? If the Key to Business Success Is Focus, Why Does Amazon Work

Harvard Business School Professor Sunil Gupta explores the infiltration of Amazon into dozens of industries including web services, grocery, online video streaming, content creation and, oh, did we mention physical bookstores? What’s the big plan? Is the company spread too thin? Or is it poised for astronomical success?

 

Brian Kenny: In the world of computer science, Jon Wainwright is kind of a big deal. A computer language pioneer, he was the principle architect of both Script 5 and Manuscript. What makes John a legend has nothing to do with programming. Let me explain.

On April 3, 1995, Jon was in need of work-related reading material. He fired up his T1 modem and navigated the fledgling internet to the beta version of a new online bookstore. With the click of a mouse, he became the very first customer to make a purchase on Amazon.com. Fluid concepts and creative analogies, the book he purchased, never became a best seller, but Amazon took off like a rocket ship and hasn't slowed down since. With a market cap larger than all other retailers combined, including Walmart, Amazon owns 49 percent of all online sales. In the time it takes me to read this introduction, the company will earn over $300,000. Will we ever see the likes of it again?

Today, we'll hear from Professor Sunil Gupta, about his case entitled, Amazon in 2017. I'm your host Brian Kenny. You're listening to Cold Call, part of the HBR Presents network.

Sunil Gupta is an expert in the area of digital technology and its impact on consumer behavior and firm strategy. He is the author of the recently published, Driving Digital Strategy, a Guide to Re-imagining Your Business. This case is the perfect stepping-off point to cover some of the ideas in that book. Sunil, thank you for joining me today.

Sunil Gupta: Thank you for having me.

Brian Kenny: The case is a great foundational piece to launch into some of the ideas [of the book]. I'm going to assume that anybody listening to this podcast has purchased something on Amazon, or watched something on Amazon Prime. I had forgotten about their modest beginnings, and just how much they've grown and expanded and changed… Let me start by asking you … what led you to write the case?

Sunil Gupta: As you said, everybody knows Amazon. At the same time, Amazon has become quite complex. They have grown into a business that defies imagination. That raises the question, is Amazon spreading itself too thin? Are they an online retailer? Are they video producers? Are they now making movies? In strategy, we learn everybody should focus. Obviously, Jeff Bezos missed that class.

You start to wonder, what is the magic behind this? What is the secret sauce that makes Amazon such a huge success? Their market cap almost touched a trillion dollars a few months ago.

Brian Kenny: Insane. The case takes place in 2017. (Editor’s note: Amazon in 2019 has just been published.) Start us off by setting it up. How does the case open?

Sunil Gupta: At that point in time, Amazon had just bought Whole Foods, which was very counterintuitive. Amazon has been an online player. Why is it getting into an offline business? That was against their grain as an online player. The second thing is, food is a very low-margin category. Amazon is a technology company; its stock is going to stratosphere. Amazon had been (operating) Amazon Fresh for 10 years, and hasn't succeeded. Why don't they give up? That was a starting point. Of course, the case describes all the other 20 things they have done in the last 20 years and asked the question, what is Amazon up to?

“IT'S ALMOST A 25-YEAR-OLD COMPANY THAT STILL WORKS LIKE A STARTUP.”

Brian Kenny: Amazon and Jeff Bezos are sort of synonymous. He's a cult of personality there, like Steve Jobs was with Apple. Jeff's been in the news a lot lately for other reasons, you know, personal reasons. He is probably one of the best-known CEOs in the world. What's he like as a leader?

Sunil Gupta: I don't know him personally. Based on the research I've done, he certainly is very customer obsessed. He's focused on customer. He always says, "You start with the customer and work backwards." He still takes calls on the call center. The culture is very entrepreneurial, but also very heart driven. I mean, the idea for Amazon Prime evidently didn't come from Jeff Bezos, it came from a person low in the organization. He's quick to adapt the ideas if he sees some merit in it. It's almost a 25-year-old company that still works like a startup.

Brian Kenny: Was the original concept for Amazon ... I mean, he sold books originally. Was it ever really a book company?

Sunil Gupta: I think it started more as an online retailer. Book was an easy thing, because everybody knows exactly what you're buying. It's no concern about the quality. His premise in the online store was a very clear value proposition of three things. One was convenience, that you can shop in your pajamas, so we don't have to fight the traffic of Boston or Los Angeles. The second was infinite variety. I don't have the constraint of a physical store. Even if I have Walmart, which is a huge store, I can only stock so many things. As a result, you only have the top sellers. In Amazon, I can have the long tail of any product, if you will. The third was price. It was cheaper, simply because I don't have fixed costs of the brick and mortar store. I can reduce the cost structure and therefore I can be cheaper. Those were the three key value propositions. That's how it started. The idea was, I'll start with books and then move on to electronics and other things. But then of course, it moved far beyond being an online retailer.

Brian Kenny: This gets into some of the ideas in your book. I was really intrigued in the book about the notion of what kind of business are we in? Just that question alone. At face value, it looked like Amazon was a retailer. They went in directions that nobody could have imagined.

Sunil Gupta: Right. The purpose of the case was to illustrate how these are all connected. From a distance they look completely disconnected, and completely lack focus. Let's start with how the concept evolved.

The first thing was, as I said, it was online retailer. Very soon it became a marketplace. Now, what is a marketplace? They basically allow third-party sellers to also sell on the Amazon platform, which is distinct from a traditional retailer. Walmart doesn't allow me to set up shop within Walmart, but Amazon allows me to do that. Now, why would they do that? Simply because it increases the variety that they can sell on the platform. Therefore, consumers are quite happy with the variety of the product they can get on Amazon. Amazon gets commission without having the inventory and the capital cost.

Perhaps the most important thing about becoming a platform is that it creates what we call network effects. If everything I can buy is available on Amazon, more consumers are likely to go there. Because there are more consumers, more sellers are likely to go there. It just feeds itself and becomes a virtual cycle. That's why there is only one Amazon. Even if I start an online retail [store] that is in many ways better than Amazon, nobody's coming to gupta.com, because buyers and sellers are not there. That became the next phase, changing from an online retailer to a marketplace. Then it went into AWS (Amazon Web Services), and you say, "How can it go into being a technology company and compete with IBM and Microsoft?" It was competing with Walmart before.

Sunil Gupta: In fact, at that point, Wall Street was very down on that. They said, "What is Bezos thinking?" The idea, if you think about it, was very simple. Amazon was building (web services technology) for its own purpose, and then started giving this technology, using this technology, for third-party sellers who were selling on its platform.

Brian Kenny: Let me just interrupt for a second. That's a marked change in direction. They had always been a consumer platform. Now they're in a business-to-business play. I bet a lot of consumers don't even know about Amazon Web Services.

Sunil Gupta: Correct. That was not saying in a traditional sense, "This is my market." That's simply saying, I have this capability. There's a demand for this capability. Can I do it?" Part of that was opportunistic, also. If you remember in 2001, the dot.com bubble crashed. If you're a B2C company, you hedge your bets and get into B2B business. Part of that may have been luck. And then Amazon started producing hardware, Kindle, and now competing with Apple.

You sort of say, why is an online retailer getting into hardware production? If you think a little bit about it, the answer is very easy. Kindle was designed to sell eBooks as people move from buying hard copy books to downloading eBooks. The Kindle is the classic razor and blade strategy. I sell razors cheap in order to make money on the blades. I'm not making that much money Kindle, but I'm making money on e-books, which is very different from Apple's strategy. Apple actually makes money on devices, but Amazon is not making money on devices, or at least not making huge money. Similarly, it moved into online streaming of the video content and suddenly became a competitor of Netflix. You say, "Why is a retailer becoming a competition of Netflix?" Again, if you think a little about it, the answer becomes clear. As you and I moved on from buying DVDs [to] streaming the stuff, that's what Netflix did. They used to send the DVDs to us.

Brian Kenny: I remember that. I still have a couple.

Sunil Gupta: Amazon is very good in moving with the customer. If the customer moves from buying books to e-books, Amazon moves in that direction. If customers move from buying DVDs to streaming, it moves in that direction. Now, can Amazon do it? Of course, they can. They have AWS. Netflix is one of the largest AWS customers.

“AMAZON IS VERY GOOD IN MOVING WITH THE CUSTOMER… IF CUSTOMERS MOVE FROM BUYING DVDS TO STREAMING, AMAZON MOVES IN THAT DIRECTION.”

Brian Kenny: Are they leading or following? Are they creating a market? In the beginning it seemed like they created something entirely new. Now, are they anticipating, or are they just sort of reacting to what's happening?

Sunil Gupta: It's a combination of both. In some ways they are following the consumer behavior. [When consumers started] moving to streaming, Amazon was not the first—Netflix started the streaming thing, and then Amazon comes up with it. If you think about it, Amazon not only distributed third party content on videos, but now they have Amazon Studio. They are making movies. The competition now becomes Hollywood instead of Walmart.

You sort of say, "What has gone wrong with Jeff Bezos? Why is he making movies?" Making movies is a pretty expensive business and highly risky. Again, the key is to understand the purpose of the movies, which is to hook consumers on Amazon Prime. If you remember, Amazon Prime started at $79 dollars per year. The benefit at that time was two-day free shipping. Now, you and I are smart enough to do the math, saying, how many shipments do we expect next year, and is $79 worth it? Bezos does not want you to do that math. He basically says, "Oh, by the way, I'll throw in some free content, some free music, some free unique movies.” Now you can’t do the calculation. Why does he care about Prime? Right now, Amazon has about 100 million Prime customers globally. Let's say I get an average 100 dollars per year, that's $10 billion in my pocket, before I open the store.

Brian Kenny: Right.

Sunil Gupta: The research also shows that Amazon Prime customers buy three to four times more than non-Prime customers. I mean, if you're a Prime customer, you don't even price shop.

Brian Kenny: Once you're Prime, you’ve got to justify being a member. You buy everything on Amazon.

Sunil Gupta: Exactly. Your purchases increase. You become price insensitive, which is fantastic. Jeff Bezos has said that every time we win a Golden Globe award for our content, we sell more shoes. The purpose of creating their own content is not to make money on the content. This is a different razor, to sell you more shoes. Once you understand that, what looks like disparate business is actually extremely tied together.

Brian Kenny: It all comes right back to the core. They haven't always had good ideas. Have they had some misses along the way too?

Sunil Gupta: I think the biggest failure was Fire phone.

Brian Kenny: Remind us what that was?

Sunil Gupta: Amazon launched their own phone. They were obviously very late in the market. iPhone was already there. Samsung had done very well. You have two major players, if not many others, who are very well established. Consumers love their iPhones. The question of course was, why is Amazon launching a phone? What are the odds of success? Clearly the odds of success were low.

The reason was they didn't want to be beholden to the iPhone or to the Googles of the world. They know that the world is moving towards mobile, in terms of shopping. Certainly in emerging markets everybody's moving to mobile shopping. If tomorrow Apple or Google sort of restrict … availability or use of Amazon—because they're all competing with each other now—it becomes a challenge. Not all innovations succeed, but you've got to take a shot. If you think about it, all the technology and thought processes that went into Fire phone were not a complete waste. That went into Echo. Now Alexa is a big hit.

Brian Kenny: They're a market leader in that in that space. Let's talk a little bit about the ideas that underlie this Amazon case. I think it starts with knowing what business you're in. Your book addresses this. I think I know we're in the education space here at Harvard Business School. Should we be thinking about other businesses?

Sunil Gupta: I think you're right. The bigger question that Amazon case raises is, how do you define what business you are in? Most of us tend to define business by the traditional industry boundaries. If I'm a bank, I'm in banking and other banks are my competition. I think industry boundaries are getting blurred today. Amazon can get into banking. If I have lots of customers, I can start giving loans to small and medium enterprises.

Brian Kenny: You would know a lot about those customers.

Sunil Gupta: The key asset now is customers and data, not the product and services that you offer. Once you know about customers, you can do lots of different things. Industry boundaries are getting blurred. You need to think not about competition, but what do customers want. Do I have capabilities to serve that? The second thing is that the traditional definition of where competitive advantage comes from is changing. When I learned my MBA, we used to read Michael Porter's competitive strategy stuff. If I were to simplify and summarize what I learned in competitive strategy it was that competitive advantage comes from making your product better or cheaper. Differentiation or cost leadership, which makes sense. If you think about it, it's very much product focused. I think in today's world competitive advantage comes from connecting products and connecting customers. The Kindle, and e-books is an example of connecting products, multiple products, right? Making movies on Amazon and selling more shoes is connecting products. Razor and blade have been around forever. I think what’s different today is razor and blade could be in completely different industries. Movies and shoes.

The other side is connecting customers. We are in a network economy. That's why there is only one Facebook, or one WhatsApp. If you are the only person on Facebook, what's the value of Facebook? Not much, unless you love yourself. As more and more people get onto Facebook, the value of Facebook increases. It's not about improving product. Without changing product, Facebook value increases. I think in this connected world that we live in, it's about connecting products and connecting consumers.

Brian Kenny: We've got a lot of listeners out there, many of whom are probably leading firms of one kind or another. How do they go about exploring or redefining their business?

Sunil Gupta: I think again, you need to think about what is your key asset? Everything starts with the consumer. In the Amazon case, you move with the consumer to some extent. I asked the same of a company for a medical device manufacturer. I said, "Who's your competition?” The typical answer is: the other medical devices. Medical business is now becoming a lot about data. Google is getting into that. Apple. iPhone is becoming a medical device. Suddenly you have a very different kind of player getting into this thing. When I say, "What business are you in?" you need to think about who might get into that business, and that changes the whole picture.

Brian Kenny: Why is Amazon so good at engaging customers?

Sunil Gupta: I think it comes from the culture of being customer obsessed, that no matter what the customer is right. They deliver on that promise. The level of convenience that customers expect from companies has changed. It used to be that if a company delivered a product within a week that was considered good. Now, if you don't deliver on the same day, it just seems awful. They've raised the bar in everything. Of course, they're using technology very effectively, whether it's in their warehousing or now investing in drones. I think they're still a 25-year-old startup.

Brian Kenny: That's another point that I wanted to touch upon. They're able to adapt their supply chain it seems almost effortlessly to whatever business direction they move in. Is it possible for another entry to come into this space and scale in the same way that Amazon has? Is this a once-in-a-lifetime type thing?

“THAT'S THE KEY QUESTION: ARE THE PIECES FITTING TOGETHER NICELY, OR DO THEY JUST HAPPEN TO BE ANOTHER BUSINESS BECAUSE IT'S PROFITABLE?”

Sunil Gupta: That's a tough question. It's not that they're adapting supply chain for everything, right? For example, I don't think the Amazon supply chain is ready for delivering frozen food. If I have a supply chain to ship you electronics, I can use the same supply chain to ship you prescription medication. That opens up another several-billion-dollar market. If I call myself an online retailer, I will never think of prescription drug delivery. If I think of my capabilities, I have the warehouse to deliver electronics and books. Why can't I deliver your prescription medication? That opens up completely different businesses.

Brian Kenny: What are the kind of pitfalls that you need to be careful of, as you start to move into adjacent markets?

Sunil Gupta: I think definitely the big challenge is: how far do you go? On one hand it's good to expand the business scope, because the industry boundaries are getting blurred. The danger is, do you lose focus? The classic challenge of losing focus. There's a balance. I think in Amazon's case, if you notice, everything is very tightly connected. If you remove one part, the whole becomes less. That's the key question: Are the pieces fitting together nicely, or do they just happen to be another business because it's profitable?

Brian Kenny: We've done a couple of cases on Cold Call that touch on the organizational impact of firms that move into new businesses. Some of them are examples of where it’s benefitted the employees. In other cases, it seems to have disrupted the culture in negative ways. How do you see this playing out at Amazon? Does it impact them in any way?

Sunil Gupta: Amazon has grown the top line 20, 25 percent every quarter without fail, except for one quarter in 2001. Right now, in 2019, their sales are @232 billion. I don't know many companies that can grow at that rate, even when they're over $200 billion. I think that as an employee, if you're on a winning team it has to energize you. If you are in a culture which encourages experimentation and innovation, it has to excite you. At the same time, I'm sure it's a very demanding culture, and there have been reports about how demanding the culture of Amazon is. It probably is not for everybody. For the people who are innovative, who are entrepreneurial, who want to be on a winning team, I'm sure it's an exciting place.

Brian Kenny: There are sort of shades of Apple there. I mean, I think Apple had the same reputation. Have you've discussed this case in class with students?

Sunil Gupta: Oh, many students.

Brian Kenny: What are sort of the top line things that surprise you as you discuss it?

Sunil Gupta: I think the nice thing about this case is that everybody knows Amazon as a consumer. Everybody has shopped at Amazon. People see it as very surface level. They sort of don't realize the deep insights that comes out. As a three-page case, you think you’ll be done in 10 minutes, but then you peel the layers of the onion. That was a shocking thing to them, as to how you peel the layers of the onion and how you see the connection across different things. Why did Amazon buy Whole Foods? It makes no sense. Why did they get into AWS? It makes no sense. When you start unpeeling that layer, you see the connection as to why Amazon is doing all these different things. I think that's the “A-ha” moment that comes across.

Brian Kenny: Much more on that in your book. How's the book doing?

Sunil Gupta: Book is doing great.

Brian Kenny: I bet you can buy it on Amazon.

Sunil Gupta: You can certainly buy it on Amazon.

Brian Kenny: That's great. Sunil, thanks for joining us today.

Sunil Gupta: Thank you very much Brian.

Brian Kenny: If you enjoyed Cold Call, you should check out HBS SkyDeck, a podcast series that features interviews with HBS alumni from across the world of business, sharing lessons learned and their own life experiences. Thanks again for listening. I'm your host Brian Kenny. You've been listening to Cold Call, an official podcast of Harvard Business School, and part of the HBR Presents network.

 

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Are You a Digital Manager?

Linda Hill explains how the digital workplace is generating greater burdens on managers but also creating new opportunities to shine. PLUS: Book excerpt.

Complex trends in globalization, demographic shifts, and new technologies are raising urgent challenges for managers on an everyday level. Because of the number of companies undergoing digital transformation, managers need to navigate an intense speed-to-market landscape while juggling virtual teams within and sometimes outside their organization.

This raises questions like: How will you innovate? How will you bring out the best ideas in your teams working together near and far? How will you drive change within the organization and the broader business ecosystem?

As Harvard Business School Professor Linda A. Hill and Kent Lineback write in the new preface to their book Being the Boss: The Three Imperatives for Becoming a Great Leader, first published in 2011 and reissued this spring, “Leadership has always been hard, and in a world in which the competitive rules are being upended, we know it's getting harder. We all need to keep learning and adapting.”

We asked Hill, the Wallace Brett Donham Professor of Business Administration, to discuss how managers can work faster, embrace digital transformation to cultivate collaboration within and beyond the organization, and build networks for innovation.

Martha Lagace: How can you as a manager guide your reports through a business world where speed-to-market is everything?

Linda A. Hill: In Being the Boss we describe three interrelated imperatives:

·         Manage yourself.

·         Manage your network.

·         Manage your team.

It comes as no surprise that so many managers are overwhelmed and burned out these days. In our dynamic, competitive environment, speed matters. If managers do not develop their people so they can delegate to them, or if they do not turn their groups into agile teams able to learn and adapt together, then they cannot leverage themselves. If they cannot leverage themselves, they have no time to build relationships with their peers and bosses to get access to the resources their teams need to deliver. And let’s face it, reaching out and cultivating relationships in global companies often means staying up late or getting up early to cope with time zone challenges or living in airports sometimes being 50 percent of a manager’s time.

“IT COMES AS NO SURPRISE THAT SO MANY MANAGERS ARE OVERWHELMED AND BURNED OUT THESE DAYS.”

Many companies are working overtime to break down the silos in their organizations. But managers need to do their part and devote time and attention to aligning their interests and cultivating collaborations across the organization. Only when everyone understands the big picture and feels a part of it can they prioritize and focus together on that which is urgent and important to the enterprise.

Lagace: As you teach MBA students and Executive Education participants, are they describing new pressures that weren’t there before?

Hill: Leadership is truly getting more demanding. I don’t think anyone ever succeeded by him- or herself anyway, but for sure they don’t now.

In fact, the “managing your network” imperative that we address in Being the Boss is becoming as important to being a great leader as managing your team. C-suite executives tell us it is no longer enough to just be a value creator—that is, someone who is delivering value for today. If you want to be high potential, you also have to be a game changer—someone who is delivering value for tomorrow. Consequently, we need managers who build teams that are “collaborative-ready” and who can cultivate healthy relationships across the organization. In today’s world, horizontal collaborations are key if companies are to reap the benefits of digital transformation and platform plays, or deliver a differentiated end-to-end customer experience.

Another challenge we’ve seen for managers is that if they want to attract and retain top talent, they need to make sure the work is meaningful. There has to be a sense of shared purpose; managers need to answer not just what the team should or could be doing, but also why doing so matters. All of us, particularly the younger generations in the workforce, want to be in organizations where we can make a difference. If MBAs are to work hard and take the risks necessary for companies to thrive today, managers need to make sure team members can have an impact on an organization whose purpose they deeply care about.

Lagace: You’ve spoken recently about the importance of building ecosystems. What do you mean?

Hill: For innovation to happen and take hold nowadays, managers often need to build ecosystems, networks with those both inside and outside the organization. We are collecting data on how managers build partnerships, even with other industries, to gain insights into how to drive innovation in their organizations. For instance, a manager in the entertainment industry might be working with peers in pharmaceuticals or defense to accelerate the development of virtual reality capabilities.

In my work, I use the ethnographic methods of anthropology to study transformation as it takes place through shared mindsets and everyday behaviors and practices. With these methods—and with attention to ecosystems—we are watching “up close and personal” as managers build innovation labs or corporate accelerators to facilitate innovation in their companies. We are interested both in understanding how to most effectively build out these labs and accelerators and how to ensure that the innovations produced in these entities actually get integrated and scaled in the core business.

Lagace: How is the digital age helping or hurting new managers?

Hill: In class, when we talk about how to build a team, the discussion includes how to build a virtual team with different nationalities, languages, and diversity in the broadest sense.

“THERE ARE A NUMBER OF SPECIAL CHALLENGES ASSOCIATED WITH WORKING VIRTUALLY.”

There are a number of special challenges associated with working virtually. How do you build trust? Without mutual trust, it’s very hard to work together. We have not evolved as people as fast as the business world has required us to—to be able to innovate with people so different and far away from us. Research makes clear that, as people and colleagues, we much prefer firsthand evidence and direct experience with people to help us figure out whether they are trustworthy. New technologies do help, but there is still no substitute for face-to-face interactions.

It’s a human reality we all need to thoughtfully build into our work processes. There is a leader at a major automaker who realized there was no way his company could build a global brand unless everyone all met physically at least once. For sure, he had invested in the latest video and e-communication technologies. Still, he used a significant portion of his budget to have everyone meet together to develop a sense of shared purpose. It was important for them to practice new ways of thinking, working, and making decisions together if they were to fully embrace the rich diversity of culture, expertise, and experience the team represented.

As one manager in a global company put it, “Social media will never replace the dinner party.” Leaders are realizing that such investments are required to build healthy relationships. And, on this basis, global teams can work together virtually on any number of complex problems and exciting opportunities.

About the Author

Martha Lagace is a writer based in the Boston area.
[Image: metamorworks]

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Annex -management system

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Strategies Thrive on the Right Amount of Tension

After expending considerable effort on formulating a strategy, most executives would like to see their company’s strategic plans fully executed. Deviations from the strategic plan are often assumed to be detrimental to corporate performance. However, compliance with the strategy doesn’t necessarily correlate directly to performance.

The gap between strategy and the execution of that strategy is often referred to as “strategic dissonance.” We like to call it “strategic stress.” The “Yerkes-Dodson Law,” which has been used in research that examines the relationship between stress and individual performance, shows that stress increases performance up to a certain point, but not beyond that point. In a similar vein, “strategic stress” can improve your company’s performance – up until a point.

 

Strategic stress is characterized by three zones, which executives must consider and effectively manage:

Strategic Burnout (too much strategic stress). Excessive strategic stress is typically a result of one or more of the following causes: (1) Too much autonomy, i.e. employees that follow their own agendas at the expense of corporate alignment (2) unrealistic strategic plans, i.e. the organization is not able to live up to the plans put forth by top management, and (3) market dynamics, i.e. external developments that push the organization in other directions than what was initially planned. When strategy execution moves too far away from the initial strategy, the link between the plan and reality is broken, resources are wasted, and the organization lacks guidance. This scenario is characterized by many divergent projects, fragmented activities that have little in common with the initial strategic plan, and projects that do not fit together. The outcomes of such anarchy are random and, as such, unpredictable. Such organizations experience strategic burnout. Strategic burnout can occur if prophets and experts (that is, employees who enthusiastically work on projects outside the predefined strategy) dominate the organization without the counterweight of executors and gamblers, who drive projects related to the planned strategy (here, executors implement low-risk strategic projects, and gamblers bet on high-risk  projects that are within the confines of the predefined strategy).

INSIGHT CENTER

• The Gap Between Strategy and Execution

  Aligning the big picture with the day-to-day.

An example of strategic burnout can be found at Lego around 2004. The company had expanded into too many different and overly complex projects, which essentially created high levels of strategic stress. The multitude of projects drove the company in numerous directions at the same time. The resulting complexity was an underlying cause of the company’s strategic burnout. A turnaround subsequently lowered strategic stress to a productive level by discontinuing many of their seemingly unrelated projects, re-focusing on their core business, as well as streamlining operational processes that improved coordination activities.

Strategic Boredom (not enough strategic stress). When strategy execution aligns perfectly with initial plans, the organization does not experience sufficient strategic stress. This results in strategic boredom. The concept of strategic boredom does not necessarily suggest that the content of the strategy is boring, but that the conformity and limited challenges give rise to the risk of strategic complacency, which may result in rigid execution that is blind to emerging risks or opportunities. Strategic boredom can occur if executors and gamblers dominate the organization without the counterweight of prophets and experts who push for new ways to drive the business.

An example of strategic boredom is illustrated in Clayton Christensen’s famous work on the disk-drive industry. Leading disk-drive manufacturers found it nearly impossible to maintain their success when the technology and market structure began to change. In other words, their previous success meant that employees failed to challenge the once-successful strategy—that strategy was instead challenged by new market entrants.

Strategic Sweet Spot (just the right amount of strategic stress). When strategy execution differs moderately from the initial plan, the organization is in the strategic sweet spot. This scenario is characterized by a sufficient balance between alignment and nonconformity, which is needed to ensure strategic success. The sweet spot can be reached if there is a balance among the four project-manager types: executors, experts, gamblers, and prophets. The optimal amount of each will depend on the specific organization and the situation, and on changes in technologies, customer needs, and the competitive context.

An example of the strategic sweet spot is documented in Gary Hamel’s study of a gang of unlikely rebels who woke IBM up in time to catch the internet wave. Certain project leaders at IBM started an initiative to build a community of web fans, i.e. early adopters of the web, that would subsequently transform the company. The group developed an internal “Get Connected” manifesto that helped guide and leverage the web at IBM. Moreover, a variety of popular, public websites for sports events were developed to illustrate the potential of the novel technological development. The strategic stress generated by these employees was enough to change the organization while not moving it too far away from its original strategic domain.

What can you as a leader do to ensure that your strategy is experiencing just the right amount of stress? We suggest the following:

• Adopt a mindset for stress: Make sure that you do not view strategic stress as a problem from the outset—you want your strategy to be subjected to some stress. Therefore, emphasize the value of both challenging and executing the strategy when communicating with your employees.
• Set up for stress: Proactively think about how emerging autonomous projects can influence your strategy and its execution. Build structures and processes in the organization such as hackathons and innovation days that provide one-day bursts of autonomy to enable employees to experiment with alternative projects. By providing a clearly limited space for employee autonomy, you ensure that you won’t step into the “too many different projects” pitfall, potentially leading to a strategic burnout.
• Diversify for stress: Employ a mix of people so that your organization can carry out different projects, some of which focus on executing the strategic plan and others that challenge that plan.

Strategy making involves both the deliberate execution of intentional plans and responsive actions to emerging issues. Both activities are necessary to ensure strategic success and corporate longevity. Therefore, your strategy needs a level of stress that requires you to cope with the gap between the plan and its execution.

Too much stress to your strategy can be detrimental; but a sufficient amount of strategic stress ensures that your organization moves forward efficiently, and keeps you alert and responsive to emerging developments. Just like a diamond is the valuable outcome of constant pressure from multiple sides, strategic success results from balanced pressure on your strategy.

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Carsten Lund Pedersen is Postdoc at the Department of Strategic Management and Globalization at Copenhagen Business School, where he researches in project-based strategy, employee autonomy and matching employee types with business development projects.

Ten Tips for Perfect Organizational Charts

Whether you are using org chart software such as SmartDraw or some other tool, here are 10 tips to help you build the perfect diagram for your needs.

1. Format the chart to fit on a single page

Use a combination of a horizontal arrangement of boxes at the top of the chart, and vertical below to fit as man

y boxes on a single page as possible.

A combination of horizontal and vertical arrangement of boxes fits more boxes on a page.

Using only horizontal arrangements of boxes makes the chart wider.

2. Group people with the same title into one box

Putting all of the people with the same title into one box saves a considerable amount of space compared with assigning each person their own

 box.

3. Make all boxes the same size and space them evenly

Charts look much better if all of the boxes are the same size (except for multi-person boxes) and the spaces between boxes are the same.

Choose organizational chart software that does this automatically.

4. Show assistants with a side bar below the manager

Assistants should be shown with a box that comes off the line that connects the manager to his or her subordinates. This distinguishes the role of the assistant from other people that report to the manager.

5. Put the title of the position first, then the name of

 the person occupying it

The title of the position (the job title) should be shown above the name of the person occupying it because positions define the organizational structure, not the people who currently occupy them. You can change people's

You can also hyperlink boxes in the chart to other electronic documents, such as the job description of the position without changing  the structural arrangement of the chart.

.

6. Show managers with two titles as two different boxes in the chart

Particularly in smaller companies, one person may manage multiple parts of the organization. For example in this technology company, the CEO, Paul Smith, also acts as the VP of Engineering. Both the management team and the programmers report to him. The best way to show this is to include both positions in the chart and show Paul as occupying both of them. Remember, the organizational structure is based on positions; not the people that occupy them.

7. Use dotted lines sparingly

Sometimes it can be helpful to show relationships with a dotted line connecting the boxes of two positions. One common example is an assistant that works for three managers.

Jane is connected to Toby and Linda by dotted lines because she assists them, as well as Dan. She reports directly to Dan, as shown by the solid line. It's not useful to try and impose the structure of multiple teams on the organization chart with lots of dotted lines. Too many and the chart becomes a mess. To show teams, it's better to use separate charts such as this one.

8. Draw your chart automatically by importing employee data

The best organizational chart software programs will create your chart automatically. This is accomplished by importing a data file that lists the title of each position, the name of the person assigned to it and the title of their manager in each row. You can create one of these in a spreadsheet program, such as Excel®:

You can use any application, not just Excel, to create a file formatted this way, including PeopleSoft® or SAP R/3®. 

9. Create an online version of your chart with hyperlinks to more information

Most people are familiar with printing an organizational chart on paper, but distributing them online can be much more useful. Both let you see the structure of an organization and read the names and titles of the people that work in it, but only an online chart lets you interact with it.

If you want to know who the VP of Sales' assistant is, you can find out from the org chart. With a printed chart if you want to contact her, you can find her name, but then have to look up her email address. With an online chart, her name can be linked directly to her email address, so that clicking on it in initiates an email to her automatically. Positions can also be hyperlinked to other documents, like job descriptions, or even records in the employee database. Your org chart can become a visual interface to more detailed information.

10. Break up large charts in to multiple smaller linked charts

In any format, a very large chart is cumbersome to view. An org chart showing every employee of a large company like GE is impossibly too big and complex to be useful. A more manageable approach is to break the organization up into smaller groups, each with a reasonably-sized org chart, and then link them together. For example, here is GE's top-level organization chart:

Each of the presidents heads up a different company within GE. Their positions can be linked to the org chart for that company. For example, the box for Healthcare links to the org chart for GE Healthcare:

The healthcare chart itself is so large each of these positions links to charts for the CIO's organization, the Business Development organization, and so on. Each sub-chart links back to its parent, so no matter where a reader is in the hierarchy, they can find their way back to the top.

The Most Important Leadership Competencies, According to Leaders Around the World

What makes an effective leader? This question is a focus of my research as an organizational scientist, executive coach, and leadership development consultant. Looking for answers, I recently completed the first round of a study of 195 leaders in 15 countries over 30 global organizations. Participants were asked to choose the 15 most important leadership competencies from a list of 74. I’ve grouped the top ones into five major themes that suggest a set of priorities for leaders and leadership development programs. While some may not surprise you, they’re all difficult to master, in part because improving them requires acting against our nature

Demonstrates strong ethics and provides a sense of safety.

This theme

Empowers others to self-organize.

Providing clear direction while allowing employees to organize their own time and work was identified as the next most important leadership competency. combines two of t

No leader can do everything themselves. Therefore, it’s critical to distribute power throughout the organization and to rely on decision making from those who are closest to the action.he three most highly rated attributes: “high ethical and moral standards” (67% selected it as one of the most import

Research has repeatedly shown that empowered teams are more productive and proactive, provide better customer service, and show higher levels of job satisfaction and commitment to their team and organization. And yet many leaders struggle to let people self-organize. They resist because they believe that power is a zero-sum game, they are reluctant to allow others to make mistakes, and they fear facing negative consequences from subordinates’ decisions.

To overcome the fear of relinquishing power, start by increasing awareness of physical tension that arises when you feel your position is being challenged. As discussed above, perceived threats activate a fight, flight, or freeze response in the amygdala. The good news is that we can train our bodies to experience relaxation instead of defensiveness when stress runs high. Try to separate the current situation from the past, share the outcome you fear most with others instead of trying to hold on to control, and remember that giving power up is a great way to increase influence — which builds power over time.ant)

Fosters a sense of connection and belonging.

Leaders who “communicate often and openly” (competency #6) and “create a feeling of succeeding and failing together as a pack” (#8) build a strong foundation for connection.

We are a social species — we want to connect and feel a sense of belonging. From an evolutionary perspective, attachment is important because it improves our chances of survival in a world full of predators. Research suggests that a sense of connection could also impact productivity and emotional well-being. For example, scientists have found that emotions are contagious in the workplace: Employees feel emotionally depleted just by watching unpleasant interactions between coworkers.

From a neuroscience perspective, creating connection is a leader’s second most important job. Once we feel safe (a sensation that is registered in the reptilian brain), we also have to feel cared for (which activates the limbic brain) in order to unleash the full potential of our higher functioning prefrontal cortex.

 and “communicating clear expectations” (56%).There are some simple ways to promote belonging among employees: Smile at people, call them by name, and remember their interests and family members’ names. Pay focused attention when speaking to them, and clearly set the tone of the members of your team having each other’s backs. Using a song, motto, symbol, chant, or ritual that uniquely identifies your team can also strengthen this sense of connection.

Shows openness to new ideas and fosters organizational learning.

What do “flexibility to change opinions” (competency #4), “being open to new ideas and approaches” (#7), and “provides safety for trial and error” (#10) have in common? If a leader has these strengths, they encourage learning; if they don’t, they risk stifling it.

Admitting we’re wrong isn’t easy. Once again, the negative effects of stress on brain function are partly to blame — in this case they impede learning. Researchers have found that reduced blood flow to our brains under threat reduces peripheral vision, ostensibly so we can deal with the immediate danger. For instance, they have observed a significant reduction in athletes’ peripheral vision before competition. While tunnel vision helps athletes focus, it closes the rest of us off to new ideas and approaches. Our opinions are more inflexible even when we’re presented with contradicting evidence, which makes learning almost impossible.

To encourage learning among employees, leaders must first ensure that they are open to learning (and changing course) themselves. Try to approach problem-solving discussions without a specific agenda or outcome. Withhold judgment until everyone has spoken, and let people know that all ideas will be considered. A greater diversity of ideas will emerge.

Failure is required for learning, but our relentless pursuit of results can also discourage employees from taking chances. To resolve this conflict, leaders must create a culture that supports risk-taking. One way of doing this is to use controlled experiments — think A/B testing — that allow for small failures and require rapid feedback and correction. This provides a platform for building collective intelligence so that employees learn from each other’s mistakes, too.

Nurtures growth.

“Being committed to my ongoing training” (competency #5) and “helping me grow into a next-generation leader” (#9) make up the final category.

All living organisms have an innate need to leave copies of their genes. They maximize their offspring’s chances of success by nurturing and teaching them. In turn, those on the receiving end feel a sense of gratitude and loyalty. Think of the people to whom you’re most grateful — parents, teachers, friends, mentors. Chances are, they’ve cared for you or taught you something important.

When leaders show a commitment to our growth, the same primal emotions are tapped. Employees are motivated to reciprocate, expressing their gratitude or loyalty by going the extra mile. While managing through fear generates stress, which impairs higher brain function, the quality of work is vastly different when we are compelled by appreciation. If you want to inspire the best from your team, advocate for them, support their training and promotion, and go to bat to sponsor their important projects.

These five areas present significant challenges to leaders due to the natural responses that are hardwired into us. But with deep self-reflection and a shift in perspective (perhaps aided by a coach), there are also enormous opportunities for improving everyone’s performance by focusing on our own.

Taken together, these attributes are all about creating a safe and trusting environment. A leader with high ethical standards conveys a commitment to fairness, instilling confidence that both they and their employees will honor the rules of the game. Similarly, when leaders clearly communicate their expectations, they avoid blindsiding people and ensure that everyone is on the same page. In a safe environment employees can relax, invoking the brain’s higher capacity for social engagement, innovation, creativity, and ambition.

Neuroscience corroborates this point. When the amygdala registers a threat to our safety, arteries harden and thicken to handle an increased blood flow to our limbs in preparation for a fight-or-flightresponse. In this state, we lose access to the social engagement system of the limbic brain and the executive function of the prefrontal cortex, inhibiting creativity and the drive for excellence. From a neuroscience perspective, making sure that people feel safe on a deep level should be job #1 for leaders.

But how? This competency is all about behaving in a way that is consistent with your values. If you find yourself making decisions that feel at odds with your principles or justifying actions in spite of a nagging sense of discomfort, you probably need to reconnect with your core values. I facilitate a simple exercise with my clients called “Deep Fast Forwarding” to help with this. Envision your funeral and what people say about you in a eulogy. Is it what you want to hear? This exercise will give you a clearer sense of what’s important to you, which will then help guide daily decision making.

To increase feelings of safety, work on communicating with the specific intent of making people feel safe. One way to accomplish this is to acknowledge and neutralize feared results or consequences from the outset. I call this “clearing the air.” For example, you might approach a conversation about a project gone wrong by saying, “I’m not trying to blame you. I just want to understand what happened.”

three Reasons New Coaches and Consultants Fail

In frustrated moments, many professionals long for the independence and income that come with being a consultant or coach. Indeed, the profession can be lucrative, as evinced by famed coach Marshall Goldsmith’s well-publicized rate of $250,000 per client.

But the reality for most coaches and consultants is far different. In fact, the International Coach Federation estimates that globally, coaches’ average annual income is a relatively modest $51,000. Why are most coaches falling short when it comes to building a thriving practice?

For the past decade, I’ve studied the question extensively, both in the course of building my own seven-figure coaching and consulting business, and through my work advising more than 250 professional service providers as part of my Recognized Expert community. I’ve identified three common reasons that nascent practitioners fail. By becoming aware of these traps — and taking action to avoid them — you can ensure you’re well ahead of the competition and are creating a strong foundation for your business.

Reluctance to do low-paid, brand-building activities

Early on, every new coach or consultant has to separate themselves from the crowd — and it is a crowd, with an estimated 53,000+ coachesworldwide, and a 7-10% growth rate of new aspirants per year. The best way is to garner as much social proof (i.e. externally recognized forms of credibility) as possible. Yet many new practitioners, who may be used to the high-level corporate salaries they left behind, are often reluctant to do the free or low-fee, brand-building work that’s necessary in the early days.

One private coaching client of mine scoffed at the $500 honorarium he was offered for a talk, and was thinking of turning it down — before I pointed out that it was for an Ivy League executive ed program, which would enable him to accurately claim on his bio that he had lectured at this prestigious institution, opening doors to other executive education teaching opportunities and providing massive credibility with prospective clients. It’s appropriate to turn down most free or low-paid work — but in the early days of your business, if it will lend you significant brand credibility, it may be worth it.

Unwillingness to reach out to past contacts

For any new coach or consultant (who isn’t a celebrity), there’s only one way to land early clients: your existing network. Outsiders, understandably, will be hesitant to entrust their professional challenges to someone without a track record. But contacts who have known you previously, in a different professional capacity, are often willing to take a chance because they understand your talents will translate into a new realm. And yet many new coaches and consultants — fearing rejection or feeling vulnerable about “asking for business” — hesitate to reach out to the people most likely to become their clients. Instead, they hold out the magical hope that new contacts will suddenly decide to hire them.

In my book Reinventing You, I profiled one executive coach who waited a full two years before notifying the people in her Rolodex about her new profession. She’s since built a very successful business, but only after overcoming this block. It’s understandable that new coaches or consultants don’t want to come on too strong, but sending a personal, low-pressure note (not a blast email, which can easily be ignored) goes a long way toward making your network aware of your new business, so you’ll at least be considered when they make referrals.

For instance, you could shoot them a short message saying hello and inquiring about them, and then add, “I’m excited that I recently started a new business coaching/consulting [insert your ideal client or the topic you focus on]. In case you happen to know anyone who might be a fit for that, I’m always looking for great clients to work with.” You’re not putting them on the spot or demanding referrals, but you are making it clear that you welcome introductions if they feel it’s appropriate. It’s a small but important step that too many new coaches or consultants hesitate to take.

Focusing on your interests, rather than the client’s needs

It’s the most basic principle of entrepreneurship: you can only successfully sell what your client wants to buy. And yet, many professionals  who have longed to start their own coaching or consulting practice have come to view it as their vehicle of creative expression rather than as a business. One nascent coach I worked with was frustrated because she was having trouble landing corporate clients.

She had an impeccable resume, with high-level Fortune 500 jobs and global experience. But the reason for her difficulties soon became clear: her coaching website focused entirely on her interest in spirituality. Many people might value a spiritually-inclined coach, but that messaging didn’t tap into her pre-existing skills and credibility, and actually made it difficult for corporate clients to hire her because she didn’t highlight any business ROI. (An executive who signed off on a contract with her might well face questions about whether it was an appropriate expenditure). Even when we view our practice as a reflection of our innermost self, we have to remain cognizant of what clients are willing to pay for.

Launching a consulting or coaching practice is a coveted goal for many professionals, and the rewards can be substantial. If you avoid the most common mistakes and instead focus on accumulating social proof early on, actively reach out to past colleagues who know you and trust your work, and keep a keen focus on the results that matter to your clients, you have the ability to develop a thriving business and make a greater impact.

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