- From The Editor

- Idea Watch

- Spotlight

- Features

- Experience

From The Editor

- Antidotes to Cynicism

Antidotes to Cynicism

Highlights from this issue

Adi Ignatius 1 September, 2022

From the Magazine (September–October 2022)

Sasha Patkin

I began my career in newsrooms, which tend to be distrustful places. Journalists are trained to view leaders skeptically and to ask hard questions. In recent years that attitude has become the norm in many organizations across society. In the 2022 Edelman Trust Barometer, just 42% of respondents expressed trust in government leaders and 49% in CEOs—with 63% contending that business leaders “are purposely trying to mislead people by saying things they know are false.” When workers don’t trust leaders or colleagues, bad things happen in companies.

It doesn’t have to be this way. In his article “Don’t Let Cynicism Undermine Your Workplace,” the Stanford professor Jamil Zaki describes the factors (including misguided management practices) that cause cynicism to grow and offers specific steps leaders can take to quell it. The good news, he writes, is that anticynicism can be taught.

The larger problem Zaki is addressing—conflicts within organizations where people hold increasingly divergent views—has been a frequent topic in our pages recently. Over the past 18 months we’ve published Adam Grant’s article “Persuading the Unpersuadable,” Julia Minson and Francesca Gino’s “Managing a Polarized Workforce,” and Nour Kteily and Eli Finkel’s “Leadership in a Politically Charged Age.” Divisiveness is becoming a defining leadership challenge of our times. We hope you find these articles useful as you face it.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Idea Watch

- Why Your Mentoring Program Should Be Mandatory

- To Keep People from Procrastinating, Don’t Give Them a Deadline

- The Chair of Illycaffè on Creating Virtuous Agricultural Ecosystems

Why Your Mentoring Program Should Be Mandatory

When given a choice, the employees who most need help are likely to opt out.

From the Magazine (September–October 2022)   1 September, 2022

Simo Liu

More than 70% of the Fortune 500 companies offer some form of mentoring to their employees, hoping to boost performance and bolster retention, among other things. However, hard evidence of firms’ accruing those benefits has been scarce. New research finds that mentorship programs can indeed produce valuable gains—for employees and their firms—but only when they are mandatory. That’s because if mentoring is optional, the people most in need of it tend to decline the opportunity.

The two-pronged experiment involved 603 newly hired sales reps at a U.S. inbound call center. In the first part of the study, 110 randomly selected reps were assigned to a mandatory four-week mentorship program consisting of structured discussions with their mentors in which they shared their responses to standardized questions and obtained feedback. During their first two months on the job they generated 19% more daily revenue, on average, than 171 unmentored counterparts did, and the increase was durable, with more than 90% of the revenue gains sustained over six months. And the mentored reps were 14% more likely to stay with the company for at least a month—a significant gain given that sales forces suffer from notoriously high attrition among recent hires.

In the second part of the experiment, training personnel at the call center asked another group of sales reps whether they wanted a mentor. Those who said yes were randomly divided into two subgroups. People in the first were given mentors, whereas those in the second were told that none were available. The researchers found that mentoring did not produce lasting benefits. There was no difference in average productivity between the two subgroups, and although those in the first were 14% more likely than those in the second to stay with the company for at least a month, the retention difference disappeared after three months. Importantly, both subgroups significantly outperformed the reps who had opted out of the program, generating 30% more daily revenue, on average. “It seems that the people least in need of mentoring are the ones who seek it,” says Christopher Stanton, an associate professor at Harvard Business School and one of the study’s authors.

The reasons for this paradox are not clear. “It could be that low performers are insecure and shy and so are reluctant to participate,” Stanton says. “Or it could be just the opposite: They might have an inflated sense of their own abilities and believe that they don’t need help.”

How to Optimize Your Program

Companies that offer mentoring should make participation mandatory if at all possible, Stanton says. “It might feel wasteful and inefficient to set up a universal program, but mentoring is a bit like advertising,” he explains. “Half the money might be wasted—but it’s impossible to know which half.”

The researchers estimated the call center’s ROI for the mandatory mentoring conducted in the study. Accounting for administrative expenses along with the costs of taking mentors and mentees away from answering calls during their meetings, they calculated that the program generated an ROI of a whopping 870%. “The payoff was quite significant despite the inefficiency and waste,” Stanton says. By contrast, the optional mentoring program’s costs outweighed its revenue gains.

It isn’t always feasible to offer mentoring across the board, of course. The challenge for companies seeking to target limited resources is that it may be impossible to identify who needs mentoring. Stanton and his colleagues analyzed demographic characteristics and the Big 5 personality traits of the low performers in the study who chose to forgo the program, but they uncovered no statistically significant pattern. “We were very surprised,” Stanton says. “We had assumed that gender and race would play a role in who opted out, but that’s not what we found.” Reps who had gotten low scores from the recruiter during the hiring process were much more likely than others to decline to participate, but they accounted for just a small share of those who made that choice.

“We Wanted to Democratize Mentoring”

With more than 180,000 employees globally, Microsoft onboards thousands of people every year. As the general manager of global talent management, Priya Priyadarshini oversees the company’s mentoring programs, including one for new hires. She recently spoke with HBR about the keys to successful mentoring. Edited excerpts of the conversation follow.

Carlton Canary

How does Microsoft think about mentoring?

It is deeply rooted in our growth mindset. We encourage it because it leads to mutual development for the mentor and the mentee.

How does it help new hires?

A few years back we conducted a study called the buddy program, in which 600 new hires were assigned a more experienced employee to help with their transition. The results were so promising that we rolled it out across the company. Having a buddy boosted productivity: Of new hires who met with their buddy at least once in their first 90 days, 56% said that the buddy helped them quickly become productive. The share was 73% for those who met two or three times with their buddy, 86% for those who met four to eight times, and 97% for those who met more than eight times. And after 90 days, new hires with buddies were 36% more satisfied with their onboarding experience than those without buddies were.

What do the buddies discuss?

They help prioritize workloads, which can be crucial during the first few weeks of a new job. They also give context that isn’t found in the employee handbook. For instance, they connect new hires with key stakeholders and acquaint them with team agreements and norms. And it’s not just the new hires who benefit. Buddies get a chance to develop managerial and leadership skills.

How does mentoring continue past onboarding?

We wanted to democratize mentoring: to make it easy for any employee—regardless of location, tenure, and role—to tap into our global network and find mentors who suit their needs. Using insights from mentoring programs over the years, we created an enterprisewide platform that offers an equitable and meaningful mentoring experience for everyone. We want our mentors to show up as their authentic selves—with stories, scars, victories, and wisdom. That’s how you establish a strong human connection.

Does Microsoft structure the relationship?

We don’t set the topics of conversation, but we do ask both sides to be clear about what they want from the relationship. We recommend that both mentors and mentees take the pulse of the relationship regularly to gauge how it is working for both sides.

Do you think mentoring should be mandatory?

Although we encourage our employees to pursue mentoring, we don’t believe it should be mandatory. The most successful mentoring relationships are personal and fluid. Employees’ needs change throughout their careers, so empowering people to choose a mentor when they need one is critical.

How does mentoring fit into the company’s diversity goals?

We have mentoring programs for each of our employee resource groups. We want all our employees to be exposed to new ways of thinking and learning. So we encourage them to look for mentoring partners who are very different from themselves. We hire people from all walks of life. It’s incredible how much they can learn from one another.

Organizations looking to deploy a limited mentoring program could analyze how new hires do in the first week or two on the job and aim their efforts at the weakest performers, Stanton suggests. Or they could run small-scale mentoring programs as an experiment, analyze participants’ performance and determine who is benefiting, and offer more-intensive mentoring to those individuals.

A couple of caveats are in order, says Jason Sandvik, an assistant professor at Tulane University and a coauthor of the study. Companies should be cautious about interpreting the results of the study too broadly. The call center experiment was limited to new hires and did not examine the effects of mentoring on more-experienced employees. And the guidance provided was highly structured and limited to sales-related activities. “Some mentoring involves informal chats about navigating office politics or discussions about the protégé’s career ambitions—but that’s not what we studied,” Sandvik notes.

In addition, managers in organizations that rank employees relative to one another should take care not to disincentivize mentors, whose compensation could suffer if mentees improved beyond a certain level. The mentors in the experiment were given a small bonus for participating and told that doing so would enhance their prospects for a promotion. Just as important, Stanton says, companies should avoid making overly fine distinctions in their sales-department incentive structures. “Top salespeople might not want to share their knowledge if doing so could threaten their standing in the department and thus reduce their pay,” he explains. “But if you have a fairly coarse incentive structure—say it offers the maximum compensation to the top 20% of performers, not to the top 5%—it’s very unlikely that a mentor would drop into a lower bonus pool because of mentored employees’ improved performance.”

Although the study was conducted prepandemic at a single call center in which everyone worked on-site, Stanton believes its findings are applicable to a post-Covid hybrid or dispersed workforce. “With less organic mingling, it becomes even more important to make sure that new employees are interacting with top performers,” he points out. Finally, he emphasizes that new hires would be smart to seek out mentorship even if their company doesn’t require it. “After all, the people who didn’t think they needed to sign up for the call center’s program are the ones who fell behind,” he says. “You never know how much you might benefit.”

About the research: “Treatment and Selection Effects of Formal Workplace Mentorship Programs,” by Jason Sandvik, Richard Saouma, Nathan Seegert, and Christopher T. Stanton (NBER working paper)

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

To Keep People from Procrastinating, Don’t Give Them a Deadline

Surprisingly, it often makes them think they must act quickly.

Amy Meeker 1 September, 2022

From the Magazine (September–October 2022)

Emilija Manevska/Getty Images

Maroš Servátka of Australia’s Macquarie Business School and three coresearchers—Stephen Knowles, Trudy Sullivan, and Murat Genç, all from New Zealand’s University of Otago—invited 3,276 people to take a short online survey in exchange for a $10 donation to charity. Some participants were given a one-week deadline, some were given a one-month deadline, and some were given no deadline at all. Members of the last group returned more surveys than those in the other two groups did, and they also responded more quickly. The conclusion: To keep people from procrastinating, don’t give them a deadline.

Professor Servátka, defend your research.

Servátka: Deadlines motivate us to do things we might otherwise put off, but the relationship isn’t always clear-cut. For example, although a long deadline theoretically gives us more time to finish a task, it often means that we postpone it over and over until eventually we forget all about it. Indeed, only 5.5% of the people who were given a monthlong deadline returned our survey, compared with 6.6% of those who were given just a week. But people who were given no deadline had the highest response rate of all: 8.3%. And they were more likely than the others to return the survey within three days.

HBR: I can see why people under a tight deadline would respond better than those with the luxury of a month. But why would the lack of pressure get the best results?

A deadline signals the importance and urgency of a task, so not surprisingly, people often interpret a long deadline as permission to delay. You might assume that the lack of a deadline would be viewed in much the same light. But in fact people tend to interpret it in just the opposite way, as meaning “Get this done as soon as possible!” The urgency and pressure are implied. Critically, we didn’t tell people that they had an unlimited amount of time to send the survey in; we simply didn’t mention a date. Theoretically, the two are the same, but in practice they get very different results.

Surely there are people for whom that’s not true—people who would think, If they didn’t ask for this by a certain date, they don’t care when I get around to it.

Some people did seem to interpret the lack of a deadline that way. Technically, our experiment is still running, given that we didn’t set an end date for the no-deadline people. Occasionally we check to see whether any additional surveys have come in. And we have gotten a few really late responses from participants in that group. One person returned the survey on day 52. Another returned it on day 145! These are people who are clearly procrastinators, and because they weren’t given a deadline, they could keep postponing and postponing. Perhaps they belatedly came across our solicitation letter after having forgotten about our request—we sent physical letters rather than emails specifically to create natural reminders. But that’s a conjecture; we didn’t test it.

All that said, those very late responses represented a tiny minority. Almost half the people in the no-deadline group who returned the survey did so right away; it’s clear that their superior response rate wasn’t driven by belated recall. By comparison, there were very few prompt responses from people who were given a month to send the survey in, supporting the notion that the main factor affecting response time was a sense of urgency—or the lack thereof.

Did personal traits affect the speed or likelihood of responding?

Because we selected participants randomly from the New Zealand electoral roll, we had data only on age and gender. Controlling for those did not affect the results, although somewhat more women than men responded, and more people ages 36 to 65.

Thinking about personal traits more broadly, procrastination comes from what’s known as the present bias, in which the here and now feels disproportionately more important than the future does. Because of that, the so-called opportunity costs of completing a task—the time it will take out of our day—appear to be smaller when they’re down the road, so many people decide to postpone. But there’s huge variety in how people respond to the present bias. Some recognize the potential pitfall and compensate by doing the task immediately or by setting reminders. Others—often naively—assume that they’ll remember on their own. It would be interesting to explore whether the absence of a deadline is interpreted differently by those two types. The first group would most likely perceive it as indicating urgency, but among the second it might lead to even greater procrastination.

People who filled out your survey were rewarded by a donation to charity, not by something for themselves. Why that choice?

If a task benefits us personally, we can assess its importance on our own; we’re not dependent on an externally imposed deadline to communicate its urgency. When the primary gain goes to someone else, standard economic theory holds that we’re less likely to prioritize it, and so procrastination becomes a bigger factor.

How should people use your findings?

I’d expect the no-deadline tactic to have the strongest traction when the task mainly benefits someone else and when the urgency is clearly implied. That could include volunteering to help people in need—giving money to organizations supporting refugees from Ukraine, say, or donating blood after a natural disaster. Charities typically don’t set an end date when soliciting donations, and our experiment suggests that’s the optimal strategy. When a campaign’s duration does need to be limited, as when a donor offers matching grants that expire after a certain date, a relatively short deadline will serve the charity best.

The findings also have implications for anyone conducting surveys; response rates should be higher and faster without a stated deadline, as they were for us. Omitting a deadline could be useful in a personal context, too—for example, when asking a spouse to complete a do-it-yourself project that’s important primarily to you. And in an organizational context, this approach could get good results when you’re requesting a favor from a colleague, such as asking for feedback on a proposal. If you don’t say when you need the favor done, your colleague is more likely to attend to it right away.

As a magazine editor, I’m constantly giving people deadlines. Should I stop?

That would be very risky! Our results by no means imply that you never want to give people a deadline. If you didn’t set deadlines for something as complex as preparing an article, people might not be able to prioritize correctly. It all depends on context.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

The Chair of Illycaffè on Creating Virtuous Agricultural Ecosystems

Advancing the sustainability goals of the author’s grandfather, his company’s founder

Andrea Illy 1 September, 2022

From the Magazine (September–October 2022)

Matteo de Mayda

Summary.

In the 1990s most coffee beans were still commodity products, cheaply priced, undifferentiated by quality, often blended, and sold through an exchange. Suppliers were underpaid not only because they sat at the bottom of the value chain but also because margins were very thin. Francesco Illy founded his eponymous coffee company in 1933 with higher ambitions, intending to create an institution respected for both its products and its contributions to society. His son, Ernesto, and grandson, Andrea, pressed on in that tradition—first by implementing better quality-management systems and pioneering direct trade with growers, and then by adopting their new production model at scale. The idea was to incentivize farmers to cultivate more-flavorful beans, thereby generating bigger profits to be shared among all stakeholders and reinvested in further improvement and growth: a virtuous circle of increasing returns. Over the past two decades illy has been accomplishing what it set out to do. Its annual revenue is currently €500 million, with earnings before interest, taxes, and depreciation of nearly €60 million and a compound annual growth rate of 10%. And it pays its growers an average of 30% more than market price for coffee beans and is consistently recognized as one of the world’s most socially responsible companies.

I will never forget seeing my father cry. We were on the campus of Stanford University, meeting with the renowned economist W. Brian Arthur to learn more about his theory of increasing returns. I didn’t expect it to be an emotional conversation. But when my father, Ernesto, started to describe our family business, illycaffè; our industry, coffee; and his desire to see more of its returns distributed to the developing-world farmers who supplied its beans, his voice cracked and tears filled his eyes. He described his deep frustration over vast disparities in the living conditions enjoyed by the world’s consumers of coffee and those endured by its producers. He explained that our goal was to spearhead a change.

At the time (this was in the 1990s), most coffee beans were still commodity products—low-priced, undifferentiated on quality, often blended, and sold through an exchange. Suppliers were underpaid not only because they sat at the bottom of the value chain but also because margins were very thin. My late grandfather, Francesco, had founded illy in 1933 with higher ambitions, intending to create an institution respected for both its products and its contributions to society. My father, who succeeded him as CEO and then chairman, and I, who stepped into the CEO role in 1994, were pressing on in that tradition. We had already implemented better quality-management systems and pioneered direct trade with growers. Now we wanted to scale up this new production model, incentivizing farmers to cultivate more-flavorful beans and thereby generating bigger profits to be shared among all stakeholders and reinvested in further improvement and growth: a virtuous circle of increasing returns. That’s why we were in Arthur’s office.

Over the past two decades, with additional leadership from Massimiliano Pogliani, my successor as CEO from 2016 to 2021, and Cristina Scocchia, who took over the top job in 2022, we are accomplishing what we set out to do. Illy has annual revenues of €500 million with earnings of more than €60 million before interest, taxes, and depreciation and a compound annual growth rate of 10%. We pay our growers an average of 30% more than market price for coffee beans and we are consistently recognized as one of the world’s most socially responsible companies. More important, over the past seven years we have pushed our industry to adopt the same ethos and to unite to address the threat of climate change.

A History of Ethical Excellence

My family is Waldensian, and one of our saints, Augustine, emphasized that perfection is twofold: what you achieve and how you do so. My grandfather, a Hungarian immigrant to Italy described by my relatives as “a genius and a gentleman,” took that idea to heart. Excellence and ethics were his core values in life. He thought of illy as a social institution that would offer the best possible coffee and care for all its stakeholders, operating with a commitment to transparency, sustainability, and continual personal and organizational growth. In the Mediterranean melting pot of Trieste he was not only an entrepreneur and a merchant, sourcing and selling beans from Brazil and Africa, but also an inventor. He revolutionized both coffee packaging—by means of pressurization technology that enhances flavor during transport and storage—and preparation, with his illetta machine, considered the blueprint for modern espresso makers. Illy was an immediate hit at hotels, restaurants, and cafes in Italy and by the 1940s was exporting to elsewhere in Europe.

Left to right: an illy production line; quality testing by hand; a display of illy Art Collection cups Matteo de Mayda

My father wanted to follow in Francesco’s footsteps and join the family business, but my grandfather insisted that he first study chemistry and learn more about how to make coffee taste great. When Ernesto did come into the illy fold, after earning a doctorate, he created our first lab for scientific research and development. Later in his life he began traveling to Brazil and other countries to meet with local growers and explain how they could focus on quality rather than quantity, farm more sustainably, and be paid more in the process. He, too, was an innovator: In the 1950s he initiated a move toward consumer sales—putting our ground coffee into smaller cans for home use. In 1974 he oversaw the launch of our first single-portion espresso pods. In 1980 he took illy to the United States, introducing Americans to our Italian espresso. And in 1988 he patented photochromatic technology that allows us to use a digital sorting machine to evaluate defective beans at the source and the factory, so we take only the best and eliminate the rest.

That’s a tough act to follow, but I’ve tried. My thesis as a chemistry major at the University of Trieste was titled “Espresso Quality: The Science of Coffee.” In 1990, at age 26, I was appointed to a role in illy’s quality-control lab, where I directed a reorganization centered on total quality management, taking lessons from several in-person visits to Japan, including to Toyota Production System facilities.

The next year my family decided to try sourcing single coffee lots directly from local growers—the start of our integrated supply chain—and introduced an annual award to recognize the top growers in our network who sustainably produce superior beans. It’s now part of the Ernesto Illy International Coffee Award (EIICA). However, we soon discovered a problem: Even those growers could be unreliable. An award winner one year might be unable to produce high-quality beans the next.

At that point we became further involved in illy’s production and later in all its operations—everything from logistics to IT. Soon my family asked me to step into the CEO role, and I was excited to do so with a goal of tackling the supplier-consistency challenge. One of my first initiatives was to develop a more comprehensive program in which our growers could learn from agronomists about systems and equipment that would help with their crops. Eventually, in 1999, that program became the Università del Caffè.

Moving a Family Business Forward

Although a few other industry players were also beginning to embrace greater social responsibility at that time, our focused efforts were the exception, not the rule. Broader change started only after the coffee crash of 2001, when overproduction in Brazil and Vietnam caused the price of beans to drop to 45 cents a pound, not even covering growers’ costs. As farmers and their families fell into deeper poverty, Oxfam and other nongovernmental organizations attacked the big multinational coffee companies for failing to support their suppliers. Thankfully, that triggered a move toward coffee certification by Fairtrade. Indeed, our early start on these issues has enabled us to announce nearly 100% direct and fair sourcing of our beans. We prioritized quality as well as sustainability, and every day 8 million cups of illy coffee are served in more than 140 countries, in cafés, restaurants, hotels, and single-brand shops, at home and in the office.

The 2000s brought new sales and marketing initiatives linked to our quality-focused, supplier-friendly strategy. We already had the illy Art Collection, for which we’d asked artists around the world to use an illy espresso cup as their canvas; clever ad campaigns; and a pop art logo designed by James Rosenquist in 1996. In 2002 we commissioned the photographer Sebastião Salgado to undertake a project featuring our growers around the world. (He ended up working on it for 14 years, across 10 countries, which culminated in the exhibition and book The Scent of a Dream.) One notable success story from this period occurred in Colombia: We trained former FARC soldiers to grow beans for us, and they were such quick studies that a few years later they won an EIICA for sustainable quality. That era also saw the launch of stand-alone illy espresso bars, followed by illy caffès and illy shops, which helped us tell our and our suppliers’ stories. Our product innovations included the iperEspresso capsule, made via two infusion and emulsion phases and protected with five patents, and illy ready-to-drink cold canned coffee.

Photographs from Sebastião Salgado’s Scent of a Dream project, initially commissioned by illy: left, coffee flowering season in Brazil; right, selecting beans for export in India

Moving into the next decade, I began to think even more deeply about illy’s and our industry’s impact on the world. I studied the Harvard Business School professor Michael Porter’s emerging thinking around shared value. I worked with the supply chain and certification body DNV to create a responsible-supply-chain certification for coffee. And I joined the International Coffee Organization (ICO) as chairman of a new program to promote coffee quality and sustainability by engaging a broader network of growers, roasters, institutions, and retailers. In 2013 Ethisphere named illy one of the world’s most ethical companies—an honor we’ve retained ever since—and in 2021 we earned B Corp certification, a designation reserved for organizations that achieve positive ESG goals.

A key turning point for our industry came in 2015 during the World Expo in Milan, the theme of which was “feeding the planet.” There the ICO, with illy’s leadership in overseeing the coffee pavilion, hosted the first Global Coffee Forum to discuss challenges and best practices to benefit all stakeholders in our ecosystem. We welcomed Jeffrey Sachs, the Columbia University economist and sustainable development expert, to discuss another pressing issue: protecting the environment.

Coming Together on Climate Change

Coffee plants grow only under optimal conditions. The weather can’t be too hot or too cold, too dry or too wet. Obviously, the increasingly extreme weather fluctuations brought on by climate change make cultivation even more difficult. Longer term, we’re likely to see a shift in the geographic areas where people can successfully farm, which will lead to migration and socioeconomic turbulence. In Milan, Sachs presented a study showing that if current trends continued, up to 50% of regions then growing coffee would no longer be suitable for cultivating it by 2050.

Our industry had to proactively address this threat. Demand for coffee was accelerating in the United States and Asia, and production in South America, Africa, and Southeast Asia was decreasing owing to global warming. We needed to find a path toward coffee security. So participants in our industry forum settled on a commitment dubbed the Milan Coffee Legacy: a promise to strengthen the relationships between growers, producers, and consumers through quality and sustainability and to fight against climate change. The ICO began working with the leading trade associations in coffee-growing countries on a “global adaptation plan” to help us understand where production has suffered or might soon and to outline corrective actions. We concluded that we had to invest further in better agronomical practices and also create more-resilient cultivars, varieties, and hybrids. Illy has since partnered with Lavazza and World Coffee Research to complete a project that involved fully mapping the coffee genome for use as a tool in that development work.

As for the company itself, we’ve pledged to become carbon-neutral by 2033 through the use of renewable energy and circularity, and we aim eventually to be carbon-negative, contributing more to our planet than we take from it. To accomplish that ambitious goal, we’re focusing on increasingly regenerative agriculture. Let me explain: The right kind of soil, enriched with organic materials, can be a gigantic carbon sink, capturing triple the amount that is lost in the atmosphere. And that kind of soil is better at retaining water, more resistant to erosion, and rich with microbiota that feed into the roots of plants and keep them healthy and fertile. This is the model we need to perfect, while modifying it for all our growing regions. Right now we have two experimental plantations—one in Ethiopia, one in Guatemala—where farmers are rotating crops, enriching the soil with compost and biochar, avoiding tillage, and minimizing the use of mineral fertilizers, pesticides, and herbicides in an effort to operate in a carbon-neutral or -negative way, offsetting the emissions associated with transporting, grinding, and storing their beans.

When I stepped down from the CEO role, it was to devote more time to spreading the gospel of this “virtuous agriculture” model. I’ve since spent some 1,000-plus hours getting the concept scientifically validated, creating governance around it, testing its application, and persuading industry peers to follow our lead. In making my case, I return to Porter’s thinking on a company’s purpose: It’s not to generate profits; it’s to create long-term enterprise value. And in 2022 one can’t do that without acting as a responsible corporate citizen. Consumers are already rewarding more-sustainable producers with their purchases. Any group that hasn’t moved in that direction is likely to find itself losing market share to competitors that have. Equity investors and bank lenders are also increasingly focused on ESG metrics, which lowers the cost of capital for good actors and increases it for bad ones. And governments are slowly moving toward stricter environmental regulations. So this is not purely altruism. We have plenty of business incentives to do the right thing for all stakeholders—and for the environment.

Our Four Pillars

My grandfather’s dream was to offer the best coffee to the world. But his definition of “best” was about more than a drink that tasted great. He also wanted illy coffee to be produced in the best possible way. Over time we’ve refined that into a business model built on four pillars: selecting the best producers, sharing knowledge, rewarding the finest quality, and creating a community built on passion. We aim to enhance the lives of our consumers, clients, employees, and suppliers and the residents of areas in which we operate. As illy moves into its 90th year, we are maintaining that strategy.

Even as our competition has risen over the past decade, we have never compromised on our values. Some might see an influx of other providers of high-quality, fair-trade, sustainably sourced coffee as a problem for us—a glass half empty. But the glass-half-full view is that those new entrants are helping to grow the market for what we sell in a way that we couldn’t have done alone. And as we watched other brands first outpace us but then overstretch—into too many markets, stores, or product lines—we stayed focused on our exclusive niche, got better organized, honed our product portfolio, and improved our communication systems. That included creating Circolo illy, a digital network through which all the stakeholders in our supply chain can connect.

Thanks in part to a purpose-driven, collaborative spirit, we are one of the world’s fastest-growing global coffee suppliers. We also continue to create great value outside our organization, ensuring better socioeconomic conditions for our farmers, doing our part to help protect the planet, and pushing other agriculture-based companies to do the same.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Spotlight

- Should Your Company Sell on Amazon?

- Building Your Own Brand Platform

- Selling on TikTok and Taobao

Should Your Company Sell on Amazon?

Reach comes at a price.

Ayelet Israeli,, Leonard A. Schlesinger,, Matt Higgins,, Sabir Semerkant 1 September, 2022

From the Magazine (September–October 2022) · Long read

Ryan Snook; Rolf Vennenbernd/picture alliance via Getty Images (container)

Summary.

Selling on Amazon allows brands to reach millions of consumers—but that exposure comes with costs. They include smaller margins, more competition, the risk of commoditization, and less knowledge about customers.

In this article, the authors present a scorecard to help brands determine whether the benefits exceed those costs. Companies can evaluate themselves on such topics as ease of shipping their products, degree of customization needed, distribution issues, and counterfeiting concerns.

Companies that choose to sell on the platform will need to make smart decisions about assortment offerings, page design, and fulfillment options so that they can take advantage of Amazon’s scale while protecting the long-term value of their brands.

Idea in Brief

The Problem

Selling on Amazon allows brands to reach millions of consumers—but that exposure comes with costs. They include smaller margins, more competition, the risk of commoditization, and less knowledge about customers.

The Solution

The scorecard in this article helps brands determine whether the benefits exceed those costs by examining things like ease of shipping, need for customization, distribution issues, and counterfeiting concerns.

The Way Forward

Companies that choose to sell on Amazon will need to make smart decisions about assortment offerings, page design, and fulfillment options so that they can take advantage of its scale while protecting the long-term value of their brands.

People who wear the Birkenstock brand of cork-and-leather sandals have a reputation for being laid-back—hardly the type to pick a fight. But for the past several years, executives at the German-based footwear company have been anything but chill when it comes to Amazon. In 2017, after years of partnership, Birkenstock Americas announced it would stop selling on the site because too many counterfeit versions of its shoes were being sold by Amazon’s third-party sellers. In Birkenstock’s view, Amazon wasn’t doing enough to prevent counterfeiting. “Policing this activity internally and in partnership with Amazon.com has proven impossible,” Birkenstock said in a statement, calling the platform “an environment where we experience unacceptable business practices that hurt our brand.” A few months later, when the company learned that Amazon was reaching out to its authorized resellers to convince them to sell Birkenstock shoes on the site—a direct violation of the reseller agreement—Birkenstock Americas CEO David Kahan fired off an email to all the company’s sales partners. “Any authorized retailer who [sells Amazon] even a single pair will be closed FOREVER,” he wrote. Later, in an interview, Kahan framed the situation this way: “This is modern-day piracy,” he said. “This is a middle finger to all brands, not just Birkenstock.”

Amazon is the most visited e-commerce platform in the United States, with nearly 3 billion visits a month, 200 million global Amazon Prime members, and about $400 billion in annual revenue. Amazon ships products to more than 130 countries, and it is the dominant online retailer in 28 countries. Roughly two-thirds of U.S. consumers start their product search on Amazon. Its fulfillment speed and service quality are trusted and loved by consumers. All these factors make Amazon an essential—and to some brands, a seemingly mandatory—place for companies to, as the saying goes, “meet the customers where they are.” As former Gap CEO Art Peck put it, “To not be considering [selling on] Amazon…would be, in my view, delusional.”

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Yet brands face real challenges when selling on the platform—from competing products, third-party sellers, and even from Amazon itself. Additionally, Amazon’s growing advertising business (in which it charges fees for premium positioning in search results, as well as for advertisements on its music and streaming video services and other outlets) has significantly reduced sellers’ margins on the platform. And in an era when companies use customer data to cross-sell, improve existing products, and find ideas for new innovations, Amazon’s walled garden and strict constraints on sharing customer data limit brands’ ability to learn about—and from—their customers.

Many brands have grappled with this dilemma. Nike and Ikea, for example, experimented with selling on Amazon but subsequently stopped. If a customer finds these brands on Amazon today, the products are being offered by third-party sellers, not the brand itself. Gap has had long internal debates about whether to sell via Amazon. Randy Antin, a former senior marketing manager at Gap, explains the discussion this way: “Retailers have always been a bit wary of ‘frenemy’ Amazon. Do we play with you when your game plan is to have everyone buy through you? Who owns the customer? Are we willing to give up control to utilize this giant distribution channel?” Gap ultimately decided not to sell on Amazon. Other companies do, but they privately complain about the costs, trade-offs, and compromises.

This article introduces a systematic method for brands to use as they mull over whether or not to sell on Amazon. We include a self-assessment tool: Brands can evaluate their performance in various areas and tally their score to determine the best next steps. Even for brands that receive ambiguous scores, the quiz brings to light the most important considerations when making this decision. For brands that choose to move forward and sell on Amazon, as many will, we offer launch optimization strategies that will help them design their Amazon product pages to maximize success.

Let’s start by examining the critical considerations for a brand thinking of selling on Amazon.

The Product Itself

Before we get to more-complex analysis, let’s consider the threshold issues some companies will face. Despite Amazon’s desire to be “the everything store,” not every product should (or even can) be sold on Amazon.

First, there is a list of prohibited and restricted items that cannot be sold on Amazon or which require special permission to sell. These include alcohol, tobacco products, and lottery and gambling products. Legal restrictions also mean that some products may be shipped only locally. Those items are not ideal candidates for Amazon because a large part of its appeal is its global reach.

Second, some products require unique customization or personalization. While Amazon makes it relatively easy for brands to do some pre-sale customization—such as printing T-shirts or signage—across many product categories, this capability is limited. More and more companies use data and sophisticated algorithms to personalize offerings or to identify the exact match for a customer, and Amazon may not be the best place to do that. For example, Nurish by Nature Made offers multivitamins customized to an individual’s weight, gender, age, lifestyle, diet, and goals. Buyers fill out a lengthy survey, which the company uses to customize the vitamin mix. This level of personalization just isn’t possible via Amazon.

When many similar products are juxtaposed on a page, they become a commodity in the minds of consumers.

Third, some products are difficult or expensive to ship, which complicates any effort to sell online, regardless of the platform. If a company’s product is especially large, heavy, or fragile; has a limited shelf life; or requires refrigeration, then shipping is challenging—and shipping via Amazon can be even more so. Today many companies that choose to sell on Amazon utilize its logistics prowess through its Fulfillment by Amazon (FBA) program, in which Amazon handles warehousing and shipping for a fee. Only products from companies that use FBA will receive the Prime designation, which gives free shipping to Prime members—a big incentive to choose FBA. Amazon has built one of the world’s most sophisticated and highest-volume distribution networks, but dealing with nonstandard items interferes with its goal of efficiency—and it charges accordingly. One reason companies like Wayfair (in home furniture) and Lowe’s and Home Depot (in large appliances) have carved out substantial online businesses is because Amazon has yet to master the art of shipping items that don’t easily fit in small boxes.

The Competitive Landscape

A major concern for brands selling on Amazon is competition. In any product category, the platform will offer products from many different sellers. Typically consumers use the search page to find items, and a simple search for a product (such as “shoes”) leads to thousands of results. Even when consumers look for a specific branded item on Amazon (such as “Steve Madden shoes”), thousands of results appear, including many that are not the desired brand. (On the first page of a Steve Madden search, for instance, consumers will see sponsored results for lower-priced shoes such as Cushionaire, Journee, and STQ.) Some of the brands may be legitimate, well-known labels; some may be Amazon’s private-label brands; and some may be counterfeit products or cheap brands. Companies rightly worry about their products appearing alongside items that aren’t their own, which can immediately put shoppers into a comparison mindset.

In some categories, consumers may not see the brand itself as important. For example, some consumers don’t care about which brand of shoe they buy, as long as they are functional and the price is right. Other people care about their brand of shoe but not their pens, and so forth. Over the past decade, we’ve seen more consumers willing to purchase unbranded or store-branded private-label products in many categories, both online and in physical stores. On platforms such as Amazon, we see a phenomenon of commoditization, where many similar products are juxtaposed on one page and become a commodity in the minds of consumers. Shoppers are then encouraged to buy on the basis of price and functionality, not on brand. In some categories, Amazon’s product displays also prominently show unit pricing—the price per ounce of a moisturizer or sunscreen, for instance—which can drive consumers to focus primarily on price.

One example of a category that has become a commodity on Amazon is batteries. In 2009, Amazon launched its Amazon Basics line of low-priced, utilitarian products—items like smartphone charging cords and disposable batteries. It has since expanded its private-label offerings into dozens of categories, including small appliances, fitness gear, and pet supplies. By 2016, Amazon Basics held 30% of the battery market—making it larger, in unit volume, than Duracell. It had also gained a 15% share in diapers, not far behind industry leader Pampers. Duracell continues to sell on Amazon, touting attributes such as longer battery life, but the growth of Amazon Basics suggests that Duracell’s strategy has had limited success.

Therefore, when making the Amazon decision it is important to understand how competitive and commoditized your product category is and where your brand falls within it. Brands with strong positioning may be able to break through the clutter and thrive on Amazon. Apple products, for example, feature a distinctive design and provide access to the Apple ecosystem. Further, the company’s large customer base is interested in buying genuine Apple-branded products. Apple also has strong and restrictive reseller policies, limiting the threat of unauthorized third parties selling its products on Amazon. Other well-known brands are more prone to counterfeits sold by illegitimate third-party sellers. That is why luxury brands such as Rolex, Gucci, and Louis Vitton refuse to allow their goods to be sold on Amazon.

The Costs of Reaching Customers

The most significant benefit of being on Amazon is customer reach. In general, companies will have access to many more customers by selling on Amazon. (Remember, most product searches in the United States, at least, start on Amazon). The question is, what are the costs of that reach? Margins and customer data are two of the biggest. Companies need to make sure they have (or can get) enough of both.

When thinking about margins, brands should focus on the costs that result directly from selling through Amazon. Brands pay the platform in different ways. Some companies become sellers on the platform; in that case Amazon receives a commission on each sale. If Amazon fulfills the delivery, brands pay for shipping and storage. Other companies sell to Amazon as vendors, much like they do with brick-and-mortar retailers: They deliver the goods to Amazon at a wholesale price, and then Amazon makes its own pricing and merchandising decisions and ships the products to customers. No matter which method you choose, Amazon charges advertising fees for promotion on the site. Revenues from Amazon’s advertising business in 2022 were $31 billion, and they are growing quickly. Brands need to add up these costs and subtract them from unit selling prices to be sure they will have enough margin to sell on Amazon sustainably.

Removing unauthorized sellers or counterfeit brands from Amazon can feel like a whack-a-mole game, where sellers keep popping back up after being removed.

What valuable data do you miss if you sell on Amazon instead of your own website? It is the same data you lose if you sell through a distributor or a retailer. That includes data about customers: who they are, how to contact them, how frequently they buy your products. Brands that want to cultivate long-lasting relationships with customers, to understand their customer base, or to interact with customers directly may not want to give up this data. Conversely, some brands are okay with shorter-term gains. They see the relationship with the customer as transactional and are satisfied with any sale.

Brands that choose to sell on Amazon but still aspire to collect customer data may gain some information through after-sale registration, app usage, and the like. However, brands must bear in mind that when they promote their products on Amazon, they learn nothing about the consumers that visited their product page but didn’t buy. They might have been able to connect with them through remarketing campaigns had they visited the company’s website instead.

The Need for Control

Well-known brands have suffered from counterfeiting on Amazon, whether or not they worked the platform. In 2019 Allbirds, the direct-to-consumer pioneer of woolen, sustainably-made footwear, found dozens of knockoff, half-priced versions of its shoes for sale—some offered by Amazon itself under the private-label brand Galen. Like Birkenstock, Allbirds, which had never sold its products on Amazon, publicly called Amazon out—not just for the blatant copycat effort but also for not using the sustainable materials that are part of Allbirds’s appeal.

In response to complaints about counterfeits and copycats, in 2017 Amazon started offering a “brand registry” program that allows companies to protect their intellectual property and trademarks. However, with many sellers on the platform, the process is often cumbersome, and not all brands can or are willing to enforce and protect their brand image. Removing unauthorized sellers or counterfeit brands from Amazon can be challenging, and legal action is expensive and time consuming. It can feel like a whack-a-mole game, where sellers keep popping back up after being removed. If a brand is prone to counterfeiting, managers need to decide how to respond to counterfeit offerings on Amazon—which may happen even if, like Allbirds, they choose not to sell on the platform.

Selling on Amazon can also complicate relationships with existing retail partners. Very often, a retailer signs a distribution agreement with a brand, and sometimes the contracts have provisions that give the brand control over certain elements of the relationships. A significant one is minimum advertised price (MAP). Such a policy, in effect, means that the reseller cannot advertise your product for a price below a set threshold, which often translates online into an inability to undercut prices. (For more on minimum advertised price strategies, see “Pricing Policies That Protect Your Brand,” HBR, March–April 2020.) If a product manufacturer already has established agreements and enforceable policies, it should be relatively easy to add Amazon to the list of authorized retailers. If a company doesn’t, or if many unauthorized third-party retailers have already obtained inventory of the product and are selling it on Amazon, it becomes challenging to maintain control. The product may be subject to intense price competition, where other sellers offer it for a low price to entice your customers to buy from them. Because this happens on a single platform where it is so easy to compare prices, a company may lose sales to third-party sellers unless it has some protections and controls in place.

Making a Decision

Our scorecard offers a practical way to evaluate these considerations. You can mark your answers, add up the points, and then read your score’s interpretation. If your score falls in the lowest range, then you should not consider selling on Amazon. If your score falls in the middle range, then you should consider it, but you will want to address some of the challenges before doing so. And if your score falls in the highest range, then your brand is an excellent candidate for selling on Amazon.

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Now let’s turn our attention to the implementation challenges facing companies in the second and third groups. These brands are leaning toward selling on Amazon, or they may already be doing so. What should they do to maximize their chances of success—and maximize their profits?

Increasing the Odds of Success

Let’s start with the basics. For brands to succeed on Amazon, they must first be visible on the platform. They need to have helpful, relevant titles to ensure that their products appear high up in the search results. The same is true for content on their product page. Just as they do for search engine optimization on Google, brands must select relevant keywords for their product pages. A messy or repetitive-sounding page will send consumers searching for one that looks more professional. Because customers can’t touch, feel, or try the product, copywriters must do their best to give them the information that will convert a visit into a sale. Brands should have a visually appealing product page that is easily skimmed and contains helpful information. It should include multiple images that tell a story about the product, a video, and a Q&A section.

Consider the popular candy Sour Patch Kids (SPK), which sells its products as an Amazon vendor. Initially, searching Amazon for the candy would yield about 1,000 different product listings, including many from unauthorized sellers. Each page included its own unique combination of keywords and photos, as sellers tried to optimize their pages to get customers to buy from them. SPK’s pages had just the brand name, the logo, and nutritional facts—not an optimal selection of information. Shoppers had a hard time knowing which pages were the trusted product. This was not the brand experience that the SPK team wanted.

So it took steps to optimize its presence on Amazon. It started by consolidating all its available products to just 15 listings, differing by the SKUs. The brand edited its keywords to say the name of the product, the flavor, serving size, and pack size. SPK improved the quality of its product descriptions, investing in content that more clearly and effectively described brand attributes. For example, the page featured appealing sour and sweet imagery and a grid showing the different flavors and products offered with convenient hyperlinks. The changes significantly increased the number of page views of those selling directly from SPK, pushing pages from unauthorized sellers down on the digital shelf.

Ryan Snook; C.J. Burton/Getty Images (box)

In addition, SPK evaluated the products being sold by unauthorized sellers and discovered that Amazon shoppers wanted more single-serve and treat-sized products. It launched new products in response, and those sales helped push Sour Patch Kids’ pages even higher in search results.

Another important success factor is customer reviews, which can help pique interest in products. Unfortunately, there’s a catch-22: Brands need reviews to get customers, but they can’t get customers without the reviews. To work around that, some brands explicitly ask for reviews through newsletters, social media, and Amazon’s review requests. However, brands cannot ask for positive reviews or pay for reviews, because Amazon cracks down on companies it suspects of using those tactics.

Some brands rely on outside services such as Helium 10 to increase the number of reviews. These services contact anyone who buys the product and asks for a review. Amazon also offers services to encourage reviews. Amazon Vine, for instance, gives free products to its most trusted reviewers. The program is especially useful for new and unknown products; the goal is to introduce them to testers.

Some brands add a paper card to their packaging requesting a review. Others try to leverage their influencers by encouraging them to add videos in addition to reviews on their product pages. Some brands start outreach programs to top Amazon reviewers in their categories. Again, the key is not to provide compensation in exchange for reviews or to get reviews from people who didn’t buy or use the product—both of those actions will cause Amazon to investigate.

Some brands adjust prices in order to secure more reviews. For example, Arçelik is a Turkish producer of white goods and other appliances, which it offers under various sub-brands. It sells just one of those brands, Grundig, via online platforms such as Amazon. When selling in brick-and-mortar stores, Arçelik typically unveils a new product at a high price point and then begins discounting only if sales are slow. When it began selling its Grundig appliances on Amazon, it quickly learned that the opposite strategy can make sense. “In [online] marketplaces, we start with a low price to get consumers to buy and leave reviews, and then we increase the price of the items with good ratings,” says Noyan Ceritoğlu, Arçelik’s e-commerce manager.

Next, look into Fulfillment by Amazon (FBA). Under this program, brands send their inventory to Amazon’s fulfillment centers, and Amazon does the rest. As noted previously, brands that utilize FBA often realize better ranking on the site and gain access to Amazon Prime, potentially increasing the number of orders. This allows brands to scale rapidly without developing more logistics and order-fulfillment capabilities. The downside is higher fees and strict shipping criteria for box sizes, labels, and barcodes.

Finally, brands can create a unique “Amazon store”—a strategy that’s especially relevant for brands that have multiple products. A store is a customizable online storefront with a unique web address to direct customers to. You can showcase your products, tell your brand story, and give your customers an easy way to search through all your products. A brand storefront also provides a defense against counterfeit or unauthorized sellers; it’s a way of telling your customers, “This is the real deal. This is where you should be buying.”

One brand that has found success this way is DivaCup, which sells silicon menstrual-care products. In 2018, it sold its line through a wide variety of channels, including brick-and-mortar retailers (primarily drug stores), its own website, and Amazon. Selling through Amazon was challenging, however, because several dozen unauthorized third-party sellers kept undercutting it on price. (DivaCup’s products generally retail for more than $30; on Amazon, the company found third-party sellers listing them as low as $17.) But in 2019, DivaCup changed its approach. To improve sales performance and maintain brand integrity, it doubled down on Amazon, establishing its own Amazon store. It bought advertising on Amazon to improve its positioning. It also partnered with an authorized third-party seller, granting it exclusive selling rights. DivaCup monitored results carefully and ultimately decided to sell solely through the third-party seller, a fast-growing company whose services included dedicated account management, marketing, data analytics, and brand protection and enforcement. Once it began taking legal action against unauthorized third parties, the number of them declined significantly. DivaCup’s sales on Amazon have increased, and the prices on the platform are now more in line with those in other channels.

Selling on Amazon does not have to be an all-or-nothing decision. Some brands sell a few products on Amazon while also encouraging customers to buy directly from their own website. This hybrid strategy allows them to use Amazon to build awareness and acquire customers but also drives purchasers to their own website, where margins are typically higher and data collection efforts can be more comprehensive. For best results, companies must make strategic assortment decisions, choosing which products to offer on the platform and which to sell on their own website.

For example, Magic Spoon, the digitally native, high-protein cereal brand, sells full-size boxes of cereal on its own website. (Disclosure: Matt Higgins is an investor in Magic Spoon.) When the company first started selling on Amazon, it offered only single-serve cereal boxes there. That way, customers could try the brand on Amazon and then go to the company’s website for larger sizes. Later, Magic Spoon started offering its standard variety pack of full-size cereal boxes on Amazon, but customers could try limited-edition flavors and build their own variety packs only on its own website.

. . .

Every brand should consider selling on Amazon. Some might discover that it’s not the right platform for them. They may conclude that their margins are too small, their product is too heavy, or their product category isn’t a good fit. Maybe there’s too much competition, and too much downside in lining up their product alongside competitors. These companies should continue selling through their existing channels.

But many companies will decide to sell on Amazon. And those that do should invest the time to showcase their products intelligently there. They should also consider using assortment choices to drive some customers back to their own website to buy. There is a danger in becoming over-reliant on Amazon as a sales channel, so companies must make smart choices to use the platform in a way that, while taking advantage of its scale, protects the long-term value of their brand.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Strategy or related topics Sales and marketing, Brand management, Customer strategy, Product management and Retail and consumer goods

Building Your Own Brand Platform

To sidestep the big online marketplaces, consider these four approaches.

Julian R.K. Wichmann,, Nico Wiegand,, Werner J. Reinartz 1 September, 2022

From the Magazine (September–October 2022) · Long read

Simoul Alva

Summary.

Some branded product companies are sidestepping digital aggregators like Amazon and Google Shopping and instead building their own brand flagship platforms. These platforms are more than just a direct sales channel. They provide a mix of specialized products, services, and content by involving participants—consumers and third-party businesses—in the value creation process, as both receivers and providers of value.

In this article, the authors introduce four types of brand flagship platforms: platform as instrument, as guide, as canvas, and as companion. They describe the relationship style, risks, and opportunities associated with each one.

The traditional big retail chain—like Walmart in the United States, Carrefour in France, and Kaufland in Germany—is a brand aggregator. It offers a range of branded products in multiple categories and provides information that allows consumers to make comparisons. Other retailers are more focused on particular categories—say, groceries, clothing, or furniture. Some branded goods manufacturers, such as Hugo Boss and Dyson, have successfully created their own stores to capture the trade of their loyalists. But single-brand stores tend not to be a good way to expand the customer base, at least not in the short term, so for product brands, selling via retail aggregators remains the dominant source of revenue.

Today digital platforms are disrupting retail models. A search for Adidas running shoes on Google Shopping, for example, brings up results from multiple online retailers (including Dick’s Sporting Goods, Nordstrom Rack, and DSW) as well as Adidas’s own website. Although Google receives ad revenue when shoppers follow those links, the consumer transacts directly with the brand or an online retailer, which means Google does not have to own, store, or ship most of the products it channels. This low-cost/high-customer-value model puts Google and other platforms at a considerable advantage compared with traditional retailers.

The threat posed to branded goods manufacturers appears to be even greater. First, the broad, cross-category scope offered by brand aggregators—including the largest online retailer of all, Amazon—induces consumers to start their purchase journeys on their platforms, where they often search for product classes rather than for specific brands. This enables the platform to put its own brand front and center, effectively reducing product brands to the role of suppliers.

Second, product brands struggle to differentiate themselves from competitors on brand aggregators because the platforms standardize product presentation on their pages, limiting logo placement and the ability to highlight unique selling points. The page design encourages consumers to compare brands on a few key features such as price or customer rating. What’s more, product competition occurs not only between brands but also within them, because different retailers on the platform may offer the same product at different prices.

But unlike traditional retailers, product brands may be able to turn this digital threat into an opportunity. By embracing the idea and functionalities of digital platforms, branded product manufacturers as diverse as Bosch, Nike, and Mars Whistle are sidestepping players like Amazon and instead building what we call brand flagship platforms. Brands use these platforms to considerably expand on their core value offering and establish a direct connection with consumers. They leverage platform structures to integrate third-party businesses and consumers into the value creation process. By doing so, they can provide a range of complementary products, services, and content within the broader category space surrounding their core offering. What results is an offering that addresses consumer needs more holistically and transcends a pure sales channel or the traditional product-centric perspective.

Let’s look at a few examples.

Brand Flagship Platforms

Despite their widespread success, platforms like Google Shopping and Amazon typically lack the reputation and the skills to credibly tailor customer experiences in any single category. This gives branded product manufacturers an opportunity to differentiate.

Take the case of Nike, which has created a brand flagship platform featuring its Nike Run Club and Nike Training Club apps. The platform goes beyond selling customized sports apparel to offer social events, challenges, and leaderboards provided by the community; expert guidance, motivational music playlists, and personal training provided by third parties; and inspirational content and exclusive products provided by Nike.

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The platform has become a hub serving a variety of needs for athletes. It has also doubled as a springboard, launching Nike into adjacent categories, including mental health when it partnered with third-party meditation brand Headspace. In addition, Nike has entered the nutrition category by offering recipes. In the future, the company may advance even further into these fitness-adjacent categories.

Consumers benefit from Nike’s expansion by being able to mix and match different components of its offerings to create the product-service-content combinations that best fit their needs. Nike benefits as well: By drawing its most engaged customers directly to its own sales channels, it can eliminate intermediaries, sell products at higher margins, and display its wares without clutter and comparison from competing brands. In 2021, sales of products from Nike’s website and apps totaled $9.1 billion, up from $5.5 billion a year earlier. That’s 21% of the company’s total revenues, and about half of its sales from all digital channels (including other online retailers), making it increasingly independent from aggregators.

Another example is German toolmaker Bosch’s DIY & Garden platform, which allows consumers to view inspirational home projects, discuss tools and techniques in forums, register and organize their tools, receive expert advice, participate in DIY challenges, and collect points and badges, among other activities. The platform provides a rich array of products, services, and content around consumers’ idiosyncratic DIY needs, offering them a more specialized yet more comprehensive online experience than brand aggregation platforms can. The associated app is highly regarded by users, garnering a greater than 4-star rating on Apple’s and Google’s app stores.

Leveraging Platform Communities

Brand flagship platforms don’t just provide a direct sales channel—they create an ecosystem around the brand. These platforms provide their mix of specialized products, services, and content by involving other participants—regular consumers, professionals, and third-party businesses—in the value creation process, both as receivers and providers of value.

Crowdsourcing.

As we define it, crowdsourcing means that participants draw value from other platform participants. That could be by purchasing new products or services from third-party vendors or used products from other consumers, if the site supports that. Participants also crowdsource when they go to forums for advice from other consumers about what products to buy or how to maintain them, or when they tap the expertise of third parties on the site.

Crowdsending.

This term, which is our own coinage, refers to participants providing value to the platform and other participants by contributing products, services, and content. On a fitness platform like Adidas Runtastic, for example, participants can offer training schedules they have designed, share favorite running routes annotated with performance stats and photos, or provide instructional videos on how to use the products and services available on the site.

The intensity of crowdsourcing and crowdsending can vary considerably by platform, which has implications for the platform-consumer relationships that emerge. Some platforms may foster extensive and intimate crowdsourcing and crowdsending activities, such as engaging in discussions, sharing photos or personal information, or following behavioral guidance, for example, when consumers adopt dietary recommendations provided by the crowd. These intense interactions can yield a deep and lasting relationship in which consumers embed the platform into their daily lives.

Other brand flagship platforms may enforce tighter limits on crowdsourcing and crowdsending in favor of retaining greater control over the interactions taking place. This results in less frequent, less varied, and less intimate interactions. For example, instead of allowing free communication among participants, some platforms restrict interactions to mere ratings, likes, and upvotes. Naturally, by limiting participants to superficial interactions, only superficial relationships are likely to emerge.

We distinguish between brand flagship platforms by classifying them into four different relationship styles, each of which comes with its own set of characteristics, opportunities, and risks. Managers should carefully design their brand flagship platform in order to foster the desired relationship style.

1. The platform as an instrument.

Platforms in this category are characterized by low degrees of both crowdsourcing and crowdsending. Interactions tend to be superficial, and value creation centers on a core product or service. Functionalities commonly focus on enabling transactions (rating and reviewing products or answering product-related questions, for example) or providing feature extensions to a core offering (such as smart features that track wear and tear on a running shoe).

Consumers adopt a utilitarian attitude to these platforms, treating them as instruments to satisfy immediate consumption-related needs, and their loyalty will be contingent on a platform’s ability to provide functional benefits such as convenient transactions and low prices. They will quickly abandon the platform if a competitor offers greater benefits.

Aside from the narrow product focus, in many ways this approach to consumers is most similar to that of brand aggregation platforms. It can be a useful approach for brands that want a high level of control over interactions. For example, Philips extends many of its personal-care products with smart functionalities. With its Sonicare electric toothbrushes, for instance, consumers can track their dental care and order replacement heads. Because consumers are likely to want their health information to remain private, a controlled and tightly governed approach to the platform is sensible.

2. The platform as a guide.

These platforms are characterized by high degrees of crowdsourcing but low degrees of crowdsending. In other words, consumers buy or reap value from the brand and third-party businesses but generally do not provide much value themselves. Platform owners in this category often invite companies and professionals in adjacent spaces to join in order to broaden the platform’s scope. The platform serves as a guide for consumers in their pursuit of various but related needs, which engenders a genuine attachment to the platform’s brand.

The platform-as-guide model is well suited for brands operating in or expanding into categories where value—be it related to expertise or product—comes largely from companies and professionals rather than consumers. This is characteristic of complex categories in which safety and reliability are important and where performance improvements are achieved through careful research.

A good example is the Mars-owned pet-care brand Whistle. Its smart collars not only track a dog’s location and behavior but also provide health advice. Animal health is a complex category that is best left to professionals, so when consumers seek health advice for their pet, Whistle connects them with third-party veterinarians. In this way, the platform can ensure a high-quality, safe, and reliable service.

Brands that try to build category-wide platforms do face risks. They may experience brand dilution as more third-party providers interact with consumers. In addition, they miss out on the value that could be created by more intense crowdsending. Because consumers are not deeply integrated into the value creation process, the platform always remains somewhat generic and lacks the personalized experiences that consumer crowdsending can generate. And as needs evolve over time, the platform risks becoming out of touch without input from consumers.

3. The platform as a canvas.

On these platforms, consumers engage in intense crowdsending, but the amount of crowdsourcing is limited. Value creation typically centers around the core brand and requires a relaxed governance style in order to allow for free-flowing consumer interaction. The resulting engagement with the brand and its core offering leads to a strong attachment, what marketers call warm loyalty. (Cold loyalty refers to mere repeat buying whereas hot loyalty means consumers identify strongly with a brand.)

Branded products that serve as core materials for work done by consumers and around which user communities can form are best suited for this type of platform. Lego is a case in point. The value of Lego bricks lies in the fact that almost anyone can use them to create complex and imaginative projects. This means that consumers can provide a lot of value to other Lego enthusiasts—they don’t have to be professionals to offer advice or inspiration.

On Lego’s Ideas platform, consumers can upload their own builds and comment on and rate the original creations of other participants. Lego encourages this crowdsending by running contests, awarding prizes, and even manufacturing popular builds and paying royalties to their creators. Brands with platforms in this category can derive considerable benefits from the strong communities that result. Interactions among participants can stimulate sales, and R&D managers can identify opportunities for product extensions by analyzing consumer activity and other site data. Lego’s platform has provided the company with new and well-tested product ideas.

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This model presents some risks, many of them shared with social media platforms such as Facebook, YouTube, and LinkedIn. Consumer-to-consumer interactions can be difficult to control, and the site may suffer when abuse occurs among participants. On a platform like Lego, people may, for example, publish offensive designs or verbally assault creators—some of whom may be children. Companies managing these sites need to monitor and moderate the conversations carefully, preserving the positive benefits of an open community while protecting their users.

4. The platform as a companion.

These platforms feature both intense crowdsourcing and crowdsending. Consumers may, for example, follow a step-by-step guide to building a children’s bed from shipping pallets on Bosch’s DIY & Garden platform and share their progress with the crowd. Other consumers can react by applauding a completed project or offering advice on ones in progress. The platform owner and third-party suppliers can also offer advice and services such as expert consultation, maintenance services, and tools, depending on consumers’ needs and goals at a given time.

With this intense integration in both directions, the platform can grow with the consumer. Someone with two left hands might join Bosch’s DIY platform and over time evolve into an experienced handyperson. The platform can evolve as well, providing access to relevant information, products, and services as needs change.

This model creates feelings of attachment and identification, resulting in what we call hot loyalty—a dynamic in which consumers integrate the platform ever more deeply into their daily lives. The platform becomes more like a companion than a guide—helping users tackle projects, suggesting which tools and materials to buy, and offering maintenance services for equipment. DIYers, in turn, share their experiences with other consumers, create build guides, educate novices, and take on increasingly challenging projects.

If the rewards are increased, though, so are the risks. The platform’s owner may dilute its brand identity (and sales) by giving third parties too much access to its community, as we saw with the platform-as-guide model. At the same time, it faces the risks associated with the platform-as-canvas approach that encourages direct interactions among consumers. For instance, on brand platforms that allow consumers to engage in freewheeling conversation, it’s not uncommon for someone to ask for opinions on other products—which sometimes results in glowing testimonials for a competitor.

Making a Smart Transition

Because brands have legacy structures and a core business to protect, going for an “all or nothing” transition to a flagship platform is risky. Brands are better off easing into a platform, starting by offering complementary services and products that are close to its core business and positioning, and adding on layers gradually. For example, when Douglas, Europe’s largest perfume retailer, started its platform, it was already running a flourishing online shop. The company added 20 select partners from adjacent categories such as natural cosmetics and accessories. It gradually expanded the network by adding another 70 partners, carefully curating the platform to match its intended positioning and quality standards, tripling its product assortment in the process. This approach allowed Douglas to build up experience and expertise and maintain a consistent and strong brand positioning.

Simoul Alva

Moving slowly also gives consumers the time to join and begin contributing organically. Brands are often trapped in a mindset that encourages them to make new offerings themselves, instead of “buying” them (from third-party businesses) or “earning” them (from consumers). But on a flagship platform, the best offerings are the result of careful and purposeful orchestration of value-creating interactions among platform participants.

Take the case of Thingiverse, the platform of 3D-printer manufacturer MakerBot. The site allows consumers to buy and customize designs, share and sell their own 3D designs, order printed parts, access a variety of apps, and engage with a community of makers—all while being agnostic to which 3D printer a participant uses. As such, MakerBot has moved beyond solely producing 3D printers to orchestrating a lively community and marketplace for tinkerers.

Optimizing all interactions is more complex than optimizing the brand’s own sales. There are many trade-offs to consider. A brand that integrates an open social community to gain value through crowdsending risks unrestrained and harmful consumer interactions. A brand that fosters competition between complementary providers increases its crowdsourcing value to consumers but reduces the attractiveness of its platform to suppliers. Brands need to take an inventory of their various constituents, weighing the benefits the platform provides for them and the conflicts that may arise, and establish appropriate governance mechanisms.

Most important, brands must be willing to share. When Goldman Sachs launched its investment platform Simon, for example, it found that buyer-side brokers were eager to join but the rival banks that were supposed to create and sell the investment products on the platform remained hesitant. Goldman Sachs slowly opened its traditionally well-guarded proprietary research and analytical tools to entice participants. Later, it opened up ownership of the platform by spinning it off and offering rival banks a stake. Although Goldman Sachs took a risk in sharing its assets with competitors, it was rewarded with a thriving platform.

Clearly, brand flagship platforms require substantial investments in infrastructure and organizational change. Brands previously focused on manufacturing must build up expertise in market research and analytics, allocate significant budgets to partner-management teams for third-party integration, and shift their focus to managing user experience and engagement instead of just product sales. This doesn’t come cheap: For example, Adidas’s acquisition of Runtastic cost $240 million, and the business unit employs 280 people.

Adjusting Metrics

Brands may be tempted to measure the success of a platform by revenues alone. That’s a mistake. If the brand’s own product sales make up an ever-smaller part of its platform business, its reporting metrics need to reflect that change. In brand flagship platforms, value stems from a variety of sources: value to the brand from its products and from intermediation, value to third parties from access to new customers, and value to consumers from crowdsourcing and crowdsending activities. A revised tracking and analysis system should define performance indicators from each of those value sources, akin to a balanced scorecard approach, to manage the new business model more accurately.

Brand flagship platforms don’t just provide a direct sales channel; they create an ecosystem around the brand.

Very often sales and market share can take a backseat: The brand can now reap new monetary benefits from intermediation, such as commissions, subscription fees, and ad revenues, and nonmonetary benefits from consumer insights and direct feedback. Amazon has used such insights for years to identify potential business opportunities and optimize the customer experience on its site. Brands should also incorporate individual or segment-level indicators to measure value to third parties, such as number of customers and their usage and ratings of third-party offerings.

Companies will need metrics that capture the value of crowdsourcing and crowdsending to consumers in order to identify gaps and restrictions on the demand side. High-level metrics like overall growth, user satisfaction, and users’ willingness to recommend the platform could be augmented with analyses of search results or micro-conversions (for particular platform features), to name just two examples. Netflix, for instance, focuses not only on subscriber numbers but also on viewing time. In the B2B context, firms like Rolls-Royce and GE are shifting to outcome-focused measures of value creation such as actual usage and uptime of their equipment. Similarly, Adidas’s loyalty program rewards customers for purchases as well as for engagement with the platform and its community through sharing workouts, participating in events, and reviewing products.

. . .

Traditional product brands have a great advantage over their digital rivals: history. They are well positioned to challenge the brand aggregators that dominate the market today—not by beating them at their own game but by differentiating themselves on the basis of a strong brand, a unique value proposition, and deep consumer relationships. By leveraging platform structures, they can integrate consumers and third-party businesses into the creation of personalized value propositions, going well beyond the aggregators’ formula of offering a broad product range and low prices. This shift may usher in a new phase of branding, where the goal is to orchestrate value-creating interactions and meet the whole of your customers’ needs rather than just promoting individual products. While this move comes with its own set of risks, it offers product brands a way to fend off competition from brand aggregators, capitalize on the weaknesses of their platforms, and establish a direct interface with consumers.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Strategy or related topics Sales and marketing, Brand management, Digital transformation, Innovation, Consumer behavior and Retail and consumer goods

Selling on TikTok and Taobao

The growing power of online video platforms

Thomas S. Robertson 1 September, 2022

From the Magazine (September–October 2022) · Long read

Ryan Snook; Neil Godwin/Future Publishing via Getty Images (phone)

Summary.

In China, livestream commerce—selling products via live video on platforms such as Taobao and TikTok—will account for as much as 20% to 25% of online sales in 2023. In the United States, it accounted for $11 billion in sales in 2021, and growth is increasing dramatically. It’s no wonder brands as diverse as Nordstrom, Petco, and Walmart are embracing the format.

This article explains why consumers are so drawn to livestream commerce and what’s motivating companies to use it. No single company has yet cracked the code for livestream-channel success, but the author lays out lessons from early successes, including which type of platform to choose, how to select influencers, and how to measure your efforts.

As fashion shows go, the one that took place on Facebook Live in April 2021 was unique. The first model to strut down the catwalk was Cindy, a seven-month-old puppy wearing a green and blue canine flotation device. Next up was Mandalay, a tan dog wearing a fleece hoodie with built-in backpack. The omnichannel team at Petco, headed by chief marketing officer Katie Nauman, organized the livestream event, which highlighted canine outfits from two of its house brands. Each item modeled was featured prominently at the bottom of the screen. “If you see something you like, you can just click it and immediately make your purchase,” the host explained. “Get your wallets ready!”

Consumers responded. The event, which lasted just 22 minutes, drew 200,000 live viewers; six months later, nearly 1 million people had watched clips from the show. Sales from the event were twice the cost of producing it; engagement was 2.6 times higher than organizers had expected; and all seven models (provided by a rescue shelter) were adopted afterward. The doggy fashion show was Petco’s first foray into livestream commerce but not its last: Three months later, a livestreamed sports competition for dogs, Petco Field Day, drew 2.4 million viewers and generated twice the return on investment as the fashion show did.

In the 1980s the QVC and HSN cable channels, together with a host of infomercial producers, demonstrated the power of selling on television. Over the past decade the format has migrated to the internet, where online streaming video that offers the ability to purchase in real time—or livestream commerce—is fast becoming the medium of choice. Today brands can sell via video on a host of platforms, such as YouTube Live, Instagram Live, LinkedIn Live, Facebook Live, Twitch, Twitter, and TikTok.

In China, where Alibaba’s Taobao platform provides an app that integrates product demonstration with the ability to purchase instantly, the livestream commerce market hit 1.2 trillion yuan (roughly $200 billion) in 2020, accounting for 10% of the online shopping market. It is projected to account for as much as 20% to 25% of online sales in 2023, according to iResearch China. In the United States, livestream commerce accounted for $6 billion in sales in 2020 and $11 billion in 2021, and growth is increasing dramatically: Revenues in 2023 are projected to reach $26 billion, according to Statista.

In the United States, livestream commerce has proven particularly attractive to beauty and fashion brands. At Nordstrom, for instance, 50% of livestream events were beauty focused in 2021. But a growing range of companies are also beginning to offer products and services via livestream, including Ferragamo and Cartier in luxury goods, Lowe’s in home improvement, and Walmart in multiple product categories. Walmart’s entry in particular illustrates how established brands are embracing livestream commerce as a way to build consumer engagement and present a modern, innovative image to customers. One sign of the format’s potential: Although Walmart has some 4,700 U.S. stores and more than 10,000 worldwide, its chief marketing officer, William White, says, “The future of retail lies in social commerce.” Walmart is scheduled to run more than 100 livestream events in 2022, up from 30 in 2021.

In this article I explore the forces propelling the rise of livestream commerce, explain the motivations of brands experimenting with the format, and offer guidance to companies as they consider the smartest ways to invest in this emerging channel.

What’s Driving Livestream Commerce

In a typical livestream-commerce event, the consumer watches product demonstrations presented by influencers (also called hosts or creators and referred to as KOLs or “key opinion leaders” in China). Hosts are chosen for their personality, influence, or knowledge (or a combination of those factors), and they help to make the experience entertaining for participants.

Some of the excitement around the livestream format stems from its embrace of video. Research has shown that video achieves greater engagement than does text or still photography. Now that traditional e-commerce is a quarter-century old, consumers find it boring. It’s becoming difficult for more static websites to generate much enthusiasm, particularly among Gen Z and younger Millennial consumers. Yes, young people still buy from Amazon—but so do their parents and grandparents. It’s not surprising that they prefer a fresher alternative.

The ubiquity of smartphones and the dominance of social media are also drivers. In study after study, social media is found to have the greatest influence on the buying patterns of Gen Z consumers, with Millennials not far behind. Social media sites are designed to be sticky, and many are designed for, or work well with, livestream commerce. In China, for example, the sheer dominance of Taobao Live guarantees a sizable audience when a company hosts a livestream event. Although most of the large U.S. social-media platforms are embracing livestream commerce, the favored format seems to be TikTok, the short-form platform featuring user-generated video and owned by China-based ByteDance. TikTok has the advantage of being designed for video, whereas other platforms are being retrofitted to accommodate video. People express themselves on TikTok through dance, comedy, tutorials, and wherever else their imagination takes them. Its demographics are young—41% of users are between the ages of 16 and 24, and 90% of those users open the app daily. That means there’s always an audience for brands to sell to on TikTok.

Livestream commerce also creates a sense of community. While traditional online shopping is solitary, livestream commerce has a communal feel—similar to watching the Super Bowl. Consumers are able to see and be seen in what might be thought of as a meaningful social moment. Moreover, they can gain social currency with friends for attending a novel event. Or they may develop friendships by participating in livestream events. TikTok, for instance, uses an algorithm to connect people with similar interests. QVC, as it has morphed beyond cable to include livestream commerce, now has dedicated YouTube channels that seek to connect people with overlapping interests—whether in beauty, jewelry, food, or home furnishings. When consumers feel that they are among “friends,” they have a more pleasurable shopping experience. Feeling a sense of community may also help buyers to rationalize their purchases, because affirmation is perceived or confirmed when they buy the same things that others are buying. Social imitation is a powerful force.

That is why influencers are so essential to livestream commerce. Marketers have always known the value of personal influence. It is often cited by consumers as the most important reason for a purchase. Today’s opinion leaders may have millions of followers. Walmart’s U.S. Holiday 2020 livestream commerce event on TikTok featured Michael Le, an influencer with approximately 50 million followers, in a variety show featuring national and private-label fashion brands for sale.

What’s in It for Companies

An obvious reason companies are embracing livestream commerce is to drive short-run revenue, but it’s not the only one. According to interviews with executives at a range of companies experimenting with the format, there are five main objectives: generate immediate sales, reach new consumer segments, introduce new products, educate consumers, and create buzz.

Generate immediate sales.

A boost to short-run sales is usually the objective for low-commitment products and services—those that are not too expensive or complicated. Indeed, much of the success of the Taobao Live platform in China comes from livestreaming in these product categories. Events can be surprisingly informal and improvised: Some 60% of Taobao Live sessions are broadcast from stores and use sales associates as the demonstrators and KOLs. Taobao executives like to say that all you need in order to sell on their platform is a camera and a mobile phone. Similarly, in the United States, Nordstrom has had success with livestream shopping events hosted by store employees. These efforts represent true online/offline integration and a new form of the omnichannel approach.

Reach new consumer segments.

Livestream is most popular with members of Gen Z and younger Millennials—attractive target markets for many brands. As Daniella Vitale, Ferragamo’s North America CEO, points out, the demographics for most luxury brands skew older, yet the brands must reach younger consumers to build their future success. To do that, Vitale’s team selects celebrities and influencers and arranges TikTok events that run on influencers’ channels, since those sites are considered “more authentic” than a channel owned by the brand.

Introduce new products.

Livestream commerce has produced some dramatic results for companies launching new products. Jimmy Choo, for example, has had substantial success in Asia launching sneakers at high price points. Helene Phillips, Jimmy Choo’s senior vice president, tells of success using KOLs on a livestream commerce event that reached 16 million eyeballs and sold 300 pairs of sneakers in minutes on Tmall. That may not seem like high demand, but as Phillips explains, scarcity is critical for luxury products: “You want to sell out quickly, and you can’t be too available.”

Educate consumers.

Livestreaming is a powerful means of not only making consumers aware of product alternatives or categories but also of teaching consumers how to use a product. Lowe’s runs livestream commerce events to educate viewers on product usage and to drive online sales. Livestream fashion shows introduce consumers to new styles and encourage sales during the runway event. Livestream cooking demonstrations give participants the ability to purchase ingredients or utensils. Albertsons, the mega supermarket chain, has run its own successful livestream commerce events using the Firework platform. A more direct form of education occurs when consumers can livestream with a sales associate in the store. Using an app such as Hero, a consumer can chat with a sales associate who can explain a product and send photos.

Create buzz.

When done well, livestream commerce events generate buzz thanks to their novelty, the sense of community they can build, and the excitement the hosts create. Mark Yuan, the cofounder of Wonder Live Shopping, a livestream commerce platform in beta testing, explains that when consumers develop a habit of accessing the same influencer channel on the app site, they become loyal to the host and that community. A successful livestream event can lead to more sales after the event—largely owing to word of mouth. This cascade effect depends on the product category: Fashion and luxury brands, for instance, may provide a high social value to consumers who share them with friends and acquaintances. The higher hedonic value of such brands creates more positive emotions that lead to buzz. Alternatively, buzz may be a natural outcome of a passionate enthusiast community. The start-up Whatnot focuses on collector and enthusiast audiences and, according to CEO Grant LaFontaine, when viewers have a great experience, they talk about it because it becomes part of their identity.

A Guide for Companies

Particularly in the United States, livestream commerce is still an experimental channel, and no single company has yet cracked the code. As your company begins experimenting with it, here are the key factors to consider.

Integrate it into your marketing strategy.

Companies will follow different paths to achieve livestream commerce success. But the first principle for all of them is that livestream must be part of the overall marketing strategy. Livestream is not an independent marketing vehicle—it’s just a new channel. What is presented on livestream must be compatible with product line plans, brand positioning, and overall communication objectives.

For many companies, livestream commerce is proving particularly effective as a way to build rapid awareness and to try out new products or test new markets. Because the focus is on immediate purchases, customers tend to buy more quickly while watching a livestream event than when browsing in a store. Amanda Baldwin, CEO of Supergoop!, says that when it launched in China, livestream commerce gave the brand immediate visibility, which is atypical for a brand of its size just starting out.

After an event, other elements of marketing strategy come into play to generate repeat purchases and long-term loyalty. Social media, direct mail, and advertising build and extend customer engagement to generate (more) buzz and reach additional customers.

Recognize the learning curve.

As with any new go-to-market vehicle, success won’t happen instantly, and managers must ask questions to fine-tune their approach. Are we reaching the correct audience? Are we using the right technology? Is the content appropriate for the audience? Executives conducting livestream commerce events generally say that their first efforts were suboptimal but that they learned from them and built successful processes for future events. “It can’t just be a camera in a store,” says Ferragamo’s Vitale. “Production values are critical to reflect the status of luxury brands.” Brands in various product categories will learn different lessons from their initial forays.

Run livestream events when there is news.

Novelty or newness is highly correlated with sales success. Offering a special product available only during the livestream is one way to create novelty. Newness can be created by seasonality—marking holidays or special times of year like back to school. Many brands build their livestream commerce schedule around holidays that are meaningful for their product categories. This sort of promotion planning is familiar territory to most brands. Nordstrom Senior VP Fanya Chandler suggests that brands should identify a regular cadence for livestream commerce events so that consumers can plan when to attend.

Select optimal platforms.

Many players are racing to build livestream commerce solutions. Retailers have a range of options to choose from.

Native social platforms, such as TikTok, Instagram, Facebook, and YouTube, are layering new functionality for livestream commerce into their existing platforms, hoping to capitalize on their massive audiences.

Marketplace platforms, such as Amazon, are building livestream capabilities (such as Amazon Live) into their existing e-commerce infrastructure to give buyers and sellers a new way to interact. Additionally, start-ups such as Whatnot and NTWRK are building marketplace platforms with the objective of providing a seamless experience for buyers and sellers to make transactions within a livestream video format, similar to Taobao in China.

Licensed software providers, such as CommentSold, Bambuser, and Firework, are enabling companies to run livestream commerce events on their own websites and apps, giving companies more control over their customers’ experiences and data.

Livestream commerce has a communal feel, which may help buyers rationalize their purchases. Social imitation is a powerful force.

Although all three approaches hold promise, competition is intense, and each has its own challenges. Social media platforms have the advantages of reach and scale, but their ad-based business models and natively social tech design are inhibitors to optimizing the livestream experience for consumers. Alternatively, e-commerce marketplaces are more tailored to selling, and therefore may be better positioned to integrate livestream commerce. But Amazon, at least, has famously prioritized efficiency over user experience on its site. Marketplace start-ups are laser-focused on experience and capturing communities of enthusiasts to gain traction, but they rapidly must scale their double-sided marketplaces (brands and consumers) to win adequate share. Lastly, licensed software allows for companies to embrace livestream commerce while closely controlling the experience and resulting data, but this approach limits reach to audiences already engaged on their own websites.

For companies, the choice of platform is largely driven by which market segments are the priority, because the different platforms have different demographics. Consideration also must be given to the typical content featured on the platforms. NTWRK, for example, is particularly strong in streetwear and gaming, and might be the right choice for brands operating in that space.

Select your influencers wisely.

There should be a match between the brand’s persona and the persona of the influencer. Brands utilizing more than one platform may need to choose a variety of influencers. The size of the influencer’s following is, of course, a significant variable. Brands should ask, What number of consumers is the influencer likely to bring to the livestream event? There is some debate among companies as to the value of macro versus micro influencers. The latter may deliver fewer numbers, but customers may consider them to be more authentic. That quality is particularly relevant in product categories where genuine expertise is valued.

Measure your livestream success.

When making livestream commerce commitments, companies must track four metrics: audience size, audience engagement, short-run sales, and long-run impact.

When it comes to audience size, bigger is usually better, but it depends on the breadth of the market segment you are trying to reach and whether the product has mass appeal. The bias for most companies is to reach larger audiences via livestream. Traditional forms of marketing are then used to build awareness for upcoming livestream events to drive future attendance.

Audience engagement can be measured during the event by the quantity and quality of interaction between audience members and the host. On most livestream platforms, viewers have the ability to comment, to ask questions about the product, and to register “likes.” After the event, companies may also track Net Promoter Scores. Greater engagement levels are assumed to signal a more positive customer sentiment toward the product and the host, and brands can gather meaningful data from this real-time feedback.

The ultimate benefit of livestream commerce is the consumer’s ability to purchase items in real time without leaving the stream. Thus, sales during the event are an obvious performance metric. Companies predict sales for a livestream event by setting a target conversion rate given the size of the audience and conversion experiences from previous events.

The long-term impact of livestream events is harder to define, but similar to other marketing campaigns that generate buzz, it may be tracked in part by social media comments and coverage in mass media. And although livestream commerce does tend to shorten the customer journey when compared with other selling environments, companies should recognize that viewers who have not purchased today may still be interested in their products. So when measuring the long-term impact, brands should understand that viewers of livestream events may convert to customers at a later date. Therefore, marketers will need to find ways to create ongoing connections with livestream viewers.

. . .

Livestream commerce is at an inflection point in the United States. Marketing executives have been creating their own road maps, experimenting and investing in livestream commerce as part of their integrated marketing strategies. To gain early mover advantage and reap network effects, companies need to start early, learn fast, and build large audiences before competitors can make significant inroads. The spoils will go to the companies that get it right quickly.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Strategy or related topics Sales and marketing, Web-based technologies, Social marketing, Social media, Consumer behavior and Marketing

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Strategy-Making in Turbulent Times

A dynamic new model

Michael Mankins, Mark Gottfredson 1 September, 2022

From the Magazine (September–October 2022) · Long read

Jamie Chung/Trunk Archive

Summary.

In the traditional strategic-planning model, managers attempt to forecast how markets will evolve and competitors will respond, and then define a multiyear plan to position their company to win in this future state. That worked well when markets were more stable and the primary factors influencing future growth and profitability were easier to forecast. But the world is now changing so quickly that no business can plan for every eventuality. And fewer than a quarter of large organizations employ the most notable tools and frameworks for strategy development under uncertainty: scenario planning, Monte Carlo simulation, and real options analysis. Executives say that those tools require data that is impractical to gather and analysis that is too expensive to execute routinely and that their output can be counterintuitive and complicated to explain to senior leadership and the board.

In this article the authors offer a new approach and mindset for making strategic decisions, along with a new model for managing strategy development and performance monitoring. They describe what it takes to produce great results in uncertain times and propose a practical model for strategy development that they have seen succeed at several leading companies.

Idea in Brief

The Problem

Few companies use the strategic tool kit—scenario planning, Monte Carlo simulation, and real options—for strategy development under uncertainty. Most have stuck with conventional techniques for strategy-making, to the detriment of customers, shareholders, and other stakeholders.

Why It Happens

Executives complain that the tools require data that is impractical to gather and analysis that is too expensive to perform routinely. Moreover, the output can be counterintuitive and complicated to explain to senior leaders and a company’s board.

How to Fix It

Business leaders need to think of strategy-making as a continuous process that generates a living, dynamic plan. That demands a new approach and mindset for making decisions along with a new model, proposed here, for strategy development and performance monitoring.

In crafting strategy, companies often struggle to cope with volatility. Using the traditional strategic-planning model, managers attempt to forecast how markets will evolve and competitors will respond, and then define a multiyear plan for winning in that future state. The organization is then called upon to execute that plan. Performance is routinely monitored, ostensibly to keep everyone on track.

That approach worked well when markets were more stable and the primary factors influencing future growth and profitability were easier to forecast. Consider commercial aviation. From 1980 to 2000 growth in that sector was relatively constant, with air traffic miles growing at just under 5% a year. Manufacturers and airlines employed discrete models to assess investments in new commercial-airplane programs and to plan fleets. Airbus and Boeing expanded aggressively over those two decades: The global fleet tripled from 5,000 to nearly 15,000 aircraft.

But then came the 9/11 terrorist attacks, wars in Iraq and Afghanistan, oil price spikes, the global financial crisis, environmental concerns, SARS, and Covid-19. Forecasting commercial air travel became arduous and complex and was frequently wrong. And that’s just one industry.

Most companies have stuck with conventional techniques for strategy-making, to the detriment of customers, shareholders, and other stakeholders.

The world is now changing so quickly that no business can plan for every eventuality. Scholars and practitioners have spent years crafting tools and frameworks for strategy development under uncertainty—including, most notably, scenario planning, Monte Carlo simulation, and real options analysis. Each of those represented a significant advance. Scenario planning, which became popular in the 1970s, encouraged executives to consider multiple future states in assessing strategic investments, rather than rely on a single, deterministic forecast. Monte Carlo simulation went even further, specifying a probability distribution for each critical variable and then running thousands of simulations so that executives would focus on the distribution of potential outcomes as much as on any prediction of the most likely one. Real options analysis emerged as a further refinement in the 1980s, explicitly incorporating flexibility in the consideration of strategic investments.

But none of those techniques has caught on widely. Fewer than a quarter of large organizations regularly apply them in capital budgeting, fewer still in strategic planning. Executives tell us that the tools require data that is impractical to gather and analysis that is too expensive to perform routinely. Moreover, the output can be counterintuitive and complicated to explain to senior leaders and a company’s board. The upshot: Most companies have stuck with conventional techniques for strategy-making—even in the face of extreme volatility—to the detriment of customers, shareholders, and other stakeholders.

We believe that business leaders need to reconsider what good strategy looks like in turbulent times—and to think of strategy-making as a continuous process that generates a living, dynamic plan. In this article we describe what it takes to produce great results during uncertainty and propose a practical model for strategy development that we have seen work at several leading companies.

A Continuous Process

Dell Technologies is one company that has made the shift. In 2014, shortly after Michael Dell took his company private, its leaders put in place a new, continuous approach to strategy development and resource allocation. At its core is the “Dell agenda,” a backlog of strategic issues and opportunities that must be addressed to improve the long-term performance and intrinsic value of the company. Rather than devise a “strategic plan” to address the agenda, Dell’s executive leadership team defines a multiyear outlook (MYO) for each of the company’s businesses. The MYO establishes a forecast for the performance trajectory of each business on the basis of decisions leadership has already made; it does not incorporate decisions that leaders might make in the future.

Jamie Chung/Trunk Archive

The MYO is compared with a multiyear performance goal that is defined separately and tied to leadership’s strategic and financial aspirations for the company. Invariably a gap exists between the MYO and those aspirations. This is helpful and a cornerstone of the approach: The Dell agenda focuses the company’s executives on making the decisions necessary to close that gap. Moreover, the Dell agenda is evergreen: As soon as one issue has effectively been addressed (and the MYO updated to reflect the resulting performance commitments), a new issue is added to the agenda from the backlog. As a result, Dell has a “living plan”—which captures all decisions that have been made—and a process focused on making decisions to drive better performance.

Thinking of strategy-making as continuous and generating a living plan enables executives to build on what’s best about existing tools for coping with uncertainty—leading to more-flexible strategies and more-agile strategy-making.

Let’s look in detail at the five steps of this new approach and how each leverages the tool kit for strategy-making under uncertainty.

1. Define Extreme but Plausible Scenarios

Companies that employ scenario planning attempt to forecast how political, economic, technological, and social conditions may evolve. They then develop best-case, worst-case, and base-case scenarios that are probability weighted to assess strategic moves.

In our experience, looking at scenarios in that way too often produces incremental thinking—tweaks in a company’s current direction rather than a wholesale change in course, which is often what’s needed. Breakthrough insights come from examining what we call extreme but plausible scenarios. The goal of this analysis is not to understand which outcome is most probable but to uncover new and different ways to compete and win, given a plethora of possible outcomes, and to reveal “no regret” moves that should prove worthwhile under most scenarios.

Consider CMS Energy, Michigan’s largest electric and natural gas utility. A decade ago the company’s leaders recognized that the fundamentals of its business were changing rapidly. CMS was facing a dynamic regulatory environment; the emergence of new generation and distribution technologies; changes in the supply and cost of critical inputs for coal, gas, and nuclear power; and evolving market conditions that affected the demand for electricity locally and nationwide. Amid this uncertainty CMS needed to determine which strategic investments to make and when to make them.

Historically the company had developed investment plans by carefully examining futures prices for coal and natural gas along with forecasts for future rates based on discussions with regulators. Had CMS stuck with that approach, it probably would have continued along its prior path—investing incrementally in additional gas and electric capacity and waiting for changes in regulation or competition to threaten its profitability before altering course.

But CMS chose to employ a different model. Its leaders developed four extreme but plausible scenarios: deregulation (which envisioned a near-complete deregulation of the interstate electricity market); elimination of hub-and-spoke (which foresaw point-to-point flows of power across state lines); decarbonization (which anticipated a rapid increase in environmental regulations); and abundant gas (which built on the possibility that new sources would provide low-cost natural gas to the U.S. market). None of those scenarios was viewed as likely. Rather, they represented outcomes that the company might face, each with a very different impact on CMS’s core utility business.

Using an analysis of the company’s position under each of the four scenarios, the executive leadership team identified several no-regret moves, such as deleveraging CMS’s balance sheet, improving customer advocacy to help manage regulatory risk, and finding ways to reduce the costs of fuel and purchased power. Those actions would be valuable under all four scenarios. Leaders also saw the potential to reconfigure the company’s generation portfolio according to the availability and cost of natural gas balanced against pressures for decarbonization. As important, CMS discovered that its traditional strategy of incrementally adding capacity was risky under all four scenarios: It would leave the company vulnerable to assault by regulators and competitors and behind potential changes in the market for electrical power. In fact, no one anticipated at the time that natural gas prices would fall some 67% in 2014, but that’s exactly what happened.

Investing in strategic hedges and options is not the same as placing a bet on every square. Juggling competing bets dilutes leadership focus and squanders scarce talent.

Because leadership had identified extreme but plausible scenarios as opposed to most-likely scenarios, the company was better placed than competitors to switch generation from coal to gas quickly, which put CMS Energy in the top decile of utilities in terms of shareholder returns from 2015 to 2020.

2. Identify Strategic Hedges and Options

In an uncertain world, flexibility has tremendous value. If at the start of your commute you foresee the potential for traffic congestion, for instance, you might choose to avoid an elevated highway (with few off-ramps or on-ramps) and take a more flexible if longer route to save time. Likewise, leaders can incorporate the value of flexibility—in the form of hedges and options—into their strategic decision-making.

Real options analysis emerged as a methodology to help companies better account for this value. A real option represents a right but not an obligation to undertake some business decision, which means that the option holder can delay further investment until additional information has been analyzed. Techniques based on financial option pricing allow analysts—given the right data—to quantify the value of being able to delay or walk away from an investment. In the early 2000s real options analysis was widely seen as a cutting-edge tool for valuing natural resource investments, formulating new product-development plans, analyzing R&D spending, making acquisitions, and evaluating technology investments. Sadly, it has never really taken hold in strategic planning. Strategists have struggled to specify the model’s parameters sufficiently to render its output useful to them.

The Drivers of Unpredictability

Four related sources of unpredictability make it almost impossible for strategy-makers to rely on deterministic forecasting.

The number of change vectors.

Most sectors are affected by changes along more than one or two vectors. Take gold mining. Mining companies have long incorporated the volatility of gold prices in their planning. But today environmental concerns, arsenic regulations, changing safety standards, political instability, global monetary policy, technology breakthroughs, and a host of other factors have increased uncertainty for producers. Each factor must now be considered in making production decisions and assessing new projects. Miss even one, and a company could easily commit to the wrong course.

Connections among change vectors.

Many vectors are interrelated: Changes in one area exacerbate changes in others. These interconnections multiply the number of variables that strategists must account for.

Forecasts for steady state.

There is typically a wide range of forecasts for what “steady state” will look like along each vector. In the early 1980s one of the world’s largest telecom companies concluded that cell phones would remain a novelty: Handsets were absurdly heavy, battery lives were short, coverage was spotty, and the cost per minute was high. Forecasting that the global market would be a mere 900,000 units by 2000, the company pulled out. Meanwhile, other operators, relying on forecasts 50 times larger, invested heavily in cellular. Trying to pick a single, best estimate is more likely to make you wrong than right.

The anticipated time until steady state will be reached.

Forecasts about adoption rates often differ dramatically, and for good reason: They are hard to make. It took 18 years for 50 million people to trust ATMs, whereas WeChat had 50 million users in less than a year.

To understand the impact of these drivers on forecasting, take a simple example: If an industry faces eight change vectors, each with just four forecasts for steady state, that means 32 potential scenarios to be considered in making strategic choices. Factor in just four projections for the time required to reach steady state along each of the eight vectors, and the number of scenarios grows to 128. Because many of the eight change vectors and steady-state forecasts are interconnected, it quickly becomes apparent that the number of potential outcomes that executives would need to assess in setting strategy, even in this simple example, easily approaches 1,000 or more. And the world is far more unpredictable than this example implies.

In our view, companies have sidelined real options analysis prematurely, paying far too much attention to the mechanics of determining the absolute value of a specific real option rather than relying on the tool’s basic principles to understand the relative value of competing strategy alternatives. For example, if two alternatives are equally capable of addressing a company’s competitive issues, but one provides greater flexibility to alter course, defer investment, or redeploy resources on the basis of better information, that one has a higher relative value in most instances and should be selected. We encourage leaders to account for the value of flexibility in evaluating strategy alternatives, even when it is challenging (or maybe impossible) to quantify it absolutely.

Strategic flexibility has a variety of sources. In some instances new technology can create it. For instance, many railroads are replacing their aging locomotives with new engines. As the volatility of fuel prices has increased, deciding which fuel to choose for future locomotives has become critical. Starting in 2016 the spread between oil and natural gas prices increased significantly, creating an opportunity to shift to natural gas to fuel future locomotives. But no one could be sure whether the spread would persist or whether it would widen or narrow. At the same time, locomotive technology was changing, with flexible-fuel locomotives emerging as a viable alternative to single-fuel engines. The latter are less expensive but, obviously, far less flexible. Depending on a railroad’s route structure, customer base, and strategy, the flexibility offered by the new engines can offset the additional up-front cost of purchasing them.

Often, though, the situation is less clear-cut, and leadership teams must choose between options with wildly differing payoffs, depending on how the future unfolds. By accounting for the value of flexibility, executives can often uncover strategies that allow them to hedge their bets while preserving valuable options for the future.

Walt Disney is a case in point. Several years ago Disney’s leaders realized that streaming was threatening the viability of traditional cable and satellite services. In August 2017 Disney announced that it would acquire majority ownership of BAMTech, a global leader in direct-to-consumer streaming technology and marketing services. Disney’s $1.58 billion investment caused a stir at the time, leaving investors wondering why the company would put so much into a relatively small platform (an offshoot of Major League Baseball). But that acquisition put the company in a position to launch Disney+ just over two years later. Four months after its investment in BAMTech, Disney initiated an acquisition of 21st Century Fox. At first that $71.3 billion investment looked like an attempt to double down on traditional broadcast media. But the acquisition was in fact a hedge, providing Disney with access to Fox’s extensive film library—a collection that would be valuable no matter which distribution model persevered over the long term.

Disney’s investments in strategic hedges and options enabled the company to pull far ahead of less-prescient rivals and led to a doubling of its market value between 2017 and 2020. Other organizations are following Disney’s example as part of their long-term strategy.

It’s important to note that investing in strategic hedges and options is not the same as placing a bet on every square. Trying to reduce risk in that way makes it nearly impossible for a company to score a big win (after all, we’ve seen few examples of relatively small positions being parlayed into market leadership) and locks in the certainty of many small losses that add up to real money. Worse yet, juggling a list of competing bets dilutes leadership focus, wastes precious time, and squanders scarce talent, further compounding the damage.

Consider Dell once again. In the years before 2013, not knowing how technologies would play out, Dell invested across the board in smartphones, tablets, Chromebooks, printers, consumer PCs, commercial laptops and desktops, workstations, servers, storage, IT services, and software. Beyond PCs, workstations, and servers, Dell was a distant follower in most of the markets in which it had paid handsomely to play.

Jamie Chung/Trunk Archive

Only after Dell anchored its decision-making in extreme but plausible scenarios—ranging from the death of the PC to mobility everywhere—did the leadership team realize how many of its small bets were unlikely to pay off. Smartphones, tablets, and printers were among the first to be cut. Later the company jettisoned IT services and software. But the analysis also highlighted areas where it could double down on its investments and potentially win in the long term. Accordingly, Dell simplified its PC and server portfolios and reinvested a portion of the resulting savings to improve product design.

Those moves (and others) helped Dell win as the personal computer and server markets commoditized and consolidated. By exiting multiple markets to focus its bets in a strategic way, Dell drove up its operating income more than threefold from 2013 to 2020, and the company’s market value increased by 420%.

3. Run Experiments Before Locking in Investment

Amazon’s founder, Jeff Bezos, sees experiments as the key to innovation. Many of the company’s experiments have spawned profitable new businesses—think Marketplace, Amazon Web Services (AWS), and Prime. Others, however, fared less well and were shut down quickly: Crucible, the company’s foray into multiplayer gaming; Haven, its health care joint venture with JPMorgan and Berkshire Hathaway; and Spark, Amazon’s attempt to build an Instagram-like shopping platform. But even the failures provided important lessons that helped Bezos and his team make future investments more successful. Its test-and-learn culture has made Amazon one of the most innovative and valuable companies in the world.

Leaders should set concrete guidelines for where they choose to experiment, because running many small experiments can quickly degenerate into placing many small bets—a losing strategy, as we’ve noted. At Amazon, for example, experimentation is confined to testing “dreamy” ideas—ideas that customers love, that could become very large businesses, that could generate very strong returns, and that have a decent chance of enduring.

Marketplace, AWS, and Prime all met those guidelines. Take Prime: No one on the Amazon team could point to data showing that giving customers free shipping for a yearly subscription fee would ever pay for itself. Through experimentation, first in select local markets and then globally, Amazon was able to validate the idea and build Prime into a $25 billion business by 2020, 15 years after it launched. In summary, small experiments are perfectly fine (in fact, encouraged), but each experiment should be tied to something very big to ensure that the test is worth running. Correctly applied, experiments prove the viability of big bets.

4. Identify Trigger Points, Signposts, and Metrics

The value of an option depends a lot on when it is exercised. In sectors where the winner takes most of the future profit pool, moving ahead of the competition can lead to enormous advantages. Consider Uber and Lyft. Uber accepted its first rider just 18 months before Lyft did, but that brief head start enabled it to build a sizable lead, with a 70% share of riders; Lyft has been confined to a 30% market share ever since. Even in markets where first-mover advantages are far less, knowing when to move is important. Accordingly, leading companies identify trigger points, signposts, and metrics to help them spot changes before the competition does and capitalize on the flexibility embedded in their strategies.

A leading automotive original-equipment manufacturer (OEM), for example, identified the penetration of battery electric vehicles (BEVs) as a critical factor, or trigger point, affecting most elements of its strategy—from the investments the company should make in traditional internal-combustion engine (ICE) technology to the size of its dealer network to its long-term governance and operating model. At the time, forecasts for BEV penetration varied widely, from less than 20% of worldwide vehicle demand by 2030 to greater than 50%. The manufacturer’s leaders developed several extreme but plausible scenarios and decided to shrink the company’s ICE footprint and investment plans consistent with a 30% penetration of BEVs by 2030.

However, management recognized that this planned reduction could prove insufficient if BEV penetration were to accelerate. So it identified some leading indicators, or signposts, to monitor BEV penetration—for example, government regulatory announcements, manufacturers’ BEV commitments, BEV competitor production guidance to investors, BEV battery costs and trajectory down the cost/experience curve, and observed penetration rates by geography—with explicit metrics for each. It identified trigger points, signposts, and metrics for six other factors as well.

The specificity of these was critical, enabling the manufacturer’s leaders to remain vigilant, poised to alter course at the first sign of a significant change in the market’s trajectory. The company tracks metrics tied to each important signpost quarterly. The senior executive team agreed that if the signposts indicated that BEV penetration would hit 30% by 2028, the company should shorten its shift from ICE to BEV manufacturing by four years. By thinking through potential course changes in advance, leaders could exercise their options to best effect, taking full advantage of the flexibility associated with waiting to act with the benefit of additional information while maximizing the value of their profitable ICE business as long as was practical.

Leaders must approach performance monitoring with a new mindset. The central question should be not “How did we perform?” but “Should we alter course?”

Signposts and trigger points are never static. By design, they reflect management’s best understanding of the “known unknowns” affecting a company’s strategy at a particular point in time. As more “unknown unknowns” become known, signposts and trigger points must be revised and refined. For example, Netflix may not have identified Disney’s acquisition of BAMTech as a signpost in advance. But it had to respond or risk losing its dominant position. Likewise, prior to January 2022 very few (if any) companies we know of had specified signposts tied to Russia’s invasion of Ukraine. The few companies that quickly incorporated that event into their strategy were better positioned than competitors to keep employees safe and the business on a stable footing.

Strategy must respond to unanticipated changes in market and competitive conditions. Accordingly, when those conditions abruptly change, leaders must quickly revise the trigger points and signposts they are tracking, following the same process they used to establish the initial metrics. The more up-to-date a company’s signposts, the better the odds of executing a successful response to external shocks.

5. Provide Prescriptive Surveillance

At most companies performance monitoring amounts to little more than reporting the weather. The leadership team meets, typically quarterly, to review each unit’s performance against plan and identify variances. In some cases leaders push for better performance; in others they simply revise the plan to accommodate the variances. In such situations performance reviews provide little if any useful surveillance regarding likely future conditions or helpful guidance as to whether the company should consider changing direction.

To become more adaptable to changing conditions, leaders must approach performance monitoring with a new mindset. The central question cannot be “How did we perform?” Instead it must be “Should we alter course?”

Answering that question requires more and different information than does the standard weather report. Leaders must understand the root causes of any performance shortfall. And they must have prepared contingency plans that can be put into motion speedily to address any significant changes in market or competitive conditions. A few leading companies have created thresholds for grading signposts green, yellow, or red. When a signpost crosses a critical threshold, it signals a change in direction (red) or a need for deeper investigation (yellow).

Tetra Pak, an €11 billion food-packaging and -processing company headquartered in Switzerland and Sweden, has this type of performance monitoring in place. In devising the company’s strategy, its leaders considered four scenarios, ranging from go green faster to strong push toward commoditization. The company tracks 42 signposts each quarter, including leading indicators such as the percentage of packaging required by law to be recycled in key geographies, the percentage price increase realized on packs with sustainability features, the percentage share of e-commerce players in the food and beverage segment, and average operating margins of food and beverage retailers.

CEO Adolfo Orive and his team keep quarterly business reviews focused on the future (“What do we need to do?”), not the past (“What were our sales in India last quarter?”). When signposts suggest a move toward one scenario over the others, management takes steps to accelerate its existing programs or launch new ones. That has enabled Tetra Pak to adapt its strategy quickly to fundamental shifts in environmental policy and customer preferences. To take just one of many examples at the company, as price elasticity in its largest markets increased far faster than its base forecast—a flashing-red indicator of commoditization—Tetra Pak accelerated its push toward lower-cost packaging. The new model has also made performance monitoring at the company far more action oriented and consequential, resulting in much higher levels of growth and profitability.

. . .

Although many promising tools have been developed to help cope with uncertainty, most executives struggle in consistently applying them to make better decisions. Winning in uncertain times requires a new model for strategy development. Companies that move quickly to adopt the more dynamic approach we’ve set out will pull ahead—and stay ahead—in the coming decades. Those that stick with their “plan then do” ways risk falling irreparably behind.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Strategy or related topics Strategy formulation, Strategic planning, Risk management and Change management

Don’t Let Cynicism Undermine Your Workplace

How to restore trust and confidence in your leaders—and your organization

Jamil Zaki 1 September, 2022

From the Magazine (September–October 2022) · Long read

© Jill Greenberg, courtesy ClampArt Gallery, New York

Summary.

Some company cultures are marked by mistrust and paranoia, which leads to a slew of negative outcomes: poor performance, burnout, turnover, and cheating. People who worry about the behavior of others spread gossip and are prone to backstabbing. That brings out the worst in their colleagues, leading cynics’ suspicion and distrust to become self-fulfilling prophecies. The good news is that cynicism has antidotes, according to the author, who shares research findings—his and those of others—to help leaders understand how people fall into a “cynicism trap,” how their organizations’ policies and practices may be pushing them into it, and what they can do to escape it. Tactics include redirecting the organizational culture toward collaboration and trust and making sure that all managers—not just those at the top—are modeling trusting behaviors and combating cynicism in their interactions.

Idea in Brief

The Problem

Too many organizations are marked by cynicism—a belief that others are selfish, greedy, and dishonest—which predicts a slew of negative outcomes at work, including poor performance, turnover, cheating, and stifled innovation.

Why It Happens

Our natural pull toward negativity and the notion that cynics are smarter than noncynics allow cynicism to self-perpetuate. Organizational policies and practices can further reinforce a culture of mistrust.

How to Fix It

You can reduce cynicism in your organization by developing policies and processes that redirect the organizational culture toward collaboration and by making sure that all leaders—not just those at the top—model trusting behaviors and combat cynicism in their interactions.

An open CEO role at Microsoft should be the holy grail for executives in the tech industry, but that wasn’t the case in 2014. The company’s growth had stagnated. By botching early leads on smartphones and other new technologies, Microsoft had lost market share to Apple, Google, and Amazon and had gained a reputation as creaky and out of touch—a giant ship lurching in the wrong direction. The Bloomberg journalist Dina Bass listed those downsides in an article bluntly titled “Why You Don’t Want to Be Microsoft CEO.” Five days later Satya Nadella took the helm. Microsoft’s failures stemmed from a deeper problem: a culture mired in mistrust, competition, and tribalism, which killed morale and stifled innovation. In his 2017 book, Hit Refresh, Nadella described an illustration of Microsoft’s org chart by the designer Manu Cornet that showed the company’s divisions in a standoff, with circles representing rigid silos aiming guns at one another. The cartoon was meant to be funny, but the problems it highlighted weren’t. Nor are they rare.

Countless organizations have been overrun by cynicism—a belief that other people are selfish, greedy, and dishonest. Texas A&M’s Dan Chiaburu and his coauthors have found that cynicism predicts a slew of negative outcomes at work, including poor performance, burnout, turnover, and cheating. Cynicism also spreads rapidly. People with a dim view of others’ actions gossip and are prone to backstabbing—behavior that brings out the worst in their colleagues, causing the cynics’ suspicion and mistrust to become self-fulfilling prophecies.

Fortunately you can take steps to avoid that scenario. Decades’ worth of research—my own and others’—offers insight into how people fall into the cynicism trap, how an organization’s policies and practices may be responsible, and what leaders can do to help employees escape it.

The Cynicism Trap

When we look at the world through a cynical lens, people appear to be out for themselves, acts of kindness hide ulterior motives, and trusting others makes you a sucker. That way of thinking is understandable in the age of WeWork and Theranos. But too much cynicism can become toxic at every level. Individually, cynics earn less money over the course of their lives, are more likely to experience depression, and are at greater risk of heart disease than noncynics are. And Microsoft is just one example of how detrimental cynicism can be to organizations and work life.

Despite its dire consequences, cynicism appears to be on the rise. In 1972, 45% of Americans believed that “most people can be trusted,” according to the General Social Survey. By 2018 that share had dropped to about 30%. In the 2022 edition of the annual Edelman Trust Barometer, nearly 60% of people across 27 countries said their default is to distrust others. And people aren’t skeptical of individuals only: Over the same period trust in political leaders, institutions, and corporations plummeted as well.

Why is cynicism so widespread, even though it hurts us so much? Some reasons are cultural. In countries and states with rampant corruption and inequality, cynicism takes hold more quickly. Professions have cultural inducements as well: Journalists succeed by sniffing out lies, and start-up founders are often incentivized to exaggerate—which significantly contributes to mistrust.

Cynicism also takes advantage of bugs in the way people think and feel. By understanding three of its drivers—badness attunement, preemptive strikes, and the cynical-genius illusion—you can take steps to eradicate it from your organization.

Cynics earn less money over the course of their lives, are more likely to experience depression, and are at greater risk of heart disease than noncynics are.

Badness attunement.

The greatest threat to human beings is other people, who may cheat, steal, and take advantage of our trust. Nature’s answer to such social threats is to equip us with a psychological armadillo shell—what scientists call “cheater detection.” From an early age we are vigilant for signs that someone may be trying to pull one over on us. Cheater detection helps us distinguish between bad actors (such as crooks and swindlers) and good ones, but it can also cause us to assume that people are bad and to focus on their worst qualities. Psychologists call this “positive-negative asymmetry,” but let’s call it badness attunement.

A Russian proverb holds that “a drop of tar spoils a barrel of honey.” Our social judgments can work the same way. In what’s now considered a classic pair of studies, the researchers John Skowronski and Donal Carlston told people about someone who acted morally (helping strangers), immorally (cheating on taxes), or a combination of the two. People judged immoral actors more quickly than they praised moral ones and considered people who acted in both ways to be morally tainted.

In other words, we imagine a version of others that is much worse than the flesh-and-blood folks actually out there. And when we interact with that version rather than with their true selves, our responses can cause harm and spread cynicism further.

Preemptive strikes.

Cynics often act as though the best defense is a good offense. In my lab’s recent research we found that cynical individuals—those who disagree with statements such as “Most people are generally good”—are less willing to donate time or money to help others. Another study, led by Malia Mason at Columbia University, reveals that people who consider others dishonest are more likely to negotiate dishonestly themselves.

Preemptive strikes may look savvy, but they hurt everyone involved. People reciprocate kindness and retaliate against cruelty, meaning that cynics’ actions bring out the worst in others. In a 2020 survey psychologists explored those self-fulfilling prophecies by asking people about their social interactions once a day for a week. They found that a cynic tends to act disrespectfully toward friends and colleagues, which increases others’ disrespect for the cynic. And in one prominent study the psychologists Harold Kelley and Anthony Stahelski asked pairs of people to play a game in which they could either cooperate or cheat. Because cynics expected their partners to cheat, they were more likely to begin the game by cheating. In subsequent rounds cynics’ partners were less likely to trust and more likely to cheat as well, which the researchers call “behavioral assimilation.”

The cynical-genius illusion.

Self-proclaimed cynics often view their cynicism as hard-earned wisdom and consider anyone who doesn’t share it to be naive. In research led by Olga Stavrova of Tilburg University, 70% of participants said they believed that cynics are generally smarter than noncynics—even though the former don’t perform as well on cognitive tests and are not “socially smart.” In another study Nancy Carter and J. Mark Weber of the University of Toronto Mississauga conducted mock job interviews in which they asked half the candidates to lie and half to tell the truth. Participants watched videos of the interviews and guessed who was lying, and although 85% of participants believed that cynics are better equipped to detect liars, people who had self-identified as cynics were actually less accurate with their guesses.

Although they may accuse others of blindly trusting, it seems that cynics themselves blindly mistrust. By viewing everyone through the same dark lens, they fail to notice cues that distinguish cooperators from cheaters. Yet as long as people continue believing that cynicism is smart, cynics will be rewarded.

How Policies and Practices Breed Cynicism

It’s not just human psychology that drives employees toward mistrust. It’s quite possible that your company’s policies and practices are based on and reinforce cynicism as well, as was the case at Microsoft. Nadella’s predecessor, Steve Ballmer, made decisions and created policies that bred distrust and corrosive competition. Two of Ballmer’s strategies—zero-sum leadership and overmanaging—are common in many organizations.

Zero-sum leadership.

Ballmer implemented “stack ranking,” whereby top performers on each team reaped rewards while stragglers were warned or fired. Stack ranking is meant to tap into people’s “natural” competitiveness, but it also causes employees to see their workplace as a zero-sum game. In a 2012 Vanity Fair article Kurt Eichenwald laid out the policy’s effects: “Staffers were rewarded not just for doing well but for making sure that their colleagues failed. As a result, the company was consumed by an endless series of internal knife fights. Potential market-busting businesses—such as e-book and smartphone technology—were killed, derailed, or delayed amid bickering and power plays.”

Few organizations use stack ranking today, but many still promote a “culture of genius” that values the lone creative star who comes up with new ideas. Such a culture encourages people to outshine colleagues, sparking unhealthy competition. When workers are pitted against one another, they have little reason to contribute to collective ideas and are more likely to hide knowledge from their peers—damaging relationships and killing innovation. A research team led by Elizabeth Canning, a professor at Washington State University, found that Fortune 500 companies with cultures of genius have lower levels of employee trust and receive worse ratings on Glassdoor.

People we put faith in are more likely to step up, demonstrating what economists call “earned trust.”

Overmanaging.

In The HP Way, David Packard tells a story from his early career at GE, when the company locked up and closely monitored computer parts to prevent theft. “Faced with this obvious display of distrust,” Packard writes, “employees set out to prove it justified, walking off with tools or parts whenever they could.”

Leaders who don’t trust their people are more likely to restrict, pressure, and surveil them to ensure that they do the bare minimum and to prevent shirking and cheating—and employees read that mistrust loud and clear. They in turn trust their organizations less, feel less motivated, and are—ironically—more likely to game the system.

The pandemic has made it harder to hover over people’s desks, but companies now use a dystopian array of tools that enable them to, for instance, monitor workers’ keystrokes and screens. In response, online retailers have sold thousands of “mouse jigglers,” which allow users to appear to be working. (An Amazon review of one such product reads, “If your boss is a micromanaging worthless idiot who doesn’t realize that presence does not equate to productivity, this is the device. If you are one of those bosses reading this review…nobody likes you.”)

When employers force workers to do at least the bare minimum, they make it much more likely that workers will do only that—and morale is harmed in the process. In December 2021 EY released new data on employees who had left their jobs during the first part of the Great Resignation. Many of them said they didn’t feel that company leaders cared about or trusted them.

Escaping the Cynicism Trap

This picture can be bleak: Mistrust and competition seem to be taking us on a one-way street toward failure. Fortunately, there are clear strategies that can help organizations reverse course. Injecting “anticynicism” into yours requires implementing two approaches: First, develop policies and processes that redirect the organizational culture toward collaboration and trust. Second, make sure that all leaders—not just those at the top—model trusting behaviors and combat cynicism in their interactions.

Redirect the culture.

In his book Nadella commented on the cartoon Microsoft org chart: “The caricature really bothered me. But what upset me more was that our own people just accepted it.” He and Microsoft’s chief people officer, Kathleen Hogan, introduced policies meant to undo the company’s cynical habits, including a restructuring of Microsoft’s review and incentive system. No longer would employees be elevated for outshining their peers—or punished if their peers excelled. Instead they were reviewed and rewarded for collaborative behavior, such as how they showed up for others and created things together. That shift encouraged workers to lower their defenses and share knowledge, skills, and perspectives freely. Such “task interdependence,” whereby individual success rests on the achievements of others, increases trust among employees and strengthens the chances of trust and team success.

The photographer Jill Greenberg is drawn to the expressions and intelligence that can often be found in her portraits of monkeys and apes, who sometimes appear to be passing judgment on their human cousins.

Nadella took a similar approach to Microsoft’s competitors. In a move that would have been unthinkable the year before, he walked onstage for an industry keynote and pulled out an iPhone equipped for the first time with Office, Outlook, and other Microsoft products. By showing how Microsoft and Apple could complement each other, Nadella not only de-escalated their rivalry but also provided a benefit to consumers. “Partnering is too often seen as a zero-sum game,” he wrote in his book. Both inside and outside Microsoft, Nadella sought win-win solutions to grow the pie—tapping into people’s collaborative instincts rather than their selfishness.

When we see the world as zero-sum, it shrinks, and so do our partnerships. Anticynicism may seem naive, but it turns out to be the wiser long-term strategy.

Model trust.

Nadella encouraged employees to learn and take greater creative risks, such as in enormous hackathons—collaborative coding runs in which groups worked on a free-for-all of fresh ideas. Those ideas helped Microsoft move beyond software and into cloud and AI technology. Bringing them to fruition also required a loosening of the bureaucratic reins—and a leap of faith by the company’s leadership.

People we put faith in are more likely to step up, demonstrating what economists call “earned trust.” In one study Gerardo Guerra and Daniel John Zizzo asked people to play a game: Trusters sent money to trustees, and the money was multiplied. Trustees could choose how much to repay the truster from the larger amount of money. In another study Guerra, Zizzo, and Michael Bacharach asked trusters to guess in advance what trustees would do with the money. Trustees who were told about trusters’ high expectations were more likely to pay them back.

If cynical beliefs can become self-fulfilling, hopeful ones can too, as this study and many others show.

Demonstrating faith in people is an easy way for leaders to reduce mistrust and paranoia in their organizations. Give people room to make their own choices. When you cultivate trust, teams excel. Research on teachers, retail workers, and army personnel finds that those who feel trusted experience greater self-esteem and connection to supervisors and ultimately perform better, too.

© Jill Greenberg, courtesy ClampArt Gallery, New York

Nordstrom takes this idea seriously. The company’s “employee handbook” is a single card, which reads in part: “Set your personal and professional goals high. We have great confidence in your ability to achieve them, so our employee handbook is very simple. We have only one rule…Use good judgment in all situations.”

Employees at Nordstrom are supported—they can turn to HR or managers at any time—but they are also explicitly trusted, which isn’t the norm in the retail industry. The result is a famously satisfied workforce, which in 2017 made Nordstrom the only clothing retailer on Fortune’s list of the 100 best companies for employees. An important lesson is that when you trust people, do it loudly: Let them know you believe in them. They will be more likely to see themselves positively through your eyes and want to live up to that image.

At Microsoft anticynical practices such as creating non-zero-sum outcomes and giving workers space and trust to create have paid dividends. Under Nadella’s stewardship the company’s market capitalization skyrocketed because of its nimble moves into cloud computing, artificial intelligence, and other new frontiers—innovations nourished by a culture that centers on collaboration, empathy, and community.

Teach Anticynicism

Redirecting a company’s culture and modeling trust can begin to untie the knots that cynicism creates. But you also need to change the way leaders at all levels interact with employees. The good news? Anticynicism can be taught.

In 2020 I teamed up with the SAP Academy for Engineering and Mentora to create a multidisciplinary leadership training program, which we have shared with more than 100 managers around the world. SAP’s academy is renowned for teaching technical skills, but it had done less teaching of soft skills such as empathy and anticynicism. We challenged managers to think of those practices as just as important, and just as learnable, as any type of code.

One pillar of the program is building trust. Leaders learn about the perils of cynicism and pick up practical strategies for combating it. We show them that the best way to inspire trust in employees is to demonstrate it first. The results have been remarkable. Managers in our program saw their Net Promoter Score on leadership trust—a core index of how they are viewed by direct reports—increase by more than 10%.

People become who we think they are, so we should be conscious of our assumptions and generous with our goodwill.

That statistic encouraged us, as did the stories we heard from participating managers. One of them, Alejandra, had experienced a meteoric rise at SAP Brazil. In 14 months she went from being an individual contributor to leading a team of 22 people, many of whom had been with the company longer than she had. Her advancement created some resentment, and Alejandra felt the need to prove herself by tightly managing the group. She quickly became exhausted, as did her team.

After one anticynicism session, Alejandra met with a newer team member, an ambitious and talented individual who wanted more independence but feared failure. Before our session Alejandra would have watched this person closely, but this time she took a different tack. “I know you can do this,” she said, “and if you trust me, then you should trust my judgment.” Six months later that employee was applying for leadership roles herself.

Here is a key principle of this work—and of anticynicism in general: People are shaped by their situations, and as leaders, you are an essential part of the situation for your employees. If you mistrust, micromanage, and monitor them, they will resent you, shirk responsibility, and eventually head for the exit. But if you show faith in them, they will try to live up to it. People become who we think they are, so we should be conscious of our assumptions and generous with our goodwill. It can make a bigger difference than we may imagine.

Trust is only one component of anticynical leadership. Leaders should also examine structural factors in their workplace: Are your corporate values mere window dressing, or do you deliver on them in concrete ways? Are wages, bonuses, and benefits fairly and transparently determined? If those conditions are not met, no amount of kind conversation will defeat cynicism.

Microsoft and Nordstrom demonstrate the importance of corporate policies that center on collaboration and openness; Alejandra’s story shows us how individual leaders can promote those ideas. Leaders who make use of both approaches are well equipped to combat the cynicism trap—and to reap the benefits for themselves, their employees, and their organizations.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Organizational culture or related topics Managing employees, Trustworthiness, Collaboration and teams, Psychology, Leadership qualities and Leadership styles

Dig, Bridge, Collectively Act

A proven approach to dismantling systemic inequities via authentic personal relationships

Tina Opie, Beth A. Livingston 1 September, 2022

From the Magazine (September–October 2022) · Long read

Paul Wearing

Summary.

#MeToo and Black Lives Matter have inspired many companies to announce commitments to combating discrimination and racism. Commitments alone won’t dismantle systemic inequities, however. In this article two professors who have studied that problem present their solution: the Shared Sisterhood framework. It’s based on a set of practices they call Dig, Bridge, and Collectively Act, and though it initially was designed to help Black and white women connect and overcome their mutual challenges by working together, it can help strengthen relationships between other identity groups as well.

The first practice, dig, entails identifying your social identities (which might include, say, “woman” or “man” or “nonbinary” and “Hispanic” or “Black” or “Chinese”) and researching the power dynamics associated with each one. Some identities are imbued with social power; some have been historically marginalized. You need to recognize your blind spots about those dynamics in order to succeed at the second practice: bridging, or building authentic, trusting connections with others across your differences. In the third practice, collectively act, you and the people who share your values turn those bridges into channels for positive change, mobilizing to make organizations more welcoming and equitable.

Idea in Brief

The Problem

In the wake of George Floyd’s murder, many companies announced commitments to racial equity and diversity. Unfortunately, since then organizational change has not occurred at the level and frequency that initial public responses suggested.

The Cause

Commitments alone will not dismantle systemic inequities. Organizations must help facilitate lasting change.

The Solution

The Shared Sisterhood framework, which is based on the practices of Dig, Bridge, and Collectively Act, is designed to help achieve equity across genders and racioethnicities.

When Margaret Mitchell, a white woman, asked Timnit Gebru, a Black woman, to join the ethical AI team at Google, Gebru didn’t know what to say. Though she was flattered and intrigued, she was aware of Google’s lack of racial and gender diversity. Friends had warned her that the environment might prove hostile to a woman of color. In 2018, the year she was hired, Black employees represented only 2.6% of Google’s U.S. workforce. But Mitchell convinced Gebru that if they stuck together, they could bring about real change in the organization. Soon after, however, the women say, they both witnessed racist and sexist patterns at the company. In response they reached out individually to people within the firm to push them to think more ethically and equitably. They tried to dig into why these problems existed at Google and to build bridges with colleagues to enact positive change. They claim that their efforts were met with strong opposition by Google executives.

The situation reached a breaking point in 2020. In a message sent to a listserv for women who worked for Google Brain, one of the company’s AI labs, Gebru accused the company of “silencing marginalized voices” and referred to Google’s internal diversity programs as a waste of time. Gebru says she was fired shortly thereafter. (Google says she resigned.) Next, Mitchell was suspended when Google discovered her searching her own email account for evidence of discrimination against Gebru. Several weeks later Mitchell was fired for “multiple violations of [Google’s] code of conduct, as well as of our security policies, which included exfiltration of confidential, business-sensitive documents,” Google said in a statement to TechCrunch.

The tech giant’s alleged treatment of Gebru and Mitchell is representative of the larger problem of gender and racial inequality in business. Women lead just 6% of the top 3,000 public companies in the United States. In the spring of 2022 only 44 of the Fortune 500 CEOs were women, and only six were Black (two of whom were women). Only four Black women and 24 Black men have ever been Fortune 500 CEOs. The problem permeates the ranks as well. In 2021 women earned 83% of what men earned in the United States, and Black and Latina women earned 63% and 58% of what white men did, respectively.

Movements like #MeToo and Black Lives Matter have highlighted the need for business leaders to publicly commit to combating discrimination and racism. But commitments alone won’t dismantle systemic inequities, so we’ve decided to explore how organizations can create lasting societal change, drawing on our combined four decades of experience researching and advising companies on strategic management and organizational behavior and on the insights gained from our real-life experiences.

In this article we present our solution: the Shared Sisterhood framework, which is based on a set of practices we call Dig, Bridge, and Collectively Act. Shared Sisterhood is designed to achieve organizational and individual equity across genders and racioethnicities. (Racioethnicity, a term first used by Taylor Cox in a 1991 article, “The Multicultural Organization,” is defined as race and culture, and it encompasses such identities as Black/African American, white, Indigenous/Native American, Hispanic, Asian, Middle Eastern, and multicultural.) We’ve helped 12 large and midsize companies, in industries ranging from financial services to entertainment to law, implement the Shared Sisterhood approach, and we’ve seen it have significant impact.

We all have multiple social identities. The first thing you need to do is figure out what yours are and how strongly you connect with each one.

Although Shared Sisterhood was originally intended to examine the challenges faced by both Black and white women in the United States and offer solutions to connect the two communities, its general principles can be used to strengthen relationships between members of other racioethnic groups (and other kinds of identity groups). In our consulting work we’ve applied these principles in a variety of workplace conversations among people from varying racioethnic backgrounds. While the experiences of the participants differed, many of them were amazed to discover that they could see themselves in one another. Coming together to talk about their differences helped them better understand how to form authentic connections with people outside their own groups.

Our call to action begins on the individual level, but action has to take place on an organizational level to deliver institutional and societal change. In this article we’ll start by examining how and why people should constantly explore their own assumptions, biases, and individual and collective power. We’ll then reveal the ways in which people can use their self-exploration to build bridges with colleagues from different racioethnicities and genders. Finally, we’ll discuss how those bridges can be used to make professional environments more welcoming and inclusive.

Dig In

Dig is a practice designed to help you surface your assumptions about racioethnicity and understand how they frame your perceptions of the world and influence your interpersonal relationships. Because your assumptions and perceptions may shift as you grow and encounter different people and experience new workplaces and contexts, digging is something you need to do continually. It involves taking the following steps:

Identify who you are.

We all have multiple social identities. The first thing you need to do is figure out what yours are and how strongly you connect with each one. In Shared Sisterhood workshops, participants record all this on a worksheet. Someone’s identities might include “woman” or “man” or “nonbinary” and “Hispanic” or “Black” or “Chinese.” They also might include “Christian” or “southerner” or even “fan of such-and-such sports team.”

Research power dynamics.

The next step is to try to understand how identities fit into the broader context of history and status. Some identities are imbued with social power (for example, being white, being a man), while some have been historically marginalized (being Black, being a woman). You need to do some homework on the dynamics associated with your identities. To develop your understanding of these dynamics you can read books about gender, race, ethnicity, religion, class, and so on, and consult trusted websites with commentary from scholars and experts who are endorsed by those who share your desire to grow and learn. Works we recommend include Our Separate Ways: Black and White Women and the Struggle for Professional Identity, by Ella Bell Smith and Stella Nkomo; Right Within: How to Heal from Racial Trauma in the Workplace, by Minda Harts; “A Theory of Racialized Organizations,” by Victor Ray; and the podcast Truth’s Table. Librarians, social scientists, and teachers can provide additional suggestions. (Tip: Start with one well-researched book and then consult the footnotes and endnotes for further reading material.) Remember that many of us simultaneously belong to groups with different levels of status in our society.

Recognize your knowledge gaps.

Often, people from privileged groups particularly benefit from educating themselves about the power dynamics related to their groups. However, persistent—or unrecognized—knowledge gaps are almost inevitable. White privilege, for example, may not be apparent to people until they dig into the many ways structural racism benefits white people—even those from lower-income or otherwise marginalized groups. As you do research on your identities, pay attention when questions remain and when your confusion persists. The need to learn is nothing to be ashamed of. A learning orientation can help you focus on the future instead of the past, but it’s critical that when you dig up a knowledge gap, you work to close it. Whether you’re from a power-dominant or a historically marginalized group, digging will equip you with personal insights that help you successfully build bridges with others.

Paul Wearing

You also need to understand the common responses to knowledge gaps to make sure that your reaction to them promotes personal growth. For instance, research suggests that white people often have one of three responses to being told about the power and privilege associated with their racial identity: They deny and refute the existence of their power, psychologically detach or distance themselves from their white identity (to show that they “aren’t like those white people”), or work to eliminate systems of inequity that privilege their group over other racioethnicities.

Bridge Differences

Bridges are built when two people develop authentic connections across their differences—when they can express their thoughts, beliefs, assumptions, ideas, emotions, and so on to each other in a relationship characterized by trust, empathy, vulnerability, and risk-taking. While those four components don’t have to be at the same level for both parties, both must be willing to engage in them. It’s also important to assess your preparedness to bridge: Where do you stand emotionally and mentally? Are you ready for the hard work of connecting across differences? If you’re a member of a power-dominant group, that means honestly confronting historical inequities, listening to and focusing on your coworkers’ concerns, and acknowledging and engaging with the authentic emotions of marginalized group members as you discuss equity and inclusion. It means taking a risk to speak up in defense of equity and justice—even when it makes you uncomfortable. It may also mean making yourself vulnerable by letting your guard down to interact with someone new. If you’re a member of a historically marginalized group, it’s important to assess your willingness to trust members of historically power-dominant groups, who typically have done less self-exploration. Are you able to interact with people who may have more work to do? When you attempt to bridge and become frustrated, how will you take care of yourself? How will you know if it is safe for you to try to bridge with those people again?

Each time a pair of individuals connect authentically at work, they put down one layer of a bridge. The more they connect, the stronger the bridge grows. Once a bridge is built, both people can reach out to others to develop more bridges, which then serve as channels for collective action on equity.

In practice, bridges between people of different racioethnicities may be difficult to build if the parties are unable or unwilling to discuss racism. But that does not mean that every bridge interaction must be centered on racioethnicity or racism. Once people establish that they hold similar values—perhaps through joint attendance at diversity and equity events at work—they might need to develop trust by talking about things besides racism, especially at the beginning of the process. But they shouldn’t avoid the topic. Demonstrating one’s trustworthiness and shared values around equity is critical. Authenticity is key to the success of such conversations; empty platitudes and virtue signaling will backfire. That is why digging before bridging is so important.

One woman we worked with, whom we’ll call Sarah, was charged with improving gender equity at her male-dominated firm. Women in leadership were few and far between. As Sarah observed the disparities in race and gender at the executive level, she realized that she didn’t have deep knowledge about how to combat racism. She wanted to learn how to take an intersectional approach so that she could address both gender and racioethnic inequities. She reached out to her Black, Asian, and Hispanic female colleagues to learn more. During those interactions, Sarah—who’s white—first focused on herself, digging to understand her own assumptions around race and equity. She began to unearth her blind spots—recognizing, for instance, that she may have lumped all women into one category, failing to see that the intersection of race and gender can lead to vastly different workplace experiences. Then she looked for colleagues who were different from her but who shared her values. She chatted with them about things that really mattered to her—job-related issues, issues in the news that they both cared about (concerning sports or politics), or anything else she thought her colleagues would be receptive to and that would demonstrate her willingness to connect. She didn’t force the relationships but found authentic ways to build them. Over time the bridges she created grew stronger as Sarah proactively demonstrated her vulnerability and deepened trust by first looking inward when she and her coworkers faced issues of conflict, such as what to emphasize (gender, race, or both) when presenting diversity, equity, and inclusion concerns to senior executives. These connections paved the way to increasing the number of women in the leadership pipeline, particularly women of color—all of whom she supported and elevated. Sarah could have focused solely on gender equity and overlooked racioethnic equity, but she integrated the two and created deeper change.

Only by digging into our identities and the power structures surrounding them can we begin to build bridges with people from different backgrounds and then work to act together.

While authentic connections are critical building blocks, they’re not the end goal. They form the foundation of bridges across differences, which become catalysts for progress on organizational and societal racial and gender equity.

Act Collectively for Positive Change

Each individual action toward equity can beget opportunities for additional connections and actions, until you have generated a latticework of connections that are primed to dismantle systemic inequities. A critical mass of people who have bridged together can exert power and pressure the organization to change. No one person will be responsible for the movement; the group will coordinate efforts and determine who is best positioned to say what, when, and to whom.

To effectively mobilize together, however, people from different groups all must first perceive that there is discrimination to fight or a problem to solve. Increasing awareness of current inequity and injustice is a critical step in moving toward change. That’s again why digging is so important.

Ava DuVernay’s efforts on the set of the TV show Queen Sugar represent a true application of the Shared Sisterhood framework. DuVernay has won wide acclaim—including Golden Globe, Oscar, and Emmy nominations—for her work presenting the lives of fully realized Black characters.

DuVernay got her opportunity in television from two trailblazing Black women. The acclaimed showrunner Shonda Rhimes gave DuVernay her first shot in TV, inviting her to direct an episode of Scandal. Then, Oprah Winfrey provided her with a platform (on the Oprah Winfrey Network) to launch her own show, Queen Sugar, which Winfrey executive produces. At the time, DuVernay was one of the few female directors of color: Women directed only 17% of American TV shows, with only 3% directed by women from historically marginalized groups. Women often faced exhortations to “get more experience” to direct and write in Hollywood, but few gave them the chance to do so.

DuVernay wasn’t content to be one of the few who “made it.” She announced that she was going to uplift other women by hiring only female directors, focusing particularly on those of color, to work on Queen Sugar. The effect was swift. Soon the writers’ room was majority female, and most key positions were held by women. DuVernay and her diverse team created systems that provided less-experienced people with the right resources and knowledge, such as a guidebook of information on how the show ran logistically and creatively. “We understand that everyone coming in hasn’t done this before,” DuVernay’s showrunner, Kat Candler, told The Lily. “Everybody knows that we’re educating through this process. There’s a safety net, a support group.” The show has turned into something of a talent pipeline, according to the Hollywood Reporter; several novice directors have gotten jobs with other TV series because of their work on Queen Sugar.

One Firm’s Experience

Collective action doesn’t always start at the individual level. In the summer of 2020 one advisory firm’s leadership team began using our framework to address concerns about the impact that traumatic racial events, including George Floyd’s killing, were having on employees. The company’s senior leadership team wanted to connect with employees across different racioethnic backgrounds better, promote equity within the organization, and help identify and address microaggressions as they occurred. (Microaggressions are commonplace instances of what Derald Sue of Columbia University calls “verbal, behavioral, or environmental indignities, whether intentional or unintentional, that communicate hostile, derogatory, or negative…slights and insults” to people from marginalized groups. Examples include assuming that a female physician wearing a stethoscope is a nurse and clutching one’s purse when passing a Black or Latino man on the street.)

The project included a four-month series of immersive training workshops and small peer-group sessions overseen by an external diversity, equity, and inclusion expert. Although we’re not allowed to describe in detail what happened during the workshops, with clients we take an approach very much like the one we outlined earlier: We encourage participants to record their identities on worksheets. With members of historically power-dominant groups, we ask what other groups have been marginalized by their group, and how and why. We ask them to think about the ways members of their group have benefited from and perpetuated the power dynamics they experience today—individually, socially, and institutionally. People are often resistant to this question. (“My identity has never benefited me. I’ve had to work hard for everything I’ve gotten” is a response we often hear.) When we see this, we push people to ask questions such as “In what specific ways has my identity given me advantages—for instance, access, connections, or resources—that others don’t have? In what specific ways have others with different identities been disadvantaged—for instance, by barriers that I don’t face?” With members of historically marginalized groups, we ask what other groups have been privileged by their group’s lack of power—and how and why—again on an individual, social, and institutional level.

The second phase of the firm’s workshops focused on bridging differences between the leaders so that they could understand how microaggressions affected others. At workshops like these we typically start by presenting a mini case study, such as an example of a microaggression that occurs at workplaces—like complimenting an Asian American colleague on his English (as if he were not a “true” American). We then ask participants a series of questions to explore how people from different backgrounds interpret the microaggression, what leads someone to commit it, and how it makes the person on the receiving end feel. Then the group talks about what can be done to correct the problem.

This work helps participants improve their ability to connect authentically with people who are different from them. Understanding what others are thinking, feeling, and doing is a critical step. The next step—identifying what inspires those thoughts, feelings, and actions—is equally important. The goal is not to assign blame or excuse behavior—it is simply to understand the reasons people respond the way they do. And ideally, participants from dominant groups will then fully recognize injustices and agree that something needs to be done about them. Real collective action won’t happen until they do.

Successful collective efforts might start when one member of a bridge pursues equity for an entire organization; when two partners from different racioethnic groups work side by side as a united front; or when many partners in a larger group, such as a firm’s leadership team, do what they can to move their organization toward fairer, more-just practices.

The advisory firm’s workshops culminated in a focus on collective action and how the leadership team could make the organization more equitable. At this stage all parties must agree to prioritize reducing inequity over their individual comfort or goals. The firm decided to develop an e-learning platform to provide ongoing diversity, equity, and inclusion training for all employees. Moreover, when a national racial tragedy occurs now, members of the leadership team pitch in to help draft firmwide communications, a task previously left to the communications function. The firm is also doing a pay-equity analysis that it plans to release by mid-2023. Perhaps most encouraging: Each member of the leadership team now conducts his or her own workshops on equity for direct reports and other managers within the company. In doing so, the leaders ensure that the Dig, Bridge, and Collectively Act process continues indefinitely throughout the organization’s ranks.

. . .

The actions of Gebru and Mitchell, who bravely banded together when they saw people in their organization treated unfairly, put public pressure on Google and other technology companies to improve their responses to inequity. After both women had moved on from Google, their manager, a strong supporter of theirs who said he was stunned by how they’d been treated, quit. On Twitter, Gebru and Mitchell’s influence continues. They often discuss how they navigated discrimination at Google by standing up for each other and fighting their treatment together. Gebru has launched a new organization, the Distributed AI Research Institute, where she has continued her work on equity and ethics in technology. Two members of Gebru’s old Google team, Alex Hanna and Dylan Baker, followed Gebru to her new firm, demonstrating how professional bridges can span organizational boundaries and help people recover from setbacks.

Only by digging into our identities and the power structures that surround them can we begin to build bridges with people from different backgrounds and then work with those people to act together. This often happens on an interpersonal level, but it’s critical that companies also take institutional steps to ensure healthy and productive environments for all employees. Companies are frequently bold in their innovations for products, services, and strategies. Being bold in the service of equity is a necessity as well.

Editor’s note: Tina Opie and Beth A. Livingston are the authors of Shared Sisterhood (Harvard Business Review Press, forthcoming), from which this article is adapted.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Diversity and inclusion or related topics Marginalized groups, Business and society, Workplace discrimination, Gender, Race, Work environments and Organizational change

A New Social Contract for Teams

Members must commit to new behaviors to accelerate innovation and growth.

Keith Ferrazzi 1 September, 2022

From the Magazine (September–October 2022) · Long read

Dillon Marsh

Summary.

Companies have traditionally emphasized leadership competencies, not team competencies. But the transformation of an organization must begin with the transformation of its teams; team leaders and members must commit to new behaviors to escape mediocre or even merely good performance, accelerate innovation, and unleash growth. Drawing on more than a thousand assessments of teams conducted over two decades of research and coaching, the author presents a simple diagnostic that enables leaders to evaluate their teams on critical dimensions that relate to performance. He describes several practices designed to move members away from outdated behaviors and facilitate lasting, positive change: collaborative problem solving, “bulletproofing,” candor breaks, red-flag replays, safe words, and open 360s. Although the examples often involve leadership teams, the practices outlined can be used at any level. They can be implemented in any context but are especially effective in virtual environments, where tools permit a broader range of collaborative practices than strictly in-person formats allow.

Idea in Brief

The Problem

Companies have traditionally prioritized leadership competencies over team competencies. In doing so they may have hampered both innovation and growth.

The Solution

To achieve breakthrough performance, teams should commit to a new social contract that emphasizes candor, collaboration, accountability, and continual improvement.

How to Achieve It

Team members can engage in collaborative problem solving; bulletproof upcoming initiatives; use candor breaks, red-flag replays, and safe words to facilitate constructive criticism; and hold open 360s in which they take responsibility for coaching and developing one another.

Eric Starkloff was on a mission to reinvent his company. As the incoming CEO of NI (formerly National Instruments), a Texas-based automated test and measurement engineering firm, he wanted to speed up decision-making and accelerate growth. He wanted pushback and alternative directions from his leadership team but was met with conflict avoidance. One team member recalls, “We were overly polite but not necessarily kind to one another. And people certainly didn’t speak their minds.”

It was early 2020, and Starkloff wanted the $1.2 billion company to become more agile—to operate more like a tech firm. He believed that culture change was required. He wanted his senior leaders to understand that they didn’t always need to wait for him to make big calls. He wanted to spark collaboration and candor. And he needed to do all that virtually; the Covid-19 pandemic was about to send the team remote.

But fast-forward several months, and everything was different. The leadership team had engineered trust and created a culture of innovation and speedier decision-making. “The most tangible change is the ability to escalate and make critical business decisions faster,” Starkloff says. “The process is collaborative, so the buy-in is greater. In the past we sometimes thought that collaborative decision-making and fast decision-making were at odds. But there are techniques for achieving both.”

The plight in which Starkloff found himself is a common one. Companies have traditionally emphasized leadership competencies, not team competencies. In focusing so heavily on what it means to be a great leader, they’ve often lost sight of what it means to be a great team. It’s past time to right the imbalance—to recognize that the transformation of an organization must begin with the transformation of its teams. Leaders and team members must commit to a new social contract to escape mediocre or merely good performance, accelerate innovation, and unleash growth.

At the Greenlight Research Institute we have conducted more than a thousand diagnostic assessments of teams over two decades. We have researched and coached established companies including Unilever, Hitachi, Verizon, and GM, along with a number of fast-growing start-ups and unicorns. Among our findings is that 71% of team members aren’t committed to elevating one another by offering feedback on professional capabilities and business practices and performance. The same percentage don’t believe that their team collaboratively engages in the most important business problems across the organization, while 74% don’t agree that their team is accountable for shared goals. And 81% say that their team is not operating at anywhere near its full potential.

In focusing so heavily on what it means to be a great leader, companies have often lost sight of what it means to be a great team.

In this article I present a simple diagnostic for assessing your team on the critical dimensions that can ignite or inhibit superior performance. I then describe several practices designed to move members away from outdated behaviors and facilitate lasting, positive change. Although our examples involve leadership teams, these practices can be used at any level and implemented in any context—in person, fully remote, or hybrid—but are especially effective in virtual environments, which permit a broader range of collaborative practices than strictly in-person formats allow. Along the way I show how Starkloff effected a turnaround for NI’s leaders and other teams across the organization. (Disclosure: Ferrazzi Greenlight worked with NI to achieve the turnaround.)

Essential Team Behaviors

Before you can change the ways in which your team members interact and operate, you need a clear view of how they are functioning right now. Too often members have an unspoken agreement to avoid conflict, stick to their individual areas of responsibility, and refrain from criticism in front of the boss. And they may be willing to take advice only from higher-ups, not recognizing the vital role of peer-to-peer feedback. All that needs to change.

The following points can serve as both a diagnostic tool and the basis of a social contract for transformation. Begin by considering the degree to which each statement reflects your team’s current behavior. (For a digital version of the assessment, including scoring and proposed actions, see ReContractYourTeam.com.)

- Our team does not avoid conflict. Members challenge one another openly and speak candidly in service of our mission, even when it feels risky to do so or when we are outside our areas of expertise.

- Our team does not have silos. Members collaborate and create tangible value from our interdependencies.

- We are committed to a shared mission that acts as our North Star. We adapt and iteratively prioritize and manage competing demands to reach our goals.

- Our team is not encumbered by hierarchy or control. All members strategically build authentic, deep relationships with external stakeholders who are critical to our success.

- Members meet their goals and commitments. We hold one another accountable and are dedicated to doing whatever it takes to succeed together.

- We are seekers, aware of and open about the areas in which we need to grow, and we proactively coach one another.

- Members maintain engagement and accept responsibility for elevating one another’s energy, celebrating our successes, and expressing gratitude.

- Members are deeply committed to one another. We lead with generosity and make caring, trusting, and supportive connections.

- Our team is achieving its full potential as it pursues breakthrough innovation and transformation.

Next discuss the results with your team. Ask: “Is this the highest performance we’re capable of? Do we have the desire and the will to relinquish ways of working that don’t serve us well and to contract with one another to adopt new ways drawn from these points?” Break into small groups to explore the behaviors and discuss which could make the biggest difference to team performance: Those are the ones to focus on first. Finally, reconvene the team and commit as a group to the behaviors you have decided to prioritize. Start with a limited number and expand once practices have begun to shift.

Dillon Marsh photographs the giant communal nests of sociable weaverbirds, which typically nest in trees but have adapted to the barren landscapes of the southern Kalahari Desert by using the utility poles that cut across their habitat.

Ana Villegas is NI’s chief marketing officer. “We really needed this kind of reflection if we wanted to change,” she says. “Leaders have to be agile: able to pivot and adapt to a constantly evolving landscape.” On top-performing teams, members are equally committed to the goals of their respective silos and to enterprise transformation. They have switched from a “stay in your lane” mindset to a determination to cross the finish line together. “If our values are ‘be bold, be kind, be connectors,’ it makes sense that we would embrace this form of communication,” Villegas explains. “We can be honest and kind, and we can see the result in accelerated growth.”

High-Return Practices for Transformation

Once your team has committed to a new social contract, it’s time to put the agreed-upon behaviors into use. We at Ferrazzi Greenlight have identified a suite of high-return practices that will help you make the transformation. Adopting them takes hard work and conscious effort at the start, but they will gain traction and become habits over time. It can be helpful to appoint a facilitator and team coach; at NI, Cate Prescott, the chief people officer and a senior vice president, assumed that role.

Collaborative problem solving.

This is a systematic process of discussion in which a single business-critical question is the focus of a 60- to 90-minute meeting. A team might look at prioritizing agenda items for the year ahead, explore innovations for the company’s retail strategy, or consider risks that might derail the business in the coming six months. Whatever the topic, members should draw together data and insights from their wider teams. The aim is robust dialogue, not consensus. Be clear from the outset about who will make the final decision. With that understood, you will avoid resentment over whose ideas are chosen for implementation.

As teams went remote during the pandemic, digital breakout sessions became a common tool for moving discussions forward. Indeed, we’ve found such sessions to be an important tool in collaborative problem solving, which derives much of its effectiveness from what we call the power of three. For half the session the team breaks into three-person groups to brainstorm. Everyone then comes together again and the groups report back. People have more courage in small groups; they are less inhibited about critiquing ideas and weeding out weak ones. While coaching teams in collaborative problem solving, we have discovered that this courage and candor are sustained when the larger group reconvenes. The temporary tribes formed during the breakout sessions typically bond in their short time together, and members would lose face if they watered down their comments. The team member with decision rights gives immediate feedback: a clear “Yes, we’ll do that,” a “No, and here’s why not,” or a “Let’s look at this again after additional research.” The feedback step is critical: The collaboration must result in action.

Too often team members have an unspoken agreement to avoid conflict, stick to their own areas of responsibility, and refrain from criticism in front of the boss.

“The concept of candor that starts in small groups and grows across larger ones is very powerful,” says Scott Rust, NI’s executive vice president of platform and product. Having a facilitator capture ideas in a shared document has been particularly valuable, he adds; that ensures a single, accurate version of the conversation. “We’ve developed more trust across the organization,” Rust says. “And that has given us the confidence to iterate. Previously our style was to have plans completely buttoned up from the start. But when you trust your people to understand the intent behind a plan, they will modify it as needed.” Jason Green, the chief revenue officer and executive vice president for portfolio, says, “The tangible outcome is increased sales and greater collaboration among the business units, with each seeing the others as empathetic allies.”

Bulletproofing.

At some of the most successful companies Ferrazzi Greenlight has studied and worked with, executive team members keep a partial but constant focus on the enterprise as a whole, independent of their specific positions and responsibilities. But such behavior is rare. Far more frequently we see executives who are strongly turf-oriented and who prioritize the success of their function or division above that of the organization.

A practice known as bulletproofing, if used regularly, can help ensure that teams—executive or otherwise—collaborate across silos and sustain a strong sense of collective responsibility and a commitment to enterprise-wide success. Here’s how it works: A team member presents a high-priority project, ideally in a shared three-column document detailing what’s been achieved, where the project is struggling, and what’s planned for the next sprint of work. He or she then asks for no-holds-barred feedback and constructive criticism. It is especially easy to manage this in a virtual context: At the push of a button, members can be divided into groups of three and sent into breakout rooms for 10 to 30 minutes, depending on the complexity of the issue. The three-person groups critique their colleague’s project, challenging anything that might involve unacceptable or unnecessarily high levels of risk, brainstorming ways to mitigate that risk, and maintaining a respectful, collegial tone. (Think of it as a kinder, gentler form of red teaming.) They enter their feedback in a shared document divided into columns for challenges, innovations, and offers of help. This ensures that the person responsible for the project has clear, well-documented input encompassing a variety of perspectives along with concrete offers of support and that by the time the project comes to fruition, it has been subject to rigorous examination and benefits from the full wisdom of the team.

Dillon Marsh

Bulletproofing can easily be adapted for asynchronous teams, which face unique challenges and may wonder how they can collaborate effectively given the limitations on their ability to meet. Inviting geographically dispersed team members to submit bulletproofing thoughts via shared documents can elicit candor and collaboration from even the most introverted. Ferrazzi Greenlight has found that an asynchronous context often leads to bolder, more inclusive collaboration and faster decision-making.

“NI’s leaders sometimes used to feel they had to take something on and figure it all out themselves,” Starkloff says. “But this practice allows them to enlist peers in their development of a solution without lessening their authority or accountability. It’s a mindset: You don’t have to solve that on your own.”

Candor breaks, red-flag replays, and safe words.

The importance of candor cannot be overstated. Conflict avoidance can be corrosive, even deadly, causing teams to miss opportunities and needlessly exposing them to risk. Members might recognize hazards but decline to bring them up, perhaps for fear of being seen as throwing a colleague under the bus. Instead they confine misgivings and criticisms to private conversations. Senior leaders should make it clear that back-channel discussions have no place on the team and should explicitly give permission for the full airing of feedback of any nature. No matter how sensitive the issue or how serious the criticism, members must feel free to voice their thoughts openly—though always constructively—and respond to critical input with curiosity, recognizing that it is a crucial step toward a better solution.

Most companies struggle mightily with helping defensive and insecure employees acquire the necessary mindset.

Ray Dalio, the founder of the hedge fund Bridgewater Associates, puts particular emphasis on hiring people who are comfortable giving and receiving criticism. “We look for people who think independently, argue open-mindedly and assertively, and above all else value the intense pursuit of truth and excellence, and through it, the rapid improvement of themselves and the organization,” he writes in his 2017 book Principles. “Most important, they must be able to put their egos aside and assess themselves candidly.”

But what about teams whose established members are defensive and insecure? In our experience, most companies struggle mightily with helping such employees acquire the necessary mindset. Candor breaks can help. During a meeting, announce a candor break and ask the team, “What’s not being said?” Divide the team into threes (in breakout rooms if meeting virtually) to explore the question. Have each group record its honest thoughts and criticisms. Circulate the results in a shared document and then orally after reconvening the full team. Candor breaks can serve as a coaching mechanism: In time team members will begin spontaneously sharing their feedback.

You can also use what we call red-flag replays. Much as football coaches throw down a flag to request review of a penalty call, any team member—not just the leader—can pause at any time and ask the team to look back on a recent interaction by saying, “Let’s have a red-flag replay on that discussion.” A replay may also be requested if it appears that a violation of the social contract—such as a back-channel conversation or an aggressive encounter—has occurred. In person or in breakout rooms, small groups can discuss when and how the violation happened and bring their insights back to the larger team. What could have been done differently in the moment, and what’s needed to correct the violation and get the team back on track?

Establishing safe words is another way to foster candor. Here an agreed-upon word or phrase (it can be just about anything, from “uncle” to “Yoda in the room”) cues everyone to take a breath and listen attentively, without interrupting, to what the person invoking the safe word has to say. (I like to ask, “May I have a Yoda moment, please?” because I believe that Yoda’s type of wisdom exists on every team, but only when everyone’s input is openly shared.) Any team member may use a safe word anytime he or she feels that a discussion has gotten off track or has something especially important (and perhaps controversial) to offer. Having that option on the table provides the psychological safety needed for members to speak openly, without fear of igniting destructive conflict.

Dillon Marsh

At NI, where meetings were once marked by conflict avoidance, candor became commonplace. “The level of candor on the team was probably the most palpable change,” Prescott says. “We’re much more confident about having deep dialogues on crunchy issues—topics where there’s some contention—because we’re clear that the sole purpose is to advance the greater good. No one should be looking to one-up others or make them feel small. It’s about solving problems together.”

Open 360s.

The highest-performing teams we’ve worked with have had social contracts allowing members to transparently give one another feedback on performance and competencies in service of growth. But a full 61% of team members in our data set said that their peers do not seem to be exploring areas for growth or seeking any development opportunities whatsoever, presumably because people are overwhelmed by heavy workloads and believe they lack the time. That belief creates a catch-22: Without team-specific coaching and development, the work is indeed harder than it needs to be, and collaboration is less effective—so workloads become even heavier, making people feel even more overwhelmed and less able to pursue development and growth.

Compounding the problem, many believe that once they reach the executive ranks, they need less development than during earlier stages of their careers—and indeed, the further up the organizational ladder people progress, the less feedback they are apt to receive. But senior leaders need coaching too, particularly around team behaviors. In today’s volatile business environment, individuals at every level must continually improve and grow.

This is where the open 360 comes in. Breakthrough performance becomes far more likely when team members take responsibility for coaching one another rather than relying solely on the leader’s input. We’re all familiar with traditional 360 reviews: performance evaluations that solicit feedback from all directions, typically anonymously and in writing. In an open 360 every member gets feedback from peers orally, in a transparent, teamwide forum. We recommend starting with the leader and asking teammates to take turns giving feedback in two rounds. In the first round, to inoculate against defensiveness, members should celebrate some aspect of their teammate’s performance—for example, “What I most admire about you is…” In the second round they should offer constructive, affirmative criticisms. For instance, a recommendation for improvement might begin: “Because your success is so important to our success, I’d suggest…” Villegas says, “The exercise may have pushed us out of our comfort zones, but that’s where real change occurs. The team developed more-cohesive trust.”

. . .

The change in culture and behaviors on NI’s leadership team fueled improved performance. The firm reached $1.47 billion in revenue in 2021—a 9% increase over 2019—and posted all-time record revenue and orders in the fourth quarter of the year. The process for making strategic decisions has been radically transformed, despite all the challenges of working remotely.

“I remember an all-day Zoom meeting that we were all kind of dreading,” Starkloff says. “An eight-hour Zoom meeting—are you kidding me? And the topic was a heavy one: planning how to operate during Covid. We knew we would need to make tough decisions and trade-offs. But to a person, everyone said, ‘Wow, I have more energy leaving this meeting than when we started it.’ It was a bit of a breakthrough: the realization that you can run a forum in ways that are motivating and that create energy and accomplishment.”

NI used to iterate strategy over several months, he adds, and decisions came strictly from the top, without everyone’s buy-in. “That tension would lead to all kinds of passive-aggressive behavior, and people wouldn’t really observe the spirit of decisions,” he recalls. “There’s a big difference between saying ‘We’re all in’ and really believing it and just reluctantly complying. We’re definitely in the former category today.”

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Business management or related topics Collaboration and teams, Managing conflicts, Decision making and problem solving, Teams and Feedback

The Surprising Benefits of Work/Life Support

It’s a secret weapon for achieving organizational diversity.

Alexandra Kalev, Frank Dobbin 1 September, 2022

From the Magazine (September–October 2022) · Long read

Jean-Etienne Portail and Haruna Ogata

Summary.

To succeed, almost every employee needs work/life support at some point. Women and people of color need it the most, research shows, because they face greater challenges and have fewer resources available to them. They are also the least likely to receive it, however, and as a result often are forced to change or leave jobs and lose out on opportunities for advancement.

Given that situation, the authors decided to examine what effects various corporate work/life programs had on the management workforce. Analyzing data from more than 800 U.S. companies over 30 years, they found that when companies offered flexible work schedules, family leave, and childcare support to all employees, the percentage of women and people of color in management rose significantly. In fact, those work/life benefits had a larger impact than the most popular racial-equity programs did.

Companies have long known that programs promoting work/life balance boost productivity, reduce turnover, and improve employees’ mental and physical health. And now it’s clear that they are also a powerful way to increase organizational diversity.

Idea in Brief

The Problem

To succeed, at some point almost every worker needs work/life support, and the data suggests that women and people of color need it most. But they don’t receive it—or even learn about company benefits—nearly as often as they should.

The Context

For many companies, the ideal worker remains somebody unencumbered by family obligations, who can adhere to the kind of demanding daily schedules and career trajectories that were standard for white men in the 1950s and have intensified since.

The Way Forward

Companies need to spell out and uniformly offer policies in three areas: flexibility, time off, and childcare. Doing so, studies show, helps workers and managers alike by lowering stress, improving productivity, boosting retention, and increasing diversity.

Corporate programs that support work/life balance promote productivity, reduce turnover, and improve employees’ mental and physical health. That much is well-known. But our research has revealed another benefit: They can also boost your organization’s diversity. In fact, when it comes to increasing diversity among managers, they’re better than the most popular racial-equity programs.

To assess how various work/life initiatives affect the management workforce, we looked at data from over 800 U.S. companies across more than 30 years and talked to dozens of managers. We found that when companies had universal policies for family leave time, flexible scheduling, and help with childcare, the percentages of Black, Hispanic, and Asian American male and female managers increased significantly. So did the percentage of white female managers.

Why do those groups benefit so much from work/life support? Because they face the greatest work/life challenges. Women and people of color are, for example, more likely to be single parents than white men are. Single mothers head 41% of Black families, 25% of Hispanic families, 13% of white families, and 11% of Asian American families. Single fathers head 12% of Black and Hispanic families and 7% of white and Asian American families.

Then there’s the fact that people of color in the United States, on average, have fewer resources than white people do. They’re more likely to be in poorly paid jobs, with even two-parent households needing both partners’ 40 (or 60) hours’ worth of weekly wages just to make ends meet. Before Covid-19, the median Black or Hispanic family of three earned just 61% of what the median white family did and was twice as likely to live in poverty. Those numbers have barely changed since the 1970s.

People of color also more often lack access to reliable and affordable childcare—which allows parents to stay in their jobs and develop the skills and reputation needed for career advancement. On top of that, they often face stronger performance pressures and have to work harder to prove their talents. For instance, as Ella Bell Smith and Stella Nkomo document in the pathbreaking book Our Separate Ways, Black women are more likely than white women to be underestimated by their supervisors and to be disciplined.

When employees lose childcare or when their partners’ work schedules change, they sometimes have to quit their jobs. That sets their seniority clock to zero if and when they take on a new job, delaying their opportunities for promotion. This pattern has prevented many women and people of color from moving into supervisory roles and helps explain why the face of corporate management has been changing so slowly.

To succeed, almost every employee needs work/life support at some point, and the data suggests that women and people of color need it the most. But they are the least likely to actually get it. Three reasons for this stand out. First, many companies offer work/life perks only informally and dole them out to prized high-wage employees. When the CEO’s white right-hand man has twin newborns, he gets whatever he needs, but the Hispanic woman in the mailroom who is in the same situation may not be so lucky. Second, many companies offer support only in workplaces dominated by professionals and managers—notably, headquarters and R&D labs—where white men typically prevail. Third, supervisors often have to sign off on requests for flextime and leave and have to rank-order employees for childcare spots. When they do those things, they tend not to be very accommodating to people in frontline jobs that they view as easy to fill.

The set designer Haruna Ogata and the photographer Jean-Etienne Portail created their still-life series Constellation as a way of exploring balance and form.

The problem, at heart, is that many companies’ attitudes toward work/life balance have changed little since the 1950s. Sure, big companies today list generous work/life benefits on their websites and during recent hiring sprees may even have expanded the support they offer. But those same companies signal in countless ways that their ideal worker is somebody unencumbered by family obligations who can adhere to the kind of demanding daily schedules and career trajectories that were standard for white-collar white men 70 years ago. That model rarely worked back then for Black, Hispanic, or Asian American employees or white women. And it rarely works for anyone now.

Covid-19 provided the ultimate proof of the concept that firms can remain efficient while allowing employees more leeway in where and when they do their work: Even though millions switched to flexible and remote work arrangements during the pandemic, productivity didn’t decline. But as the pandemic faded, many companies reverted to what executives still perceive as their safe place: office work. However, two-thirds of Covid-era remote workers report that they don’t want to return to the office. When required to, many who can afford to resign do just that. Others who appreciate the extra time they’ve had with their families negotiate to keep their newfound flexibility. In fact, in a recent survey 64% of employees at top companies said they would forgo a $30,000 raise if it meant they didn’t have to return to the office.

But stepping out of the labor force is rarely an option for the many workers in low-wage positions where people of color prevail or those who have worked hard to build professional careers—such as the 3% of lawyers who are Black women. Those workers may still be on the job but in desperate need of support.

Why do women and people of color benefit so much from work/life support? Because they face the greatest work/life challenges.

In this article we’ll discuss the work/life challenges that employees commonly face today. We’ll argue that to really improve work/life balance, firms need to clearly spell out, widely communicate, and uniformly apply their policies in three areas: flexibility, time off, and childcare support. We’ll also show how some firms have made access to work/life arrangements more democratic, enabling employees with work/life challenges to stick around and flourish. The lessons these examples offer are clear: When work/life support for all is treated as normal, it has huge positive effects on workers, lowering stress, increasing productivity, and boosting retention. And significantly, it also boosts diversity among managers.

Why Everyone Needs Flexible Scheduling

In many kinds of jobs—from hotel cleaning to equities trading—people have little control over their hours. A surge in guests or a dip in the stock market can disrupt well-laid plans in an instant. Among food service and retail workers, for example, unpredictable hours are standard. The sociologists Daniel Schneider and Kristen Harknett found in 2017 that 80% of them have little say about their schedules, 70% face last-minute shifts, and 50% have back-to-back shifts. One cannot be a reliable parent under those conditions.

Professionals, too, often have to be available around the clock. The problem is so well-known in finance and consulting that many female MBA students, anticipating an impossible work/life balance, don’t even apply for jobs in those fields. Professionals are frequently expected to be at work during regular business hours and to be available, as the sociologists Erin Kelly and Phyllis Moen found, for “early morning calls to offshore colleagues, last-minute but all-too-common work requests at 10 PM, and ubiquitous emails, texts, and instant messaging.” Kelly and Moen describe a culture of inflated expectations: People work long days and weekends, sometimes to no business end, just to look busy to their managers, who themselves need to look busy to their managers.

For low-wage workers in manufacturing and health care, the problem is often inflexible schedules. One manager described the challenges of hiring for his production line. “It’s a 12-hour position,” he told us, “so finding female workers is really, really hard. We’re not family focused.” His firm’s competitors offer flexible schedules, he explained, but not his employer, which means it has to resort to other measures. “We try to find women who are very independent,” he said—those who “don’t have kids, family, you know?”

A tech-industry HR manager told us that attendance policies are tough on parents on the production line, where workers get a point deducted each time they miss a shift—even if they call in sick. After a few points they get fired. At a health care company we visited, a line manager spoke of similar hardships for staffers who are single parents. “I don’t know how they do it,” she said. “It is very much: Clock in at 7:00, clock out 3:30,” with no exceptions. Low-wage workers, it’s fair to say, are often just one case of strep throat away from being terminated.

Covid-19 intensified the need for less-rigid schedules, especially for people of color. Fifty-two percent of nonwhite adults who quit a job in 2021 cited a lack of flexibility, compared with 38% of white adults.

Before the pandemic some eight in 10 companies offered flextime, but employees rarely used it. One hurdle is that managers keep it under wraps. In 64% of companies that offer flextime the arrangements for it are informal. An HR manager at an advertising agency told us that he doesn’t publicize flexibility options for fear that “within minutes the line would be out the door and down the hall.” Poor corporate transparency about work/life options may be partly why before the pandemic, 63% of workers reported that they needed more flexibility.

Jean-Etienne Portail and Haruna Ogata

Even when flexibility is offered, employees frequently don’t ask for it, fearing they’ll be penalized. They’re not wrong. The sociologist Lisa Dodson found that when low-wage mothers tried to negotiate for flexibility, employers tagged them as unreliable and irresponsible. Across high- and low-skill jobs, employees who seek flexibility are often seen as lacking commitment and are given poor performance ratings, meager raises, and less-frequent promotions. So employees simply don’t request it, opting to get by with patchwork solutions.

As the pandemic has waned, some employers have added more flexible-work options, but if they continue to send the message that people who use those options will pay a price, we may see a return to the bad old days.

Flextime boosts performance.

Companies worry about the costs of implementing flextime. But not those that have done the math. Among them is the Gap, which in 2015 ran an experiment to figure out how much it would cost to make employees’ schedules more predictable and flexible. To help with predictability the chain ended on-call shifts and began providing work schedules two weeks in advance; to increase flexibility it offered electronic shift-swapping. The company asked managers to schedule consistent start and finish times whenever possible, add hours for part-timers who wanted them, and increase peak-hours staffing.

The results were eye-opening. After nine months workers reported that they were better able to deal with work/life challenges. Supervisors found the changes to be manageable and said that they had improved associates’ morale and productivity. Best of all, instead of costing the chain money, the changes increased sales by 7% and labor productivity by 5%.

See more HBR charts in Data & Visuals

Flextime boosts diversity.

Our data clearly shows that flexible hours improve the recruitment and retention of women and people of color. Looking at firms before and over the seven years after they put in flextime programs, we can see that the impact is striking, even after taking into account other changes in the firms, the labor market, and the economy: The representation of white women and nonwhite workers in management increases. (We examined effects on the eight groups large enough to run statistical models on.) Not surprisingly, as the share of women and people of color goes up, the share of white men goes down. (See the exhibit “How Work/Life Benefits Affect Organizational Diversity.”)

Why Firms Should Encourage Family Leave

Since 1993 U.S. federal law has required companies with 50 or more employees to give eligible workers 12 weeks of unpaid leave to care for a newborn or an ailing family member or deal with a medical problem of their own. But not all employers obey the law. Today one in 14 doesn’t offer the required 12 weeks to new mothers, and nearly one in four doesn’t offer them to new fathers. Moreover, companies with leave policies often don’t advertise them and sometimes discourage new parents from taking leaves or ask them to return to work as soon as possible.

Why the resistance? Employers often fear that leaves will disrupt operations. But in firms that discourage them, parents often quit unexpectedly after the birth of a child. So the question is: Would you rather have to cope with the disruption of a planned leave or the disruption of a sudden resignation?

With a little ingenuity, managers can cover for workers on leave. At Tennessee’s First Horizon Bank, for example, to make up for a person’s absence on a team under a deadline, managers might ask a junior staff member to take on a challenging, visible part of the assignment. Or they might look for someone who is coming off another project and has time to spare. Not giving a staff member time off for a pressing family need is considered unacceptable.

Managers can prepare for leaves by cross-training workers so that when someone has to take time off, others will be ready to step in. Cross-training provides plenty of knock-on benefits, too, such as increasing employee retention and making teams more agile in the face of changing demands. A leave policy thus costs employers little beyond the time it takes to coordinate coverage while workers are away.

Black women are nearly twice as likely as white women to have quit a job or refused a job offer because of childcare problems.

More and more employers are wise to the benefits of supporting workers who need leaves. A growing number even pay staff members during leaves—an unimaginable luxury a generation ago. Nordstrom now offers new parents six weeks of pay, with birth mothers getting another six. Walmart gives new parents the same baseline. Target offers new parents four weeks, with birth mothers getting another six to eight. Big retailers are starting to figure out that leaves pay off. That said, fewer than 10% of low-wage workers are eligible for any pay during family and medical leaves.

Tech firms have taken things up a notch. Since 2015, Netflix has offered salaried workers up to a year of paid parental leave. Meta provides full pay for four months, to be taken all at once or intermittently. And when Google (now Alphabet) extended its 12-week paid leave to 18 weeks, it cut in half the number of new mothers who quit. (The company recently increased paid leave for new mothers to 24 weeks.)

How does the introduction of a family-leave policy affect management diversity? For paid leave it’s hard to say, because most of the firms we contacted didn’t provide it. What’s easier to determine is what happens when firms introduce at least 12 weeks of unpaid leave: It significantly boosts the number of white and Black women and Hispanic and Asian American men in management. (Positive effects on Black men and Hispanic and Asian American women are not statistically significant.) That men as well as women benefit from leaves attests to the needs and wants of working fathers. Paid leaves would have even broader effects, because more workers could afford to take time off. Again, it’s no surprise that as these programs enable more women and people of color to move into management, the share of white men decreases.

Childcare Support

Finding childcare is a big hurdle for Black, Hispanic, and Asian American parents. While the cost of sending two children under age 5 to a childcare center is 29% of the median income for all American families, it is 42% of the median for Hispanic families and 56% of the median for Black families. Not surprisingly, Black women are nearly twice as likely as white women to have quit a job, refused a job offer, or “greatly changed their job” because of childcare problems. And since the start of the pandemic, it has gotten harder for many parents of color to get affordable childcare because they have seen sharp declines in income and because many providers in their communities have closed permanently.

Covid-19 intensified the need for less-rigid schedules, especially for people of color. Fifty-two percent of nonwhite adults who quit a job in 2021 cited a lack of flexibility.

Corporate childcare support programs vary greatly, of course. We’ve examined the effects of three common kinds: referral services (the least-expensive option); vouchers (a middle-range option); and company childcare centers (the most expensive option).

Referral services.

Such programs provide contact information for local childcare centers, usually in online listings where openings are regularly updated. They’re the most common type of childcare support, offered today by about 40% of all U.S. employers and 60% of large employers. Small employers sometimes build provider lists from employee suggestions, but large employers often use a national vendor like WFD Consulting to cover all their sites.

Referral programs provide no financial help, but they signal that an employer wants to help workers solve their childcare problems. They make childcare concerns a normal part of workplace discussions, and they’re strikingly effective: At companies that introduce them the number of managers increases for all four groups of women and for Black, Hispanic, and Asian American men.

Childcare vouchers.

Another approach is to offer employees vouchers that subsidize childcare, usually at independent centers. Vouchers accommodate changes in demand better than company centers with fixed enrollment do. And when vouchers are administered through flexible spending accounts, both employers and employees save on payroll taxes, and employees save on income taxes. The firms in our analysis that introduced vouchers saw double-digit increases in the share of Black men and women and Hispanic and Asian American women in management.

Company childcare centers.

One of the first corporate daycare centers was opened in 1971 by Stride Rite’s president Arnold Hiatt at a shoe factory in Boston’s predominantly Black neighborhood of Roxbury. At the time, the New York Times deemed the move “radically countercultural for a titan of commerce.” In 1983 Patagonia’s cofounder Malinda Chouinard also made a pioneering move—by parking a trailer in front of the office to provide a place for the company’s chief of marketing to nurse her colicky infant. Patagonia now has a child-learning center at its headquarters, in Ventura, California, and another at its distribution center in Reno. According to Patagonia’s former CEO Rose Marcario, the company recoups 91% of calculable costs for its centers through tax refunds, decreased turnover, and increased engagement. Add to that such intangibles as heightened employee loyalty and trust, Marcario figures, and the centers more than pay for themselves. JPMorgan Chase and the consulting firm KPMG also argue that their full-time and backup childcare centers pay for themselves.

When employees don’t have to worry about how to get away for a child’s soccer game, ask for a leave to care for a newborn, or find childcare, they can focus on their work.

Today about one out of every six big companies has at least one childcare center, including Fannie Mae, Walgreens, Boeing, and Home Depot. These programs, too, boost diversity in management: The firms we studied that established them saw increases in the share of management jobs held by Black, Hispanic, and Asian American women. There was no effect on white women here, perhaps because their career decisions are less often determined by childcare costs.

It’s worth noting that although on-site childcare centers are usually subsidized, they’re nonetheless out of reach for many workers. As one line manager in an Atlanta hospital put it to us when explaining why the hospital had closed its center: “It was extremely pricey. I don’t think anybody at $8, $9 an hour could afford to leave one let alone two kids there while they worked.” A combination of income-based vouchers and a center can help make childcare available to all employees, however.

What Can Employers Do?

If work/life programs are good for not only productivity and well-being but also workforce diversity, then why aren’t they more common? And why aren’t firms encouraging employees to use them?

In some cases the problem is conceptual: Many managers believe that employees who take advantage of work/life support will do less work and that overseeing them will become harder. In other cases the problem is practical: Managers simply don’t have the tools to administer systems of support for everyone and to push people to use them.

The following practices can help address those issues.

Put policies in writing.

Firms should offer all employees, from janitors to C-suite executives, the same work/life support options—and should make them official. One bank executive told us that when her organization offered flextime informally, people didn’t take it seriously. By putting it in writing, she explained, the bank signaled that “flexibility is part of our culture.” And one professional services firm found that it wasn’t until it produced a brochure about the flexible arrangements it offered that employees began to understand the policy was real and take advantage of it.

Have leaders do the messaging.

That’s how it’s done at PwC. Anne Donovan, who oversaw strategy for cultural change at the firm, has described the process this way: “We gave permission at the top to allow for flexibility [among the entire staff], and then we went to the bottom and said, ‘This is your right, this is what you’re allowed to have, now go get it.’” Having leaders talk up work/life programs kept the company’s new approach front and center. “It helps to start infusing the culture with the words, to hear leadership use the terminology, and start to get everybody comfortable with the thing we’re going to do,” Donovan explained.

Have leaders walk the walk.

Modeling is important. If supervisors see the top brass working flexibly, they may ask for the flexibility they need and be more likely to approve requests from their subordinates. The CEO at a health care firm we visited has two small children and publicly takes advantage of work/life support so that she can spend time with them. “She wants people to work hard,” her HR manager told us, “but she wants people to balance their lives, and she has been a very good model for that.” The HR manager at a southern manufacturing plant told us, “When we see managers going home at 8 o’clock at night, we tell them to stop.” Meta’s CEO, Mark Zuckerberg; Twitter’s CEO, Parag Agrawal; and Reddit’s cofounder Alexis Ohanian have endorsed parental leaves by taking them.

Use technology to coordinate.

Collaboration and communication platforms such as Slack, Microsoft Teams, and Airtable can make flexible scheduling easier to manage. When Dell formalized flexible work arrangements, its HR department worked with IT and facilities to make sure everyone had the right training, technology, and collaboration tools to stay in touch and remain productive. GoBrandgo, a St. Louis marketing company, introduced an online calendar that lets all employees see when team members are working and when they’re out and implemented project management software that tracks the status of every task.

Measure output, not time put in.

If managers want the work done, they should measure the work done. When Best Buy experimented with tracking employees’ results rather than their hours, their work/life balance and productivity increased—and turnover declined. (The initiative was killed when Hubert Joly, who believed in taking a tough stance with employees, came in as CEO—but not before it was copied by at least 40 other companies.) The software developer Trainual has taken a similar approach. Its CEO, Chris Ronzio, told USA Today that flexible work freed him from having to keep a detailed ledger of employees’ time. “We’re putting more trust into our team,” he explained, “measuring them more by the results they produce than by the hours they log.”

Train managers to be work/life champions.

At First Horizon Bank incoming managers attend a half-day class on how to help their staff balance work and personal life, and a leadership success guide and internal website spell out the company’s work/life programs. As the bank’s HR specialist Leigh Ann Spurlin sees it, manager training has helped make the principle of work/life support a reality, and new managers soon realize that “flexibility is part of our fabric.”

. . .

Work/life programs are a remarkably powerful resource for employees and employers alike. When employees don’t have to worry about how to get away for a child’s soccer game, ask for a leave to care for a newborn, or find childcare, they can focus on their work. And when managers are paying attention to employees’ output rather than hours clocked, they can focus on improving the performance of their teams. Covid-19 showed many managers that allowing employees flexibility in where and when they do their work doesn’t hurt their effectiveness and may even improve it. Widespread resistance to returning to the office indicates how important work/life balance has become.

Work/life support enhances diversity in two ways. It improves all corporate jobs, including the many low-wage ones that typically come with little flexibility and are held disproportionately by women and people of color. And it increases management diversity by making it possible for women and people of color—who often struggle the most with work/life balance—to stay at their companies and move up the ladder. This, too, benefits employees and employers alike.

Employers sometimes worry about the bother or cost of implementing work/life programs, but what they should really worry about is the bother and cost of not implementing them. Specifically, they should be concerned about losing workers who are good at their jobs, about the cost of finding and training their replacements, and about losing the battle for diverse talent.

The bottom line is simple: It’s time at last for firms to acknowledge that every employee has a life outside the organization and to adopt programs that have been proven to help balance it with work demands. Why not give everyone a shot at success?

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Work-life balance or related topics Diversity and inclusion, Balancing work and family, Time off, Working parents, Flex time and Parental leave

How to Digitalize Your Sales Organization

Use technology, data, and analytics to do it right.

Prabhakant Sinha,, Dharmendra Sahay,, Arun Shastri,, Sally E. Lorimer 1 September, 2022

From the Magazine (September–October 2022) · Long read

Israel G. Vargas

Summary.

Companies can reap great benefits from digitalizing their sales organizations—that is, using technology, data, and analytics to improve the sales process. Done well, digitalization increases customer engagement, boosts the skills and performance of salespeople, and supports a more customer-focused business model. But digitalization initiatives are often plagued by slow progress, poor adoption, or low sustained impact. This article discusses why that happens and recommends five actions to increase the odds of success: (1) Put a “boundary spanner”—someone with both sales and technical experience—in charge, and secure an executive sponsor; (2) build in accountability by establishing the business case, setting key performance indicators, and creating a governance framework; (3) deploy a functionally diverse team; (4) implement an agile approach; and (5) foster change in salespeople’s mindsets as well as in the sales process.

Idea in Brief

The Ideal

Sales digitalization can increase customer engagement, enable more-flexible and customer-centric selling organizations, help salespeople perform better, and otherwise contribute to business success.

The Problem

Sales digitalization initiatives are often plagued by slow progress, poor adoption, or low sustained impact.

The Recommendations

To increase the likelihood of success, create a cross-functional team led by someone with both sales and technical experience. Build in accountability measures, take an agile approach, and foster change not just in the sales process but also in mindsets.

Customers today don’t simply want knowledgeable answers to their questions about products and services; they want speedy solutions for their particular technical requirements and business issues. At Microsoft, where sales account executives interact with millions of software buyers each year, customers’ expectations of the sales team have skyrocketed. Yet until recently, it was cumbersome and sometimes impossible for account executives to get a true picture of each customer’s needs. They had to manually assemble and synthesize data that was scattered across Microsoft’s business units. Time and effort were wasted, and interactions with clients suffered.

Microsoft’s leaders knew there had to be a better way. They found it in digitalization—the use of technology, data, and analytics to design business processes and inform decision-making. (The concept should not be confused with digitization, which is the conversion of analog information to digital formats.) In 2021 Microsoft CEO Satya Nadella spoke of the impact of digitalization on companies everywhere: “By 2025, it’s projected that sales and marketing processes will involve more proactive engagements than reactive ones, all the way from customer marketing to supply chain,” he said. “Going forward, every business process will be collaborative, powered by data and AI, and will bridge the digital and physical worlds.”

At Microsoft (a client of our consulting firm, ZS), the transformation was already well underway. By 2016 the company’s leaders had embraced the idea of using data and artificial intelligence to facilitate collaboration across sales roles and digital channels. In March 2018 Microsoft launched new tools to equip its sales force and partner sellers with insights about customers and suggestions about actions that would benefit them. Sales teams could spend less time gathering data and more time engaging in personalized conversations with buyers. Productivity, measured by time in front of customers and leads converted to opportunities, rose by as much as 40%.

Digitalization can create similar benefits for a wide range of sellers. Done well, digitalizing the sales function increases customer engagement, enables more-flexible and customer-centric selling organizations, helps salespeople perform better, and more. But the transition is often difficult—both for the sales team and for the company as a whole. A 2021 survey conducted by ZS revealed that although 90% of biopharma sales executives believe that digital transformation is critical to their success, the majority (55%) view their initiatives as unsuccessful. Fewer than 10% said they had achieved the full potential from their investments. Survey results across other industries largely parallel these. Academic researchers studying digital progress during the pandemic examined 11 independent cross-industry studies that empirically measured digital transformation failure. The aggregate failure rate across all disciplines, including sales, was 87.5%.

Digitalization affects practically every process that a selling organization engages in, including interacting with customers, deploying resources, and managing talent.

In our work with sales organizations, we find that digitalization initiatives are often plagued by slow progress, poor adoption, or low sustained impact. In this article, we examine why digitalization is so important to sellers and why their efforts often fail. Then we offer five recommendations to help achieve better outcomes.

The Obstacles to Sales Digitalization

Digitalization affects practically every process that a selling organization engages in, including interacting with customers, deploying resources, and managing talent (for example, hiring, training, motivating, and supervising salespeople). At its core, though, digitalization is about building and supporting a more customer-focused selling model.

Most sales digitalization efforts fail in one of three ways. First, some sales organizations expend a great deal of energy on digitalization but never really get going, or they progress so slowly that leaders lose confidence in the effort. Second, some initiatives lead to a viable solution, but broad adoption throughout the sales organization is poor or is achieved only through coercion. Sales leaders and salespeople may struggle to master the new skills or fail to embrace the mindset necessary for the initiative to succeed. Support programs may not meet the needs of diverse sales force members—from technology avoiders to reluctant adopters to enthusiastic, feature-hungry users. Sometimes people’s hesitancy is not about the technology at all but about new ways of working. For example, salespeople who excel in personal interactions with customers may have trouble assimilating into a culture that revolves around digital channels and data-driven decisions.

A third type of failure occurs when solutions that are successful at first fail to evolve into sustainable systems that remain in use and continue to offer value. This happens because digitalizing the sales function is complex and prone to constant change in how work gets done, from both an organizational and a technological standpoint.

Digitalization Success Stories

Digitalization enabled the transformation of Microsoft’s underlying business model from selling software as a one-time purchase to offering software as a service. As a result, the role of its sales force and partners has changed: Today salespeople do more than acquire new customers. They also focus on helping existing ones realize ongoing value and increase their usage of Microsoft products, thereby boosting customer retention and fueling sales growth. Each sales account executive must understand the needs of 100 or more customers and find appropriate solutions from among a rich suite of technically complex offerings. Before the latest digitalization effort, this meant that account executives spent hours tracking down customer information collected with disparate tools by various individuals in Microsoft’s sales, customer success, service, and support organizations. Then more work was required to glean insights from the data and decide what action to take with each customer.

Digitalization has streamlined that process. Customer and market data are now in one place. A core of sales intelligence capabilities, including several AI models, produce customer insights and suggestions for salespeople. An internally developed tool called Daily Recommender delivers the insights and suggestions to salespeople. For example, algorithms detected that one customer company had spent a significant sum on software licenses and that 27 of its employees had recently interacted 34 different times with Microsoft marketing materials. Daily Recommender advised the responsible account executive to contact the customer about purchasing more Microsoft 365 subscriptions—and to reach out quickly, because third-party data indicated that the customer had engaged with a competitor. By following up on the suggestion, the salesperson was able to deliver a solution well-matched to the customer’s needs, while simultaneously bringing in additional revenue for Microsoft.

Customers are reporting more value and a better experience because Daily Recommender’s insights help account executives focus on the issues that are top of mind for those who use and support Microsoft’s products. One of every three recommendations qualifies as a sales opportunity. That’s almost four times higher than the industry average of 6% to 10%. By design, the list of recommendations is not static and therefore never gets stale. Sales team productivity is up, customer conversion rates are higher, and potential purchases are finalized more rapidly.

Digitalization can also transform the recruitment and training of salespeople. When hiring, companies are improving the quality of the applicant pool by mining data from sources such as LinkedIn to identify candidates who are likely to join if made an offer and likely to succeed if they join. And in the area of training, companies are complementing human coaching with AI-enabled coaching that analyzes salespeople’s conversations with customers and provides feedback. Microlearning approaches deliver small, focused chunks of digital training content to sales team members and selling partners at a point in their workflow when the information is most relevant and can be applied right away.

Digitalization is not just affecting digitally native companies like Microsoft. Take the case of John Deere, a 185-year-old firm at the center of a digital transformation in the agriculture industry. Deere’s digitalization starts with its products: Embedded sensors in its machinery capture data that growers can use to optimize their farm output. This technological innovation has far-reaching implications for Deere’s sales and marketing organization and its dealer network. In addition to selling farm equipment, the company now has an opportunity to sell services that turn the sensor-collected data into insights that help growers boost profitability and environmental sustainability.

To encourage adoption of the high-tech equipment and familiarize customers with how to operate it for maximum benefit, Deere has given its independent dealers additional tools for training and assisting them. In addition to interacting with a grower in person, dealers can provide support by using a remote connection tool to tap into a digital display on the customer’s equipment.

Of course, these innovations create a need for new sales skills and roles. Historically, Deere’s dealers have been adept at selling, repairing, and maintaining machinery. Now they also need digital capabilities for bringing sophisticated technology and data-based insights to growers and for demonstrating the value of the company’s specialized solutions and services. John Deere’s U.S. sales and marketing organization is supporting dealers in developing those capabilities.

Israel G. Vargas

As sales processes and structures evolve, the skills and mindsets of salespeople, sales managers, and leaders must evolve as well. In the past, sales success was about understanding customers, using intuition, and building relationships. Today sellers must have a willingness to incorporate technology, data, and AI-driven insights into their sales activity. They must also adapt to another profound change: Instead of working alone with customers, now they are part of a system of digital channels and sales roles, orchestrating resources while collaborating with customers to shape solutions.

Recommendations for Successful Sales Digitalization

The transition to new ways of working can be difficult. The capabilities of current sales team members may not match the new demands of the job. In the short term, the change may distract and demotivate salespeople, leading to the loss of top performers, the disruption of customer relationships, and a decline in business. In the long term, if the wrong people end up in the wrong roles, the impact can be felt for years.

Digitalization decisions must be implemented with an eye toward innovation and adaptation as business needs evolve. Salespeople are agile by nature, but the fluidity of the sales role during a digital transformation requires them to adopt an even nimbler mindset and to continually improve their skills and knowledge. Those most likely to succeed embrace constant learning as part of the culture.

Sales digitalization initiatives benefit by focusing on five key actions. When executed well, these practices dramatically improve the odds of success.

See more HBR charts in Data & Visuals

Put the right leadership in place.

The sales digitalization team should have a “boundary spanner” at the helm—someone who is comfortable with and respected by both sales and marketing people and technology experts. Collaboration between the two communities ensures that solutions are not only usable and useful but also able to be sustained and enhanced over time.

Boundary spanners balance the dreams of the sales organization with the pragmatic concerns of IT. Priorities for the sales team include identifying new sales opportunities, driving beneficial product innovations, and winning over customers. The information technology group has priorities that are equally important but potentially conflicting. These include controlling costs and risks, developing enterprise capabilities, and ensuring longer-term sustainability. Boundary spanners are attuned to both sides of the equation. They readily spot overambitious plans, avoid constant shifts in priorities, and keep the focus on value and fit for users. A boundary spanner will:

- Support IT by helping the sales team see the timeline, quality, and budget risks of adding new features too late in the process.

- Support sales and marketing by helping IT see the benefits of using an innovative technology that better satisfies business needs than a tried-and-true solution does.

- Align both IT and the sales and marketing group around insights that might not come naturally to either.

- Push back whenever “design by committee” is making the system unwieldy and threatening the timely development and release of new products.

- Ensure that the initiative is not so grand in scope that it collapses under its own weight.

The best boundary spanners have empathy for different viewpoints. Generally their career paths include leadership roles in technology and sales or marketing. For a boundary spanner to steer a digitalization effort to a successful outcome, support from high-ranking leaders is key. Executive sponsors can help ensure that sales initiatives fit into the overall corporate strategy and do not duplicate or create incompatibilities with efforts in other domains.

Executive sponsors also create a safe space for boundary spanners to take action even if a few feathers get ruffled. For example, sponsors can ensure the restructuring of the sales organization if needed; they can step in to resolve conflicts and facilitate collaboration across organizational silos; and they can help secure the long-term commitment of resources.

Incorporate accountability measures.

Sales digitalization efforts are much more likely to succeed when they are guided by the right vision, strategy, and metrics. This requires developing a business case, a strategic plan with key performance indicators (KPIs), and an overarching governance framework for the initiative. A business case quantifies the value for the business and its customers, while laying out the context and approach. KPIs monitor progress toward goals. And a governance structure directs the initiative to its desired outcome by identifying overlaps across initiatives and finding opportunities for sharing resources and learning.

Today sellers must have a willingness to incorporate technology, data, and AI-driven insights into their sales activity.

Consider another ZS client, the global biopharmaceutical company UCB. It had traditionally relied on salespeople to share information about prescription drugs with doctors and other medical practitioners, typically during face-to-face visits. As practitioners began getting information from digital sources, such as email, websites, mobile apps, and podcasts, UCB set out on a multiyear journey to rethink its go-to-market strategy with a digital-first mindset. At the start of its digitalization effort, it focused on supporting product launches with insights obtained by integrating data and applying advanced analytics. For example, the company had believed that poor patient adoption of one new product was due to ineffective communication between the sales force and health care providers. However, analytics showed this assumption to be wrong. Health care providers were, in fact, prescribing the product, but many patients were not filling the prescriptions and starting the treatment because of affordability concerns. UCB shifted its energy to improving the patient assistance program instead of debating what had gone wrong in the sales force. Sales performance improved significantly.

As UCB’s confidence in the power of analytics grew, so did its efforts to leverage data and algorithms to inform decisions. By 2018 the company was ready to take analytics to where the rubber meets the road—the interaction between sales reps and doctors. Sales reps began using analytics to target the right doctors with the right message at the right time. Armed with data-based insights about patient disease progression, local health environment dynamics, a provider’s likelihood of switching therapies, and other factors, reps were able to connect with receptive providers and tailor communications to provider and patient needs.

Sales organizations can enhance the success of digitalization initiatives by tracking KPIs related to product adoption and value for customers and users. KPIs can include both leading and lagging indicators. (Leading indicators are those that help predict future success, such as the number of new customers contacted. Lagging indicators are those that gauge performance to date, such as the number of new accounts won.) By paying attention to KPIs, sales teams can diagnose problems and course-correct during the rollout of an initiative and beyond. Further, leaders can use KPI data to give employees positive feedback, energizing the organization.

Meanwhile, a framework for central governance helps ensure ongoing investment in the initiative and steady progress toward business objectives.

Deploy cross-functional teams.

Successful initiatives have a cross-functional program management team led by a boundary spanner. This core group is responsible for overseeing and coordinating the work throughout the digitalization journey. Its members typically include user representatives (from the sales and marketing staff), engineers (data scientists, scrum masters, user experience experts, software architects, and the like), and orchestrators (such as project managers, change management experts, sales support people, and finance specialists).

Additional cross-functional teams participate for focused periods of time as their skills are needed. The number and composition of these supplementary teams depends on the scope and scale of the effort.

Diverse teams, when leveraged well, ensure technical viability, usability, and value. By contrast, teams that lack functional diversity invariably result in strength on one dimension but fatal flaws on others, leading to adoption or sustainability challenges.

UCB created several cross-functional teams to carry out its digitalization efforts. One subteam tasked with building the user-facing solution included representatives from sales, technology, analytics, and operations. Another subteam with similar membership focused on the data infrastructure. Yet another subteam was charged with planning the deployment and change management efforts. That group included leaders from sales, marketing, and sales operations. Most critically, what we call an EET (an early-experience team) was composed of salespeople typical of the larger sales force, not just the most technology-savvy reps. EET members became frontier adopters who were instrumental in shaping the solution.

Implement an agile approach.

The software development industry has significantly shifted from a “waterfall” approach for completing projects to an “agile” approach. With waterfall—the traditional, sequential way of working—teams typically spend a year or more going through the process of fully designing a system, then building it, and then operating it, always completing one phase before starting on the next. Agile is more fluid and incremental, involving weeks-long sprints of designing, building, deploying, learning, and then iterating. An agile approach is key to managing digitalization initiatives in sales.

The Microsoft sales organization’s experience is a great example. The development team adhered to a 10/10/10 rule for each sprint: 10 hours to define a business problem, 10 days to design a model to address the problem, and 10 weeks to pilot the solution. The team focused on user experience and created a simple and straightforward interface for Daily Recommender. As a result, salespeople were able to master the tool simply by using it. And it continues to evolve, because as users accept or reject the action suggestions it generates, their choices train and improve the algorithms.

The sales digitalization team should be led by a “boundary spanner” respected by both sales and marketing people and tech experts.

The digitalization initiative at UCB embraced the agile approach too. The project began with proof of concept: UCB developed a predictive algorithm and ran simulations using historical data to show that the approach could work. Then the company built a minimum viable product—a simple tool with critical features to guide sales reps in using the algorithm’s recommendations with customers. Sales reps on an EET piloted the tool and shared feedback. As the initiative progressed, the development team used two-week sprints to launch new releases. The scope of the work for each sprint stayed fixed, but the developers modified the plan for the next sprint to reflect feedback from the EET.

Enable organizational change.

In sales, change management is not just about getting the organization to behave differently. It’s also about engaging people in designing the change to ensure that it provides value to those affected. EETs test out early versions of solutions to see if they are useful and implementable. User experience experts on cross-functional teams shape system design so that interactions between people and technology are intuitive and contribute to productivity.

Four aspects of the sales job have unique implications for change management. First, salespeople often work alone from disparate locations. That means that propagating change throughout the sales team can be difficult. Besides customers, the one person sales reps are in frequent touch with is their manager. Thus, first-line sales managers can be great allies in enabling change. While senior leaders can explain the rationale for the change and motivate buy-in, first-line managers (or peer influencers) are in the best position to discuss details and sensitive topics (such as new measures that may be put in place to assess salespeople’s performance).

It’s important to realize that as managers support their staff in embracing digitalization, they too will need to take on new responsibilities. In addition to coaching and directing individuals to achieve sales goals, they now must help them apply data and technology and shift tactics accordingly. Managers who are themselves digitally hesitant, or who grew up in an environment of top-down transfer of accountability, may find this to be a big role change.

Salespeople prefer to stick with what works until they see proof that a new approach is better. That’s why early-experience teams that vet and shape changes are so important.

Second, salespeople are used to having autonomy when working with customers. Digitalization can threaten this autonomy, making it especially difficult to implement change. Sales reps and managers may be accustomed to relying on their own judgment about when and how to interact with each customer. With digitalization, they have to adapt to a more data-driven approach. Sales organizations can make the transition easier by providing explanations for AI-driven recommendations—for example, accompanying a product recommendation with a message that “this account is likely to buy this item because other accounts with similar purchase patterns eventually bought it.” Adoption improves when salespeople provide feedback about whether each machine-generated suggestion is useful—and if not, why. Not only does feedback help the algorithm incorporate on-the-ground insights; it also gives reps a sense of ownership that motivates continued use of and trust in the application.

Third, many salespeople are reluctant to change the way they interact with customers for fear of putting existing relationships at risk. They prefer to stick with what works until they see proof that a new approach is better. That’s why EETs that vet and shape changes are so important. Salespeople also vary in their technology skills and digital savvy, so postlaunch user training and support are critical for driving adoption of digital sales solutions. Success is most likely when the solutions are embedded into a salesperson’s day-to-day workflow. Thus the best training programs address changes in the business process and people’s skill sets instead of focusing solely on the tool itself.

At UCB, members of the EET provided ongoing support to their peers while acting as evangelists for the solution as it was being introduced. The sales reps were likely to trust their peers on issues of value and impact, whereas they tended to be skeptical of proselytizing by headquarters personnel, who sometimes missed nuances of how the solution fit into the way the sales force worked.

Fourth, salespeople in most industries have a substantial amount of variable pay tied to the achievement of sales or other goals. Success with digitalization can require realigning the variable pay structure to reinforce changes in job responsibilities. If salespeople perceive that the change hurts their earning potential, they are more likely to leave the organization—and employee turnover may cost the company key customers too. A transition plan can help avoid that.

. . .

Digitalization of sales is proceeding at a breakneck pace. To maximize the chances of a great outcome, your selling organization should focus on the five actions we’ve outlined above. We also encourage you to use a checklist similar to ours, adapting it as your business model evolves and as you learn from your successes and setbacks. By following these recommendations, you can bring speed and impact to your efforts—and help your sales soar.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Sales or related topics Technology and analytics, Digital transformation, Sales team management, Customer-centricity, Business models and Performance indicators

Performance Management Shouldn’t Kill Collaboration

How to align goals across functions

Heidi K. Gardner, Ivan Matviak 1 September, 2022

From the Magazine (September–October 2022) · Long read

Ilanna Barkusky

Summary.

Companies today need cross-silo collaboration to survive a volatile competitive environment and grow revenue. But often their performance management systems discourage it. Indeed, in research involving more than 8,000 senior managers in biotech, banking, consumer products, energy, law, and other sectors, the authors found that a siloed approach to performance targets is a huge barrier to collaboration. Too many companies incentivize employees to take an overly narrow, short-term view, which makes them scramble to hit their numbers and lose sight of their organizations’ bigger objectives.

This article offers a better approach and outlines specific ways companies can retool their performance management systems to boost collaboration. It starts with implementing a four-part performance scorecard for every employee that establishes shared goals for tackling big challenges while still holding people accountable for delivering individual results. Each component—cross-silo goals, team goals, individual goals, and long-range programs—is weighted according to its importance in helping the company achieve its strategic aims.

Idea in Brief

The Ambition

Leaders set broad corporate goals and want all functions to collaborate to achieve them.

The Problem

Performance management systems often use scorecards that encourage managers and employees to take an overly narrow, short-term view of performance that undermines collaboration. In scrambling to hit their numbers, people lose sight of larger goals and jockey for resources or credit.

The Solution

Institute a four-part performance scorecard that establishes shared goals on strategic targets while still holding employees accountable for delivering individual results. Each component should be weighted according to its importance in helping the company reach its strategic aims.

Leaders at TechCo, a fast-growing maker of marketing analytics software (a real firm we’ve disguised for this article), faced a puzzling problem: Though the sales and installation teams were hitting all their targets, many new customers were seriously dissatisfied. Digging in, the executives discovered that while each department was measuring its teams’ performance at their respective tasks, no one had any incentive to ensure that all the pieces fit together—that the software was customized to generate accurate analytics for each customer’s complex, nuanced requirements and went live on time. As a result, customers were complaining loudly.

TechCo urgently needed to improve cross-silo collaboration—a solution that would also offer it benefits well beyond happier customers. Cross-silo collaboration, as we have seen in our research and advisory work with hundreds of companies over the past decade, can help organizations cope with a volatile competitive environment, innovate faster, and grow revenues. In one global bank we studied, for example, improved collaboration among specialists in branches (mortgage officers, investment advisers, data analysts, tellers) increased customer service scores by 8% and the branches’ financial performance by 17%. When one consulting firm improved collaboration among its partners, its annual revenues rose 34%. Collaboration also boosts retention: Our studies show that new hires who get pulled onto others’ projects and have people jump in to help on theirs are at least 65% more likely than more-isolated peers to stay long enough at the company to become productive and profitable.

The main problem at TechCo—a siloed approach to target setting—is one of the top barriers to collaboration, according to our research involving more than 8,000 senior managers in sectors ranging from biotech and banking to automotive, consumer products, energy, and law. When companies cascade their broad corporate goals down through the ranks, they often use scorecards that encourage managers and employees to take an overly narrow, short-term view of performance. In scrambling to hit their numbers, people lose sight of larger goals and jockey for resources or credit. That competitive dynamic contributes to stress and burnout.

There’s a much better way to set goals and their related metrics. In this article we’ll describe how and outline specific actions companies can take to shift their overall performance management systems toward boosting the collaboration they need.

Common Mistakes That Undermine Collaboration

In organizations around the globe, we have found that performance management systems are often flawed in some or all of five ways.

Key performance indicators aren’t focused on customer satisfaction.

This was a crucial omission at TechCo. The company’s sales reps were so fixated on getting deals signed to hit their individual revenue targets that they didn’t accurately or completely document clients’ needs. Often the reps glossed over the more-complex requirements and capability gaps to get the orders closed. TechCo’s engineers then started working on detailed implementation plans, but the lack of clarity in the sales process caused customer confusion about the promised scope of work and functionality. What’s more, because the performance of the engineers was measured by installation time, they were motivated to cut corners. Then, after the installation went live, TechCo’s client service teams were left to clean up the mess.

Well-designed individual targets help each person understand how his or her specific actions contribute to higher-level success.

That isn’t unusual. Companies typically set broad, overarching, collaboration-dependent goals, like revenue growth or faster innovation, and then create myriad targets for functions and divisions and units that are based on the conventional wisdom that people should be held accountable only for outcomes they directly control. But these narrow goals cause employees to optimize their own results and not consider their actions’ impact on other parts of the business. Systems that use them can pit groups against one another, motivate people to hoard staff or knowledge, create a culture of blame, weaken employee engagement, and leave customers unhappy and angry.

Incentives for collaboration are piecemeal.

At one consulting firm the CEO set aside $80,000 for quarterly rewards to team leaders who worked across service lines. After three quarters, less than 10% of the pot had been given away, and he called us in for advice. The firm’s mistake, we told him, was a common one: Rewards for collaboration are added on to the incentive system as an afterthought instead of being integrated into it. Because they aren’t tied directly to the achievement of major strategic objectives, employees consider them to be peripheral and view them cynically. “It’s total BS,” a manager at the firm confided to us. “The whole system is designed to make us focus on hitting our individual numbers, and then a couple times a year they come out pretending that collaboration is really important.”

Rewards are tied to input rather than output.

At one global consumer-products company, brand managers were awarded bonuses for adding information about their successful marketing campaigns to a knowledge management database. When the results were unimpressive, the SVP of marketing turned to us for help. “We got dozens of posts,” she told us, “but very few of them had enough detail, analysis, or insights to help others replicate the success.” We see this kind of scenario all the time. Rather than motivating people to achieve a strategic goal like improving the effectiveness of a firm’s marketing, input-driven metrics encourage them to game the system. People take shortcuts to secure the bonus and don’t invest the time needed to genuinely collaborate.

Rewards for visionary goals are lumped together with those for short-term objectives.

Many companies with big long-term ambitions—such as achieving a carbon-neutral footprint or using AI to create more-dynamic and resilient supply chains—struggle to get employees to take action on them. Their mistake is not separating rewards for them from those for more-tangible, shorter-term, easily quantified objectives.

Psychologists studying delayed gratification have long documented people’s tendency to trade off large future rewards for near-term gains. People enjoy the frequent dopamine boosts they get from small wins. Moreover, managers tend to give out bonuses and raises for the more-tangible achievements. When we recently analyzed multiple years of compensation practices at several professional service firms, for example, we found that they all emphasized the importance of activities with longer-term payoffs, such as developing significant new thought-leadership areas. But while the firms collected data on the initiatives and included them in partners’ scorecards, our analyses showed that they had zero effect on the partners’ compensation. The firms didn’t assign any weighting to those long-term outcomes, so the leaders ended up basing bonus decisions only on concrete wins that had near-term impact.

Cross-selling is confused with collaboration.

Many companies award bonuses for persuading existing customers to buy additional products or services. The problem is that this encourages employees to look at customers in a purely transactional way (as opportunities to sell more widgets) rather than seek to understand their complex problems and then collaborate with colleagues to provide valuable holistic solutions.

The photographer and drone pilot Ilanna Barkusky uses her airborne camera to showcase track-and-field venues in a new way.

Companies can avoid these five flawed approaches by adopting a four-part performance scorecard that establishes shared goals to encourage collaboration on strategic targets while still holding employees accountable for delivering individual results. Each component should be weighted according to its importance in helping the company reach its strategic aims, but we recommend overweighting the collective goals to counteract people’s natural tendency to pay more attention to their individual metrics. To keep employees focused on what the organization truly values, each part should contain no more than a few goals.

To see how this works in practice, consider the scorecards that were created for functional executives, regional managers, and individual employees in TechCo’s sales, implementation, and client service departments in the United States. (Similar scorecards were implemented internationally.)

Component One: Ambitious Cross-Silo Goals

Broad shared goals that focus on big challenges and can be achieved within a year help break down organizational silos and get teams working together across functions. Such challenges might involve things like halving the time to market for new products or doubling revenue from certain customers. When identifying them, it’s often easiest to start with the customer, by asking what overall experience and result the customer wants. Another approach is to focus on a strategic outcome that will strengthen your company—such as diversifying its supply chain. After you determine which groups can influence the desired outcome, you should embed it as a goal in the scorecards for all of them.

At TechCo the leaders set a bold goal of increasing new-customer satisfaction ratings by 25% in 12 months. This was the primary component-one goal given to every executive, regional manager, and employee in the sales, implementation, and client service functions, and component one was the most heavily weighted (representing 40% of employees’ bonuses) in the scorecards. To measure progress on it, the company not only surveyed customers twice a year but also tracked the volume of inquiries the client service team got—a leading indicator of quality—with an eye toward reducing them by 10%. The cross-silo goals motivated people in all three functions to look beyond their responsibilities and work together to find ways to improve the overall customer experience.

Employees at all levels were measured on the satisfaction of the customers they were responsible for: individuals, for the specific accounts they handled; regional department managers, for all clients in their own region; and U.S. functional executives, for all U.S. customers. (Goals in other parts of the scorecard motivated people to collaborate across geographies with counterparts in their own departments.)

The customer surveys highlighted the disconnect between the clients’ business requirements and what TechCo actually delivered, which as we’ve noted began when the salespeople left the details of the contracts to be sorted out later. To address that particular problem, the leaders of sales and implementation jointly redesigned the order forms to document client requirements more granularly. Then they set up a formal client sign-off process to ensure that everyone was clear about the deliverables. Next the leaders of the implementation and client service teams agreed to get their people involved earlier in the sales process to uncover and resolve any potential gaps or misunderstanding about capabilities that might damage a client’s perceptions of the final product.

See more HBR charts in Data & Visuals

Component Two: Team Goals

Organizations need to break down barriers to collaboration not only across functions but also within them. Team members must share best practices and ideas, learn from one another, and work together to achieve collective targets. To encourage this, firms should measure team-level results and hold people accountable for raising the performance of their whole working group, whether it’s a functional department, a key account team, or a product development team.

Take the implementation teams at TechCo. Previously, they had no department-level goals that would focus people on improving the quality and speed of all initial customer set-ups. Instead, each team was assessed on only its own projects. There was little motivation to exchange information and tips, which meant that work was frequently delayed while people reinvented the wheel.

In the new scorecards the performance of each individual on an implementation team was measured by the success of all projects within the region. Meanwhile, to keep regional managers focused on sharing best practices and collaborating with their peers in other regions, they were evaluated on the success of implementations across the entire country. In addition, because collaboration hinges on people’s willingness to be creative and take some risks—a mindset that’s hard to promote in burned-out, disaffected employees— the managers had to meet metrics tied to engagement. The intrateam component was given a 30% weighting, the second highest.

The collective goals promoted a sense of shared purpose among the teams. “Engineers across teams started helping each other more,” the head of implementation told us. “They set up a community on our intranet so that they could exchange ideas about how to solve specific problems and started standardizing best practices that made the process faster. During Covid, when we had lots of staff shortages, they set up an SOS system so that they could quickly swap resources between customers. In the old system they would have hoarded their people for their own projects.”

In a similar manner, the scorecards of U.S. functional executives included a metric for worldwide outcomes, motivating them to collaborate with their counterparts who led functions in other countries, and a metric for employee engagement.

See more HBR charts in Data & Visuals

Component Three: Individual Goals

Well-designed individual targets not only promote personal accountability but also directly connect to team and organization-wide objectives. They help each person understand how his or her specific actions contribute to higher-level success.

Let’s look at TechCo’s client service teams. Under the old system, individual help specialists had been evaluated just on how long it took them to resolve each client inquiry and how many inquiries each person completed in a day. Those metrics drove high productivity but not customer satisfaction. Service specialists had no incentive to address underlying issues such as poor data quality, which stemmed from the failure to modify the software for each customer’s needs. The new system, in contrast, motivated the client service professionals—who had real-time, sometimes visceral perspectives on customers’ experiences—to be more proactive.

The company began by creating three task forces, drawing members from all three departments, to solve common problems that led to customer inquiries. One task force focused on improving data quality, another on increasing on-time implementation, and the third on using artificial intelligence to enhance operations. Each task force was led by a regional manager and sponsored by a functional executive from a different department, who coached the regional manager and helped the task force get resources. The scorecards of the individual members included a goal of proposing solutions to the problem each group was addressing. (The regional managers leading the task forces were accountable for implementing those solutions and were asked to reduce the number of inquiries related to data quality by 20%, increase on-time implementation by 30%, and introduce AI into three processes, respectively.)

The third part of the client service professionals’ scorecards also included individual goals for their “day job” of handling inquiries from customers they were assigned to. (Giving everyone in a team personal targets related to the team goals is important to discourage free-riding and stop members from worrying that others won’t do their share.) Altogether the component-three goals were weighted 15%. That was large enough to instill a strong sense of personal accountability while still ensuring collaboration on the higher-level goals.

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Component Four: Long-Range Programs

The first three parts of the scorecard lay out goals that can be largely achieved during a single annual performance cycle. To focus employees on longer-term, multidisciplinary initiatives, a fourth component is needed. Goals here might include developing white papers that showcase a company’s cutting-edge ideas; sizable pro bono projects that draw on an array of capabilities and allow employees to stretch their skills; and significantly upping diversity at all levels of the company. Measuring progress on such long-term goals allows companies to factor work on them into compensation and promotion decisions. Moreover, the trusting interpersonal relationships the people who take part in these activities develop will strengthen future collaboration.

At TechCo leaders set a longer-term goal of entering a completely new customer segment within three years. The CEO tasked the three departments with creating a compelling proposition for this segment that they could effectively sell, implement, and service. The three function heads jointly selected a team of regional managers and individual contributors from the three departments to focus on that objective, choosing people who not only had diverse expertise but also would benefit from working on more-complex projects with other departments. The team members’ scorecards included targets that could be achieved in the first year: completing a series of roundtable discussions with senior executives at firms that were prospective customers to glean an understanding of their unaddressed needs, the market segment’s competitive dynamics, buying patterns, and so on.

To ensure that the task force didn’t just go through the motions, its members were given targets related to the seniority of the roundtable participants (who needed to have deep knowledge of the market segment) and for those participants’ post-event feedback about the roundtables’ value. To make sure regional managers and functional executives assigned to the project followed through on what the teams learned during the discussions, the managers’ targets included securing three prospective customers to help develop the new product, and the executives’ targets included piloting the beta product with at least two customers. Everyone’s goals in this section were given a 15% weighting.

See more HBR charts in Data & Visuals

Revamp Supporting Processes

To test the effect of differing performance-management systems on collaboration, one Big Four accounting firm ran two pilots. In one region it added collective goals to partners’ key performance indicators. That led to an 8% increase in sales, in part because the firm cross-sold work to clients that had previously bought just one type of service. In another region the collective goals were paired with changes in related processes, such as a shift from annual to monthly performance discussions and training for leaders on how to coach their reports. The second region’s results were far greater: Revenue climbed 30%, employee engagement scores hit a new high, and client satisfaction rose dramatically.

As these results show, companies must ensure they have the right processes to support new goals and incentives. Implementing the following practices will help.

Separate discussions about development and compensation.

If you meet with your boss to discuss your annual bonus and your development goals for next year, which part of the conversation do you really focus on? For most people it’s the bonus. So discussions of compensation should only address individuals’ success in achieving the goals in their scorecards. Conversations about employees’ professional development—their strengths and areas to improve, the training and growth experiences they need—should take place in a separate meeting. Although scholars such as Peter Cappelli have long advocated for this bifurcated approach (see “The Performance Management Revolution,” HBR, October 2016), many companies have yet to adopt it. Giving equal weight to financial outcomes and development underscores the importance of learning and growth. And a learning culture enhances collaboration by promoting employees’ curiosity and interest in others’ work, as research by Harvard Business School’s Francesca Gino and others has shown.

Don’t assign numerical ratings.

People would rather hear “You’re meeting, not exceeding, expectations” than “You’re a 3 on a 5-point scale.” In our work across industries, everyone from top executives to recent graduates tells us that being reduced to a number is demoralizing. Even worse is the practice of forced-curve benchmarking against peers. Studies have shown that it destroys collaboration because it’s a zero-sum game. You can’t expect coworkers who are pitted against one another to work together effectively. Rather than comparing people with their peers, managers should focus monthly and year-end development discussions on employees’ performance trajectories: Are people growing, working effectively across silos, and increasing their impact not just individually but also as contributors to the broader organization?

Ilanna Barkusky

Align the frequency of feedback with work milestones.

Most companies have moved away from a strictly annual feedback process and have either implemented shorter cycles, perhaps providing formal feedback quarterly, or instructed managers to deliver it on an ongoing basis. A better approach is to link the cadence of feedback to milestones in work. For example, since a call center’s workers have extremely short-term targets, such as for daily call quality, their managers should sit down with them for weekly reviews. With long-term goals, you can schedule feedback meetings at strategic interim milestones. At TechCo, for instance, where the long-term ambition was to enter a new customer segment, feedback discussions for individuals could be linked to the completion of half the prospective-customer roundtables.

Use creative rewards.

No matter how successful people are, they crave recognition for their good work, and that doesn’t always mean financial rewards. Consider the way the NASA@Work program encourages innovators across the government to generate breakthroughs and solve important problems. Winners are rewarded not with money but with incentives like a personalized astronaut autograph, a visit to the employee’s department by NASA top brass, or an external shout-out on NASA’s Twitter account. Organizations can also take this approach when recognizing team outcomes. The more leaders can embed symbolic rewards for great collaboration, the more their systems will foster a collaborative culture.

Discuss how performance was delivered.

Two people can produce the same result in very different ways: One might be constructive and collaborative, and the other “me-first” and sharp-elbowed. The second person may hit his or her targets, but the collateral damage can be real. How often have you been in an organization where you asked, “How can a person like that get ahead?” Frequently, it’s because the organization values only the what and not the how. You need room in your compensation model for manager discretion to reward people who live up to the organization’s values and to penalize people who don’t. Conversations with the latter aren’t easy, so make sure the values are well understood and managers are trained to deliver tough messages.

TechCo’s leaders realized they needed to do more than just change the performance scorecards. They trained managers how to give more-effective, timely feedback and provided tools such as pulse surveys that helped department leaders stay abreast of team sentiment. They also eliminated forced rankings and numerical ratings—a move that 72% of respondents in a company survey cited as a major signal of leadership’s new focus on a collaborative culture. Employee engagement scores rose dramatically, people reported that the performance management process seemed to be more fair, and customer satisfaction scores reached an all-time high.

. . .

A well-designed performance management system, which aligns people across silos to achieve shared outcomes, is critical to increasing collaboration. When people start collaborating, the benefits for both business growth and employee engagement are dramatic.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Employee performance management or related topics Collaboration and teams, Employee incentives and Human resource management

The Essential Link Between ESG Targets & Financial Performance

It’s key to building a sustainable business model.

Mark R. Kramer, Marc W. Pfitzer 1 September, 2022

From the Magazine (September–October 2022) · Long read

Karina Sharpe

Summary.

Despite heightened attention to environmental, social, and governance (ESG) issues, surprisingly few companies are making meaningful progress in delivering on their commitments. Most firms are not integrating ESG factors into internal strategy and operational decisions and are giving investors little to no explanation of the impact of ESG performance on corporate earnings.

To integrate ESG efforts into their core business models, firms should take these steps: (1) Identify the ESG issues material to the business; (2) factor in ESG effects when making strategic, financial, and operational decisions; (3) collaborate with stakeholders; (4) redesign organizational roles; and (5) communicate with investors.

Idea in Brief

The Problem

Despite heightened attention to environmental, social, and governance (ESG) issues, surprisingly few companies are making meaningful progress in delivering on their commitments.

The Root Cause

Most companies are not integrating ESG factors into internal strategy and operational decisions and are providing investors with little to no explanation of how improvements in ESG performance affect corporate earnings.

The Solution

Identify the ESG issues material to your business. Factor in ESG effects when making strategic, financial, and operational decisions. Collaborate with stakeholders, redesign organizational roles, and communicate with investors about your new approach.

In recent years tremendous progress has been made in standardizing and quantifying measures of companies’ performance on environmental, social, and governance (ESG) criteria. There has also been a surge in investor interest in companies that are rated highly on ESG performance or appear to be taking ESG goals seriously. Yet surprisingly few companies are making meaningful progress in delivering on their ESG commitments. Of the 2,000 global companies tracked by the World Benchmarking Alliance, most have no explicit sustainability goals, and among those that do, very few are on track to meet them. Even companies that are making progress are, in most cases, merely instituting slow and incremental changes without the fundamental strategic and operational shifts necessary to meet the Paris Agreement or the United Nations Sustainable Development Goals.

If companies neither integrate ESG factors into internal strategy and operational decisions nor communicate with investors about how improvements in ESG performance affect corporate earnings, then their claims about progress on sustainability goals are, at best, mere public relations—and at worst, deliberate misdirection.

A few companies—including Sweden-based homebuilder BoKlok; Enel, the Italy-based electric utility; South Africa-based insurer Discovery; Mars Wrigley, the candy and chewing gum division of Mars; and food giant Nestlé—are building sustainability into their strategy and operations by connecting financial and social performance. (Disclosure: These companies have been clients of our firm, FSG, or sponsors of its Shared Value Initiative.) This article offers a six-step process that other companies can use to fully integrate ESG performance into their core business models.

The Problem with Separate Systems

Over more than 20 years of researching and working on sustainability issues with Fortune 100 companies around the world, we’ve found that when the measurement and accountability system for ESG performance is entirely divorced from the one that defines profitability and determines share price, leaders become blinded to the interdependence between the two types of performance. Indeed, the heightened attention to ESG reporting has not, for the most part, changed the way companies make decisions about strategy and capital investment. Nor has it helped reveal the tensions and opportunities that arise from understanding how ESG performance affects corporate profitability. As a result, most companies still treat sustainability as an afterthought—a matter of reputation, regulation, and reporting rather than as an essential component of corporate strategy. Capital allocation and operational budgeting decisions continue to be made in ways that lead to social and environmental damage, while firms rely on meager corporate social responsibility budgets, philanthropy, and public relations to retroactively remedy or deflect the problems that those decisions create.

Consider ExxonMobil’s announcement that it aims to become “consistent with” the Paris Agreement by reducing the environmental impact of its operations. At the same time, the company intends to continue to invest heavily in new oil and gas properties. Existing ESG rating systems allow the company to report on only the emissions from its internal operations, without taking into account the environmental consequences of the oil and gas it sells. By that flawed measure, ExxonMobil ranks in the top quartile out of nearly 30,000 companies in consensus ESG ratings. Its much-publicized commitment of $15 billion to low-carbon solutions ignores the $256 billion in 2019 revenues that were entirely dependent on fossil fuels, which makes the company the fifth-largest producer of greenhouse gases (GHG) on the planet. In short, neither ExxonMobil’s massive impact on the planet nor the existential dilemma facing the company’s economic future are fully reflected in the ESG rating or factored into management’s strategic decisions.

Or consider Tyson Foods, a producer of chicken, beef, and pork. In 2016 Tyson made a commitment to reduce its greenhouse gas emissions by 30% by 2030, but since then, its GHG emissions actually increased an average of 3% annually. Our analysis suggests that it is impossible for Tyson to fulfill its financial projections and simultaneously meet its stated ESG goals. Tyson is not alone. Numerous companies have made ESG commitments that are incompatible with business realities—and as long as ESG metrics and financial reporting are disconnected, these inconsistencies will continue.

If companies are to move beyond mere posturing, leaders must confront the contradictions—and embrace the synergies—between profit and societal benefits and make the bold changes needed to actually deliver on the goals of the Paris Agreement and the United Nations’ 17 Sustainable Development Goals.

Let’s look at the six-step process for doing that in detail.

1. Identify the ESG Issues Material to Your Company

A good place to start is to consult the International Sustainability Standards Board’s listing of material ESG issues by industry, defined as “those governance, sustainability, or societal factors likely to affect the financial condition or operating performance of businesses within a specific sector.”

In some cases, the link between material ESG issues and financial performance is simple and direct. The bulk of ExxonMobil’s revenues obviously come from its customers’ use of fossil fuels—even though it doesn’t report on greenhouse gas emissions generated by customers in its sustainability report. The most material issue for Discovery, a global life and health insurance company, is customer health, which directly affects its financial performance. But unlike ExxonMobil, Discovery confronts the connection between those issues head on. It uses a sophisticated set of rewards to encourage its subscribers (individuals and their dependents) to engage in healthier behaviors such as more exercise, better diets, and regular checkups. It tracks the cost of the incentives, their effectiveness in changing behavior, and the impact of behavior changes on medical costs and health outcomes.

Discovery uses this approach to continuously optimize the relationship between customer health and the company’s bottom line. It has made numerous investments that differentiate it from other life and health insurers—such as giving its customers free Apple watches that enable the company to remotely monitor physical activity and track more than 11 million customer exercise readings per day. Promoting customer health as a core component of corporate strategy has created a unique competitive position and fueled Discovery’s global expansion and superior profitability relative to other insurers. Rigorous academic studies by RAND, Johns Hopkins, and others have shown that the medical costs of Discovery’s health insurance subscribers are 15% lower compared with those insured by local competitors, and the life expectancy of Discovery’s life insurance customers is 10 years longer.

In other industries, the link between the social and environmental impact of a company’s actions and profits may be more complex. In the food and beverage sector, the nutritional value of the products sold is an obvious and direct material issue; what’s less visible are the operations of the suppliers of commodity inputs, which can represent 50% or more of all financial costs. Agricultural commodities like those Mars Wrigley uses are often sourced from smallholder farmers in South America, Africa, and Asia. While they offer a substantial cost advantage over commodities sourced from large-scale commercial growers in developed countries and generate income for smallholder farmers, the less sophisticated farming practices they use raise troubling social and environmental issues, including child labor, water scarcity, and deforestation, which accelerates climate change.

In her series Plant Geometry, visual artist Karina Sharpe explores the inherent paradox of creating an artistic design study of plants as though they were objects with a fixed way of being.

Mars Wrigley systematically tracks the carbon footprint and water intensity of the crops it purchases across the globe, along with farmers’ income. Its challenge is to maintain a cost advantage by sourcing from lower-income countries while reducing poverty and environmental harm. Applying this approach to its sourcing of mint from smallholder farmers in India, for example, has resulted in a 26% increase in farmers’ earnings and a 48% decrease in unsustainable water use, while allowing the company to sustain a significant cost advantage.

2. Focus on Your Strategy, Not on Reporting

The greatest social and environmental impacts of any company will be the result of fundamental strategic choices rather than incremental operational improvements. Start-ups, unencumbered by the past, often find strategic advantages by rethinking industry business models in light of current knowledge. When Discovery first entered the insurance market almost 30 years ago, it leveraged the ways that diet and behavior influence health to invent a more profitable business model that was unlike that of its more established health insurance competitors. In seeking to tap into consumers’ concern about climate change, Tesla used new software and technology to invent the first popular electric vehicle. But many long-established companies still operate with business models that were developed decades—even centuries—ago, when leaders were unaware of or routinely ignored the impact that their businesses had on social conditions and the environment. They react to ESG issues only at the eleventh hour and are therefore poorly positioned to compete in a world where social and environmental impact drives shareholder value.

Virtually all incumbent automobile companies are now scrambling to catch up with the demand for electric vehicles after decades of focusing on incrementally improving the miles-per-gallon performance of their vehicles or reducing factory emissions. That is exactly the kind of strategic shift at the core of the business model that companies in every industry will need to make—and quickly.

The best way to ensure that your company is addressing its material social and environmental challenges is to relinquish your focus on modest change and improvements in reporting and, instead, identify and pursue bold new opportunities. Confront the fundamental question of how you will reinvent your business model and differentiate your company from competitors by building positive social and environmental outcomes into your strategy. Communicating a clear and compelling competitive strategy to create shared value—how you will pursue financial success in a way that also yields societal benefits—will carry far more weight with investors than marginal improvements in ESG metrics.

3. Optimize the Impact Intensity of Profits

Instead of relying only on conventional cost/benefit analyses and internal rate of return calculations to make budgetary and capital expenditure decisions, companies must begin to use equations that factor in the primary social and environmental effects of their operations. The “impact intensity of profits” is the relationship between a company’s profits and its most important positive or negative effect on ESG issues. For the power company Enel, the primary issue is the environmental impact of its operational footprint, which means the company should make investment decisions that optimize profit per tons of CO_2 emitted. For Nestlé, the primary concerns are the nutritional value of its products and the ESG effects of sourcing from smallholders. The company might optimize profit generated per micrograms of nutritional value in its products and the cost of raw materials relative to farmer income and environmental impact in its sourcing. And for BoKlok, a joint venture between Skanska and IKEA, the primary societal benefit comes from expanding access to affordable and attractive housing in urban areas. Up to 40% of its developments are sold to social housing associations. This is the result of a decision-making framework that links profits to specific ceilings on the prices that the associations and other buyers have to pay.

Product design, product access, and operational footprint are three domains where companies must change their internal decision-making processes from focusing purely on financial returns to making a more sophisticated analysis that includes social and environmental consequences. The mathematical relationship between changes in environmental or social factors and the resulting changes in profit must become the guiding framework for decision-making at all levels within the company. The results are likely to lead to significantly different choices that not only improve ESG performance but also help reposition the company in ways that improve financial performance.

Most firms stop short when they confront trade-offs that require sacrificing profit for improved ESG performance. But those trade-offs often can be avoided.

Product design.

Nestlé has long been concerned about the nutritional value of its food products, and until 2007, it made the same kinds of modest incremental changes in reducing salt, fat, and sugar content that other major food and beverage companies were making. But beginning in 2007, Nestlé began connecting the material issue of nutrition to its strategy and new-product design. This led the company to invest more than $1 billion annually in research to develop “nutraceuticals,” nutritional supplements with measurable health benefits such as a reduction in postsurgical infections or a decrease in the number of seizures suffered by epileptics. These products, sold not through grocery stores but in pharmacies or administered in hospitals and reimbursed by insurers, have propelled the growth of Nestlé’s nutrition and health science division. It is now the company’s fastest-growing and most profitable division, with more than $14 billion in sales.

For Enel, whose main product is electricity, the shift toward a low-carbon world has created new product opportunities. Enel now offers power-management services to its customers: It helps homeowners reduce electricity usage, works with businesses to optimize the operations of fleets of electric vehicles, and guides cities in building infrastructure in ways that continuously minimize power consumption and provide charging options for electric vehicles.

Companies that don’t link the social and environmental consequences of their businesses directly to their business models and strategic choices will never fully deliver on their ESG commitments. Tyson Foods will continue to expand sales of beef as the main driver of profits to meet its financial targets even though beef generates the largest amount of greenhouse gas emissions per ton of protein of all the company’s products. If Tyson were serious about optimizing profits and substantially reducing GHG emissions, it would need to make a dramatic shift in strategy and invest much more heavily in plant-based and cellular meat alternatives—a strategy that would dramatically reduce its emissions and potentially increase its profit per ton of protein produced as the plant-based meat segment scales and matures.

Product access.

The objective of BoKlok is to profitably develop energy-efficient housing that teachers, nurses, and other lower-wage workers can afford to buy or rent. BoKlok uses a detailed analysis of people’s salaries, cost of living, and typical monthly expenses as the benchmark for ceilings on its sale prices. Manufacturing the homes in a factory reduces both the cost of the housing and the carbon emissions produced during construction. (BoKlok has made a commitment to reach net-zero carbon emissions—from manufacturing, sourcing, and even the energy consumption of the homes it builds—by 2030.) Factoring access and affordability into its investment decisions has heavily influenced its choices—such as collaborating with municipalities in Sweden, Finland, Norway, and the United Kingdom to buy land. The reward is a rapidly expanding new market opportunity: Since creating its industrialized affordable-housing model in 2010, BoKlok has built 14,000 homes, while routinely outperforming Skanska’s conventional construction business on a return-on-capital-employed basis.

Operational footprint.

Greenhouse gas emissions from electricity generation is Enel’s most material issue, along with its customers’ energy use. So Enel has invested €48 billion over three years (2021 through 2023) in renewable power generation, upgrades to improve the efficiency of its distribution network, and new energy-saving technologies for end users. These investments will help Enel reduce its reliance on coal-fired power plants from 10% in 2021 to only 1% by 2023. They will also dramatically increase profit per ton of CO_2 emitted and decrease emissions from 214 grams of CO_2 to 148 grams CO_2 per kWh—while delivering an EBITDA compound annual growth rate of 5% to 6% to shareholders.

Karina Sharpe

A primary issue for Mars Wrigley, as noted above, is the footprint of its commodities sourcing. So the company systematically sets baseline performance measures for climate, water, land, gender-specific income, and human rights across each of its commodities. Each commodity has a different footprint: For cocoa the most critical ESG factors are farmer poverty and deforestation; for dairy products, land and water use are important. Issues vary even within a given commodity: Sugar is a key ingredient in Mars Wrigley’s products, but if it is sourced from beets, the biggest consideration is water use, whereas sourcing from sugarcane raises issues of poverty and human rights.

If Mars Wrigley had ignored suppliers’ social and environmental factors, the drive to maximize profit would inevitably have led it to purchase from smallholders with the worst social and environmental impacts, given that labor and environmental practices tend to improve with more sophisticated and costly farming. Buying higher-priced commodities from large-scale commercial farmers might improve the company’s ESG performance, but doing so would also increase its costs and do nothing to reduce the poverty of smallholders and the environmental degradation that their farming practices cause. Integrating sustainability factors into its procurement process has enabled Mars Wrigley to maintain a cost advantage and, by making carefully calibrated investments in helping small farmers, communities, and supply chain partners change their practices, to reduce poverty and harm to the environment.

4. Collaborate to Avoid Trade-offs Between Profit and Societal Benefit

Win-win solutions that improve both societal benefits and profits are easy to adopt, but most companies stop short when they confront trade-offs that require sacrificing profit for improved social or environmental performance. Such trade-offs, however, often can be avoided by collaborating with other stakeholders. In fact, many levers that affect a company’s impact intensity of profit are controlled by only a few external stakeholders.

Sugarcane cutters in Latin America have, for decades, been paid in cash on the basis of the weight of the sugarcane they cut. The pace at which cutters work determines how much distance they cover in a day, but the weight of the cane they cut depends on factors outside their control, such as the type of sugarcane planted, the irrigation and fertilization practices, and the weather. The team leaders, who traditionally hand out the cutters’ pay, have complete discretion in how much to pay each worker, and there are no controls to ensure that each worker receives his or her due. The result is that many cutters take home far less than a living wage. An ongoing pilot project involving sugarcane mills, purchasers, and local NGOs has found a way to address these issues: It combines a minimum daily wage with additional compensation based on the amount cut. Digital payments are transferred directly to the cutters’ mobile phones to ensure that they promptly receive what they have earned. Together these measures can raise cutters’ wages by 25% while increasing the cost of sugarcane to the mills by less than 5%, most of which is expected to be offset over time through productivity gains.

Enel found success with a different type of collaboration. The company needed world-class engineering talent in order to make its shift from fossil fuel to renewable energy, but the most talented environmental engineers did not want to work for an electric utility that still relied heavily on fossil fuel. So the company turned to crowdsourcing. It has posted more than 170 of its most difficult technical problems on its Open Innovability digital platform, which reaches 500,000 “active solvers” from more than 100 countries. So far, they have proposed some 7,000 solutions to those challenges. Enel’s engineers evaluate them and either award cash prizes to winners or establish joint ventures with them.

For example, the shift to renewable power depends, in part, on batteries large enough to smooth out the fluctuations in solar- and wind-generated power for an entire city. This is a big challenge because the storage capacity of today’s batteries is severely limited and extremely expensive. As electric vehicles become more common, electric car batteries could be used to store power and provide it when needed. Using just 5% of the stored energy in car batteries could balance the power grid for an entire city. Enel had the idea but lacked the software needed to allow the batteries to contribute electricity to the grid. A six-person start-up based in Delaware learned of the opportunity through the Open Innovability platform and provided the software solution.

Collaboration with other stakeholders, whether companies, governments, or NGOs, requires a new degree of cross-sector trust and collaboration. The game of blaming one another for social or environmental problems will have to give way to a partnership in which everyone endorses a shared agenda. In the process, positive outcomes become compatible with profits, and baseline measures, strategies, and investments are developed jointly.

5. Redesign Organizational Roles

Despite the increased attention to ESG performance, most companies have done little to change their organizational roles and structures to integrate sustainability into operations. CSR departments are typically very small and uninvolved in strategic and operational decisions. They focus primarily on stakeholder and government relations, philanthropy, and ESG reporting. But if ESG criteria are to be integrated into key decisions, then people with sustainability expertise need to be at the table when strategic and operational decisions are made.

Enel has made that change. Its innovation and sustainability functions are combined under a “chief innovability officer,” who oversees, on a matrix basis, a team of people who hail from every department to ensure that all decisions include a sustainability analysis. Mars Wrigley created the combined role of “chief procurement and sustainability officer.” BoKlok and Skanska similarly created an executive vice president position to oversee sustainability and innovation.

Karina Sharpe

Incentives must also be aligned. Compensation schemes must reward performance for reaching not just financial but also social and environmental goals. Some ESG-related compensation bonuses are “artfully” designed so that they can be awarded even if emissions increase or environmental damage worsens. Obviously, that renders such incentives ineffective. Companies that take ESG goals seriously make sure that a significant part of executives’ bonuses are dependent on achieving them. At Mars, the top 300 corporate leaders receive long-term incentive compensation (above salary and annual bonuses) on the basis of their success in achieving equally weighted financial and emissions-reduction goals over a three-year period. And Mastercard recently announced incentive compensation for all employees that includes performance metrics around three material issues: carbon emissions, financial inclusion, and gender equity.

6. Bring Investors Along

Companies must explain to investors their strategies for improving the impact intensity of their profits, communicate their commitments to achieving explicit goals, and report publicly on their progress. Spelling out how the company is incorporating positive social impact into its business model will carry far more weight with investors that care about climate targets and sustainable development goals than flawed and inconsistent ESG rankings.

Nestlé, for example, which has been steadily reducing sugar, salt, and fat across its product portfolio for more than a decade, began only in 2018 to disclose to investors that these healthier foods had faster growth rates and higher profit margins than traditional offerings. Enel has long described its shift to renewables in its sustainability reports and taken pride in its efforts to advance the UN’s Sustainable Development Goals, but only in November 2019 did it first highlight the financial value driven by the renewables business model in its Enel Capital Markets Day investor presentation. In the following three months, when most stocks plunged because of the Covid-19 pandemic, Enel’s share price increased almost 24%, a change that management attributes to this shift in communication strategy. Unless companies clearly explain the financial benefit of their ESG improvements to their investors, they will not see the value of those efforts reflected in their share prices.

. . .

We cannot continue the path we are on today, where companies’ social and environmental actions are after-the-fact interventions disconnected from strategy and decision-making. Focusing on shared value and the economics of impact will lead companies to make fundamental changes to their business models, capital investments, and operations, generating meaningful opportunities for differentiation and competitive advantage. In doing so, they will create an economy that truly works to close social inequities and restore natural ecosystems.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Read more on Sustainable business practices or related topics Strategy, Operations strategy, Business models, Corporate social responsibility, Product development, Business and society and Society and business relations

Experience

- How to Navigate Conflict with a Coworker

- Case Study: What’s the Right Career Move After a Public Failure?

- Understanding the Rise of Tech in China

- Life’s Work: An Interview with Jerry Rice

How to Navigate Conflict with a Coworker

Seven strategies to help you make progress with even the most difficult people

Amy Gallo 1 September, 2022

From the Magazine (September–October 2022)

Martina Paukova

Summary.

Interpersonal conflicts are common in the workplace, and it’s easy to get caught up in them. But that can lead to reduced creativity, slower and worse decision-making, and even fatal mistakes. So how can we return to our best selves? Having studied conflict management and resolution over the past several years, the author outlines seven principles to help you work more effectively with difficult colleagues: (1) Understand that your perspective is not the only one possible. (2) Be aware of and question any unconscious biases you may be harboring. (3) View the conflict not as me-versus-them but as a problem to be jointly solved. (4) Understand what outcome you’re aiming for. (5) Be very judicious in discussing the issue with others. (6) Experiment with behavior change to find out what will improve the situation. (7) Make sure to stay curious about the other person and how you can more effectively work together.

Early in my career I took a job reporting to someone who had a reputation for being difficult. I’ll call her Elise. Plenty of people warned me that she would be hard to work with, but I thought I could handle it. I prided myself on being able to get along with anyone. I didn’t let people get under my skin. I could see the best in everyone.

Two months later I was ready to quit.

Elise worked long days and on weekends and expected her team to do the same. Her assumptions about what could get done in a day were wildly unreasonable. She often followed up at 8:30 AM on a request she’d made at 6:00 the night before. She disparaged my teammates in front of me, questioning their work ethic and commitment to the company. She would scroll through colleagues’ calendars and point out how little they’d accomplished despite having a meeting-free day.

I vowed to stop caring so much about how she acted and to treat her with kindness. In a good week I could succeed. But more often than not those lofty intentions flew out the window. The minute she insinuated that I wasn’t working hard enough, I would clench my teeth, roll my eyes behind her back, and complain about her to my coworkers.

Interpersonal conflicts like that—with insecure bosses, know-it-all colleagues, passive-aggressive peers—are common at work, and it’s easy to get caught up in them. In one study 94% of respondents said they had worked with a “toxic” person in the previous five years. Another survey—of 2,000 U.S. workers—indicated that their top source of tension on the job was relationships. Trapped in these negative dynamics, we find it hard to be our best selves or to improve the situation. Instead we spend time worrying, react in regrettable ways that violate our values, avoid difficult colleagues, and sometimes even withdraw from work entirely. But those responses can lead to a host of bad outcomes, including reduced creativity, slower and worse decision-making, and even fatal mistakes. For example, as Christine Porath wrote for the New York Times, in “a survey of more than 4,500 doctors, nurses and other hospital personnel, 71 percent tied disruptive behavior, such as abusive, condescending or insulting personal conduct, to medical errors, and 27 percent tied such behavior to patient deaths.”

None of us is perfect when it comes to navigating the complexity of human relationships. Especially in times of stress, or when we feel threatened, even the most seasoned workplace veterans can find themselves focusing on the short-term goal of ego or reputation protection (I need to win this argument or to look good in front of my team) rather than the long-term one of behaving honorably and preserving collegiality.

So how can we return to our best selves? Having studied conflict management and resolution over the past several years, I’ve outlined seven strategies that will help you work more effectively with difficult colleagues. These aren’t silver bullets that will magically transform your problem coworker into your best friend, but they should make your interactions more tolerable if not more positive. And they’ll help you build interpersonal resilience so that you feel less stressed when you’re engaged in a conflict and can bounce back from it more quickly.

1. Remember That Your Perspective Is Just One Among Many

We all come to the workplace with different viewpoints and values. We might disagree on everything from whether it’s OK to be five minutes late to a meeting to acceptable ways of interrupting a colleague to the appropriate consequences for someone who’s made a mistake. It’s not realistic to expect your boss, teammates, or reports to see eye to eye with you all the time.

When such differences of opinion arise, however, most of us believe that we’re seeing the issue objectively and correctly, and anyone who has another view is uninformed, irrational, or biased. Social psychologists refer to that tendency as naive realism. For example, in one study, participants who were asked to tap out the rhythm of a well-known song, such as “Happy Birthday,” predicted that listeners would be able to name the tune about 50% of the time. They were sure that it would be clear to others what they were trying to convey. But the guesses were accurate only 2.5% of the time! Once we’re confident about something—whether it’s our ability to tap out a song or the solution to this quarter’s budget shortfall—we find it hard to imagine that others won’t see it the same way.

It’s important to recognize and resist this gut reaction. Challenge your own perspective by asking questions such as: How do I know that what I believe is true? What if I’m wrong? How would I change my behavior? What assumptions have I made? How would someone with different values and experiences see things? The answers to those questions matter less than the exercise of asking them. They are a good way of reminding yourself that your view is just that: your view. Not everyone sees things the same way—and that’s OK.

Indeed, you and your colleagues don’t need to reach consensus on “the facts” of what’s happened or who’s to blame for a problem. Instead of spending hours debating whose interpretation is correct, shift your focus to what should happen going forward.

2. Be Aware of Your Biases

Biases creep into all sorts of workplace interactions. One common derailer of colleagues’ relationships is fundamental attribution error—an inclination to assume that other people’s behavior has more to do with their personality than with the situation, while believing the opposite of oneself. For example, you might presume that a teammate who’s late to a meeting is disorganized or disrespectful rather than caught in traffic or stuck in another meeting that went long. But when you’re running behind, you might focus on the circumstances that led to your tardiness.

A related cognitive shortcut that creates problems is confirmation bias, or the tendency to interpret events or evidence as proving the truth of existing beliefs. If your view of your colleague Andrew is already negative, you’re more likely to interpret his actions as further evidence that he’s not up to the task, he’s unkind, or he cares only about himself—and it will be increasingly difficult for him to prove you wrong.

Even what we consider difficult behavior can be shaped by the prejudices we carry into the workplace. Earlier in my career I worked with a client—a Black woman—whose ideas I hesitated to challenge, even though that was part of my job as a consultant. I was afraid I’d get a strong reaction, despite the fact that she had never so much as raised her voice in previous encounters. I had fallen into believing the “angry Black woman” stereotype. Now I know to watch out for affinity bias, an unconscious tendency to align with people who are similar to us in appearance, beliefs, and background. Research shows that when colleagues aren’t like us—in terms of gender, race, ethnicity, education, physical abilities, or position at work—we are less comfortable around them and thus less likely to want to work with them.

How can you interrupt those biases? First, get a better sense of your susceptibility to them by taking an online quiz such as the one from Project Implicit, a nonprofit started by researchers at Harvard, the University of Washington, and the University of Virginia. When you’re struggling with a coworker, ask yourself, What role could my biases be playing here? Is it possible I’m not seeing the situation clearly because I’m making assumptions about this person, or unwilling to rethink my initial impression, or unconsciously focusing on our differences?

Play devil’s advocate and question your own interpretation of the situation. I learned the “flip it to test it” approach from a TEDx talk by Kristen Pressner, the global head of human resources at a multinational firm: If your colleague was a different gender, race, or sexual orientation or had a different place in the hierarchy, would you make the same assumptions? Would you say the same things or treat that person the same way?

Finally, ask someone you trust—and who will tell you the truth—to help you reflect on the ways in which you might be seeing the situation unfairly.

3. Don’t Make It “Me Against Them”

In a disagreement it’s easy to think in polarizing ways: “me versus you,” enemies at war. One person is being difficult; the other isn’t. One person is right; the other is wrong.

To break out of that mental model, instead imagine that there are not two but three entities in the situation: you, your colleague, and the dynamic between you. Maybe that third entity is something specific: a decision you must make together or an assignment you need to complete. Or maybe it’s more general: ongoing tension or rivalry between you or bad blood over a project gone wrong. Rather than work to change your colleague, try to make progress on that third thing.

Take Andre, who was struggling with his colleague Emilia. Whenever he proposed a new idea, she produced a list of reasons why it would never work. For a long time Andre saw the two of them as opponents. When I asked how he pictured their dynamic, he told me he saw a dark cloud over her head and a bright sun over his. But that visualization reinforced his view of the situation, prompting him to brace for battle every time he spoke with her. Eventually he decided to shift to less-antagonistic thinking. He started to picture the conflict between them as a seesaw. Though they sat on opposite ends, they could perhaps work together to find balance. That helped him view her as a collaborator rather than an adversary.

No one wants to have a nemesis at work. So think of problematic coworkers as colleagues with whom you share a problem to be solved.

4. Know Your Goal

To avoid drama and stay focused on the work, you need to be clear about your goals. Do you want to get a project over the finish line? Build a healthy working relationship that will last into the future? Feel less angry or frustrated after your interactions?

Make a list of your goals (big and small) and then circle the most important ones. Your intentions will determine—consciously and subconsciously—how you act. For instance, if your goal is to avoid getting stuck in long discussions with a pessimistic colleague, you’ll need to take actions different from those you’d take if your goal was to keep the person’s nay-saying from bringing down the team.

It’s fine to set your sights low. Often it’s enough to focus on just having a functional relationship—getting to a point where your skin doesn’t crawl when Ethan’s name shows up in your in-box or you’re not losing sleep at night because Marjorie is making your life miserable. Multiple and more-ambitious goals are OK too. For example, if you’re arguing with your insecure boss about which metrics to report to the senior leadership team, your goals might be to: (1) come up with stats that you can both live with, (2) make sure the senior team knows about your expertise, and (3) find a way to avoid heated disagreements before big meetings in the future.

Once you’ve decided what you want to accomplish, write it down on a piece of paper. Research has shown that people who vividly describe or picture their goals are 1.2 to 1.4 times as likely to achieve them, and that objectives recorded by hand are more likely to be realized. Refer to your goals before interacting with your colleague to keep your eyes on the prize.

5. Avoid Workplace Venting and Gossip—Mostly

It’s natural to turn to others when something is off at work. You might want to confirm that you’re not misinterpreting a vague email, get advice on advancing a stalled initiative, or simply be reassured that you’re a good person. And if your colleague says, “Yes, Greta does seem grumpy. What’s up with that?” you get a little jolt of relief: It’s not just me.

That type of side conversation, whether it happens digitally or in person, can be considered venting. But you might also call it gossip. Despite its bad rap, research shows, gossip can play an important role in bonding with coworkers. When you learn that Marina in marketing also finds Michael in finance difficult and knows of others who feel the same, it fosters a sense of connection. You’ve essentially formed an in-group that has information that others, especially Michael, don’t. And Marina’s validation of your perspective gives you a rush of feel-good adrenaline and dopamine.

Studies have also shown that gossip can be beneficial in deterring people from behaving selfishly. If difficult colleagues realize that others are speaking badly of them and warning teammates about working with them, they’re more likely to change their ways.

Of course, there are also dangers to venting and gossiping. First, they heighten the risk of confirmation bias. Sure, Michael may be exasperating sometimes, but once you and your work friends start talking about it, you’re more likely to interpret his future actions in a negative light. Occasional missteps are painted as an inherent trait, and the “Michael is difficult” storyline becomes entrenched. Second, gossiping often reflects poorly on the gossiper. Although you may get the immediate validation you’re seeking, you may also get a reputation for being unprofessional—or end up labeled as the difficult one.

It is perfectly legitimate to seek help with sorting out your feelings or to check with someone else that you’re seeing things clearly. But choose whom you talk to (and what you share) carefully. Look for people who are constructive, have your best interests at heart, will challenge your perspective when they disagree, and can be discreet.

6. Experiment to Find What Works

There isn’t one right way to get a know-it-all to stop being condescending or your passive-aggressive colleague to deal with you in a more straightforward way. The strategies you choose will depend on the context: who you are, who the other person is, the nature of your relationship, the norms and culture of your workplace, and so on.

Start by coming up with two or three methods you want to test out. Often small actions can have a big impact. Then design an experiment: Determine what you’ll do differently, pick a period of time to try it out, and see how it works. For example, if you want to improve communication with a difficult colleague, you might decide that for two weeks you’re going to ignore that person’s tone and focus on the underlying message. Don’t assume the tactic will fix everything wrong between you; view it as an experiment that will teach you something, even if it’s only that the approach doesn’t work.

Keep trying, tweaking, and refreshing experiments or abandoning ones that don’t produce results. For example, if you’ve tried to handle a colleague’s lack of follow-through by sending post-meeting emails that confirm what everyone has agreed to do, but the person still fails to keep promises, then don’t keep sending the emails expecting different results. Try something else. As the conflict expert Jennifer Goldman-Wetzler explains, you’ll need to find another way to “interrupt the conflict pattern of the past”—often by doing something the other person doesn’t expect.

7. Be—and Stay—Curious

Salvador Minuchin, an Argentine therapist, wrote, “Certainty is the enemy of change.” When dealing with a negative coworker, it’s easy to think, It’s always going to be this way or That person will never change. But resignation and pessimism will get you nowhere. Instead, adopt a curious mindset and maintain hope that your troubled relationship can be improved.

Research shows that curiosity brings a host of benefits: It wards off confirmation bias, prevents stereotyping, and helps us approach tough situations not with aggression (fight) or defensiveness (flight) but with creativity. The key is to shift from drawing often unflattering conclusions to posing genuine questions. When your colleague Jada starts complaining that she’s doing more work than anyone else on the team, don’t think, Here we go again with Jada’s attitude. Instead ask yourself, What’s going on with her? This feels familiar, but what have I missed in the past? Why is she acting like this?

Try to catch yourself in unproductive thought patterns; then step back and take stock, Who gets along well with Jada, and how do they interact with each other? Have there been times when Jada was more pleasant and cooperative? What was different about those situations?

When you hit a rough patch with someone, think about instances at work or elsewhere when you and another person didn’t get along at first but were able to get past it, and reflect on those experiences with curiosity. How were you able to persevere? What helped you achieve resolution? Finally, consider exactly what you stand to gain from meeting the goals you’ve set out to achieve in a work relationship. Project into the future. If you overcome the conflict, what will be different? How will your work life improve?

You can’t be certain of what the future holds for you and your colleague, so be curious instead. It may snap you out of a mindset that’s keeping you from discovering an unexpected solution to your problem.

. . .

No matter what type of difficult colleague you’re dealing with or what you decide to do next, these seven strategies can improve your odds of responding productively, establishing appropriate boundaries, and building stronger, more fulfilling collaborations at work. Sometimes change isn’t possible, in which case you’ll eventually need to cut your losses in a relationship and focus on protecting your career and well-being. But I’ve found that with good-faith efforts and hard work, even some of the trickiest interpersonal conflicts can be resolved.

Editor’s note: Amy Gallo is the author of Getting Along: How to Work with Anyone (Even Difficult People) (Harvard Business Review Press, 2022), from which this article is adapted.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Case Study: What’s the Right Career Move After a Public Failure?

A fitness executive contemplates what to do next.

Jon M. Jachimowicz, Francesca Gino 1 September, 2022

From the Magazine (September–October 2022)

Bewilder

“Reunions are for happy people,” Mariani Kallis said to her friend Whitney on the phone. “I’m not going.”

“Come on, it won’t be the same without you,” Whitney pleaded. “Besides, no one is happy right now. Everyone’s life is a mess.”

“I’m pretty sure none of our other classmates was asked to step down from their CEO job last month,” Mariani said wryly.

Whitney laughed. The two had been close friends since they met their first year at Columbia Business School. They texted pretty much every day, but Whitney had called to make a case for why her friend should fly up to New York City from Atlanta, where she lived with her husband and teenage daughter, to attend their 25th reunion.

Mariani wasn’t in the mood to be convinced. She dreaded having to explain her unceremonious exit from what she thought was her dream job: CEO of Acid Fitness. When she’d been offered the chance to lead a chain of gyms that focused on high intensity interval training and the mental health benefits of exercise, she’d jumped at the opportunity.

Since graduating from business school, Mariani had held marketing and leadership positions at major sports and fitness companies and had gained a reputation for taking on big challenges and succeeding. The top job at Acid Fitness seemed like the natural next step.

But two years into her tenure, the pandemic hit.1 The firm, already on shaky fiscal ground, was forced into bankruptcy, and the board asked Mariani to step down.2 She was devastated. The board chair had called on a Monday morning; in shock, she’d agreed, and by that afternoon he’d sent out a companywide email announcing her resignation. The story was picked up by the press the next day. And that was it. She hadn’t even had a chance to say goodbye to her team.

“You can’t sit back and lick your wounds forever,” Whitney said now. “I know it’s only been a month, but you already have four exciting options on the table.”

Mariani was accustomed to moving fast when it came to career decisions. Early on, as an émigré from Greece to the United States, she’d had to maintain employment to stay in the country. Now, thanks to her American husband, she had U.S. citizenship, but she was her family’s breadwinner and couldn’t be out of a job for an extended period.3

“It’s not just about not wanting to show my face,” she said. “I can’t spare the time right now. I need to figure out what’s next as soon as possible.”

“OK, I won’t pester you. Just know that you’ll be missed! What should I say when people ask about you?” The two women had been inseparable during business school, so Whitney would surely have to field questions.

“Just tell them I’m busy setting the stage for my future success.”

A Fresh Start?

“I imagine you’re still processing it all,” said Peter Kim in his usual empathetic way. Peter had been Mariani’s boss at her first job. They’d become friends, and although she’d left after two years, he had supported her ever since and was her go-to career adviser.

They’d scheduled a Zoom call so that she could get Peter’s perspective on what to do next. She outlined the four roles she was considering, all of which were based in Atlanta or could be done remotely—a key consideration since her family wasn’t ready to relocate. The first option was to take a senior marketing position at a sports company. She’d already had some initial interviews with Nike and Equinox, and the recruiter seemed optimistic that an offer from one or both was imminent.

“I see why those positions are appealing,” said Peter. “You know the industry. The work would be similar to what you did at Reebok, right?”

“Yes, I’d just be doing it with the stench of failure on me. Everyone in this industry knows what happened at Acid,” she said.

Peter rolled his eyes. “I’m going to ignore that. Go on.”

Her second option was to accept an executive director role at a foundation offering grants to nonprofits that encouraged girls to get involved in sports.

“High on passion, low on income, I’m guessing,” Peter commented. His husband held a senior role at a foundation, so he knew that world well.

“Exactly,” Mariani replied. “I’m not sure I can swing that one financially, but it’s still on the table. The third option is the opposite. High reward, low passion. Remember Theo?” She was referring to their former colleague who’d left the company to join a venture capital firm.

“Is he trying to convince you to go over to the dark side?” Peter asked, and they both laughed.

“He actually made it sound appealing,” Mariani said. “I’d be an operating partner, advising senior execs at portfolio companies. It’s a lot less stressful than being CEO. I could get my feet back under me and prove that I know how to run a business.”4

“From behind the scenes? That’s not really your style,” Peter said, pointing at the screen. She glanced down at her T-shirt, which read “No Guts, No Glory.”

“True. There is one more possibility: CEO of a small firm here in Atlanta that sells chips and other snack foods.” She explained that she was far along in the process—the recruiter had said she should expect an offer next week—and she had liked what she’d seen so far.

“Do I hear some enthusiasm in your voice?” Peter asked.

“It’s a cool opportunity, and I’d love the chance to show that I can handle the top job this time,” she said. “The big question mark is the industry. My experience is in fitness.5 Could anything be more opposite from that than unhealthy snacks? This might be the real dark side! But maybe it’s time to try something new?”

Peter nodded. “I’m only reflecting back what I’m hearing, but you sound the most excited about that one. You could make a fresh start in a CPG company.”

She wasn’t surprised that he was pushing for this option. He’d stayed at one company his entire career, but he often urged Mariani to take risks with hers.

They talked through the possibilities and agreed that the VC firm and the foundation were not the best fit and should be kept on the back burner for now. Peter gave her another nudge toward the CEO position. “Just because you have a passion for fitness doesn’t mean you can’t have a passion for something else. I worry that anything below that level will feel like a demotion.”

“That’s what I’m afraid of—that if I accept a lesser role, peers in the industry will write me off, thinking I don’t have what it takes to be CEO,” Mariani said. “And maybe I don’t. Acid looked like the right next move on paper, but maybe I was in over my head.”

“You were ready. The company wasn’t,” Peter said.

Mariani knew what he was getting at. She’d had friction with the board from her first week on the job. They’d brought her in to drive a transformation but stood in the way of the changes she’d proposed. And then Covid had sparked closures and revenue losses that Acid couldn’t recover from.6 Still, she didn’t want to place blame elsewhere. The company failed on her watch, and she had to own it.

“You know,” Peter said, “careers rarely map nicely on a straight line. They twist and turn. This is a great chance for you to take a break and rethink your journey.”

Follow Your Passion

Mariani was leaning against her car outside her gym, still sweating from her spin class and scrolling through emails from recruiters and business school classmates (“We missed you last weekend!”), when her dad’s picture came up on her phone screen.

“Hi Baba,” she answered. George said he was calling for an update on her job search. He’d always been her biggest supporter and followed her career closely. As she reviewed the options, her father listened attentively.

After his daughter finished, George took a deep breath, and said, “Well, it’s obvious, no?”

Mariani smiled to herself. “No, not to me, Baba.”

“Mari, I’m going to guess you’ve probably just finished a workout,” he said. She smiled again. He knew her well. “You have to follow your passion.7 You believe that fitness and wellness improve people’s lives. You can’t leave the industry because of one failure. Zagorakis didn’t leave football to become a tennis player every time he messed up,” he said, referring to the famed Greek soccer player. “He got back out on the field. And that’s what you need to do now. Don’t end your time in that world on a low note. Focus on Nike and Equinox—one of them will offer you a job, don’t tell me they won’t—and take whichever makes the most use of your talents, which are…?” He waited for her to finish the sentence he used in every pep talk.

“Infinite,” she said.

“Exactly. And you will walk into that job with your head held high, and then see what comes next. Learn the right lessons from what happened, and remember that everything that made you successful before is still in you.”

Mariani knew he was right, fatherly pride aside. She thrived on testing herself and doing work she was inspired by. Still, it was a tough decision. The CEO job was in the wrong industry but was higher-ranking and would pay more.8 The other jobs offered development and advancement opportunities but with less responsibility and pay.

Case Study Classroom Notes

1. From the start of the pandemic to the end of 2020, 17% of gyms had permanently closed, 44% of employees had lost their jobs, and revenue fell by 58%, according to the Global Health & Fitness Association.

2. Is Mariani’s experience at Acid an example of the glass cliff—the tendency for companies to promote women during downturns or moments of crisis, when the chance of failure is more likely?

3. In the United States, 30% of women in opposite-sex marriages out-earned their male partners in 2019, according to the U.S. Bureau of Labor Statistics. This was up from 18% in 1987.

4. What are the advantages and disadvantages of Mariani’s pursuing a “stretch” position versus taking a role in her comfort zone?

5. Research shows that once people reach the C-suite, leadership skills and business fundamentals matter more than technical and functional expertise.

6. Women are judged more harshly for work failures than men are, studies show.

7. A survey of Columbia Business School students found that more than 90% of them listed “pursuing my passion” as an important goal for their future jobs.

8. According to data from Payscale, pay growth for women peaks at age 40, on average, whereas men’s salaries continue to rise until age 49.

“Baba, if my talents are infinite, shouldn’t I be CEO?”

“You will be again. I know it.”

Your Gut Instinct

After hanging up, Mariani went to pick up her daughter, Olivia, from soccer practice. The 15-year-old looked surprised to see her. “Where’s Dad?” she asked as they strolled off the field.

Because of her hectic schedule, it was rare for Mariani to be doing pickup. “I’m giving him a break from driving since I’m on ‘sabbatical,’” Mariani explained.

“Is that what you’re calling it?” Olivia asked with both empathy and an edge in her voice, as only a teenager could do.

“Forced sabbatical,” Mariani conceded. “I’m trying to cram a lot of reflection into a few weeks.”

“As long as I don’t have to switch schools, I don’t care what you do,” Olivia said, digging in her backpack for her phone. When Mariani winced, her daughter’s face softened a bit.

“Want my advice?” she said. It was Mariani’s turn to be surprised, but she quickly nodded. “You and Dad always tell me, ‘Face your fears because if you don’t, they’ll haunt you forever.’ So figure out what you’re afraid of, and walk toward it. You’ll know the right decision in your gut.”

“That’s great advice, Liv,” Mariani said, moved by her insight.

“And make sure we don’t have to move. I’m not starting over at a new high school.” Mariani smiled. Teenage narcissism was fierce.

What she didn’t tell her daughter was that her gut was twisted in knots.

The Experts Respond: What should Mariani’s next career step be?

Sarah Robb O’Hagan is the CEO of EXOS and the author of Extreme You.

Mariani shouldn’t jump at any of the options currently on the table. She cannot allow the failure at Acid Fitness to derail her career. She should hold out for a CEO role in the sports and fitness industry—an opportunity that I’m confident will come along.

Of the choices she has in hand, the jobs in the fitness industry may feel like the best match, but those are high-level marketing roles and would be a step backward. There is a profound difference between being the CEO and heading up a function—no matter how big the division or how big the company. Without full P&L responsibility, Mariani risks being pigeonholed.

However, I’d also discourage her from taking the snack food company CEO position. An impressive title and generous compensation aren’t enough if you don’t have passion for the business. Performing the top job isn’t always a picnic and becomes only harder if you don’t truly believe in the company’s products or services.

This case is loosely based on my own experience four years ago when I stepped down as CEO of Flywheel Sports, after the company went into bankruptcy. In considering my next move, I entertained options similar to those Mariani has in front of her. I knew I could effectively run a company despite my failure at Flywheel, and I wanted to take my time in finding the right role. In fact, falling into “must get a job” mode was what had led me to Flywheel in the first place and to the disappointments that followed.

So I gave myself the mental space to reflect on what I wanted to do differently. I decided to consult for a while, which helped restore my confidence. One of my clients was EXOS. I got to see firsthand how the firm operated and what its values were. When the CEO decided to step aside for personal reasons and an investor asked me to take the role, it was an obvious yes. I knew exactly what I was getting into. I had the support of the board, and I felt comfortable being honest about my strengths and weaknesses.

Mariani should take the time to better understand herself and any organization she might join. Like her, I was tempted to blame myself for Flywheel’s failure, but in hindsight, I realize that the issues had less to do with my skills as a leader than with a problematic dynamic between the board and the management team.

What happened at Acid Fitness wasn’t Mariani’s fault either. She deserves to land another CEO role in the industry she loves with a terrific company. I’d advise her to take on advisory and consulting projects to support her family while she looks for the right opportunity. A client firm might just fall in love with her and make her an offer. Or more headhunters for other great companies will come calling. Her patience will be rewarded.

Lan Phan is the founder and CEO of community of SEVEN.

Mariani should take the CEO role at the snack food company. It’s a great opportunity for her to bring her experience in fitness and wellness to the snack food industry—and ideally transform it. Plus, the job is based in Atlanta, which would mean less disruption and more time with her family.

I was in her shoes at the start of the pandemic. Fortune magazine had hired me into its executive team and given me a multimillion-dollar budget to create an executive membership start-up within the company. I thought it was my dream job. But early on in the pandemic, I and my entire team were laid off.

I started searching for a new role and found a similar opportunity, which seemed like fate. But I also had a sinking feeling that I was attracted to the position because it felt safe. So I took a step back and did some soul-searching. I realized that I’d made all my previous career decisions on the basis of pay, title, and ego. And that had yielded a “dream job” that involved commuting three hours a day, working until 10 or 11 every night, and seeing my daughter only on the weekends because I was so busy.

As I pondered my options, I asked myself what I valued most in my life and came up with four things: my family and friends; my faith; serving others; and freedom. Then, I moved toward a career aligned with those ideals. I ended up launching my own business: an invite-only membership community that brings prominent executives, thought leaders, and changemakers together to tackle and solve business and societal problems.

Mariani needs to do the same kind of reflection before she makes a choice. A first step is to stop caring so much about what other people think. Her story reminded me of the Virginia Woolf line “The eyes of others are our prisons; their thoughts our cages.”

In my view, Mariani is attracted to the positions at Nike and Equinox—reverting to what she knows—because she’s afraid. The brand names are impressive, but both roles would be a continuation of what’s she’s already done and wouldn’t offer her the opportunity to develop as a leader. That’s why I think she should go for the snack food CEO role. Her marketing skills, sales experience, and commitment to helping people become their best selves through health and wellness would be differentiating factors in that category.

She’d need to go in with confidence and a growth mindset. Another quote—this one from health and well-being author Charlie Wardle—comes to mind: “A bird sitting on a tree is never afraid of the branch breaking because its trust is not on the branch but on its own wings.” Mariani needs to have faith in her skill set and believe that she can take a risk and land on her feet. She can always go back to the sports industry if the snack food role doesn’t work out. But if she adds yet another fitness-focused position to her CV, it will get harder to shift to another field. And staying in a CEO role will keep her career on track. If she takes one of the other roles, that could push out her timeline for getting back to the top job by five to even 10 years.

Instead of worrying about failure or prestige, Mariani should be asking herself: What makes my soul come alive? I suspect she’ll find that what motivates and inspires her is less about a particular industry and more about the opportunity to learn, grow, and live out her professional and personal values.

HBR’s fictionalized case studies present problems faced by leaders in real companies and offer solutions from experts. This one is based on the HBS Case Study “Sarah Robb O’Hagan: The Rocky Road of Passion” (case no. 422055-PDF-ENG), by Jon M. Jachimowicz and Francesca Gino.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Understanding the Rise of Tech in China

New books explore the threats and opportunities.

Dagny Dukach 1 September, 2022

From the Magazine (September–October 2022)

Yukai Du

How should global business leaders approach the meteoric rise of technology in China? Some observers in the West have taken a zero-sum, us-versus-them approach, whereas others view the Chinese tech industry’s growth more optimistically, arguing that the development of new technologies anywhere can benefit people everywhere.

Both mindsets are understandable—but either one can be taken too far. To be effective, leaders must take a more measured approach.

Five recent books explore these competing narratives, shedding light on China’s transformation into a global tech leader, the areas in which the country still lags, and how leaders can navigate the tensions between embracing positive technological progress and mitigating the very real geopolitical risks that may accompany it.

Any discussion of tech in China would be incomplete without considering Tencent, the company behind WeChat (the superapp that serves as a home base for social media, payments, gaming, and other functions for more than one billion monthly active users). The speed and scope of Tencent’s growth since its founding, in 1998, can be difficult to comprehend—but the journalist Lulu Chen’s Influence Empire: The Story of Tencent and China’s Tech Ambition takes us behind the curtain to share the story of CEO Pony Ma, who rose from humble beginnings to head a global behemoth. Chen describes a shy, geeky programmer, nervous about talking in front of crowds but driven to spend innumerable sleepless nights striving to overcome every hurdle on the path to success. Some of those obstacles, such as aggressive government censorship and unexpected regulatory shifts, are no doubt specific to the Chinese context. But Chen’s compelling and relatable narrative depicts Ma as “temperate, stoic and almost irritatingly self-aware…a quiet but doggedly persistent force who rallies people, many of whom he considers smarter by his own account, to undertake his vision.” Her portrait serves as a powerful reminder that the West has no monopoly on inspirational entrepreneurs.

Of course, the story of tech in China is also one of shifting political and economic realities. In The Cashless Revolution: China’s Reinvention of Money and the End of America’s Domination of Finance and Technology, the financial researcher Martin Chorzempa examines how those forces informed the growth of both Tencent and its rival Alibaba—and especially their development of digital payment systems. He asserts that an underdeveloped financial infrastructure and lax regulatory stances in the early 2010s opened the door for game-changing innovation that catapulted China from a cash-only economy to the world leader in mobile payments, leaving the West to play catch-up. But he also notes that the Chinese government has more recently reasserted control over those tech giants, illustrating how digital money—which many envision as a liberalizing force—can also be used for surveillance and control. Ultimately, Chorzempa suggests that China’s vision of fintech as a system designed to be “protective above all of the state’s sovereign prerogatives and centralized power to monopolize money provision, supervise the financial system, and surveil its population” is fundamentally at odds with the social values of the United States and other liberal democracies, posing a major challenge to any Western attempts to replicate China’s rapid growth in the sector.

The corporate strategist Handel Jones draws on his four decades of experience in tech and defense to paint a similar picture regarding artificial intelligence in When AI Rules the World: China, the U.S., and the Race to Control a Smart Planet. He argues that its unique regulatory and economic context has enabled China to far surpass the West in AI applications as wide-ranging as health care, virtual reality, and self-driving cars. “China,” he writes, “with its longer-term goals and ability to turn those goals into reality, had a distinct advantage over a system driven solely by market forces.” Jones concludes that “the United States simply has no master plan” guiding its development of critical AI capabilities. As a result, he writes, “by 2030, China will be firmly ahead of the United States in AI. In 2040, major parts of society will be under the control of AI, and it will be too late.”

Although both Chorzempa and Jones frame China’s growth largely as a threat to the West, that’s not the only possible interpretation. In Chip War: The Fight for the World’s Most Critical Technology, the economic historian Chris Miller suggests that when it comes to semiconductors—the critical component underlying all digital technologies—the West may still have the upper hand. He describes China as “staggeringly reliant” on chips designed in Silicon Valley and produced in the United States and allied countries, leaving “all of [its] most important technology [resting] on a fragile foundation of imported silicon.” In response, China has been trying to ramp up domestic production—but Miller says that with the world still so dependent on a core technology whose supply chain is “full of choke points,” continued international cooperation is in everyone’s best interest. He notes, for example, that a major military conflict in Taiwan (home to the biggest chipmaker) could lead to such mutually assured economic destruction that it’s unlikely to happen.

In The Power of Crisis: How Three Threats—and Our Response—Will Change the World, the political scientist Ian Bremmer agrees that the United States and China both have “too much to lose from catastrophic collision.” He acknowledges a variety of technology risks—from the “splinternet” that separates Chinese users and the rest of the globe to China’s increasing investment in AI-enabled weapons and cyberwarfare capabilities that could alter the balance of military power—but ultimately expresses a cautious optimism that the global community will find a way forward that embraces “practical cooperation,” progress, and peace. Bremmer concludes that disruptive technologies are creating risks that “no nation can address alone” and therefore that “the aim here is not to ‘defeat’ China but rather to encourage it to work with the rest of the world.”

Whether you view it as a threat or an opportunity, the growth of tech in China is undeniable. Western political and business leaders cannot afford to take a blindly negative or positive attitude toward—much less ignore—it. Instead they must work to understand and meaningfully engage with the Chinese tech world—or risk being left behind.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Life’s Work: An Interview with Jerry Rice

The NFL wide receiver on becoming the best he could be

Alison Beard 1 September, 2022

From the Magazine (September–October 2022)

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Rice first played organized football as a high school sophomore. By senior year he was an all-state receiver recruited by several colleges. He opted for a pass-reliant program where he could showcase his strengths and performed so well that the San Francisco 49ers made him a first-round pick in the 1985 NFL draft. He went on to win three Super Bowls with the team, play in 13 Pro Bowls, and set dozens of league records. Since retiring, he has worked in media, supported charitable work, and launched a natural-energy-drink company.

Jerry Rice in 1990 Focus on Sport via Getty Images

HBR: How did you get so good at football so quickly?

Rice: I got my start after running away from the principal one day when I was playing hooky. He noticed I was fast, so after disciplining me, he said I should go out for the football team. Then I just outworked everyone else. I don’t think I was the most gifted or talented, but I had that work ethic, which I got from my parents. My father was a bricklayer, and he would take me to work with him in the summers. We would start around 7 AM, and we did that demanding work all day. Then he would drop me off for a two-hour practice, and after that I would run home about five miles. I did that every day.

And then you chose Mississippi Valley State over bigger, better-known programs. Why?

I received so many letters from the major schools, but Mississippi Valley sent up a coach, and I had a chance to have a conversation with him and shake his hand. That goes a long, long way toward making you feel you can really trust someone. At that time they were also throwing the ball about 90% of the time. So it was a great opportunity for me. They assured me that the ball was going to be in the air coming my way, and then it was up to me to prove to everyone that I could be a professional athlete.

When did you realize that an NFL career was truly possible?

I never did until it happened, because I didn’t want that big letdown. Fans told me over and over that I would get drafted, but I always held that doubt and kept downplaying [the possibility]. And then I got a call from the greatest coach ever, Bill Walsh.

How did you prove yourself in the league?

Those first preseason games, I think I wanted to prove myself so much that I overdid it. I was dropping footballs, and then the media got down on me, and then the fans started booing me, and people started asking, “Why did Bill Walsh draft this guy from this small HBCU [historically Black college or university]? So I had to take a step back and say to myself, Hey, look, you know how to catch a football. You know how to run around. You deserve to be here. Now just relax and enjoy the moment. Still, it took me a while—and the guidance of Bill Walsh and some of the greatest players ever, like Joe Montana, Dwight Clark, Freddie Solomon, and Ronnie Lott—to make that adjustment. These guys told me, “You’re going to be the greatest receiver who ever played the game. We see it during practice. Just be patient. Continue to work. Then transfer that to the field on Sunday, Monday, playoff games, Super Bowls.”

Those are high hopes. How did you respond?

By working harder. Be the first player on the field, the last player to leave. Be in the film room and at meetings on time. Set a standard. A fear of failure also pushed me over the years: not wanting to let my family down; not wanting to let Mississippi Valley State down; not wanting to let the fans of San Francisco, my teammates, and coaches down. That helped me to not get bigheaded, not get complacent, just keep pushing.

You talked about recovering from your own mistakes. What about when your team lost despite your best efforts?

You lose together, and you don’t point fingers. You go back to work the next week. That’s how you build a championship team. I had games where I caught more than 10 balls, got 200 yards or more, had three to five touchdowns, but I could always go back and look at that film and see something that I didn’t do right. When you’re critical of yourself and continue to build, you get better. There will be times when you don’t meet expectations. Highs and lows are part of the game. It’s how you fight through. When you get knocked down, are you going to stay down? Or are you going to get back up and try again?

How did you mentor younger players?

By example. My teammates knew that they would always get 100% from me. When they see you catch a five-yard slant and run 95 yards at practice, they’re going to do the same thing at practice. When they see you still working hard every time you put on that uniform, even after you’ve been so successful in the NFL for so many years, they’re going to do the same thing. That’s how you build a cohesive group willing to sacrifice everything on the field. I always thought of myself as a leader, and I got that from my father too. We didn’t have everything, but he was the provider. He made sure we had food on the table and clothes on our back. He made sure I would always present myself the right way and work hard.

How else did you build camaraderie?

Just hanging out with those guys, getting to know them, their strengths, their weaknesses, talking about different scenarios. Because of that, I knew exactly what Joe Montana was thinking at all times. The same thing with Steve Young. You have to communicate with and trust each other.

Early in your NFL tenure, there was a player’s strike. How did that shift the balance of power between the league and team owners on one side and the athletes on the other?

We were striking for pension, severance, free agency, to get rid of Astroturf. And it worked. Look at revenue now—for the players and the owners and the whole NFL. It’s a collective group working together, and everybody is getting what they actually deserve.

What do you think about today’s more activist athletes who advocate not just for players’ rights but also for social justice?

I commend them. Back in the day, it wasn’t really heard of for an athlete to voice his opinion about racism or even about protecting himself from injury. I think we have a voice now.

Did you feel the effects of racism during your time in the NFL?

I was born in segregated Mississippi, but I never used that as an excuse. Was racism happening in the world? Yes. But I didn’t waste my time on it. When you’re on the football field, the color of your skin doesn’t matter. You’re one team. So that was never a problem for me.

What about after Super Bowl XXIII, when Disney had Joe Montana say, “I’m going to Disneyland!” instead of asking you, the Most Valuable Player, as they’d done in the past? Didn’t you complain?

I was young and should have handled that differently. The important thing was that I gave 100%, we won the game, and I won the MVP award. After the heat of battle as a professional athlete, you sometimes need space to calm down. I wish I’d done that before reacting.

Once you’ve won an important game or accolades, is there instant anxiety about having to do it all over again?

Not anxiety. You welcome the pressure because this is the life you chose. So if I win a Super Bowl, I want to come back the next year and win another one. There’s this drive to want more. And I think that’s why I was able to play at a very high level when everything was on the line. If you look at my track record in prime-time Sunday or Monday Night Football, playoffs, and Super Bowls, that’s when I was always at my best. Pressure brought out the best in me.

Toward the end of your NFL career, how did you begin to think about what you wanted to do next?

I played for more than 20 years, and there were many opportunities afterward: films, Dancing with the Stars, sports media, talking to organizations about teamwork and leadership. The sports-drink business came about because my daughter and her boyfriend didn’t like the ones they were drinking. They were getting jitters, crashing, and they looked at the ingredients and found they weren’t up to their standards. So she reached out to me and said, “Dad, you’ve always put the right things in your body. What if you had an energy drink?” That’s how we got started with GOAT Fuel—the greatest of all time, but not just for athletes, also for entrepreneurs, frontline workers, moms and dads. I’m living the dream right now and having a lot of fun.

Did you struggle at all with the transition?

Oh, yes, I was sad it was ending. I think that’s because I never saw football as work. I never wanted to take a day off. I never went to the facility feeling like I was just trying to get through the day. Football was my playground. It was my way of entertaining people. I learned something every day. I just did a commercial with Trey Lance, who’s going to be an exceptional quarterback for the 49ers, and even though I’ll be 60 in October, I was able to run routes with him throwing me the ball. So yeah, it was difficult stepping away from the game I love, but there are other bridges to cross and other challenges to tackle.

Did you ever consider coaching?

Coaches don’t really have a life. I already left everything I had on the football field, made sacrifices to play the game at a high level for so many years, gave that total commitment. To coach, I’d have to do the same thing again. So I decided to just be more of a mentor.

What advice do you have for today’s up-and-coming athletes?

Love what you do, plan for the future, and treat people well.

A version of this article appeared in the September–October 2022 issue of Harvard Business Review.

Table of Contents

Harvard Business Review: September–October 2022

From The Editor

Antidotes to Cynicism

Idea Watch

Why Your Mentoring Program Should Be Mandatory

To Keep People from Procrastinating, Don’t Give Them a Deadline

The Chair of Illycaffè on Creating Virtuous Agricultural Ecosystems

Spotlight

Should Your Company Sell on Amazon?

Building Your Own Brand Platform

Selling on TikTok and Taobao

Features

Strategy-Making in Turbulent Times

Don’t Let Cynicism Undermine Your Workplace

Dig, Bridge, Collectively Act

A New Social Contract for Teams

The Surprising Benefits of Work/Life Support

How to Digitalize Your Sales Organization

Performance Management Shouldn’t Kill Collaboration

The Essential Link Between ESG Targets & Financial Performance

Experience

How to Navigate Conflict with a Coworker

Case Study: What’s the Right Career Move After a Public Failure?

Understanding the Rise of Tech in China

Life’s Work: An Interview with Jerry Rice