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STRATEGY AND ORGANIZATION
July 13 – 25, 2014
Application Deadline:
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Change lives. Change organizations. Change the world.
In the high-stakes game of global business, the companies
that win are the ones that can successfully navigate a
constantly changing and complex environment. Learn
how to align your organization’s strategy and structure
with this environment, identify and evaluate your firm’s
strategy, and execute change management initiatives
with success.
Learn to manage change while you learn
to change the game.
Less is more. Keep your eyes on the
prize. Know what matters. Few or-
ganizational truisms are more given
to aphorism than “focus is critical.”
Executives are flooded by choice.

There are always too many matters
that require attention and too many
possible paths to the same intended
outcome. The temptations of choice
can be so overwhelming that a score
of platitudes cannot keep us from
committing the same sin time and
again: We don’t choose at all.
We try multiple options. We
pursue every initiative that seems
promising. We throw it all at the
wall and see what doesn’t bounce off.
The problem, as we know intellectu-
ally but cannot accept emotionally,
is that when you try to do too much,
rarely does any one thing succeed.
Consider the struggles com-
panies face in managing cultural
change. Organizational culture can
be a vexing issue for leaders even
in the calmest of times—and when
they try to transform those cultures,
their consternation only increases.
With no clear path to follow, execu-
tives mix top-down directives with
multiphased change management
programs and medleys of new pro-
cedures. What’s missing is focus
and, more specifically, focus on the
factors that Jon Katzenbach, Rut-

ger von Post, and James Thomas
argue really matter in culture change:
the core behaviors, existing cultural
traits, and key individuals that make
a cultural shift meaningful, tangible,
and lasting. The authors call these
“the critical few” (page 50).
A focus on the few is equally
important when it comes to manag-
ing people. As Susan Cramm writes
in “Align with Your Stars” (page 28),
the best managers of talent know
how to identify and effectively de-
velop their organization’s true, and
relatively few, star employees. And
they make time to do so at the ex-
pense of less impactful tasks.
We also request your attention
on several other topics of conse-
quence. Siemens Corporation leaders
Helmuth Ludwig and Eric Spiegel
make a powerful case for the re-shor-
ing of industry in “America’s Real
Manufacturing Advantage” (page
38). Their optimism stems from the
United States’ sustainable strengths
in the three areas that underlie
a technology-guided manufacturing
sector: innovation, software develop-
ment, and university education.

Please then shift your focus to
page 22, where Ramez T. Shehadi
and Mounira Jamjoom describe
CSR’s emergence as a driver of en-
trepreneurship, economic develop-
ment, and job growth in “Corporate
Social Responsibility’s New Role in
the Middle East.” By turning tradi-
tional CSR on its ear, organizations
stand to provide both the region and
themselves with a new source of ad-
vantage: vibrant economies.
And speaking of advantage,
Columbia Business School professor
Rita Gunther McGrath has some
news for you on page 72: It doesn’t
last as long as it used to, and prob-
ably not as long as you think.
A wealth of other great material
awaits you in these pages. And, thus,
the exception to a rule: We advise
you to focus on it all.
On behalf of everyone at
strategy+business, I hope you find
this issue to be a good use of your
valuable time.
Paul Michelman
Executive Editor
paul.michelman@
strategy-business.com

Illustration by Lars Leetaru
The Fewer the Better
comment editor’s letter
1
editor’s letter

Cut the Fat but Keep Some Slack
Sendhil Mullainathan and Eldar Shafir
Why excess capacity leads to greater efficiency.
How to Break the Cycle of CIO Turnover
Richard Bhanap, Nicolai Bieber, and Martin Roets
Companies benefit from strong IT leaders. The trick is
developing and retaining them.
Achieving Growth in a Lean Europe
Richard Rawlinson
With consumer spending down and investment drying up,
what’s an E.U. firm to do?
Angela Duckworth’s Gritty View
of Success
Laura W. Geller
A psychologist and new MacArthur Fellow says you need
employees with stamina and tenacity above all else.
Scale Your Innovation Initiatives
Robert C. Wolcott and Jørn Bang Andersen
Five ways to boost the impact of new endeavors without
adding bureaucracy or cost.
s+b Trend Watch
Alternative Powertrains
GLOBAL PERSPECTIVE
Corporate Social Responsibility’s New

Role in the Middle East
Ramez T. Shehadi and Mounira Jamjoom
An urgent need for job growth is spurring an innovative
trend in CSR and high-minded commercial initiatives.
ORGANIZATIONS & PEOPLE
Align with Your Stars
Susan Cramm
When you connect the development of your top talent
with the needs of your organization, everyone wins—
and your best people stay.
FINANCE
Four Strategies for Wealth Managers
Alan Gemes and Andreas Lenzhofer
How to help close the gap between assets under
management and profits.
leading ideas
17
15
6
8
12
32
28
22
20
38
17
58
essays
OPERATIONS & MANUFACTURING

America’s Real
Manufacturing
Advantage
Helmuth Ludwig and Eric Spiegel
A new wave of software innovation is about to
transform industry—and give the United States
the chance for a lasting edge.
ORGANIZATIONS & PEOPLE
The Critical Few:
Components of a Truly
Effective Culture
Jon Katzenbach, Rutger von Post, and James Thomas
Forget the monolithic change management
programs and focus on the elements of your
culture that drive performance.
Four Signs That Your Critical Few Behaviors
Are Working
MARKETING, MEDIA & SALES
A Step-by-Step
Guide to Winning
the Customer
Niraj Dawar
Companies that understand the stages
of consumer purchasing decisions have an
outsized influence on their outcome.
Competing for Low-Involvement Purchases


Best of the
s+b Blogs

Strategy Matters in Emerging Markets
After All
John Jullens
Why We Should Deregulate the Government
Art Kleiner
The Three Habits of Highly Effective
Demotivators
Sally Helgesen
THE THOUGHT LEADER
INTERVIEW
Rita Gunther McGrath
Theodore Kinni
The Columbia Business School
professor says the era of
sustainable competitive advantage
is being replaced by an age of
flexibility. Are you ready?
BOOKS IN BRIEF
Working Together Apart
Jon Gertner
The Big Promise of Open Data
Nancy Scola
The Rise and Fall of Western
Innovation
Marc Levinson
The Lion versus the Fox
David K. Hurst
The Trouble with Sunspots
George S. Oldfield
END PAGE: RECENT RESEARCH

The Vicious Cycle of CEO Pet Projects
Matt Palmquist
Incoming leaders follow a predictable pattern of
disinvesting from their predecessor’s flops and
eventually investing just as unwisely.

Cover illustration by Foreal
features
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leading ideas
6
strategy+business issue 74
surgeries performed after 3 p.m. fell
by 45 percent, and revenue in-
creased. And in the two years that
followed, the hospital experienced a
7 and 11 percent annual increase in
surgical volume.
We All Need Breathing Room
Many systems require slack in order
to run smoothly. Old reel-to-reel

tape recorders needed an extra bit of
tape fed into the mechanism to en-
sure that it wouldn’t rip. Your coffee
grinder won’t grind if you overstuff
it. And consider roadways: In prin-
ciple, if a road is 85 percent full and
everybody goes at the same speed,
all cars can easily fit with some room
between them. But if one driver
speeds up just a bit and then needs
to brake, everyone behind that car
has to brake as well. Thus, at 85 per-
cent there is enough road but not
enough slack to absorb small shocks,
and traffic grinds to a halt.
Still, slack is routinely under-
valued. Perhaps you used to have an
amazing administrative assistant al-
ways ready to do the tasks you need-
ed on short notice. But he wasn’t
always busy. In the interest of effi-
ciency, the department was reorga-
nized, and now you share the assis-
Cut the Fat
but Keep
Some Slack
Why excess capacity
leads to greater
efficiency.
by Sendhil Mullainathan and

Eldar Shafir
I
n 2002, the operating rooms at
St. John’s Regional Health Cen-
ter, an acute-care hospital in
Missouri, were at 100 percent capac-
ity. When emergency cases—which
made up about 20 percent of the full
load—arose, the hospital was forced
to bump long-scheduled surgeries.
As a result, according to one study,
doctors often waited several hours to
perform two-hour procedures and
sometimes operated at 2 a.m., and
staff members regularly worked un-
planned overtime. The hospital was
constantly behind.
Administrators brought in an
outside advisor, who came up with a
rather surprising solution: Leave one
room unused. To many, this seemed
crazy. The facility was already being
squeezed, and now comes a recom-
mendation to take away even more
capacity? Yet there was a profound
logic to this recommendation, a log-
ic that is instructive for the manage-
ment of scarcity.
On the surface, St. John’s lacked
operating rooms. But what it ac-

tually lacked was the ability to ac-
commodate emergencies. Because
planned procedures were taking up
all the rooms, unplanned surgeries
required a continual rearranging of
the schedule—which had serious re-
percussions for costs and even qual-
ity of care. The key to finding a so-
lution was the fact that the term
unplanned surgery is a bit mislead-
ing. The hospital can’t predict each
individual procedure, but it knows
that there will always be emergen-
cies. Once a room was set aside spe-
cifically for unscheduled cases, all
the other operating rooms could be
packed well and proceed unencum-
bered by surprises. The empty room
thus added much-needed slack to
the system. Soon after implement-
ing this plan, the hospital was able
to accommodate 5.1 percent more
surgical cases overall, the number of
Leading
Ideas
leading ideas
Illustration by Robert Neubecker
7
leading ideas
obligations to tomorrow, except, of

course, that tomorrow’s schedule is
packed too, and the cost of that de-
ferral ends up being high.
We fail to build in slack because
we focus on what must be done now
with too little consideration of all
the things that may arise in the fu-
ture, even in the near term. When
the intangible future comes face to
face with the palpable present, slack
feels like a luxury. What should you
do? Should you leave spaces open in
your schedule just in case something
unexpected comes up, despite the
fact that there is already so much
you’d like to do in so little time? The
simple answer is yes. It’s similar to al-
locating 40 minutes to drive some-
where a half hour away, or salting
away some money from your
monthly household budget for a
rainy day.
Cut the Fat Carefully
Now, let’s look at slack through a
different lens. During the 1970s and
the early 1980s, there was a wide-
spread perception that many corpo-
rations were bloated. Some indus-
tries were so awash with cash that
executives spent carelessly. Because

of poor cash management, in fact,
several oil companies were worth
less than the oil they owned; the
market anticipated they would sim-
ply waste their assets. The leveraged
buyout wave in the 1980s was an at-
tempt to solve this problem.
The logic was simple: Buy these
companies and impose pressure by
placing them in debt. Move them
from abundance to scarcity. The dis-
cipline of debt—in our parlance, the
focus that comes from scarcity—
would improve performance. And a
raft of empirical studies showed
that, whatever their other conse-
quences, leveraged buyouts did just
that. One reason was that corporate
fat gives some managers added
incentive to spend poorly—even
spend in ways that run counter to
shareholders’ interests. After all, it’s
someone else’s money. By increasing
leverage and reducing what is effec-
tively free money, managers spend
more wisely.
Leverage also had an effect be-
cause of the psychology of scarcity.
Companies became “lean and
mean,” in part, for the same reason

deadlines produce greater produc-
tivity. Being a hypervigilant manag-
er who keeps costs low can require a
great deal of cognitive effort. Such
managers must negotiate diligently
tant with two other people. The
office’s time-use data revealed this
new system to be a success; now the
assistant’s schedule is packed as
tightly as yours. However, your last-
minute requests can no longer be
handled immediately. This means
that with your heavy schedule, even
the smallest shock sets you back. So
you start to juggle, and fall further
and further behind. The assistant
had been an important source of
slack. The fact that he was “under-
used,” like that room at St. John’s, is
what made his role valuable.
When you have a lot to do, the
standard impulse is to pack tightly
to fit everything in. Otherwise, you
are left feeling that you’re not doing
enough—that you could be more
efficient. But it’s a vicious circle.
When your schedule is crammed,
getting stuck in a traffic jam throws
you into disarray. You are late to
meeting number one, and with no

time in between meetings, that de-
lay pushes into meeting number
two, and so on. You finally have no
choice but to defer one of today’s
On the surface, the hospital lacked operating
rooms. But what it actually lacked was
the ability to accommodate emergencies.
leading ideas
8
strategy+business issue 74
scarcity and slack can reduce the
firefighting mentality. Consider the
lesson of how banks have tried to
manage risk. Banks have long recog-
nized that managers, tunneling on
the bottom line, do not sufficiently
take risk into account (perhaps best
demonstrated by the 2008 financial
crisis). Many banks have introduced
“chief risk officers,” who sit apart
from the rest of the management
team and report directly to the
CEO. They must approve financial
products, loans, and other transac-
tions, viewing them through the
lens of risk.
Other organizations can take a
similar approach to “slack manage-
ment.” Designate someone (or a
team) to focus not on what needs to

be done today but on the possible
events that could disrupt your busi-
ness tomorrow. This person or
group can ensure that those who are
focused on meeting immediate proj-
ect targets are not borrowing from
future projects, digging the organi-
zation deeper into a bandwidth hole.
It is no coincidence that the advisor
who proposed the shakeup at St.
John’s was an outsider, removed
from the struggle for the next oper-
ating room.
+
Reprint No. 00229
Sendhil Mullainathan

is a professor of economics at Harvard
University. He is a recipient of a MacArthur
Foundation “genius” grant.
Eldar Shafir
shafi
is the William Stewart Tod Professor of
Psychology and Public Affairs at Princeton
University.
This article was adapted from
Mullainathan and Shafir’s new book,
Scarcity: Why Having Too Little Means So
Much (Times Books, 2013).
How to

Break
the Cycle
of CIO
Turnover
Companies benefit from
strong IT leaders. The
trick is developing and
retaining them.
by Richard Bhanap, Nicolai Bieber,
and Martin Roets
I
n organizations around the
world, new digital tools and
technologies are adding efficien-
cies and enabling new business
models. Chief information officers
stand at the epicenter of this activ-
ity: As keepers of the IT wallet and
managers of the firm’s tech-savvy
talent, they stand to unlock the
competitive advantage of digitiza-
tion. But with digitization’s promise
come challenges for those who man-
age how it is deployed and used.
To better understand the
changing role of the chief infor-
mation officer, Booz & Company
surveyed 60 CIOs of large multi-
national corporations in a variety
of sectors as part of its inaugural

CIO Success(ion) Study in late
2013. These CIOs must coordinate
an increasingly complicated set of
internal and external resources and
capabilities; oversee the develop-
ment of complex new IT-enabled
projects on time, on budget, and in
a way that delivers the promised
business value; and continually as-
with suppliers and scrutinize every
line item to decide whether an ex-
pense is truly necessary. This kind
of focus is easier to come by under
scarcity and harder to come by un-
der abundance. Even private com-
panies, whose managers are spend-
ing their own money, start acting
“fat” when awash in cash.
As we have seen, slack can rep-
resent a source of great (though of-
ten hidden) value or it can represent
waste. When slashing costs and re-
organizing for efficiency, it can be
hard to separate useful slack from
true waste, and indeed, many of the
leveraged companies of three de-
cades ago were left at the brink of
bankruptcy. Faced with that reality,
they tunneled—they neglected ev-
erything besides the emergency at

hand. Cut too much fat, remove too
much slack, and you are left with
managers who will mortgage the fu-
ture to make ends meet today.
Fighting Fire with Slack
When organizations find themselves
facing scarcity, executives become
firefighters, focused on battling the
immediate threat. Meanwhile, new
fires are constantly popping up be-
cause nothing is being done to pre-
vent them. As a result, structural
problems—“important, but they
can wait”—don’t get fixed. When
the Microsoft Corporation shipped
its Windows 2000 software, it went
out with 28,000 known bugs. The
project team knew they were ship-
ping a product with lots of prob-
lems, but they had already missed
the deadline. As a result, they im-
mediately began working on a first
patch, which was intended to fix all
the bugs they knew they had shipped
out. Not a good place to be when
reports of new bugs start coming in.
Understanding the logic of
leading ideas
9
leading ideas

Illustration by Carlos Aponte
talent is ignored to a certain extent
at many companies.
Why They Leave
For those who make it to the top,
the situation doesn’t always im-
prove. Our survey shows that many
CIOs move from company to com-
pany, seemingly more frequently
than other top executives, a trend
we refer to as “the serial CIO.”
About 33 percent of our survey par-
ticipants were in their first CIO role,
25 percent were in their second, and
more than 40 percent had held three
or more CIO roles. This suggests
that many CIOs don’t see room for
advancement (for example, to chief
operating officer) at their current or-
ganization, and they move on. In-
deed, although almost half of our
respondents have been in their cur-
sess emerging technologies and solu-
tions. Most important, they need to
juggle all this while shaping and
pursuing a strategic IT agenda for
the business and balancing the in-
exorable demand for new services
and solutions from every part of the
organization.

For chief executive officers, the
selection and retention of a skilled
CIO has never been more critical.
At many companies, however, a
number of factors—including lim-
ited succession planning, the choice
of reporting lines, and a lack of
buy-in from key stakeholders for
major IT projects—can make it dif-
ficult for the CIO to perform effec-
tively, leading to a tenure shorter
than those of other C-suite execu-
tives. Our study results reveal some
steps chief executives can take to en-
sure that their information officers
and IT professionals are set up to
succeed.
The CIOs we surveyed identi-
fied certain constraints on their per-
formance, starting with how the
role itself is typically filled. About
60 percent of CIOs are recruited ex-
ternally, the implications of which
are unfortunate for ambitious and
talented members of any current IT
leadership team. Only a third of the
CIOs we surveyed reached that po-
sition from within their own organi-
zation. Worse yet, a number of to-
day’s CIOs who were promoted

from within had switched organiza-
tions at the level just below CIO in
order to be groomed as a successor.
This implies that homegrown IT
rent CIO position for three to five
years, more than 40 percent said
they don’t expect to be there beyond
another year or two.
Our survey also found that one-
third of CIOs are forced out of their
jobs. CIO folklore would suggest
that the most obvious cause was a
failure to deliver day-to-day IT ser-
vices such as processing transactions
and sending email. But in reality,
few CIOs have been let go for this
reason, perhaps because advances in
technology and service management
have made major service failures far
less common.
According to 70 percent of our
respondents, the failure of a major
IT project is one of the primary rea-
sons that the tide turns against the
CIO. And although failure doesn’t
always lead directly to dismissal,
the interviews we conducted show
that it is often a contributing factor.
These projects are typically big-
ticket, multiyear, enterprise-wide

programs involving new ERP,
CRM, or core industry-specific so-
lutions that promise to fundamen-
Our survey shows that many information chiefs
move from company to company, seemingly
more frequently than other top executives, a
trend we refer to as “the serial CIO.”
leading ideas
10
leading ideas
10
strategy+business issue 74
tioned to create a high-functioning
team that coordinates well with key
stakeholders throughout the com-
pany. And this will help avoid the
large project failure trap. CIOs need
to instill a strong sense of joint
ownership and work in genuine
partnership with these stakeholders
to ensure the successful delivery
of complex IT-enabled business
change. As the CIO of a global
energy company told us, “If the
CIO is credible and accepted by the
top team, and has the IT manage-
ment basics like service and cost
under tight control, the fact that
they report to the CFO doesn’t
have to make a lot of difference.”

It’s also important to clearly de-
fine the CIO’s job, and to make sure
he or she has opportunities for ad-
vancement. Many of the CIOs we
spoke with pointed to shared-
services operations and other sup-
port functions as being areas that
could be put under their responsibil-
ity. Those departments would bene-
fit from the IT function’s service
management capabilities, and would
give the CIO’s role wider scope.
Indeed, some of our partici-
pants had already been put in charge
of such activities. “The CIO is
among the few roles with a cross-
functional, cross-organizational per-
spective. This, in conjunction with
running large programs and driving
change, should prepare them to
become COOs,” said the CIO at an
international retailer. Uncovering
new business and technological
problems, and having the support
needed to solve them efficiently, will
also look within their organization
to identify what allowed such a situ-
ation to develop in the first place,
whether on the business side or
within IT itself.

Our survey also revealed the
importance of the CIO’s reporting
relationship. This relationship has a
direct impact on how the CIO fo-
cuses the IT organization’s energies
and resources. The reporting rela-
tionship won’t be the same at every
company, but it needs to be clearly
defined and aligned to the com-
pany’s overall strategic goals.
Although a small number of
CIOs reported to a COO or other
operational executive, the majority
had a direct line to the CFO or
CEO, in roughly equal proportion.
Those reporting to the CEO said
they were typically encouraged to
prioritize enterprise-wide business
value—how much the IT depart-
ment delivers to the business—
whereas those reporting to the CFO
may have been asked to emphasize
the cost agenda and automation of
operations. Both roles are impor-
tant, although the latter is often
connected to an older way of think-
ing about IT, as a cost center to be
managed efficiently. Cost manage-
ment is a critical concern in an age
when IT absorbs a large portion of

companies’ budgets, but it’s not nec-
essarily the way to get the most busi-
ness value out of new technologies.
Still, no matter what the report-
ing line, CIOs who have a strong
sense of how their job duties and
their IT strategy fit into the overall
corporate strategy will be best posi-
tally change business performance
and improve competitiveness. Un-
fortunately, such complex projects
are often allowed to deteriorate into
costly IT-driven systems implemen-
tation and replacement initiatives,
which lack genuine ownership and
buy-in from the business units in-
volved. Seventy percent of our re-
spondents said they inherited these
types of programs when they be-
came CIO; they also said that 60
percent of these programs were
doomed to fail.
According to the CIO of a glob-
al consumer products company, “If
you’re not extremely careful with
these programs, business stamina
and patience run out. ‘Just get the
#@*%$!! system in once and for all
so that we can pick ourselves up
again and move on’ becomes the

dominant refrain. That’s of course
assuming that you can get to a work-
ing system at all.” The result, fre-
quently, is an expensive IT solution
that doesn’t quite do what was
promised and ultimately doesn’t
have much tangible impact on busi-
ness performance.
Think Big to Succeed
Given the number of institutional
challenges CIOs face, CEOs have to
play a direct role in creating a more
favorable work environment.
The first step is knowing where
to look for the next CIO. We offer
a simple rule of thumb: If a CEO
believes that IT and digitization
are currently on the right path in
the company, and there is broad
confidence in the strategy and road
map laid out by the CIO and the
IT team, looking internally for a
successor should be the default plan.
If, however, these conditions do not
exist, the CEO should consider ex-
ternal successors. He or she should
Almost 90 percent of CIOs we surveyed said the
top reason for moving to their current position
was the professional challenges involved.
leading ideas

help keep the CIO engaged.
In the end, CIOs need to be en-
couraged to have a vision of how
technology can help their company
achieve its strategic goals. And they
need to feel supported by the firm’s
executive leadership to act on this
vision. Almost 90 percent of the
CIOs we surveyed said the top rea-
son for moving to their current posi-
tion was the new professional chal-
lenges involved. Right now, it seems
that too many find that their actual
work environment may not meet
their expectations. It’s time to fix
that, because an engaged and em-
powered CIO is essential in carrying
a company into the digital age.
+
Reprint No. 00230

Richard Bhanap

is a partner with Booz & Company based
in London. As part of the firm’s digital
business and technology practice, he
specializes in working with large, complex
multinational corporations on major IT-
enabled business transformations.
Nicolai Bieber

is a principal with Booz & Company based
in Munich. He specializes in IT strategies,
application architectures, and large
transformation programs, with a focus on
the public sector, financial services, and
telecommunications.
Martin Roets

is a principal with Booz & Company based
in London. He focuses primarily on the
financial-services industry, specializing in
IT strategy, operating model design, and IT
and business transformation.
FIND
YOURSELF
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OF
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can help you solve immediate challenges. And
where gaining practical business skills from a
world-class faculty gives you better tools for
leading your company.
Learn more about Executive Education
gsb.columbia.edu/execed
leading ideas
12
leading ideas

12
Illustration by Chi Birmingham
fresh eyes, and determine whether
consumers are using them in unin-
tended ways. For example, Procter
& Gamble learned that people were
using its cold medicine NyQuil,
which comes with a warning that
it can cause drowsiness, as a sleep
aid. In response, the company start-
ed marketing ZzzQuil, a product
that uses the same active ingredient,
but with a modified formulation—
obviating the need for a major R&D
effort. And P&G already had strong
distribution and marketing net-
works in place. With minimal in-
vestment, it was able to create an
entirely new growth segment.
Reckitt Benckiser (RB) has also
had great success in developing
product variants. The company
starts by paying careful attention to
consumer interests and gaps in con-
sumer needs, closely connecting its
R&D and consumer insight–gath-
ering capabilities. RB realized that it
could create versions of Nurofen, its
popular pain relief medication, that
were targeted to specific ailments

such as migraines, muscle pain, and
colds, among others. The basic in-
gredient—ibuprofen—remains the
same. And like P&G, the company
could leverage its superior distribu-
tion and marketing capabilities to
Achieving
Growth
in a Lean
Europe
With consumer
spending down and
investment drying up,
what’s an E.U. firm
to do?
by Richard Rawlinson
E
xecutives of consumer prod-
ucts and retail companies in
Europe responded to the re-
cent global economic crisis the best
way they knew how. As demand
shrank, they cut costs across the
board. And initially, these measures
worked: Between 2009 and 2012,
even as revenues fell, many compa-
nies posted increased earnings and
relatively strong stock market per-
formance. But today this strategy
has run out of steam. There’s only so

much excess to remove and overhead
to reduce.
That’s left these executives fac-
ing a significant challenge. They
need to find ways to grow in Europe,
but the market is working against
them. The social safety net that sup-
ported European consumers early
on has been worn thin by continu-
ing economic pressures and rising
taxes. Since 2011, disposable income
in Europe has been contracting in
real terms. This decline in consumer
spending power makes it hard to ar-
gue for increased investment in the
region. At the same time, other re-
gions are attracting more investment
away from Europe. In countries
such as Brazil, Russia, India, and
China, even though disposable in-
come growth has leveled off at
around 6 percent per year from a
high of 10 percent in 2007, the mid-
dle class is large and growing, and
has cash to spend on products that
had long been out of reach. Mean-
while, North America’s personal in-
come growth rate has rebounded to
about 2 percent per year, supporting
reinvestment in the North Ameri-

can market.
It’s a forbidding picture of Eu-
rope: consumers with less cash to
spend in a market that most compa-
nies aren’t eager to invest in. Fortu-
nately, there is a way to grow even in
today’s lean times. Executives con-
fronting these pressures will need to
look within—at the markets and
customers their companies already
have—and find new ways to reach
them by using the capabilities and
strengths that make their companies
distinctive.
A New Approach
For many companies, growth op-
portunities hide in plain sight—and
finding and seizing them doesn’t al-
ways require significant investment.
Executives should look at the prod-
ucts in their current portfolio with
leading ideas
sell each of the variants at a premi-
um over regular Nurofen.
In rethinking their product
portfolio, established consumer and
retail companies can take a page
from their upstart competitors. In
early 2013, Booz & Company found
that smaller companies—those with

less than US$1 billion in sales—
were prospering, growing their mar-
ket share more rapidly than larger
competitors in 18 of the top 25 food
and beverage categories. Some re-
cent market developments favor
these smaller players. For one, “se-
lectionist” consumers seek out
brands that match their own needs
and sense of differentiation, and of-
ten turn to products from local
sources. And, with extensive out-
sourcing, smaller players can now
offset scale disadvantages in admin-
istrative and support functions (see
“The Big Bite of Small Brands,” by
Elisabeth Hartley, Steffen Lauster,
and J. Neely, s+b, Autumn 2013).
What’s driving this trend is the
fact that smaller players know that
coherence beats scale. In Scotland,
Irn-Bru (“Iron Brew”), a carbonat-
ed soft drink owned by British
manufacturer A.G. Barr, outsells all
of its competitors—even Coca-
Cola. A.G. Barr has achieved 9 per-
cent CAGR for the past six years by
focusing on the Scottish market
and a narrow product lineup. It’s a
strategy that traditional retailers

can adopt. Heineken, for example,
markets dozens of beer brands by
emulating its microbrewery com-
petitors—but its brands all benefi t
from the company’s profi ciency and
scale in innovation, marketing, and
distribution.
Smaller players can also serve as
testing grounds for innovation, and
acquiring or partnering with them
can bring those innovations to scale.
Short Courses,
Big Impact
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of
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technology, and learn from world-renowned faculty.
Enroll today in one of our many short courses and learn to solve
the challenges most critical to you and your organization.
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leading ideas
14
leading ideas
14
strategy+business issue 74
your existing assets. Ruthlessly di-
minish or discard your investments

in other areas. They are extraneous;
you can’t afford the baggage now.
Most consumer products and
retail companies won’t take these
steps. They will continue to seek out
new growth market opportunities
anywhere they can find them. The
trouble is, there just aren’t many
around in a time of declining con-
sumer spending. And even if they
do find those opportunities, com-
panies can’t necessarily exploit
them, because they may not have
the capabilities needed to do so or
the investment needed to develop
those capabilities. That’s why execu-
tives in Europe need to start with
what they have and what they’re
good at, and work from there. When
the market itself isn’t creating op-
portunities, this is how companies
make their own.
+
Reprint No. 00231
Richard Rawlinson

is a partner with Booz & Company’s
consumer and retail practice, and is based
in London.
to the store and picking out, check-

ing out, and bringing home the
merchandise. By adding online and
delivery options, grocers have in-
creased their activities, assets, and
operating costs. Meanwhile, they
have carried many existing pricing
and assortment policies into their
online operations.
More effective digital strategies
often use more of a company’s exist-
ing asset base and capabilities sys-
tem, but less of the inherited pricing
and assortment policies. Retailers
that find new uses for their existing
stores will benefit most. Burberry
Group used social media to make its
luxury brand feel accessible to peo-
ple around the world with live feeds
of its fashion shows, but it also uses
its brick-and-mortar stores as high-
tech experience centers. Burberry’s
flagship store in London began us-
ing RFID tags and mobile technol-
ogy to enable customers to engage
with products and salespeople on
the floor. The effort, led by then
CEO Angela Ahrendts, was so suc-
cessful that in October 2013, Apple
tapped Ahrendts to transform and
streamline its physical and online

retail stores.
Make Your Own Success
Success in today’s Europe comes
down to the overlap between market
opportunities and a company’s capa-
bilities. The best advice: Seek out
those opportunities that match the
few things you do extremely well.
Double your investments in those
growth areas that align with your
strengths and take advantage of
Although such ventures obviously
require investment, they are capital-
ized investments that would be more
palatable and justifiable to company
leaders than operating investments.
Avis’s acquisition of Zipcar in early
2013 followed this model. Zipcar
had reframed urban car rental by al-
lowing customers to subscribe to its
service with hour-by-hour pricing.
To make the integration work over
the long term, Avis will need to take
advantage of Zipcar’s well-known
brand and marketing prowess, but
apply its economies of scale at the
back end, in car purchasing, fleet
management, and information tech-
nology. Johnson & Johnson has
used a similar strategy to expand in

both pharmaceuticals and consumer
healthcare.
If there is a common enabler for
many of the strategies discussed thus
far, it is digitization. Digital tech-
nologies hold immense promise for
revitalizing the retail and consumer
products industries. They bring
consumers and retailers closer, re-
duce costs, and enable a variety of
lucrative new services and market-
ing tools. But the rule of economy
applies even to digitization: You
have to manage investment and cost
as you seek growth.
Recent developments in the
U.K. grocery industry illustrate the
risks of ignoring this rule. Every ma-
jor supermarket has committed to
developing a digitally enabled busi-
ness. But in so doing, they have had
to move away from the magic of the
supermarket model, in which the
customer does the work of coming
Double your investments in those growth
areas that align with your strengths and take
advantage of your existing assets.
leading ideas
Photograph courtesy of the University of Chicago’s Human
Capital and Economic Opportunity Global Working Group

ing education by understanding how
grit affects a child’s trajectory, and is
developing new teaching methods
and interventions based on her find-
ings. But as we learned during a re-
cent interview, her research also has
implications for managers looking to
cultivate a more capable workforce.
S+B: What attracted you to the
concept of grit?
DUCKWORTH: In my first couple
years of graduate school, I started
asking the perennial question: Why
are some people more successful than
others? Obviously, I’m not the first to
think about that—almost every ma-
jor philosopher and many prominent
psychologists have addressed this
question.
“Talent” is a common answer,
but I wasn’t convinced that that was
the whole story. I talked to promi-
nent people—partners at successful
investment banking firms, and indi-
viduals who had achieved elected of-
fice at relatively high levels of govern-
ment—and I asked them: Which
people are really the best in your
field, and what are these outliers like?
They would rattle off a series of

adjectives, but one theme emerged.
In addition to talent, those highly
successful people had a kind of stay-
Angela
Duckworth’s
Gritty View
of Success
A psychologist and new
MacArthur Fellow says
you need employees
with stamina and
tenacity above all else.
by Laura W. Geller
I
f someone asked you to define
grit, what images would come to
mind? Windburned cowboys?
Pioneers on the open plain? Grit has
long been used in describing those
who dig in their heels in the face of
hardship, who persevere in even the
most challenging circumstances and
emerge victorious.
Angela Lee Duckworth, an as-
sociate professor of psychology at the
University of Pennsylvania, believes
this same tenacious spirit can be
found in those who achieve excel-
lence in school, on the playing field,
and in business. Talent and intelli-

gence will get you only so far. The
key ingredient to success, says Duck-
worth, is grit. It’s that special some-
thing that keeps certain people dedi-
cated to their goal (whether it involves
their studies, their projects, their cli-
ents, or something else) for the long
haul, determined to accomplish what
they set out to do. It’s a fascinating
concept—one that recently won
Duckworth a MacArthur Founda-
tion “genius” grant.
A former public school teacher,
Duckworth has a passion for improv-
ing power. They were working not
only with intensity, but also with
stamina over long periods of time,
incrementally chipping away at some
goal. That led me to grit.
S+B: Is grit teachable?
DUCKWORTH: I think so, yes, but
it’s not easy. We’re in the nascent
stages of research on behavioral
change, not just about grit, but
about other things too. For example,
look at the percentage of dollars
spent on health problems that would
be preventable if people ate right, ex-
ercised, and took their medication.
It should be easy to get people to do

things like save their own lives, but
that’s not always the case.
I do think that there’s room for
optimism, though. I start from the
assumption that people are trying to
do well by themselves, which is actu-
ally the premise of the whole eco-
nomic model of behavior. They are
trying to optimize their outcomes
and avoid mistakes. I’m not trying to
sell the idea that you can move peo-
ple from the bottom 1 percent of the
distribution in grit to the highest 1
percent. This isn’t a “lose 10 pounds
in two days” kind of idea. But I do
think you can nudge people further
to the right end of the grit spectrum.
S+B: How would that happen in a
corporate environment? How can
leaders encourage grittiness among
their employees?
DUCKWORTH: The first thing man-
agers should understand is that peo-
ple who are gritty will doggedly pur-
sue things that they really value. It’s
sort of like love: You can’t be in love
unless there’s something or someone
that you’re in love with. Similarly,
employees with grit are deeply and
enduringly motivated by work they

find meaningful. Top performers
Angela
Duckworth
15
leading ideas
leading ideas
16
leading ideas
16
people. Through their explicit prac-
tices and their implicit culture, these
companies encourage doing things
for a long time, being loyal, going
deep into problems, and working
at the edge—where an employee’s
challenges exceed their current skill
levels. Some of the best managers
are the ones who create environ-
ments where it’s easier for people to
be gritty.
You can create a culture in which
employees genuinely believe that the
future could be different from the
past, and that the problems that were
here yesterday and today could in
fact be solved. Mentorship is an im-
portant part of this process. Encour-
age people to have a trusted other—a
friend, colleague, manager, some-
body who can maintain some psy-

chological distance from them when
they’re having that bad day, when
things do go wrong (as they will),
and who can be their emotional bal-
last. In a way, then, you should en-
courage people not only to expect
themselves to be gritty, but to recruit
someone to be gritty for them in
times of crisis, when they have doubts
or they’re discouraged.
S+B: How does the pursuit of
grittiness affect hiring practices?
DUCKWORTH: You cannot guaran-
tee grittiness by hiring someone who
has high GRE scores or SAT scores.
That’s not to say you shouldn’t wor-
ry at all about these metrics. I don’t
ignore the grades of students who
apply to work with me. But I also
don’t simply assume that if they have
a perfect academic record that
they’re also going to be gritty people.
It suggests that we need some-
thing else in the selection process
that gets at this element of persever-
ance and sustained commitment. An
approach that I find promising is
looking at people’s resumes for evi-
dence that they’ve been gritty prior to
coming to your organization. Has a

candidate worked at the same place
for a sustained amount of time, and
have they been promoted to greater
levels of responsibility? The more
that people have flopped around, the
less gritty they are likely to be.
Of course today, culturally, we
have a shift. The norm, the expecta-
tion, is that people are going to nip
around from one company to anoth-
er, even from one industry to anoth-
er. But if people are very successful,
oftentimes an underlying theme or a
narrative emerges. You might look at
their experience and realize, oh, this
is all about managing—making de-
cisions under conditions of uncer-
tainty and complexity with large
teams. Despite all the movement,
there is a skill set that they have been
honing over time.
S+B: What’s the next frontier of
research on grit?
DUCKWORTH: Right now I’m think-
ing about the difference between
work and play. A lot of grit is about
working hard and having the capac-
ity to sustain that over time—and
that all sounds pretty grim. There’s
this expression, “hard play.” It’s

when something is really effortful
and you’re engaged in it, but there’s
something else about it. It’s not the
are genuinely driven to solve prob-
lems for clients, or to create tastier,
healthier food for more people, and
so on. Managers need to ensure that
people have a goal or outcome that
they hold in this high regard.
The second thing that I think is
very important, from an economic
point of view, is that people don’t do
things they perceive to be costly.
When people are either keeping at
something or walking away from it,
it’s usually a result of having done a
cost-benefit analysis. For people to
put in the effort to work on some dis-
tant goal, day in and day out, they
have to perceive that the benefits are
at least worth the cost. Managers can
influence that by increasing the value
of the reward or decreasing the per-
ceived cost. Part of the cost element is
communication, and getting across
the idea that there’s no easy job wait-
ing for employees somewhere else.
All jobs, if you do them well, require
huge amounts of effort.
Finally, and I think maybe most

relevant for managers, are expecta-
tions. People need to believe that suc-
cess is possible. But they also need to
be realistic. A lot of people start
working hard and expect immediate
results. Yet the idea of improving in
just a short time period is naive. If
you look at world-class performers
in any domain—ballet or math or
chess—those people have not logged
five really good hours or 10 really
good hours. They’ve spent thousands
and thousands of hours, spread over
years and years of work. People need
to know going in that the payoff
from their effort may not be obvious
for a long time.
S+B: How does corporate culture
play into this?
DUCKWORTH: I do think there are
companies that bring out the best in
“For people to put in the effort to work on some
distant goal, day in and day out, they have to
perceive that the benefits are worth the cost.”
strategy+business issue 74
leading ideas
though leaders want more innova-
tion, they are often unwilling to pro-
vide sufficient funding—even for
those initiatives that have already

proved successful. Defending non-
core innovation budgets is always
difficult.
Over the past decade of explor-
ing innovation initiatives across
many industries, we have seen nu-
merous promising initiatives falter
in the face of one or both of these
obstacles.
How, then, can you take suc-
cessful models for innovating, typi-
cally tested at a smaller scale within
special-purpose teams, and expand
their impact? How can you do so
with limited additional personnel
and funds? Over the past few years,
we’ve discovered five reliable ways to
overcome this challenge.
1. Replicate proven models.
With all due respect to Kafka,
human-sized insects don’t work. An
insect’s living systems can’t function
at that size. Insects can, however,
scale up through replication. Inno-
vation teams can do the same,
though some models replicate better
than others. For example, compli-
cated initiatives or those dependent
on a few key individuals or assets
tend to be difficult to scale by repli-

cation. If you decide to replicate an
initiative, define a model based on
core principles and ensure that lead-
ership and mentorship are readily
available.
Replication is how BP CTO
Darukhanavala met the challenge
referred to earlier: Instead of ex-
panding his small innovation team,
he sent one of his core team mem-
bers to help another business—re-
newable energies—create its own
version of his program. They have
applied the core principles and be-
haviors of the original program, but
17
leading ideas
same thing as “play play.” I’m inter-
ested in understanding that fine line
between something that feels effort-
ful and engaging yet aversive, but
you do it anyway, and something
that is effortful and engaging and
just all whipped cream. Kids can
play video games for hours, and
that’s a pretty high cognitive-load
activity. But they don’t want to work
on their algebra for hours.
Is it that gritty people are able to
turn work into play? Or are they just

able to do the work anyway? I’ve
heard [game designer] Jane McGoni-
gal describe play as the voluntary
overcoming of unnecessary obsta-
cles. Is work the voluntary overcom-
ing of necessary obstacles? Or is it
that play is when you’re succeeding
90 percent of the time, and work is
when you’re succeeding only 70 per-
cent of the time? There’s also the
question of consequences. If people
are playing World of Warcraft, and
you tell them that every time they
lose a point you’ll take a dollar out of
their bank account, but every time
their points go up you’ll add a dollar,
would that make it less fun? Maybe.
Then again, perhaps the best we can
do is find a mix between work and
play that’s sustainable. At this stage,
what we know conclusively is far less
than what we don’t know. But we’re
gritty at our research lab, so we’ll
keep working on it.
+
Reprint No. 00232

Laura W. Geller

is senior editor of strategy+business. She’s

@lwgeller on Twitter.
Scale Your
Innovation
Initiatives
Five ways to boost
the impact of new
endeavors without
adding bureaucracy
or cost.
by Robert C. Wolcott and
Jørn Bang Andersen
W
hen innovation initia-
tives succeed, company
leaders typically re-
spond, “Great. Now do more!” This
provides affirmation, but it also
presents the innovation team with
two challenges: scalability and fund-
ing. First, many innovation initia-
tives cannot be scaled in a linear
fashion. Adding more people often
adds complexity and bureaucracy,
and often impairs the communica-
tion and creativity of the original
successful innovation initiative.
At BP, for example, Daru Da-
rukhanavala, the company’s chief
technology officer for digital and
communications technologies, cre-

ated an innovation team in 1999
with just 18 people and a modest
budget. It has returned between
US$100 million and $200 million
per year in cost savings to BP, as
documented by the business units
assisted. Darukhanavala has resisted
pressure to expand his group be-
cause he knows part of the magic
comes from its size. The company
keeps the team small to replicate the
nimble, no-bureaucracy approach of
venture capital firms.
The second challenge is that al-
leading ideas
18
leading ideas
18
Illustration by Christian Dellavedova
pharmaceutical trials, for example,
IBM would invest in broader capa-
bilities like healthcare informatics,
applicable across the life sciences.
Only gradually did IBM find a
way to replicate the program more
broadly. It went further with its
Smarter Planet initiatives, bringing
together capabilities, technologies,
and people from across the com-
pany to address larger, more com-

plex challenges faced by enterprises,
municipalities, and national gov-
ernments. Martin Jetter, vice presi-
dent of strategy at IBM, described it
this way: “The point is to organize
IBM around critical challenges
faced by wide groups of customers
and stakeholders, applying IBM’s
capabilities across the company to
their solution.”
3. Recruit and support evange-
lists.
Given the power of social me-
dia, customer evangelists are becom-
ing increasingly potent forces for
growth. The same can be true for
innovation initiatives. Evangelists
new capabilities does this invest-
ment create for the company, and to
what else can they be applied?
In 1999, IBM launched its
emerging business opportunities
(EBO) program, an initiative within
the corporate strategy group created
to define and build new businesses
that would later be transitioned to
IBM business units. After the pro-
gram proved its value, which then
CEO Sam Palmisano credited with
more than $15 billion in new reve-

nues as of 2006, company leaders
considered replicating the EBO pro-
gram widely. IBM instead opted to
concentrate on a smaller number of
opportunity areas, shifting its focus
to pursuing new businesses as plat-
forms, so that multiple businesses
could be spawned from the original
startup. Even if the original concept
fails, the capabilities and insight
generated could lead to many other
opportunities. Rather than seeking
individual innovation opportunities
in an area like analytics support for
in the pursuit of different objectives:
discovering and piloting alternative
energy solutions for BP’s long-term
growth. Darukhanavala’s team con-
tinues to be available for consulta-
tions as the new group grows. The
team has since helped to implement
similar methodologies with other
BP businesses, such as Castrol.
The TED Conference, an invi-
tation-only confab hosted in Cali-
fornia each year to share “ideas
worth spreading,” provides another
example. As the program grew in
popularity, the TED team recog-
nized that the conference could scale

through leveraging the global com-
munity of TEDizens, as they’re
called. They realized that creating
more and more TED events them-
selves would require radical scaling
of the organization, as well as a far
greater commitment of the scarcest
resource: expert facilitation provid-
ed by curator Chris Anderson and
his team. By launching TEDx, a li-
censing platform offering individu-
als and organizations access to the
TED brand, methodology, and
global community, TED was able to
proliferate its experience to thou-
sands of events worldwide, curated
by individual licensees. TED does
not retain editorial or production
control of TEDx events, so quality
varies. But the core team maintains
basic standards for all TEDx licens-
ing, and selects a small subset of
high-performing TEDx programs
to support with advice and exposure
within the global TED community.
2. Invest in areas with broad
potential that provide options.
When
considering where to invest, leaders
should ask, If my core hypothesis

fails, does this investment still pro-
vide other paths? To how wide a
range of industries or applications
might this investment apply? What
can be employees who have been
part of, or who have engaged with,
the innovation team, or people from
outside the company.
Consider Lego, the iconic Dan-
ish toy company. For many years,
Lego focused its new product devel-
opment on serving an ever-wider
group of consumers. But as the com-
pany searched for mass appeal, the
enthusiasm of its lead users waned,
which led to a lull in sales. In re-
sponse, Lego engaged its lead users
in a complete reenvisioning of its
Mindstorms robot kit in 2006. To-
day, Lego engineers regularly work
directly with Mindstorms evange-
lists, often engineers themselves.
Giving customers such access sig-
nificantly enhances their input and
brand advocacy. Members of the
“Lego evangelist community” ac-
tively promote Lego’s products on-
line and off.
Evangelists can also expand an
innovation initiative’s impact inside

the corporation. In 2009, Kraft
Foods established the Global Tech-
nology Council (GTC), a cross-
company group, to identify and in-
vest in technologies with the poten-
tial to create competitive advantage
four-plus years out. Over two years,
the GTC created a portfolio of in-
vestments ranging from affordable
products for developing markets to
cutting-edge packaging. The GTC
members came from various prod-
uct categories and geographies and
were selected for their acumen and
interest in enhancing innovation at
Kraft. In addition to contributing
insights, this diverse group built a
sense of ownership for the GTC’s
decisions, advocating for these long-
term investments within their mar-
kets and functions. The group
helped ensure that long-term R&D
investment was protected when
Kraft split into two companies in
2011.
4. Nurture internal and external
ecosystems.
Innovation initiatives
require resources, people, and orga-
nizations in order to grow. Unfortu-

nately, many innovation teams oper-
ate in relative isolation, removed
from potentially rich environments
of engaged partners. They seek in-
put from both inside and outside the
company, but they do so on an ad
hoc basis. The people with whom
they interact often don’t have an ac-
tive interest in the team’s success.
The startup world understands
the power of ecosystems. Proven
models like Techstars and Y Combi-
nator select startups through a com-
petitive process, then connect them
with mentors, potential partners,
investors, and team members during
an intensive, facilitated process. The
startups become part of a set of
dense relationships among players
who were critical to their success.
GE’s Innovation Accelerator,
led by chief marketing officer Beth
Comstock and her team, adapts this
ecosystem notion for a corporate en-
vironment. In 2011, GE selected six
teams tackling major innovation op-
portunities for GE businesses. The
CMO’s office gathered experts from
a range of backgrounds over a nine-
month period to challenge the

teams’ assumptions and conduct a
series of working sessions. Comstock
and her group also recruited external
coaches for each team and created
an advisory panel of five external ex-
perts who review plans, challenge
assumptions, and provide guidance.
The coaches and panelists have no
executive authority, but their per-
spectives play critical roles in shap-
ing thinking and action plans. Inno-
vation Accelerator director Viv
Goldstein says, “The coaches and
advisory panel help us build an eco-
system of partners into our process.
They challenge our GE assumptions
and offer our innovation teams ac-
cess to a wider world.”
5. Activate broad networks.
Whereas ecosystems involve rela-
tionship depth and active commit-
ment, more general networks pro-
vide breadth of access to diverse
knowledge and capabilities. Social-
izing your team’s objectives and
challenges with broad networks en-
hances the potential for others to of-
fer opportunities and solutions.
Over the past decade, new or-
ganizations have arisen to create

communities of innovation leaders.
The online platform Innovation
Excellence includes a network of
more than 5,000 innovation practi-
tioners and thought leaders, a num-
ber that has grown rapidly since the
site’s founding in late 2010. Partici-
pants can register and browse, or
take active roles within the com-
munity. Innovation Excellence of-
fers broad access to the innovation
arena, but as an open community,
it applies only limited efforts to
screening members.
In 2003, the Kellogg School of
Management at Northwestern Uni-
versity founded the Kellogg Innova-
tion Network (KIN) to create a
community of corporate innovation
and growth leaders. It has since
19
leading ideas
Unfortunately, many innovation teams operate
in relative isolation, removed from potentially
rich environments of engaged partners.
s+b Trend Watch
leading ideas
20
leading ideas
20

evolved into an invitation-only
group of leaders from business, gov-
ernment, academia, the nonprofi t
sector, and the arts. The KIN is fi -
nancially supported by its members
and leverages the neutral platform
and intellectual rigor of the univer-
sity. The KIN’s diversity enhances
the likelihood that participants will
connect with people they don’t nor-
mally meet, offering new perspec-
tives, insights, and opportunities.
Building on regular in-person
events, KIN members—or KIN-
ians, as they call themselves—create
relationships and collaborate on
their own agendas.
These fi ve approaches can ex-
pand the scale and reach of innova-
tion initiatives, even in situations in
which adding people or funding
may be neither optimal nor practi-
cal. They require varying degrees of
investment and can be applied
by companies of all sizes; however,
in this arena, large companies have
the advantage. Although successful
startups might win more admirers,
larger companies can seed more rep-
lication, build broader and deeper

ecosystems, engage more networks,
support more evangelists, and invest
in more growth platforms. But en-
terprises will achieve their potential
only if they have the guts, commit-
ment, and patience to make mean-
ingful change happen at scale.
+
Reprint No. 00233
Robert C. Wolcott

is a senior lecturer at Northwestern Uni-
versity’s Kellogg School of Management
and the cofounder and executive director of
the Kellogg Innovation Network (KIN).
Jørn Bang Andersen

is European director of Clareo Partners
and a Kellogg Innovation Network advisory
board member.
22%
49%
BATTERY
ELECTRIC
FULL
HYBRID DIESEL
69%
vs. Traditional Gasoline
in Five-Year Total Cost
of Ownership

RELATIVE COST
–$2,100
+$5,400
–$5,500
Automaker
Confidence
Diesel automotive technology has greatly
improved since the loud, sluggish engines
of decades past. In Booz & Company’s
2013 survey of executives at auto
manufacturers and suppliers,
69 percent of respondents said they are
more confi dent in diesel’s prospects in the
U.S. than they were a year ago. They’re
also far more upbeat about diesel than
they about hybrids or electric cars. Diesel-
powered cars today are zippier and more
fun to drive than earlier versions, but
what really spurs industry confi dence is
that they are more economical: Diesel-
powered cars have a far lower cost of
ownership than other models.
Diesel Is the Most Promising
Alternative Powertrain
Note: The numbers for fi ve-year total cost of ownership are average estimates for a four-door,
midsized passenger car.
Source: “2013 Booz & Company/Bloomberg U.S. Automotive Industry Survey and Confi dence Index,” Oct. 2013,
booz.com/auto-industry-survey-index; “Total Cost of Ownership: A Gas versus Diesel Comparison,” University
of Michigan Transportation Research Institute, Mar. 2013; Kelley Blue Book
strategy+business issue 74

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by Ramez T. Shehadi and
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I
n most developed nations,
corporate social responsibil-
ity (CSR) initiatives center on
issues such as environmental sus-
tainability, alternative energy, clean
technology, and social welfare. Driv-
ing these activities, more often than
not, is a company’s desire to appeal
to strong consumer sentiment.
But in the Middle East and
North Africa (MENA), CSR is be-
coming something fundamentally
different. It is focusing less on cater-
ing to consumer attitudes, and more
on addressing social and economic
challenges that are hindering devel-
opment, most notably the shortage
of jobs.
The scale of unemployment

is enormous in the region (as it is
in other developing regions with
young populations). The Middle
East alone must create 75 million
jobs by 2020—a 43 percent increase
from 2011, according to the World
Economic Forum (WEF). Failure
to put large numbers of people to
work, particularly young people,
could have severe consequences in
terms of social unrest and lost eco-
nomic activity, the WEF has said.
By contrast, strong and sustained
job creation begets more robust eco-
nomic activity and political stability,
creating a virtuous circle of growth.
However, the responsibility for
all this job growth should not and
cannot be laid at the feet of tradi-
tional employers—large private and
state-owned companies. Indeed,
one structural weakness of many
developing countries is their over-
reliance on relatively few companies
to drive the economy and soak up
labor. To diversify their economies,
make them more resilient, and put
more people to work, these countries
need more robust activity among
small and medium-sized enterprises

(SMEs), which form the backbone
of economic stability and job cre-
ation in the developed world (see
Exhibit). In Germany and France,
for instance, SMEs account for 60
percent and 61 percent of employ-
ment, respectively. Yet in Saudi
Arabia and Egypt, SMEs account
for only 25 percent and 38 percent
of jobs, respectively. In the U.K.,
U.S., Germany, and France, SMEs
contribute a little more than half of
GDP, whereas in Saudi Arabia and
Egypt the contribution is just 25
percent and 33 percent, respectively.
How Companies Can Help
Both local governments and the
private sector in the Middle East
increasingly realize they have vested
interests in clearing a path for SME
creation, and they are beginning to
act on those interests. For instance,
the Ministry of Labor in Saudi
Arabia has identified 36 initiatives,
seven under development, as part of
its “SME Ecosystem” project. These
initiatives include a digital gateway
that provides information on re-
quirements for startups in different
industries, restructuring the SME

funding process, and encouraging
the creation of accelerators.
Accelerators, which are becom-
ing more popular in the Middle
GLOBAL PERSPECTIVE
Corporate Social
Responsibility’s New
Role in the Middle East
An urgent need for job growth is spurring
an innovative trend in CSR and high-minded
commercial initiatives.
22
Illustration by Lars Leetaru
essay global perspective
East, are short-term programs that
usually involve some funding, for-
mal training in a managed offi ce
space, and access to experts and
mentors to help develop ideas.
In recent years, nearly half the
governments in the MENA region
have implemented regulatory re-
forms that make it easier to do busi-
ness, according to the World Bank.
These initiatives, and others like
them, have yielded some early suc-
cesses. A report issued by Dubai In-
ternet City and Frost & Sullivan, for
example, states that from 2005 to
2011, the number of startups in the

MENA region grew eightfold.
Still, the pace of change re-
mains too slow given the scale
of the economic and employment
challenges facing the region in the
coming years—and some large
established companies are waking
up to this fact. They are starting
to design CSR initiatives, as well as
some profi t-minded ventures, that
align with their government’s SME
and job creation goals. Much of the
companies’ motivation stems from
a more rounded understanding of
self-interest. All large companies
depend on the health of the domes-
tic business environment for their
staff and subcontracted work, on
top of needing a market for their
goods and services. Plus, an SME
sector that is creating jobs reduces
the pressure on large companies to
hire people they don’t need just to
reduce unemployment.
The wave of corporate initia-
tives supporting job creation in the
MENA region is still very new and
has not yielded defi nitive, long-term
results. But the surge of activity
and anecdotal evidence convinces

us that the trend is signifi cant and
could prove pivotal to the region’s
economic development and job cre-
ation abilities. We have identifi ed
two areas in which private compa-
nies are already making big moves
to nurture the entrepreneurial eco-
system and promote SME creation:
(1) education and networking, and
(2) fi nancing.
Education and Networking
Education is a broad category that
includes everything from instilling
basic fi nancial literacy, to teaching
An SME sector that is creating jobs
reduces the pressure on large
companies to hire people they don’t
need just to reduce unemployment.
Exhibit: SME Impact
Small and medium-sized enterprises play an
integral role in virtually all diversified economies.
Source: European Commission SME Performance
Review, U.S. Department of Statistics, OECD, UNECE,
World Bank, Zawya, Booz & Company analysis
SMEs as a % of
Total Employment
Note: 2008 data
SMEs as a
% of GDP
Saudi Arabia

Egypt
UAE
U.K.
U.S.
Germany
France
Hungary
25%
38%
42%
54%
55%
60%
61%
71%
25%
33%
30%
51%
52%
53%
54%
50%
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