First Look

Abstract—Change is hard, especially in a large organization. Yet some leaders succeed-often spectacularly-at transforming their workplaces. What makes them able to exert this sort of influence when the vast majority can't? The authors tracked 68 change initiatives in the UK's National Health Service, an organization whose size, complexity, and tradition can make reform difficult. They discovered several predictors of change agents' success-all of which emphasize the importance of networks of personal relationships: 1) Change agents who were central in the organization's informal network had a clear advantage, regardless of their position in the formal hierarchy. 2) People who bridged disconnected groups or individuals were more effective at implementing dramatic reforms. The resisters in their networks did not necessarily know one another and so were unlikely to form a coalition. Change agents with cohesive networks, in which all individuals were connected, were better at instituting minor changes. Their contacts rallied around the initiative and helped convince others of its importance. 3) Being close to people who were ambivalent about a change was always beneficial. In the end, fence-sitters were reluctant to disappoint a friend. But close relationships with resisters were a double-edged sword: such ties helped push through minor initiatives but were a hindrance when attempting major change.

Publisher's link: http://hbr.org/2013/07/the-network-secrets-of-great-change-agents/ar/1

Abstract—In puzzling over whether it's better to be feared or loved as a leader, Machiavelli famously said that, because it's nigh impossible to do both, leaders should opt for fear. Research from Harvard Business School's Amy Cuddy and consultants Matthew Kohut and John Neffinger refute that theory, arguing that leaders would do much better to begin with "love"-that is, to establish trust through warmth and understanding. Most leaders today approach their jobs by emphasizing competence, strength, and credentials. But without first building a foundation of trust, they run the risk of eliciting fear, resentment, or envy. Beginning with warmth allows trust to develop, facilitating both the exchange and the acceptance of ideas-people really hear your message and become open to it. Cultivating warmth and trust also boosts the quantity and quality of novel ideas that are produced. The best way to gain influence is to combine warmth and strength-as difficult as Machiavelli says that may be to do. In this article, the authors look at research from behavioral economics, social psychology, and other disciplines and offer practical tactics for leaders hoping to project a healthy amount of both qualities.

Publisher's link: http://hbr.org/2013/07/connect-then-lead/ar/1

Abstract—Several key questions in bundling have not been empirically examined: Is mixed bundling more effective than pure bundling or pure components? Does correlation in consumer valuations make bundling more or less effective? Does bundling serve as a complement or substitute to network effects? To address these questions, we develop a consumer-choice model from micro-foundations to capture the essentials of our setting, the handheld video game market. We provide a framework to understand the dynamic, long-term impacts of bundling on demand. The primary explanation for the profitability of bundling relies on homogenization of consumer valuations for the bundle, allowing the firm to extract more surplus. We find bundling can be effective through a novel and previously unexamined mechanism of dynamic consumer segmentation, which operates independent of the homogenization effect, and can in fact be stronger when the homogenization effect is weaker. We also find that bundles are treated as separate products (distinct from component products) by consumers. Sales of both hardware and software components decrease in the absence of bundling, and consumers who had previously purchased bundles might delay purchases, resulting in lower revenues. We also find that mixed bundling dominates pure bundling and pure components in terms of both hardware and software revenues. Investigating the link between bundling and indirect network effects, we find that they act as substitute strategies, with a lower relative effectiveness for bundling when network effects are stronger.

Abstract—This article draws on historical material to examine the co-evolution of economic science and business education over the course of the twentieth century, showing that fields evolve not only through internal struggles but also through struggles taking place in adjacent fields. More specifically, we argue that the scientific strategies of business schools played an essential-if largely invisible and poorly understood-role in major transformations in the organization and substantive direction of social-scientific knowledge, and specifically economic knowledge, in twentieth century America. We use the Wharton School as an illustration of the earliest trends and dilemmas (c. 1900-1930), when business schools found themselves caught between their business connections and their striving for moral legitimacy in higher education. Next, we look at the creation of the Carnegie Tech Graduate School of Industrial Administration after World War II. This episode illustrates the increasingly successful claims of social scientists, backed by philanthropic foundations, on business education and the growing appeal of "scientific" approaches to decision making and management. Finally, we argue that the rise of the Graduate School of Business at the University of Chicago from the 1960s onwards (and its closely related cousin at the University of Rochester) marks the decisive ascendancy of economics, and particularly financial economics, in business education over the other behavioral disciplines. We document the key role of these institutions in diffusing "Chicago-style" economic approaches-offering support for deregulatory policies and popularizing narrowly financial understandings of the firm-that sociologists have described as characteristic of the modern neo-liberal regime.

Abstract—This study of the high-end fashion industry in India examines the process of construction of the worth of a new industry. Analyses of data from multiple sources revealed that framing by early entrepreneurs and the socio-cognitive processes that resulted from the transactions of field-constituents with the new industry constructed the worth of the industry. These socio-cognitive processes-curation and certification, commentary and critique, and co-presentation, comparison, and commensuration-enabled broader audiences to make sense of the industry and comprehend its worth. The findings form the basis of a general model of the social construction of worth through a process of distributed sanctification, contributing to the growing literature on social construction of value.

Abstract—The conventional wisdom about how best to pursue growth-launch a slew of initiatives in high-potential areas; appoint some promising young managers to lead them; locate them safely away from the established businesses-is a recipe for failure, according to the authors. Meanwhile, CEOs spend too much time on managing today's earnings and too little time on building the kind of learning organization and culture that growth requires. This article explores six common mistakes that executives make in this arena: 1) Failing to provide the right kind of oversight. The CEO should spend meaningful time with the team and with potential customers; 2) Not putting the best, most experienced talent in charge. Seasoned executives in the core businesses, rather than ambitious young MBAs, should be assigned to growth initiatives; 3) Assembling the wrong team and staffing up prematurely. CEOs should focus on capabilities, not who's available, and staff up only when the strategy, business model, and value proposition are clear; 4) Taking the wrong approach to performance assessment. Milestones relevant to each stage of an initiative's development should be established, and key assumptions in the business plan should be linked to the financial forecast; 5) Not knowing how to fund and govern a start-up. The funding of early-stage ventures should be separated from the corporation's annual budget cycle; 6) Failing to leverage the organization's core capabilities. CEOs must play a central role in helping growth initiatives tap the resources of the core businesses.

Publisher's link: http://hbr.org/2013/07/six-ways-to-sink-a-growth-initiative/ar/1

Abstract—By 2050 the number of people living in cities will have nearly doubled, to 6 billion, and the problems created by this rampant urbanization are among the most important challenges of our time. Of all resource-management issues, the author argues, water, electricity, and transit deserve the greatest focus. Every other service a competitive city provides-functional housing, schools, hospitals, stores, police and fire departments, heating, cooling, waste management-depends on a reliable infrastructure for those three resources. Many corporations and investors assume that fixing cities is the purview of government. But governments around the world are stuck-financially, politically, or both. Implementing solutions to the problems of urbanization requires large amounts of capital, exceptional managerial skill, and significant alignment of interests. All these abound in the private sector. Thus major opportunities exist for businesses that can create and claim value by improving resource efficiency. The products and services that new (or legacy) cities will require, and that provide the return investors and entrepreneurs need, optimize both technological sophistication and financial sophistication-approaches designed to attract capital by offering different levels of risk and return, different cash-flow priorities, and opportunities for both short-term and long-term investment. The author cites a number of companies that have moved toward or into what he calls "the efficiency frontier." These include Sarvajal, in India, which saves money and eliminates waste by selling direct to customers through its "water ATMs"; the Boston-based EnerNOC, which manages electricity production and consumption to reduce spikes in demand; and EMBARQ, based in Washington, DC, which coordinates the interests of business and government to organize city transit services.

Publisher's link: http://hbr.org/2013/07/building-sustainable-cities/ar/1

Abstract—In theory, the risk management groups of two British banks-Saxon and Anglo-had the same influence in their organizations. But in practice, they did not: Saxon's was engaged in critical work throughout the bank, while Anglo's had little visibility outside its areas of expertise. In their study of these two financial institutions, the authors identified four competencies-trailblazing, toolmaking, teamwork, and translation-that help functional leaders or groups compete for top management's limited attention and increase their impact. Anglo's risk managers were strong in only some of the competencies, but Saxon's were strong in all four. They consistently scanned the internal and external environment for important issues to which they could apply a risk management perspective (trailblazing) and then developed tools-such as quarterly risk reports-that spread their expertise (toolmaking). While controlling the tools' design and implementation, the risk managers incorporated business managers' insights (teamwork) and made sure everyone could understand the findings (translation). Ultimately, experts' roles must fit the organization's strategy and structural needs. In some situations, functional experts can raise their profile by cultivating just two of the competencies. But those who are strong in all four are likely to be the most influential.

Publisher's link: http://hbr.org/2013/07/how-experts-gain-influence/ar/1

Abstract—Three years ago, when a cave-in at the San José mine in Chile trapped 33 men under 700,000 metric tons of rock, experts estimated the probability of getting them out alive at less than 1%. Yet, after spending a record 69 days underground, all 33 were hoisted up to safety. The inspiring story of their rescue is a case study in how to lead in situations where the stakes, risk, and uncertainty are incredibly high and time pressure is intense. Today executives often find themselves in similar straits. When they do, many feel torn. Should they be directive, taking charge and commanding action? Or should they be empowering, enabling innovation and experimentation? As the successful example of André Sougarret, the chief of the mine rescue operation, shows, the answer is yes-to both. The choice is a false dichotomy. Implementing this dual approach involves three key tasks. Each has directive and enabling components. The first task is envisioning, which requires instilling both realism and hope. The second task is enrolling, which means setting clear boundaries for who is on and off the team, but inviting in helpful collaborators. The third task is engaging-leading disciplined execution while encouraging innovation and experimentation. The authors of this article describe how Sougarret ably juggled all of these tasks, orchestrating the efforts of hundreds of people from different organizations, areas of expertise, and countries in an extraordinary mission that overcame impossible odds.

Publisher's link: http://hbr.org/2013/07/leadership-lessons-from-the-chilean-mine-rescue/ar/1

Abstract—Existing studies suggest that systemic crises may arise because banks either hold correlated assets or are connected by interbank lending. This paper shows that common regulation is also a conduit for interbank contagion. One bank's failure may undermine confidence in the banking regulator's competence, and, hence, in other banks chartered by the same regulator. As a result, depositors withdraw funds from otherwise unconnected banks. The optimal regulatory response to this behavior can be privately to exhibit forbearance to a failing bank. We show that regulatory transparency improves confidence ex ante but impedes regulators' ability to stem panics ex post.