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leading ideas 82
8 Augmented Reality Comes
to Retail
Kamil Klamann and Sekoul Krastev
The Pokmon Go craze may have faded,
but it provides clues for retailers using
technology to engage consumers.
8
essays
HEALTHCARE MARKETING, MEDIA & SALES
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Neuroscience research shows
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Ideas
Leading
I
n the summer of 2016, pedestrians on New Yorks Fifth Avenue encountered
9
crowds of (mostly young) people, hastily running into Central Park, smart-
phones in hand, shouting out Pokmon character names and cross-street loca-
tions. Within weeks of its release on July 6, 2016, the Pokmon Go app at-
tracted 40 million daily active users and created a level of in-app engagement that
Facebook could only envy.
The Pokmon Go fad has faded, but it holds important lessons for companies
intent on reaching and engaging consumers where they are, especially retailers: The
game, the rst truly social augmented reality (AR) experience, enthralled a new
breed of omniconnected consumers as nothing else had done previously. The people
who embraced the augmented reality of Pokmon Go inhabit a world where the line
between real and digital is so blurred that they essentially became one and the same
constantly augmented and improved by invisible technologies. And they are
hungry for better, more personalized experiences.
AR, which has been around since the late 1960s, has long lived in the shadow
of virtual reality (VR). Whereas VR wants to transport us to a new virtual world
that provides unique immersive experiences, AR brings these experiences to the
world we already inhabit. For example, IKEA has released an AR app that allows
shoppers to place digital furniture and other products from the catalog into pictures
of their rooms at home. But for the most part, the early ambitions of AR have not
borne much commercial fruit. AR features have generally lived inside retailers
stand-alone apps that consumers didnt want to download. Moreover, Google Glass,
which was perceived as socially awkward, failed miserably. The AR ecosystem has
lacked a shared platform with mass acceptance that, like Googles ad network, al-
lows brands to simply plug in and thus removes the consumer friction of download-
leading ideas
ing individual apps. And there was no killer use case to make AR popular and,
more important, social until Pokmon Go.
The Pokmon Go craze has opened consumers minds to similar experiences
that will take place in a more connected future. New forms of augmented reality
will allow brick-and-mortar retailers to take todays showroom experiences to the
next level, creating unique encounters that blend digital and physical shopping.
Today, a few farsighted retailers are in the rst, introductory phase of apply-
ing AR to the shopping experience. On a range of independent platforms, these
companies are experimenting, trying to understand their audiences and grasp how
10
their brands t into this new environment. As the eld enters its growth phase in
the next two to three years, it will consolidate into a few dominant players, and
companies must gure out what distinctive offerings they can produce and how to
integrate them into omnichannel strategies. Once the medium matures in four to
ve years, AR will become table stakes for retailers and brand marketers, and com-
panies will have to determine how they can curate bespoke content and create
unique experiences in this new medium. Over the long term, it is clear companies
must use AR to lead customers through four stages: creating awareness; increasing
consideration; converting customers at key decision and purchase points; and
building enduring loyalty.
Creating awareness. AR represents a singular opportunity for retailers to de-
velop a more rened level of targeting based on demographic proles, past in-store
behavior, and live recommendation engines. Much of this will involve linking loca-
tion tracking with advertising delivered to smartphones. For example, Tom typi-
cally buys a US$4.99 gel laundry detergent. Target could display an AR ad on Toms
phone of a new, more powerful $5.99 gel suited to similar laundry needs, instead of
posting a generic static endcap display for laundry powder.
Virtual shopping assistants are another likely use case. In 2013, IBM launched
an AR shopping app that provided shoppers instant product details and comparison
when they pointed their smartphone at the grocery shelf, allowing them to sort the
strategy+business issue 87
matches the backsplash, order the machine with a single click, immediately subscribe
to monthly shipments of assorted coffee pods, and request warranty support.
Converting consideration to action. Although Pokmon Go showed ARs abil-
ity to drive foot trafc, AR has yet to prove its mettle in converting consideration
into purchase. This may be the biggest challenge AR will have to tackle to be able
to provide return on investment.
Technologies such as Googles Tango platform will come to help. Tango en-
ables mobile devices to be more sentient about the world around them, understand-
ing the environment theyre situated in, including space, orientation, and motion,
12
without using GPS. In March 2017, Lowes Innovation Labs announced Vision, its
in-store navigation app, leveraging Googles Tango for indoor mapping. Now Lowes
customers with Tango-enabled smartphones can search for products, add them to
shopping lists, and locate the product within the store using augmented reality.
Chinas largest online grocery store, Yihaodian, created more than 1,000 vir-
tual shops in public places. Shoppers can use the companys AR app to browse prod-
ucts and make purchases that are then delivered to their homes. Similarly, upon
pointing a smartphone at a Nike ad in Runners World, a user can jump straight to
the shopping cart on Nikes website.
As AR becomes integrated with other technologies such as beacons
Bluetooth-enabled devices that can communicate with nearby shoppers smart-
phones we are likely to see localized and personalized coupon offers at key pur-
chase points within the store aisle or at the checkout counter. The ultimate goal will
likely be fully automated and personalized one-to-one marketing that seamlessly
tracks shoppers movements on- and ofine, offering engaging AR experiences at
critical decision-making points.
Building enduring loyalty. The more adept a company is at creating loyalty, the
more sustainable its marketing efforts are in the long term, and the higher an ROI
it can ultimately achieve. Further, repeat customers tend to spend 60 percent more
per transaction than rst-time customers. AR affords opportunities for loyalty pro-
strategy+business issue 87
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cover products and deals in-store as well to collect loyalty points by exploring the
stores aisles.
As shoppers become more acclimated to the idea that AR can improve their
shopping experience, we will likely start to see greater integration between the digi-
tal and face-to-face experiences. This, in turn, will allow brands and retailers to
create customized loyalty programs that correspond to a shoppers exact interests as
well as their online and ofine behaviors. Imagine heading into a supermarket and
having an application on your phone that suggests products based on your past pur-
chases, one that can also seek out the best deals based on how often youve pur-
14
chased that brand before.
As AR and other technologies mature, stores will gain a much better idea of
shoppers behaviors. This will allow them to use loyalty programs in a far more tar-
geted manner, encouraging the exact behaviors that lead a specic shopper to the
counter. A thrifty consumer might enable a setting on an app that allows the shop-
ping assistant to lead him or her through specic aisles of a supermarket that have
been incentivized by a brand.
Augmented reality clearly has the power to transform retail. However, it will
pay dividends only if stores and brands learn how to translate foot trafc into de-
sired action and become seamlessly integrated into the experience. And although
Pokmon Go itself may have been a fad, it probably will not take long for another
(better and more ambitious) platform to emerge and ll the social AR space.
To be sure, some skepticism is warranted. But in the 21st century, paradigm
shifts that used to take years now routinely happen in months. Just as retailers came
to rue not investing earlier in e-commerce, or a Facebook presence, or mobile pur-
chase apps, they may regret not investigating the potential of AR more aggressively. +
Reprint No. 17201
T
he notion of a typical consumer, one whose gender, age, ethnicity, and
15
zip code can be used to make reasonably accurate assumptions about
purchasing behavior, is a thing of the past. The most predictable char-
acteristic of todays consumers may actually be their variability
theyll choose different brands depending on where they are shopping and the
occasion they are shopping for. This trait is a logical extension of todays retail
environment: Many consumer packaged goods (CPG) categories now consist of
hundreds of brands, and new niche products launch every week. People can shop
at supermarkets, warehouse stores, convenience stores, and a huge array of e-
commerce sites. And there are far more ways for marketers to engage with shop-
pers, including mobile apps and social media.
Given this complexity, its more critical than ever for brands to nd consum-
ers in the moment. Doing so requires a more integrated view of what drives
choice, one that isnt tied to one-
Finding consumers in the dimensional demographics or a nar-
moment requires a more rowly dened need. Companies have
integrated view of what to combine a deep knowledge of who is
drives choice, one that isnt shopping, and when, and where, and
tied to one-dimensional why, with an understanding of the
demographics. emotional and functional benets of
their products. As you make those con-
nections, you gain insight about the specic situations, or demand windows, in
which consumers want or need to make a purchase. These windows open and
close based on different factors at different times. Someone shopping for sand-
wich ingredients may choose one brand of deli meat when planning a childs
leading ideas
Why Where
What motivates
What Where do
consumers in the Which brand best consumers shop
moment? meets the needs of for the occasion?
the consumers
across all three
dimensions?
16
Who
How does decision
making vary by
consumer segment?
Source: Strategy&
school lunch during a grocery store trip, but another when stopping at a deli to
prepare a quick, healthy snack at home. Context is everything.
Demand windows create opportunities to drive better targeting and engage-
ment along the path to purchase by more directly linking brand, consumer, chan-
nel, and occasion (see exhibit). The concept is gaining traction among CPG lead-
ers, but its equally relevant across industries: Nearly every company needs to
understand the way people evaluate products and make decisions. Yet the concept
will have value only if it changes the way companies execute their strategy. Theyll
need to identify those windows that are most promising for their brands, and
then make changes in how they market and sell their current products, as well as
develop new ones. The companies that get it right will dramatically improve the
way they interact with consumers.
strategy+business issue 87
Past Is Prologue
A look at two large retail categories reveals how demand windows work in
crowded markets. The rst is beer, a category with a wide range of brands,
leading ideas
styles, and price points. Some consumers prefer an easy-to-drink domestic
beer when watching a football game at home but upgrade to a more complex
craft brew that pairs well with a meal at a restaurant. The second is diapers,
another category rife with options. Some consumers will buy a premium natu-
ral brand of diaper for a newborn, and then focus on durability when their
child begins crawling.
The retail channel and specically the range of available options at a
given location also affects shoppers decisions. Consumers may go to a large
upscale grocery chain with a huge selection of craft brews over the weekend, but
17
then stop after work at a local corner store with a much smaller selection. Con-
sumers may always pick up a jumbo pack of diapers at the big-box store or when
buying online, but, knowing the per-diaper price is high, will look for a small
package at the convenience store when theyre in a pinch.
Companies learn about consumers penchants and practices by looking at
data on what theyve bought in the past. That data, and the ability to mine it for
useful insights, enables companies to understand the demand windows for their
products. Only a decade ago, companies looked primarily at consumer surveys.
Today, they still look at survey results. But they can overlay that information with
detailed data about consumers online behavior their browsing history, pur-
chases, online reviews, and social media activity plus metrics that track their
behavior inside physical stores.
The good news is that the technology required to identify demand windows
is not cutting-edge. In other words, seeking out demand windows isnt the same
as chasing the next shiny thing in digital marketing technology. To be sure, you
need strong analytics capabilities or you risk falling behind. But you can build
these capabilities by applying established quantitative marketing techniques in
innovative ways that integrate and exploit a broad set of data sources.
keted and sold through separate campaigns aimed at craft hobbyists, students,
and ofce workers. The company tailored its channel and marketing strategies,
including decisions about which stores to sell in, promotions, coupons, packag-
ing, and digital advertising, to serve these different consumers and their different
occasions. It even segmented user reviews to ensure that hobbyist consumers, for
leading ideas
example, saw only the reviews from hobbyist users. The result was a huge in-
crease in sales compared with previous product launches.
Once you have used demand windows to shape your sales and marketing
strategy, employing analytics enables you to measure the results of specic initia-
tives more accurately. For example, your company might run thousands of pro-
motions in a given year. By staging experiments, such as testing new copy on a
digital promotion aimed at a specic demand window and quickly gauging the
results, you can improve the effectiveness of your next promotion in weeks, rath-
er than months.
19
3. Innovate to create new products and services. Beyond improving market-
ing strategies for current products, demand windows can help companies develop
new products. They are able to create products with the features consumers want,
delivered in the right context to enhance their emotional connection, rather than
simply making incremental improvements. For instance, if a diaper manufac-
turer with strong capabilities in sustainable manufacturing identies a demand
window for new parents looking to reduce their impact on the environment, the
company can focus its innovation efforts on minimizing materials and offering
recyclable or biodegradable packaging.
Analytics will guide your efforts here. At a micro level, analytics can help
you more precisely target innovation opportunities for your brand at the intersec-
tion of consumer, channel, and occasion that is right for your business. Youll be
able to more accurately predict what product to develop, and which consumers
are more likely to purchase it. On a macro level, you can use analytics to better
track your return on innovation investment through metrics such as time-to-
market and R&D productivity.
Windows of Opportunity
To see how companies can bring it all together, using demand windows to con-
nect with consumers and drive growth, consider a deli meat company that has
strong capabilities in product packaging. It identies parents looking to buy
healthy products for their kids lunches as a high-potential demand window. Tar-
geting this group of consumers requires a different approach from what the com-
pany would use if just considering simple demographics, for example, What do
leading ideas
kids of a certain age like to eat? or What are regional lunch meat preferences?
Given its expertise, the company could focus on developing kid-friendly
lunch packages. It would target traditional grocery stores, where many families
do their big weekly shopping trip, cre-
Demand windows enable ating in-store displays highlighting the
companies to nd the fact that the product is small enough to
consumers most likely to t in a lunch box, easy to open, appro-
want their brand. priately portioned, and healthy. The
company could then run promotions
20
timed to the beginning of the school year, or over the weekend when parents are
shopping for the coming school week.
The company could also create original content to engage potential consum-
ers in the demand window, delivered through digital channels for instance,
healthy recipes or blogs that tackle subjects such as dealing with picky eaters. To
boost engagement, it could create a social media campaign, such as asking parents
to send in pictures of the empty lunch boxes their kids bring home after school,
indicating that the product was a hit.
In a crowded eld, demand windows enable companies to nd the consum-
ers who are most likely to want or need their brand. Rather than offering quick
wins, they can help companies develop a more sustainable source of competitive
advantage that will bring growth and protability. For company leaders, the mes-
sage is clear: The consumers looking at your products online or on the shelf are
individuals, with preferences shaped by who they are, where they are, and what
they want or need at a moment in time. The more you think about them in this
light, the more attractive your brand will become. +
Reprint No. 17202
in growth and go-to-market strategy with Strategy&s keting and sales strategies for
strategies for Strategy&, consumer markets practice. Strategy&. Based in New York,
PwCs strategy consulting Based in New York, he is a he is a principal with PwC US.
group. Based in Chicago, he principal with PwC US.
is a director with PwC US.
leading ideas
Why Good Employees
Do Bad Things
Kelloggs Maryam Kouchaki on understanding
and avoiding ethical breakdowns.
by Laura W. Geller
F
or outsiders observing a scandal at a company or organization, the situ-
21
ation often seems implausible or incomprehensible. How did leaders let
it happen? Why did so many people go along with the wrongdoing?
And why did it go on for so long?
The view from inside a scandal-plagued organization is considerably differ-
ent. We know that, in business as in life, good people sometimes do bad things
whether its a small lie or a giant fraud, a one-time act of dishonesty or an ongo-
ing deception. Maryam Kouchaki, an assistant professor at Northwestern Univer-
sitys Kellogg School of Management, has made understanding this phenomenon
a prominent theme of her academic career. After studying physics as an undergrad
Photograph courtesy of Kellogg School of Management at Northwestern University
ample, and that cheaters are more likely to have fuzzy memories of their mis-
deeds. But shes not simply interested in documenting and diagnosing our fail-
ings. In Kouchakis view, we humans may be hardwired to react and behave in
certain ways that may not always make us proud, but we are by no means a lost
cause. And so she looks for interventions that can help people behave morally and
become emboldened to speak up when they witness wrongdoing.
Kouchaki has also researched how ethical breakdowns affect individual em-
ployees and organizations. As she explained in a recent interview with
strategy+business, because people (herself included) spend a large amount of their
22
time at work, their actions there are closely intertwined with their identity. Thus
even a small unethical request can have signicant implications. The result can
be a vicious circle one that Kouchaki strives to make more virtuous.
S+B: Youve also studied how the dark side of creativity can
contribute to dishonesty.
KOUCHAKI: Encouraging creativity is critical for organizational learning and in-
novation. However, we have to think about what else comes along with creativ-
ity. For example, it can create a sense of entitlement, a feeling that I deserve
more than others. In some ways, other peoples behavior reinforces this feeling
in creative people. We treat them as special, and we hold them to a different stan-
dard. Then, when people think they are special, they start to think they can
break rules and not be punished. There is a link between feeling entitled and
24
being dishonest.
In one study [with Syracuses Lynn Vincent], we asked participants to ll out
a survey that gave them feedback about their personalities. Some were told they
were creative and others practical [dened for the purposes of the study as
non-creative]. We then randomly assigned each participant to one of two groups
where their respective personality was rare or common. When we asked partici-
pants to complete a task in which they had opportunity to lie, people who were
identied as creative and who were rare in their group were more likely to behave
unethically than creative people in a group where everyone was creative. Practical
people were less likely to lie than were creative people, and also behaved the same
whether they were with other practical people or with creative people.
To avoid this phenomenon, leaders should establish what types of risk-taking
or rule-breaking behaviors are acceptable, and warn against ignoring moral guide-
lines. And they should emphasize the idea that creativity is something everyone
can tap into a skill people can learn.
When creativity is seen as common, it doesnt necessarily lead to creativity
also being seen as less valuable. It is still celebrated. But when we think we are all
creative or can become creative and encourage that mind-set, it reduces feelings
of entitlement and dishonesty.
strategy+business issue 87
S+B: What happens when employees are pressured to cut ethical corners?
KOUCHAKI: Lets say Im an employee and I feel pressured to behave badly at
work. Im more likely over time, as a defensive strategy, to segment my identity.
We each have multiple identities that we could be at any moment. When our
leading ideas
identities are integrated, they are in sync. When our identities are segmented, we
feel like our various selves are in conict.
For example, Ive found that just receiving requests from managers to do
something unethical, and contemplating such requests, can inuence employees
motivation and performance. Being asked to lie, cheat, or otherwise behave un-
ethically doesnt just inuence your morality, it also inuences the meaning of
your work. And this is important, because if people see their work as meaning-
less, they will become disengaged and unmotivated to improve and more
likely to do bad things. Moreover, they would want to have their home life and
25
their work life separate, thinking, If I integrate my identities, I would feel badly
all the time.
S+B: Disengaged employees may not be motivated to speak up when they wit-
ness wrongdoing. How can leaders counter that effect?
KOUCHAKI: Corporate scandals show peoples reluctance to speak up about un-
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leading ideas
ethical behaviors in the workplace. Ive been very interested in the question of
moral muteness and am working on a number of projects that examine solu-
tions. Interestingly, given my research about creativity and entitlement, Im cur-
rently working on a project that shows how encouraging creativity can also lead
to speaking up. Creativity is about engaging in behaviors that are outside of
convention and require the appearance of condence. In this way, creativity not
only helps individuals think outside the box but also helps them speak outside
the box.
Another factor Ive looked at is authenticity. We discussed earlier why people
26
may behave badly when they feel pressured. When their key resources are threat-
ened or lost, they experience stress and fear, and they become defensive. They are
in survival mode. Employees need the psychosocial resources to balance the typ-
ical psychological barriers to doing the right thing, and to feel encouraged to
speak up.
Authenticity has been shown to be such a resource. It is about owning your
personal experiences, thoughts, feelings, preferences, and beliefs and behaving
according to ones true self and personal values. And its about people discovering
and expressing their true self regardless of other peoples concerns. The litera-
ture has shown the psychological benets of authenticity. It leads to self-esteem,
hope, and other personal, positive effects. In my research, Ive found that encour-
aging authenticity can also lead people to speak up, to feel less stressed, and to
engage in better behaviors. And Ive found that integrated identities lead to great-
er feelings of authenticity and better moral behavior, compared with segmented
identities, which lead people to feel less authentic and thus to a higher likelihood
of behaving unethically.
ferent surveys daily that ask them to reect on their activities and experiences. I
dont have that data yet, but Im very optimistic that it will be an effective way to
help people to stay authentic.
leading ideas
When I teach my MBA students about ethics, I focus on self-reection
actively recognizing when one does something wrong or right. Of course, ad-
mitting, even to ourselves, that weve done something bad is difcult. For real
learning to happen, leaders have to make people feel psychologically safe. Em-
ployees need to believe that their team and their organization are places when
they can learn from their mistakes, and even from their moral failures. +
Reprint No. 17203
Laura W. Geller 27
geller_laura@
strategy-business.com
is senior editor of
strategy+business.
A
nyone attempting to lead change in an organization knows to expect
28
some resistance. Change is not a rational process; no matter how posi-
tive the future you are creating, its natural for humans to struggle
with it.
Such resistance is no less frustrating for being predictable. At times, it can
seem that all that stands between you and your goals is a few naysayers and whin-
ers. And to those on a mission, such reactions can seem like putting ones head in
the sand. The old business is not coming back, one CEO told me. We have to
innovate or we will die. Faced with negative remarks, critical questions, or stony
silence, change champions naturally begin to interact more with those already on
board, consciously or unconsciously distancing themselves from those who dont
get it.
Gradually, a wall begins to form between us and them champions who
support the change, and resisters who openly or quietly oppose it. Unfortunately, ap-
proaching change with an us versus them mind-set actually increases pushback.
When we think of people as resisters, we dont truly engage with them. We tend to
discount their perspective, assuming that if we are right, they must be wrong.
In reality, each side is paying attention to different things, says Robert
Jake Jacobs, an expert in polarity management a method for dealing with
chronic issues in organizations and groups. Change champions tend to pay atten-
tion to the upside of their future vision and the downside of todays status quo.
For example, those who are passionate about customers are hyper-focused on
strategy+business issue 87
building relationships for the long term. To them, resisters seem greedy or blind.
Conversely, resisters pay attention to the downside of the change and the
upside of the current state. They see the risks. When change champions refuse to
leading ideas
29
discuss an issue, resisters assume they are hopelessly naive or sinister actors trying
to pull the wool over everyones eyes. To them, it can seem scally reckless to
divert attention from the nancial aspects of the business to softer issues such as
customer experience. Which of them is right? They both are, says Jacobs. But
each is only half-right.
In the worst-case scenario, us versus them thinking devolves into factions
that compete but never really engage. According to Robert Fritz, author of The
Path of Least Resistance for Managers (Newfane Press, 2011), the result is an oscil-
lation between changes, rather than real advancement. Companies swing back
and forth, from centralization to decentralization, acquisition to divestiture, cus-
Illustration by Richard Mia
tomer focus to shareholder focus, he explains. Its like a rocking chair: lots of
movement, with very little progress.
The solution is to reframe how we think about resistance. Rather than as-
suming critical thinkers are resisters, we would do better to treat them as guard-
ians. Guardians see what needs to be protected, and the trust that can be de-
leading ideas
stroyed by a broken promise or a shortcut. Who else will ask the hard questions?
Guardians keep us honest in the face of self-delusion or blind spots. For example,
one executive I worked with learned that his frontline professionals were con-
vinced that new data he wanted to capture would be used in a punitive way. He
had no intention of using it that way, and had dismissed their concerns as ridicu-
lous. But, in fact, he had provided no assurances to the contrary, and such abuses
had occurred in the past. From the employees point of view, he later acknowl-
edged, the questions were legitimate. Seeing this, he gave them practical assur-
ances and backed them up over time through his actions.
30
When you approach guardians as responsible, thinking adults (who have
imperfect information and biases, just like you), you demonstrate genuine re-
spect. You gather input, not as a way to get them to buy into the change, but
because they have important information you may be missing. Remember Stan-
ley Tucci as the risk management ofcer in the movie Margin Call ? He isnt re-
sisting the new direction out of spite; he knows the risks are too great.
Once you have recognized your guardians, you can turn the wall between
us and them into a bridge. In the getting unstuck process outlined by Jacobs,
you start by asking about the upsides of the current reality. What is important?
What strengths should be protected? What have we promised? Get specic, and
ask for the history. Next, ask about the downsides of the change. What could go
wrong? One manager I spoke with wor-
Rather than assuming critical ried that outsourcing would hamstring
thinkers are resisters, we his company and he had good data
would do better to treat them to support his concerns. In another
as guardians. company, I heard people joking about
the companys new values initiative.
Their worry? That the effort would become hollow. Bringing these risks to the
surface helped the rst company avoid a bad decision and the second to avoid
commitment drift.
Lets be clear: You arent asking for permission to change. You still need to
strategy+business issue 87
make tough calls and stand for your values. You will have real differences to work
out. But engaging your guardians with respect gives you greater intelligence,
keeps you honest in the face of dysfunctional momentum, and highlights where
leading ideas
safeguards are needed. Having acknowledged others valid points and planned to
handle the biggest risks, you can add your perspective, highlighting what needs
to change in the current situation as well as the possibilities for the future.
Throughout this process, you will learn about misconceptions and assumptions
to clear up in your communications.
For their part, guardians can do a better job of clarifying what they are pro-
tecting, and articulating it in a constructive way dont just assume change cham-
pions see the risks and dont care. Then, together, you can decide how to approach
the future you want. According to Fritz, We shift from the oscillating pattern into
31
an advancing pattern when we focus on a shared purpose that builds on the things
that work now. For example, one plant manager told me he discovered his employ-
ees were resisting added safety precautions because the procedures made it hard to
respond quickly to customers. Rather than overriding or dismissing them, he used
the tension as a focus for innovation, asking his teams, How might we increase
safety and reliability without sacricing customer responsiveness? This is the kind
of leadership needed to create a successful organization for the long term. +
Reprint No. 17204
Elizabeth Doty
edoty@leadershipmomentum.net
is a former lab fellow of Harvard
Universitys Edmond J. Safra
Center for Ethics and founder
of Leadership Momentum, a
consultancy that focuses on the
practical challenges of keeping
organizational commitments.
essay healthcare
HEALTHCARE
32
Management Lessons
from One Hospitals
Dramatic Turnaround
Putting people at the core is the key to
major improvements in nancial, performance,
regulatory, and quality indicators.
Illustration by Lars Leetaru
from $122 million in 2008 to $189 million in 2016, despite NIH funding re-
maining virtually at nationally.
NYU Langone achieved these dramatic results even though it had to con-
tend with several challenges, including the destruction wrought by Superstorm
Sandy in 2012. And although much of the discussion involving the reinvention
of healthcare delivery revolves around technology or new business models, NYU
Langones transformation has had people at its core. Grossman knew that a more
committed, engaged workforce would be the primary competitive factor in a
service-driven, knowledge-intensive business such as healthcare. By focusing on
34
three mutually reinforcing elements, Grossman and his team unleashed the mo-
tivation to excel at all levels across the institution. The elements were (1) creating
belief in an inspiring stretch vision and then translating it into tangible improve-
ments for each area; (2) championing data transparency as a powerful source of
focus and motivation; and (3) committing to upgrading and supporting talent in
key roles.
and the introduction of a new medical school curriculum. The senior team then
undertook a 60-day drill-down to develop 10,000-foot plans for each of the
three core missions research, education, and patient care including a view
of the support and coordination requirements from key functions.
In parallel, Grossman and the vice deans responsible for the missions began
meeting weekly to get a broader view of operations, and the entire executive team
redoubled their efforts to improve collaboration and break down silos, focusing
on the potential for integration. Previously, fragmented responsibility between
the medical school and hospitals had made it easy to accept some problems as
36
unsolvable. (A damaged wall from a leaking pipe went unrepaired for six weeks
as the hospital and the School of Medicine debated nancial responsibility.) Con-
solidated responsibility within newly integrated functions such as nance, IT,
and real estate and facilities claried accountability for results, and practical im-
provements could nally be made without bickering.
Integration would also mean working in more cross-functional and multi-
disciplinary teams. So Grossman and his direct reports allocated scarce discre-
tionary funds to make early investments in research centers of excellence such
as brain aging, multiple sclerosis, and skin cancer, forming new collaborations
among researchers from a wide range of complementary disciplines. Similarly,
they designated a short list of strategic clinical areas such as cancer and musculo-
skeletal disorders where they could focus their efforts to combine clinical excel-
lence, translational and clinical research, and a patient-centered approach.
Once the mission road maps and corresponding functional plans were com-
plete and fully vetted, Grossman and the team engaged in a second wave of
broad organizational engagement. In November 2008, about a year after the
original investiture speech, they brought more than 500 key individuals together
to discuss NYU Langones future. In four large group meetings, executives de-
scribed each of the mission road maps and the sequence of strategic steps they
would take to realize the vision. They highlighted the progress that had already
strategy+business issue 87
ment chairs. It was a single source of truth, Grossman said. I was able to look
at data every day from my ofce and know what was happening throughout the
institution. It did not take long, and soon others were looking as well and making
improvements in their own departments as well as learning from others.
Data transparency was a powerful motivator. Each department chair could
see his or her own progress, and compare it with that of peers. Performance de-
mands were not simply being imposed from the top of the hierarchy. Rather, the
departments set aspirations and could judge their own progress, using metrics
and corresponding data that they had helped dene.
38
Data transparency was an equally potent catalyst in making improvements
in hospital operations and patient care quality. Traditionally, most hospitals in-
cluding NYU Langone had not widely shared clinical outcomes data. Bernard
Birnbaum, the new head of hospital operations promoted by Grossman, formed a
high-level task force on quality aimed at sharing data more broadly. Starting with
a focus on mortality and length of stay, the task force doggedly surfaced the data
and followed where it led, even if it meant having difcult conversations with
some of the most powerful and productive clinicians.
Pursuing data transparency not only gave people a greater understanding of
their own role in the larger enterprise, but also signaled a commitment to meri-
tocracy and demonstrated results.
Supporting People
Grossman recognized that upgrading talent in key positions was a prerequisite
for achieving his vision. But in an academic setting, leaders dont necessarily have
the ability to make wholesale changes quickly. He understood when to move
rapidly and when to have patience with talent challenges. On his rst day as dean
and CEO, Grossman consolidated functional support areas between the medical
center and the hospital. He used it as the opportunity to replace ve of his direct
reports and promote more aggressive managers in their stead.
strategy+business issue 87
It was clear that the centers 33 department chairs, who exerted power over
department resources and the career prospects of faculty, were among the most
inuential people in the institution. But there was a challenge. It was typical
for chairs to rise to their position on the basis of their excellence as individual
essay healthcare
researchers or clinicians, or owing to recognition in the broader eld not on
the basis of organizational or leadership skills. Whats more, many of these vet-
eran physicians were entrenched in the legacy mind-sets Grossman was seeking
to change.
Early vacancies in neurosurgery and psychiatry let Grossman establish a new
prole for what sorts of people he wanted to see as NYU Langone department
chairs: those high in emotional intelligence and executive leadership capabilities.
Over time, as he lled positions, Grossman balanced national searches and inter-
nal promotions. Anticipating the need to navigate around some entrenched in-
39
cumbents, Grossman and the leadership team instituted six-year chair terms and
established a faculty committee to redraw department boundaries, for example,
combining parasitology with microbiology.
Grossman matched the heightened expectations of the department chairs
with an increased willingness to invest in their success, upgrading the role and
managerial abilities of the department administrators to ensure each chair would
have a key right-hand person to help in running his or her department. He pro-
vided the resources to recruit the top faculty nationwide in priority areas and to
fund key initiatives. The leadership team created an extensive orientation pro-
gram for chairs who were newly recruited or promoted, and ultimately evolved
it into an in-depth leadership develop-
Over time, Grossman ment program open to all the chairs.
used progress on Over time, Grossman used pro-
gress on department metrics as an in-
department metrics as
controvertible performance standard
an incontrovertible for chairs. Some of them chose to step
performance standard down, appreciating the extent of the
for department chairs. change in expectations for their role.
In other cases, Grossman used the new
term limits to create opportunities for replacement. By 2015, 30 of the 33 depart-
ment chairs had been replaced.
These moves were, in part, a means of addressing an even more difcult,
deep-seated problem low faculty productivity. When Grossman took over,
25 percent of the research faculty were attracting no research funding whatso-
essay healthcare
ever. And the benets structure encouraged lifetime employment, with no of-
cial retirement age.
Grossman and the leadership team established a faculty committee to ad-
dress the issue, fully cognizant that similar committees had been established in
1997, 2004, and 2006, only to wither in the face of faculty opposition. This time,
buttressed by strong backing from the board of directors, leadership maintained
its resolve. If a faculty member objected and tried to make an end run to the
board, then Ken Langone, the chairman, would stand shoulder to shoulder with
me, Grossman said. The faculty learned I had the full support of the board
40
throughout the process.
The committee used external benchmarking to demonstrate that the most
respected academic medical centers had explicit productivity expectations, thus
paving the way for a three-year phase-in of productivity standards at NYU Lan-
gone by 2010. A step down program introduced in 2008 created incentives for
retirement, and 50 faculty members ultimately took the offers. As department
chairs faced increasing accountability for the overall productivity of their depart-
ments, they began to allocate resources such as lab space to reect individual
faculty productivity.
Grossman and the leadership team knew they had the support of the top
quartile the most productive faculty. We needed to convince the great ma-
jority in the middle that they would actually benet from meeting the higher
expectations of a top-performing institution, Grossman said. Early successes in
winning grants, providing additional nancial resources, and improving rank-
ings all contributed to growing support. By taking on the toughest issues, while
slicing them into manageable pieces in order to avoid large-scale confrontations,
Grossman and his team succeeded at winning supporters.
over the previous ve years if not the institution itself might be swept away
by Superstorm Sandy. Unprecedented storm tides breached the barriers protect-
ing the buildings on the east side of Manhattan, entering NYU Langones base-
ments and knocking out all backup generators. More than 300 patients, many
essay healthcare
in critical condition, were evacuated down blacked-out emergency stairwells by
NYU Langone clinicians, house staff, and students. The entire hospital facility
was forced into indenite shutdown.
The crisis became a true test of the organizations resilience, and leaders at
all levels rose to the challenge. Despite extensive damage, the hospital resumed
core functions in 59 days sooner than anyone expected. Grossman continued
his weekly staff meetings despite the degraded physical surroundings, sending a
signal that they would all carry on. On the day after the storm, he told his lead-
ership team, This is not a disaster. Its a tremendous opportunity to start anew
41
and rebuild for the future.
Student lectures were suspended for just a week and then relocated to other
facilities. Clinical rotations were relocated to more than a dozen other hospitals
for three months, and the entire healthcare staff was seconded to other hospitals
around New York City. Had there been problems with the culture or the level of
commitment to the institution, this upheaval could easily have resulted in a dra-
matic loss of the best staff to their new host institutions. Instead, NYU Langone
experienced 100 percent staff retention through this difcult period, undoubt-
edly aided by its decision to keep all staff on full salary throughout the closures
(a move that astounded the unions).
Restoring all services quickly and retaining all staff at a cost of millions of
dollars would not have been possible if Grossman and the senior team had not
fundamentally strengthened the institution over the previous ve years. If any-
thing, the crisis actually galvanized further improvements. Despite all the disrup-
tion, the following year NYU Langone ranked rst in quality and patient safety
among all academic medical centers, according to the University HealthSystem
Consortium 2013 Quality and Accountability Study. Meanwhile, by making
an innovative settlement with the federal government, the devastated emergency
department closed for 18 months to undergo a thorough expansion and upgrade.
An Organization Transformed
At the heart of the NYU Langone transformation was Grossmans legitimacy as
a leader. He held himself to the same aspirations and high standards he applied
to the organization. He consistently relied on data to measure performance and
essay healthcare
strategy+business issue 87
ATTACK
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WITH BOLD
NEW STRATEGIES
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they can immediately apply to complex problems. Led by
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help your team overcome its toughest challenges.
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Open enrollment courses,
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programs for your organization
essay technology
TECHNOLOGY
44
Winning with
Digital Condence
The right mix of talent, innovation,
and experience will help your company
master emerging technology.
box), whether physically or virtually, so each can observe how the others work.
Such teams encourage interaction, collaboration, freedom, and safety among a
diverse group of individuals. Rather than working in isolation or only with peer
groups, members develop a common working language that allows for the seam-
less collaboration and increased efciency vital to moving at the speed of technol-
ogy. And this approach avoids the typical workplace dysfunction that comes with
breaking down silos: Because business issues are no longer isolated within one
discipline, but rather intertwined across many, colleagues from disparate parts
of the organization are able to better understand one another and collaborate to
48
come up with creative solutions.
Part product development, part project management, the sandbox ap-
proach enables your workforce to visualize the journey from conception to
prototype to revelation in one continuous image, helping spread innovation
throughout the organization. The culture of collaboration can speed adoption
of emerging technologies.
For example, this approach enabled the Make-A-Wish Foundation to bring
employees together from across the organization, including some whose role in
developing a new tech-based feature may not have been obvious, such as a tax
expert and a lawyer. In just three months, using this approach, the foundation
created and operationalized a crowdfunding platform to benet sick children.
Solving for X
At United Airlines, Ravi Simhambhatla, vice president of commercial technol-
ogy and corporate systems, views digital innovation as a way to break free from
essay technology
habits ingrained in his company over nine decades because they are no longer
relevant to its customers and employees. The company plans to use machine
learning to create personalized experiences for its customers. For example, when
someone books a ight to San Francisco, its algorithm will know if that person
is a basketball fan and, if so, offer Golden State Warriors tickets. What we have
been doing is really looking at our customer and employee journeys with regard
to the travel experience and guring out how we can apply design thinking to
those journeys, says Simhambhatla. And as we map out these journeys, we are
focused on imagining how, if we had a clean slate, we would build them today.
51
With the right digital skills and capabilities comes great opportunity to
improve the experience of both your employees and your customers. One con-
stant that emerges from 10 years of Digital IQ surveys is that companies that
focus on creating better user experiences report stronger nancial performance.
But all too often, user experience is pushed to the back burner of digital priori-
ties. Just 10 percent of respondents to this years survey ranked creating better
customer experiences as their top priority, down from 25 percent a year ago.
This imbalance between respondents focus on experience and its importance
to both customers and employees has far-reaching effects. It creates problems
in the marketplace, slows the assimilation of emerging technologies, and hin-
ders the ability of organizations to an-
Companies that create ticipate and adapt to change.
better user experiences Part of the reason user experience
ranks as such a low priority is the fact
report stronger nancial
that CEOs and CIOs, the executives
performance. who most often drive digital transfor-
mation, are much less likely to be re-
sponsible for customer-facing services and applications than for digital strategy
investments. As a result, they place a higher priority on revenue growth and
increased protability than on customer and employee experiences. However,
user experience is also downgraded because getting it right is extremely dif-
cult. It is expensive, outcome focused as opposed to deadline driven, and
fraught with friction.
However, unlike so many other aspects of technological change, how or-
essay technology
execed.wharton.upenn.edu/ connect
essay technology
up their sleeves, work with us, and build solutions rapidly within our new, open
network, says Visas Sondhi. The aim is to match the speed and simplicity of
todays social- and mobile-rst worlds by ideating with clients to quickly deploy
new products into the marketplace in weeks instead of months or quarters.
Across industries, company leaders have clearly bought into the importance
of digital transformation: Sixty-eight percent of our respondents said their CEO
is a champion for digital, up from just one-third in 2007. Thats a positive devel-
opment. But now executives need
to move from being champions to Sixty-eight percent of
54
leading a company of champions. our respondents said
Understanding what drives your
their CEO is a champion
customers and employees success
and how your organization can ap-
for digital, up from just
ply digital technology to facilitate it one-third in 2007.
with a exible, sustainable approach
to innovation will be the deeper meaning of Digital IQ in the next decade.
Its the blend that makes the magic, says GE Healthcares Zimmerman.
Its the high-impact technological innovations, plus the customer opportunities,
plus the talent. You have to nd a way to blend those things in a way that the
markets can absorb, adopt, and gain value from in order to create a sustainable
virtuous cycle. +
Reprint No. 17206
55
Entertainment and
Media Businesses
Fan-tastic
Capturing the strategic advantages of fan-centric
Illustration by Lars Leetaru
by Christopher Vollmer
essay marketing, media & sales
T
o promote Mr. Robot, a dystopian video series about hacker culture on
the USA Network starring Christian Slater, NBCUniversal recognized
it needed a new playbook for audience development that went well be-
yond linear TV. To forge a passionate following of tech-savvy millen-
nials, it created original content for Facebook Live, Reddit, Snapchat, YouTube,
and Twitch, Amazons platform for gamers. The network also developed a virtual
reality simulcast for San Diego Comic-Con 2016, and created a Mr. Robot experi-
ence in a Manhattan storefront where visitors could hack an Evil Corp ATM
machine. What did these efforts have in common? They all encouraged Mr. Ro-
56
bot viewers to stay connected with storylines and characters in the environments
where viewers desired that emotional and social connectivity. These experiences
thus turned viewers into fans, and fans into zealots.
An entertainment and media (E&M) offering today simply cannot thrive
without the economic, social, and emotional power of fans. Devoted followers are
as critical to feature lms, video games, and sports teams as they are to Mr. Robot.
Premium content is expensive, and getting more so. Distribution is a brutal battle
for shelf space where only brands that are most wanted can hope to win. The
steady march of digital technology has ushered in a direct-to-consumer environ-
ment characterized by greater choice and user control. There is simply too much
competition for users to allow E&M businesses to survive on experiences that
cater to casual eyeballs or infrequent users.
In todays hypercompetitive landscape, entertainment and media business-
es designed around and for fans command multiple strategic advantages. They
know more about who their users are, what they want, and how and where to
deliver it. Fans spend more per capita and are less likely to churn. Todays fans
recruit tomorrows.
To regularly make the kind of transition exemplied by NBCUniversals
Mr. Robot, E&M companies need to orient themselves around fans. They need
capabilities that help them operate in new, more exible ways across content,
strategy+business issue 87
distribution, and user experience. They must become fan-centric. The good
news is that they can accomplish all these objectives by focusing on ve key
functions: user/fan insight, content and experiences, distribution, monetiza-
tion, and operations.
essay marketing, media & sales
User/Fan Insight
As user behaviors rapidly evolve and consumption occurs across an ever-expand-
ing universe of distribution environments and platforms, companies with the
deepest, most direct insight into their fans have a decisive advantage. Unfor-
tunately, too many large E&M companies remain focused on analyzing out-
puts such as ratings, unique visitors, and time spent rather than drilling into the
functional, emotional, and social behaviors that translate into fandom for their
brands. And although most companies sit on a treasure trove of rst-party data,
few have organized their people, processes, and technology to mine those insights
57
into fan preferences at the necessary operational scale.
It is not surprising that fan insight capabilities have evolved most quickly in
the music industry. In the pre-digital era, top artists such as the Beatles and the
Grateful Dead recognized the value of interacting directly with fans and creating
fan communities (the Beatlemaniacs and the Dead Heads, for example). Through
their fan clubs, these bands learned about who their fans were, what they liked,
and where they lived. This continued focus helps explain why contemporary art-
ists such as Taylor Swift and Beyonc have been so successful in leveraging social
media to crack the code for fan development and fan activation.
Global music services such as Spotify show what is possible when fan insight
capabilities are more fully realized. Spotify has a database of more than 100 mil-
lion users, including 50 million paid subscribers, which provides information
about any artists listeners. The Spotify Fan Insights service enables artists to sort
through listening data and to zero in on their heavy listeners and sharers (i.e.,
their fans) versus their more casual consumers. Then they can start building a
more powerful fan base.
Development of these powerful insight capabilities does not happen over-
night. Since 2014, Spotify has purchased three companies (the Echo Nest, Seed
Scientic, and Preact) to bolster its analytics capabilities and help it better under-
stand how casual users can morph into higher-value fans (subscribers).
percent or more of that franchises overall business value. Content efforts there-
fore must prioritize initiatives aimed at super-serving them deepening engage-
ment with avid fans and simultaneously extending the brands and franchises
associated with these passionate fans into new areas.
Avid fans cannot get enough of the content they love. They binge on it.
They share it. They talk and post about it. They create more of it. They might
watch The Americans, a spy drama on FX, and then listen to Slates podcast about
each episode. Avid fans will seek out content-fueled interactions across a diver-
sity of experiences, provided those interactions ignite and fuel their emotional
58
connection with, say, a sports team, a lm, or a video game. For many fans, the
quality of these experiences is further amplied when it translates into social
connections; fan-to-fan relationships; and active communities united by shared
passions, values, and interests.
In recent years, the National Football League has placed growing strategic
emphasis on its own media assets, including the NFL Network, a 24/7 pay-TV
network that has become a US$1 billion business. Providing blanket coverage
of events such as the draft and the NFL combine, the NFL Network enables
fans to indulge their passion for football year round. The NFLs RedZone pay-
TV channel, which allows fans to watch the most exciting plays of every game,
further feeds the voracious appetites of fantasy football acionados who follow
players on multiple teams. These committed fans now have more football to
consume than ever before, they are watching more and spending more, and
they are more engaged.
The New York Times Companys subscription-rst growth strategy is
aimed at expanding its roster of subscribers from the current 3 million to 10 mil-
lion. In effect, this is a fan-rst strategy. It emphasizes super-serving users who
are regular readers and most willing to pay for a print or digital subscription and
who create the most value for advertisers.
strategy+business issue 87
Distribution
As user behavior and content consumption especially among younger users
trend more toward social media, mobile devices, and streaming, E&M com-
panies have to adapt to ensure they are building and strengthening their fan
essay marketing, media & sales
bases. For many players, this means developing powerful owned and operated
showcase destinations, and designing experiences on partner platforms that grow
and deepen the fan base.
E&M companies can take some pointers from luxury brands. The products
of Burberry can be found at such global retailers as Saks Fifth Avenue, Harrods,
and KaDeWe. However, the fully expressed world of Burberry can be experi-
enced only at the companys global agship store in London, Burberry Regent
Street. At Burberry Regent Street, which opened in 2012, consumers can shop
the companys full lines for men, women, and children. The store also curates
59
events featuring new creators in music, lm, theater, and art. Burberry has used
Regent Street to pilot innovations, including interactive displays and mobile apps
that deliver in-store notications and offers.
This showcase approach to owned distribution is relevant for en-
tertainment and media brands that, like Burberry, possess a critical mass of pas-
sionate fans who will reward the richest, deepest experience with their time and
money. The WWE Network, World Wrestling Entertainments subscription
video on demand (SVOD) product, with 1.5 million subscribers, is a compel-
ling illustration of how a media company can add a premium distribution plat-
form to its arsenal while furthering relationships with distribution partners such
as NBC-Universal, Facebook, and YouTube. This service has become WWEs
preferred home for popular pay-per-view events such as WrestleMania, along
with new series including 205 Live and WWE Fastlane as well as archival con-
tent. The WWE network is now the second-largest specialty SVOD network,
after Major League Baseballs MLB.TV.
Even the largest, most well-regarded E&M content brands need the distribu-
tion scale that third parties can generate. Companies should thoughtfully select
distribution partners that can create robust fan value versus lower-value eyeballs.
The distribution partner needs to deliver concentrated reach efciently in terms
of either avid fans (therefore resulting in incremental engagement) or convertible
fans (casual users who can be cultivated into avid fans). The partner ideally also
shares information on users and fans to help further inform business as well as
creative decision making.
As noted, with Mr. Robot, NBCUniversals USA Network has strategical-
essay marketing, media & sales
Monetization
Companies that build fan bases have to be able to capture their premium value
effectively. Given that fans engage across many properties and feel increasingly
60
skittish when content and advertising are out of context, E&M companies have
to become more sophisticated with respect to data, segmentation and measure-
ment, and technology to succeed commercially. Selling fans, after all, has differ-
ent requirements than selling eyeballs. Companies must develop sales structures,
processes, and decision rights that extend not only across a companys entire port-
Romans Aqueducts
Strategy that works
builds empires.
strategy+business issue 87
2017 PwC. PwC refers to the PwC network and/or one or more of its member
rms, each of which is a separate legal entity. See www.pwc.com/structure.
essay marketing, media & sales
folio, but also into business partners properties. Sales teams need to know how
to translate the factors that drive relevance and emotional connection with their
fans into compelling t-for-purpose solutions for their marketing customers.
Finally, sales teams must ensure that their advertising and promotional efforts
amplify the quality and intensity of a fans experience.
Several entertainment and media players companies such as NBCUniver-
sal, Time Warners Turner, Viacom, and, more recently, Disney have reimag-
ined their advertising sales capabilities to take better advantage of their audience
scale across brands and screens through new combinations of data, technology,
61
and advertising products. This approach is also enabling these companies to move
away from their historical focus of selling specic shows, dayparts, networks, and
brands, and toward selling fan-based segments. Over time, this should lead to
fewer but higher-impact ad executions, less clutter, and less waste beneting
fans, marketers, and the media properties.
2017 PwC. PwC refers to the PwC network and/or one or more of its member
rms, each of which is a separate legal entity. See www.pwc.com/structure.
essay marketing, media & sales
2017 PwC. PwC refers to the PwC network and/or one or more of its member
rms, each of which is a separate legal entity. See www.pwc.com/structure.
essay marketing, media & sales
such stalwarts as Glamour (and its Women of the Year Awards franchise) and
newcomers such as Pitchfork, which specializes in music festivals views live
events as an attractive mechanism by which to bring leading personalities togeth-
er with avid fans while increasing its revenues. The potential benets: more rev-
enue via sponsorship and ticket sales, new sources of rst-party data that support
fan development efforts for its brands, better solutions for advertisers through
improvements to activation, and stronger social distribution and fan recruitment
achieved by tapping into avid fans social networks.
With advertisers as well as distribution partners, sales teams must act
63
more like strategic consultants than traditional sellers to design and execute
the collaboration models and client-oriented solutions required by working
with third parties. Internally, they need to team more seamlessly across func-
tions. In most cases, these requirements will profoundly change the prole of
what constitutes the ideal sales leader and sales team. How well companies ex-
2017 PwC. PwC refers to the PwC network and/or one or more of its member
rms, each of which is a separate legal entity. See www.pwc.com/structure.
essay marketing, media & sales
ecute this transformation of the sales function will play a decisive role in their
future success.
Operations
The fth and nal key function E&M companies will have to pursue involves
operations. The highest-performing companies tightly link revenue and cost
agendas. As this industry transitions to a direct-to-consumer world, senior execu-
tives need to (1) focus on what they do best in terms of serving fans, (2) align
their cost structure, and (3) organize their operations accordingly. To win with
64
fans, E&M companies must get t for growth growth that is both protable
and sustainable.
Reallocating resources in order to grow is a difcult task that requires mak-
ing tough choices and wrenching trade-offs. Will these changes make a differ-
ence for fans? Answering this question has to be the starting point for identifying
any signicant alterations or improvements to company operations. Not every-
thing companies do creates meaningful differentiation with fans or, secondarily,
with marketing or distribution partners.
Today, brands and products that are not heavily populated by avid fans are
essentially commodities. Consider the many zombie pay-TV networks with low
ratings, sustained primarily by an aging video bundle that fewer distributors and
consumers appear prepared to support.
Going forward, the preferential economics of fan-centric businesses com-
bined with the necessity for both better internal collaboration within compa-
ny portfolios and more holistic external relationships with partners will compel
E&M companies to structure their operations in new ways. Business processes
across the enterprise can be designed to optimize both the cost-to-serve and fan
satisfaction, avoiding overserving casual users and underserving loyal fans. Any
activity that does not demonstrably improve fan value should be as lean and ef-
cient as possible and is therefore a potential candidate for automation, consolida-
strategy+business issue 87
tion, or outsourcing.
Todays fast-changing E&M landscape further rewards companies with su-
perior exibility and speed. All of these factors will drive companies to pursue
operational improvements in two areas: (1) process innovation and clustering of
essay marketing, media & sales
similar activities to increase fan scale and optimize variable costs in such areas as
sales, marketing, product development, and production; and (2) centralization,
outsourcing, and portfolio rationalization designed to attack xed costs in areas
such as G&A expenses and IT.
Future of Fans
Even in a period of disruption, some realities endure. The most valuable con-
stituents in the E&M industry are the active, loyal, and passionate fans. As the
industry transforms in response to the direct-to-consumer model, those compa-
65
nies that fully embrace a fan-centric approach to their business, functions, and
operating culture will emerge as the new leaders. +
Reprint No. 17207
Christopher Vollmer
christopher.vollmer@pwc.com
is PwCs global advisory leader
for entertainment and media.
He focuses on developing strate-
gies for revenue growth, building
digital businesses, and creating
innovative user experiences for
leading companies across media
and technology for Strategy&,
PwCs strategy consulting busi-
ness. Based in New York, he is a
principal with PwC US.
66
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201721
AI IS
ALREADY
ENTERTAINING
67
I
n the fall of 2016, a pop song was released in Japan.
Daddys Car, derivative of a Beatles tune, had a sooth-
ing beat and vaguely uplifting lyrics: Good day sun-
shine in the backseat car / I wish that road could never
stop. The ditty was distinctive for its authorship. Sonys
Computer Science Laboratories in Paris produced the song,
which was written by an articial intelligence (AI) system
called Flow Machines. The melody and harmony were com-
Illustration by John Hersey
Some members of the entertainment and media (E&M) industry have down-
played its potential. After all, these are creative industries in which both the
feature marketing, media & sales
germ of the business and the value added to it stem from the contribution of hu-
man ingenuity and people exchanging ideas. The most successful E&M prod-
ucts and services rely on connecting creative content, brands, and experiences
with audiences.
The more creative you are, the conventional wisdom holds, the more pro-
tected you are, or the less able you are to benet from the many advances in
technology. And skepticism seems justiable when it comes to the ability of ma-
chines to be truly creative. In PwCs Consumer Intelligence Series (CIS) survey,
24 percent of respondents said AI could, by 2025, create a Billboard Hot 100
68 song, but only 12 percent said it could write a New York Times bestseller and 7 per-
cent said it could win a Pulitzer.
And yet AI is already very much present in the creative industries, just as
it is exerting an inuence on nancial services, healthcare, manufacturing, and
most other industries. Which isnt surprising. Whether in the form of digitiza-
tion or social networking, the E&M industry has long had the necessary levels
of creativity, content, technology know-how, and consumer passion to kick-start
innovation. Throw in the low level of legal, nancial, and regulatory barriers
strategy+business issue 87
surrounding business models in entertainment and media, and you have a natu-
ral proving ground for new technologies.
Articial intelligence is starting to transform the role of creativity in
the factors of both production and customer experience. You can see the impact
IT IS POSSIBLE FOR AI TO REACH
DEEP INTO COMPANIES CORE
OPERATIONS TO FOSTER CREATIVITY
AND ORIGINALITY AT SCALE.
is an industrial advance on a par with the arrival of electricity its that big (see
Human vs. Machine).
Grappling with new technologies will be unavoidable for leaders because of
two important structural forces driving AI. First is the supply of new products,
services, and platforms. The typical persons media diet is, in effect, already de-
signed by computer-based nutritionists. Every day, millions of Spotify listeners
take their cues from AI-generated playlists. During one National Novel Genera-
tion Month (NaNoGenMo), coders wrote programs that, in turn, generated some
500 novels. For me, asking if a business can benet from AI is like asking if a
70 business can benet from the Internet, said one leader. It is that fundamental a
shift in technology. If you dont gure out how to use it and benet from it, you
are going to go out of business. Your competitors will destroy you.
Human vs. which clearly has the potential to dis- istrative support positions or bank
place labor. Our most recent PwC UK teller jobs. Rather than ghting the
Machine Economic Outlook suggests that up to process, companies should consider
38 percent of U.S. jobs and 30 percent devoting resources to skills training
H istorically, the advent of of U.K. jobs are at high risk of being for the many service and manufac-
strategy+business issue 87
powerful technologies has automated by the 2030s. We know turing workers who will be displaced
inspired equal doses of fear and that the most at risk jobs are those by machines, and preparing them for
hope. But something is particularly that are repetitive, process-driven, the new jobs that will emerge.
compelling and terrifying about AI, and rules-based, such as admin-
The second structural force is demand. The industry shift is being driven by
consumers desire to move to a world in which they have greater customization,
spontaneity, and personalization in the way they consume content, communicate,
and engage in commerce. More than half (55 percent) of millennials in the CIS
survey said they would like to select their media by curating a list that draws heav-
ily on AI recommendations, or simply have it selected altogether by a bot. The
acceleration of AI is arriving just in time to meet the demand for new forms of
digital experiences, to cope with the growing complexity of curating and accessing
digital media, and to address evolving concerns about security and privacy.
Thus considered, AI is both a strategic imperative and an immense opportu-
nity to improve efciency, create new and better user experiences and products,
free up human labor for more intense creative efforts, and contribute to value cre-
ation. It can be applied to all areas of corporate endeavor: process, monetization,
distribution, and creative work. To date, many companies have been in AI denial.
Some are beginning to experiment, focusing on specic activities (e.g., the back
ofce or customer service). Others are taking a strategic, organization-wide view.
But in order to make the most of AI, leaders have to learn to think more analyti-
cally about the challenges and opportunities at hand.
Grasping Opportunities
No single path is best for integrating AI into the E&M business. The key is to
understand the dimensions in which AI can aid, abet, optimize, enhance, and,
yes, occasionally replace human work and to learn from what companies are
Exhibit: The Creative Intelligence Matrix
Where you are depends on the targeted user (workers vs. consumers) and AIs role in
completing the task (full automation vs. working alongside people).
already doing. Next, prioritize the opportunities and assess whether your current
capabilities will allow you to pursue AI effectively. Doing so will either free up
resources or impose new requirements on you and your colleagues.
Drawing on our interviews with clients who are leading this work for their
organizations today, weve created an illustrative framework of organizing prin-
ciples for evaluating AI projects. This approach examines the use of AI tools
72 and strategies in two dimensions (see exhibit). One (the vertical axis) considers
whether the functions are aimed primarily at optimizing existing workows or
primarily at creating innovations in the consumer experience. The other (the
horizontal axis) considers whether the activities involve people working alongside
AI or whether the functions are fully automated. We should note that the as-
sumption typically applying to a 2x2 matrix, in which the lower left quadrant is
for underperformers and the upper right is home to the most evolved companies,
doesnt necessarily apply here. In fact, signicant business value can be derived
strategy+business issue 87
in each quadrant. Companies may have activities and initiatives that fall into
multiple quadrants. The level of investment in each quadrant depends on an or-
ganizations views about value creation and protection, its appetite for change, its
risk proles, and its ability to execute.
Freedom from Repetitive Tasks
Because of the availability of proven, off-the-shelf articial intelligence solutions,
many companies start in the lower left quadrant automating processes, often
in human resources and nance. Many media companies have lagged in putting
effective back-ofce processes and technology into place. Thus, the potential for
the application of AI is great. One U.K. media company that is a leader in the
exhibitions industry is experimenting with back-ofce automation, and expects
it will help the company boost margins from activities such as credit control and
customer acquisition.
But these efforts arent conned to the back ofce. Historically, the out-of-
home ad industry hasnt kept up with other media-buying trends. One of the
brands within a large ad holding company in Japan developed an AI-based solu-
tion for making purchasing decisions on out-of-home advertising locations, such
as billboards. By deploying bots, the unit has automated the online bidding pro-
cess for clients.
Efforts aimed at creating content can also fall into this quadrant. News
services (for example, the Associated Press) are now using AI platforms such as
Wordsmith to generate short articles that summarize a baseball game via sta-
tistics or that are based on the earnings reports of publicly held companies. A
movie studio has used IBMs Watson to create trailers. By watching an entire
lm and selecting six minutes worth of scenes, the AI solution can do in less
than 24 hours what normally takes 10 to 30 days. When Shelly Palmer, a lead-
ing media technology consultant, publishes his daily newsletter, he writes one
new article and algorithms aggregate additional articles (see The Thought
Leader Interview: Shelly Palmer, by Deborah Bothun and Art Kleiner, page
132). Next, AI generates four versions of the newsletter, one aimed at maxi-
mizing engagement, another at maximizing clicks, and so on. Programs then
mine data on subscribers to determine which of the four versions will be sent
to each recipient.
AI CAN WORK ALONGSIDE PEOPLE
TO CARRY OUT TASKS THAT ARE
COMPLEX YET REPEATABLE.
have arisen in previous campaigns, and which ad products and types of cam-
paigns will be especially compelling to the client.
One of the most powerful contributions AI can make is to shed light on
emerging preferences for people who are designing products intended to appeal
to large audiences. An advertising holding company in the U.S. has teamed up
with technology partners to develop a proprietary AI tool that scours social me-
dia platforms and delivers insights into what types of ads resonate with consum-
ers. Creative directors and writers thus approach the creative process with a better
handle on what might be expected to work well.
ers by cleaning up comments sections. On many news sites and social platforms,
it is difcult for humans to monitor the many comments being posted by readers
feature marketing, media & sales
and users. Using Googles Perceptive software, publishers such as the Economist
in the U.K. are able to leverage AI to intelligently lter comments. Empowered
by machine learning, computers can determine on their own which com-
ments dont meet a sites standards and can take them down.
Athletes can get instant measurements on key performance metrics for their
sport. The company also uses this information to provide richer, more interactive
viewing experiences for fans.
Tagasauris, a New Yorkbased media technology startup, has developed an-
notation programs that break television shows and lms down into shots and
scenes, and document key elements of the story (characters, themes, locations,
music, product placements, etc.). Its consumer-facing app connects events, peo-
ple, and locations in the show to real-world locations, actors, and social content.
This provides viewers a visual-rst deep dive into the drama as it unfolds epi-
sode to episode and season to season.
JD.com, a Chinese online retailer, has established an AI lab to investigate
perception and cognition with computer learning algorithms. The results will be
applied to face recognition and text and image searching. But the rst use will be
a virtual reality tting room for customers to try on clothing and other products.
Organizing for AI
The universe in which AI operates is a uid one. Your company may easily nd
itself engaged in activities in every quadrant of this matrix. Some of the apps on
your phone today are purely for work, some are purely for play, and some are use-
ful for both. The same holds true for AI. This framework should help you under-
stand what are the best areas in which to launch AI pilots, where the low-hanging
fruit is, and what it will take to move AI opportunities forward in the near term.
Before you start, its important to have a handle on the maturity of the AI tech-
nology you will be dealing with. Theres a vast difference between chatbots and
Shaping Strategy
As shown by the many examples above, AI is here now for the E&M industry.
If you are an executive in the industry, the good news is that many of these ele-
ments are within your reach already. Others will require signicant investment
and a leap of faith. Making progress in any quadrant of our matrix will require
targeted investment, as well as some fundamental changes in how you work, and
feature marketing, media & sales
how you organize to do that work. E&M companies must evolve from the long-
standing organizational architectures and mind-sets that support a massive vol-
ume of repetitive, rules-based work.
The case for hiring AI into the business is compelling, whether the goal is to
have AI work alongside key professionals or to take over certain tasks and func-
tions entirely. The same IT revolution that has made AI possible is increasing the
necessity to use it. As organizations expand into new markets, they are getting
more complex, engaging with ever-longer supply chains, and confronting a variety
of regulatory regimes. The volume of unstructured data that companies are gener-
78 ating and absorbing is rising at an exponential rate. Every tweet, every transaction,
every post on social media, every view of a video all these actions create data
that needs to be managed and begs to be mined for advantage. Companies con-
nections with their consumers, and with their partners and employees, have like-
The AI rst phase, assisted, humans make decisions: Think of Netix recom-
all the decisions, but AI reduces the mendations based on past behavior
Maturity Curve costs of labor-intensive rules-based and user review. The third stage is
tasks: Think of Google Gmails self- autonomous, in which people set the
strategy+business issue 87
AI fall into two broad categories: data and organizational (see Checklist of Criti-
cal Success Factors). At its root, AI rests on the ability of people and machines to
feature marketing, media & sales
collect, manage, mine, analyze, and secure staggering amounts of data. Compa-
nies need to attract data and computer scientists. And once those specialists are on
board, to succeed in todays competitive dynamics, companies must retain and em-
power them. They have to invest to create what our PwC colleague Todd Supplee
calls data factories: systems that can combine data from proprietary, third-party,
and public- and partner-generated sources and extract value. While doing so, they
must build the capacity for data governance and be sensitive to norms, regulations,
and expectations surrounding transparency and privacy. In our CIS survey, 47 per-
cent of respondents said they were unwilling to allow their online entertainment
80 and media consumption to be tracked, even if it would lower their costs.
Resources
Deborah Bothun and John Sviokla, Youre a Media Company. Now What? s+b, June 7, 2016: Four strategies that work in this dynamic new world.
Lauren Johnson, How 4 Agencies Are Using Articial Intelligence as Part of the Creative Process, Adweek, Mar. 22, 2017: A look at some early
disruptions in the advertising industry.
Joe Keohane, What News-Writing Bots Mean for the Future of Journalism, Wired, Feb. 16, 2017: How the Washington Post and others are using auto-
mated systems to cover the news.
Frank Rose, The Power of Immersive Media, s+b, Feb. 9, 2015: The most successful advertising today convincingly takes on the qualities of real experience.
Todd Supplee and Alex Mannella, Quantifying Entertainment, s+b, Jan. 26, 2017: How the science of big data analytics can contribute to the art of
producing movie and TV content.
More thought leadership on this topic: strategy-business.com/marketing_media_sales
82
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201721
A STRATEGISTS
GUIDE TO
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ARTIFICIAL
INTELLIGENCE
As the conceptual side of computer science
becomes practical and relevant to business, companies
must decide what type of AI role they should play.
BY ANAND RAO
83
If a rainy cold front is expected to pass by, Heepke knows which areas to avoid
watering or irrigating that afternoon. As the U.S. Department of Agriculture
feature technology
noted, this use of articial intelligence across the industry has produced the larg-
est crops in the countrys history.
Climate Corporation, the Silicon Valleybased developer of Climate Basic,
also offers a more advanced AI app that operates autonomously. If a storm hits
a region, or a drought occurs, it adjusts local yield numbers downward. Farm-
ers who have bought insurance to supplement their government coverage get a
check; no questions asked, no paper ling necessary. The insurance companies
and farmers both benet from having a much less labor-intensive, more stream-
lined, and less expensive automated claims process.
84 Monsanto paid nearly US$1 billion to buy Climate Corporation in 2013,
giving the companys models added legitimacy. Since then, Monsanto has con-
tinued to upgrade the AI models, integrating data from farm equipment and sen-
sors planted in the elds so that they improve their accuracy and insight as more
data is fed into them. One result is a better understanding of climate change and
its effects for example, the northward migration of arable land for corn, or the
increasing frequency of severe storms.
Applications like this are typical of the new wave of articial intelligence in
strategy+business issue 87
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ligence, but are not yet poised to take advantage of it. In PwCs 2017 Digital
IQ survey of senior executives worldwide, 54 percent of the respondents said
they were making substantial investments in AI today. But only 20 percent said
their organizations had the skills necessary to succeed with this technology (see
Winning with Digital Condence, by Chris Curran and Tom Puthiyama-
dam, page 44).
Reports on articial intelligence tend to portray it as either a servant, mak-
ing all technology more responsive, or an overlord, eliminating jobs and de-
stroying privacy. But for business decision makers, AI is primarily an enabler
of productivity. It will eliminate jobs, to be sure, but it will also fundamentally 85
change work processes and might create jobs in the long run. The nature of
decision making, collaboration, creative art, and scientic research will all be
affected; so will enterprise structures. Technological systems, including poten-
tially your products and services, as well as your ofce and factory equipment,
will respond to people (and one another) in ways that feel as if they are coming
to life.
In their book Articial Intelligence: A Modern Approach (Pearson, 1995), Stu-
art Russell and Peter Norvig dene AI as the designing and building of intel-
ligent agents that receive percepts from the environment and take actions that
affect that environment. The most critical difference between AI and general-
purpose software is in the phrase take actions. AI enables machines to respond
on their own to signals from the world at large, signals that programmers do not
directly control and therefore cant anticipate.
The fastest-growing category of AI is machine learning, or the ability of
software to improve its own activity by analyzing interactions with the world at
large (see The Road to Deep Learning, page 88). This technology, which has
been a continual force in the history of computing since the 1940s, has grown
dramatically in sophistication during the last few years.
News aggregation software, for example, had long relied on rudimentary AI
feature technology
instance, GMs 2016 Chevrolet Malibu feeds data from sensors into a backseat
driverlike guidance system for teenagers at the wheel.
Despite all this activity, the market for AI is still small. Market research
rm Tractica estimated 2016 revenues at just $644 million. But it expects hock-
ey stickstyle growth, reaching $15 billion by 2022 and accelerating thereafter.
In late 2016, there were about 1,500 AI-related startups in the U.S. alone, and
total funding in 2016 reached a record $5 billion. Google, Facebook, Microsoft,
Salesforce.com, and other tech companies are snapping up AI software compa-
nies, and large, established companies are recruiting deep learning talent and,
like Monsanto, buying AI companies specializing in their markets. To make the
most of this technology in your enterprise, consider the three main ways that
businesses can or will use AI:
Assisted intelligence, now widely available, improves what people and or-
ganizations are already doing.
Augmented intelligence, emerging today, enables organizations and peo-
ple to do things they couldnt otherwise do.
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Autonomous intelligence, being developed for the future, creates and de-
ploys machines that act on their own.
Many companies will make investments in all three during the next few
years, drawing from a wide variety of applications (see Exhibit 1). They comple-
ment one another, but require different types of investment, different stafng
considerations, and different business models.
Self-driving
Mobility Robotaxis Self-navigating drones
vehicles
Then, as high-bandwidth networking, the inference capabilities necessary word articial, and several sugges-
cloud computing, and high-powered for AI programs to navigate through tions for the next word will appear,
graphics-enabled microprocessors the complexities of everyday life. In perhaps intelligence, selection, and in-
emerged, researchers began build- both, programs learn from experi- semination. No one has programmed
ing multilayered neural networks ence that is, the responses and it to seek those complements. Google
still extremely slow and limited in reactions they get inuence the way chose the strategy of looking for the
comparison with natural brains, but the programs act thereafter. The rst three words most frequently typed
useful in practical ways. approach uses conditional instruc- after articial. With huge amounts of
The best-known AI triumphs tions (also known as heuristics) to
in which software systems beat accomplish this. For instance, an AI (continued on next page)
88 Assisted Intelligence
Assisted intelligence amplies the value of existing activity. For example, Googles
Gmail sorts incoming email into Primary, Social, and Promotion default
tabs. The algorithm, trained with data from millions of other users emails,
makes people more efcient without changing the way they use email or altering
the value it provides.
Assisted intelligence tends to involve clearly dened, rules-based, repeatable
tasks. These include automated assembly lines and other uses of physical robots;
strategy+business issue 87
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ceiving and processing customer orders), the software offers guidance and direc-
tion that was formerly available only from people.
The Oscar W. Larson Company used assisted intelligence to improve its
eld service operations. This is a 70-plus-year-old family-owned general contrac-
tor, which among other services to the oil and gas industry, provides mainte-
nance and repair for point-of-sales systems and fuel dispensers at gas stations.
One costly and irritating problem is truck rerolls: service calls that have to be
rescheduled because the technician lacks the tools, parts, or expertise for a par-
ticular issue. After analyzing data on service calls, the AI software showed how
to reduce truck rerolls by 20 percent, a rate that should continue to improve as 89
the software learns to recognize more patterns.
Assisted intelligence apps often involve computer models of complex realities
that allow businesses to test decisions with less risk. For example, one auto man-
ufacturer has developed a simulation of consumer behavior, incorporating data
about the types of trips people make, the ways those affect supply and demand
for motor vehicles, and the variations in those patterns for different city topolo-
gies, marketing approaches, and vehicle price ranges. The model spells out more
than 200,000 variations for the automaker to consider and simulates the potential
success of any tested variation, thus assisting in the design of car launches. As the
automaker introduces new cars and the simulator incorporates the data on out-
comes from each launch, the models predictions will become ever more accurate.
(continued from previous page) cessing thousands of images, it translation, and vehicle navigation
data available, machine learning can recognizes objects based on a (see Exhibit A).
provide uncanny accuracy about pat- hierarchy of simpler building blocks: Though it is the closest ma-
terns of behavior. straight lines and curved lines at chine to a human brain, a deep learn-
The type of machine learn- the basic level, then eyes, mouths, ing neural network is not suitable for
ing called deep learning has become and noses, and then faces, and then all problems. It requires multiple pro-
increasingly important. A deep learn- specic facial features. Besides cessors with enormous computing
ing system is a multilayered neural image recognition, deep learning power, far beyond conventional IT
network that learns representations appears to be a promising way to architecture; it will learn only by
of the world and stores them as a approach complex challenges such processing enormous amounts of
nested hierarchy of concepts many as speech comprehension, human data; and its decision processes are
layers deep. For example, when pro- machine conversation, language not transparent.
Banking
feature technology
Detect suspicious ATM activity on Process footage along with images from other available
video footage from all branches law enforcement data banks; extract images related to
suspicious activities
Insurance Compute automobile insurance Establish heuristics for basic claims analysis; train claims
claims costs directly from accident system to analyze accident images and, based on
images submitted by policyholders heuristics, classify accidents by severity of damage and
cost of damaged parts
Healthcare Automatically identify potential Deploy a deep learning system, trained to analyze and
abnormalities in CT scans, MRI scans, categorize large volumes of images; join the pool of
x-rays, and other diagnostic images diagnostic labs contributing images to the system for
large-scale pattern recognition
Automobiles Identify most appealing marketing Build a database that incorporates auto sales data and
attributes, such as stylishness, assigns attributes to each model
acceleration speed, and roominess
Government Detect and prevent cyberattacks Create an autonomous system operating on multiple
agency Internet portals and gateways, one that
monitors keystrokes, recognizes typing patterns linked
to past intrusions, isolates potential intruders, and
alerts human investigators
90
Source: PwC analysis
AI-based packages of this sort are available on more and more enterprise
software platforms. Success with assisted intelligence should lead to improve-
ments in conventional business metrics such as labor productivity, revenues or
margins per employee, and average time to completion for processes. Much of
strategy+business issue 87
the cost involved is in the staff you hire, who must be skilled at marshaling and
interpreting data. To evaluate where to deploy assisted intelligence, consider two
questions: What products or services could you easily make more marketable if
they were more automatically responsive to your customers? Which of your cur-
rent processes and practices, including your decision-making practices, would be
more powerful with more intelligence?
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Augmented Intelligence
Augmented intelligence software lends new capability to human activity, per-
mitting enterprises to do things they couldnt do before. Unlike assisted intel-
ligence, it fundamentally alters the nature of the task, and business models
change accordingly.
For example, Netix uses machine learning algorithms to do something
media has never done before: suggest choices customers would probably not have
found themselves, based not just on the customers patterns of behavior, but on
those of the audience at large. A Netix user, unlike a cable TV pay-per-view 91
customer, can easily switch from one premium video to another without pen-
alty, after just a few minutes. This gives consumers more control over their time.
They use it to choose videos more tailored to the way they feel at any given mo-
ment. Every time that happens, the system records that observation and adjusts
its recommendation list and it enables Netix to tailor its next round of vid-
eos to user preferences more accurately. This leads to reduced costs and higher
prots per movie, and a more enthusiastic audience, which then enables more
investments in personalization (and AI). Left outside this virtuous circle are con-
ventional advertising and television networks. No wonder other video channels,
such as HBO and Amazon, as well as recorded music channels such as Spotify,
have moved to similar models.
ALGORITHMS WILL LINK SCENES
TO AUDIENCE EMOTIONS. A CONSUMER
MIGHT ASK TO SEE ONLY SCENES
WHERE A MERYL STREEP CHARACTER
IS FALLING IN LOVE.
tices. The unit of viewing decision will probably become the scene, not the
story; algorithms will link scenes to audience emotions. A consumer might
ask to see only scenes where a Meryl Streep character is falling in love, or to
trace a particular type of swordplay from one action movie to another. Data
accumulating from these choices will further rene the ability of the enter-
tainment industry to spark peoples emotions, satisfy their curiosity, and gain
their loyalty.
Another current use of augmented intelligence is in legal research. Though
most cases are searchable online, nding relevant precedents still requires many
92 hours of sifting through past opinions. Luminance, a startup specializing in le-
gal research, can run through thousands of cases in a very short time, providing
inferences about their relevance to a current proceeding. Systems like these dont
yet replace human legal research. But they dramatically reduce the rote work
conducted by associate attorneys, a job rated as the least satisfying in the United
States. Similar applications are emerging for other types of data sifting, includ-
ing nancial audits, interpreting regulations, nding patterns in epidemiological
data, and (as noted above) farming.
strategy+business issue 87
To develop applications like these, youll need to marshal your own imagi-
nation to look for products, services, or processes that would not be possible at
all without AI. For example, an AI system can track a wide number of prod-
uct features, warranty costs, repeat purchase rates, and more general purchasing
metrics, bringing only unusual or noteworthy correlations to your attention. Are
a high number of repairs associated with a particular region, material, or line of
feature technology
products? Could you use this information to redesign your products, avoid re-
calls, or spark innovation in some way?
The success of an augmented intelligence effort depends on whether it has
enabled your company to do new things. To assess this capability, track your
margins, innovation cycles, customer experience, and revenue growth as poten-
tial proxies. Also watch your impact on disruption: Are your new innovations
doing to some part of the business ecosystem what, say, ride-hailing services are
doing to conventional taxi companies?
You wont nd many off-the-shelf applications for augmented intelligence.
They involve advanced forms of machine learning and natural language pro- 93
cessing, plus specialized interfaces tailored to your company and industry. How-
ever, you can build bespoke augmented intelligence applications on cloud-based
enterprise platforms, most of which allow modications in open source code.
Given the unstructured nature of your most critical decision processes, an aug-
mented intelligence application would require voluminous historical data from
your own company, along with data from the rest of your industry and related
elds (such as demographics). This will help the system distinguish external fac-
tors, such as competition and economic conditions, from the impact of your
own decisions.
The greatest change from augmented intelligence may be felt by senior deci-
sion makers, as the new models often give them new alternatives to consider that
AUGMENTED INTELLIGENCE SYSTEMS
DONT YET REPLACE HUMAN LEGAL
RESEARCH. BUT THEY DRAMATICALLY
REDUCE THE ROTE WORK CONDUCTED
BY ASSOCIATE ATTORNEYS.
dont match their past experience or gut feelings. They should be open to those
alternatives, but also skeptical. AI systems are not infallible; just like any human
feature technology
guide, they must show consistency, explain their decisions, and counter biases,
or they will lose their value.
Autonomous Intelligence
Very few autonomous intelligence systems systems that make decisions with-
out direct human involvement or oversight are in widespread use today. Early
examples include automated trading in the stock market (about 75 percent of
Nasdaq trading is conducted autonomously) and facial recognition. In some cir-
cumstances, algorithms are better than people at identifying other people. Other
94 early examples include robots that dispose of bombs, gather deep-sea data, main-
tain space stations, and perform other tasks inherently unsafe for people.
The most eagerly anticipated forms of autonomous intelligence self-driv-
ing cars and full-edged language translation programs are not yet ready for
general use. The closest autonomous service so far is Tencents messaging and
social media platform WeChat, which has close to 800 million daily active us-
ers, most of them in China. The program, which was designed primarily for
use on smartphones, offers relatively sophisticated voice recognition, Chinese-to-
strategy+business issue 87
feature technology
that engineers cant process it all; thus, Boeing has announced a $7.5 million
partnership with Carnegie Mellon University, along with other efforts to develop
AI systems that can, for example, predict when airplanes will need maintenance.
Autonomous intelligences greatest challenge may not be technological at all
it may be companies ability to build in enough transparency for people to trust
these systems to act in their best interest.
First Steps
As you contemplate the introduction of articial intelligence, articulate what mix
of the three approaches works best for you. 95
Are you primarily interested in upgrading your existing processes, reduc-
ing costs, and improving productivity? If so, then start with assisted intelligence,
probably with a small group of services from a cloud-based provider.
Do you seek to build your business around something new responsive
and self-driven products, or services and experiences that incorporate AI? Then
pursue an augmented intelligence approach, probably with more complex AI ap-
plications resident on the cloud.
Are you developing a genuinely new technology? Most companies will
be better off primarily using someone elses AI platforms, but if you can justify
building your own, you may become one of the leaders in your market.
The transition among these forms of AI is not clean-cut; they sit on a contin-
uum. In developing their own AI strat- Exhibit 2: Steps in Adopting Artificial Intelligence
egy, many companies begin somewhere
1. Develop an AI strategy aligned with your overall
between assisted and augmented, while business strategy
Integrate AI into your existing digital and analytics plans
expecting to move toward autonomous Decide which businesses to disrupt and which to enhance
eventually (see Exhibit 2). Consider new business models based on improved productivity
Plan long-term investments in autonomous intelligence
Though investments in AI may
2. Develop an enterprise-wide AI capability
seem expensive now, the costs will de- Redesign products and services to incorporate machine learning
cline over the next 10 years as the soft- Use AI to upgrade your most critical distinctive capabilities
feature technology
pricing model to be introduced: a free Set up governance structures to monitor possible errors and
problems (for example, overreach in program trading)
(or freemium model) for simple activi- Set up communications practices to explain AI-related decisions
Consider the impact on employment and invest in developing
96 ties, and a premium model for discrete, the workforce that AI will complement
(and deep learning pioneer) Andrew Ng recently said, AI is the new electricity,
meaning that it will be found everywhere and create new jobs that werent imag-
inable before its appearance.
At the same time that AI threatens the loss of an almost unimaginable num-
ber of jobs, it is also a hungry, unsatised employer. The lack of capable talent
people skilled in deep learning technology and analytics may well turn out to
feature technology
be the biggest obstacle for large companies. The greatest opportunities may thus
be for independent businesspeople, including farmers like Jeff Heepke, who no
longer need scale to compete with large companies, because AI has leveled the
playing eld.
It is still too early to say which types of companies will be the most success-
ful in this area and we dont yet have an AI model to predict it for us. In the
end, we cannot even say for sure that the companies that enter the eld rst will
be the most successful. The dominant players will be those that, like Climate
Corporation, Oscar W. Larson, Netix, and many other companies large and
small, have taken AI to heart as a way to become far more capable, in a far more 97
relevant way, than they otherwise would ever be. +
Reprint No. 17210
Resources
Raman Chitkara, Anand Rao, and Devin Yaung, Leveraging the Upcoming Disruptions from AI and IoT, PwC, 2017: Together, these two technolo-
gies will have as great an impact as the personal computer did.
Lawrence M. Fisher, Siri, Who Is Terry Winograd? s+b, Jan. 3, 2017: For 40 years, the Stanford professor has steered the increasingly complex and
meaningful interactions between humans and computers.
Art Kleiner and John Sviokla, The Thought Leader Interview: GEs Bill Ruh on the Industrial Internet Revolution, s+b, Feb. 1, 2017: View from
inside one of the leading AI platform creators.
Michael Specter, Climate by Numbers: Can a Tech Firm Help Farmers Survive Global Warming? New Yorker, Nov. 11, 2013: Compelling article on
Climate Corporations AI models and their potential impact on global agriculture.
More thought leadership on this topic: strategy-business.com/technology
strategy+business issue 87
98
feature strategy & leadership
Are CEOs
Less Ethical
Than in
the Past?
past. Over the last several years, CEOs have often garnered
headlines for all the wrong reasons: for misleading regula-
tors and investors; for cutting corners; and for failing to de-
tect, correct, or prevent unethical or illegal conduct in their
organization. Some high-prole cases, involving some of the
worlds largest corporations, have featured oil companies brib-
ing government ofcials and banks defrauding customers.
Per-Ola Karlsson DeAnne Aguirre Kristin Rivera Also contributing to
per-ola.karlsson@ deanne.aguirre@pwc.com kristin.d.rivera@pwc.com this article were Gary
strategyand.ae.pwc.com is the global leader of leads PwCs fraud risk Neilson, Spencer Herbst,
leads the organization, the Katzenbach Center and controls team and and Anjali Fehon, of PwC
change, and leadership of Innovation for Culture serves as the global US, and s+b contributing
practice in the Middle and Leadership and an forensics clients and editor Rob Norton.
East for Strategy&, expert in team effec- markets leader. A part-
PWCs strategy consult- tiveness for Strategy&. ner with PwC US, she is
ing business. Based in Based in San Diego, based in San Francisco.
Dubai, he is a partner she is a principal with
with PwC Middle East. PwC US.
To be sure, the number of CEOs who are forced from ofce for ethical laps-
es remains quite small: There were only 18 such cases at the worlds 2,500 larg-
feature strategy & leadership
est public companies in 2016. But rings for ethical lapses have been rising as
a percentage of all CEO successions. (We dene dismissals for ethical lapses as
the removal of the CEO as the result of a scandal or improper conduct by the
CEO or other employees; examples include fraud, bribery, insider trading, envi-
ronmental disasters, inated resumes, and sexual indiscretions. See Methodol-
ogy, page 109.) Globally, dismissals for ethical lapses rose from 3.9 percent of all
successions in 200711 to 5.3 percent in 201216, a 36 percent increase. The in-
crease was more dramatic in North America and Western Europe. In our sample
of successions at the largest companies there (those in the top quartile by market
100 capitalization globally), dismissals for ethical lapses rose from 4.6 percent of all
successions in 200711 to 7.8 percent in 201216, a 68 percent increase.
Our data cannot show and perhaps no data could whether theres
more wrongdoing at large corporations today than in the past. However, we
doubt thats the case, based on our own experience working with hundreds of
companies over many years. In fact, our data shows that companies are continu-
ing to improve both their processes for choosing and replacing CEOs and their
leadership governance practices especially in developed countries.
strategy+business issue 87
But over the last 15 years, the environment and context in which companies
operate has changed dramatically as a result of ve trends. First, the public has be-
come more suspicious, more critical, and less forgiving of corporate misbehavior.
Second, governance and regulation in many countries has become both more pro-
We doubt theres more
wrongdoing today than in the
past. But there is more scrutiny
of CEO behavior.
active and more punitive. Third, more companies are pursuing growth in emerg-
ing markets where ethical risks are heightened, and relying on extended global
However, dismissals for ethical 3.9% 5.3% 1.6% 3.3% 4.2% 5.9% 3.6% 8.8%
lapses increased signicantly over the 27.2% 15.0% 26.2% 15.8% 32.4% 26.1% 26.7% 8.1%
83.2%
last ve years on a global basis and 79.7 % 80.9%
72.1%
in each of the three major regions we 68.9% 68.0%
69.7%
63.4%
analyze: the U.S. and Canada; West-
ern Europe; and Brazil, Russia, India,
and China (the BRIC countries). The
share of all successions attributable to
102 ethical lapses rose sharply in the U.S.
200711
201216
200711
201216
200711
201216
200711
201216
and Canada (from 1.6 percent of all
successions in 200711 to 3.3 percent Global U.S. and
Canada
Western
Europe
BRIC
in 201216), in Western Europe (from Source: Strategy& 2016 CEO Success study
the historical pervasiveness of corrup- Source: Strategy& 2016 CEO Success study
How much has the level of CEO accountability risen in recent decades? In the
late 20th century, even the most serious, large-scale, and widely publicized cases
of corporate misbehavior rarely led to dismissal of the CEO. Criminal prosecu-
tions of corporate ofcers were extremely rare. Financial penalties tended to be
modest, ranging from the tens of millions to the low hundreds of millions of
dollars, and media attention was often limited to the business press. Today, the
chief executive of a company caught up in a major scandal is often dismissed
quickly. And it is not uncommon to see multiple criminal indictments of cor-
porate ofcers. The nancial penalties that companies face have rocketed in
104 some recent cases, into the tens of billions of dollars. And media attention, from
online outlets, cable television channels, and the relentless glare of social me-
dia, is omnipresent. We believe that the ve tectonic shifts identied above have
forged this new era of CEO accountability.
Public opinion. Condence and trust in large corporations and CEOs have
been declining for decades. But the decline has accelerated since the nancial cri-
sis of 200708, the Great Recession, and the slow recovery that ensued. Corpora-
tions and executives received government bailouts, while seeming to suffer little
strategy+business issue 87
in the aftermath. Although many companies paid large nes and settlements,
few were charged criminally, even in instances where unethical and illegal activ-
ity was widespread and well documented. Media attention has also focused more
and more on corporate tax avoidance and the offshoring of jobs, as well as record-
Only 37 percent of people
consider CEOs credible today
down 12 percent from last year.
a result of M&A, the share of planned healthcare, industrials, information tional work experience; 47 percent of
turnovers in 2016 was 81 percent, the technology, consumer staples, and incoming CEOs there had worked in
third-highest rate since 2000. This telecom services did not have a other regions. And a large majority of
was the seventh year in a row that the single incoming woman CEO in 2016. companies continue to choose CEOs
share of planned turnovers was more from the same country as the location
than 75 percent. Regions, Industries, Demographics of their company headquarters 87
Another sign of improving CEO CEO turnover was highest in Brazil, percent in 2016, up from 83 percent
succession practices: The share of Russia, and India, at 17.2 percent, in 2015.
incoming CEOs who were also named followed by Japan (15.5 percent), Thirty-six percent of the
board chairman was just 10 percent Western Europe (15.3 percent), and incoming class of 2016 had MBA
in 2016 up slightly from 7 percent China (15.2 percent). CEO turnover fell degrees, the highest share in the last
in 2015, but far lower than the 25 to 50 in every region we studied except for ve years. The share of incoming
percent rates of the early 2000s. the U.S. and Canada. Turnover was CEOs with Ph.D.s was little changed,
lowest, at 13.6 percent, in emerging at 10 percent, as was the median age
Women CEOs countries other than BRIC, and sec- of 53. The number of CEOs hired from
106
Globally, companies appointed 12 ond-lowest in the U.S. and Canada, at outside the company, however, fell to
women CEOs in 2016 3.6 percent 14.2 percent. The spread between the its lowest level in ve years: 18 per-
of the incoming class. This marks highest and lowest regional succes- cent, down from 23 percent in 2015.
a return of the slow trend toward sion rates was unusually narrow.
for individuals in U.S. federal courts nearly doubled from just over one year
to almost two years. During the same period, the mean sentence for all fed-
strategy+business issue 87
eral crimes dropped from 50 to 43 months. (Its worth noting that a debate is
currently under way in the U.S. about whether business regulation has become
overly stringent, potentially signaling an inection point in the trend toward in-
creased corporate oversight.)
In recent decades, power has also shifted away from CEOs and toward
boards and large shareholders. The days of an imperial CEO presiding over
a board largely composed of personal friends and company insiders are gone. In
2016, according to the Spencer Stuart Board Index, 85 percent of all board di-
rectors at S&P 500 companies were independent, and 27 percent of boards had
a truly independent chair, up from 9 percent in 2005.
Business operating environment. The threats that companies face in the
normal course of business have multiplied in recent decades. Global growth op-
built, purchased, and used online. Hackers have succeeded in accessing the pri-
vate data and electronic communications of companies and executives with the
goal of exposing unethical or embarrassing conversations and conduct to the
public and media.
The 2016 Global State of Information Security Survey found that the
number of these types of security incidents across all industries rose by 38 per-
cent in 2015 the biggest increase in the 12 years since the global study was
rst published. In the 2017 edition of the survey, 59 percent of respondents re-
ported having raised their cybersecurity spending as a result of digitizing their
108 business ecosystem.
The 24/7 news cycle. The changing nature of media has amplied nega-
tive news and opinion about businesses and executive conduct. In the 20th cen-
tury, most executives and companies could maintain a low public prole, and
live and work in relatively anonymity. No longer. The lightning-fast ow of
Web-based nancial news and data ensures that information travels quickly and
widely. Whats more, negative information revealed by whistleblowers, short sell-
ers, critics, and hackers quickly attains global distribution. Companies are now
strategy+business issue 87
Organizational
ing borrows from sociologist Donald and External
Influences
Business
Processes
Strong business
Cresseys classic 1950 conception of Leadership style,
compensation structure, processes and a
strict system of
incentives, and
the fraud triangle, which identied internal/external
pressures set the
controls discourage
unethical
context for
Culture behavior
the three elements necessary as precur- behavior
of
Integrity
sors to fraud as opportunity, rational-
Individual
ization, and pressure (see Exhibit 3). Ethical
Decision Making
1. Organizational and external in- Individuals make
decisions and rationalize
behavior according
uences. Unethical behavior is typi- to their personal
code of ethics
cally triggered by some kind of pres-
110 sure or incentive. Financial pressures Source: Strategy& 2016 CEO Success study
three steps:
Recognize whether you have a command and control culture. You may be
inadvertently encouraging bad conduct. Companies that get caught in ethical
lapses typically have incentives that prioritize achieving targets over all else, ex-
posing managers and employees to pressures that discourage speaking up to de-
liver bad news or ag ethical issues.
Insist on an open-door policy. Are you encouraging your managers and em-
ployees to raise issues that trouble them in informal dialogue, rather than only
on formal occasions such as performance reviews?
Consider whether you need structural reform. If your company has an exces-
sively purpose-driven culture that reects a strong or charismatic CEO modeling
the wrong approach, do you need a stronger governance infrastructure at the
is the messaging and training frequent enough and adapted to local languages
and cultural nuances?
Drive engagement from the top. Are the leaders behaviors consistent with
what they say in their communications? Are senior leaders and managers rein-
forcing messages about ethical conduct by engaging with their direct reports
and staff? Sharing stories about difcult situations and how they were resolved
and not shying away from those that turned out badly is one of the most
powerful ways to inculcate awareness of what not to do. Some leadership teams
publish case studies with transcripts of emails that show how mistakes happen.
112 Leadership teams should also engage informal leaders, individuals who lack
formal authority but who lead through example, experience, or reputation, to
communicate and amplify key messages throughout the organization.
Dont go it alone. Do leaders and managers have access to informed advice?
In some cases, ethical lapses occur because individuals facing ethical dilemmas
act without fully understanding how the decisions they make relate to the rules
and this is especially likely in crises. When in doubt, seek guidance from ex-
perts either inside or outside the rm.
strategy+business issue 87
The low level of public trust and condence in big business may be dismay-
ing. But its the reality in which companies operate today. We believe that public
perceptions may not fully reect the extent to which legal, regulatory, and ethi-
cal standards now in effect have evolved from those of earlier times. In a perverse
Public perceptions may
not fully reflect the extent
to which legal and ethical
standards have evolved.
way, the increasing incidence of CEO dismissals for ethical lapses may have a
positive effect on public opinion over time by demonstrating that bad behav-
Resources
Strategy&s 2016 CEO Success study, strategyand.pwc.com/chiefexecutivestudy.com: The full report and data analysis of this years study.
PwCs 20th Annual Global CEO Survey, 20 Years Inside the Mind of the CEO: Whats Next? Jan. 2017: The latest PwC Annual Global CEO
Survey shows chief executive ofcers are increasingly concerned about globalizations inability to close the gap between rich and poor and the challenge
of sustaining trust in the digital age.
DeAnne Aguirre, Per-Ola Karlsson, and Gary L. Neilson, 2015: Not the Year of the Woman, s+b, Apr. 22, 2016: Strategy&s 2015 CEO Success
study showed a sharp decline in the number of women named to the top post at large companies.
Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, The $112 Billion CEO Succession Problem, s+b, May 4, 2015: The nancial penalties companies
pay when they plan poorly for changes in leadership and the payoff from getting it right.
More thought leadership on this topic: strategy-business.com/strategy_and_leadership
114
feature organizations & people
Neuroscience
research
shows how to
become a
better leader.
by JEFFREY SCHWARTZ,
JOSIE THOMSON, AND
ART KLEINER
R
AV E L E D
Jeffrey Schwartz He was the rst scholar Josie Thomson Art Kleiner
jmschwar@ucla.edu to identify self-directed josie@josiethomson.com art.kleiner@pwc.com
is a research psychiatrist neuroplasticity and at- is an independent, is editor-in-chief of
at the University of Cali- tention density, terms award-winning leader- strategy+business. He
fornia, Los Angeles, and that he coined, as means ship coach based in has been working with
the author or coauthor of making personal and Brisbane, Australia. Schwartz and Thomson
of three bestsellers: organizational changes. A two-time cancer since 2008 to research
Brain Lock (Harper- survivor, she has worked and articulate the
Collins, 20th-anniv. ed., closely with Schwartz concepts underlying
2016), You Are Not Your and developed a leader- this article.
Brain (Avery, 2011), and ship coaching practice
The Mind and the Brain based on neuroscience
(HarperCollins, 2002). principles.
H
ave you ever had a difcult executive decision to
make? This is the kind of decision where the best op-
feature organizations & people
mission to tell this story, but we cannot use the real name of the company or the
individual.) Natalie, who is in her 40s, reported directly to the CEO. When
the rm hit a long stretch of dwindling revenues, Natalie had ideas for turn-
ing things around, but she wasnt included in strategic conversations. Instead,
This article is derived
from a book in progress,
to be published by
Columbia University
Press in 2018.
all personnel issues including sexual harassment cases, bullying claims, and
layoffs were delegated to her. One year, she had to move the rms nancial
}
Amygdala, insula, and
orbital frontal cortex Self-Referencing Center
Mammalian-evolved Medial prefrontal cortex
brain function associated Processes information
with strong emotion Reactive concerning self and others
Something is Self-Referencing Center
wrong. Ventral medial prefrontal cortex
Subjective valuation
Who I am, what I want,
and what others want.
feature organizations & people
Source: Jeffrey Schwartz, Josie Thomson, Art Kleiner, and Wise Advocate Enterprises
recruiting and training, but also in less familiar domains, such as mergers and
growth and proposing strategic approaches. She refocuses her attention on
these alternatives, returning again and again, for example, to ways in which she
118 could make a valuable contribution. Before any major meeting, she thinks about
how the various leaders of the company might respond to the points she will
bring up. As she makes critical decisions, she reminds herself to pay attention to
the way others respond and follow up. In all this, she calls upon a construct that
she has developed in her mind: a disinterested observer whom she can consult
for guidance and perspective. We call this construct the Wise Advocate.
Natalie began this discipline around 2013, and it gradually affected the way
she spoke and the things she said. She is now regularly invited into conversations
strategy+business issue 87
about strategy. When there is a possible crisis, people turn to her rst, as if she
were a Wise Advocate for the larger enterprise. The companys prospects have
turned around in part because of opportunities she has pointed out. And in-
stead of laying people off, shes now recruiting. She has also reduced the amount
of oversight and number of approvals in the HR function; she no longer has to
work 70 hours per week.
You might think this is just standard good management practice, nothing
special. And you may well be right. But it was beyond Natalies skill set four
years ago. Natalie made a deliberate transition, from a harassed functionary bent
on pleasing her bosses to an inuential leader with strategic perspective. The po-
tential for this change was there all along, but nothing external no incentives,
rewards, threats, or burning platformstyle pressure could force her into it.
The leverage came from transforming her thoughts. By refocusing her attention,
she became the kind of leader needed in that company at that time.
parts of the brain that are continually activated together will physically associate
with one another in the future. The more frequently a pattern of mental activ-
L
ife is a constant barrage of challenges. We have promises to fulll,
feature organizations & people
has real value there. What would consumers pay for our product? What bonus will
our employees accept? What does my boss want, right now? What must I produce by
next quarter? How should we price our stock? Questions like these trigger the Low
Road, and your career may prosper if you answer them shrewdly. But business
leaders who spend most of their time on the Low Road are unlikely to break free
of the conventional wisdom of their industry. Strategic insights considerations
of the purpose of the enterprise, and the long-term value it brings to the world
are more likely to emerge when you travel the High Road.
T
he 18th-century economic philosopher Adam Smith, best known
for his foundational book The Wealth of Nations, spent his last two
decades considering the problem of virtue in capitalism. The vitality
of the industrializing world was based on the good faith of energet-
ic, creative people, acting individually. But no human society had ever resisted
the temptations of corruption and exploitation. How would capitalism survive?
Smith said that the two obvious means, legal regulations and community cen-
strategy+business issue 87
sure, were not completely adequate, because they were often ill-placed, bore
enormous costs, reduced productivity, and diminished entrepreneurial vitality.
Yet what else could hold the inevitable waves of robber barons in check?
Smiths other famous work, The Theory of Moral Sentiments, rst published
in 1759 and signicantly expanded in 1790, proposes a solution principally
based on what he called the impartial spectator. Our Wise Advocate closely
tion accessible so your conscious attention can work with it, is located in this
center. When you reect on your most meaningful aspirations, and plan how
you might bring those changes to pass, you generate activity in the Executive
Center. This center is also associated with cognitive exibility: the ability to see
a situation from multiple perspectives and act according to the potential and
subtle connections among them. Finally, this part of the brain is the home of
self-regulation, or the inhibition of habitual and impulsive behaviors. Columbia
University research psychologist Walter Mischel, the creator of the marshmal-
low test experiments, which linked childrens ability to self-regulate with suc-
126 cess later in life, identies the Executive Center as the source of this all-impor-
tant attribute.
Brain research related to the High Road is still evolving, and its implica-
tions are still being explored. It seems likely that the High Road is often trig-
gered when you think about people in abstract terms, studying them as an an-
thropologist might. You dont have to be entirely accurate in your perception of
others thoughts, motives, and future actions; just inquiring about and reecting
on what theyre thinking or what theyre likely to do will trigger the High Road.
strategy+business issue 87
If the Low Road is concerned with subjective value, the High Road is concerned
with genuine worth: whether something is important enough to deserve close,
sustained attention.
By linking it to the High Road, our hypothesis suggests that the Wise Ad-
WHEN YOU REPEATEDLY PAY
ATTENTION TO THE WISE ADVOCATE,
YOU WILL TEND TO REWIRE THE
PATHWAYS OF YOUR BRAIN IN WAYS
THAT ENHANCE YOUR PERSPECTIVE.
T
he Low Road and the High Road are both oriented toward achiev-
ing goals; theyre both somewhat concerned with how you make
your way in the world. They can sometimes be hard to tell apart. 127
And yet the switch between them can make all the difference to
your ability and success as a leader.
How, then, can you develop that capacity in yourself and in your orga-
nization? Two mental activities seem to evoke the High Road. The rst prac-
tice, mentalizing, has also been called theory of mind. When you mentalize,
instead of focusing on the desires and problems around you (and whether you
need to intervene), you consider people more dispassionately, trying to gure
them out, as if they were characters in a novel or lm. What makes them tick?
What will they do next? What are they really thinking about, and why?
Social neuroscientists have studied mentalizing in some detail. In typical
experiments, people are asked to look at groups of pictures illustrating simple
stories, or to read passages describing simple situations. Then they are asked to
explain the behaviors in the pictures and stories. This exercise, designed to trig-
feature organizations & people
mental strength to be a good mentalizer. Its hard work, so its easy to see why
some people stop doing it when they rise to a position of inuence. They feel
theyve paid their dues.
And yet for aspiring leaders, mentalizing becomes even more important as
SOME OF THE MOST EFFECTIVE
SENIOR EXECUTIVES CAN ARTICULATE
WHAT OTHER PEOPLE ARE THINKING
AND WHY IT IS IMPORTANT.
they rise to higher levels of responsibility and authority. Some of the most ef-
fective senior executives have a well-developed ability to mentalize. They can
both practices become routine for you colleagues show how mindfulness may correlate with activity related to
the High Road and Low Road. Each is a composite brain image from
subjects performing a breath awareness exercise classically associated
you begin to mentalize about your- with mindfulness. The top image shows brain activity during a focus
period when the subjects paid close attention to their breathing. The
self. What am I likely to do? What am I yellow highlights a key brain area associated with the Executive Center
and the High Road. The bottom image shows brain activity during a mind
really about? Why am I thinking this way? wandering period, when the subjects minds took on thoughts unrelated
to the mindful attentive state. Activated areas include the ventral medial
These questions, strongly linked to the prefrontal cortex (in blue), a key brain area associated with the Reactive
Self-Referencing Center and the Low Road.
prefrontal cortex,
Low Road in your brain is much more associated with
the Low Road
active than it needs to be. The more
you use your mind to shift activity Source: Wendy Hasenkamp et al., Mind Wandering and Attention during Focused
Meditation: A Fine-Grained Temporal Analysis of Fluctuating Cognitive States,
from this circuit to the High Road cir- NeuroImage, July 2011
cuit, the more effective you will be as a leader. You may, like Natalie, feel called
upon to play a more visible leadership role within your organization. And with
the application of the principles described here, you can provide the same kind of
guidance for the enterprise that the Wise Advocate provides for your own mind.
Invoking the High Road is not a miracle practice. It is not a sure path to
wealth, success, promotion, or any other material or social benet. But it seems
to be a reliable process for building your leadership acumen. You may experi-
ence this as the development of an inner dialogue that makes you more aware
131
Resources
Emily Falk et al., Creating Buzz: The Neural Correlates of Effective Message Propagation, Psychological Science, May 2013: Links mentalizing (and
the dorsal medial prefrontal cortex, associated with the High Road) to the ability to inuence others.
Shihui Han and Georg Northoff, Culture-sensitive neural substrates of human cognition: A transcultural neuroimaging approach, Nature Reviews
Neuroscience, 2008: Articulates features of the Self-Referencing Center and its functions.
Ryan Patrick Hanley, Adam Smith and the Character of Virtue (Cambridge University Press, 2009): A guide to the moral and political philosophy of
capitalisms founding father, exploring his ideas about virtue in a market age (including the impartial spectator concept).
Wendy Hasenkamp et al., Mind Wandering and Attention during Focused Meditation: A Fine-Grained Temporal Analysis of Fluctuating Cognitive
States, NeuroImage, July 2011: Explorations of the impact of mindfulness.
Walter Mischel, The Marshmallow Test: Mastering Self-Control (Little, Brown, 2014): Overview of research by Mischel and others on the executive func-
tion of the brain, which is strongly linked to the High Road.
Keely Muscatell et al., Social Status Modulates Neural Activity in the Mentalizing Network, NeuroImage, Jan. 2012: Suggests that mentalizing activ-
ity increases for people who perceive their status to be lower.
More thought leadership on this topic: strategy-business.com/organizations_and_people
THOUGHT LEADER
132
T
oday is the slowest rate of technological change you will ever experience
in your lifetime, wrote Shelly Palmer in his e-book Data-Driven Think-
ing (Digital Living Press, 2016). As one of the worlds premier voices on
the accelerating pace of digital technology, he is increasingly preoccu-
pied with helping companies and individuals prepare for the dramatic changes he
sees coming, particularly in entertainment and media.
Palmer started his career at age 12 as a musician, playing the clarinet, sax-
ophone, and ute in the 1970s in venues around New York. He was also an early
experimenter with analog and digital synthesizers. He holds patents for two ma-
jor interactive television technologies, one of which a method for syncing
broadcast TV with server-based text, known as enhanced television was ad-
opted by Monday Night Football and Who Wants to Be a Millionaire? His back-
ground also includes writing the theme music for Spin City and Live with Regis
and Kathie Lee, and conducting the London Symphony Orchestra. Currently, he
is Fox 5 New Yorks on-air tech and digital media expert and the proprietor of a
popular and prescient email newsletter that covers the impact of technology on
media and daily life, with a special focus on smart cars and smart homes.
For the past decade, as a venture capitalist and CEO of his own consulting
rm and marketing agency, the Palmer Group, Palmer has focused his attention
on the evolution of advertising, marketing, and related businesses, along with
leading-edge technologies such as smart home systems and data analytics. We
recently talked with Palmer in New York. Conscious of the intertwined trajecto-
ries of trends in technology and media, we sought to explore how articial intel-
ligence (AI) and the churn in business models could affect advertising, media,
thought leader
and related elds over the next few years.
Twitter? There are a lot of thriving small companies, but its hard for them to
grow to scale. Theyre much more likely to get bought rst. Weve seen a signi-
cant increase in [US]$20 million to $30 million acqu-hires the acquirers
buying companies only for their teams of brilliant people, as opposed to choosing
companies because they are going concerns.
S+B: How do you see media companies monetizing content in this new world?
PALMER: There are only three business models for media: I pay, you pay, or
someone else pays. Either I pay the media (with subscription fees or my data), or
you as the media pay your costs (because theres value in having me in the audi-
ence), or someone else, like an advertiser, pays you for access to me.
The media industry used to be perfectly structured to take advantage of all
three models. But today, with quickly changing consumer behaviors, its getting
extremely difcult for many old-fashioned media companies to make money.
thought leader
Add to that the cross-purposes of the three major publicly traded large entities in
the advertising-supported media model: ad agencies, media entities, and brands.
Each has a different way of creating shareholder value. Agencies need to make a
prot. Media companies need to get the highest possible price for each impres-
sion. And brands need to drive velocity. These three goals are not in concert with
strategy+business issue 87
one another.
And, by the way, consumers dont care about any of this. Consumers want
all their media for free, and they want simple, interoperable platforms. It sounds
great, but Apple and Google have no interest in interoperability. That would
134
mean having everything work on each others devices. Facebook has a large group
of members who dont use the rest of the Web; they interact only through Face-
book. Why would any of these companies want to give up their boundaries? The
fact that consumers want something like interoperability does not mean that it is
smart for the business to provide it.
The rest of Silicon Valley tends to disrupt traditional business by taking the
consumers side and giving consumers everything they want free. Thats awe-
some as long as you dont care about making money. At the end of the day, Inter-
net media companies will have to gure out a way to get advertising support, sell
subscriptions, sell a service, or use another means to drive velocity for a brand at
retail. Otherwise, theyll have no way to make a living. Cash has to change hands.
That said, the nancial community will continue to make a fortune nan-
cially engineering startups and taking them public. That kind of prot making
is not always equally accretive to all of the shareholders, and it does not usually
thought leader
require a sustainable business to emerge.
ence and encourage people to lter out anything that feels uncomfortable to
them. Theres a very strong conrmation bias for all content today, regardless of
whether its entertainment, news, or just information. It will grow even stronger
as technology improves. As content distributors, we are ghting the hardest ght
ever: getting through the personal lters of people who have opted into their own
strategy+business issue 87
Learning to Be Data-Driven
S+B: You have written that advertising will evolve into a data-driven, value-
centric game of capture the consumer. What do you mean?
PALMER: For a message to have the best chance of success, it must be delivered
to the right person at the right place at the right time. The best way to lead this
process is to encourage data-driven thinking across the enterprise. In most cases,
this requires a modication in corporate culture. In our work with clients at the
Palmer Group, weve found that few enterprises fully recognize the value of data,
data governance, and data hygiene.
Few enterprises fully Data is cash, and it should be treated
recognize the value of data. like cash. You need a data P&L.
Data is cash, and it should S+B: How does this work in practice?
be treated like cash. PALMER: There are really three kinds
of data. First-party data is your own
thought leader
companys asset, which you are directly responsible for collecting. It may be
from cookies, email subscriptions, orders, or sales receipts. Or it may be gener-
ated by customer behavior, such as a propensity to click a particular button or
visit a location.
Second-party data is simply someone elses rst-party data.
Third-party data is collected by outside companies. Companies like Acxiom
and Experian acquire and aggregate data on customers from many different places,
and they analyze and index it until they have complete proles on everybody. I
think Acxiom tracks almost 4,000 propensities. You can ask, for example, for lists
137
of people who are 150 percent over-indexed on luxury automobiles and 200 percent
over-indexed on craft beer, and geofence them. Button press, boom, here are the
people. All the best-practice purveyors of third-party data do their best to verify it,
but its still third-party data, and thus less accurate than rst- or second-party.
When you operate with a data P&L, you tend to favor deals that leverage
your data by combining it with rst-party data from other organizations. This will
almost always create additional value, because data is more powerful in the pres-
ence of other data.
S+B: Why does data become more powerful when you share it?
PALMER: If I know your name and email address from rst-party data, I have the
beginning of a prole. Add your Social Security number from second-party data,
and I can go to Experian and nd out about your mortgage from third-party
data. Now I know not only exactly where you live, but how much discretionary
thought leader
spending money you might have. The more complete the prole, the better and
more complicated the questions I can ask. Interestingly, although many execu-
tives have signicant experience working with numbers and making decisions,
very few have been trained to make decisions using data. To get the most out of
an algorithm, you must ask the right questions.
strategy+business issue 87
S+B: Wouldnt it be better to ask, Given everything were doing, where are the
Danburys with the best hidden opportunities?
PALMER: Thats a fabulous question to ask. But your ability to answer it depends
thought leader
on the level of technology you have deployed. If youve got an appropriate data set
and someone at your disposal who knows enough data science to create the pat-
tern-matching tools you need, youre golden.
Cognitive computing is still in its infancy, so if you needed to do this today,
youd have to write a pretty sophisticated algorithm to accomplish the task. It
would probably take thousands of lines of code, and only a couple of people in
the world would know how it was written. Even the people who wrote it would
occasionally be scratching their heads, because, as with automatic stock trading,
at a certain point the algorithms are so large and so complex that you cant auto-
139
pilot them anymore. [See A Strategists Guide to Articial Intelligence, by
Anand Rao, page 82.]
S+B: You mean there are too many layers of cognitive thinking to be able to
understand its reasoning.
PALMER: Thats right. People think of algorithms as decision making on autopi-
lot. But thats the worst metaphor ever. With actual autopilot, the person ying
the plane watches the controls and can always take over if something goes wrong.
Thats not possible with a complex algorithm. If the program misbehaves, the
only way to x it is to stop it, take the whole system down, recalibrate it, and then
test it to see if the outcomes are better or worse.
S+B: But if the algorithm is too complex to be controlled, what qualies a hu-
man being to judge the outcomes correctly?
PALMER: This scares me to death! I call it digital monoculturalism. If you
have only ve cognitive clouds Microsoft, Google, Amazon, IBM, and Ap-
ple each one will have some bias inherent in its programming, invisible to
outsiders and inevitable. These ve highly biased tool sets will make decisions
for thousands of executives around the world. And who programs those?
S+B: In the past, youve said that machines will eventually be able to do every-
thing that human beings can do now. How do you see this today?
thought leader
PALMER: I said they would do almost everything. But thats not the story. There
are four general types of tasks: manual repetitive (predictable), manual nonre-
petitive (not predictable), cognitive repetitive (predictable), and cognitive nonre-
petitive (not predictable). An assembly line worker performs mostly manual re-
petitive tasks, which, depending on complexity and a cost-benet analysis, can be
strategy+business issue 87
thought leader
If you can have articial David Mamet, or Lin-Manuel Miran-
intelligence, you can da or Mozart, the Beatles, or Ma-
donna. Only a tiny handful of human
have articial creativity...
beings in each generation exceed all ex-
indistinguishable from pectations of creativity.
average human creativity. That leaves journeyman creative
activity, which absolutely can be done
by AI. I wrote music full time for many years. A lot of the background music I
used to write for advertising, long-form industrial lms, and documentaries
141
could easily be created by AI. My job didnt call for brilliance every day. I
needed to be consistently good and occasionally brilliant. Music is an emotion-
ally communicative language, and prociency in it is rare, but it is possible for
machines to be consistently good at it. It wont work for every client or in every
use case, but it will work for enough clients to put a huge dent in the business.
The same is true for basic expository writing. The questions your seventh-
grade English teacher taught you to answer who, what, when, where, why, and
how are an algorithm. Of course machine learning systems can be trained to
write that prose. And they will.
S+B: Then how does a creative person get the experience needed to develop
into, say, a Billy Joel or an Elton John?
PALMER: There couldnt be a Billy Joel or an Elton John today. They are both
super talented, but neither was a superstar out of the gate. They had record labels
thought leader
that believed in them and gave them time to pay their dues and develop. That
doesnt happen today.
Of course, thats commercial intellectual property, which has very little to do
with artistry and creativity at a world-class level. AI doesnt change things for art-
ists who are willing to starve for their art. A dancer will still make crazy sacrices
strategy+business issue 87
to keep dancing every day. Nor does AI change the prospects of the very largest
companies. But it completely devastates the middle of the business, the rote cre-
ative work.
A lot of what marketing people do is at risk. If youre a marketer, you build
142
GAME PLAYER
GAME CHANGER
two of them packing. And there probably will be more laid off over time, in all
categories of corporate employee, because every CEO knows that the companys
competitors are also taking cost out of the system this way.
Along the way, well see enormous and unprecedented productivity advanc-
es. One small example: The Palmer Group has 5,000 old videotapes in tempera-
strategy+business issue 87
S+B: How does the digital shift affect the way you look for talent in your
own organization?
PALMER: We believe in the gig economy; on any given day, our staff expands to
t the needs of our business. We use exible shared ofce space organizations like
WeWork. I recently read an article saying that the gig economy is over and people
are returning to sustainable full-time jobs. Our experience is different. Every su-
per-skilled technology person available to us is looking for the next opportunity
thought leader
at a higher price, and they dont want to be tied down in a full-time job.
We try to recruit people by building a yellow brick road to the Palmer Group
to show that were the elites in the eld and theyll be in great company by
working with us, working on very cool projects. We host meetups and events on
key technology topics. We also ask the coders who work with us to spend an hour
or two each night contributing to open source projects. We stole that idea from
Facebook, which has its own scripting language called React. Its software devel-
opers make some of their code available on GitHub, people start to contribute
and share notes, and suddenly Facebook has a recruiting and training program
145
for coders, without paying a nickel for it. And who doesnt want to impress the
people at Facebook?
S+B: You make it sound like the most important thing the making of content
will not change much at all in the future.
PALMER: Theres a 40,800-year-old cave painting in El Castillo, Spain, that is
said to be one of the oldest known. The artist created that content for one pur-
pose and one purpose only: to be seen. The artist felt something or needed to
explain something and created the work to communicate it. Today, a television
commercial is there to be seen; a book is to be read; a song is to be heard. If you
dont have a point to get across, you dont need the television, the printing press,
or a stream on the Internet. And if you do have something powerful to say, your
job is to get it across, no matter what technology you use or business model you
work under. That hasnt changed, and it probably never will. +
Reprint No. 17212
thought leader
strategy+business issue 87
146
MEET
THE NEXT
GENERATION
OF BUSINESS
THOUGHT
LEADERS
strategy-business.com/youngprofs
Books in Brief
D
ecades before you lost your rst few hours to Candy Crush, Tetris
had cast its spell over video game players worldwide. The concept
of Tetris, which originated deep behind the Iron Curtain in the
1980s, is deceptively simple: You manipulate different shapes of
bricks, or tetronimoes, as they fall at an increasingly fast pace, to form rows of
horizontal lines. A Russian folk tune plays in the background. But the game can
quickly turn on you one wrong move and the pieces start to pile up. The game
books in brief
ends, and then you play again, and again, and again.
Unlike many modern addictive games, Tetris has no plot, no cute animals, and
no lifelike animation. And yet Tetris is one of the most popular video games of all
time. It has been downloaded more than 500 million times on mobile devices, and
Illustration by Noma Bar
authorized copies have earned close to US$1 billion in total sales. Not bad for a piece
of code that traces its origins to the waning days of the Soviet Union.
Tetris was the brainchild of a Soviet engineer, Alexey Pajitnov, working on
an outdated desktop computer at the Russian Academy of Sciences. When he
invented the game in 1984, Pajitnov and his colleagues knew it was special it
148
spread quickly throughout the academy by word of
mouth and oppy disk, like a piece of samizdat. But
pre-glasnost and pre-perestroika, the notion of taking
Tetris outside the country, let alone commercializing it,
was difcult even to imagine.
The story of the next ve years, leading up to the
moment in 1989 when Nintendo secured the living
room console rights to Tetris, is a complex, winding
tale. And in The Tetris Effect: The Game That Hypno-
tized the World, Dan Ackerman, a journalist and editor
at the tech site CNET, unravels it.
The games soaring popularity, and its potential for massive prots, quickly
attracted the attention of the business world. At one point, in early 1989, execu-
tives from Japan, the U.K., and the U.S. literally raced to Moscow to vie for li-
censing rights. With such a perfect combination of widespread dissemination,
psychological triggers, and basic human greed, Ackerman writes, its not sur-
prising that Tetris was one of the worlds rst viral hits.
Ackerman introduces a large cast of characters, and over the course of the
book we learn more about their motivations and machinations. The effect can be
dizzying at times as he toggles back and forth between different players and
places. Coders, lawyers, and executives jump in and out of the narrative, all while
Ackerman painstakingly describes how the rights to Tetris for various channels
were licensed and sublicensed by an ever-widening web of software companies.
Theres Henk Rogers, the surfer-turned-programmer who ultimately found
books in brief
himself working on behalf of Nintendo. His story is perhaps the most breathless;
the book opens with Rogers ying into Moscow on a plane jointly operated by
Japan Airlines and the Soviet state-run Aeroot with a tourist visa, a checkbook,
and little else. Among some of the other key players are the British communica-
tions mogul Robert Maxwell and his son, Kevin; Nikoli Belikov, the bureaucrat
who served as lead negotiator for a Soviet bureau called Electronorgtechnica
(Elorg), an enigmatic division of the Soviet Ministry of Trade tasked with licens-
ing rights for technology developed by state agencies; and, of course, Pajitnov, the
engineer who created Tetris, and watched for years as others proted.
149
The Tetris Effect is also an ode to the game itself. A chapter of the book is
devoted to the story of journalist Jeffrey Goldsmith, who is credited with coining
the term Tetris effect. In 1990, while staying with a friend in Tokyo, Goldsmith
played the game for six straight weeks, barely stopping to eat and drink, and no-
ticed that he started seeing people and cars on the street as pieces that he was
trying to t together. In a Wired article, This Is Your Brain on Tetris, he de-
scribed the pharmatronic (another term he coined, to describe an electronic drug)
effect the game has on the brain.
This is a recurring theme throughout this fast-paced, gripping book: Playing
Tetris can actually change the way your brain is wired. The games repetitive pat-
terns, and the repetitive activity it inspires, enables Tetris to imprint itself on the
brain and can shape a players thoughts. Ackerman notes that an Oxford Univer-
sity researcher has shown that playing Tetris shortly after experiencing a trauma
can prevent victims from being repeatedly terrorized by painful memories. They
can remember the events, but because the way in which the events are remembered
is altered by the game, victims avoid some of the symptoms of post-traumatic stress
disorder. Ackerman also mentions a 2014 study that found that smokers and drink-
ers who played Tetris reduced their cravings by roughly 24 percent. In other words,
the addictive game can prove to be a weapon in the war against addictive behavior.
In his epilogue, Ackerman writes that Tetris is bringing order to disorder.
Its the eternal struggle against the onslaught of daily life, in all its colorful ran-
domness, seeming to fall on you from the sky. A bit grandiose? Maybe. But few
popular games have inspired Tetriss level of academic and scientic study. Even
the question of whether Tetris can be won is steeped in philosophy and physics.
books in brief
But those of us whove been sucked into the vortex can appreciate Ackermans
assessment: A classic Tetris game will inevitably end, and mathematicians can do
the same thing you and I do when a casual game goes wrong after a dozen pieces
blame those damn Z shapes. +
strategy+business issue 87
Laura W. Geller
laura.geller@pwc.com
is senior editor of
strategy+business.
150
Care Personally, Challenge Directly
by Theodore Kinni
I
ts been a long time since I was a wage slave. But if todays workplace is any-
thing like what Kim Scott describes in Radical Candor, it must be a night-
mare. People are picking their noses, stinking up the joint with body odor,
and tucking their underwear into the ofce furniture. They call each other
dumb-ass and cry a lot. It sounds like preschool for grownups.
Or maybe thats just business as usual in Silicon Valley, where Scott, an en-
trepreneur, executive, and executive coach, spent a decade or so. She ran online
sales and service at Googles AdSense, YouTube, and DoubleClick, where she
worked for her Harvard Business School classmate Sheryl Sandberg. Then, she
joined Apple University, where she designed and taught a course for rst-time
managers. With those unimpeachable credentials in hand, Scott struck out on
her own, coaching CEOs at Twitter, Dropbox, and Qualtrics. In 2016, she co-
founded Candor Inc., a training rm built around the concept of radical candor,
which she developed.
Radical candor stems from Scotts conviction that interpersonal relation-
ships are the currency of management. They determine whether you can fulll
your three responsibilities as a manager: (1) to create a culture of guidance (praise
and criticism) that will keep everyone moving in the right direction; (2) to under-
books in brief
stand what motivates each person on your team well enough to avoid burnout or
boredom and keep the team cohesive; and (3) to drive results collaboratively, she
writes. If you think that you can do these things without strong relationships,
you are kidding yourself.
In Scotts convincing telling, radical candor is a simple yet powerful mana-
gerial tool for building such relationships. It has two dimensions: To deliver
radical candor, you need to both care personally and challenge directly. The
rst dimension is about being more than just professional. Its about giving a
damn, sharing more than just your work self, and encouraging everyone who
151
reports to you to do the same, writes Scott. The second
dimension involves telling people when their work isnt
good enough. And when employees dont measure up,
managers must deliver tough feedback, making hard
calls about who does what on a team, and holding a high
bar for results.
What makes radical candor such a good idea is the
fact that so many managers avoid or ignore performance
problems that undermine employee and organizational
results. Scott offers a personal testimonial: After launch-
ing a software startup, she hired Bob, a great guy whose
work didnt live up to his resume. Instead of confronting Bob (Feedback is hard,
Scott says), she tried to work around the problem. But Bobs continued subpar
performance added to her workload, making her increasingly resentful and an-
gry. Worse, it affected the rest of her team; they couldnt understand why their
boss wasnt correcting the situation, and they lost condence in her. As a result,
their performance tanked and so did the startup.
The ultimate irony is that when managers dont candidly address an em-
ployees shortcomings, the employee loses too. When Scott nally mustered up
the courage to re Bob, it felt like a sucker punch to him. Why didnt you tell
me? he said. Why didnt anyone tell me? I thought you all cared about me!
The author also makes the point that you cant skimp on either candor or
care. Scott had been giving Bob care without candor what she calls ruinous
empathy. Not wanting to hurt the
books in brief
Theodore Kinni
theodorekinni@gmail.com
is a contributing editor of
strategy+business. He also blogs at
Reading, Writing re: Management
and is @tedkinni on Twitter.
utppublishing.com
Control Issues
Startups are valued signicantly higher and attract more
nancing after their founders relinquish some power.
BY MATT PALMQUIST
n the two years after Lew Cirne founded Wily Technology in 1997, he as-
ately need nancing, skilled employees, and the kind of social buzz that makes
investors reach for their checkbooks. But the more investors or key hires who
come aboard to provide much-needed resources, the more autonomy the com-
pany founder must surrender. Founders face a trade-off between retaining con-
Illustration by Elwood Smith
Source: The Throne vs. the Kingdom: Founder Control and Value Creation
end page
in Startups, by Noam Wasserman, Strategic Management Journal, Feb. 2017,
vol. 38, no. 2
155
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