Today we had two guests, both of whom worked as senior leaders in IBM in the past. One of them is now teaching here in HBS. And we were discussing a case on Emerging Business Opportunities in IBM. It was one of the best cases till date.
Most large organizations find it quite difficult to start new businesses (for the sake of convenience I am going to refer to these are EBO - Emerging Business Opportunities) - there are many barriers for this:
- Comfort zone of being in the existing businesses
- Know the existing business well - hence don't want to let go
- Best people are needed for running the existing businesses; and we need the best people for the EBO as well; it is obvious that the existing businesses get the best people
- Difficult to forecast the EBO , and hence difficult to plan for it
- Low tolerance to mistakes - and hence successful leaders don't want to experiment
- Metrics and measurement systems are tuned for existing businesses - and hence not suited for EBO's
- Successful leaders have a mindset against moving away from existing roles
- EBO leaders find it difficult to get people, money and resources
IBM did a detailed analysis and came up with these six reasons IBM routinely missed new technology and market opportunities:
- The existing management system rewards execution directed at short-term results and does not value strategic business building
- The company is preoccupied with current served markets and existing offerings
- The business model emphasises sustained profit and EPS improvement rather than actions oriented towards higher price/earnings
- The firms approach to gathering and using market insight is inadequate for embryonic markets
- The company lacks established disciplines for selecting, experimenting, funding and terminating new growth businesses
- Once selected, many new ventures fail in execution
Most organizations will have similar issues - the intensity of one or the other reason may vary, but otherwise, the reasons are likely to be similar. IBM dealt with this issue in a fantastic manner - which they defined as the EBO process.
All organizations need to have this capability to manage these different kind of businesses - this capability has been given this fancy term - Ambidexterity. The IBM folks in the class, gave their perspectives on this:
- IBM desperately needed this kind of capability
- This is like the "yin and yang" of businesses - seemingly interconnected and interdependent
- Will create internal conflict
- Hence inspirational leadership is crucial
- EBO leaders had dual reporting - direct to the line of business heads and to the EBO management, which was led by the Strategy office;
- Ideas need to be evaluated and an executive would need to take the call; a committee would kill the idea
- Key attributes in selecting the EBO leaders were:
- Respected, inspirational and successful
- Corporate skilled - knows how to get things done
- Had a good Rolodex of customers - who trust her
- Not necessarily an entrepreneur
- EBO would only look at organic growth
The concept of EBO was to move from a world of silos to a world of cross matrix services. And it needs disciplined experimentation. Bruce Harreld, who ran the EBO program and now teaches at HBS, told the IBM board that this EBO program would produce 2% points of growth. Given IBM's size that number is approx $2b of new revenues every year. The actual results have wildly surpassed all expectations. Today there are over 150 EBO's and all of them are run within the lines of businesses - which was the ultimate goal.
The second case we discussed today was Mexico. This amazing country with proximity to the largest market in the world - USA and abundance of oil has had an amazing run from 1994 to 2001. It was in 1994 that the NAFTA (North American Free Trade Agreement) took effect. And with an open economy, export led growth strategy, the country was booming. Till the time China joined WTO in 2001 - and anything Mexico could produce, China could produce cheaper. Except for products which have a high shipment costs, all other manufacturing moved over to China. Coalition government, unions, low productivity, monopoly in some industries, drug related crimes - all these have caused the low GDP growth. Interestingly, lack of political will comes from the fact the constitution restricts the presidency to one term only - hence they don't care for the people, as they don't ever need to go back for votes !
The last session was on Global Diversity and Inclusion - a study of Royal Dutch Shell. Prof Paul Healy, who is teaching this said that he is approaching this with humility and embarrassment, as HBS has a lot to do in this area. For example in the HBS Exec Education, there are no women faculty !
There have been at least two studies, one of which was by Mckinsey, which studied the performance of companies with women on their board, with other companies. To quote the Mckinsey study, "These statistically significant studies show that companies with a higher proportion of women on their management committees are also the companies that have the best performance. While these studies do not demonstrate a causal link, they do, however, give us a factual snapshot that can only argue in favour of greater gender diversity". (See the detailed report at the link below:
In spite of all this, it is quite hard for organizations to achieve a higher diversity. There are behaviour issues, excuses of various kinds, conscious and unconscious biases and many other reasons. Businesses are not family friendly. Organizations have to go beyond creating titular roles like Director of Diversity or committees like Diversity Councils. Norway has taken the lead and passed a law which requires gender balance in the boards of public companies. For example, by law, "If the board has nine members, each sex shall be represented by at least four representatives, and if the board has more than nine members, each sex must make up at least 40 per cent of the representatives." This has been in effect from Jan 2008. Legislation may force companies to comply, but I hope companies realized that it is all about diversity of talent.
Fantastic day today, especially with the IBM case. More later ....
1 comment:
Partha
The note on EBO is fantastic. Interesting pointers for our company as well...
Venky
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