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Global The free business magazine featuring articles from the world's most prestigious business schools.

Also including articles from: OXFORD, COLUMBIA & HARVARD

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Global The free business magazine featuring articles from the world's most prestigious business schools. Quarterly: March, June, September, December. All articles are authorized reproductions

June 2013 h t t p : / /www. G l o b a l B u s M a g . c o m / info@globalbusmag.com Papegaaistraat 76, 9000 Gent Belgium


INSIDE this issue Balancing the Pay Scale: 'Fair' vs. 'Unfair'

5

Diversification Key to Global Expension

10

Slacking in the Middle

12

The M in Future

15

Making an impact with mobile technology

19

Power Boosters: How to Land That Job When You Think You Can’t

24

Why Executive Friends Matter

26

The Psychology of Strategy

29

How do consumer-focused multinational enterprises affect emerging markets?

31

The Bottom Line on Corporate Tweeting

33


Balancing the Pay Scale: 'Fair' vs. 'Unfair' Published: May 22, 2013 in Knowledge@Wharton

Whether you are a shelf stocker at Walmart, a second year associate at a consulting company or an equity analyst at an investment bank, you may feel that you are not adequately compensated for the work you do -- in other words, you are underpaid. But underpaid relative to what? How do employers determine compensation levels, and what consequences can these decisions have for the organization? Indeed, many people think that compensation systems are broken, with some CEOs paid exorbitant sums that are not always related to their performance while lower-level employees are paid salaries that barely keep them above the poverty level. A recent article on Bloomberg.com last month illustrates the gap between high and low wage earners in the U.S. According to the article, in 2012, the average multiple of CEO compensation to that of rank-and-file workers was 204, up 20% since 2009. In other words, the average CEO made 204 times what the average worker earned

in wages and benefits. The most egregious example cited by Bloomberg.com was Ron Johnson, former CEO of J.C. Penney, which fired him April 8 after a 17-month stint during which he failed to turn around the company. Johnson, according to Bloomberg, received $53.3 million in compensation as reported in the company's 2012 proxy -- "1,795 times the average wage and benefits of a U.S. department store worker [$29,688] when he was hired." Comparing the two numbers "is the equivalent of stacking the length of a loaf of bread -- give or take a few slices -- against the height of the Empire State Building," the article said, citing two other notable examples: Abercrombie CEO Michael Jefferies received $48.1 million in 2012, 1,640 times the average clothing-store worker's $29,310 compensation package. Simon Property Groups paid CEO David Simon $137.2 million in 2011, 1,594 times the average compensation of $86,033 paid to "employees of funds, trusts and other financial vehicles." But CEO pay is just part of a much bigger issue: What does it mean to be "fairly" compensated? What are the consequences when employees feel they are underpaid, and how can employers address this concern?

The Employee Perspective According to Wharton management professor Peter Cappelli, the issue comes down to "whether employees believe that the amount you are paying them, all things considered, is unfair relative to what you are asking them to do and relative to what [type of job] they could get someplace else." Consider universities and other non-profits, says Cappelli, whose latest book is Why Good People Can't Get Jobs: The Skills Gap and What Companies Can Do About It. "They tell employees that they may be making less money in terms of salary, but the benefits are good, the


jobs are stable, the mission is important. All that could be true. The problem comes if, on balance, employees believe that the other attributes of the job are not commensurate with the low pay. If that is the case, the organization is likely to lose people, and its turnover rate will probably be higher, which of course ends up costing money. Also, the organization is likely to get people for whom it is their second or third choice -- i.e., people who don't necessarily want to be there but couldn't get better jobs somewhere else." One of the key determinants of satisfaction -- or dissatisfaction -- with compensation is how employees feel their pay package compares to others, according to Wharton management professor Matthew Bidwell. "No doubt if somebody thinks he or she is doing the same work as another who is paid a lot more, this leads to resentment and ultimately to disengagement." Employers pay employees different compensation partly because of supply and demand, says Bidwell. "If the supply conditions are favorable, then wages go down. It feels rational." But clearly employers also want their employees to be happy in their jobs. "So paying people the absolute minimum you can get away with is probably not a very good idea in terms of motivating them and keeping them from jumping ship." Wharton management professor John Paul MacDuffie cites research which suggests that employees arrive at perceptions of fairness regarding their compensation by comparing the ratio of their inputs -- including, for example, their credentials, level of experience and amount of effort put into the job -- to their outcomes, including such things as salary and benefits. Under this theory, employees also compare themselves to someone else, such as another person in the organization or even to themselves at an earlier stage of their career. In any case, "if the ratio is not equal, it causes a psychological strain that the employee wants to resolve," MacDuffie says.

To deal with a feeling of being underpaid, he adds, an employee can do a number of things; for example, he can focus on the fact that he is lucky to have a job in a down economy, he can focus on the benefits of the job instead of the low pay, he can demand a raise or he can quit. Wharton management professor Adam Cobb comes at the issue from the perspective of labor rates versus labor costs. Organizations, he says, do everyone a disservice by "equating the two. Labor rates refer to how much an employee makes per hour. But labor costs also reflect productivity. You could have two workers," one who gets paid $20 an hour and the other $10 an hour. "But that doesn't mean your labor costs are higher" if the $20 employee is five times more productive. Employers, especially when it comes to low-wage workers, "tend to think that if you raise the minimum wage, it will make labor prohibitively costly. But the reality is, if you pay people more, they tend to work harder," whether that means devoting more attention to customers or pointing out ways that business processes can be improved. A growing body of research, says Cobb, looks at the connection between low-wage work and productivity, and yet these studies don't always filter down into corporate decision making. Instead, store managers often get bonuses if they reduce labor costs by eliminating employee bonuses, cutting back employee hours and so forth -- i.e., "doing things that will diminish productivity."

Employees and the Recession An economy in recession, or slowly recovering from one, is rarely good news for wage earners, especially for the newly hired. Despite record highs in the stock market and slow improvement in the job market, unemployment remains at 7.5% and the federal minimum wage is $7.25 an hour, last reset in July 2009. According to Lawrence Mishel, president of the


Economic Policy Institute in Washington, D.C., productivity between 1973 and 2011 grew around 80% while wages and benefits of the median workers grew about 11%. "Almost all of that growth occurred in the 1995 to 2000 period. So, outside of these few years, there has been almost no growth in pay, but substantial growth in productivity." In recent years, he adds, "we have seen the phenomenon of historically high profits [along with] substantial unemployment and little wage growth for hardly any group of workers," including both high school and college graduates. At the same time, economic policies over the past three decades "have failed workers although they may have succeeded in doing what they were meant to do -- which is to make companies better off," Mishel states. "The rich get richer and other workers are unable to participate fully in the economy's gains." A clear example is Apple, he says, "which pays college graduates $12 to $14 an hour to work in their stores, and yet the company has so much cash it doesn't know what to do with it. Many companies are doing extraordinarily well, but it doesn't seem to translate into greater pay for their workers." Recessions can somewhat distort wage scales, notes Bidwell, citing a book by Princeton psychologist Daniel Kahneman called Thinking, Fast and Slow, in which the author notes how people's perceptions of fairness in pay are heavily skewed towards the compensation they are receiving today. For example, Bidwell says, if you hire a worker at $20 per hour in good times and cut his pay to $15 an hour during a recession, he will be more dissatisfied than if he was brought in at $13 an hour, even if he ends up making more money in the long run. "This idea gets to the question of why employers tend not to cut employees' pay during recessions, and why employees hired during a recession tend to be paid less than they would in a booming economy." The answer, according to one recent survey, is

that employers don't cut pay "because their employees would be so upset that it isn't worth it," says Bidwell. "So you have this kind of tension, which is that markets go up and down, but in any kind of individual exchange, we tend to expect the terms of our own employment to stay the same. We would be outraged if our employers cut our pay, but we also know that wages are supposed to adjust to fluctuating markets. So the brunt of adjustment falls on people getting hired at the time." Today's economic conditions make decisions about compensation tougher than they used to be, Bidwell adds. "When we had high inflation, it was easy to give people pay cuts by giving them no raise at all or a very low one. But because we have low inflation and people are very reluctant to cut nominal pay, it's much harder to bring people's pay down. Once again, you may see more of the effects going on when people are being hired." This scenario has been played out frequently over the past few years, says Cobb. "When the economy hits a rough spot, the most obvious response is to institute hiring freezes and cut wages and benefits -- actions which have a fast but very short-term effect on cash outlays. You are spending less money, but over the medium and long term, calculating how productive your workers are is a lot harder than calculating your labor costs."

Fast-food Restaurants vs. Investment Banks The issue of fairness, as noted earlier, comes up when employees in a particular company discover other jobs elsewhere that are paying more. Such comparisons happen frequently in retail -- fast food restaurants, department stores and consumer electronics companies, for example -- where salary information is relatively easy to obtain. "At that point, the employee might say, 'If you [the company] are paying me 30% less than [what I think is fair], I am going to


work 30% less hard,'" says Cappelli. In the retail sector, where one of the big problems is theft by a company's own employees, the impact can be especially acute, he adds. Once theft becomes a serious problem, the employer may start to monitor employees with cameras and other security devices, creating an environment that feels "like a prison, which in turn, leads to even greater attempts by the employees to get back at the company." Economists say that you get what you pay for, Cappelli notes. "If you are paying really low wages, you are going to get low quality people performing at a low level who don't worry about getting fired." But relevant to all this is the idea of fairness. "Employees do have the ability to [practice] discretion in their jobs. They can use that discretion to make jobs seem fair, which means they can steal or slow down [their output] or shirk [responsibilities]. Economists don't take those things into account." Higher paid jobs, such as those in knowledge industries where companies might be able to justify paying some employees more than others, face a different set of issues. "Here, it depends on the culture of the organization," says Cobb. "If everyone knows this is a competitive place, and if performance is what indicates compensation, it might be less of a concern because individuals are self selecting into those kinds of firms. It's when firms have strong norms around teamwork and project-based goals that rewarding someone over another person can be problematic." MacDuffie suggests that "organizations that pay for performance are often thinking primarily about the incentive effect. But reward system design needs to balance incentive effects and equity concerns. The wider the dispersion of rewards generated by pay for performance systems, the harder it is for people to believe it is fair, and the harder it is to believe that performance actually varies as widely as the rewards that are being generated."

Consequently, he adds, "some employers will try to compress, or limit, the range of that dispersion. That can help with the perceptions of fairness, especially if the work is interdependent and performance metrics are hard to come by." In addition, some employers will consciously choose to pay above the market compensation "because they think it will help them attract and retain better talent," MacDuffie says. Employers also might hire people at different compensation levels based on individual negotiations with the employee, he adds. "But if there is too much of that, you increase the risk that people will find it unfair, assuming employees have information" about their colleagues' salaries. Underlying discussions about jobs in knowledge industries, Cobb adds, is the reality that highstatus companies, including top-ranked investment banks and consulting firms, know they are especially attractive to young workers and therefore know they don't have to pay as much when doing external hiring. Instead, these firms can point to benefits that are not reflected in a paycheck -- such as the networks these employees are building or the experience they are getting that will help them get accepted into a good graduate school. Most people would not refer to these types of work arrangements as "exploitation," says Cobb. "Lower wage work is where the prototypical modern labor exploitation takes place. And even here, it is a relative term. A child working in a factory in Bangladesh presents a much more serious case of exploitation than what is typically found in the U.S." At the same time, he adds, "if you look at the working conditions and low wages paid by some U.S. companies, it is clear that these employees are the people who keep our prices low and allow us to have inexpensive food and inexpensive clothes, because the gap between the amount they produce relative to the amount they get paid is so huge."


The Employer Perspective What can employers do when the perception by an employee or by a group of employees is that they are underpaid? "One thing is to clearly explain to employees what the reward systems are ... and establish a grievance or complaint process to ensure procedural fairness," says MacDuffie. Employers can also draw upon market wage information, suggesting, for example, that employees "compare themselves to people who work in their particular industry, job class and labor market," he adds, and then commission a wage and benefit study to show those exact comparables. "It's one of the ways employers can try to shape employee perceptions about the fairness or unfairness of rewards." Kevin Hallock, director of the Institute for Compensation Studies, professor of economics at Cornell University and author of a recent book titled, Pay: Why People Earn What They Earn and What You Can Do Now to Make More, notes that "many large companies have administrative pay functions that are very formalized. They include clear compensation grids, matching to external data, use of surveys and so forth. Even for jobs that aren't common in a company's particular market, there are ways to slot them in and figure out what the market might pay someone [who has skills important to the organization]. So there is actually quite a bit of science in this." At the same time, Hallock adds, "some employees feel decisions about compensation are arbitrary, because organizations don't always communicate well about pay. So [there has to be] a well functioning system." Workers, he notes, should think about their total compensation package -- including such things as health benefits, child care programs and training opportunities -- when comparing one job to another. "It's not just the salary."

Some companies, both for-profit and non-profit, make it a point to give employees a printout every year that clearly explains their benefits and what it costs the company to provide them. Hallock suggests that each firm needs to decide its optimal wage. "Some have a low-wage strategy that works for them. They are less concerned about employee turnover, and perhaps customer interaction doesn't matter as much. Other companies profit quite a bit by paying even a little more because it makes a huge difference in the quality of their workers.... On the other hand, if a company raises wages too much, it might not have a big payoff. It depends on" the market and industry. Roxana Barbulescu, a management professor at McGill University and a visiting professor of organizational behavior at Wharton, notes that companies could choose to be more transparent about how they are run. "They can make the allocation of resources clearer, use input from employees for decision making or indicate if they are having a bad year and need to regroup." She also points to a well-documented aspect of today's economy -- the high number of job seekers taking positions for which they are overqualified, "which implies that they will also be underpaid relative to what they would be able to make" in a stronger economy, she says. "But they are taking these jobs in order to improve their employability for future jobs and eventually get back into the labor pool. They are trying to turn [the jobs] they have into an investment in their future." "We teach our students that fairness and the market are two completely different things," says Bidwell. "The market is all about matching supply and demand and trying to tailor compensation to get and retain the best people you can while not paying too much to everyone else. Fairness is paying everyone the same. To some extent, you can do one or the other. The more we focus on fairness, the more we risk


losing our [best] people or people with unusual situations. The more we say we want certain people and will do whatever is necessary to get them, the more we [inject] unfairness and inequity into the workplace. There is no easy answer." "Republished with permission from Knowledge@Wharton (http://knowledge.wharton.upenn.edu), the online research and business analysis journal of the Wharton School of the University of Pennsylvania."

DIVERSIFICATION KEY TO GLOBAL EXPANSION Proactive strategies for emerging market companies By Professor Allen Morrison - May 2013 Emerging market economies, and especially the BRICs (Brazil, Russia, India and China), continue to experience impressive growth. Yet despite the progress they have made, the economic growth they have enjoyed risks grinding to a halt unless they can effectively deal with a gaping problem: a lack of effective global leaders. Experience has shown that as the BRIC companies expand internationally, many of the factors that contributed to early successes in the home markets are likely to prove irrelevant or even a hindrance when the company tries to go global. Most companies in emerging markets start their globalization journey by taking advantage of economies of scale. This makes sense given their effort to compete on low cost. It is not particularly difficult to achieve because they are able to take advantage of a work force that usually speaks a common language, responds to the same cultural references and is willing to work long hours at wages substantially lower than those in competing countries. It also doesn't help that companies from the developed countries have abandoned many of the lower end markets in favor of high value add segments. Other factors can also play a role in the success of the high volume, low cost strategies of many BRIC-based companies. In China, for instance, personal connections are a powerful determinant of success when building business in


Asia. This is not surprising given the cultural importance of extended families, which in Asia are often the prime source of support in getting any business started. Sooner or later, most BRIC-based companies face saturation in their home markets and rising labor costs. They naturally aspire to move out of commodity-based strategies and into branded, higher value-added products and services. However, the leadership team that excelled on exporting high volume manufactured goods finds it difficult to overcome old ways of doing business. And those that do find that they are severely lacking in the skills required to succeed through new, more complicated strategies. How can they best adjust to their evolving ambitions and the realities of the global marketplace they have discovered? The best approach, we believe, is to embed foreign expertise in the company's management structure early on by carefully selecting and hiring executives who are knowledgeable about the markets in which the company wants to operate. And they should start now, before the contributions of their current strategy begin to wane. The overarching question is: what happens when a company that is highly successful in its home market begins to hire employees who don't speak the same language and who have very different cultural references? What holds the company together and how does senior management guarantee employee loyalty and dependability? The answer, we believe, is to expand the company's culture so that both homegrown and foreign-hired executives have the same commitment to core values and management principles. Our research has shown that when a company does 50% of its business internationally, its performance can be optimized when it hires roughly a quarter of its executives from the countries in which it plans to operate. The

average among many leading American companies is a ratio of 17% foreign executives in a company that does roughly 40% of its business internationally. In Europe the average is slightly higher. IBM, which has grown into a truly international company, does about 60% of its business internationally and hires roughly 40% of its executives from outside the United States. Companies from the BRIC countries would be wise to follow the lead of these companies. Unfortunately, most BRIC countries still haven't managed to meet those standards. In China and India, the senior management of the top companies still tends to be completely Chinese or completely Indian. These countries would do well to beware of the example set by Japan. In the 1990s Japanese companies seemed unbeatable, but from 1995 to 2010, the Japanese share of revenues earned by the world's leading Fortune 500 companies dropped from 35.2% in 1995 to a mere 11.2% in 2010. While Japan's economy slipped into the doldrums, the share of Fortune 500 revenues held by American companies remained relatively stable, and even increased slightly from 28.4% in 1995 to 30% in 2010. In the same period, European companies advanced from 31% to 36%, while the BRIC countries rose from less than 1% to 10.4%. During that critical 15-year period, Japan faced rising labor costs and the steadily increasing value of the Yen, which made Japanese products more expensive. But in addition, many analysts feel that it also suffered from the failure of Japanese management to understand the characteristics of the global marketplace, mostly because of a lack of diversity at home. By the time most Japanese executives were sent overseas, they had already been so indoctrinated in the intricacies of Japan's large domestic market that they failed to grasp the characteristics of the foreign markets to which they were assigned to work. Language also proved to be a formidable barrier. A rash of similar problems can be found in BRIC-


based countries today. When a major Chinese petroleum company recently bought a western oil exploration company in Europe, the western executives, whose expertise it had hoped to acquire, found that they not only had difficulty understanding orders translated from Chinese, but they failed to understand the subtle cultural signals emanating from the head office. Much of the acquired company's foreign top talent soon left in frustration. We see this pattern all too often.

Slacking in the Middle

One solution to the problem is to send promising young executives abroad at an early point in their career when they can still absorb foreign culture. The major international business schools such as IMD leverage this strategy, by putting diverse groups of executive peers together in a learning environment where they can exchange best practices.

and Maferima Touré-Tillery PhD student

People are more likely to adhere to their standards at the beginning and end of a series of tasks By Ayelet Fishbach Jeffrey Breakenridge Keller Professor Behavioral Science and Marketing

of

To pass a class, a student must complete a series of assignments. A cook, planning to make a meal, will prepare several courses. Preparing for a marathon, a runner will train every day. Eager to get to their respective finish lines, each of these people must decide how closely to adhere to his or her own standards and principles when An even more direct approach is to hire a certain performing each task along the way. percentage of the company's executives from key target markets and then to integrate them into the People usually feel good about themselves when corporate culture. An essential ingredient in they accomplish their work honestly and making this strategy work is to base the expatriate conscientiously. Even so, they may choose to executive in the home office long enough for them relax their standards at times, especially in the to get hands-on experience with how the company middle of a long series of tasks. A study by operates and to absorb the company's core culture. Chicago Booth professor Ayelet Fishbach and It is also critical for the expatriate executive to Chicago Booth PhD student Maferima Touréestablish a basis of trust with senior management. Tillery finds that people are more likely to cut The end result is an executive equipped to corners while performing tasks in the middle of a translate the company's strategy into terms that the series and less likely to cut corners on their first and final tasks. People feel freer to slack in the global market understands and can relate to. middle because they believe their beginning and Allen Morrison is Professor of Global ending achievements are better indicators of their Management and the holder of the Kristian true characters, the authors say. Gerhard Jebsen Chair for Responsible Leadership at IMD. He will be teaching on the Orchestrating In the study “The End Justifies the Means, but Winning Performance program, which is for Only in the Middle,” Fishbach and Touré-Tillery individuals and teams who seek the latest find evidence that people indeed adhere to their management thinking and practical, innovative ethical, religious, and performance standards solutions for their business. He co-direct The more carefully when beginning and ending a Leadership Challenge, a new IMD program aimed series of actions, believing the actions in the middle say less about who they are. “Something at senior executives. that is done in the middle is not really about me, and because it is not about me, it does not matter The article above is republished courtesy of how well I perform in the middle,” says Fishbach. http://www.imd.org/research/challenges/


Why not care about the in-between tasks? One reason is that people tend to better remember the beginnings and endings of events, according to previous research on memory. Similarly, people are more likely to better remember the first few and last few numbers or words in a sequence. If people fail to live up to the standards they set for themselves, they risk having the unpleasant experience of seeing themselves in a bad light. While Fishbach acknowledges that relaxing one’s standards has financial and social consequences, her study with Touré-Tillery offers a new way to think about what drives people to work harder and perform better. “What is often neglected in research is that a large part of what makes people do things well is the implication for how they see themselves,” Fishbach says.

That Wasn’t Me The study’s first experiment analyzed how likely participants were to cheat in the middle of a series of ten proofreading tasks. Each participant was asked to proofread ten passages and to privately flip a coin before beginning each passage. Each coin flip determined whether the participant would proofread the short or long version of the passage. Participants knew that they could receive points for completing each proofreading task, and they knew they would receive the same number of points regardless of whether each passage they proofread was short

or long. In this setting, Fishbach and TouréTillery suspected that some participants had cheated by reading shorter passages when they were supposed to read longer ones. The researchers could find out whether cheating had occurred by looking at the proportion of participants who reported reading the shorter passages. If the percentage turned out to be significantly higher than 50 percent, which would normally occur by chance, then some had likely cheated. The researchers found that many of the participants were likely dishonest about the middle tasks. Close to half of participants reported that they had read a short passage for their first, second, and tenth proofreading tasks. But for tasks six and seven, about 70 percent of participants reported having read the short passage. The results suggest that people tend to stick to their ethical standards mostly at the beginning and end of a sequence of tasks. It is possible that people who started out adhering to their standards felt like they deserved to slack off, and then they felt badly about being dishonest so behaved again at the end. In other words, the fact that research participants tended to be truthful at the beginning and end of the series in the above situation may have also reflected their behavior during each proofreading task. To address this concern, the researchers’ second experiment gave each participant only


one opportunity to cheat: at the beginning, middle, or end of a series of tasks. Participants received seven images to color, along with progress cards that had seven numbered boxes. When a participant finished coloring an image, the researcher gave the participant a stamp on his or her progress card. The researcher then left the room to get the next image for the participant to complete. At one point in the experiment, the researcher returned to the room and pretended to forget that he had already stamped the participant’s card. This happened after either the second (beginning), fourth (middle), or sixth (last) task. The supposedly forgetful researcher offered the participant another stamp, knowing that the participant had already received one. The researchers found that participants were more likely to accept undeserved credit when it was offered at the end of the fourth task—the one in the middle.

found that religious participants had almost always lit candles on the first and last nights of Hanukkah, but they had sometimes skipped lighting the menorah on other nights during the holiday. By contrast, Jews who were not very religious were less likely to have lit candles, regardless of whether the night was at the beginning, middle, or end of the holiday.

This pattern of upholding one’s principles at the beginning and end, but not in the middle, should hold more strongly for those who care very much about living up to their standards, say Fishbach and Touré-Tillery. For example, some people adhere to religious traditions more than others, and those who are religious seem more likely to be mindful about keeping their customs and rituals, especially when they think it counts.

The belief that tasks at the beginning and end better reflect people’s abilities is what motivates people to work harder, say Fishbach and ToureTillery. To find firmer evidence of this relationship, the researchers looked at how participants in the same shape-cutting experiment responded to feedback. Researchers expected that the participants would pay more attention to reviews of their performance on the first and last tasks. “They are going to take that feedback more to heart,” says Fishbach.

In another experiment, the researchers conducted a survey two days after the conclusion of Hanukkah, a Jewish holiday. Jewish participants were asked whether they had lit the candles on the menorah on each night of the eight-night holiday. The researchers measured the participants’ religiousness by asking if the participants kept kosher—a set of Jewish dietary rules. Jewish participants who regularly ate kosher food were more likely to care about maintaining a religious self-image. Consequently, researchers expected to hear that those participants had lit the menorah on the first and last nights of the holiday, because doing so on these evenings would affirm their commitment to their faith. Indeed, Fishbach and Touré-Tillery

The researchers also found that people, eager to adhere to their standards when performing the first and last tasks in a series, are likely to produce higher-quality work during those tasks. In another experiment, the researchers asked participants to complete a series of five shapecutting assignments. As predicted, participants acted more precisely when cutting the first and last shapes but tended to literally cut corners when cutting the shapes in the middle of the series.

After completing all of the shape-cutting tasks, the researchers collected the shapes, left the room and returned with feedback on only one of the tasks. The participants did not know in advance that they would receive feedback on their performance, and researchers blamed the limited feedback on a time constraint. The participants were told that the quality of their work had been “above average” when it came to cutting shapes one, three, or five. They were then asked to rate their own cutting skill level, eyehand coordination, and dexterity. Fishbach and Touré-Tillery found that feedback on the first and last cutting tasks had a greater influence on


participants’ self-appraisals. Participants who had received praise for the way they cut the first or last shapes subsequently rated themselves as more skillful than those who had received exactly the same feedback for cutting the shapes in the middle.

THE M IN FUTURE

Minimizing the Middle In another research project, Fishbach and TouréTillery showed how students’ choice of a healthy or unhealthy snack depended on when the snack was offered—at the beginning, middle, or end of the day. When a snack offer was called “start your afternoon, have a snack” or “end your morning, have a snack,” students were more likely to reach for the healthy alternative, raisins. But when the same offer was framed as “keep your day going, have a snack,” most students opted for the unhealthy choice, chocolate. Setting up the snack offer as part of the middle of the day seemed to make students less uneasy about indulging and enjoying a sugar-loaded treat.

Rajesh Chandy and Kamalini Ramdas look to the future role of mobile phones in changing the world and provide a blueprint for what needs to change to make this reality. The story of mobile phones as a force for good is akin to that of a child prodigy who has somehow not reached the heights anticipated. Among proponents of mobiles, there is a sense of pride in what has been achieved. But there is also a sense of unfulfilled hopes. At this point, there are too few commercially viable applications – beyond basic voice and SMS -- that also demonstrably do good. The same success stories – incredible as they are – are repeated time and again. “Where are the next M-Pesas?” asked one telco executive we interviewed. Innovations that promise to transform the future seem perpetually stuck just there – in the future.

The fact that people perceive some activities as more important than others suggests that teachers or managers may want to design assignments to emphasize the beginning and ending tasks in order to motivate people to uphold their standards. For example, a manager could present a project as, or restructure an assignment to be, the first or last in a sequence in order to increase the project’s perceived worth. In this case, there would be no middles, just beginnings and endings. Simply positioning assignments in this kind of way could increase the quality of a worker’s output and Obstacles to impact ensure that people are working to their highest standards. Our research highlights five obstacles that have held back the full power of mobiles to do good: “The End Justifies the Means, but Only in the Middle.” Maferima Touré-Tillery and Ayelet 1. Too narrow definitions of “core” Fishbach. Journal of Experimental Psychology: Part of the challenge is inherent in any General. August 2012. innovation. Innovations, almost by definition, involve taking concepts from one context, and The article above is republished courtesy of applying them in another (often very different) www.ChicagoBooth.edu/capideas. context. They may not fit existing definitions of http://www.chicagobooth.edu/capideas/marchindustry boundaries. Yet as industries evolve and 2013/slacking-middle.aspx mature, boundaries become more firmly defined


in the minds of decision makers within them. The core takes shape based on habit and history. For this reason, they can languish without attention or resources from industry incumbents, whose habits and history direct them to their existing core, and within existing boundaries. The world of mobile phones has changed dramatically in the last few years. Industries have converged. In the developed world, entrants such as Apple and Google from other industries, have created thriving ecosystems on mobile platforms such as the Apple App Store and the Google Play Store. These platforms connect players from across industry and geographic boundaries to users via their mobiles Though notable exceptions do exist, top decision makers too often define their core business narrowly, in a manner that is past-focused and based on historical precedent rather than in a manner that is future focused and based on a vision of what could be.

applications, and offer payment processing systems, standardised user interfaces and security features. Current users have the ability to rate apps, which in turn makes it easier for new users to search for and learn about app quality from other users. Such platforms are far less pervasive in the developing world. Even in the developed world, the very popularity of the Apple and Google application platforms makes them unwieldy and difficult to navigate. For example, there are more than 13,000 consumer healthcare applications on the iPhone alone (according to Mobile Health News). “There are in this country, the UK, very many different proprietary solutions being offered by telecommunications professionals,” notes Ted Bianco of the Wellcome Trust. “None of those systems will talk to each other and all believe they’re trying to carve out their own commercial space. The reason for the lack of progress is a very parochial view is being taken by many of the players.”

2. Too few platforms Whether in healthcare, agriculture, commerce, or social services in general, there exist numerous initiatives around the world that seek to do good via mobiles. The challenge at this stage is not a surfeit of people or ideas. The challenge is that these initiatives, people, and ideas tend to exist in isolation, and rarely reach critical mass by themselves. There are too few platforms that bring users together with those who have solutions to their needs. Potential users – even those who are relatively educated or motivated to engage – find it impractical and tedious to remember multiple numbers and procedures to access the various mobile applications offered to them. In developed countries, the proliferation of smartphones has been associated with the development of application platforms (such as the Apple and the Google stores) that host

3. Too much emphasis on current constraints The reality of developing countries is that basic phones with simple voice and text capabilities are all that are accessible to a vast majority of individuals. Broadband enabled smartphones – with their capabilities to enable far greater information sharing, and to do so in a simple and intuitive way - are out of the reach of most. The proportion of projects that make use of broadband or location-based information is limited “The academic community is still stuck on SMS, and so is the NGO community, because that’s how you get money from funding agencies. You give a basic idea and somebody will give you $1 million to do things,” says Kanav Kahol, himself a former academic, and now a team leader at the Public Health Foundation of India. In recent months, however, smartphones have


been taking off in developing countries in an unprecedented manner. Handset prices have gone down substantially, and in proportional terms, data access prices have gone down even further. The Google mobile platform is gaining triple digit growth in developing countries (Although the poor still cannot afford smartphones as consumers, entrepreneurs in several countries are now making use of smartphones to offer services for the poor. Interestingly, our review indicates that among mobile-based services designed to do good in developing countries, those that were also created in developing countries (i.e., those for which the primary design and entrepreneurial inputs for development come from developing country sources) are far more likely to go beyond basic SMS services than those originating in developed countries The path to impact at scale for mobile data and broadband in emerging markets is unlikely to be a superhighway that connects directly to the most desperate poor. It is only when prices improve and products become simpler and more accessible that other segments adopt them.

4. Too much impatience “This is a business with very low barriers to entry. Anyone with a mobile phone and some knowledge can get into it,” reflects Amit Mehra of RML. “As a result, there are lots of players launching services. But the challenge lies in sustaining the enterprise or initiative long enough to create a profitable business model.

“One big challenge which is fundamental to the construct of these ‘social’ initiatives is the need for patient capital. You are trying to solve something which is inherently difficult and, therefore, will take much longer than a start-up would normally take. For social enterprise

initiatives, you need the governance and incentives that ensure a potent combination of patient capital and impatient management!” The bad news is that the quest for large returns can blind corporations to the potential that could exist in projects. Ambitious executives who expect to do a short stint in a particular job before moving on to bigger tasks are leery of pursuing ideas that have long gestation periods. Promising ideas could be rejected because the commercial model is not yet fully formed, and it is hard to quantify the timing of large-scale returns. M-Pesa, the phenomenally successful mobile money service in East Africa, was initially viewed with some scepticism within Vodafone, in part because it was not judged as meeting normal return expectations. As Michael Joseph, Director of Mobile Money at Vodafone notes: “Mobile phone companies launch new products like ring back tones or whatever it is, and they want a return in six months. They want a return, they want to see this thing is going to pay for itself very soon. M-Pesa will not begin to pay for itself for at least two years, and as soon as you start to focus on profit then it's the end of your success. I've told this to CEOs around the world when I speak publicly. If you start to look at profit and you say profit and M-Pesa in the same sentence, you're doomed. For a mobile phone company it's a product that increases customer loyalty. We never set out to make money from it, we set out to break even. That was the plan – we made money by accident.” The pressure for quick returns is not unique to large corporations. Start-ups are perennially under pressure to generate cash flows and meet payroll and expenses. Indeed, many start-ups perish in the so-called “valley of death” after they have made their initial investments, and before the returns to these investments manifest themselves. Governments are also not immune to impatience.


“People want single answers and big, quick impacts, and that's the trouble with the world of policy,” says Diane Coyle, author of The Economics of Enough: How to Run the Economy as if the Future Matters. “I came across this Chinese proverb that you can't make a seedling grow by pulling it up, and in a sense, you just have to be patient, and some of the smaller enterprises may, over time, grow into bigger ones, and scale up that way.” Funding agencies are susceptible to the exigencies of political terms and funding timetables. Politicians are eager to show returns before their terms are up. Projects funded under a particular agenda may suddenly find themselves orphaned when priorities shift and individual champions move on.

5. Weak supporting infrastructure Much of the societal impact of mobiles over the last twenty years has been in helping those without access to infrastructure overcome the limitations of their circumstances. When roads and land-lines were poor or unavailable, mobiles created connections that allowed information to be shared, and commerce to be conducted. When banking was difficult or unavailable, mobiles facilitated financial inclusion. When electricity was sporadic or unavailable, mobile companies built gasoline powered base-stations, and entrepreneurs offered phone charging services for a fee. When institutions were weak or stacked against the average citizen, social activists used mobiles to engage in collective action. In general, mobiles have had their impact despite (or because of) poor infrastructure. But weaknesses in the supporting infrastructure are increasingly a drag on the incremental impact of mobiles. “The impact of mobiles very much depends on having other infrastructure lined up,” emphasises Diane Coyle. As MS Swaminathan, a leading scientist and

member of India’s parliament notes: “The mobile is a friend – it is not an exploitative technology like, say, some forms of biotechnology. I have never heard any resentment against mobiles. It is one technology that is always welcome.” However, governments tend to be complex entities with many decision makers and differing legacies and priorities across them. For mobiles to have a pervasive impact, they will necessarily have to touch areas of government far beyond telecommunications ministries. For example, innovations that bring together communications and financial services, or communications and healthcare will necessarily involve not just one, but two or more regulatory frameworks. The regulatory regimes are often very different, and sometimes contradictory. Despite the good intentions of many in government, innovators who wish to have impact at scale face a daunting task dealing with these regulatory regimes.

6. Too many anecdotes, too few rigorous studies on user demand, commercial viability, and long-term social impact Despite some promising efforts, and despite the research described in the paper that accompanies this one, it is fair to say that much of the existing evidence on the societal impact of mobiles is based on macro-level analyses, or on scattered case studies that do not meet scientific standards for rigour. But impact is not easy to show, and showing it requires some planning. As Ken Banks, founder of Frontline SMS notes: “I’ve been in mobile for ten years now and people are still trying to figure out how you measure impact. One of the big challenges that mobile development faces is actually trying to figure out what the impact actually is. Many times projects don’t actually


know their specific impact partly because there’s not been any baseline information collected before they started. So of course when they measure something afterwards they don’t quite know what they’re comparing it to, and there are a number of different factors that may feed into a particular result.” The evidence that does exist is overwhelmingly based on first generation mobile applications (which rely on voice or SMS messages), and not on second generation applications such as those that involve mobile broadband. Moreover, the applications that have been examined by most studies so far have generally failed to attain scale. Indeed, few studies have included corporate actors that have the resources to drive impact at scale. Almost none have examined the long-term social impact of mobile-based interventions, even though many of these interventions are only likely to have an impact in the long-term. The obstacles noted, while daunting systemic, are not insurmountable.

and

The article above is republished courtesy of London Business School http://bsr.london.edu/lbs-article/751/index.html You can read our recommendations in part two:

Making an impact with mobile technology

Rajesh Chandy and Kamalini Ramdas look to the future role of mobile phones in changing the world and provide a blueprint for what needs to change to make this reality. The story of mobile phones as a force for good is akin to that of a child prodigy who has somehow not reached the heights anticipated. Among proponents of mobiles, there is a sense of pride in what has been achieved. But there is also a sense of unfulfilled hopes. At this point, there are too few commercially viable applications – beyond basic voice and SMS -- that also demonstrably do good. The same success stories – incredible as they are – are repeated time and again. “Where are the next M-Pesas?” asked one telco executive we interviewed. Innovations that promise to transform the future seem perpetually stuck just there – in the future. The obstacles we noted here in Part One, while daunting and systemic, are not insurmountable. With these as background, we next present our recommendations for impact at scale.

Recommendation 1: Define “core” more broadly, invest more aggressively across industry boundaries. Articulate a grander vision: Leaders who share an interest in economically sustainable solutions to challenges confronting humanity have a responsibility to offer a grander vision than they currently do of the role that technologies, such as those involving mobiles, can play in solving these challenges. As growth in hitherto core products stalls, as industries converge, and as companies seek out developing countries to fulfill their growth ambitions, a more sweeping vision might also offer commercial benefits. For example, M-Pesa was initially seen by many in telecoms and in banking as being too far from their core. But M-Pesa helped its Kenyan parent, Safaricom, to dramatically reduce customer


churn and increase market share in voice and data services. It is now being used to enable everything from solar lighting (see “Let there be light”, page XX) to clean water. To a casual observer, a service that offers clean water in rural Kenyan villages might not appear core to Safaricom’s operations. “Is it really core to Safaricom?” we asked Michael Joseph, former CEO of Safaricom. “It is core, of course it's core,” was his vehement response. “Anybody who wants to get water in their village must be a Safaricom customer. They can't be a KenCell customer or a Bharti customer, they must be a Safaricom customer. That's the thing: you want everybody to have a Safaricom phone. They can't use Orange money for this product, they can only use M-Pesa.” A grander vision of the core can also offer several other benefits. First, it has the virtue of being a motivator to innovators within organisations. As one executive we interviewed emphasised: “You have to have the passion at the CEO level; unless you have that you're doomed.” Second, a grander vision could offer companies a much more central role in the lives of their customers, and a much broader footprint in the delivery of valuable services. Qualcomm Vice President Don Jones uses the case of Walgreens, the pharmacy chain in the United States, to make this point. “If Walgreens can get us hooked through its prescription app on smartphones then what comes next? I think the way to look at this is this is Walgreens’ Trojan Horse for its additional services. Walgreens happens to be a very large operator of nurse practitioner staffed clinics at their stores, so you could easily see them saying: would you like an appointment at one of our clinics? Would you like to speak to our pharmacist? They’re moving their pharmacists from behind the counter to make them more consultative in nature. As a retailer, it’s going to be a question of thinking much more deeply about workflow and how it drives the business model. What you’re

beginning to see is the retailer starting to displace some of the relatively mundane services in health care delivery from the traditional provider group.” Look outside for new talent: As industries mature, they tend to become more insular. For example, many of the decision makers who drive investments and priorities in the world of mobiles today can trace the successes in their formative years to a period when telecommunications was a fairly independent business with few direct links other industries. Today, harnessing the full power of mobiles to do good requires executives who can conjure up new business models that transcend traditional industry boundaries. Tomorrow’s decision makers should be comfortable straddling industries. Recruitment policies and merger and acquisition plans should reflect this imperative.

Recommendation 2: Aggregate, consolidate, and coordinate across projects, pilots, and platforms. The history of technology evolution indicates that the early years of new and discontinuous technologies are characterised by an era of ferment, when ideas, companies, and users manoeuver for support and traction. The era of ferment is one of extensive experimentation, intense learning, and widespread failure. This era ends with a period of consolidation and shakeouts, and the emergence of a few dominant designs. Mobiles appear to be in an era of ferment, and the very generality that gives mobiles their potential for scale and scope and makes them so exciting also ensures that the ferment is substantial and eye-catching. But impact at scale will involve consolidation. Consolidation will require substantial investments in platforms and the creation of pervasive standards. But, as Wellcome Trust’s Ted Bianco observes: “It’s about time that there was a consideration of how everyone will gain


from some form of standard platform, some form of common portal, that gives the user the greatest access to a plethora of different information sources.”

We recommend the following steps: • Create cross-stakeholder groups to coordinate and support standardisation efforts. These groups should ensure that they have an adequate representation of entities that control funding, installed bases, intellectual property, and complementary assets such as distribution channels and powerful brands. They should also closely track the evolution of standards within application areas (e.g., healthcare) and across application areas (e.g., Nokia’s efforts with its Life+ initiative, and the rapid diffusion of the Google Play platform) as well as within and across countries to minimise replication of efforts. • Create a new fund to encourage adherence to standards. Relatively small amounts of money could go a long way in nudging entrepreneurs and non-profit groups to ensure compatibility with standards and platforms. • Use procurement and cash transfer programmes to encourage adherence to standards. • Further emphasise inter-operability when funding projects, especially for projects beyond the pilot stage. There is always a risk that innovative new platforms could be killed by a hasty move toward inter-operability, because doing so may prevent the innovators from extracting all the profits from their innovations. If platforms enable faster and more widespread diffusion of innovations, then innovators can still benefit from deriving a (perhaps smaller) share of the larger profits created by such diffusion. • Promote “hourglass” standards via common application programming interfaces.

• Consider tiered pricing of intellectual property to promote social impact.. As pharmaceutical companies have discovered in developing countries, tiered pricing can not only facilitate a friendlier market environment, it can also allow the owners of the intellectual property early and preferential access to fast growing emerging markets.

Recommendation 3: Organise for innovation To do good in a manner that is economically sustainable requires innovation breakthroughs: in products and services, in processes, in platforms, and business models. It requires incumbent players to be nimble, risk-taking, nurturing, open, and patient. It requires innovators to have the resources to invest substantial amounts now for an often uncertain and distant payoff. Although the world of mobiles has many unique features, research suggests that the drivers of innovation in this sector are not particularly different from those in other sectors. Innovative organisations -- whether large or small, public or private, local or global – tend to share a set of attitudes and practices that we call “cultural universals”. Many companies in the mobile world have structures, such as new venture divisions, that enjoy autonomy and privileged resources and incentives. Government organisations and non-profits might also benefit from similar structures. Even so, some recommendations are particularly salient to mobiles for good: • Further emphasise future customers and future competitors. The world of mobiles is poised for tremendous change. The customers and competitors of tomorrow are likely to be very different from those of today. Nevertheless, the primary focus in many top management suites is on the customers and competitors of today. For example, the largest and most prominent customers of today get the greatest management


attention. But these customers also tend to have the greatest stake in the status quo. A focus on such customers could blind management to opportunities for commercial and social impact among the customers of tomorrow. Senior managers should spend substantially more time with customers of the future, and with innovators within their organisations who focus on such customers. “If I had one wish, it would be that my time with senior managers in our company would involve more than just my performance evaluation. I wish they could really see what’s happening in the markets,” said one innovator whose primary job is to work with mobile customers of the future.

mobiles. Such infrastructure includes:

• Be more open to risks. Risk-taking is not easy, especially in large and stable organisations, whether in the private sector or in the public or non-profit sectors. Innovative organisations manage risk in many ways.

Some additional recommendations that policy makers should consider:

First, they create a balanced portfolio of innovation projects. The innovation portfolio should include both less risky projects involving incremental innovation in existing products and markets as well as more risky projects involving radical innovations. Second, they engage in discovery-oriented experiments. There should be a greater tolerance for failure and experimentation within organisations. As Duncan Learmouth, Senior Vice President at GlaxoSmithKline framed it: “You have to be prepared to kiss a lot of frogs in this business.” Experiments could initially be small and self-contained. They should ideally be conducted in the field, and should be oriented toward discovery.

Recommendation 4: Develop the supporting infrastructure Mobiles cannot have an impact through mobile phones alone. Governments and their private sector partners should ensure that the basic infrastructure exists to enable the full impact of

• Physical infrastructure such as transportation and power • Information infrastructure such as rules and systems for data sharing, privacy, and security • Skills infrastructure such as the availability of skilled engineers, IT professionals, entrepreneurs, and administrators who can help build, maintain, and grow the mobile ecosystem. • Institutional infrastructure to offer clarity, predictability, and efficiency in regulations and taxes, as well access to wireless spectrum.

Create a central coordinating agency for mobile applications: Such an agency could help manage and improve the regulatory framework for applications that involve multiple regulatory regimes. Promote incubation services for applications in priority areas: Though governments may not themselves be involved in running incubators, they can help with initial funding, and in coordinating with universities, entrepreneurs, NGOs, and private sector partners to nurture an ecosystem of mobile applications in areas that have the greatest opportunity for social impact. Serve as an aggregator of demand for innovative services: Governments are often among the largest buyers and users of communications services., governments can increase efficiency and promote the take off of standards by serving as an “anchor tenant” for services that offer a compelling social benefit. Serve as a supplier of data for value added services to citizens: Services that offer weather information to farmers and fishermen benefit from accurate, timely, and easy to access information from weather agencies. Simply


providing such information from government agencies via a standard applications programming interface can help create an ecosystem of commercial service providers, and offer immense value to citizens.

Recommendation 5: Strengthen the evidence base for user demand, commercial viability, and social impact There is a great deal to be gained from more rigorous, micro-level studies of the impact of mobiles. Such studies will not only be able to assess the areas of greatest impact, but can also offer valuable commercial insights. A promising recent trend is data philanthropy, which involves private corporations taking the initiative to anonymise (strip out all personal information from) data sets that they have collected during the course of doing business, and providing this data to academics, government agencies, research organisations, or social innovators more generally to mine the data for insights. Some data philanthropy efforts are long-term, and involve many teams. An example is the recent initiative by Orange and several partners to make 2.5 billion anonymised records of five million mobile phone users in Côte d'Ivoire available for analysis by research teams from around the world. The goal of the Orange initiative is to encourage researchers to use four datasets of anonymised call patterns to help address questions and issues related to society and international development. Researchers will have access to the datasets so that they can analyse and compare it with other types of data, such as GDP or weather data, to find valuable correlations and insights. Governments and funding agencies should insist on rigorous assessments of what works and what doesn’t. Too often, impact assessment is seen as a

box-checking exercise and a chore by recipients of grants targeted for social impact. A certain percentage of each grant could be earmarked for outcome assessment. Academic researchers can also play a more central role in outcome assessment. Although the literature on economic and social development is vast, our review highlights serious limitations (noted earlier) in the existing literature on the impact of mobiles for good. Academic institutions can serve as platforms to connect researchers with an interest in social and economic development with policy makers, commercial entities, funding agencies, and NGOs from the world of mobiles. Mobilising the future What we have at the moment in the mobile world is a glittering patchwork of initiatives, ideas, groundbreaking technology and far sighted innovators. The gathering of protagonists and technology is hugely impressive and powerful. But, moving forward an array of new resources and capabilities need to be developed and utilised. The prizes on offer are truly glittering: opportunities to tackle some of the world’s most intractable problems and to play a central role in the development of some of the world’s poorest economies. The mobile future must be seized. The article above is republished courtesy of London Business School http://bsr.london.edu/lbs-article/752/index.html


recruit. In the midst of a crisis, will you know how to take the right action? When it comes to selling a product, will you communicate enough enthusiasm to the client?

Power Boosters: How to Land That Job When You Think You Can’t By David Dubois, Assistant Professor Marketing, INSEAD | April 8, 2013

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To land that dream job, adopt a mindset that signals power, even if you don’t feel so powerful.

Candidates invest considerable resources in the form of time or money to prepare for that interview that will grant them entrance to their dream school or land them their dream job. In these situations, candidates are often tempted to work on planning how the interview will go and what they will say: why is my background relevant for that job? How can I bring value to the company? Why do I want to work in this industry? While thinking of answers to these questions is important, recent research suggests that what interviewers are looking for is a specific mindset. In particular, what will persuade them to hire you is whether you communicate a powerful mindset one that signals the candidate will be a great

What is this “powerful” mindset anyway and how we can acquire it? Here are two tips for candidates that will make a difference in interview settings.

1. “Think powerful” Job candidates are rarely in a position of power as interviewers decide the fate of their future career prospects. Yet, the winning strategy in these situations is thinking that one has power, in spite of the situation. As a candidate, how can you engineer a powerful mindset? Well, a simple trick is to remind yourself about a time you had power over a situation right before an interview, and invoke the precise feelings associated with that memory – feelings of confidence and competence, as well as decisiveness during decision making. One of my recent research projects, Power gets the job: Priming power improves interview outcomes co-authored with Joris Lammers (University of Cologne), Derek D. Rucker (Northwestern University) and Adam Galinsky (Columbia University) tested just that idea: as part of a session of individual mock interviews, we assigned business school applicants to one of three conditions. In the first condition, applicants wrote a short essay about a time they had power just before entering an interview. In the second condition, applicants also wrote an essay, but this time about a time they lacked power. Finally, the last group did not write anything. Then, we asked interviewers the likelihood that they would accept the candidate into a business school. When candidates went straight to the interview, interviewers accepted 47.1 percent of the candidates. However, the admission rate went up to 68 percent for those people in the group who wrote an essay about a time they had power,


and fell to a low 26 percent for those who wrote an essay about a time they lacked power. Importantly, interviewers were unaware of the power manipulation we had given candidates. Thus, merely recalling an experience of high power increased candidates’ likelihood to be admitted by 81 percent compared to baseline and by 162 percent compared to those who recalled an experience of powerlessness. Of course, there are other ways to engineer personal feelings of power. For instance, candidates can wear objects that make them feel powerful, such as a watch or a particular bag anything that links you with feelings of power.

2. “Behave powerful” Power is not only a mindset; it is also a behaviour. Small, almost unconscious moves signal power to an audience and can significantly change the outcome of an interview. In her recent TED talk, Amy Cuddy (Harvard University) provides an excellent summary of how non-verbal language can have a profound effect on how people are judged in contexts as varied as hiring or promotion interviews, a sales context or even a date. As such, physical poses such as wrapping legs, hunching or relying on one’s arms are many subtle signals of powerlessness that cast doubt on what candidates say, regardless of the content of the conversation.

interviewers perceive candidates, it is also a key driver of how candidates will behave! History is full of examples showing that what really counts for the recipient of a message is the communicator’s mindset, not their actual resources or power. During the early days of the Second World War, Charles de Gaulle, today recognised as one of the great wartime leaders, was an isolated general with a following of a few hundred soldiers who refused to recognise the legitimacy of the Vichy government and fled to London after the German invasion to set up a government-in-exile. During a famous negotiation with Churchill, the British prime minister abruptly reminded de Gaulle of his powerless position, noting that his organisation was only surviving thanks to the goodwill and financial help of the allied forces: “Anyway, who are you to represent France? You don’t even have an army!” But de Gaulle, standing tall, straight, and direct, calmly retorted, “If I am not France, then why are you talking to me?” Churchill was forced to sit down and continue the negotiation. Interviewees, adopt the “de Gaulle” mindset!

The Virtuous Circle of Power Interestingly, adopting “power poses” does not only affect how interviewers judge candidates, but also ironically reinforces candidates’ feelings of power. In recent research, Li Huang from INSEAD and colleagues had participants take powerful (for example, expansive postures) or powerless (constricted postures) poses and found the former behaved more powerfully than the latter, by taking action more often and thinking more abstractly, two well-known consequences of power. So, behaving in a powerful way is not only important for how

David Dubois is Assistant Marketing at INSEAD.

Professor

The article above is republished courtesy of INSEAD Knowledge http://knowledge.insead.edu

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Why Executive Friends Matter College reunions and golf-course chats may be just as important as boardroom meetings and analyst advice for the success of a firm's CEO. Learn how a CEO's social life affects company performance and when it's best to keep friends at arm's length.

Executives’ influence on company performance extends well beyond the corporate boardroom. When they’re not at the office, they serve on boards at nonprofit organizations and social clubs. They play golf with former colleagues and get drinks with old classmates. Often these associates are other executives who are knowledgeable about the current business climate; when the small talk winds down, the shop talk begins. Just as someone would recommend a restaurant or movie to the rest of his or her group of friends, executives who share social circles tend to give each other advice: whether it’s a good time to make corporate investments, open a new plant, or hire employees. In most cases there is nothing underhanded about these conversations, provided no inside financial information is being exchanged.

"There is evidence that suggests that where the CEO and directors are more socially involved, the company is more profitable," Fracassi says.

By Rob Heidrick The conversation starts to pick up on the cart ride between the 8th and 9th holes. The CEO of a small but growing business casually mentions that he’s thinking about expanding the company’s operations, investing in new facilities, and hiring a larger staff. His golf partner, a board member at another firm, asks questions and offers advice based on his own experience. A productive discussion ensues and, by the end of the back nine, the two part ways feeling more informed about their anticipated investments. This common scenario represents more than just a chance networking opportunity. It could also yield measurable benefits for each company’s economic performance.

Cesare Fracassi, an assistant professor studies executives’ social networks, says interactions can equip corporate leaders to more educated decisions and improve companies’ financial performance.

who these make their

“Social networks help to create more informed decisions,” Fracassi says. “When I have more friends, I can decide what restaurant I want to eat at, what movie I want to watch, and how to invest.”

Go with the Flow In a recent study, Fracassi traced the social ties between 30,860 executives at 2,059 companies over the course of nine years, identifying connections between those who overlapped at school, held management positions in the same company, or had memberships in common social clubs or nonprofit organizations. Next he looked at company decisions, especially investment patterns. Fracassi observed that companies led by socially connected directors increased their investments


at similar rates, while companies with lessconnected executives tended to follow more distinct strategies. This occurs because when one member of a social circle decides to ramp up his or her investments, the CEOs and directors of other firms in the group are inclined to follow suit, Fracassi says.

centrally in the web of social networks tend to have better economic results—including greater firm value and a higher return on assets—than those on the social fringes, the study reports. That bump could result in a jump in performance of 5 to 15 percent. Because the word-of-mouth information passed through social networks flows freely and at a low cost, it’s advantageous for companies to collect as much of it as possible. “A strategic position in the network gives a player a competitive informational advantage relative to other players that are less connected,” Fracassi writes.

Keep Your Friends Close … But Not Too Close Fracassi observed that companies led by socially connected directors increased their investments at similar rates.

“The more social connections two companies share with each other, the more similar their investment policies are,” the study reports. “In addition, two connected companies change their investment policies over time more similarly than two companies that are less socially connected.” This tendency is known as informational cascade. And Fracassi says it’s often a good thing.

It Pays to be Social Being in the loop gives a firm access to a large volume of information to guide financial decisions—but does all that insight translate into good decisions? Fracassi found evidence that when a group of knowledgeable executives starts talking, it pays to be part of the conversation. “There is evidence that suggests that where the CEO and directors are more socially involved, the company is more profitable,” Fracassi says. “The information they receive helps the company to make the right decisions.” Specifically, companies that are positioned more

While the research indicates that staying connected to outside social networks can benefit a company’s financial performance, Fracassi says the opposite may be true for close social relationships among directors within the same company—specifically between the CEO and the board of directors. In a 2012 paper, Fracassi and co-author Geoffrey Tate of the University of North Carolina detailed the risks associated with that type of scenario. At most companies, board members are charged with monitoring the CEO and holding him or her accountable for poor investment decisions. But if the CEO and directors are connected through outside social ties—say, they worked together in the past, went to the same school, or are members of the same non-profit organization or club—the monitoring tends to be weaker. In this scenario, the board tends to be more lenient toward the CEO, even if he or she starts growing the company too rapidly by making unwise acquisitions or unproductive investments. This, in turn, can lead to a dip in the company’s share price, especially for firms that have weaker shareholder rights.


The study also indicates that firms with powerful CEOs are the most likely to add new directors who have pre-existing connections to the executive, strenghthening those social bonds. Fracassi says this outcome isn’t always the result of a conscious distortion by directors who want to cut a friend some slack. Rather, it’s that people are naturally more trusting of someone they know. “But this trust leads to CEOs making decisions that harm shareholders’ value” in the form of unwise merger deals, he says. Some argue that close ties can help improve the exchange of information between executives at the same firm. But overall, Fracassi’s research suggests that on balance, the negative effects from these internal social ties often outweigh the potential advantages. “A well-functioning board of directors provides both valuable advice to management and a check on its policies,” the study’s authors write. “An effective director should not just ‘rubber stamp’ management’s actions, but should take a contrarian opinion when management’s proposals are not in the interest of the firm’s shareholders.” A series of legislative measures, including the Sarbanes–Oxley Act of 2002, have taken aim at boardroom corruption, but Fracassi and Tate have found little evidence that those policies have significantly discouraged the practice of stocking boards with familiar faces. The researchers identify internal networks of CEOs and board members as “an effective target for future governance reform.” —Additional reporting by Jeremy Simon The article above is republished courtesy of http://mccombstoday.org/ http://www.today.mccombs.utexas.edu/2013/04/ceo-friendships-company-performance This story originally published in the spring 2013 issue of OPEN, the McCombs School of Business alumni magazine.


The Psychology of Strategy By Michael April 2013

Blanding,

In the aftermath of the Great Depression, a visionary named Charlie Merrill decided to radically rethink what banking could be. His institution, Merrill Lynch, had recently acquired Safeway supermarkets, one of the largest chains in the country, and the acquisition gave him an idea. What if banks could be more like your local Safeway, offering middle-class customers a menu of financial products? Now, that might seem like an obvious strategy—indeed it’s how most banks today are run. But in the elitist banking system of the 1930s, it was revolutionary. “When something becomes obvious, people ask, ‘Why didn’t I think of that?’” says Giovanni Gavetti, an associate professor of strategy at Tuck. “But no one had the right mental model to spot it. The ‘financial supermarket’ business model was cognitively distant for everybody until Merrill looked at banks through a new lens: as supermarkets. And what was once cognitively distant became almost obvious to him.” The interesting question for Gavetti is why no one else had that insight—and what it takes to develop similarly revolutionary insights in business. Gavetti has studied the psychological underpinnings of business strategy for almost 20 years. What he has found has gone against the prevailing strategic management theory, which holds that leadership involves identifying a company’s unique capabilities and building incrementally upon them to secure an advantage

in competitive markets. “There is a diffuse presumption that we can’t be good at foreseeing stuff,” says Gavetti. “We can be pretty good at learning incrementally and reacting to proximate feedback, but the moment we try to foresee strategic opportunities that are not close by, we are doomed to failure.” In other words, under such a paradigm, the Charlie Merrills of the world can never identify game-changing innovations, much less use them to transform their industries, unless through chance or serendipity.

... A BEE NEEDS TO LOOK FOR A NEW FLOWER, A FLOWER OTHER BEES CAN’T FIND." In a recent paper, “Toward a Behavioral Theory of Strategy,” published last year by Organizational Science, Gavetti forms a different conception of strategy based on modern cognitive science. In it, he argues that it is the opportunities that are “cognitively distant” from one’s typical experience that are the most potentially rewarding for a company, and cognitive science can help strategic leaders identify and pursue them. The problem is that companies tend to cluster around a few fruitful opportunities, depleting them through competition. “The image is of bees flying to look for nectar,” Gavetti explains. “When flowers are filled with nectar, all the bees will compete for it until there is no nectar left. To the extent that there are superior opportunities out there, a bee needs to look for a new flower, a flower other bees can’t find.” There are three main reasons that these cognitively distant opportunities tend to be untapped. First, in order for them to be spotted, strategic leaders need to view their industry in a different way, and that is less natural to them than relying on their standard mental conceptions. Second, pursuing opportunities that radically depart from the status quo generally requires leaders to change their companies’


conceptions of themselves—their identities—and that is one of the hardest things to pull off. Third, departing from the status quo also makes it imperative to convince outside observers—read Wall Street—that the opportunity is legitimate. Again, this is always hard. For each of these challenges Gavetti identifies the same antidote—an ability to manage associative thinking. In order to conceive of something truly innovative, a company must create a new mental model based on a new association, like Charlie Merrill did with his supermarket analogy, that goes beyond logical deductive reasoning. An analogy in itself isn’t enough, however. Merrill also had to transform the culture of the company in order to be successful. Transforming an ingrained corporate persona is no easy task. Just ask George Fisher. When he took over Kodak, he was able to reconceive the company as a leader in digital imaging rather than film—but because he was unable to achieve buy-in from employees, that vision ultimately failed. Ducati’s Federico Minoli, on the contrary, had a more emotional message than digital versus print, a message that relied on an association. When he was handed the reins in the mid-1990s, Ducati was a company run by engineers focused on technical performance, but he reconceived it as a company selling a dream—an experience of freedom and excitement. “His analogy for that turnaround was Walt Disney,” says Gavetti. “Initially he faced a lot of resistance within the company, but with the power of that analogy he was able to pull it off, and now Ducati is a lifestyle company like Harley-Davidson.” Persuading your own employees is one thing, but in order to be successful you must also persuade the business community of the viability of your dream. “There is evidence that when Wall Street

reacts negatively, most companies give up,” says Gavetti. “The company that can shift its mental model in a way that can be understood might have a real opportunity.” In the 1990s, for example, Lycos and Yahoo were competing for legitimacy as the primary Internet search engine. Lycos presented itself as a technology company, while Yahoo presented itself as a media company; ultimately Yahoo won because the media association was more credible, vivid, and understandable. Gavetti doesn’t dismiss the importance of deductive thinking in achieving business success. For instance, he acknowledges that Michael Porter’s frameworks have greatly helped generations of strategists make sense of their world. But he does see deductive reasoning as the status quo in business strategy that must be shaken up with associative thinking if companies desire opportunities outside the mainstream. “There is evidence in psychology that we are walking associative machines—this is our common way of understanding things,” he says. “The trick for me is to understand that capacity to the point where it can be disciplined and become a reliable tool in the hands of strategic leaders.” “The strategic leader who is better at managing market forces is the one who is better at managing his own and others’ mental processes,” continues Gavetti. “Charlie Merrill saw the opportunity because he fundamentally shifted his way of thinking about banking. Your ability to see into the future hinges on adopting the right set of lenses—getting other people to wear them.” Michael Blanding, April 2013 The article above is republished courtesy of http://www.tuck.dartmouth.edu/ http://www.tuck.dartmouth.edu/newsroom/articles /the-psychology-of-strategy


How do consumerfocused multinational enterprises affect emerging markets? by Terutomo Ozawa* In The Wealth of Nations, Adam Smith identified the ultimate purpose of economic growth as consumption, and conceptualized its incomepropelled progression from “necessaries” to “conveniencies” to “elegancies.” [1] Modern consumer-focused multinational enterprises (CFMNEs) usually produce “conveniencies” and “elegancies,” though some develop the local supply of “necessaries” (e.g., milk for Nestle, and chickens and potatoes for KFC). Most CFMNEs originated in the advanced world since the end of World War II, though several were spawned in prewar days. In contrast, conventional old-style MNEs in extractive industries have been around ever since the Industrial Revolution led to the buildup of heavy and chemical industries in the industrialized world that process raw materials into industrial products. They hunt for overseas resources and once epitomized colonialism and industrialism -- as opposed to consumerism that underlies a motive of CF-MNEs to go abroad. Particularly, colonial MNEs and their home countries used to hinder industrialization in emerging markets by “kicking away the ladder” [2] in fear of fostering would-be rivals. By comparison, CF-MNEs desire the growth of emerging markets simply because they need larger markets. Their home countries themselves are helping emerging markets industrialize via economic aid and technical support and opening up for trade and investment, especially by MNEs. After all, today’s MNEs disseminate industrial knowledge and promote trade. In other words,

developed countries are willingly “providing the ladder.” China’s successful catch-up strategy to capitalize on the modern-day opportunities attests to this distinctive sea change for emerging markets. CF-MNEs’ engagement in emerging markets normally begins with food and beverages and proceeds to personal care items, to white goods and electronics, to motorbikes and automobiles, to luxuries and leisure. Coca Cola, Heineken, KFC, McDonald’s, and Pepsi and the like are usually among the first-wave investors. Coca Cola has already invested practically everywhere throughout the world. It is advancing into Myanmar, leaving only Cuba and North Korea still Coca Cola deprived. Nestle and Kraft (the two largest processed food companies), P&G and Unilever (the two biggest personal-care product makers), and Avon, Revlon and Shiseido (beauty good producers) are usually among the second-wave MNEs. These MNEs react quickly to early signs of “middle class” growth -- a middle class defined, for instance, as those income earners with US$ 4 and up per day in sub-Saharan Africa. Even consumers in such low-income markets can afford “conveniencies,” such as toothpaste, shampoo and low-end cosmetics. Local demand for private transportation normally moves from bicycles to motorcycles to passenger cars. A McKinsey study summarized the evolutionary consumption pattern: “[S]nacks and bottled drinks…accelerate at a relatively early stage of the income curve, beauty products somewhat later, and luxury products, such as fashion and fine wines, later still.” [3] This consumption sequence is, however, usually time-compressed because of sharp income inequality that accompanies catch-up growth for a variety of reasons (including corruption). Consequently, an emerging market’s demand structure is vertically segmented. The rich indulge in conspicuous consumption (“elegancies”), and a growing middle class enjoys “conveniencies,” while most


people are still in poverty, subsisting on “necessaries.” Thus, these divergent patterns occur concurrently at the macro-level, as well as sequentially at the individual level. Since CF-MNEs seize on any growing emerging market, they are likely to steer host economies toward domestic consumption-based growth. New consumer goods are incentives to work (though “elegancies” often motivate bribery/theft) and “modernize” traditional consumption habits. New hotels, restaurants, shopping malls, and other amenities also cater to MNEs, businesspeople and tourists who pile into fast-growing countries, accelerating growth. Furthermore, CF-MNEs’ supply chains -- like those for Apple’s iPad, Toyota’s cars and Zara’s apparel -- offer opportunities to participate in intra-company/product trade and production, as input suppliers or final assemblers. These supply chains are a new ladder of export-fueled growth with access to the advanced management knowhow, technologies and marketing channels necessarily imparted to local partners for effective chain operations. [4] Caveats are in order, nevertheless, lest host economies become too consumption-oriented in the early catch-up phases when scarce resources need to be allocated to infrastructure and industrial capacity building -- and when their balances of payments remain precarious. A lack of savings necessitates borrowing from overseas, exposing emerging host markets to the risk of currency/financial crises. Rampant consumerism leads to waste and environmental problems. Modern consumer goods/services often crowd out local cultures and traditions, although sometimes crowding in indigenous goods such as raw materials (e.g., coconuts for Nestle and palm oil for P&G). Any egregious consumption inequality stemming from income maldistribution and whipped up by ostentatious consumerism evokes discontent in politically fragile emerging markets. Despite these risks of imported consumerism, however, CF-MNEs

facilitate an income-ratcheted progression of consumption, thereby achieving the Smithian goal of growth in emerging markets. *Terutomo Ozawa (T.Ozawa@Colostate.EDU) is Professor Emeritus of Economics at Colorado State University and Research Associate for the Center on Japanese Economy and Business, Columbia Business School. An earlier and expanded version of this Perspective was presented at a workshop, the German Historical Institute, Washington D.C., November 2012. This essay is also woven into a book manuscript in progress: The Evolution of the World Economy: The “Flying-Geese” Theory of Multinational Corporations and Structural Transformation (Cheltenham, Glos., UK: Edward Elgar, forthcoming). The author is grateful to Matthias Kipping and Christina Lubinski for their comments and encouragement. The author also wishes to thank Thomas Jost, Herbert Oberhaensli and Ravi Ramamurti for their helpful peer reviews. The views expressed by the author of this Perspective do not necessarily reflect the opinions of Columbia University or its partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series. [1] Adam Smith, The Wealth of Nations, vol. 1, 2nd ed. (London: UOP, 1880), pp. 404-405, available: http://archive.org/stream/aninquiryintothe01smitu oft#page/n9/mode/2up. [2] This phrase, attributed to Friedrich List, was adopted as the title of a book by Ha-Joon Chang, Kicking Away the Ladder (London: Wimbledon Publishing, 2002). [3] “Winning the $30 trillion decathlon: Going for gold in emerging markets,” McKinsey Quarterly 3, 2012, p. 9. [4] “Chains of gold: Modern supply chains are making it easier for economies to industrialize,” Economist, Aug. 4, 2012. “Terutomo Ozawa, ‘How do consumer-focused multinational enterprises affect emerging markets?,’ Columbia FDI Perspectives, No. 95,


May 20, 2013. Reprinted with permission from the Vale Columbia Center on Sustainable International Investment (www.vcc.columbia.edu) For further information, including information regarding submitting to the Perspectives, please contact: Vale Columbia Center on Sustainable International Investment, Jennifer Reimer, jreimer01@gmail.com. In addition to her role as Research Associate for the VCC, Ms. Reimer is Legal Counsel for LG Electronics’ Regional Headquarters for the Middle East and Africa.

The Bottom Line on Corporate Tweeting Research suggests Twitter helps market liquidity of little-known companies.

The Vale Columbia Center on Sustainable International Investment (VCC), led by Lisa Sachs, is a joint center of Columbia Law School and the Earth Institute at Columbia University. It is the only applied research center and forum dedicated to the study, practice and discussion of sustainable international investment, through interdisciplinary research, advisory projects, multi-stakeholder dialogue, educational programs, and the development of resources and tools.

Elizabeth Blankespoor, assistant professor of accounting, Stanford GSB. It almost goes without saying that Twitter has changed the way corporations communicate. Despite much early sneering about the 140character limit of a tweet, thousands of very serious companies fire off tweets daily about their latest news. But does tweeting have any impact on investors? A new empirical study suggests that it does. In particular, Twitter seems to help little-known companies overcome the natural bias of traditional news media toward bigger companies that already get buzz. The researchers, who include Elizabeth Blankespoor, an assistant professor of accounting at the Stanford Graduate School of Business, found that tweeting measurably increased the market liquidity of stocks that normally get little attention. That’s important for both practical and theoretical reasons. As a practical matter,


corporate investor-relations departments are pouring money into Twitter and other “push” technologies without completely knowing how well they work. On a more theoretical level, the findings further undermine a key assumption about how markets work. The traditional assumption has been that markets instantly assimilate every new scrap of information as soon as it becomes public. If a company announces its latest earnings over the PR Newswire, for example, the traditional view is that the information reaches everybody in the market immediately. Many analysts had already found that the real world was messier than that. In the real world, investors get much of their information from the news media — the Wall Street Journal, news services such as Bloomberg, and television networks such as CNBC. And news organizations pay much more attention to highvisibility companies because those are the ones that attract bigger audiences. Blankespoor teamed up to study Twitter’s market impact with Gregory S. Miller, an associate professor of accounting at the University of Michigan, and Hal D. White, an assistant professor of accounting at Michigan. They suspected that Twitter and other technologies were changing the old rules. For the first time, companies could communicate with investors directly and instantly. Twitter is hardly the only direct-access technology in use. Many companies also reach investors through mass email alerts, RSS feeds, and Facebook. But for many investor-relations departments, Twitter has become the social networking tool of choice. To measure Twitter’s impact, the researchers studied one particular form of corporate tweet: those that contain links to a company’s full original announcement.

The researchers compiled tweet data from 2007 through September 2009 for 102 information technology companies (on the theory that IT firms were likely to be early Twitter adopters). They then correlated the tweet activity with trading data about the liquidity of each company’s stock. Specifically, they looked at the spread between bid and ask prices, or the difference between prices offered by buyers and sellers. Narrow spreads mean that a stock is more liquid and easier to trade, often because investors are more confident about what they know. High-visibility companies with lots of shareholders usually have narrower spreads than lesser-known companies, an indicator of the “information asymmetry” that plagues the lesser-known companies. Navigating through the Twitter data took some detective work. The researchers had to identify the twitter “handles” for each of the companies, round up all their tweets, and then weed out those that didn’t link back to press releases and other blog posts. They also tabulated how many times people actually clicked on the tweet’s hyperlink. Once they had all that, they correlated the tweets with trading data immediately before and after each news announcement. For the record, the average company in the study had 28,318 followers over the period (Twitter was still in its infancy). Companies sent an average of 46.9 tweets with links per month, and each link was clicked an average of 141 times. What the researchers found was that bid-ask spreads narrowed significantly for lesser-known companies when they tweeted about their news. Bigger companies that already enjoyed visibility didn’t see any impact. In other words, tweeting helped level the information playing field at least a bit. Blankespoor, Miller, and White also looked at whether Twitter had a particular effect on smaller investors, who don’t have as much money for


information collection as institutional traders. In theory, Twitter might boost their activity. But the data doesn’t show that. Tweeting didn’t seem to have any meaningful impact on the share of trading in small lots. The big takeaway, Blankespoor says, is that Twitter and other “direct access information technologies” can help reduce the information disadvantage of small companies. It isn’t just the message that’s important. It’s how widely you can disseminate it. Edmund L. Andrews The article above is republished courtesy of http://www.gsb.stanford.edu/news/research/bottom-linecorporate-tweeting


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