DON TAPSCOTT • C.K. PRAHALAD • MARSHALL GOLDSMITH • GARY NEILSON • A.G.LAFLEY • DAVID ROCK 15 YEARS C I AL CELEBRATING OF E R Y P A S S R THE BEST BUSINESS THINKING E V I N N E A U S I S Special Issue, Autumn2010 US $12.95 Canada C$12.95 $12.95 05 0 74851 08213 3 www.strategy-business.com 15 YEARS OF SIGNIFICANCE Since its inception, strategy+business a sound federal budget heading thy Earle). They show how the has focused on the value of manage- toward surplus, and strong business CEO and the board of a major com- e ment thinking and practice. Be - confidence. How could anything pany play out the same roles in our d i cause business knowledge is a mov- published in those years matter to time that the chiefs and elders of to r ing target, in which there is always anyone in 2010? prehistoric tribes established many ’s l something to learn from practice Yet despite all the turbulence thousands of years ago. In that con- e t t and reflection, the best insights since then, there has been a slow but text, the passage of 15 years is al- e r about management often seem coun- steady increase in knowledge about most nothing. terintuitive at first. But they can economic value and organizational Similarly, the 1997 article “10X make a significant difference in your effectiveness. The importance of Value: The Engine Powering Long- effectiveness and the perf orm ance man agerial capability has been dis- term Shareholder Returns” (page of your enterprise — whether you’re counted by economists (and others) 16) anticipates many of the ideas a CEO, a student, an entrepreneur, for years, but it is now becoming emerging now about the value of or anyone else in business. This year, increasingly apparent. Variance in coherence. Leslie Moeller (now a we celebrate the magazine’s 15th managerial prowess explains why Booz & Company partner) and anniversary by looking back at the some companies weathered the eco- Booz alumni Charles E. Lucier and wisdom we have published in our nomic storm and others did not, Raymond Held studied 30-year 1 pages. Much of it is still worth read- and why some new CEOs succeed growth patterns of 1,300 publicly ing now. while others crash and burn. That’s traded companies in the U.S., and When s+bwas founded in 1995 why, at s+b — through the editor- found it is possible to raise a com - by former Harvard Business Review ships of Kurtzman (1995–1999), pany’s value 10-fold in that time, if editor Joel Kurtzman and a group of Randall Rothenberg (2000–2005), you know how to muster the right farsighted partners at Booz & Com- and me (since 2005) — our primary kind of innovation. pany (then part of Booz Allen editorial mission has been to help Don Tapscott’s 2001 article, Hamilton), the dot-com era was just readers find the most profound and “Rethinking Strategy in a Net- beginning, and the shape of the most pragmatic business insight, worked World (or Why Michael world economy was very different and put it to use. Porter Is Wrong about the Inter- than it is today. Amazon and Consider, for instance, “Why net)” (page 24) remains current Google did not yet exist; neither CEOs Succeed (and Why They because the controversy it raised still China nor India was seen as a global Fail): Hunters and Gatherers in the endures: Does the Internet make economic force. The United States, Corporate Life” (page 8), written corporate boundaries obsolete? where the magazine’s focus was cen- in 1996 by an innovative venture Should companies emulate Apple, tered at the time, was at a peak of capitalist (Edward F. Tuck) and which retains tight control over prosperity, with rising equity prices, a prominent anthropologist (Timo- every aspect of its enterprise, or IBM, which thrives by providing its terns of CEO succession and the or “missing chapter” of their best- customers access to an open source qualities of effective CEOs — con- selling book, The Game-Changer: world of software, services, and tinues to appear in s+b. How You Can Drive Revenue and devices? The debate is far from set- Another author who has be- Profit Growth with Innovation tled (especially with Apple ascen- come more prominent while writ- (Crown Business, 2008), which dis- dant right now), but Tapscott lays ing for s+b is Marshall Goldsmith, cussed the human changes needed out a compelling case for open the executive coach’s executive to foster Procter & Gamble’s re- source enthusiasm. coach, now known for his bestsellers markable strategic renaissance dur- Perhaps the most prescient What Got You Here Won’t Get You ing the 2000s. work that s+bhas published to date There: How Successful People Become This special issue also includes was “The Fortune at the Bottom of Even More Successful (with Mark 2009’s “Managing with the Brain in the Pyramid,” by C.K. Prahalad and Reiter; Hyperion, 2007) and Mojo: Mind” (page 88) by David Rock, Stuart L. Hart (page 32). This arti- How to Get It, How to Keep It, How founder of the NeuroLeadership cle, published in 2002, foresaw to Get It Back if You Lose It (with Institute and one of the first writers business models targeteted at the Mark Reiter; Hyperion, 2009). In to explore the relationship between billions of “aspiring poor” in emerg- 2004’s “Leadership Is a Contact neuroscience and organizational ing markets. To reach them, multi - Sport: The ‘Follow-up Factor’ in lead ership. Change efforts can take e d national companies would need to Management Development” (page hold only when leaders recognize i to create low-margin, low-cost goods 56), Goldsmith and his coauthor the deep, brain-based needs people r ’s in “culturally sensitive, environmen- Howard Morgan reveal the most have for status, certainty, autonomy, l e t ally sustainable, and economically important factor in helping leaders relationships, and fairness. t t e profitable” ways. Prahalad, who become capable: following up with These articles are classics; they r passed away in April 2010 after a other people about their own im- will always be relevant. (For a list of sud den illness, lived to see this seem - provement. The Ed Koch “How’m I other classics we’ve published, see ingly outlandish concept bec ome doing?” style of leadership may have page 104.) In this special issue, we part of the strategy of com panies been right all along. also celebrate some of the great busi- around the world. (See the discus- “Manufacturing Myopia” (page ness books we have reviewed over sion of his book in “Essential Read- 66), published in 2006, describes a the years; see the survey by Senior ing: Highlights from 15 Years of s+b perennial affliction that is demand- Editor Theodore Kinni, an expert Book Reviews,” by s+b Senior Edi- ing more attention now as produc- on business books, on page 98. tor Theodore Kinni, on page 98.) ers of goods wonder where their Society’s growth curve is driven The concept of organizational industries went. Authors Kaj Grich- by the quality of its ideas, particular- 2 DNA began life in our pages as nik, Conrad Winkler, and Peter von ly those about management. That is “The Four Bases of Organizational Hochberg posit a culprit different the real engine behind increases in DNA” (page 46), published in 2003 from the usual suspects (China and wealth and productivity at many as an effort to isolate the factors that outsourcing): the conventionally companies, and it represents a pri- shape a company’s culture. As au- fragmented approach to manufac- mary source of strength in dealing thors Gary Neilson, Bruce A. Paster- turing management. Competitive- with today’s immense social and nack, and Decio Mendes describe it, ness, on both a corporate and a environmental issues. We (and Booz company be havior is influenced by national level, depends on taking & Company, the firm that publish- 0 1 the design of structures (reporting this kind of guidance seriously. es s+b) are proud of our track record 20 n m relationships and hierarchy), deci- One of the great executives of in bringing this type of knowledge u ut sion rights, motivators (incentives our time is Procter & Gamble’s for- to you. + e, a u and career options), and informa- mer CEO A.G. Lafley, the author al iss tion flow (the informal networks by of “P&G’s Innovation Culture” Art Kleiner eci p s which people share knowledge). (page 78), published in 2008. He Editor-in-Chief ss e n Neilson’s ongoing work — on bol- and noted management writer Ram [email protected] usi b + stering organizational capabilities Charan (who introduces the article) gy e for better execution, and on the pat- conceived of it as a follow-up to strat Page 3 Pick up, Issue 60, Page 101 features MANAGEMENT Why CEOs Succeed 8 (and Why They Fail): Hunters and Gatherers in the Corporate Life Edward F. Tuck and Timothy Earle In the corporate world, the laws of the jungle still rule. CEOs and boards fall prey to the habits and practices of prehistoric hunters and gatherers. STRATEGY & COMPETITION 8 10X Value: The Engine 16 Powering Long-term Shareholder Returns 66 Charles E. Lucier, Leslie Moeller, and Raymond Held Your company can pursue 10-fold growth over 15 years through strategic innovation: changing the rules of the game for your industry. STRATEGY & COMPETITION Rethinking Strategy in 24 a Networked World Don Tapscott The original manifesto for open source, Internet- conscious competitive advantage argued that Michael Porter was wrong about partnerships and alliances. Here’s why working outside your boundaries is central to business success. 28 Six Reasons There Is a New Economy GLOBAL PERSPECTIVE The Fortune at the Bottom 32 of the Pyramid C.K. Prahalad and Stuart L. Hart Low-income markets present a prodigious opportunity for the world’s largest companies to seek their fortunes and bring prosperity to the billions of aspiring poor who are joining the market economy for the first time. 16 features MANAGEMENT STRATEGY & COMPETITION The Four Bases of P&G’s Innovation 46 78 Organizational DNA Culture Gary Neilson, Bruce A. Pasternack, and Decio Mendes A.G. Lafley, with an introduction by Ram Charan How does a company design its organization to Lafley, the CEO of Procter & Gamble, explains how execute its strategy and successfully adapt when his company built a world-class organic growth circumstances change? The first step is to under- engine by investing in people. Going beyond their stand how four key traits of an organization influ- book, The Game-Changer,the authors explore the ence each individual’s behavior: the organizational role of social systems in turning new ideas into structure, the decision rights for processes, the commercial success. motivators, and the flow of information. 84 Becoming a Great Innovation Team Leader 50 Focus: Testing Quest Diagnostics’ DNA Ram Charan MANAGEMENT MANAGEMENT Leadership Is a Contact Managing with 56 88 Sport: The “Follow-up the Brain in Mind Factor” in Management David Rock Neuroscience research is revealing the social Development nature of the workplace and its implications for management. The brain’s social needs — for status, Marshall Goldsmith and Howard Morgan A review of leadership development programs at cer tainty, autonomy, relatedness, and fairness — eight major corporations reveals that nothing matter more than money. works better than interaction with colleagues. Executives who follow up their training by BEST BUSINESS BOOKS 1995–2010 discussing their improvement plans and progress Essential Reading: with co-workers become the best leaders. 98 Highlights from MANAGEMENT 15 Years of s+b Manufacturing Myopia 66 Book Reviews Kaj Grichnik, Conrad Winkler, and Peter von Hochberg Theodore Kinni Why do manufacturers lose relevance and competi- Our all-time favorite business books. tiveness? Because their operations strategies are often the same as they were 10 or 20 years ago. ENDPAGE Instead of drifting into decline, producers of goods Articles of Significance have a chance to seize the future by cultivating bet- 104 ter awareness about manufacturing costs and Of s+b’s many classic articles over the years, here means: learning to see their operations more are a few of the editor’s favorites. clearly and redesign them more flexibly. Cover illustration by Opto 72 The Roots of Myopia Special Issue, Autumn 2010 strategy+business www.strategy-business.com EDITORIAL Editor-in-Chief Executive Editor Managing Editor Senior Editor Senior Editor Senior Editor, Art Kleiner Rob Norton Elizabeth Johnson Karen Henrie Jeffrey Rothfeder s+bBooks kleiner_art@ norton_rob@ johnson_elizabeth@ henrie_karen@ rothfeder_jeffrey@ Theodore Kinni strategy-business.com strategy-business.com strategy-business.com strategy-business.com strategy-business.com editors@ strategy-business.com Deputy Managing Editor Web Editor Chief Copy Editor Information Graphics Assistant to the Editors Laura W. Geller Bridget Finn Victoria Beliveau Linda Eckstein and Publisher geller_laura@ finn_bridget@ editors@ editors@ Doreen Annette Gantt strategy-business.com strategy-business.com strategy-business.com strategy-business.com gantt_doreen@ strategy-business.com Art Director Associate Art Director Contributing Editors Stuart Crainer Sally Helgesen Gary L. 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No reproduction is permitted in whole or part without written permission from Booz & Company Inc. Postmaster: send changes of address to strategy+business, P.O. Box 1724, Sandusky, OH 44871-1724. Annual subscription rates: United States $38, Canada and elsewhere $48. Single copies $12.95. Canada Post Publications Mail Sales Agreement No. 1381237. Canadian Return Address: P.O. Box 1632, Windsor, ON, N9A 7C9. Printed in the U.S.A. Page 7 Pick-up, Issue 60, Page 5 BY EDWARD F. TUCK AND TIMOTHY EARLE WHY CEOS SUCCEED (AND WHY THEY FAIL) HUNTERS AND GATHERERS IN THE CORPORATE LIFE m a n a g e m e n t What are the factors that determine which CEOs succeed and which fail? Even in the high-tech world, the laws of the jungle still rule. 8 It is enormously destructive and expensive to of anthropology to business organizations. We have change the chief executive of a growth company who found that the cause of these systematic failures is not stumbles in office. The human cost is high, as well: the CEO’s lack of skill, nor even his or her psychology; competent executives, used to success, fail without it is the changing institutional context in which the understanding why. They are branded with their failure. CEO must perform. Some succumb to bitterness and despair; a few are A chief executive officer will fail most often in these suicides. three situations: Why do these otherwise successful, competent, • He or she has moved to a much smaller company, h well-trained people fail? Why, in the face of good advice, either as an entrepreneur or to take over a startup or mit do they do things that bring about their ruin? Why, after early-stage company. S d they fail, can people of less training, skill, and intelli- • The CEO’s small company has grown into a mid- oo w gence turn their failures into successes? sized company. El y The authors of this article are an early-stage venture • The CEO has been a successful vice president or b n seed capitalist and an anthropologist who specializes in chief operating officer and has been promoted to chief atio leadership. We have examined the most common ways executive, or has been recruited as chief executive for str u that CEOs fail by applying the findings and techniques another company. Ill