDP offices to accomplish their mission of speeding up learning and execution while also searching for, creating, and sharing new solutions. Further, the labs tap into their collective intelligence to support their own learning.

Drawing on their understanding of how early isolated efforts fell short (the four lessons described above), the Accelerator Labs now (1) investigate what is already in a local office portfolio, (2) work with management to determine where they can contribute, (3) leverage UNDP internal experts residing outside the Accelerator Labs, and (4) collaborate with partner organizations within and across geographies — all while exchanging insights with the other Accelerator Labs around the world.

At the Zimbabwe lab, for instance, we’re now seeing projects that sync up with other UNDP activities and goals. The UNDP office in Zimbabwe is promoting resilience in rural areas by working with the World Food Programme to improve conditions for people who barely have the resources necessary to live. The country’s Accelerator Lab has chosen to expand the focus of this work to promote resilience and reduce risk also in urban areas that present equally severe but distinct challenges. This effort aligns with the priorities of the UNDP director and the Zimbabwean government, while enabling the lab to create and use a new ecosystem to solve a complementary problem. For example, in November 2019, the UNDP worked with the Urban Resilience Programme, UNICEF, and the Ministry of Local Government Public Works and National Housing to organize a hackathon to develop solutions to address economic and environmental challenges experienced by urban populations in Zimbabwe. What’s more, to take advantage of (and increase the effectiveness of) the Accelerator Labs network, the Zimbabwe lab recently coordinated a meeting, called Harare Innovation Days, with representatives of 35 other UNDP offices on the African continent to discuss issues and share best practices.

The lab in Serbia provides a good example of staying visible to management. Because depopulation is an enormous problem in the country — the population has decreased 5% in the past decade and is expected to drop another 19% by 20506 — the Serbian government has established an emergency task force to address it, and the new UNDP regional director has committed to work with the group.7 This is a multifaceted problem and a top priority for the nation — the type of problem a UNDP innovation lab previously would have avoided because of the complexity and visibility involved. But the new Accelerator Lab is actively engaging with it, using an ecosystem approach and working with local stakeholders. To start, it is analyzing a data set recently published by the World Bank Group from LinkedIn’s professional network. The goal is to study labor dynamics across countries, industries, and skills, get a clearer perspective on the problem, and share insights with local government ministries.8 Grappling with a similar problem and leveraging the Accelerator Labs network, the UNDP team in Bosnia has begun working with the Serbian team to learn from its efforts.

In Vietnam, the Accelerator Lab team is embracing the concept of becoming more integrated with the existing local UNDP organization, working with internal experts, and aligning with office priorities — for instance, its interest in new projects related to medical plastic waste.9 The Accelerator Lab is also cooperating with the local UNDP office by mapping the external ecosystem of actors involved with these efforts, including groups and entities UNDP would not traditionally engage with, such as informal waste pickers, local startups, a local engineering school, and people with related interests, such as bicyclists who care about having a cleaner environment. The lab team will also be reaching out to those who bring new financial tools and think differently about how to tackle such a complex, multifaceted issue like waste management.

Exemplifying the effort to become more geographically integrated and communicate across the Accelerator Lab network, the Lebanese Accelerator Lab is sharing best practices with the Accelerator Lab in Colombia. Lebanon changed the way it does employee recruiting and is using more modern group and case interviewing techniques; Colombia heard about the Lebanese hiring process and sought to adopt similar techniques.10 While Colombia didn’t have the time or resources to apply the same process, it was able to use videoconferencing technology to modify the system to work within its local constraints.

Across the UNDP, the Accelerator Labs are continuing to build ecosystems to solve local problems while also actively engaging with one another across their worldwide network. This effort differs from what we sometimes see with distributed R&D units in three primary ways. First, the labs are sparsely populated, with only three staff members each (see “Fewer Experts in More Locations”), so they are forced to engage externally. Second, in part because of their scant resources, the labs work with and learn from one another to expand their influence. And third, the Accelerator Labs often seek to accelerate innovation efforts already underway rather than find entirely novel problems and solutions. While this is a subtle shift from traditional innovation mandates, it is profound in that it aligns the labs’ efforts with prevailing organizational goals.

Takeaways From Company Experiences

In our research, we found a number of companies pursuing a network of ecosystems model. The appeal is clear: As the costs of internal innovation continue to rise, businesses are increasingly looking for external sources of innovation.11 Some recognize that a network of ecosystems can help harness distributed innovation, but those that have taken steps toward adoption are for the most part still in their early days. They can learn a great deal not just from UNDP’s efforts but also from companies that are trying similar techniques.

Some businesses have established full offices in innovation centers like Silicon Valley or near research university hubs like the Research Triangle in North Carolina. That approach can certainly yield benefits such as local knowledge spillover and ease of hiring qualified staff. But the leaner UNDP model is much more efficient. A company that convenes, leads, and joins ecosystems in multiple regions becomes highly embedded in and engaged with local problem-solving while limiting the need for larger-scale investments. When satellite innovation offices become ecosystem orchestrators in their regions, they act as connectors, instigating and accelerating projects. Meanwhile, they keep headquarters apprised of what is happening locally so that the main office can facilitate valuable connections with other satellites while also enabling the satellites to communicate with, learn from, and collaborate with one another directly, making the most of the network.

Metaphorically, like the UNDP Accelerator Labs, these satellite offices are the suns of their own ecosystems, but they’re also part of a much larger universe, not simply extensions of the company’s R&D organization. That universe enables them to solve complex, externally driven problems, use local lessons to apply or tailor innovations elsewhere, and diffuse novel solutions.

Adopt a network approach to solve complex, externally driven problems. Because many problems that countries face have sources outside their own regions, UNDP has found that it makes sense to solve them with a network approach, often drawing upon lessons from outside regional borders. Portfolios of efforts in various countries connected by similar themes and external drivers make the overall organization smarter.

An example of a company applying this same logic to solve complex, externally driven problems is Syngenta, a Swiss agribusiness company. Syngenta has developed a network of digital innovation labs in the U.S., the U.K., India, and Singapore to tap into local efforts to digitally transform agriculture. Similar to the UNDP Accelerator Labs, the newest Syngenta lab in Singapore is sparsely staffed; it employs only six people. This limited head count encourages the lab to partner with local innovators, fostering a culture of experimentation while still allowing the company to scale its innovations.12 One of the digital innovation labs developed a mobile app that lets farmers take a picture of an unknown insect or disease affecting their crops, then identifies it and provides information on potential solutions, including Syngenta products. This app would not have been developed if Syngenta did not have employees in local areas interacting with customers, and it has since been scaled across the organization to deal with crop infestations across the globe.

Think expansively, and use local lessons to apply or tailor innovations elsewhere. Perhaps one of the most difficult aspects of executing a network-of-ecosystems approach is learning from local solutions, generalizing them, and then (where appropriate) relocalizing them for other geographies. This process of innovating from the edges can be complicated because even if two locations face the same problem, local geography, culture, regulations, and other norms may limit the ability to implement the same solution in both places. Therefore, to generalize and relocalize lessons learned, the satellites must be in close touch with both the local stakeholders (to understand their demands and needs) and the parent organization (to understand the limitations of existing solutions and technologies).

A good business example is the global network of innovation centers developed by pharmaceutical and agriculture company Cargill. Although Cargill’s centers are larger than the UNDP Accelerator Labs (Cargill’s have a very broad mandate, and they each house customer support centers), the centers are still closely linked with one another, which enables them to share regional trends and requirements they’ve identified locally. That shared knowledge allows Cargill to develop versions of innovative solutions that will work in multiple regions or even one version that will work across regions.13 For example, when Cargill developed a new low-calorie sweetener based on the stevia leaf, the company faced a wide variety of regulations in different countries. Instead of developing completely different sweeteners for each market, it tapped into its local innovation centers to understand the limitations imposed by each country’s regulations and then set out to conduct research and product testing to satisfy all of the regulations with a single product. In this way, Cargill avoided the costs of inventing different products for each market.14

Diffuse innovations throughout the network and beyond. Even when valuable innovations occur, they often don’t spread until long after they are created. It’s a long-standing problem.15 Whether the innovations are products or processes — and whether they originate inside or outside the company — a network of ecosystems can be used to accelerate diffusion from one location to another. For example, AT&T’s Foundry connects the company with more than 500 startups around the world via local offices to identify innovations that could benefit AT&T’s customers, augment AT&T’s own innovations, and help bring new technologies to the market faster.16 By streamlining the engagement process and onboarding partner startups into the ecosystem, AT&T enables entrepreneurs across the globe to have quick access to the company’s resources and expertise to codevelop technology and prepare it for delivery. For example, AT&T Foundry has a team in Israel that is constantly on the search for local innovations that it can help develop and then diffuse to its partners worldwide. This is how it came across Vorpal, a 12-person company developing a method to detect, locate, and track drones to help protect airports and other critical assets. Vorpal teamed with AT&T, allowing it to access AT&T’s edge computing environment so the company could grow more rapidly, and then AT&T helped diffuse the technology to airports across the globe.17

Although business leaders may not think their company has much in common with the U.N., many of UNDP’s former limitations (a large, slow-moving, global organization with a great deal of formal authority in its blood) will sound familiar to managers in companies where the processes for identifying, accelerating, and diffusing innovations are sluggish. We believe such organizations can take a page out of the UNDP playbook and build a network of ecosystems that are individually effective yet collectively even more powerful to address large-scale challenges using insights gained from localized innovation and expertise.

Despite the many benefits of using a network of ecosystems to harness dispersed innovation, there are numerous challenges. In particular, it can be difficult for organizations to hire appropriately for ecosystem development and management, shift organizational leadership and culture to a much more open approach to collaboration, and strike the right balance between top-down direction versus bottom-up adaptation. However, if local ecosystem teams, working in support of larger organizational goals, are able to align project choices, stay visible to management, connect with internal experts, and coordinate across geographies, they can harness the power of this model to solve complex problems, apply or tailor innovations, and diffuse solutions both across their organizations and more broadly.

Editor’s Note: This article appears in the Summer 2020 print edition under the headline “Accelerating Innovation.”

Editor's note: A version of this summary was provided by getAbstract.

Ever since Clayton Christensen introduced his theory of disruptive innovation in the 1990s, many organizations have transformed to become capable of dodging disruption — but many others have failed. Scott D. Anthony, a senior partner at growth strategy consultancy Innosight, and Michael Putz, a strategy and business development executive, pinpoint why leaders have lagged in preparing their organizations to forestall disruption and offer practical keys to moving forward.

Leaders miss opportunities to manage disruptive change because of four crucial misconceptions:

1. Leaders allow positive data to lull them into a sense of security. Remember that data reflects past performance and doesn’t show the effects of disruption that’s already happening.
2. They blame their own inaction on shareholders’ desire for short-term results. In reality, you can only maximize short-term returns when you think and act for the long term. Bring shareholders along by sharing your vision, engage them with storytelling, and present a road map with milestones and proof points.
3. Managers tell themselves their people don’t have the necessary skills. Don’t underestimate your workforce.
4. Leaders believe innovation is too risky. Failing to invest in innovation is the riskier strategy. If your innovation fails, you’re losing the money you invested; but missing out on opportunities can place the entire organization in jeopardy. Leaders need to be able to switch back and forth between opposing mindsets: one that supports sustaining innovation and one that enables disruptive innovation.

Many successful companies excel at the development of sustaining innovations, which enables them to serve current customers better. However, disruptive innovation requires a different mindset. Toggling between the two mindsets is difficult due to leaders’ unconscious biases and companies’ implicit values.

Christensen recommended that leaders move disruptive initiatives into separate entities where people can operate based on entrepreneurial values and practices. Nonetheless, senior leaders will have to be able to embrace and internalize both mindsets. To do that, leaders need more than intelligence and intention; they need self-awareness and must be prepared to face the challenges of stepping outside a familiar context.

Many tools and programs exist to help leaders develop the ability to take on new mindsets and shift from one to the other. Join or create a team that is dedicated to self-transformation to hold yourself accountable. Mindfulness can help leaders develop self-awareness, be more present, and foster a malleable mind. Bob Kegan’s immunity-to-change framework can identify the habits and beliefs that hamper your efforts to change and reach your goals. The capabilities that leaders develop for managing disruptive change will serve them well during crises.

During the COVID-19 pandemic, one more managerial misconception has come into view: Many managers have been telling themselves that they must focus on immediate concerns in times of crisis and thus can’t take action on innovation and disruption. But leaders must always lead for the present and for the future simultaneously. Those who have developed self-transformational capacities will be well positioned to seize opportunities during times of discontinuity.

Research shows that during the 2008 global financial crisis, incumbents such as Adobe succeeded in transforming. Many new companies emerged from that crisis, including approximately 100 unicorns — companies with valuations of more than $1 billion. Often, these companies based their growth on aspects of the downturn. Stripe and Square, for example, are two companies that built on people’s loss of trust in traditional financial services providers. Downturns and unsettled times also allow disrupters at the edge of the mainstream to push ahead.

Takeaways from the session:

• Companies often overlook the imperative of responding to disruptive change.
• Leaders need to be able to switch back and forth between opposing mindsets: one that supports sustaining innovation and one that enables disruptive innovation.
• The capabilities that leaders develop for managing disruptive change will serve them well during crises.

Editor's note: A version of this summary was provided by getAbstract.

The internet sparked rapid standardization within value chains, enabling innovative interlopers to break them faster than ever before. Yet, companies that occupy only a small space in an ecosystem risk losing sight of the big picture. Often, these disrupters focus solely on consumer demand without regard for any long-term negative consequences on society. SAP chief innovation officer Max Wessel explains why it’s in your business’s best interest to develop technology that addresses potential ethical issues from the very start.

The creators of autonomous automobiles carefully considered the moral issues pertaining to the development of technology that enables multiton vehicles to operate in the same space as pedestrians and human-driven transportation, Wessel notes. However, not all technology innovators tread as carefully. Often, disrupters limit their visions to fulfilling consumer demands with cheaper, less complicated, and more accessible products without considering the long-term repercussions of their business models.

The late Clayton Christensen’s Theory of Interdependence and Modularity holds that when companies develop new technologies, they attempt to manage every aspect of the system’s design to optimize performance. For example, Apple initially controlled every part of the iPhone’s complex system. As the components became standardized, other companies entered the fray to specialize in specific pieces of the system. The internet and other technologies increase modularity in value chains across industries, which enables other businesses to insert themselves into the value chain.

Morally responsible startups develop technology and create ethical benchmarks as if they already dominate the industry. As new developers create products in response to consumer demand in a narrow slice of a system, individuals enjoy the abundance of choice without worrying about the overall negative effect on society. Moreover, the rate of innovation outstrips governments’ ability to regulate preventively. That’s why the onus of establishing these ethical priorities rests on the innovators.

As an organization, “put yourself in the role of standard-bearer, instead of just imagining what you can do to break apart the value chain,” Wessel argues. Assuming ethical responsibility for an innovation may decelerate a company’s development in the short run but will be a competitive advantage in the long run. Apple’s attention to privacy protection in its technology may have slowed its progress compared with competitors’, but Apple has gained public trust.

Other companies, such as Uber, were late to address certain moral issues but worked to adapt, which arguably helped fend off user backlash.

Create an objective advisory board to review the ethical considerations of your company’s activities. Genetic testing firm 23andMe handles possible regulatory and user concerns proactively. Executives created an independent board to review the ethics of the company’s activities — for example, around its customer data. Such prudence has given 23andMe an edge when dealing with regulatory bodies and made its good intentions more credible for consumers. Taking its responsibility seriously has helped the company create a more solid foundation for future success.

Advisory boards made up of people with different perspectives, backgrounds, and expertise provide guidance on relevant issues and counter the cognitive bias that exists in every organization. In the media industry, for example, established companies such as The New York Times and The Washington Post understand the role they play in society. Relative newcomers building the next generation of communication technology must be aware of the implications of their business models at scale and understand the existing players’ precautionary measures.

Management’s role is crucial. The CEO should provide clear guidance on ethics and infuse those principles into the culture. Don’t take shortcuts, even in times of crisis. Google and Apple are stepping up to trace and track infected individuals in response to the COVID-19 crisis, yet they can’t disregard privacy considerations, even during a global pandemic.

Takeaways from the session:

• Value chain disrupters often fail to consider the negative consequences that their innovations might have on society.
• Morally responsible startups develop technology and create ethical benchmarks as if they already dominate the industry.
• Create an objective advisory board to review the ethical considerations of your company’s activities.

There is an art to leading through dark and uncertain times. There’s much we can't control, but thoughtful leaders can use hope and compassion to encourage their team, promote resilience, assuage fear, and help team members see into the future.

Please join leadership preparedness expert and author of the MIT SMR article “Leading Through COVID-19,” Eric J. McNulty, as he demonstrates how leaders can rise to a crisis with humanity, adaptation, and trust on a daily basis.

In this webinar, you’ll learn:

• The three interdependent areas of crisis-management activity that help foster sustained high — even heroic — performance by your team.
• How to think about all your stakeholders during uncertain times.
• Finding a way to demonstrate your loyalty, compassion, and commitment to workers and customers.
• How you can use aspiration to bring out the best in your team.

Experienced chairpersons know that their success depends on how they walk the tightrope of being too involved or too remote in the company’s strategy execution. Yet when a crisis such as COVID-19 hits and the CEO transforms into Chief Crisis Officer, the chairperson may become increasingly unsure how to strike this balance.

Crisis breeds uncertainty and creates emotionally draining conditions for organizations that require fast decision-making with limited information on the part of leaders. The board’s role to monitor the crisis response of senior executives is crucial and in the interests of all stakeholders, but it also risks creating response delays and bottlenecks. Moreover, the chairperson’s objective to preserve future strategic options for sustainable growth might be difficult to implement when the organization’s short-term survival is on the line. These frictions can increase if the chairperson and CEO have conflicting views on crisis response measures, which in turn can divert the attention of both parties to preserving their image and reputation in the face of the media and key stakeholders — a typical “damned if you do, damned if you don’t” situation.

In light of these dynamics, the interactions between the chairperson and the CEO to establish decision rules, guidelines, expectations, agendas, and communication strategies are an essential and often underestimated success factor for leading organizations through a crisis. We took a closer look at this relationship to explore how experienced chairpersons interpret their role during a crisis, and why success and recovery for companies depend on complementary roles, strategic alignment, and chemistry between the chair and CEO.

The Chairperson and the CEO in the COVID-19 Crisis

Traditionally, the board of directors’ job description is “control” and “advice.” As a control function, each board member ensures that senior executives act in the stakeholders’ interests. The advice function contributes to corporate decision-making via strategic guidance and counseling to executive teams. For both functions, the chair builds the bridge between the board and the senior executive team.

There is no question that this relationship between the chair and the CEO is critical for success, particularly during the current COVID-19 crisis. Monika Ribar, chairwoman at Swiss Federal Railways (SBB), focuses regular interactions with her CEO on the main crisis-related activities and actions implemented. By doing as much as she can to be approachable at any time for her CEO, Ribar says she keeps all means of communication open to help and learn as much as possible about the senior executive team’s approach to fight the crisis. Aware of her increased strategic responsibilities for the company amid a global pandemic, these regular exchanges allow her to be involved and informed early on. Effective chairs understand the role they must play in order to lead and use the board of directors as a highly effective team at the service of the company and its stakeholders.

The chairpersons at other organizations, such as Boston Children’s Hospital (BCH), A.P. Møller – Mærsk A/S, Nestlé, and Siemens AG, are similarly ensuring closer proximity and support for their CEOs. For example, Douglas Berthiaume (chairperson) and Sandra L. Fenwick (CEO) at BCH are strongly aligned about preserving the hospital’s core identity, “Until Every Child Is Well,” as well as the hospital’s mission and values for BCH’s clinical care work and its community engagement. This fundamental alignment is accentuated during crises. For example, during this crisis, Fenwick and Berthiaume worked together in communicating across multiple boundaries — to their boards, donors, and staff. Fenwick says, “Keeping people informed of changing situations and policies, answering an extraordinary range of personal and professional questions, and keeping people focused, healthy, engaged, resilient, and optimistic is key.”

Jim Hagemann Snabe, chairman at Mærsk and Siemens, similarly emphasizes that he collaborates closely with his CEOs to ensure the consistency of the company’s overall strategic direction. This collaboration provides a “catalyst for reinforcing the firm’s purpose and strategic intent,” says Snabe. And as chairman he guides the company “to stay committed toward its strategic direction despite a need for short-term focus and actions.” While all chairs maintain their traditional roles of control and advice during times of crisis, we found that experienced chairpersons double down on aligning with leadership and safeguarding their organization’s identity and mission.

Safeguarding the identity and mission. With any crisis response, companies face the major risk of reacting with shortsighted, routine-based actions rather than creating an overall strategic recovery plan. When crises unfold, CEOs are pressured to take immediate action and communicate a response quickly — even when the full scope and impact of the crisis is not known. Divestments, product eliminations, layoffs, and cost cutting help to ease the pressure for immediate performance improvements. Yet, they risk carving up the organization’s heart and soul when these efforts fail to recognize critical skills, capabilities, experience, and culture so crucial to the organization’s long-term recovery.

This critical point in the response is where the relationship between chairperson and CEO plays a key role. For example, at Boston Children’s Hospital, Fenwick and her board chair’s emphasis on “Until Every Child Is Well” accentuates the organization’s purpose, identity, and culture during the crisis. Such strong commitment to the organization’s identity functions as an overarching crisis vision that guides senior executives when formulating and implementing crisis response strategies. It helps to avoid confusion, aligns the guiding coalition toward one aspirational goal, motivates employees, and ensures various stakeholders’ support during the crisis. This is even more important in a crisis, says Snabe, “as uncertainty during crisis may confuse and require challenging prioritization in harmony with the firm’s purpose and strategic intent.” By aligning crisis communications with the organization’s purpose, the chair and CEO can help channel the organization’s energy and passion toward the most fundamental goal: to preserve the organization’s raison d’être.

In order to maintain this focus on purpose, the leadership team must be able to persevere in their roles despite stress and uncertainty. Resilience during a crisis not only helps leaders to keep a clear head but also allows the company to thrive. However, this is easier said than done. Dealing with negative emotions and anxiety, and thus creating a safe space, has surfaced as a critical component that requires the chair’s active attention during a crisis.

Resolving anxiety. Often, leadership teams are unprepared for the fallout of disasters and crises such as COVID-19, which can bring on stress, discomfort, and other negative emotions. The unique circumstances that each crisis presents also make it difficult for senior executives to apply similar action steps or past routines to cope with the current situation. These psychologically challenging conditions are counterproductive when the team could be instilling confidence in employees. Instead, this instability creates doubt and mistrust when responding to often very emotional stakeholder demands.

In all of the leading companies we’ve worked with, chairpersons focused on actively addressing the emotional and psychological impact on their CEOs. At Nestlé, Paul Bulcke emphasizes that emotions are already high during a crisis, and the chairman should not make the mistake of increasing stress and discomfort. By being approachable, expressing sympathy, and applying a team-oriented approach, the chairs display involvement, understanding, care, and empathy — toward their CEO in particular. They provide psychological support and avoid impaired decision-making driven by negative emotions, uncertainty, and fear.

Actively fostering positive energy functions as a catalyst that can help CEOs to remain rational instead of emotional as well. How a chairperson perceives and reacts to the CEO’s negative emotions is key to steering decision-making toward rational facts rather than emotional disagreements.

Creating a safe space. Because of the mutual dependence on a positive crisis outcome, all chairpersons value a trusting relationship with their senior executives and board members. This trust enables the chairperson to function as a sounding board for the CEO during the crisis. The creation of a safe space characterized by openness and honesty not only helps the chair to maintain a close relationship with the CEO but also allows for timely exchanges, feedback, and alignment on strategic actions before presenting them to the full board.

Safe spaces increase the consensus and decision speed during a crisis. However, they should not be forced upon CEOs, who might interpret them as the chair wanting to micromanage the overall crisis response. Instead, CEOs should be encouraged to make independent decisions and act at their discretion. While trust creates a foundation for CEOs to actively seek feedback and advice, it goes both ways. Violating trust can create a vicious cycle of blame and mistrust, causing serious damage to the organization’s chance for recovery post-crisis. This is detrimental to both the CEO and the chair. Consequently, a trusting relationship with the CEO should be built on mutual support and interest. As SBB’s Ribar says, this “we are both in the same boat” mentality brings the chairperson closer to the CEO. In uncertain times, companies need a united leadership front, and safe spaces allow chairs and CEOs to align their individual interests to fight the crisis together.

The Chair Matters

COVID-19 is an unprecedented crisis that has thrown the global economy into turmoil. Now more than ever is a time for companies to ensure alignment and mutual support from the board, the chair, and the CEO. The board and the chair need to stay disciplined, stick to their roles, stay detached from operations, and concentrate on being a sparring partner for the CEO when needed. Experienced chairs don’t interfere or micromanage. Instead, they help CEOs navigate challenges by providing consistent reminders of the organization’s identity and mission.

Moreover, chairpersons use a mix of proximity, positive reinforcement, and trust to ensure timely information flows and to build understanding for the CEO’s challenges and responsibilities. This combination of encouraging mindfulness of business purpose and using empathy enables chairs to help CEOs harness creativity and passion and psychologically anchor themselves when selecting, evaluating, and implementing short-term crisis responses.

Finally, it’s important that chairpersons remain committed to the organization above all — continuing their mission to challenge decisions, defending the organization’s long-term interests, and being prepared to take the lead when needed. After all, facing a crisis does not mean a board chair is invisible or unconditionally supportive. Just as the CEO needs to seize the day, so too does the chair, who plays an especially important role in the organization’s success and long-term survival. Or, as Nestlé chairperson Bulcke says, during a crisis, the chair feels like a “motorcycle driver that needs to look ahead of the curve, because if you keep looking at only what is just in front of you, your wheels don’t come out of the curve well, and you lose your balance.”

This chat took place on March 24, 2020. Download the transcript.

MIT SMR kicked off 2020 with a series of biweekly Twitter chats designed to give our readers a forum to discuss top-of-mind management and technology issues. We hope you’ve found this program to be insightful and helpful. Whether you wrestle with specific management and technology challenges at work, coach other organizations, or conduct research, our goal with #MITSMRChat has been to create a space where you can join in conversations with like-minded peers to exchange ideas.

We hope you’ll join us Tuesday, March 24, for our final scheduled conversation — at least for a while — where we’ll talk about the intersection of technology and business.

To participate, head over to MIT Sloan Management Review’s Twitter feed (@mitsmr) at the chat start time, or search Twitter for the hashtag #MITSMRChat to follow along.

Add this event to your Outlook or iCal calendar

Questions we’ll discuss include the following:

1. What are the biggest challenges you have at work?
2. Could technology help you with any of these challenges?
3. Does technology compound any of the challenges you have at work?
4. What management or technology problems do you struggle to find good information about?
5. What questions have we not discussed but should?

In advance of the chat, consider reading these posts to get a sense of recent #MITSMRChat events:

• Artificial Intelligence
• Communicating Digitally and Visually
• Goal Setting
• Strategy Goes Digital
• Technology’s Implications for the Workforce

This chat took place on March 10, 2020. Download the transcript.

Organizations generally recognize the broad value artificial intelligence can offer as they think about automating routine tasks and repetitive processes, personalizing customer offers, and more. During this upcoming chat, the editors at MIT SMR would like to talk with you about your own observations of and experiences with AI.

We hope you’ll join us Tuesday, March 10, for this conversation.

To participate, head over to MIT Sloan Management Review’s Twitter feed (@mitsmr) at the chat start time, or search Twitter for the hashtag #MITSMRChat to follow along.

Add this event to your Outlook or iCal calendar.

Questions we’ll discuss include the following:

1. Why do companies consider adopting or implementing AI?
2. Do you think most companies have a strategy for what they are going to do with AI? Why or why not?
3. What do you think are the biggest barriers for companies trying to adopt AI?
4. Who leads AI initiatives in your (or other) organization(s)?
5. What are your biggest personal hesitations about the application of AI in business?

In advance of this chat, consider reviewing the following content from MIT SMR:

Winning With AI

The 2019 Artificial Intelligence Global Executive Study and Research Project reviews how top-performing organizations are integrating AI into their strategies.

Demystifying the Intelligence of AI

MIT SMR columnist Ayanna Howard looks at three challenges to AI implementation.

Three Steps to Implement AI

In the summer of 2019, MIT SMR and BCG hosted an #MITSMRChat focused on specific AI implementation challenges — and opportunities.

Let me tell you about my evening routine. Every night, my dog Romeo and I come home from the Cambridge, Massachusetts, offices of HubSpot, where I’m CEO, by taking a Lyft. We play our favorite band on Spotify. Cranking the music, we boogie over to the dog area, clean out some of Romeo’s toys, and see if he got a new package in the mail from Chewy — he loves their chicken lollipops. After a snack, I head down to the gym for a workout I booked through ClassPass. I come home and shower and shave using a new package from Dollar Shave Club. I order something from DoorDash, and, after it arrives, Romeo and I put our toes up and check out a favorite movie on Netflix. Then we lie down on our Casper mattress, and we get a good night’s sleep.

I think we have a fascinating evening routine. Why? Because all these companies — I just ripped through eight of them — have replaced companies I used to do business with.

It’s not just my evening routine; it’s my daily routine. It’s all of our daily routines, isn’t it? There’s been a massive wave of disruption happening in the consumer world, courtesy of companies like Lyft, Netflix, and Spotify.

The same shift is going on in the business world. When I’m on the West Coast, I set up in a remote office and collaborate with team members on Slack. When there’s a meeting, I fire up Zoom. When I’m hungry, I scarf down something from ezCater. Again, this is a wholesale swap of vendors.

But this isn’t disruption in the way most of us think of it. We tend to think about technology disrupters — the browser, Google, Intel, the iPhone, maybe the Tesla someday. Big technology companies with lots of patents. (In 2018, Intel was granted 2,735 patents, Apple 2,160, and Google 2,070.)1

Companies like Chewy and Dollar Shave and ClassPass — are they technology disrupters? I’m not so sure. I went very deep on this list of companies plus a few others, about 20 altogether, with two of my colleagues at HubSpot. We talked to almost all of these companies’ founders. We purchased pretty much all their products, we read all their terms and conditions, we talked to their big investors. We asked about their patents and found only about 50 total. And my theory is that these companies are not technology disrupters.

Instead, I think we’re seeing a new species of disrupter emerging in our economy, a species I call experience disrupters. These organizations all have great products, but they offer even better experiences. How they sell is why they win.

Of course, all companies aim (or should aim) for great customer service, but that’s not what I’m talking about here. These companies have fundamentally reshaped what their customers come to expect in the experience of purchasing and using their product or service. This is a central insight of Clayton Christensen’s Theory of Jobs to Be Done, which tells us that customers don’t simply buy products or services. They hire them to do a job for them. Doing that job well for customers involves creating the right experiences for those customers, from the moment they begin to think about purchasing the product to their everyday use of that product. It’s an essential part of developing a deep relationship with customers: You solve their struggle for them.

What I think we are seeing now are companies that outmaneuver the competition by excelling at this. After studying such companies, what they’re good at, and the customer experience with each of them, I’ve come up with five things I call modern adaptations that allow these experience disrupters to run over the incumbents in their industries. Here, I’ll discuss what I’ve observed about those adaptations, leaving you with a playbook to use in your company.

They Give You Experiences You Didn’t Know You Wanted

The first adaptation is that while incumbent companies focus on product-market fit, experience disrupters work on experience-market fit. Product-market fit, when you’ve found the right mix of product for just the right target market, is considered by these companies as necessary but insufficient to get the disruption they’re really after. For experience disrupters, what matters is offering experiences that surround the product and that customers didn’t even know they wanted or could ask for.

Let me give you an example. I first heard of Carvana when we started this research project. It turns out a bunch of my colleagues had purchased cars from this online used-car company and were raving about it. Carvana was founded in 2012 and was the eighth-largest used-car dealer in the United States in 2018.2 It went public in 2017. As of this writing, it has a market cap of roughly $12.5 billion. And it is a killer experience disrupter.

How did Carvana become so successful so fast? You might think it was about inventory: Typically, a car dealer has cars all over parking lots, and Carvana instead has a giant online car vending machine.

Now, that step is necessary, but insufficient, to get the crazy growth it’s had.

The reason Carvana has exploded is that it’s focused on the experience-market fit. The company’s leaders set out to create a whole new way to buy a car. You have a very Amazon-like experience, in the sense of how user-friendly the online interface is. You choose the price range, mileage, condition, and type of car you want. You can get alerted when a car in your range is available near you. Once you select a car, you can view a 360-degree inspection with annotated zoom-in areas to see where there is wear and tear.

But you don’t just buy the car from Carvana: The company deals with the department of motor vehicles, it deals with the taxes, it deals with the registration. It does all the crapola that none of us wants to do. Then you tell Carvana, “Hey, I bought the car, and I want it delivered to my house on Tuesday afternoon” — you pick a time and a place, and the company brings it to you. Awesome. And then you drive the car around for a week, and if you’re not happy with the car for whatever reason, you can return it, no questions asked.

Carvana has taken the cringeworthy process of buying a car and automated it, institutionalized it, and made it awesome. That’s experience-market fit.

They Make Interactions Frictionless

The second adaptation is that experience disrupters pull the friction out of each customer interaction. The analogy I like is the mechanical flywheel — the circular device that can provide a continuous power output. In this analogy, the less friction customer interactions have, the faster the flywheel spins, and the faster a company grows. In businesses that are struggling to keep up with experience disrupters, their flywheels are full of friction. Experience disrupters are very good at reducing that tension.

Consider Atlassian, an Australian B2B collaboration software company that is a friction-fighting superhero. It’s a large company that is growing very fast and is very profitable, with a market cap near $36 billion. The company’s president, Jay Simons, serves on HubSpot’s board, and we are one of Atlassian’s biggest customers, so I know the business well. Simons told us that changing the process of buying B2B software meant rethinking how the marketing and sales departments interact with customers, and even how the contracting process works.

First, Atlassian’s marketing department looks just like a B2C marketing department, focusing less on generating new leads and more on activating current users and multiplying the number of users and teams within a customer. Instead of fighting the uphill battle for senior-level evaluation of their solution, Atlassian focuses on the ease with which an end user can invite a colleague to a collaborative project.

Now, most of the B2B experience disrupters do a really nice job of marrying low-friction, B2C-style marketing with a slightly-heavier-friction traditional enterprise sales model. But Atlassian doesn’t do this. What impresses me is that most of its transactions happen without the sales team. Salespeople negotiate the highest-sticker-price deals — basically, the deals that generate the top 1% of value. Otherwise, sales are straightforward, with no commissions. Just a few years ago, you’d buy a toothbrush or a comb online, but now people are buying multimillion-dollar pieces of software the same way.

Atlassian also tweaked the contracting process. Think about how the process typically works: Potential buyers will Google something they need, find a product on a website, and possibly check out the company’s blog and social media and do the same with its competitors. They’ll call the company, ask to talk to someone on the sales team, and maybe have a great experience with a salesperson who engages them, understands their pain, and solution-sells them.

Trust and goodwill are built up, and the customer is ready to buy. And then: A brutal negotiation over the course of weeks or months ensues.

All that trust, all that goodwill, all that goodness — it goes down the tubes. I really don’t like this. Jay Simons doesn’t like this, either. So what he said was, “Basta. Enough. No more negotiations. I’m not giving discounts to anyone. I don’t care if it’s my sister. No discounts.” What he wants to do is keep the goodwill between us. He doesn’t want an adversarial relationship. So when a prospect asks the inevitable question, “How about a discount?” Atlassian staff are trained to explain that the software is relatively lower cost because the company builds discounts directly into the prices to treat every customer equally and to take away price uncertainty. The purchase price is online, and because they don’t negotiate changes in prices or terms and conditions, the contracting process is not complex — and it’s easily automated. All these decisions eliminate friction at this stage of the sale.

They Personalize the Relationship

The third adaptation is that experience disrupters are awfully good at creating a personalized experience. Their competitors, the incumbents in the industry, offer a more generic experience when they’re prospecting customers. In our research project, when we talked to the founders of experience disrupters, I was surprised at how much they didn’t sound like tech people. The language they used made them sound more like executives from The Ritz-Carlton or the Four Seasons. The way these companies cater to each customer makes them less like tech companies than like ultramodern hospitality companies.

Think about Netflix. Inside the company’s database, there’s a fingerprint for every one of us customers. The more we use their product, the more shows we watch or click on or give up on 10 minutes in, the better the company gets at personalizing its recommendations to us. Netflix suggests new content based on viewing history, but even the finest details — such as the thumbnails that accompany each show — are tailored to an individual user’s browsing habits. This is one of Netflix’s real secrets of success.

Now, Netflix isn’t the only company using data to be much more prescriptive about experience. This is also happening at Stitch Fix, an online personal styling company based in San Francisco. The company offers customized clothing selection for customers and also sells the outfits. When Stitch Fix first got started, individual stylists recommended combinations of apparel solely on the basis of lengthy profiles completed by customers about their style preferences and specific measurements.

But Stitch Fix CEO Katrina Lake knew the value of data to deepen the accuracy of stylists’ recommendations and to give scale to the business. Today, in addition to the initial customer profile, the company uses direct feedback from customers on their purchases, mountains of data from across all its customers about which items were purchased together and which were rejected and returned, and fastidious details from its merchandise team about the precise measurements, textures, and aesthetics of each clothing option. All this arms Stitch Fix with an opportunity to base recommendations on much more than just “customers who bought this also bought that” logic.3

The company’s algorithm helps generate recommendations that have progressively led to increased purchases over returns, and more additional purchases by repeat customers. It’s working: Stitch Fix, which went public in 2017, has a market cap of $2.4 billion.

Netflix and Stitch Fix are playing the same game: They use lots and lots of data to highly personalize your experience with them. How they sell is why they win.

They Get Customers to Sell for Them

The fourth adaptation is that while the incumbents know how to sell to their customers, the experience disrupters are very good at selling through their customers. One of my favorite examples is Emily Weiss, founder of the cosmetics company Glossier. She started off as a blogger — she’s a fabulous content creator, and her blog, Into the Gloss, was blowing up with beauty tips. And then she started developing beauty products.

Where Weiss is next-level and a bona fide experience disrupter is her ability to not just create her own content but also encourage and enable her customers to create content. Glossier makes its products available to popular video bloggers, known as vloggers, sometimes even prior to public release to build buzz. For instance, Glossier worked with Jackie Aina, a Top 20 YouTube beauty vlogger who has more than 3 million YouTube subscribers, to review a product when it was still unannounced. Thousands of wannabes and micro influencers who may have a few thousand followers each imitate the most popular vloggers with their own video reviews. The result is hundreds of thousands of pieces of content out there about Weiss’s products — all created by her customers. Some of those individual videos have more than a million views. Glossier is still a private company, but its estimated valuation is $1.2 billion.

Warby Parker, the eyeglasses company, is another classic experience disrupter for similar reasons. Neil Blumenthal, the cofounder and co-CEO, thought the old process of buying glasses was a pain. And it was. You had to schedule going down to the store, and the scheduling was a bear because you had to bring your most judgy friend with you. Blumenthal said, “I’m going to rethink that. I’m going to mail you the glasses so you try them on, you can post photos on Instagram, and you can then ask all your judgy friends which one they like.” Again: How they sell is why they win.

They Empower Employees to Make Things Right for Customers

This brings us to the fifth adaption: Experience disrupters enable customer-facing employees to fix things when they need to.

Traditionally, companies woo customers to make a purchase, but the second that purchase is made, it becomes the customer’s hassle to get service on it or return or exchange it if there’s a problem. Lots of companies offer free shipping, for example, but customers have to pay for the shipping to make a return, they have to have kept the receipts, and they have to pay attention to how long ago the purchase was made.

Experience disrupters make all these details much more customer-friendly. I was surprised at how powerful this play was. By rethinking something as mundane as terms and conditions, they are able to bust through those their industry models in effective ways.

A great example is online pet store Chewy, which I mentioned earlier. I ordered a medium shirt from there for Romeo. He’s always taken a medium. But when I put the shirt on that poor dog, he could barely breathe. It was too tight — too many of those chicken lollipops. So I called Chewy, and I said, “I’d like to return my medium for a large,” and the woman said, “Nope, that’s not how we’re going to do it today.” She said, “Give your medium to a friend of yours, and we’ll send you a large for free.”

Chewy gives its customer service reps a discretionary budget to create opportunities to build goodwill with customers, and this empowerment allows for a customer experience that feels seamless. Obviously, this worked out great for me: I didn’t have to do the return, I didn’t have to do any paperwork, and Romeo got a shirt that fit. And it worked out really well for his friend, Woodford, who now has a new free shirt.

What I like about this model is that Chewy’s costs to acquire Woodford as a future customer were very low, right? I got Woodford for them. Chewy didn’t have to spend very much to do it. And the total lifetime value of Romeo is now very high.

Experience disrupters know how incredibly significant it feels for customers when there’s a genuine change in the power balance in post-sale interactions. A friend of mine got herself all worked up before calling her cellphone company about something she thought was a mischarge on her bill — a situation most of us have been through with a phone company or cable provider — anticipating yet another interaction that would go badly. She hung up in near disbelief just a few minutes later when the customer service rep believed her, fixed the billing charge while they were on the phone, and offered her a courtesy credit for the hassle. There is unbelievable value in this adaptation.

These experience disrupters really are a different species. They think differently, and the founders have a healthy disdain for conventional wisdom. They spend hardly any of their energy extracting value from their customers. Instead, they spend all their energy thinking, “How do I add value for my customers?” They’re really good at this stuff. One last time: How they sell is why they win.

Here’s a summary of the five points:

• Don’t obsess completely about product-market fit. Obsess about experience-market fit. Embrace your inner Carvana.
• Remember that dollars flow where the friction is low. Mechanically remove friction. Automate like the superheroes at Atlassian.
• Personalize, personalize, personalize. Stop embracing automation without personalization — that’s what people call spam. Think like Netflix. Dust for fingerprints.
• Sell through your customers, not just to them. Let Glossier be your model.
• Rethink how customers get treated after the sale. Look at your terms and conditions. Give your customer-facing employees the tools to make things right. Delight people, the way Chewy does.

I started this article talking about my nightly routine. Routines can be good. But they can also hold you back.

You have routines in your job, and when you finish reading this, you’re going to return to whatever it is that you do. You have a choice. You can do your normal routine: Drag the spreadsheet on your career, drag the spreadsheet on your company. Or you can set out on a new course, a more exciting one. Stop meeting your customer needs, and start exceeding them. Choose to become an experience disrupter.

This chat took place on Feb. 11, 2020. Download the transcript.

At the start of a new year, setting goals — personal and professional — may very well be top of mind. In business, there are acronyms aimed at helping us set the kinds of goals that can be achieved with reasonable effort. (You’ve probably heard of SMART goals, but if you haven’t considered FAST ones, check out the suggested article below.) Typically, teams gather for offsite meetings, leadership teams set short- and long-term strategic priorities, and companies award annual bonuses when targets are met.

We’d like to hear from you about what works — and what doesn’t — about the way you set goals at work. Given that there’s no single best practice for identifying key targets, operationalizing advancement toward desired outcomes, or measuring the impact of those efforts, we’d like to talk about the approaches you find work best.

We hope you’ll join us Tuesday, Feb. 11, for this conversation.

To participate, head over to MIT Sloan Management Review’s Twitter feed (@mitsmr) at the chat start time, or search Twitter for the hashtag #MITSMRChat to follow along.

Add this event to your Outlook or iCal calendar.

Questions we’ll discuss include the following:

1. How do you approach goal setting at work?
2. What’s good (and bad) about the approach?
3. How far into the future do you, your teammates, and your organization’s leadership plan goals?
4. Do you follow any particular methodology or rubric when it comes to goal setting?
5. When and how do you measure your performance against your goals?

In advance of this chat, consider reviewing the following content from MIT SMR:

With Goals, FAST Beats SMART

MIT Sloan’s Donald Sull and Charles Sull argue that goals should be frequently discussed, ambitious, specific, and transparent.

John Doerr on OKRs and Measuring What Matters

Author and Kleiner Perkins chairman John Doerr discusses key benefits of objectives and key results (OKRs) for metrics-driven organizations.

Why Hypotheses Beat Goals

Research scientist Jeanne Ross from MIT’s Center for Information Systems Research observes that failing to meet goals is normal, but a more constructive process might be to generate and test hypotheses.

For more than a century, the business of moving people has been dominated by the automobile, with major automakers manufacturing vehicles and selling them to consumers. It has always been a capital-intensive business with extremely low margins. Now this business is on the cusp of dramatic technological change. A new vision has emerged where mobility is a service, enabled by automated vehicles (AVs) that are accessed on demand and operate without the need for human drivers. The new entrants — which include tech giants Google and Apple, ride-hailing pioneers Uber and Lyft, and suppliers such as Nvidia and Mobileye — have technological expertise, ready access to engineering talent, and deep venture-capital pockets on their side. Many observers, including prominent Wall Street analysts, think tech challengers from Silicon Valley will have the upper hand over auto companies.

In our view, however, that outcome is by no means assured. The most important question isn’t “Who will win?” but “How do you win?” Having studied the history of supply chains, the dynamics of competition and value migration, and the diffusion of new technologies in the automotive industry (and other manufacturing sectors), we think the future of mobility isn’t autos versus tech, but autos plus tech, based on collaborations that weave together products, services, and business models to meet the needs of individual users across wide-ranging use cases.

Neither auto companies nor tech companies have the ability to come up with winning mobility offerings on their own. Auto companies will never be that good at running service-based businesses or monetizing data; technology companies are unlikely to enter the complex and low-margin business of vehicle manufacturing. And not every collaboration (which may include joint ventures, acquisitions, and policy coalitions) will prosper. Even if it’s many years before AVs are driving on our streets, the planning needs to happen now. The various players will need to sort out a variety of complex issues, including how to handle concerns about safety, who controls the data, and who reaps the value. In this article, we will look at some of the possible scenarios.

The Power of Systems Integrators

In recent decades, the dominant narrative of technological disruption has centered on how new entrants introduce early products into rapidly developing markets, stay off the radar screens of incumbents, and then become industry-dominating leaders. This, of course, was what happened in personal computers, when Microsoft and Intel attacked IBM. However, value migration is neither inevitable nor random but a direct consequence of the decisions by incumbents and new entrants.1 In the auto industry, automakers (not disrupters) have managed to preserve their dominant share of value for over a century by being systems integrators. Knowing how to bring the various technologies and functions together — everything as wide-ranging as product design, supply chain management, manufacturing, and after-sales support — has been the crucial element in maintaining this status. Some analysts doubt that the auto companies (known as original equipment manufacturers, or OEMs) will be able to maintain this position in the years ahead. However, we think systems integration capabilities will continue to give auto companies an important edge.

In recent decades, auto companies have shown that they can buy most of their components and still maintain the lion’s share of the value in their supply chains.2 They protect this value in part by validating the safety of vehicles and assuming legal liability for products that can cause death, injury, and property damage.3 Any predictions that tech companies have an opportunity to overtake the auto companies in the era of automated vehicles must be able to explain how the new players will be able to take control of the supply chain and its associated responsibilities.

When people talk about automated vehicles, a variety of different functions get lumped together. At the macro level, AVs aim to navigate the environment without the need for human drivers, promising to make driving safer, more efficient, and less tiring with the help of sensors (including cameras; radar; and light, detection, and ranging technology, known as lidar), machine learning algorithms, and high-resolution maps. However, the large-scale introduction of vehicles that can self-drive without human intervention in any environment is probably decades away, and it will call for the best efforts of both auto and tech companies.

A critical enabler of this AV future will be the creation of a new and more advanced supply chain — or data value chain4 — that can draw on the expertise of both new companies with digital expertise and incumbents. The goal will be to coordinate the suppliers providing the electromechanical features with those producing the digital elements (including software, sensors, data processing, and navigation) to make autonomous cars a reality. In this task, incumbent OEMs with long-standing systems integration capabilities will have a huge advantage.

What’s needed isn’t simply the ability to specify, purchase, and coordinate the complex logistics for diverse technological components that OEMs have already mastered. Those seeking to manage supply chains must also have substantive knowledge of the core technologies so that they can meaningfully engage with suppliers. For some, this will mean hiring engineers, acquiring startups, partnering with tier 1 suppliers, and even participating in the data value chain as customers. For example, Ford recently acquired a company called Quantum Signal, a small robotics company that had worked with the military to develop software for remotely controlling vehicles and simulating vehicle testing.5

Will Tech Companies Manufacture Their Own Vehicles?

Given that the ability to integrate hardware and software to produce safe and comfortable products will be key, what will prevent tech companies such as Apple or Google’s Waymo from entering the market as systems integrators and even designing and manufacturing their own vehicles? In our view, tech companies don’t currently have the requisite manufacturing capability — and given the low margins, it’s not likely anyone would spend money to develop or acquire this capability. Automobiles are complicated products that need to draw on an array of technologies and then perform on a variety of dimensions. If nothing else, Tesla’s recent experience getting its Model 3 production up to speed highlights how challenging it is to produce high-quality vehicles at scale. Contract manufacturing doesn’t appear to be a realistic possibility; Magna International, a major automotive supplier based in Ontario, is currently the only company with significant contract manufacturing capabilities.

Rather than designing and manufacturing their own vehicles, tech companies are more likely to try to provide the operating system for many different vehicle brands and rely on others to do the vehicle assembly. (This supports our viewpoint that the future will be autos plus tech.) Currently, Waymo’s technologies (including a proprietary lidar design that it decided was worth fighting with Uber in court to protect) are being refined in fleets of test vehicles built by Fiat Chrysler and Jaguar Land Rover and are expected to appear in other vehicles soon. Other collaborations on AVs are also underway (including Ford and VW investing in Argo AI, and General Motors and Honda in Cruise) as automakers strive to hold on to their role as systems integrator.

Getting Auto and Tech Companies to Work Together

Auto companies know vehicles, and tech companies know software. Together they are well equipped to produce the AVs of the future. But serious attempts at collaboration are certain to bring up thorny issues. Chief among them: Who owns the data? AVs generate huge amounts of potentially valuable vehicle and consumer data. OEMs, for their part, have been scrambling to learn how to combine their traditional electromechanical knowledge of vehicle components with digital and electronic expertise. Tech companies already know how to manage and monetize data. While auto OEMs could try to monetize customer data on their own with new services, and tech companies could attempt to do things like manage the operations end of robo-taxi fleets, it would be easier if the two groups worked together and shared the value generated by the data.

Another huge issue will be working with regulators, insurance companies, and municipalities to make data available for public purposes. Auto companies have an advantage here, having had decades of experience working to meet societal expectations. In fact, we believe that the tech industry’s ethos of “move fast and break things” will be a liability with consumers and governments. The ongoing controversy in Los Angeles over how much data the operators of bike- and scooter-sharing systems need to share with the city offers a preview of the challenges.6

Exactly which AV business model will prosper in the coming years is an open question. Being a first mover like Waymo may have advantages: The sooner a credible player is able to deploy functional AVs, the more data it will collect, permitting it to improve its automated driving algorithms and deploy more vehicles. However, we think the pace of AV adoption will be slow, allowing fast followers like Cruise and Argo AI to remain competitive. Under any scenario, regulation and the need for a “social license” will play a key role in determining how and when new self-driving capabilities are deployed. We see this favoring “autos plus tech” as the strategy most likely to succeed in moving automated vehicles into the mainstream.

This chat took place on Jan. 14, 2020. Download the transcript.

MIT Sloan Management Review frequently provides managers and leaders with content aimed at helping them develop and execute on digital strategy inside their organizations. On Tuesday, Jan. 14, 2020, we’d like to hear from you — our readers — about your own experiences setting and operationalizing digital strategy. Although some companies began as agile, tech-centered startups, many others now find themselves in the midst of a digital transformation. Whatever your vantage point, we hope you’ll find value in joining us to talk about the opportunities and challenges digital brings.

To participate, head over to MIT Sloan Management Review’s Twitter feed at the chat start time, or search Twitter for the hashtag “#MITSMRChat” to follow along.

Add this event to your Outlook or iCal calendar.

Questions we’ll discuss include the following:

1. How important is digital strategy to your organization?
2. What aspects/components of digital strategy do you think are the most challenging for a company to get right?
3. Do you think your company is more “digital” or “traditional?” Why?
4. What’s the biggest challenge you face at your company with respect to digital strategy or transformation?
5. Which technologies do you see having the most impact on management in the next one to three years?

In advance of this chat, consider reading the following content from MIT Sloan Management Review:

Building Digital-Ready Culture in Traditional Organizations

As George Westerman, Deborah L. Soule, and Anand Eswaran observe, organizations can adopt the behaviors, qualities, and practices of digital titans that make sense for them.

Coming of Age Digitally

MIT SMR and Deloitte’s 2018 Global Executive Study and Research Project found that digitally mature companies exhibit specific, distinctive characteristics.

Tomorrow’s KPI Dashboards Will Be Your Boss

Michael Schrage from MIT’s Initiative on the Digital Economy suggests that executives might more effectively manage themselves by holding themselves more accountable to metrics.

You’re Going Digital — Now What?

Author Paul Leonardi advocates a bottom-up approach to operationalizing digital transformation.

From digital transformation to global talent management to emerging jobs in the era of AI — this collection of some of the most-read and most-discussed MIT SMR articles of the 2010s tackles these ever-popular topics and more.

As our readership continues to look to evidence-based practices for leading change across organizations and the globe, this collection reflects a commitment to effective leadership in a rapidly changing digital economy. Whether you’re revisiting them or discovering them for the first time, these articles will offer insights for managers on topics including strategic decisions and execution, meaningful work, and cultural reinvention.

2010: How to Change a Culture: Lessons From NUMMI

In a phenomenal reinvention of company culture, New United Motor Manufacturing Inc. transformed a disastrously dysfunctional plant into a model of manufacturing. This article, winner of the 2011 Richard Beckhard Memorial Prize, looks at how the company got it done.

2011: Six Principles of Effective Global Talent Management

Competitive advantage in talent management doesn’t come from simply implementing generic best practices. Top-performing companies subscribe to a set of principles that are consistent with their strategy and culture.

2012: Creating Value Through Business Model Innovation

More companies are turning toward business model innovation as an alternative or complement to resource-intensive product or process innovations. These six questions can help you determine if your company could benefit from a new business model.

2013: Strategic Decisions for Multisided Platforms

Multisided platforms such as eBay and Facebook create value by enabling interactions between two or more customer groups. To build and manage a winning platform, consider four challenging but fundamental strategic decisions.

2014: The Nine Elements of Digital Transformation

The best companies combine digital activity with strong leadership to turn technology into transformation. How can managers lead digital change and use technology to redefine their businesses?

2015: Thriving in an Increasingly Digital Ecosystem

Amid the turmoil of digital disruption, companies need to evaluate threats, assess opportunities, and begin creating new business options for unfolding digital ecosystems. This article presents a framework for thinking about competitive environments in the digital era.

2016: What Makes Work Meaningful — Or Meaningless

Where and how do people find their work meaningful, and what role can leaders play in the process? New research offers insights into what gives work meaning — and into common management mistakes that can leave employees feeling that their work is meaningless.

2017: The Jobs That Artificial Intelligence Will Create

As artificial intelligence systems grow increasingly sophisticated, automation threatens to eliminate a broad swath of jobs across the world economy. But new categories of emerging jobs will also be created — jobs that look nothing like those that exist today, requiring skills and training that have no precedents.

2018: With Goals, FAST Beats SMART

The traditional approach to SMART goal setting can undermine your company’s ability to execute strategy. Adopting FAST goals can help to correct course.

2019: Nondisruptive Creation: Rethinking Innovation and Growth

Although many consider disruption to be a synonym for innovation, innovation need not disrupt existing businesses or markets. Nondisruptive creation, an alternative path to growth, highlights the immense potential for creating new markets where none existed before.

As we head into the final days of 2019, it’s a good time to look back at the research, perspectives, and insights that resonated most deeply with readers this year, with our collection of most-read articles. What does this collection say about how our readers are thinking about business challenges and the practice of management?

For one thing, the diversity of topics and ideas reflects how modern leaders must embrace change and fast-paced innovation but also offer stability and support to their teams and employees who are navigating their way in the new world of work. Continuous learning, responsiveness, and adaptability stand out as key themes in the collected works from this year. By embracing these characteristics, leaders and organizations can help champion their employees and meet the goals of tomorrow.

1. The Surprising Value of Obvious Insights

Findings don’t have to be earth-shattering to be useful. Confirming what people already believe can help organizations overcome barriers to change.

2. A Structured Approach to Strategic Decisions

Reducing errors in judgment requires a disciplined process. The authors provide leaders with a framework that is easy to learn, involves little additional work, and (within limits) leaves room for their own intuition.

3. Nondisruptive Creation: Rethinking Innovation and Growth

It’s time to embrace the idea that companies can create without destroying — and expand the conversation about the problems they can solve and the opportunities they can seize.

4. Leisure Is Our Killer App

Beyond reducing burnout, leisure is a uniquely human activity that robots cannot perform, and it might actually make us better thinkers and workers.

5. Agile Is Not Enough

Three impediments, in particular, work against agile adoption in most organizations. By addressing architectural rigidity, closing talent gaps, and adopting a product mindset, leaders and companies can realize agile’s power in delivering business value.

6. Learning for a Living

Employers and managers can better support learning, and individuals can do it more effectively, by understanding that there are two types of learning and that each needs its own space.

7. Beat the Odds in M&A Turnarounds

It’s tough to create value by buying and fixing troubled businesses. Six actions can improve your chances of success.

8. The World in 2030: Nine Megatrends to Watch

From demographics to urbanization to the big one — climate change — the directions we’re heading and the choices we make in the next decade will have enormous impacts on our careers, businesses, and lives.

9. The Magic That Makes Customer Experiences Stick

Customers want their choices to align as much with their feelings and senses as with their values and ethics. The rational approaches taught at most business schools — offer more value for money, add features, make service more efficient — are not enough.

10. How to Become a Strategic Leader

By investing more time in three key activities, new and experienced managers alike can become better strategic leaders.

11. Why Great Leaders Focus On Mastering Relationships

In today’s digital economy, leaders must address leadership challenges with a renewed focus on relationship building to achieve sustainable success.

12. Building Digital-Ready Culture in Traditional Organizations

For legacy companies, culture change is often the biggest challenge of digital transformation. How can they become more agile and innovative without alienating their best employees or wrecking their best existing practices? This article provides a framework for leaders in any industry.

After a long and distinguished career in logistics and transportation services, in 2015 Per Utnegaard was appointed CEO of Bilfinger. The job was clearly a big challenge. Bilfinger, once Germany’s second-largest construction company, had been having financial difficulties for a number of years, and a prior CEO succession had already proved unsuccessful when Roland Koch, the former minister-president of the German state of Hesse, failed to orchestrate a turnaround.

Less than a year after Utnegaard’s highly publicized appointment, he left Bilfinger, and the search for a new CEO began again.

We shouldn’t be surprised. CEOs come and go — even seasoned executives with previously unblemished track records. According to a study by Equilar, the median CEO tenure at S&P 500 companies has shrunk to about five years, and we have found in ongoing research that more than 15% of all CEOs depart within two years. The best-laid plans — especially succession plans — often fall apart when they encounter reality. What is surprising is how shocked and appalled boards are when their CEO choices fail — sometimes repeatedly.

The financial costs of these poor choices are enormous. To find the right CEO (or one who appears to be right), boards routinely bring in search firms whose fees, related to the compensation of the people recruited, can easily reach seven digits. You don’t want to repeat that drill year after year. And the costs extend beyond the selection process: A study by PwC consulting company Strategy& estimates that companies lose more than $100 billion in market value annually through botched CEO appointments.

Of course, the organizations suffer as well. If there is a vacuum of leadership at the top, uncertainty pervades the ranks, and the vision becomes unclear. That is typically followed by a standstill in development, the departure of key talent, and a decline in financial performance.

With so much at stake, what can companies and their boards do to increase the odds of success?

At the heart of many failed succession processes is the lack of a clear mandate. Boards often have only an implicit sense of what they want the CEO to do — in particular, how much they want the strategic direction and organizational model to change and how they expect the new leader to accomplish that. Clearly defining the mandate and matching the CEO’s profile to it is critical. Yet, there is surprisingly little expert guidance on how boards can do those things effectively or how leaders should act to fulfill their mandate.

We have interviewed more than 100 CEOs, executives who report to CEOs, board members, and senior leaders of search firms. Our research suggests that CEO mandates can be divided into four types: continuation, evolution, transformation, and turnaround. They each require different candidate profiles and different approaches to the job.

Continuation. Some organizations want to continue their existing strategy under a new leader. That was the case at the Swiss elevator company Schindler when former CEO Silvio Napoli became executive chairman, with Thomas Oetterli succeeding him in the CEO role. In this type of situation, the new CEO is tasked with executing a strategic path that was chosen under the predecessor. As at Schindler, the previous CEO often stays on as a member of the board, which leaves relatively little room for the new leader to make changes. Continuation mandates are mostly the domain of successors from inside (like Oetterli) who need to fully buy into the existing strategy and are willing to work within a relatively tight framework set by the board.

Evolution. In the second type of mandate, boards seek mostly incremental adjustments to strategic direction. For instance, when Mark Schneider joined Switzerland-based Nestlé as CEO, the company was gradually shifting its portfolio toward a focus on health and wellness. Schneider was thought to bring relevant expertise for the revised scope of the business and the ability to accelerate change through his experience in acquisitions and divestments. When companies define an evolution mandate, the new CEO has leeway to adapt and refine an existing strategy. Because the changes sought aren’t radical, leaders frequently are recruited from inside, but outsiders can be an option if they bring desirable skills to the organization, as Schneider did at Nestlé.

Transformation. In some situations, a fundamental transformation of the organization is required to achieve its strategic goals. For instance, when Erwin Mayr was appointed to lead Wieland-Werke, a German manufacturer of copper products, the Europe-centered company aimed to expand its geographic footprint, and it needed to restructure its organization, processes, and systems to deliver on its global ambitions. Coming from a large U.S.-based multinational corporation, Mayr could draw on firsthand experience to help meet that objective. Transformation mandates leave the CEO substantial latitude to make such changes. The call for a decisive departure from the past provides advantages to leaders from outside the organization, who can approach the job without legacy constraints.

Turnaround. The most extreme changes are called for with turnaround mandates. For instance, when Jonathan Lewis joined Amec Foster Wheeler, the U.K.-based oil-industry services company had experienced years of financial decline and was at risk of not meeting its obligations to lenders. From day one, Lewis had to stage a turnaround to bring the organization back to a sustainable position. When boards have this mandate in mind, the organization tends to be in financial distress. New CEOs need to take drastic action, often under intense time pressure. Turnaround mandates typically require financial and organizational restructuring experience and are best led by an external CEO who isn’t tied in any way to the current approach.

The requirements of the four mandates are very different. But, in our experience, many boards spend too little time clearly identifying strategic development needs and the CEO profile that’s best suited to meet them. As a result, they pursue appointments with a poor fit — and the CEO often gets blamed for the fallout.

For would-be CEOs or those seeking new roles, it pays to be critical of their own profile, assessing how effectively they can dive into the mandate and asking themselves how willing they are to work within its boundaries. If the mandate isn’t clearly defined for them, they should ask pointed questions to suss it out. Without a close match between mandate and profile, there’s a high risk that the appointment will damage both the company and the individual’s career.

As business models across industries are destabilized by disruptive threats, organizations are searching for effective ways to manage their digital projects to deliver the highest value outcomes. Agile methodologies that were originally used in software development are increasingly being applied to cross-functional projects such as e-commerce websites and mobile apps.1

While there has been progress, barriers remain, particularly in cases where companies try to coordinate multiple agile projects simultaneously and scale them across the organization. Although some managers are attempting to move beyond linear development processes in hopes of completing projects faster, most are working in siloes, with little or no interaction or cross-fertilization with other groups. The result is that there’s little opportunity for sharing best practices across functions, divisions, and regions.

In studying agile approaches over the past three years through interviews at more than 50 companies and surveys at more than 100 companies, we found that the organizations that achieve the most success with digital projects use processes that allow for continuous learning and that support critical business goals. For starters, they try to ensure that teams are working on the right problems to address the needs of customers, business units, and other stakeholders. This requires designing prototypes to test key assumptions and value propositions. These organizations also create experiments to collect meaningful data from their customers and other stakeholders so that they can learn what works before pivoting and iterating to develop good solutions. Finally, they pitch their findings and ideas to internal business leaders who are able to provide the resources, including funding and staff, to take the most promising ideas to market. With everyone following those same processes — we summarize the system as prototype, pivot, and pitch — organizations are better equipped to juggle multiple projects at the same time and reap the benefits of scale.

Over the past few years, Johnson & Johnson, one of the organizations we studied, has employed this approach. Individual groups found it so effective that the company’s technology organization created a centralized team that provides dedicated counsel and support related to digital projects. Known internally as rapidValueRealization, it is made up of nine individuals who conduct training and workshops on agile processes and tools that assist IT and business-side employees in managing and scaling digital projects. In this article, we describe how Johnson & Johnson does this and the benefits and challenges the approach brings.

1. Prototyping to key in on the right problems. In developing digital solutions, internal teams are trained to engage with business leaders across the company at the prototyping stage to understand their needs. The agile expert group onboards digital teams at the beginning of their project and practices the necessary skills with them. Integral to the process are simulation exercises designed to help employees become comfortable with testing assumptions and risking being wrong. In one of the exercises, small teams work together building an imaginary town with Lego bricks. The teams gain experience interacting with various stakeholders such as town planners, investors, and residents to understand their needs and prototype ideas.

The exercise encourages employees to overcome functional biases and show respect for colleagues with skill sets, perspectives, and experiences that are different from their own. A strong sense of team building comes from being aware of each team member’s contribution toward the common goal of designing the future town.

Digital teams are also trained to resist embracing solutions too quickly and to examine customer problems from multiple directions. In a popular design exercise known as Crazy 8s, teams are given a problem — for example, how to present user instructions for a new medical device — and individuals get a fixed amount of time to sketch and label eight variations on how to approach it. Then each team member shares his or her ideas with the group. The goal is to generate as many diverse ideas as possible, and then the team discusses how to narrow down the list to the most compelling suggestions. From there, the team votes on which ones are worth prototyping. Such exercises give team members experience in rapidly conceiving and building low-cost prototypes and identifying potential pain points.

Management has found that digital teams sometimes select the “latest and greatest” solution even if it’s not a perfect fit, or they jump into solutions without fully understanding the customer data. A recent experience involving one of the company’s skin-care product groups highlights this tendency. A cross-functional team was having difficulty understanding the motivations and challenges for getting consumers to reapply sunscreen — a critical requirement for the mobile app that was supposed to address this problem. Initially, the team focused on the functional and technical aspects of the app. An “aha” moment occurred when team members took a step backward and asked a series of “How might we…?” questions, including: How might we make the process easier for parents? How might we incentivize children to reapply sunscreen? And how might we design an app that helps with this and makes it fun?

The questions pushed the team to probe more deeply into the user experience for both parents and children, and to deconstruct the problem into smaller pieces before reassembling them into areas of focus for prototyping and testing. This led the team to prototype different user experiences, including immersive technologies available on smartphones, such as augmented and virtual reality applications.

2. Pivoting to find better solutions. Once a prototype has been launched and refined, teams can begin testing critical hypotheses about the solution’s benefits. The goal is to learn how to improve the user experience and to assess whether the offering can achieve the desired user behaviors and business outcomes. If not, the team can pivot or redirect the project.

Johnson & Johnson’s recent experience with its Vision Pro website for eye care professionals provides a good example of what this entails. The Vision Pro team set out to develop a digital hub for eye care professionals who didn’t like having to order different vision care products from different sites. The team ran an experiment to determine user needs and found that a system that let people order all of their products from a single site would be very popular. However, the most useful insight was learning that, over and above the ability to order products, eye care professionals wanted the hub to provide information that advised them on which products were best suited to treat their patients. In light of this information, the Vision Pro team adjusted its approach, and the results from the new site have turned out better than expected: Site traffic and orders have exceeded the company’s goals, call center issues have dropped dramatically, and more than 80% of site visitors take advantage of the product training materials.

Because designing new digital solutions can be costly, organizations need to be mindful of the business and revenue implications of different options. Indeed, just because it’s possible to build a cool app doesn’t mean it will add value or that you should do it right now. For example, the company’s Vision team wanted to grow its contact lens business through subscriptions, by getting people to sign up for recurring shipments through their eye doctor. However, this was easier said than done; many consumers resisted at first, thinking they could get better deals elsewhere.

At a workshop, the digital team focused on eye care decided to test a discounted subscription offer through doctors’ offices: three months of free lenses to patients who signed up for a one-year subscription. But the team members decided to hold off on investing in an app until they had a clearer idea of whether people were interested. Then, when they received a positive response from patients, they developed an app that has allowed the company to expand the program to scale.

3. Pitching to potential backers for additional resources. Because consumers expect technology solutions to become better and better, digital projects must continuously evolve. Typically, there are ongoing requirements for new people, technology, and financial resources. Yet the governance models at most companies are still based on an annual budgeting process, resulting in a mismatch on timing and needs. What’s different today is that in order to scale digital projects effectively, teams need to become adept at pitching their project resource needs to internal sponsors who can respond quickly. Rather than focusing only on ROI, teams need to use a variety of performance metrics to show how the approach works and how it delivers value.

There are no all-purpose metrics appropriate for every project, but user engagement metrics are generally well suited for early-stage projects. Leading indicators such as average minutes per session, click-thrus, number of messages and chats, and positive ratings can demonstrate whether a prototype is well received and additional funding is warranted.

Digital solutions related to consumer health need to demonstrate low risk and high potential for success, and teams must show how they can differentiate these offerings in the marketplace. For example, the company’s consumer team made the case that its over-the-counter allergy medicine could deliver better outcomes and customer engagement if there were an app that offered patients geographically specific information about the types of allergens circulating in the environment.

To obtain funding for developing an app that would feature this type of personalization, the team put together user engagement and product market data showing that the app would lead to higher revenue and better customer retention. The projections convinced the company to invest in the project.

Requiring teams to pitch a project’s value can help companies manage their digital project portfolios more effectively. Even if an idea or prototype seems promising, managers might decide other projects are better aligned with the corporate strategy or have bigger financial upsides. In Johnson & Johnson’s medical devices group, for example, the biosurgery design team recently explored developing new surgical training solutions for mid-career surgeons that used virtual reality and augmented reality through headphones and iPads. While the early response to prototypes was promising, when putting together a pitch to potential funders, the design team realized that the development costs were high relative to the expected benefits. So the team circled back to the initial question: What could the company do to help surgeons understand and deliver treatments? This led the team to focus resources on simpler solutions.

Since 2015, Johnson & Johnson’s agile project experts have conducted more than 300 training sessions and workshops at 52 locations in 16 countries. In 2018 alone, the group worked with more than 100 project teams across the organization. The company believes the most important success factor to scale agile methods is the willingness of employees to experiment and pursue continuous learning. This is reflected in its 2018 digital agile initiatives: 58 projects involved experiments, and 62 projects involved pivots.

The company’s digital agile initiatives have also shaped its culture. The agile expert group has trained more than 1,000 employees. An internal study shows that knowledge of agile methods by those attending workshops increased by 58%. Some 60% of the projects have been initiated by business-side employees, and 12% of the workshops have now been run by business leaders who previously attended a workshop and are thus championing this effort.

Scaling digital projects is a complex undertaking. It requires a significant amount of hands-on training to give people the right mindset and skills to apply agile methodologies effectively. However, we have found that companies that take this approach in a coherent, organized way are generating value for multiple stakeholders. Business sponsors of agile projects receive high-quality solutions that directly address customer needs. There is a tighter alignment between digital and business strategy, as continuous investments in projects are made only when there is transparent and proven value to the business and its customers. This is particularly relevant as the marketplace changes. Finally, having a consistent approach to doing agile results in digital team members working more effectively together. Empowering teams to take risks, experiment, and continuously learn often results in more satisfied digital team members.