East Vs. West: The Great Creativity Divide

Columbia Business School - Columbia University
Published: September 7, 2011

Countries like Japan and the Tiger economies have largely made their market reputations by making incremental quality improvements on existing technologies. Still, they seem to be facing a crisis of creative confidence. Japan’s two-decade long economic slump has sparked debates over conformist classrooms techniques and hierarchical workplaces. At the same time, some Asians, including former Singapore prime minister Lee Kuan Yew, suggest that the Western form of creativity — a more freewheeling process that emphasizes groundbreaking solutions — leads to chaos and social problems. 

Michael W. Morris, the Chavkin-Chang Professor of Leadership at Columbia and a Chazen Senior Scholar, set out to understand how Eastern and Western cultures view creativity. We asked him explain his findings and how the differences he uncovered might find their way into the workplace. 

How do you define creativity?

Most researchers define it as a solution to a problem that is both novel and useful.

What difference do you see between how Eastern and Western cultures channel their creativity? 

Western cultures tend to be individualistic. When Westerners approach problem solving, they attempt to make the solution unique and ground breaking. But social norms in East Asian cultures encourage harmony and not making waves. As a result, there’s more attention to making a solution useful — easy to implement, easy for other people to accept and to understand.

There’s a lot of evidence for these cultural differences. Countries like Japan have done very well by making incremental quality improvements on existing technologies. In the West, there’s more emphasis on developing completely new technologies. Of course there are many exceptions.

How do these differences play out in the workforce? 

Different cultures tend to design R&D with different outcomes in mind. Patents in Japan, for example, tend to come out of very focused projects. A pharmaceutical company will look for a drug that treats a cardiac condition. In the West, research is more exploratory. Researchers look for what might come out of a technology. So if a drug doesn’t work on the cardiac condition, but treats something completely different, they patent it for the other condition. 

Where do "bicultural" individuals fit on the creativity curve? 

Researchers used to think that Asian Americans or residents of a Western-influenced city like Hong Kong had habits of mind and conduct that were halfway between the cultural syndromes of East Asia and those of the West. Instead, we are finding that individuals can switch back and forth as they move between different settings in the same way you can be a mother and a manager as you go from being with your kids to being at work. 

We found that very integrated biculturals — those who have grown up with both cultures or immigrants who have been in the new country for a long time — tend to experience less conflict between their two identities and base their behavior on context. If they enter a room where people are speaking Chinese or go to a traditional sushi restaurant, their Asian side comes out. When they are in an American situation, they respond in a Western manner. The behavior happens automatically.

Then we started studying less-integrated biculturals, who are more recently arrived or for personality reasons experience more stress as they move between cultures. They reported a more divided self-concept and tended to respond in a contrarian manner to culturally laden situations. When they enter the room where people are speaking Chinese, they behave even more Western than they usually do, and if they come into a situation with strong Western expectations, their Asian side comes out. We think they resist fully engaging in either of their identities because that would entail abandoning their other side. 

How can companies use your research? 

Knowing that people have different expectations of creativity helps a company understand its customers. There may be less acceptance of hyper-novelty in some parts of the world, where customers may prefer an incremental evolution of products. 

It also would help firms tap the global talent pool. Organizations hiring in different parts of the world can find different kinds of talent. If it’s a quality-control issue, where a company wants to make an existing chip 20 percent more efficient, a company might find their scientists in Taiwan rise to this challenge, whereas their Silicon Valley people might be bored by that problem and more engaged by the problem of inventing a completely different kind of chip. 

As far as hiring bicultural individuals, both chameleons and contrarians are useful to organizations. If you need somebody to be an ambassador, an integrated bicultural to mesh with the culture would be a good choice. If you need somebody in a monitoring or compliance or critical evaluation role, a contrarian bicultural would be an ideal person.

Too Much Entrepreneurship Is A Bad Thing

Harvard Business School - Harvard University
Published March 29, 2011

At the risk of sounding like a Grumpy Old Man, and with near certainty that this post will be roasted by many who read it, I am about to make the case that there is such a thing as too much entrepreneurship — or at least too much excitement about becoming an entrepreneur too early in life.

I know, I know. This blog, and all of my work over the last 15 years, has celebrated the spirit of innovation, disruption, and changing the game. But last week, when the New York Timespublished one of those bound-for-the-time-capsule reports on the culture of Silicon Valley, I for one had had enough. Anything in excess is a poison, after all, and in America we've made the phenomenon of taking every good idea to excess our new national pastime. That's what we may be doing with entrepreneurship today. The startup bug has become a startup fever, and that fever may be driving many people to hysteria.

The Times piece was all about the new "War for Talent" in Silicon Valley, a replay of the battle waged more than a decade ago to recruit top-flight young engineers and coders from elite colleges and assorted countercultural pursuits. "The atmosphere is brutally competitive," one executive said. "Recruiting in Silicon Valley is more competitive and intense and furious than college football recruiting of high school athletes."

Talk about partying like it's 1999: Zynga, the red-hot game maker, "dangles free haircuts and iPods to recruits, who are also told that they can bring their dogs to work." (No word if the dogs get free haircuts too.) At Integra, a photo-sharing site, "workers take personal food and drink orders from employees, fill them at Costco, and keep the supplies on hand for lunches and snacks."

All of this is pretty familiar, if slightly ridiculous, stuff. (I guess I am a Grumpy Old Man.) But what is truly new, and to me, at least, rather worrisome, is that companies have agreed to teach new employees how to start their own companies virtually from the minute they walk in the door. The hot new perk, for people who have barely spent a day working inside the company they have been recruited to join, is training and advice and lessons on how to leave that company and start one of their own. As the piece concludes, "Many of the most talented engineers want to be the next Mark Zuckerberg, not work for him."

I suppose I'd like to be the next Mark Zuckerberg too, if only to get Jesse Eisenberg to play me on the big screen. But to me, this cult of the young entrepreneur runs the risk of becoming just another business-culture fad, the Silicon Valley version of every East Coast smarty-pants who aspired to be the next Gordon Gekko (a Hollywood-created crook, who, bizarrely, inspired countless young people to flock to Wall Street).

Here's my major beef with what's happening. The real metric of business success is whether you have a positive impact — on your industry, on your community, on (in a small way) the world at large. That doesn't always mean starting your own company. Most of the time, in fact, it means becoming part of a company that you love, with a purpose you believe in, and people who you can't imagine not working with. It's all about the cause, the mission, the values you embrace, and the value you create. I've always admired talented people who want to be part of something bigger than themselves, rather than those who think it's all about them, even when they're in their mid-twenties.

Don't get me wrong. I'm not against teaching people at a company how to be entrepreneurs. And, unlike say at Bloomberg, where people who leave the company are banished forever, I'm all for encouraging people to try new things with the hope that they will return. But I think it's incredibly wrongheaded to compete for talented people based on pitching a company as a training ground for someone's individual dreams, as opposed to a place where individuals can't imagine not being — because the product is so important, the values so robust, the culture so engaging. Business ultimately is a team sport. As someone building a company, I'd much prefer people who genuinely want to be part of the team for the long haul, rather than "free agents" who are willing to suffer through a brief stint on the roster before they field a team of their own.

Malcolm Gladwell looked at this very issue a decade ago, during the last War for Talent, in a longNew Yorker piece called "The Talent Myth." The object of his attention (and scorn) was a company that vowed to attract the brainiest and most high-powered people in its field, and who promised that spending a few years there would give them the skills and mindset they needed to do whatever they wanted with the rest of their lives. That company was Enron, and we know how that turned out.

There's a difference between attracting brilliant stars, Gladwell argued and building a brilliant systems for the long term. The most successful organizations, he said, "are the ones where the system is the star." Indeed, he asked, "What if Enron failed not in spite of its talent mind-set but because of it?" he asked. "What if smart people are overrated?"

That was a heckuva question 10 years ago, and it's a heckuva question today. Does it really make sense to move heaven and earth to recruit young people to your company whose real commitment is starting their own company? How about focusing on people (even if they are a little less young or a little less talented) who believe in your company and are committed to its success?

Let the debate begin...

Strategy On One Page

Harvard Business School - Harvard University
Published June 1, 2011

My partner Mats Lederhausen, formerly worldwide head of strategy for McDonald's, introduced me to "Strategy Trees." The concept is, like most useful things, deceptively simple. It forces you to get at the heart of what you are trying to achieve. The "tree" analog comes from the linkage between the questions in a Strategy Tree. Start at the root purpose of why you are doing something and link it to your goal and how you will measure progress. Graphically, it looks more like a series of adjacent boxes, as illustrated below (click on the image to see a bigger version):


It comes down to asking the "Why, what, who, and how" of your business, arraying it across one page in a way that makes it extremely useful as an alignment tool amongst management or board members. This is hardly a novel concept, but it falls into that category of common sense that is not so commonly done. There are various permutations of these questions, but here are four that I have come to use in trying to summarize the big picture of a portfolio company (with an example provided):

1. Why do you exist (what's the big idea)? Why does your business have a right to exist and what purpose is it trying to achieve? For example, in one of our portfolio companies, nail salon chainMiniLuxe, its purpose is to try and "Starbuck nail salons" by offering more consistent service and labor practices to the most used, but most under-regulated beauty service. There are 65,000 nail salons in the US, but they are largely mom-and-pop shops with no serious chains offering consistent quality.

2. What is your value proposition? This is a statement geared towards the customer. For MiniLuxe it is to be the place to go for healthy and happy nails — by being the most hygienic, highest quality, convenient, and bang-for-buck experience around. In writing down your value proposition "answer," think about the unique capabilities and assets that your business has that clearly differentiates it from the competition. In the case of MiniLuxe, the company uses medical grade autoclaving equipment (a sterilization process for the instrumentation) and exposes that process through an glass "clean lab" where clients can see the tools being sanitized and sterilized. That is a unique process and asset in the nail salon world. What do you have that is different and appealing to the customer?

3. Who are you trying to serve? This is a question about your targets and being as specific as possible about them. For MiniLuxe, each store targets those who are living within one mile of a location, predominantly women between the ages of 20 to 55; from young single professionals seeking beauty maintenance, to moms looking for that "pick-me-up," to the mass-affluent who see this as a regular social and "quick bliss" experience. Think about your three, or at most four top customer clusters and focus on the ones that will be of highest recurring value to your business.

4. How do you know you are winning? Putting down the key customer and financial metric goals and where you stand against them is key. How many client visits per week should you target and what mix of service offerings is right? What is a good client happiness metric? MiniLuxe uses Net Promoter Score, a measure of how likely a client would be to recommend the service to another person. They also measure weekly financial metrics with the most critical ones being year-over-year sales growth comparables; time to positive cash flow in a new location; and sales per square feet. As I have espoused in the past, knowing your 2-3 key operating metrics and 2-3 top financial metrics makes managing a business a whole lot easier. Start with best guesses at the right target levels for each of your metrics, start measuring, and adjust as necessary.

The Strategy Tree is a variant of a decision tree, except it is less about forcing choices along a path than simply outlining a path for strategic purpose and growth. It is very effective for fostering discussion on what is truly important, and if done in a collaborative manner will create alignment on the most critical priorities. On a single page you get the big picture and linkages. Start with the purpose and objective of the "why" and the "what," and move through the "who" your business will target, and "how" to measure progress, and you will get better alignment, faster — which hopefully translates into better results. Common sense, not commonly done.

Should You Launch In Emerging Markets First?

Harvard Business School - Harvard University

Published August 22, 2011

Note: This blog post was co-authored with Justin Chakma, an undergraduate student at the University of Toronto.

Startups usually launch their products first in wealthy countries. Launching first in an emerging market is seen as a nonstarter because of commercial, regulatory, and political risks. This is starting to change: Pricewaterhousecoopers recently reported that faster approvals overseas are encouraging startups to enter the U.S. market last in some cases.

Consider Diagnostics for All, a Boston-area startup developing paper-based diagnostic tests the size of a postage stamp. Miniature wells patterned onto the paper contain chemicals that react with samples of blood, urine, saliva, or sweat, which causes the paper to display a reading with a change of color.

The technology is revolutionary because the paper tests can be manufactured for only a few cents and can deliver test results instantaneously. By contrast, existing diagnostic machines sold by multinationals cost over $20 per test and $30,000 for the test reader, require trained technicians, and take three hours to yield results. Even in wealthy countries, community hospitals and rural clinics can't afford them.

Despite the pressing market need in both the developed and the developing world, Diagnostics for All opted to develop products for the developing world first, specifically for liver damage caused by HIV/AIDS medication. This decision yielded two benefits:

Accelerated Proof of Concept. Because healthcare systems in emerging markets cannot afford large, centralized diagnostic devices, physician uptake is much more rapid, which accelerates scaled, demonstrated proof of concept. At the same time, an emerging-market launch keeps the product off the radar of multibillion-dollar incumbents, who would defend their turf fiercely.

Extreme User Prototyping. Diagnostics developed for emerging markets must be rugged, resistant to wear and tear, simple to operate, and temperature-resistant. The unwritten standard for medical device performance may actually be higher than FDA guidelines. Startups such as Diagnostics for All that tackle extreme user needs in emerging markets are more likely to come up with novel and unconventional approaches. In the process, the firm delays expensive and lengthy clinical trials in the U.S. until it has a better technological and market foothold.

Ironically, the fact that companies hesitate before developing for emerging markets creates a source of comparative advantage that startups can use to gain market share. Claro Dx developed a next-generation battery-powered reader the size of an iPhone to detect HIV, syphilis, and hepatitis, for example. Its older reader in U.S.-centered clinical trials for prostate cancer recurrence is the size of a desktop.

Startups can benefit from reverse innovation. Can readers think of other types of startups an emerging-market-first strategy might be applicable to?

Five Tough Questions Every Entrepeneur Must Ask About Growth

Harvard Business School - Harvard University

Published June 13, 2011

Getting a venture underway is often easier than keeping it going and growing. At each major stage from start-up to sustainable success, entrepreneurs face tough questions about shifting gears, making major changes, and letting go of people, partners, and products. For new businesses, inability or unwillingness to change can land them in the statistics about high failure rates at the five-year mark. For non-profits, clinging to the past can lead to marginality and stagnation.

To keep an enterprise on track while facing the often-pleasant challenge of growth requires making sometimes-painful adjustments in these five areas:

The People. One of the hardest questions is when to change the people — not just individually, but the whole mix. Founders often start with friends and true believers who work hard because of zeal for the cause or hope for future returns. They occupy multiple overlapping roles. But do the people with single-digit badge numbers or members of the founding generation have the skills the organization needs as it creates routines and requires depth in every specialty? Who can make the cut? A winery I knew from its beginning kept the original group longer than the business could afford, and loyalty got in the way of bringing in experienced people "above" the people who felt they were founders and thus privileged to call the shots. Raise a glass to courageous leaders willing to tell people they must either grow or go.

Finances. Whether the original source of funds is venture capital or venture philanthropy, an investor base or a donor base, each growth phase challenges organizations to shift assumptions and thus change practices. Perhaps investors expect customers to take over as funders of growth by paying more (or paying at all), a challenge dot-com companies faced in the first Internet wave and social media companies face now. Non-profits also outgrow friends-and-family angels or local sources and must find sustainable revenue and capital sources. How do you move from being discretionary nice-to-have in a portfolio to essential-to-fund? Where are the new sources appropriate to a new, larger size? A multi-site non-profit went from local businesses close to the founding city to national funders in government and foundations to a revenue model replicable in every site through ongoing school budgets on a fee-for-service basis.

Partners and Allies. The best organizations are attuned to the need for key external relationships that provide resources and support. At the same time, entrepreneurs do not want to be captive to the needs and desires of their first distribution partners, component suppliers, source of talent, or marketing allies. It is tricky to know how to nurture and draw benefits from key partners without being subsumed by them — or subject to damage if they stumble — and, at the same time, add to a partner set without creating conflicts. Which partners should be downplayed or replaced as the organization grows? How can key relationships be managed to lessen dependence while seeking new, more relevant, allies? And with growth comes the need for entirely new types of relationships — which is why Facebook now has an enlarged Washington office.

Organizational Culture. Are you making explicit what the organization stands for in tangible ways that can be transmitted and endure? Are you on guard against drifting away from the culture? Numerous studies, including my own, show that an emphasis on organizational culture is associated with continuing excellence. Values, stories, artifacts, and rituals provide a source of identity that makes the organization feel the same, in pursuit of the same mission even while everything else changes. Culture provides internal glue. As an organization grows, what was once informal must be documented, codified, memorialized, and passed on to new people. Savvy entrepreneurs ensure that their organizations are built to last by stressing culture. At every stage, they invest in preserving fundamental values and principles while adding new iconic stories that reflect them.

Outcomes and Impact. What results are being produced, for whom, and are these sufficient? In the beginning it's enough to show that it can be done at all — to address a good cause or to prove that something works in a handful of markets. In the next phase, you might look at growth indicators — we did more this year than last year. Recall the signs that McDonald's posted outside its stores during its rapid growth phase, heralding how many millions of hamburgers had been served. Sooner or later a new question arises: Are you making a difference that makes the venture more essential?

Ventures that go from proof of concept to "permanent" player have become icons, household names, or must-have players because they can show differentiated user, recipient, or national benefits — that they have impact not just on their immediate customers but on the entire industry. We all know that success provokes imitation. As the organization grows, its distinctiveness gets harder to maintain. But often many in and around the organization come to believe that existence is a sufficient sign of importance — a trap particularly for non-profits. Asking the "so what if we weren't here?" question about making a difference can provoke soul-searching and strategy change.

The bottom line: In addition to the challenges of innovation to ensure new offerings and new capabilities, entrepreneurs and organization founders must also be alert to the ways that the organization itself changes as a result of growth. It is important to anticipate those developments and ask the five big questions at every stage in order to get ahead of change and master it.

New Retail Strategies

Wharton School - University of Pennsylvania
Published: August 31, 2011

Retailers looking for growth in today's economy might pick up a lesson or two from Coca-Cola's Freestyle vending machines. First tested in 2009 and now rolling out full force nationwide, the futuristic touch-screen machines offer customers 125 different beverage choices, from flavored Dasani waters and sports drinks to Diet Cherry Coke. Customers can even create their own combinations -- Fanta Orange and vanilla cream soda, anyone? -- or try flavors unavailable elsewhere, like Raspberry Coke. This month, the company launched apps for Facebook and smart phones that let customers mix and name their own drink. Plans are that one day the apps will spit out a bar code for customers to scan at Freestyle machines and automatically dispense their own personalized blend.

Coca-Cola is dispensing more than just flavored water, says Wharton marketing professor Jerry Wind. The company is also creating excitement, tapping into social networks, giving people a chance to customize their own product and empowering customers in ways that a traditional vending machine can't match. Those are important retail strategies in today's economy, where one out of five people in the United States is either unemployed or underemployed and consumers remain reluctant to spend.

Since the recession began in 2008, retail in the U.S. has split into "two extremes," Wind notes. On one hand, there is the luxury market, which caters to a small segment of wealthy people unaffected by economic ups and downs. Aside from a drop-off at the beginning of the recession, when luxury spending seemed ungainly, this segment still spends. On the other hand are discount brands, which have grown their market share as consumers scrimp and trade down to cheaper products. Brands that fall between those two categories will continue to be squeezed, Wind says, and will need to create excitement to make their product stand out.

In many ways, it's a retail story that never changes, says Wharton marketing professor Leonard Lodish: "Retailers that really solve problems and delight consumers in ways that other retailers can't ... do very well." 

Click here to read the full article

More On The Dreaded Double Dip

Wharton School - University of Pennsylvania
Published: August 22, 2011

Recent economic news has been discouraging. Growth is slowing in many developed countries, and experts warn that the world could slip into another recession, having never really recovered from the last one.

According to Mark Zandi, chief economist and cofounder of Moody’s Economy.com, the odds of a renewed recession over the next 12 months continue to be about one in three, but a continuing “crisis of confidence” could make matters worse.

“We’re suffering a loss of faith in the economy,” Zandi said in an interview with Knowledge@Wharton. “The collective psyche is on edge…. It really wouldn’t take much of a misstep or a shock to push us back under.”

In a report to Moody’s subscribers, Zandi wrote that Economy.com has reduced its forecast for real GDP growth in the U.S. to an annualized rate of 2% for the second half of 2011, and just over 3% in 2012. “A month ago, we projected GDP growth at 3.5% during the second half of this year and through 2012,” he said.

What has changed?

“A string of unfortunate shocks are to blame,” Zandi noted in the report. “Surging gasoline and food prices, and fallout from the Japanese quake hurt badly in the spring; more recently, the debt-ceiling drama, a revived European debt crisis and the Standard & Poor’s downgrade have been especially disconcerting. Confidence, already fragile after the nightmare of the Great Recession and Washington’s heated policy debates, was severely undermined. Stocks are nearing bear-market territory….. Prospects for GDP growth and job creation have diminished substantially since our last forecast.”

The irony, Zandi told Knowledge@Wharton, is that many economic gauges are more favorable than they typically are when a recession looms. Business balance sheets are very healthy, as many firms have paid down debt and locked in low interest rates. The ratio of businesses’ interest payments to cash flow “has never been lower.” Though many homeowners are struggling with mortgage debt, the overall portion of after-tax household income spent to remain current on loans is “falling fast” and could be at record low rates by early next year. Household liabilities have fallen by $1.2 trillion from their peak three years ago, a 10% drop.

(For another view of today’s unusual conditions, see this Wall Street Journal column co-authored by Wharton finance professor Jeremy J. Siegel.)

“The economy’s path depends on how swiftly and effectively policymakers act to shore up confidence,” Zandi wrote in his report to subscribers.

According to Zandi, the Federal Reserve should launch a third round of quantitative easing with an open-ended program of buying billions of dollars worth of Treasury securities every month until conditions improve. Washington also must avoid another debt-ceiling crisis, and needs to develop a long-term plan to reduce federal budget deficits, he added. That should include reform of entitlements and ways to increase tax revenues, largely by reducing tax credits and deductions. Even the cherished mortgage interest deduction should be trimmed, he noted.

“I think we are going to make our way through without a recession,” Zandi predicted during his interview. “The economy is going to gain traction through the rest of the year and into next year.”

But potential gains could be derailed, he cautioned, if a failure to address big underlying problems like sovereign debt in the U.S. and Europe further undermines consumer and business confidence. “A crisis of confidence,” Zandi said, “can become self-fulfilling.”