Editors’ Note
Every year, as we build each issue of Harvard Business Review, we examine the most important challenges facing business leaders today, from technology to people management. Rather than simply monitoring buzzwords or headlines, this involves a combination of looking forward to how businesses will need to incorporate new technologies and contextual realities, and also looking back at lingering management problems to find the ways that researchers and practitioners are addressing them today. The standout articles of the year collected here, for example, explain emerging phenomena like blockchain, dataviz literacy, and algorithms in practical terms. They also offer new perspectives on long-term issues such as boosting employee engagement, increasing diversity, and fixing the U.S. health care system. We showcase these and other critical themes highlighted by our authors from the past year of Harvard Business Review in this volume.
In today’s crowded and competitive marketplace, companies often feel pressure to rebrand or expand their offerings to stay alive. But P&G’s A.G. Lafley and strategy expert and Rotman School of Management professor Roger L. Martin say companies should focus their efforts on strengthening customers’ habits, not developing products or redesigning packaging. In “Customer Loyalty Is Overrated,” the authors acknowledge that although it’s hard work to establish a brand, once you’ve done so, constant reinvention won’t keep customers coming back. Research suggests that what makes competitive advantage sustainable is helping consumers avoid expending the mental energy to make a choice. Customers don’t want to have to evaluate their options every time they shop; they just want to buy what they’ve always bought. And each time customers pick the same product, they boost its advantage over that of the products they didn’t choose.
Inconsistent decision making is often a hidden and expensive problem plaguing companies—not the big, sweeping, strategy-related choices, but the daily decisions and judgment calls, which can swing radically from one individual to the next. This problem affects not just new employees but seasoned people who have been in the same roles, following the same well-established guidelines. Irrelevant factors, such as mood and the weather, can affect a person’s decisions from one occasion to the next. This chance variability of decisions is called noise. In “Noise: How to Overcome the High, Hidden Cost of Inconsistent Decision Making,” Nobel laureate and Princeton psychology professor Daniel Kahneman and data analysis experts Andrew M. Rosenfield, Linnea Gandhi, and Tom Blaser explain how organizations can perform a “noise audit” and use algorithms and simple commonsense rules to guide employees toward making more-consistent decisions.
Managers should all be relying more on data in their decision making, but it arrives at such velocity, and in such volume, that many of them don’t know quite what to do with it. A good first step is to create a visualization or a chart. To do that well, however, you need to understand the nature of your data and keep your purpose in mind, according to Scott Berinato, an HBR senior editor and the author of Good Charts: The HBR Guide to Making Smarter, More Persuasive Data Visualizations. That strategic attitude will make your charts and presentations much clearer and more effective. In “Visualizations That Really Work,” Berinato outlines categories of approach and the tools and resources you’ll need for each.
Managers are pretty good at assessing whether a new technology will overtake an existing one, but they haven’t quite figured out how to know when that will happen. In “Right Tech, Wrong Time,” professors Ron Adner and Rahul Kapoor say that not just your new technology but also the ecosystem in which it will exist—the related technologies, services, standards, and regulations—can influence how quickly it’s adopted. They provide a framework to assess how soon disruptive change is coming to your industry by analyzing the dynamics of the context in which it will exist. If the new technology doesn’t need a new ecosystem to support it—if it’s essentially plug-and-play—adoption will be swift. But if complements are needed (for example, electric cars require a network of charging stations), the pace of substitution will slow until those challenges have been resolved.
How to pay for health care is a problem the United States has struggled with for a long time. Fee-for-service, the dominant model today, is widely recognized as the single biggest obstacle to improving health care delivery, because it rewards the quantity rather than the quality or efficiency of care. What we need is a system that rewards providers for delivering superior value to patients—for achieving better health outcomes at a lower cost. In “How to Pay for Health Care,” strategy giants Michael E. Porter and Robert S. Kaplan argue that a “bundled payments” model is the right one, because it triggers competition among providers to create value where it matters—at the individual patient level. They describe robust proof-of-concept initiatives in the United States and abroad that show how the challenges of transitioning to bundled payments are already being overcome.
Another system that’s overdue for reform is annual performance reviews. Emphasizing individual accountability for past results, traditional appraisals give short shrift to improving current performance and developing talent for the future. That can hinder long-term competitiveness, say Peter Cappelli and Anna Tavis in “The Performance Management Revolution.” To better support employee development, many organizations are dropping or radically changing their annual-review systems in favor of giving people less-formal, more-frequent feedback that follows the natural cycle of work. The authors explain how performance management has evolved over the decades and why current thinking has shifted.
Goal-setting and evaluation are one way to motivate your employees, but how to engage them is another long-standing issue for managers and organizations. Francesca Gino, a professor of business administration at Harvard Business School, conducted groundbreaking research and found that whether consciously or unconsciously, organizations pressure employees—including leaders—to reserve their real, authentic, nonconforming selves for outside the workplace. This pressure to conform, she writes in “Let Your Workers Rebel,” can have a significant negative impact on engagement, productivity, and the ability to innovate. To fix this problem, she says, develop a culture that supports “constructive nonconformity”: encourage your workers to break rules and be themselves.
Diversity programs are another relic in organizations: Most companies rely on the same approach they’ve been using since the 1960s to reduce bias and increase diversity—one that focuses on controlling managers’ behaviors. But as studies have shown, that tends to activate bias rather than quash it, because people rebel against rules that threaten their autonomy. In the McKinsey Award–winning “Why Diversity Programs Fail,” Frank Dobbin and Alexandra Kalev draw on their research to suggest ways of promoting diversity that engage employees in working explicitly toward that goal, increase contact with female and minority colleagues to lessen bias, and encourage social accountability through transparency and diversity task forces.
The U.S. presidential election in November 2016 left in its wake a question that also resonates in other countries experiencing populist upwellings: How did the liberal political establishment, media, and electorate fail to anticipate the anger and desperate desire for change that ushered in the Trump administration? In “What So Many People Don’t Get About the U.S. Working Class,” Joan C. Williams, a distinguished professor of law at UC Hastings, points her finger at “class cluelessness” and draws on her expertise in labor and social class to describe to “professional elites” the difference between “working-class” and poor, the role of the urban-rural divide, the need for job and college programs, and how race and gender do (and don’t!) play a part in working-class politics.
We’ve all heard that blockchain will revolutionize business. But what is it? And when will organizations need to integrate it into their daily operations? In “The Truth About Blockchain,” Marco Iansiti and Karim R. Lakhani, academics who study digital innovation in business, explain this new technology and assure us that its arrival is going to take a lot longer than many people claim. Like TCP/IP (on which the internet was built), blockchain is a foundational technology that will require broad coordination. Its level of complexity—technological, regulatory, and social—will be unprecedented. It could transform the economy by slashing the cost of transactions (and how long they take) and eliminating intermediaries such as lawyers and bankers. The adoption of TCP/IP suggests that blockchain will follow a fairly predictable path. But although the journey may take years, it’s not too early to start planning.
New technology is born of effective R&D, but numerous potential stumbling blocks lie between research and commercial development. Early-stage research is expensive, risky, and unpredictable—so corporations generally shy away from it, leaving many opportunities unexplored. They could revitalize their research operations by adopting the approach taken by Bob Langer, a chemical engineer whose lab at MIT is one of the most productive and profitable research facilities in the world. “The Edison of Medicine,” by HBR senior editor Steven Prokesch, details Langer Lab’s proven formula for accelerating the pace of discoveries and getting them into the world as products. It includes focusing on projects that could make the most difference to society, finding opportunity in the constant turnover of researchers, and cultivating a leadership style that balances freedom and support.
Looking across disciplines and trends and synthesizing the best ideas is important—and time-consuming—work for today’s leaders. With this volume, we’ve done some of that heavy lifting for you. With topics ranging from a new type of literacy to a new way to record transactions, the articles here will help you better manage your work today and make smart plans for whatever lies ahead.