Page 127 - Harvard Business Review (November-December, 2017)

TALENT MANAGEMENT ENTREPRENEURSHIP INNOVATION STRATEGY

FEATURE TURNING POTENTIAL INTO SUCCESS FEATURE WHEN FOUNDERS GO TOO FAR FEATURE THE BOARD’S NEW INNOVATION IMPERATIVE FEATURE STOP DOUBLING DOWN ON YOUR FAILING STRATEGY
STOP
WHEN FOUNDERS DOUBLING
GO TOO FAR
SOME START-UP CEOS HAVE DOWN
TOO MUCH POWER. HERE’S THE
WHAT TO DO ABOUT IT.
TURNING POTENTIAL INTO SUCCESS W hen the directors of Uber ousted its CEO and cofounder, BOARD’S ON YOUR
BY STEVE BLANK
Travis Kalanick, in June 2017, the move was paradoxically
both long overdue and somewhat unexpected. For
months Kalanick and the company had suffered a string
THE MISSING LINK IN LEADERSHIP DEVELOPMENT of scandals, any one of which might have undone a NEW FAILING
typical chief executive. A female engineer had posted
STRATEGY
a long public account of rampant sexual harassment
and the company’s “bro culture,” to which Uber’s
HR department had turned a blind eye. The company INNOVATION
had been caught ordering and canceling rides from
BY CLAUDIO FERNÁNDEZ-ARÁOZ, ANDREW ROSCOE, AND KENTARO ARAMAKI its competitor Lyft, poaching Lyft’s drivers, and using HOW TO SPOT (AND ESCAPE) ONE BEFORE IT’S TOO LATE
Organizations around the world are failing on one software to surreptitiously track its own customers even IMPERATIVE BY FREEK VERMEULEN AND NIRO SIVANATHAN
key metric of success: leadership development. B y the end of the 1990s the British music com- about 100 of them in the United Kingdom. In 2002
According to research from the Corporate Executive
pany HMV was on top of the world. Its busi-
ness model—operating Main Street stores in
Board (CEB), 66% of companies invest in programs Directors need which customers could browse through a wide col- HMV floated on the London Stock Exchange, valued
at about £1 billion.
By then, however, some employees and analysts
that aim to identify high-potential employees and help to rethink their lection and listen to tracks with an in-store headset had started to express doubts about the long-term
them advance, but only 24% of senior executives at those roles and their before they decided whether to buy a CD—had de- sustainability of HMV’s business model. Although the
livered the company an enviable 40% market share
arrival of DVDs and computer games initially boosted
firms consider the programs to be a success. A mere 13% have attitude to risk. of the 1960s, when the company began expanding popular CDs at a discount, and in early 1998 Amazon
store profits, supermarket chains had begun selling
in Britain.
HMV’s rise started with the pop music revolution
had started selling CDs online. A few years later down-
confidence in the rising leaders at their firms, down from an
loadable music appeared on the internet, culminating
its retail operations in London. It doubled in size in
VALDUM/DREAMSTIME already-low 17% just three years ago. And at the world’s largest ARTIST LEFT-HAND PAGE BY LINDA A. HILL the 1970s and had established itself as the country’s in the launch of Apple’s iTunes store in 2003.
But HMV’s top management doggedly stuck to
leading specialist music retailer by the early 1980s. It
AND GEORGE DAVIS
corporations—which each employ thousands of executives—a
its strategy. In 2004 the company opened its 200th
opened stores in Ireland and Canada in 1986 and in
full 30% of new CEOs are hired from the outside.
the United States, France, Germany, and Japan soon
store in the UK and began acquiring rival chain stores,
sometimes out of bankruptcy. By 2008 the company
afterward. By the 1990s it had more than 320 stores,
ILLUSTRATION BY ANDREW ARCHER ILLUSTRATION BY DEXTER MAURER ILLUSTRATION BY GUSTAVO BRIGANTE
86 HARVARD BUSINESS REVIEW NOVEMBER–DECEMBER 2017 NOVEMBER–DECEMBER 2017 HARVARD BUSINESS REVIEW 87 94 HARVARD BUSINESS REVIEW NOVEMBER–DECEMBER 2017 NOVEMBER–DECEMBER 2017 HARVARD BUSINESS REVIEW 103 110 HARVARD BUSINESS REVIEW NOVEMBER–DECEMBER 2017 NOVEMBER–DECEMBER 2017 HARVARD BUSINESS REVIEW 111
TURNING POTENTIAL WHEN FOUNDERS THE BOARD’S NEW STOP DOUBLING DOWN
INTO SUCCESS GO TOO FAR INNOVATION IMPERATIVE ON YOUR FAILING
Claudio Fernández-Aráoz, Andrew Steve Blank | page 94 Linda A. Hill and George Davis STRATEGY
Roscoe, and Kentaro Aramaki page 102
page 86 Silicon Valley venture capitalists Freek Vermeulen and Niro
used to routinely oust start-up As firms scramble for competitive Sivanathan | page 110
Most leadership development founders—who were viewed as advantage, boards—once the
programs aren’t working. Only 24% green and unskilled—as part of cautious voices urging management People have a tendency to stick
of senior executives at firms that the process leading to an IPO. to mitigate risk—are now calling for to an existing course of action,
have them consider them to be The author, an adjunct professor breakthrough innovation. Indeed, no matter how irrational. In the
a success. at Stanford and a well-known avoiding risk is now seen as the management literature, this
Companies must take a more entrepreneurship thinker, describes riskiest proposition of all. is known as an escalation of
scientific approach to turning their how VCs gradually came to see In speaking with CEOs and commitment, and in nearly every
raw talent into leaders, say three founders not as a problem that board members from a range academic case study on the demise
authors from Egon Zehnder, which needed to be solved but as a of industries, the authors of a former industry leader, it
has been measuring executive valuable asset that needed to identified four common obstacles played a major role. The story of
potential for 30 years. Begin by be retained. In July 2009, when most boards face in governing the British music company HMV—
identifying which of seven key Mark Andreessen cofounded the innovation: an outdated risk whose managing director dismissed
VC firm Andreessen Horowitz agenda, insufficient time, lack of downloadable music as “just a
fad”—is a classic example.
SEVENTY-TWO with Ben Horowitz, it was with a expertise, and a relationship with is explained by a number of
Escalation of commitment
management that needs retuning.
key philosophical difference from
Embracing innovation and its
PERCENT OF rival firms: a “founder friendly” inherent risks requires that boards mutually reinforcing biases, among
focus. Blank argues that this
them: the sunk cost fallacy, loss
and senior management develop
trend has gone too far, and the
MANAGERS HAVE situation at Uber is just the most new ways of working together. To aversion, the illusion of control,
the preference for completion,
obvious example of that. He offers
bolster out-of-the-box thinking at
THE POTENTIAL prescriptions for how to begin their companies, boards should pluralistic ignorance, and personal
identification. The authors
promote diversity among members.
correcting this power imbalance.
TO GROW INTO HBR Reprint R1706F They should foster “creative describe six practices that can
help counteract these biases:
abrasion” to keep ideas flowing
C-SUITE ROLES. and rethink traditional methods of (1) Set decision rules. (2) Pay
attention to voting rules. (3) Protect
governing. And they must learn to
embrace and encourage risk. dissenters. (4) Expressly consider
HBR Reprint R1706G alternatives. (5) Separate advocacy
leadership competencies (results and decision making. (6) Reinforce
orientation, strategic orientation, the anticipation of regret.
collaboration and influence, Overcommitted executives, they
team leadership, developing write, are prone to ignore signs of
organizational capabilities, their company’s imminent collapse.
change leadership, and market These practices will encourage
understanding) are critical to your managers at all levels to make
top roles. Next, assess employees’ decisions more objectively.
potential by looking at five HBR Reprint R1706H
predictors of strong competencies
(motivation, curiosity, insight,
engagement, and determination)
and then map people’s potential to
role requirements to see how far
they can go. Last, to help them get
there, provide the right coaching
and development opportunities.
HBR Reprint R1706E
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