Whom to Trust …page 82
Where to Compete …page 68
www.hbr.org
March 2004
48 It’s Time to Retire Retirement
Ken Dychtwald, Tamara Erickson, and Bob Morison
58 The New Rules for Bringing
Innovations to Market
Bhaskar Chakravorti
68 Strategy as Ecology
Marco Iansiti and Roy Levien
82 The Geography of Trust
Saj-nicole A. Joni
90 A Real-World Way to Manage Real Options
Tom Copeland and Peter Tufano
16 Forethought
29 HBR Case Study
Taking the Cake
Ben Gerson
41 Managing Yourself
Reclaim Your Job
The Fate
of the
Boomers?
…page 48
Sumantra Ghoshal and Heike Bruch
105 Best Practice
How You Slice It: Smarter Segmentation
for Your Sales Force
Ernest Waaser, et al
112 Tool Kit
Lofty Missions, Down-to-Earth Plans
V. Kasturi Rangan
124 Executive Summaries
131 Panel Discussion
High-performance marketing, delivered.
Offering 14 categories of consumer electronics
products in more than 200 countries, Samsung
wanted to develop a way to optimize its global
marketing budget for maximum return. Partnering
with Accenture, Samsung undertook an intensive
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Accenture’s strategic prioritization methodology.
By reallocating approximately $150 million of its
marketing budget to high-opportunity categories
and countries, Samsung’s worldwide sales have
moved from unranked to 8th in portable DVD
players, from 10th to 3rd in digital music players
and from 8th to 2nd in LCD monitors and TVs in
just two years—establishing Samsung as one of
the world’s fastest-growing brands. The ongoing
project is an important first step in transforming
the company from a low-cost supplier to a
high-performance business.
Wyeth
High-performance R&D, delivered.
Determined to boost its output of innovative
new medicines, Wyeth’s research & development
leadership teamed with Accenture to reengineer
the way the pharmaceutical company discovers
new molecular entities and moves them through
preclinical development and clinical trials. The
companies designed and implemented vast
changes to streamline operations and dramatically
improve the effectiveness of Wyeth’s proven R&D
organization. Now, three years into the initiative,
the productivity of Wyeth’s drug discovery effort
has risen 400 percent, early clinical trial cycle
times have been cut by 60 percent, and a new
high-performance model for outsourcing clinical
data management is substantially reducing costs
by about 50 percent.
© 2004 Accenture. All rights reserved.
Samsung
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HBR
48
Features
82
March 2004
48 It’s Time to Retire Retirement
Ken Dychtwald, Tamara Erickson,
and Bob Morison
68
In most companies, the people-management systems
are designed to push older workers out the door while
lavishing investments in hiring, training, and leadership
development on crowds of eager youngsters. As baby
boomers head toward retirement, that model is foolish
and even dangerous.
58 The New Rules for Bringing
Innovations to Market
Bhaskar Chakravorti
The more networked and interdependent an industry
is, the harder it is for a company to innovate unilaterally.
For new products and services to succeed, the whole
network has to get involved.
68 Strategy as Ecology
Marco Iansiti and Roy Levien
There’s more than a metaphorical link between business
and natural ecosystems. You can gain powerful new
strategic insights by looking at the roles you and your
rivals play in your industry’s environment. Are you
predator or prey? A keystone species or a niche player?
82 The Geography of Trust
Saj-nicole A. Joni
As you rise through the organization, it isn’t enough to
ask about a trusted source,“Who is he?” You need to ask,
“Who is he in relation to me?”
90 A Real-World Way to Manage Real Options
Tom Copeland and Peter Tufano
58
Options theory can be an ideal tool for analyzing nonfinancial decisions, such as whether to build a new
plant. But until now, the applicability of “real options”
has been narrow and the math behind them daunting.
Here’s a simpler, more flexible method that can improve
the timeliness of your decisions.
COVER ART: RACHELL SUMPTER
continued on page 8
90
6
harvard business review
HBR
D e pa r t m e n t s
March 2004
10
80
FROM THE EDITOR
S T R AT E G I C H U M O R
Older and Wiser
Demographic changes are almost
always visible for years before they
hit. And so it is now, as the oldest baby
boomers near 60. Unless companies
anticipate this age wave – and what
it will mean for the workforce – they
will face enormous problems.
24
105
How You Slice It:
Smarter Segmentation
for Your Sales Force
Ernest Waaser, Marshall Dahneke,
Michael Pekkarinen,
and Michael Weissel
Three years ago, medical-equipment
supplier Hill-Rom faced weakening
revenue growth and strengthening
competition. Moving ahead of the
storm, the company redesigned its
sales force – with outstanding results
thus far. Here’s how Hill-Rom did it.
FORETHOUGHT
16 Don’t Just Do Something,
Stand There!
18 How’s Your Return on People?
20 Let Me Take You Down
22 Venture Out Alone
24 Fixing the Pension Fund Mix
26 Books in Brief
BEST PRACTICE
29
112
TOOL KIT
Lofty Missions,
Down-to-Earth Plans
V. Kasturi Rangan
29
HBR CASE STUDY
For nonprofits to succeed, their
altruistic ideals must be made of
stronger stuff – namely, a systematic
method for linking good ideas to
great programs.
Taking the Cake
Ben Gerson
Legislators, litigators, and consumer
groups are suddenly taking aim at
Southland Baking Company for simply
doing what it’s always done: providing
fat-filled snacks that its customers adore.
With lawsuits in the air, is it practical –
and wise – for the company to recast
its product lines?
41
41
120
A recent article on expensing stock
options may raise more questions
than it answers.
MANAGING YOURSELF
Reclaim Your Job
Sumantra Ghoshal and Heike Bruch
LETTERS TO THE EDITOR
105
124
EXECUTIVE SUMMARIES
131
PA N E L D I S C U S S I O N
The Sin in Synergy
Most managers complain about having
too little freedom in their jobs when,
really, they’re just afraid to take action.
To become truly productive, effective
managers should adopt three strategies
that can help them trust their own
judgment.
Don Moyer
Strategies are ideas: pure and clean.
Organizations are things: messy and
complex. No wonder mergers often
don’t go as planned.
112
8
harvard business review
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FROM THE EDITOR
Older and Wiser
emography is the very air that
business breathes. The rate of
population growth underlies every
economic statistic, for example; until
the Industrial Revolution, it was practically the only determinant of economic growth. Even today, population
growth (actually, the lack of it) is a major reason that the economies of Western Europe and Japan struggle to expand. Demographic change is almost
always visible for years before it hits.
There was no excuse for the high school
I attended to have been caught so unaware by the baby
boom that it had to set up temporary classrooms in reconfigured mobile homes while a new, second campus was
being built. The school district should also have known to
design that campus so it could easily be converted to a community center when the baby bust arrived. The necessary
information had been baked into the demographic pie
long before.
And so it is now, as the oldest boomers near 60 years of
age. Investors and marketers are starting to recognize the
opportunities the boomers’ old age presents – greater demand for cosmetic and knee surgery, for health care and
insurance products, for new or redesigned products that
are friendly to arthritic fingers, for geezer-friendly holiday
resorts, and so on. But the acuity with which foresighted
companies have scanned the market has not been matched
by a similar introspection.
An aging population means an aging work force, in all
developed economies. Unless companies anticipate the
change, they will face enormous problems – ones that are
entirely foreseeable and preventable. The transformation
of workplace demographics may force wrenching changes
in government labor regulations and pension policies, but
more than that. Workplace environments; management
styles; hiring, training, and promotion practices; outsourcing and the use of part-time and contingent workers–nearly
every aspect of the people side of running a business will
be affected by the aging workforce.
That’s the message of “It’s Time to Retire Retirement” in
this issue of HBR. The surprising fact is that most training,
leadership-development, and other HR policies are steeply
skewed to benefit the young. Fifty-somethings are more
likely to be offered an early-retirement package than a
stretch assignment. Companies that continue along that
10
road will, as the article argues, be driving themselves right over a demographic cliff.
The article is the result of collaboration between demographer Ken Dychtwald and consultants Tamara Erickson
and Bob Morison. Dychtwald’s studies
of baby boomers have already won
him recognition from American Demographics as one of the 25 people who
have made the most important contributions to the field in the last quartercentury. Erickson is an executive officer and a member of the board of directors at the Concours
Group, a management-consulting, research, and education
firm. And Morison is an executive vice president and the director of research at the Concours Group. The consultancy,
in partnership with Dychtwald, led a research consortium of
executives from 30 major public and private organizations
in a comprehensive, yearlong study of the business implications of population change. “It’s Time to Retire Retirement” is the first fruit of that study. We’re pleased to bring
it to you.
Back when boomers were young, some of them said,
“Never trust anybody over 30.” They’ve changed that song
as they’ve aged, of course, but Saj-nicole Joni’s article,“The
Geography of Trust,” suggests that senior executives may
need to rediscover a little healthy paranoia about whom
they trust. Trust comes from different wellsprings. One is
personal integrity: We trust someone’s ethics. Or we trust
someone’s expertise – something we do with surgeons and
automobile mechanics and others. But there’s also what
Joni provocatively calls “structural trust.” Structural trust
changes depending on where you stand in relation to someone else. The comrade-in-arms who shared every secret
with you back when you were new hires may be unable to
offer you the same kind of total trust now that you’re both
running divisions and competing for capital, for example.
The wise manager – one who has grown wise with age, perhaps–knows that it is as important to read the map of structural trust as it is to understand integrity and expertise.
ROBERT MEGANCK
D
Thomas A. Stewart
harvard business review
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F o r e t h o u g h t
idea
Don’t Just Do Something,
Stand There!
Sony’s $1,500 pet robot is virtually useless – which explains why it’s such a big hit.
by Youngme Moon
Sony managers had a problem. Racing to beat
competitors to market, the electronics giant had
spent tens of millions of dollars developing its
first household robot. But building a personal
robot that could do anything useful proved
daunting, and Sony’s prototypes were buggy
and unpredictable. How could the company
establish a foothold in this nascent market without losing its shirt – or worse,
becoming a laughingstock?
AIBO’s lack of obedience was an
The answer, it turned out,
was
not to obsess about peridiosyncratic display of “attitude.”
fecting the technology. Early
on, company managers recognized that consumers would immediately categorize, or “frame,” any product that reminded
them of a Hollywood movie robot as, well, a
robot. If it looked like C-3PO, consumers would
expect it to act like C-3PO. And they would be
sorely disappointed if it didn’t measure up. So
Sony made a conscious decision to manipulate
the framing of its product and turn the robot’s
shortcomings into attributes. Rather than develop a household helper that would fall disastrously short of expectations, Sony realized it
could create an entertaining and lovable pet
that no one would expect to be useful. “We had
lots of arguments about whether AIBO should
do something or not,” one Sony manager told
me. “But in the end, we all agreed: AIBO loves
you, you love AIBO, and that’s it.”
Accordingly, the first-generation AIBO didn’t
do much, and what little functionality it had was
erratic. While the doglike AIBO could negotiate
QRIO
obstacles and respond to some commands, for
example, it didn’t always do what it was told.
16
But Sony cleverly marketed the creature as an
entertainment robot with a personality of its
own. According to the company, AIBO’s lack of
obedience was an idiosyncratic display of “attitude.” The reality was that AIBO’s voice recognition was unreliable, so sometimes the product
simply didn’t work.
Framing AIBO as a pet enabled Sony to get
the biggest bang out of minimal functionality.
The company was able to successfully introduce
robotic technology into people’s homes and position itself as the category leader for the future.
In the process, Sony created public excitement
about household robots and generated internal
momentum to drive the product’s development. Because customers were forgiving of
AIBO’s quirks, the company had tremendous
leeway to tinker with its technology. Categorizing the robot as a pet also helped Sony attract
lead consumers who were more demographically and psychographically diverse – ranging
from the elderly to very young children – than
typical technology early adopters. And, by
putting its imperfect technology out into the
AIBO
harvard business review
The strategy boils down to
knowing the difference between
what the product is and what
consumers expect it to be.
marketplace, Sony had the opportunity to gather invaluable
consumer feedback to help guide
continued development.
Take Baby Steps
Sony has sold more than 130,000
AIBOs since the product launched
in 1999. Last September, Sony released its third-generation AIBO,
and the company is now prototyping a little humanoid that can walk
and talk, recognize voices and faces, and stream
video from its camera to your PC. The QRIO
(pronounced “curio”) looks and acts more like
a Hollywood robot than AIBO ever did. But once
again, Sony is carefully managing the new
robot’s framing to ensure that when QRIO is
released, consumers won’t expect much utility.
Highly mobile and just two feet tall, QRIO suggests, if anything, a playful child. And, like its
canine predecessor, QRIO does little that’s really
useful. As the promotional text on Sony’s Web
site explains, “QRIO’s dreams are limitless. But
one is clear: to make your life fun and happy.”
Contrast Sony’s robot development strategy
with Honda’s. Both companies share the same
long-term vision: to develop practical household
robots. But Honda has nothing marketable to
show for the 15 years and $100 million it has
spent perfecting its prototype, ASIMO, an android that’s clearly designed – and framed – to
imply usefulness. At twice QRIO’s size, the anthropomorphic ASIMO conspicuously evokes
the Hollywood ideal, and Honda touts its “unprecedented humanlike abilities.” But ASIMO
march 2004
is not for sale. The robot does
little more than walk, and
even the simplest household
tasks are beyond its capabilities. Nonetheless, Honda is
aggressively positioning itself
as a player. The company has
run television spots featuring
ASIMO, and its print ads in
magazines
promise that “one
ASIMO
day, ASIMO could be quite
useful in some very important
tasks, like assisting the elderly and even helping
with household chores.” No wonder Honda has
no immediate plans to market ASIMO. By publicly committing itself to delivering a truly useful robot, the company has created consumer
expectations that – for now, at least – will be hard
to meet.
Reframe the Frame
AIBO’s success shows the pivotal role of framing in marketing discontinuous innovations for
consumers. If managers want mainstream customers to embrace a new technology, they need
to establish the most effective frame early in
the development process and commit to it. The
strategy boils down to knowing the difference
between what the product is and what consumers expect it to be. If customers think your robot
is a pet, all the better for them – and for you –
while you perfect the technology.
Youngme Moon is an associate professor of marketing at Harvard Business School in Boston.
Reprint F0403A
17
F o r e t h o u g h t
h u m a n ca p i ta l
How’s Your Return on People?
Companies that invest in employee development can outperform the market.
Just ask their shareholders.
by Laurie Bassi and Daniel McMurrer
The People Payoff
Portfolio1
2003 total
return
Value one year
later of $50,000
invested on
January 1, 2003
Portfolio one, created in January 2003
35.7%
$67,850
Portfolio two, created in December 2001
31.8%
$65,900
Portfolio three, created in January 2003
31.1%
$65,550
S&P 500 market index
26.4%
$63,200
1.These three portfolios are managed by Knowledge Asset Management (KAM), the investment firm
founded by the authors. Returns are net of all fees, expenses, and dividends.
and 40 companies that invested at roughly
twice the industry norm in employee development in each of the previous years (1996
through 1999). We followed the performance
of these portfolios through 2001. Their returns
were robust and in line with a growing body
of empirical research showing that organizations that make extraordinary investments in
people often enjoy extraordinary performance
on a variety of indicators, including shareholder
return.
In December 2001, we decided to put our
money where our research was and created a
live portfolio of companies that spend aggressively on employee development. In its first
25 months since inception, that portfolio has
outperformed the S&P 500 index by 4.6 percentage points (2.2% versus a decline of 2.4% for
the index). In January 2003, we expanded our
investment strategy by launching two additional live equity portfolios made up of similar
development-oriented companies. The results
speak for themselves. While past performance is
never a guarantee of future results, and while it
is always possible to lose money, each of these
three portfolios outperformed the S&P 500 by
17% to 35% in 2003. (See the exhibit “The People
Payoff.”)
How are you investing in your most important asset?
Laurie Bassi (
[email protected]) is the
chairwoman and Daniel McMurrer (dmcmurrer@
knowledgeam.com) is the chief research officer at
Knowledge Asset Management, a money management firm in Bethesda, Maryland.
Reprint F0403B
18
harvard business review
JAMES YANG
Managers are always claiming, “People are our
most important asset.” But deep down, they
can’t shake the feeling that employees are costs.
Big costs. And they treat them that way. Quarterly earnings off? Cut the perks, rein in training, and downsize. This strategy may increase
earnings in the short term, but it’s myopic. Recent studies suggest that layoffs actually destroy
shareholder value. And our research shows that
treating employees like the assets they are – by
investing in their development – boosts returns
over the long term.
For years now, our research has measured
the effect of spending on employee education
and training – a “cost” that is buried in general
and administrative expenses – on the stock
prices of 575 publicly traded firms. We created
four hypothetical portfolios (one each for years
1997 through 2000) consisting of between 20