READY SET INNOVATE - Columbia Business School · READY, SET, INNOVATE: Peter Maulik ’04 in the...

SPR I NG 2013

Innovation expert Peter Maulik ’04 shows that there is more to success than luck and circumstance. Read on p25

T H E A L U M N I M A G A Z I N E O F C O L U M B I A B U S I N E S S S C H O O L

Columbia women leading the upper echelons of the finance industry. p10

GE CFO Keith Sherin ’91 heads up a $1 billion investment in Big Data. p16

How do leaders set values or reset their organization’s direction? p28

LEADING CHANGE

THE GAME CHANGERS

THE

READY SETINNOVATE

JOIN THE CONVERSATION Stay connected to the Columbia Business School community by viewing and sharing videos, photos, and updates. Learn more at www.gsb.columbia.edu/participate.

DIGITAL EDITION Now you can experience Columbia Business with integrated videos, photos, and links. Search for

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Columbia Business School

Dean Glenn Hubbard

Executive Director of Marketing and Communications Iris Henries

Director of Communications Tori Fullard

Editor Simone Silverbush

Contributors Amanda Chalifoux, Alexandra Dreyer, Jen Itzenson, Kimberly Kinchen, Daniel Rosen, Don Hamerman, Luci Gutiérrez, Jimmy Turrell, James Steinberg

Senior Associate Dean for External Relations and Development Lisa Yeh

Design Taylor Design

Editorial Office Columbia Business School 156 West 56th Street, Suite 1801 New York, New York 10019 Phone: (212) 854-8567 Fax: (212) 854-3050 [email protected]

© 2013 by The Trustees of Columbia University in the City of New York

Address changes can be submitted on the alumni website at www.gsb.columbia.edu/alumni or directed to the Alumni Relations Office at (212) 854-8815.

Columbia Business welcomes letters to the editor and class notes updates submitted on the alumni website or sent by mail or e-mail to the editorial office.

Columbia Business, Columbia Business School’s alumni magazine, is published twice a year by Columbia Business School, Columbia University.

Opinions expressed are those of the authors and editors and do not reflect official positions of Columbia Business School or Columbia University.

Spring 2013

THE ALUMNI MAGAZINE OF COLUMBIA BUSINESS SCHOOL

FROM THE DEAN’S DESK

Introducing Columbia Business

25

16 THE NEXT INDUSTRIAL REVOLUTION: Keith Sherin ’91 shown here in the GE corporate headquaters in Fairfield, CT.

READY, SET, INNOVATE: Peter Maulik ’04 in the Farenheit 212 office in Manhattan.

10FEATURES

I am pleased to introduce the School’s redesigned alumni magazine under a new name, Columbia Business. In response to feedback from alumni like you, the magazine has been redesigned to be more

relevant, engaging, and visually compelling. We sought to amplify the publication’s goals: to connect alumni with each other and the School; to celebrate alumni milestones and accomplishments; and to chronicle the impact of Columbia Business School alumni, faculty members, and students on the global business landscape. Feedback from our constituents led us to change the name of the magazine from Hermes to Columbia Business. The new name capitalizes on the powerful and global Columbia Business School brand. It is also a play on the word “business,” as the magazine is a source for Columbia Business School happenings. I want to thank all of you who offered input throughout this process; Columbia Business would not have taken shape without your support. Your feedback is always welcome, so please send e-mails to [email protected] with any thoughts or contributions for consideration.

Glenn HubbardDean and Russell L. Carson Professor of Finance and Economics

IN BRIEF

5 LAUNCH

Let’s Shake on ItAbe Geiger ’12 on launching a tech start-up two months after graduation.

6 YOUR CAREER

Dos and Don’ts of Social Media Networking Peter Gray ’97 shares his top tips for using social media to find your next job.

8 BIG APPLE

No Business Like Show Business Armed with his MBA, Jordan Roth ’10 has taken center stage in the business world of Broadway.

IDEAS AT WORK

21 Think SmallIs it time to reconsider economies of scale?

23 Sharing CentralNew research reveals how connectivity in local social networks promotes cooperation.

CLASS NOTES

33 ALUMNI SPOTLIGHT

Alisa Wood ’08 (EMBA)

34 MOVING UP

The latest notable alumni promotions

35 ALUMNI SPOTLIGHT

Christian Mariager ’88

36 ALUMNI IN THE NEwS

Your fellow classmates have been making news.

38 FACES & NAMES

Alumni attend the launch of Professor Michael Mauboussin’s new book, The Success Equation.

41 ALUMNI SPOTLIGHT

Allyson Downey ’10

42 ALUMNI SPOTLIGHT

Nicholas Galluccio ’78

45 GIVING BACK

Glenn Greenberg ’73

10 The Game Changersby Amanda Chalifoux

What glass ceiling? Columbia Business School alumnae share their experiences in striving for— and reaching—the top of the finance world.

16 The Next Industrial Revolutionby Jen Itzenson

GE is investing $1 billion in Big Data. Leading its finances is Keith Sherin ’91 (EMBA), who has spent three decades helping the company chart new territory.

25 Ready, Set, Innovate Interview by Jen Itzenson

As chief strategy officer at Fahrenheit 212, Peter Maulik ’04 (EMBA) bets on—and delivers—innovation strategies that pay off for clients. It’s not luck that leads to success, he says.

28 Leading ChangeBook excerpt by Ray Fisman • Interview by Simone Silverbush

How do employees learn an organization’s culture? Professor Ray Fisman draws on organizational economics to reveal how leaders drive change.

THE GAME CHANGERS: Columbia women in finance.

gsb.columbia.edu/magazine 1

On September 7, the Sanford C. Bernstein & Co. Center for Leadership and Ethics and Fred Friendly Seminars cohosted a panel discussion, “Financial Innovation: A Risky Business?” Panelists debated the role of financial markets in creating new products and social value and included Alicia Glen, adjunct professor of finance and economics and managing director for Goldman Sachs, and Bruce Greenwald, the Robert Heilbrunn Professor of Finance and Asset Management. In particular, the debate focused on making the financial sector work for Wall Street and Main Street after the financial crisis.

PERSPECTIVES

Watch the video: To watch the debate, visit www.gsb.columbia.edu/leadership/finnovation.

Get the DVD: To order a DVD with bonus features including an interview with Bruce Kogut, the Sanford C. Bernstein & Co. Professor of Leadership and Ethics, and Lew Kaden, the vice chairman of Citigroup, contact [email protected].

China’s Next Steps: Six Smart Moves the State Council of China, said that the country is at a tipping point. Like so many emerging mar-kets, it could become mired in a middle-income trap, where salaries rise to the point at which it can no longer compete on the basis of cheap labor. Or it can move to join the handful of coun-tries classified as high income. The World Bank report “China 2030: Building a Modern, Harmonious, and Creative High-Income Society,” which Liu helped write, out-lined six strategies China needs to embrace to move into the high-income cadre of countries:

1. Implement structural reforms meant to strengthen the foundations of a market-based economy. The government must shed owner- ship in state-owned enterprises, at the same time making them more responsive to market forces and adding technology to make them more efficient. This will pave the way for a stronger private sector and allow increased competition. Legislative reforms that protect individual rights can also pave the way for a dynamic service sector.

2. Accelerate the pace of innovation. As it loses its cheap-labor advantage, China must embrace innovation as its primary means of growth. Liu warned that this move will require transforming

a culture that values stability over change. “That’s very hard to do on our own,” he said. “Our enterprises will have to be open to input

from outside.” Beyond strengthening laws to protect intellectual property rights, China will need to revise its university system to foster original thinking rather than rote memorization. Pointing to the emphasis that Western societies place on innovation, he suggested that partner-ing with American universities could help China learn how to teach its students to be entrepre-neurs and innovators.

“As it loses its cheap-labor advantage, China must embrace innovation as its primary means of growth.”

More Than 500 Connect with Industry Experts at Healthcare Conference

Read More: To learn more about the School’s Healthcare and Pharmaceutical Management Program, visit www.gsb.columbia.edu/healthcare.

From left: Noor Ahmed ’12, former conference co-chair; Christina Chow ’13; Rebecca Kaufman ’13; Vi Nguyen ’13, 2013 conference co-chairs.

Held on November 30, this year’s healthcare conference focused on “Catalysts for Change in a Fractured Healthcare System” and featured panel discussions on biopharmaceuticals, medical tech-nologies, healthcare services, venture capital, and entrepreneurship. Keynote speakers Sherry Glied, a professor at the Columbia University Mailman School of Public Health, and Marc Tessier-Lavigne, president of Rockefeller University and former chief scientific officer for Genentech, addressed attendees. The event concluded with a reception and career fair with healthcare employers.

“Today’s healthcare industry represents unparalleled opportunities for talented and motivated professionals to solve one of society’s greatest challenges—providing access to high-quality and affordable healthcare products and services,” said Professor Cliff Cramer, director of the School’s Healthcare and Pharmaceutical Management Program.

Q&A with Lorne Abony ’03: The Undercover BossRecently, Lorne Abony

’03, CEO of Mood Media, went undercover. But this wasn’t a CIA operation or a sting. Abony was appearing on the CBS show Undercover Boss, in which company leaders don disguises and embed themselves

with their employees to inconspicuously observe the nuts-and-bolts work of their organizations and get to know their staff personally. Mood Media offers everything from music and videos to scents to help its retail clients com-municate with consumers. Today, the corporation aids more than 800 chains in over 40 countries. In his time undercover, Abony gained a unique perspective on the work and the employees who do it so effectively.

Q. What did you learn about your company by going on the show?

A. The Undercover Boss opportunity enabled me to have truly candid conversations with our employ-ees that probably wouldn’t have happened if I had met them in my role as CEO. I was humbled by their commitment to the company as well as the strength they show for their families. This was also an opportunity for me to experi-ence some of the services we provide as a result of our exponential growth over the past few years. Working side-by-side with our employees rein-forced the level of complexity and attention to detail each job requires; the total focus that employees had on the outcome of their work and the level of excellence they delivered for our customers was inspiring. These values are incredibly important from a corporate perspective, and they were appar-ent in each of the people I worked with.

Watch the show: Watch Abony on Undercover Boss at www.gsb.columbia.edu/abony.

Read more: To read Liu Shijin’s three other “smart moves” for China, visit Chazen Global Insights at www.gsb.columbia.edu/china.

3. Seize the opportunity to “go green.” Rather than view environmental regulations as burdens, Liu said, “companies should view clean energy and environmental protection as growth oppor-tunities to develop a new industry.”

Alumni: Lend Your Expertise to the Columbia-Harlem Small Business Development Center

The Columbia-Harlem Small Business Development Center (CHSBDC)is looking for alumni volunteers to aid its mis-

sion. Founded in 2009 and relocated to Columbia Business School from the Fu Foundation School of Engineering and Applied Science in 2012, the center offers training, workshops, and one-on-one coach-ing to local small business owners. Alumni volunteers serve as informal advisors, paired with entrepreneurs in similar industries for informational interviews, which can occur by telephone. Clients range from restaurateurs to building contractors to educational consultants and more and seek advice about marketing, operations, expansion, and other business topics. The center, funded in part by the United States Small Business Administration, is one of 900 such organizations around the country. What sets CHSBDC apart is its connection to Columbia, which gives its clients access to world-renowned faculty members, business students, and alumni business leaders. Already, the center has helped more than 700 businesses and aided the investment of over $5 million dollars in the local economy.

How to volunteer: Alumni interested in volunteering should contact Director Kaaryn Nailor Simmons at [email protected].

Marc Benson ’14, Michael Boswell ’13, and Aaron Scheinberg ’10 were named among Civilian Job News’ Top 40 Under 40 Military Class of 2012. The list recognizes top-performers who are or have been in the US Armed Forces.

MILITARY CLASS OF 2012

Three Grads Named Top 40 Under 40

In the annual N.T. Wang Distinguished Speakers lecture, cosponsored by Columbia University’s Weatherhead East Asian Institute and the Chazen Institute of International Business, Liu Shijin, vice minister of the Development Research Center of

IN BRIEF

IN BRIEFIN BRIEFNews from around

the School

2 Columbia Business / Spring 2013 gsb.columbia.edu/magazine 3

Awi Federgruen Talks About Hurricane Sandy Gas Rationing

“By perceiving a shortage, they actually created one,” Awi Federgruen, the Charles E. Exley Professor of Management, told the New York Times on November 18 about the gas rationing in the aftermath of Hurricane Sandy. Federgruen said that ultimately gas stations contributed to long fuel lines by forcing customers to return for more gas and “doubling or tripling the volume of cars that need(ed) to be served.”

Keith Wilcox Discusses Facebook’s Effects on Self-EsteemOn December 26, Bloomberg View cited research by Professor Keith Wilcox on how social networks like Facebook may inflate self–esteem and reduce self–control.

Barbara Krumsiek Awarded 2012 Botwinick Prize Barbara Krumsiek, the chair, president, and CEO of Calvert Investments, received the School’s 2012 Botwinick Prize in Business Ethics on November 26. Organized by the Sanford C. Bernstein & Co. Center for Leadership, the Botwinick Prize recog-nizes an outstanding leader who exhibits the highest standard of ethical conduct in business or the professions. Krumsiek received the award for her work at Calvert Investments, a globally recognized leader of sustainable and responsible investing. Under Krumsiek’s leadership, the Calvert Women’s Principles were created in 2004—the first global code of corporate conduct focusing exclu-sively on empowering, advancing, and invest-ing in women worldwide. Krumsiek also serves as co-chair of the United Nations Environment Programme Finance Initiative, a partnership between the United Nations Environment Programme and 200 financial institutions around the globe that promotes links between sustain -ability and financial performance. The Botwinick Prize in Business Ethics was established with a generous endowment from Benjamin Botwinick, BS ’26, and his wife, Bessie.

Watch the video: To watch Krumsiek’s talk, visit www.gsb.columbia.edu/botwinick.

Paul Milstein Center for Real Estate HighlightedOn January 17, Bloomberg Businessweek highlighted job placements of the School’s Paul Milstein Center for Real Estate Program graduates.

Linda Green Discusses Physician Shortages in Washington Post

Linda Green, the Armand G. Erpf Professor of the Modern Corporation, discussed how physician shortages could be eliminated in the Washington Post on January 15. “The growth in the supply of non-

doctors, the team approach, they all add up to having physicians cover twice as many patients as they have in the past,” Green said.

Katherine Phillips on CEOs and President Obama

Katherine Phillips, the Paul Calello Professor of Leadership and Ethics talked to Marketplace on November 14 about what Obama can learn from CEOs about how to lead when they know their end date.

David Ross Shares the Impact of CEO’s Children on Employee Wages Research by David Ross, the Sanford C. Bernstein & Co. Associate Professor of Leadership and Ethics, on how a male CEO’s children affect the wages of his employees was featured in the Wall Street Journal on January 6.

SCHOOL IN THE NEWS

Why pay a lawyer for simple legal agreements when you can customize them on your phone? CEO Abe Geiger reveals how his tech start-up Shake is speeding up business for consumers and small businesses alike.

A Legal App, Minus the LegaleseThe complexity and legalese involved in basic legal agreements is really frustrating when, actually, a signed napkin or even a handshake is legally binding. Our goal is to demystify the law for non-lawyers. We want people to actually understand the agreements they are signing, whether it’s lending money to a friend or discussing a partnership for your start-up. Shake combines elements of TurboTax, Square, and Dropbox. We ask you a few questions (e.g., Who are you loaning money to? Are you charging interest?), provide you with a short document in plain English, let you execute it on your phone, and leave you with a record of all your legal documents you can access anywhere.

Plugged In to New York’s Tech Community— and the Columbia Business School NetworkDuring the summer before my second year at Columbia, I interned at Greycroft Partners, an early-stage VC founded by Alan Patricof, MS ’57, and Ian Sigalow ’06. I also worked at Canaan Partners during my second year, evaluating investment opportunities, learning the VC perspective, and immersing myself in the NYC tech community. In June Stu told me about an idea that Jon and Jared were kicking around. It aligned perfectly with the start-up I had been working on as an independent study with Professor Jeff Harris. I already knew Jon (the president and COO of BuzzFeed) and quickly got to know Jared (Spotify’s general counsel) as we joined forces to make Shake a reality.

Biggest HurdleGetting good talent at an early-stage start-up is tricky. You’re selling the vision, the team, and the potential. Fortunately for us, the oppor-tunity to disrupt a $270 billion market is pretty appealing.

If You Want to Launch a Tech Start-UpThink big but act small. Stay focused, and don’t overcomplicate the initial product. What is the simplest thing you can build in order to get the feedback you need to grow in the right direction? For us, that was building a mobile app that lets you answer a couple questions, review an agreement, and sign it on your phone.

What’s NextWe’re looking at a few monetization options, but the focus right now is on building an app that people love using, learning how they use it, and making it better.

—as told to Simone Silverbush

Watch the video: Geiger honed Shake’s business plan—and got feedback from former classmates (and potential customers)—at Columbia Business Lab, a co-working space in Soho for recently graduated Columbia Business School entrepreneurs. To watch a video about the lab, visit www.gsb.columbia.edu/lab.

Photograph by Don Hamerman

Let’s Shake

On It

COMPANY PROFILEFounders: Abe Geiger ’12 (CEO), Stu Ellman, Jared Grusd ’06 (EMBA), and Jon Steinberg ’03Industry: Legal ServicesMonths in Business: 7No. Registered Users: 20,000

Abe Geiger ’12

IN BRIEF IN BRIEF Launch

4 Columbia Business / Spring 2013 55

How can social media help you find your next job?

The job search has always been a social networking process, whether online or off. Most jobs are filled without ever being advertised, so whether you’re passively net-working or actively searching for a job, it’s essential to use social media tools to your advantage. A few ways social media can help you find your next job:

USE LINKEDINYou probably don’t need to be told that linkedin.com is the number one career-oriented social media site. It’s useful in two ways: as a networking platform and as a way to make yourself visible to executive recruiters. To get the most from LinkedIn:

> Complete your profile and keep it updated. Include detailed language describing the industry and functional experience for which you would want to be “found.” Recruiters search LinkedIn using keywords.

> If you upload a photo, use a professional-looking headshot, not a candid crop and definitely not a cellphone self-shot. LinkedIn isn’t Facebook.

> Keep all content you post on LinkedIn strictly profes-sional. Your presence there should have a regularly updated business profile but need not be a narrative of your daily doings and musings. Did I mention that LinkedIn isn’t Facebook?

> Grow your network. Invite the people you know to become LinkedIn connections.

> Join LinkedIn groups that fit your professional specialty and interests. Groups can help you network with people who share your professional niche or other affinities. (And join the official Columbia Business School Alumni group—more on that below.) Searching groups is also a way recruiters find talent with specialized skills.

> When a connection approaches you for networking help, be helpful (or at least courteous).

> Be mindful of privacy settings, especially if you are currently employed but quietly using LinkedIn to network for your next job. For example, LinkedIn (unlike Facebook) allows users to see if you have viewed their profiles unless you change a default privacy setting. Also, you’ll need to change another LinkedIn default privacy setting if you don’t want your LinkedIn profile to turn up when someone enters your name in Google or other search engines.

STAy INFORmED By CREATINg ALERTSI’m not sure if alerts technically qualify as “social media.” But they are a handy tool for keeping up to date on

topics of interest, whether people, companies, jobs, or news stories.

> LinkedIn and the job-posting search engines indeed.com and simplyhired.com let you save custom job searches and receive e-mail alerts about jobs that match your search criteria.

> It’s also a good idea to create a Google Alert of your own name with relevant keywords such as your company name, so you won’t be the last to know if you’ve been mentioned somewhere online.

BUILD “ThE BRAND CALLED yOU”Tom Peters’s influential 1997 Fast Company article

“The Brand Called You” predates social media, but it’s not dated at all—its message of self-empowerment in the Internet age only grows in relevance as social technology advances. Social media supercharges our ability to build our personal brands.

> Post comments, articles, or even create a blog or web-site on a topic that interests you. This is particularly worth doing for aspiring career changers who need to establish credibility in a new field of interest.

> Be smart about what you post to avoid tarnishing your brand. Remember that anything you type online (includ-ing and especially e-mails and texts) is potentially public information. While you’re at it, keep Facebook and other sites clean of embarrassing photos and tags.

USE ThE SChOOL’S ALUmNI WEB AND SOCIAL mEDIA TOOLSAs Columbia Business School alumni, we already have the benefit of a great education and a great credential. But our most valuable alumni assets are our ongoing relationships with the School and our alumni network. Cultivate those relationships with the range of tools the School offers:

• Alumni website: www.gsb.columbia.edu/alumni. This includes an alumni directory and a robust career resources section.

• Facebook: www.facebook.com/columbiabusiness• Official Twitter feed: @Columbia_Biz• Career Management Center Twitter feed:

@ColumbiaBizCMC• Official alumni group on LinkedIn: bit.ly/cbsalumnigroup

(For more visit: www.gsb.columbia.edu/linkedin.)

This list is not exhaustive, and I’m eager for feedback from other alumni on this topic. How have you used social media to help you find a job, and what would you recom-mend? E-mail me at [email protected].

“Be mindful of privacy settings, especially if you are currently employed but using LinkedIn to network for your next job.”

PETER GRAY ’97 is the director of Executive Search at The QTI Group in Madison, WI. Do you have a career question for him? Write him at [email protected]. Peter also welcomes invitations from alumni to connect on LinkedIn: www.linkedin.com/in/graypeter.

EXPERT ADVICE GIVEN BY:

Submit: To submit a nomination for 2013, visit www.gsb.columbia.edu/deming. Nominations are being accepted through June 15, 2013.

Above: The 2012 dinner concluded with a group photo of recipients of the Deming Cup. From left to right: Terry J. Lundgren (2012), Ratan N. Tata (2012), Samuel Palmisano (2010), Sergio Marchionne (2011) and Brent James (2011).

Give back: To make a gift to the Columbia Business Fund, contact Barbara Clapp, director of individual giving, at [email protected]. To make a gift to the Executive MBA Fund, contact Ed Cangialosi, assistant director, at [email protected]

Columbia Business thanks the more than 650 alumni, faculty and staff members, students, and friends who made gifts to the School as part of Columbia University’s inaugural Giving Day on October 24. Nearly $350,000 was raised for the Columbia Business Fund and the EMBA Fund in only 24 hours. The contributions also helped the School secure more than $25,000 in match-ing funds. All donations will be invested in key priorities like financial aid, faculty research, and curricular innovations.

HELD ON OCTOBER 24, 2012

Columbia’s Giving Day The Deming Cup: A Growing TraditionEach year, Columbia Business School’s W. Edwards Deming Center for Quality, Productivity, and Competitiveness awards the Deming Cup to indi-viduals who have made outstanding contributions in the area of operations and established a culture of continuous improvement within their organizations. Last October, the honor went to two recipients. Terry J. Lundgren, chair, president, and CEO of Macy’s, Inc., was rewarded for effectively navigating his company through periods of profound change, while Ratan N. Tata, former chair of Tata Sons Limited, was honored for his instrumental role in transforming a family business from an Indian conglomerate into a global organization. Past win-ners have also included Sergio Marchionne, CEO of Fiat and chairman and CEO of Chrysler Group, Brent James, MD, chief quality officer of Intermountain Healthcare, and Samuel Palmisano, former chair-man and CEO of the IBM Corporation.

Treasury Appoints Trevor Harris to New Financial Research Advisory Committee

On November 14, the US Department of the Treasury named Professor Trevor Harris to the newly established Financial Research Advisory Committee of the Office of Financial Research (OFR). Harris, the Arthur J. Samberg Professor of Professional Practice, is among 30 distinguished professionals in economics, finance, financial services, data manage-ment, risk management, and information technology invited to serve. The committee will help the OFR ful-fill its mission of improving the quality, transparency, and accessibility of finan-cial data and information; conducting and sponsoring research related to financial stability; and promoting best practices in risk management. The committee will form subcommittees to focus on research, data, technology, risk management, and other issues. Committee members were selected from more than 150 applicants and include two Nobel laureates in eco-nomics, leaders in business and nonprofit fields, and prominent researchers at major universities and think tanks.

The committee will help improve the quality, transparency, and accessibility of financial data and information.

IN BRIEFIN BRIEF Your Career


Watch the video: To watch Roth’s acceptance speech at last year’s Tony’s, visit bit.ly/X7yAHI

His NYC LegacyJordan Roth ’10 remembers going to class for the first day of his third semester at Columbia a few hours after he was named president of New York City’s Jujamycn Theaters, the third-largest theater chain on Broadway. “It was fortuitous timing,” says Roth. “I took over the company with the benefit of having just put two semesters of focused work into thinking through my management philosophy.” That focus is evident in the succession of innovative box-office successes Roth has since ushered into Jujamcyn’s five theaters (the St. James, Al Hirschfeld, August Wilson, Eugene O’Neill, and Walter Kerr)—productions like American Idiot, Book of Mormon, and Spring Awakening that, as Roth puts it, “honor the Broadway legacy while deliver-ing it forward.” Take the Tony Award–winning How to Succeed in Business Without Really Trying: “a classic revival,” says Roth, “whose stars—first Daniel Radcliffe, then Darren Criss and Nick Jonas—speak very much to an audience of today.” Last spring, Roth doubled as a producer when he brought the Pulitzer-Prize winning play about race relations, Clybourne Park, to Broadway, where it earned a 2012 Tony Award for Best Play.

How He’s Helping New YorkersBuilding on the industry’s strong legacy of cause marketing, Roth created Givenik, a service that allows theatergoers to buy discounted tickets and give 5 percent of their ticket price to a charity of their choice. Givenik.com currently supports more than 500 organizations, including Big Brothers/Big Sisters, local chapters of the Susan G. Komen Breast Cancer Foundation, and Habitat for Humanity. “Rather than creating a relationship with a charity that ends with a particular show, we’ve introduced a way of coming to the theater and supporting various causes that doesn’t end,” says Roth.

Why He Loves the Big Apple“There’s an electricity to this city that causes people of passion to want—or need—to be here,” says Roth.

“You see that in business, fashion, technology, and, of course, in artists. New York theater is so vibrant because of the people that New York attracts.”

Photography: Chad Batka/The New York Times/Redux

JORDAN ROTH ’10President, Jujamcyn Theaters, 2012 Tony Award–Winning Producer of Clybourne Park

“There’s something about sitting in one of our theaters at the moment the lights start to dim—when it’s all possible.”

No Business Like Show Business

Take Control of Your Career Path, Henry Swieca ’83 Tells StudentsHenry Swieca ’83, cofounder of Highbridge Capital Management and founder and CIO of Talpion Fund Management, shared advice with students on October 23 as part of the David and Lyn Silfen Leadership Series. The son of immigrant parents who were Holocaust survivors, Swieca recalled his humble beginnings in New York’s Washington Heights neighborhood in the 1960s and ’70s. He saw a path to financial security through his uncle, a dentist who also invested in the stock market. After Swieca’s parents died while he was in col-lege, Swieca turned to the market as a way to pay not only for his own education but also for his brother’s medical school. He bought 1,000 shares in Warner Communications—using nearly all the money he had at the time. After two years, the stock had doubled, and Swieca had been accepted into Columbia Business School on a two-year deferment. He used that time to travel, work in Israel, and accept a job at Merrill Lynch—a position he found by knock-ing on the doors of retail banks throughout

Manhattan. “I told them I was hungry and would work for very little money,” Swieca said. “I had no connections; I had to hustle and struggle.” At Merrill Lynch, Swieca learned every aspect of the bro-kerage business, practical experi-ence he combined with his studies at Columbia, where he learned about capital structure and lever-age. In 1984, he started the Dubin and Swieca Group at E. F. Hutton with business partner Glenn Dubin; the two would pioneer the integration of traditional securi-ties and derivative investment strategies. In 1992, Dubin and Swieca started Highbridge Capital Management, which they eventually sold to JPMorgan Chase. In 2011, Swieca started Talpion Fund Management. Acknowledging the changing finance services landscape, Swieca advised students to broaden

their job search to non-traditional firms and smaller companies. “Checking boxes and fol-lowing a set career path was never my style, and it’s much harder to do today,” he said. “Look at your skills and what’s ahead for the market, then match what you’re good at with the opportunities that are out there.”

Save the date! The School’s 37th Annual Dinner will take place on May 6, 2013, and will honor Ronald O. Perelman, chair-man and CEO of MacAndrews & Forbes Holdings Inc., and Erskine B. Bowles ’69, president emeritus of the University of North Carolina. Meyer Feldberg ’65, dean emeritus and professor, Columbia Business School, and senior advisor, Morgan Stanley, will chair the event.

MAY 6, 2013

JOIN US: To learn more, visit www.gsb.columbia.edu/annualdinner.

IN BRIEFIN BRIEF Big Apple


omen make up 47 percent of the US labor force and more than half the US finance work force. Despite these numbers, according to the research firm Catalyst, fewer than 20 percent of finance industry

executives and directors are women. Among all ranks within the industry, the recession has intensified this trend: from 2007 to 2010, 12.5 percent of women in the financial industry lost their jobs, compared with 8.8 percent of men, according to an analysis of government statistics by the Economic Policy Institute.

What glass ceiling? Columbia Business School alumnae are striving for—and reaching—the top of the finance world.WRITTEN BY AMANDA CHALIFOUX • ILLUSTRATIONS BY JIMMY TURRELL

Nonetheless, a number of Columbia Business School alumnae are leading the upper echelons of the finance industry: they are at the helm of divisions at powerhouses like Bank of America, Goldman Sachs, and Wells Fargo, or running their own boutique investment firms around the world. These alumnae share their stories, candid advice on reaching the top, and ideas about how the industry can help women succeed. Columbia Business School professors also offer insights on the business benefits of diversity in the C-Suite.

W

GAME CHANGERSTHE

Lulu Wang ’83

Maria Chrin ’89

Candace Browning ’79Nicole Pullen Ross ’99

Maliz Beams ’85


ulu Wang ’83, founder and CEO of Tupelo Capital Management and a member of the School’s Board of Overseers, has been the first woman in the room many times throughout her decades-long finance career. But in one particular instance—as the first woman to serve on a high-level investment committee—she met with a not wholly unexpected challenge.

“The chair of the committee was an old-school gentleman, and I could tell he was uncomfortable when I came on board; he didn’t know what to do with a woman on his committee,” Wang recalls. When committee members were polled around the table, Wang was not always asked for her opinion. That’s when she decided to make sure she was heard. “I made a point to always have something to offer at every committee meeting,” she says. “Over time, the chair came to rely on my input and to actually consider me one of his most valued advisors on the committee.” It’s that type of determination, confidence, and exper-tise that has propelled nearly 400 Columbia Business School alumnae to C-suite positions in banking and investing around the world, despite male domination of the industry. Only the healthcare industry has fewer women directors than finance, according to a 2010 WECNY study of the top 100 revenue- producing companies in New York as identified by Crain’s. But the statistics didn’t deter Wang, who decided even before pursuing an MBA that her goal was to head her own investment firm. Armed with an undergraduate degree from Wellesley and experience as a senior analyst at Equitable Capital Management, she enrolled at Columbia to round out her academic credentials. After graduating, offers from Wall Street came pouring in. “Columbia was an important part of my professional development, giving me not only excellent credentials, along with my Wellesley degree, but also rounding out the decade of experience I already had on Wall Street,” Wang says. Wang advanced through portfolio management, then gen-eral management at Equitable. In the late ’80s, she accepted a position at Jennison Associates Capital Corporation, where she was the first woman portfolio manager, and was respon-sible for more than $4 billion in assets for pension, endowment, and mutual funds as a director and executive vice president. In 1998, Wang started her own firm Tupelo Capital Management. “If you become an important, contributing member of the team, it doesn’t matter if you’re male, female, or whatever race,” Wang says. “If you help the team, they’ll want you. Just remember not to take anything personally.”

Striking a Tough BalanceMaria Chrin ’89 also knew early on that finance was for her. Her passion stemmed from watching her grandmother in Honduras lose out on a significant amount because she did not know who could help her with the stock portfolio left to her when Chrin’s grandfather died unexpectedly. “I never wanted that to happen to me,” Chrin says. “I wanted to not only understand the world of finance and investments but also help others navigate it—to give back in a way I wish someone would have given back to my grandmother.”

Wang points out that as more companies become multi-national, family responsibilities can often affect a woman’s mobility and, therefore, her opportunity to advance. “I’m con-cerned when I see three or four top management candidates for a job, and the women tend to have lower rankings on mobility than men do,” Wang says. “I think women feel that they are the stewards of their families, and they worry about their kids being in school, aging parents, etc. I know many women have been able to make an international move, but it comes with a great deal more personal sacrifice than it does for their male counterparts.” Commitment is what leads many women in finance to find their own solutions. “Building a family affects women differ-ently than men, but it’s not insurmountable,” says Browning, who worked on a flexible schedule—sometimes at her kitchen table—during her years as an analyst with a young family.

“You just have to recognize it’s an issue and devise strategies to solve it. In finance, you measure your performance in metrics, and you can see the value of someone’s contribution in num-bers. There are aspects of finance that are flexible, and women excel in those areas.” Instead of listening to the naysayers, Chrin was hired at Goldman Sachs after graduation, where she worked for 15 years before co-founding Circle Financial Group and later founding Circle Wealth Management, LLC with Ann Kaplan ’77, a member of the School’s Board of Overseers. While she says good support at home was key, she also focused on balance over the long term—if workdays were long, she compensated by focusing on family on the weekends. “It wasn’t easy. I started with a full plate,” Chrin says.

“But I knew both my family and my career were very important to me, and I was determined to make it all work. Firms need to be more responsive when a good producer asks for flex-ibility during a period of their lives when they need it. If they don’t allow for that, they’re going to lose the person and their investment in them.”

Opening DoorsBut motherhood is not the only obstacle women experience in advancing. “The reasons women have not achieved parity at the highest levels are deep-rooted, complex, and nuanced,” Bartel says, pointing out that on a broader scale, the percent-age of women in the top ranks of US corporations has barely moved in the last two decades. For one thing, research by Professor David Ross found that general bias in the workplace hampers women. In a study of Danish companies, Ross found that if a male CEO has a daughter while in office, that company’s gender wage gap shrinks. Meanwhile, Professor Ernesto Reuben’s research has shown that women who perform as well or better than male colleagues are still less likely than men to be selected for leadership roles. “This suggests that firms may not be allocating their human capital efficiently,” Bartel explains. “We need to help companies understand that diversity is good for business.” As one possible solution, some countries have instituted quotas for female representation on corporate boards. Norway, for instance, requires at least 40 percent of a corporate board’s

But Chrin encountered challenges before she even gradu-ated with her MBA. Married before business school, she became pregnant her first semester at Columbia. Many people advised her to give up a Wall Street career. “They said it was going to be too difficult, that no one would hire me without the right summer internship,” Chrin says. Unlike Chrin, working in finance was not an initial goal for Candace Browning ’79. She found her path—and experienced the challenges working mothers face in a demanding field—along the way. “I was a marketing major at Columbia and had zero interest in finance,” Browning says. “It was a very male-dominated and extremely intimidating area.”

“I know many women have been able to make an international move, but it comes with a great deal more personal sacrifice than it does for their male counterparts.”–Lulu Wang ’83

“I wanted to not only understand the world of finance and investments but also help others navigate it—to give back in a way I wish someone would have given back to my grandmother.”–Maria Chrin ’89

–Candace Browning ’79

“Ask for more responsibility. I wasn’t a vice president, and I wanted to be—so I asked my boss. Believe that you can do this.”

Instead, Browning worked as an airline analyst for 20 years before taking a risk on a management job in London in 2000 with Merrill Lynch. Today, she is head of BofA Merrill Lynch Global Research. But despite the obstacles inherent in her move to investment management, Browning says the biggest chal-lenge she faced was in building a family while climbing the corporate ranks. “I think for a woman with a young family, it is very diffi-cult,” Browning says. “Those challenges were there when I was coming up and are still here today. There is more recognition and sensitivity to these issues now, but, frankly, there hasn’t been much change to help women balance work and family.” Nicole Pullen Ross ’99, managing director and head of the Mid-Atlantic region in the investment management division at Goldman Sachs, says the difficulty of juggling the role

of mother and professional shocked her after the birth of her first child. “After my first week back from maternity leave, I thought,

‘no one ever told me that all these working moms had their Superwomen capes tucked away in their closets,’” she says. “The magnitude of things that working women accomplish—I’m con-stantly in awe. We are professionals, mothers, wives or partners, and it’s an ever-changing priority list.” Citing a recent study of University of Chicago MBAs, Ann Bartel, the Merrill Lynch Professor of Workforce Transformation at the School, reports that, although male and female MBAs have nearly identical earnings at the outset of their careers, nine years after graduation, female MBAs earn approximately 40 percent less than their male counterparts on average. “Differences in career interruptions and weekly hours, both of which were largely asso-ciated with motherhood, accounted for this large gap,” Bartel says.


and men. “Companies should move toward flexibility without shame (for employees).” Krawcheck’s talk was just one highlight in a week filled with networking events for stu-dents and alumni around the world, including gatherings in Boston, New Delhi, and Singapore. Women’s Week was a joint venture of the Dean’s Office, Admissions, Student Affairs, and Alumni Relations.

“It was great to see so many stu-dents—both male and female—come out and participate in the Women’s Week events,” said Margaret Ryan ’13, president of Columbia Women in Business (CWIB). “I think it was a wonderful way to celebrate the female commu-nity at the School while also fostering an open dialogue about the challenges women face in business today.”

“After my maternity leave, I thought, ‘no one ever told me that all these working moms had their Superwomen capes tucked away in their closets.’ The magnitude of things that working women accomplish—I’m constantly in awe.”–Nicole Pullen Ross ’99

“Choosing the right jobs and the right challenges to build the right breadth of experience is quite important.”–Maliz Beams ’85

members be women. Large quotas are unlikely to be supported in the United States, Bartel says, but Professor Bruce Kogut has modeled smaller quotas, finding that quotas as small as 10 to 20 percent could create long-lasting, significant changes to board representation. However, many of the Columbia alumnae holding top posi-tions in finance say they are not in favor of mandated quotas. Instead, some prefer that organizations make diversity a prior-ity by building it into the workplace culture. “If a business has a diverse customer base, your employees and leaders need to reflect that diversity” says Maliz Beams ’85, CEO of ING US Retirement Solutions. “It’s important to keep a critical eye toward the diversity at senior management lev-els.” Simultaneously, Beams also says that considering diverse candidates for a position is crucial: “However, at the end of the day, you have to put the right person in the right job. Qualification must be the base-level consideration.”

In addition to flexible work arrangements, Nicole Pullen Ross believes organizations need to provide access to senior leaders and focus on mentorship and formal new employee sponsorship to level the playing field for all employees. “Firms have to create structures where interactions between women new to the field and senior leaders can happen, because women might not naturally be in the same professional finance circles as the men they’re competing with,” Pullen Ross says. “Sponsors have been critical in my career. A sponsor is someone who is going to be in that senior-level discussion speaking on your behalf or making sure you’re part of that conversation.”

Carving a PathTo help women MBA students launch their careers, Columbia Business School is offering more support than ever—from the School’s first ever Women’s Week held last November, to the student club Columbia Women in Business (CWIB), which organizes conferences, professional development, and mentor-ship opportunities for students. “At Columbia, I felt like the world of finance was an exten-sion of the campus,” Pullen Ross says. “Because of the faculty, frequency of guests, and different perspectives that were con-stantly available in the classroom, it helped me crystallize the career I wanted to pursue and build a strong network of not only colleagues, but friends.” But while access may help open doors, it’s often up to women to keep them ajar. “The environment is important, but it’s up to you,” Chrin says. “You have to craft your own destiny. Don’t settle for mediocrity. Dig deep and do your own research. Be thoughtful in the relationships you build. The little details matter a lot.” Indeed, Beams says that performance was critical but certainly not the only part of her success. “You have to do a superlative job 98 percent of the time,” Beams says. “But that’s only half—sometimes less than half—of the equation. The rest is career management and self-assessment—choosing the right jobs and the right challenges to build the right breadth of expe-rience is quite important.” Once women have the foundation and skills they need, Browning recommends a direct approach. “Ask for more responsibility. I wasn’t a vice president, and I wanted to be—so I asked my boss,” she says. “Believe that you can do this.” Wang advises that women in business should accept credit when warranted. “Not only do women eschew credit, but they’re too modest about the overall importance of their work,” she says. “I know when I was running portfolios, I often used

‘we’—I never used ‘I.’ Like many women, I liked to share the credit. Don’t be afraid to point to the successes or achieve-ments you’ve accomplished.” But what ultimately propels Wang and other women in the C-suite—beyond ambition—is passion for their work. “I just love investing. It’s intellectually the most challeng-ing and creative job I can think of—you’re constantly looking at the world to figure out what’s working and translating that into investment ideas,” Wang says. “I’ve always said that even if I weren’t paid a cent, I’d still want to be in money management.”

allie Krawcheck ’92, former CEO and chair of Citi Global Wealth Management and a member of the School’s Board of Overseers, dis-cussed how women can advance their careers while maintaining work-life

balance in her keynote address during the School’s first Women’s Week, held November 12–16, 2012.

Krawcheck told students that women’s careers can be viewed as “lattices instead of ladders” in some cases, and she noted that in business, gender pay disparities decrease when women are in charge, and diverse teams regularly outperform more capable, but less diverse, teams. Still, “women are not better than men, just different,” Krawcheck said. She also stressed that a departure from the tradi-tional career model could benefit both women

S

Sallie Krawcheck ’92

ALUMNA SHARES ADVICE, EXPERIENCE DURING WOMEN’S WEEK

ON WOMEN’S WEEK: “I THINK IT WAS A WONDERFUL WAY TO CELEBRATE THE FEMALE COMMUNITY AT THE SCHOOL WHILE ALSO FOSTERING AN OPEN DIALOGUE ABOUT THE CHALLENGES WOMEN FACE IN BUSINESS TODAY.”


Written by Jen Itzenson

Photography by Don Hamerman

GE is investing $1 billion in Big Data. Leading its finances is Keith Sherin ’91 (EMBA), who has spent three decades helping the company chart new territories.


1% What if there were 1 percent more efficiency in the grid?

$30 $27 $66B ILLION BILLION BILLIONIn the airline industry, a 1 percent gain in fuel efficiency is worth $30 billion over 15 years.

In the rail industry, it would mean faster trains, lower carbon emissions, and $27 billion in fuel savings over 15 years.

For gas-fired generators, a 1 percent gain would reduce costs by $66 billion over 15 years.

When Keith Sherin ’91 (EMBA), CFO of General Electric, is asked about the next trend on the horizon, he talks about the

“industrial Internet”—or how his company, among others, plans to harness the power of data collected by machines rang-ing from aircraft engines to CT scanners. Managing digital intelligence, or Big Data, might be the next revolution in technology, the industrial counterpart to the consumer Internet, the domain of companies like Google, Facebook, and Amazon. GE, one of the biggest manufacturers

of equipment used in transpor-tation, power generation, and medical imaging, predicts that analyzing the enormous amounts of data produced by industrial machines will translate into real dollars—for the company, its clients, and the economy.

Whereas the consumer Internet connects people, the industrial Internet connects machines. Through sensors embedded in hundreds of thou-sands of jets, turbines, and medi-cal equipment, GE can collect and analyze vast quantities of data, with a goal of helping its customers increase profits and reduce waste. These sensors can help optimize flight times, signal the need to repair or replace a wheel, and help prevent power outages.

“We ask ourselves, ‘What if there were 1 percent more effi-ciency in the grid?’ For airlines, a 1 percent gain in fuel efficiency is worth $30 billion over 15 years,”

says Sherin. Likewise, reducing inefficiencies by 1 percent in the rail industry would mean faster trains, lower car-bon emissions, and fuel savings of $27 billion in the same period. And 1 percent fuel savings for gas-fired generators would reduce costs by $66 billion, according to a recent report from GE. The Internet is both a new territory and a significant area of investment for the company. GE plans to invest $1 billion in its new high-tech center in San Francisco by 2015. It has hired more than 200 software engineers in the last two years and plans to hire 200 more. “We’re work-ing from the equipment up,” Sherin says. “The industrial Internet is about increasing performance. We’re fixing our customers’ equipment before it breaks.”

A THREE-DECADE CAREERSherin, who is in his 32nd year at GE, has a long history of helping the company pursue new opportunities. He has served as its CFO since 1998 and as vice chairman since 2007—years in which the company faced some of its great-est challenges, including the recent financial crisis. From a spot on the corporate audit team, he worked his way up to a CFO position in Europe and other CFO roles back in the United States, completing his MBA seven years in. It is quite the career arc for someone who finished his undergraduate degree with a major in math and a minor in Russian. “When I graduated, I was really worried about what I was going to do,” Sherin says. Fortunately, he found his way to GE and enrolled in its training program.

“I thought, ‘What could be more perfect?’ They were going to pay me to go to school.” Every six months, Sherin rotated through a different job. After two years, he joined the corporate audit staff, which reviewed the company’s internal processes. Each quarter he was placed on a team in a different part of GE. Soon after his promotion to a leadership role on the audit team, he experienced his first setback.

“We’re working from the equip-ment up. The industrial Internet is about increasing performance. We’re fixing our customers’ equipment before it breaks.” —Keith Sherin

As part of the School’s David and Lyn Silfen Leadership Series, Sherin recently shared the lessons he’s learned in his three-decade career at GE:

After completing a three-month project and leading a team of 10, Sherin gave a presentation to the division’s CFO. “We thought we had done a good job,” he recalls.

“But at the end of it, the CFO said to me, ‘That was intel-lectually unstimulating and emotionally unpalatable.’” At first, Sherin was angry; later, he realized that he’d spread his resources too thin. “It was a crushing summary of three months of effort,” he said. “I had to do a lot of work to change how I planned, how I oper-ated, and how I communicated.”

CAPTuRINg OPPORTuNITIESMissing the mark also taught him the importance of self-appraisals. “I was getting reviews twice every quarter, but no one ever told me that I didn’t have enough corporate finance capability or experience in capital markets,” he says. “I was a math major with a few training courses auditing general managers who had MBAs. I knew I had a huge skill-set void.” That was when he applied to Columbia Business School. “Getting my MBA was a game changer for me. It gave me all the skills that I needed to build on.” Back in his early days at GE, Sherin was certain of only one thing: he was never going to work in the com-pany’s aviation business. “Every time I did a stint in aviation, they’d send me to a trailer or a basement, and I’d spend my whole week in some little room—and it usually had mold,” he says. “I told all my friends that aviation was the last thing I wanted to do.” Yet seven years after he joined the company, and soon after earning his MBA, he got an offer to be the CFO of GE’s commercial engine business. “I didn’t even hesitate,” he recalled. “It was a great position, so I said, ‘That would be fantastic—it’s exactly what I want to do.” He believed then, as he does now, that the best opportunities are often those that fall outside of one’s expectations.

LESSONS TO LEAD BY

1. Build a foundation — either a domain of expertise or a skill set. In today’s specialized world, there’s no such thing as a generalist.

2. Project self-confidence. And come by it honestly; take on challenges to earn confidence in your abilities.

3. Perform your own self-assessments. You can’t depend on others to point out the gaps in your education or talents.

4. Never say never. Often the best opportunities are those that steer you outside of your career plan.

5. Lead like you want to be led. It may sound simple, but many aspiring leaders are unaware of how others perceive them.

6. Have a personal decision-making compass. Figure out what is important to you, and stay consistent.

7. Learn how to communicate— and not just how to give a presentation. Expressing yourself effectively gets more important the higher up you go.


And this was an opportunity that paid off; his first CFO role within the company soon led to another. In 1992, Sherin was named the CFO of plastics in Europe, a position that required moving to the Netherlands. Three years later, Sherin moved to Milwaukee to become CFO of the healthcare division. He was

spending nearly three- quarters of his time on the road and found a way to differentiate himself by taking up business develop-ment. “I did the research and met with the compa-nies,” he says. “And then I made the offers to buy them.”

In late 1998, Sherin got a call to come to GE’s headquarters in Fairfield, CT, and become the head CFO of the entire $220 billion corporation.

THE NEW ROLE Of THE CfOFor Sherin, who had moved around the globe with GE, taking on the CFO position was a chance to put down roots. He and his family moved to Connecticut, where his daughter is now in high school; his two sons are now in college. On week-ends, he could ride one of his two Harleys from Weston to Albany, close to where he grew up.

“He was instrumental in everything the company had to work through. He remained calm, communicated effectively, and was not afraid to make a decision. During a time of crisis, that was critical.”

—Brian Worrell, vice president of corporate financial planning and analysis

Think SmallFrom family farms to industrial agriculture, from 2,000-ton capacity schooners to 150,000-ton capacity container ships, indus-trial production and operations have historically moved in one direction: from small to large. In

short, bigger seems better for maximizing produc-tivity and lowering per-unit costs. “‘Does it scale up?’ is the perennial question that investors ask of engineers who are creating new technology and infrastructure,” says Professor Garrett van Ryzin, who for the last few years has been team-teaching a course on the busi-ness of sustainable energy with Klaus Lackner of

Columbia University’s Fu Foundation School of Engineering and Applied Science. “Hearing that question again and again got Klaus thinking about whether it is really necessary to scale up.” The two colleagues’ conversations on that question soon turned into a full-fledged framework for determining the feasibility of moving from large (in size) scale industrial infrastructure to large (in number) but small-in-size scale industrial infrastructure. Economies of scale have dominated industrial practice and investment decisions for so long because they have made sense—and profits—in the face of human and technological limitations. As the size of physical plants,

Is it time to

reconsider economies

of scale?

OPERATIONS

ORGANIZATIONS

STRATEGY

READ THE RESEARCHDahlgren, Eric, Klaus Lackner, Caner Göçmen, and Garrett van Ryzin. “Small Modular Infrastructure.” Working paper, Columbia Business School, 2012.

Garrett van Ryzin is the Paul M. Montrone Professor of Private Enterprise, chair of the Decision, Risk, and Operations Division, and faculty director of the Master Class Program at Columbia Business School.

Connecting Research to the Practice of Business

But his new job was unlike any other he’d had at GE. He soon found that there was no way to truly prepare for the role of the CFO. “You’re dealing with analysts, investors, the board of directors,” he says. “These are all external relation-ships. There were so many things I had to learn.” He jokes that he has used up all of his nine lives as CFO. In 2008, he helped steer GE through the financial crisis, rais-ing cash even as the market tightened and bad news seemed to accumulate by the hour. He also had to be the public face of the company when it missed its earnings during the crisis. In the last decade, the role of the CFO had expanded outward.

“The CFO today has a significant responsibility around exter-nal information,” he says. “The role is a conduit between the company’s performance and the external marketplace. Back when I started, our earnings communications was a press release, and there weren’t any conference calls.” His colleagues describe his leadership style during this volatile period as inspirational. “When you look at what happened in 2008, you see that he was instrumental in everything the company had to work through,” says Brian Worrell, vice president of corporate financial planning and analysis.

“He remained calm, communicated effectively, and was not afraid to make a decision. During a time of crisis, that was critical.” After the worst months of the crisis, the company began to recover; now, with its industrial Internet project, GE is looking to the future. Last fall, at its “Minds and Machines” conference in San Francisco, GE unveiled some of its new technologies and forecast that increased productivity and reduced costs could boost growth in the United States back to levels not seen since the late 1990s. And if the rest of the world experienced even half of these gains, it would add $10 to $15 trillion to global GDP by 2030. “We’re talking about significant change,” Sherin says. “By leveraging the indus-trial Internet, we can drive productivity and cost savings around the world.”

20 Columbia Business / Spring 2013

In rural India, poor citizens face difficulty accessing loans and other financial products from the formal financial sector, and few banks offer products designed for those with so little in the way of financial resources. Even basic contracts are difficult to nego-tiate: a land dispute can take 10 years to move through the court system. These small Indian villages fill the void with informal social structures that can make managing meager resources easier while also reinforcing community expectations about sharing and cooperation. Professor Emily Breza has undertaken a series of projects aimed at understanding how local social structures influence informal contracting in these small, under-resourced communities. In a recent project designed to learn how social networks impact peers’ willingness to share resources and invest, Breza worked with Arun Chandrasekhar of Microsoft Research and Stanford University and Horacio Larreguy of MIT. “Our experiment transcends simple sharing,” Breza says.

“People may have access to profitable invest-ments, but they might not have the resources to exploit them.” The function and role of social networks in rural India is very different and argu-ably more consequential on the whole than relationships among people in online social networks like Facebook. A key angle of the researchers’ inquiry was to learn more about what peer effects occur in a labora-tory setting when people have meaningful relationships in the real world. The researchers recruited about 1,000 participants from 41 small villages—about 25 people from each village—in Karnataka, India, for which they had extensive social network maps and related household data. Two participants from the same village

played a series of standard trust games with each other, one acting as a sender and another as receiver, each starting with an endow-ment of 60 rupees. (The actual stakes were substantial for those who agreed to partici-pate: each person had the opportunity to earn one-half- to a full-day’s wage for three hours of their time.) The sender’s sole task was to decide how much of her 60 rupees to transfer to the receiver, knowing that whatever amount she sent would triple by the time it reached the receiver. The receiver then decided how much of her total allocation—her original 60 rupees plus any rupees from the sender—to transfer back to the sender. The allocation that maximizes the pie available to both recipients occurs when the sender transfers all 60 rupees, and the receiver transfers back half of that 240-rupee largess, so that each participant ends up with 120 rupees. Why would either player send any alloca-tion to the other? The researchers expected that players with existing social relationships to maintain would be more likely to share more than would strangers, with whom trust experiments are typically conducted. The most efficient outcome—effi-cient in the sense that participants’ exchanges left them both with the maximum possible—happened about 3 percent of the time. Small as it may seem, that frequency is significantly higher than when the game is played between strangers. Overall, the closer the relationship between the two players, the more efficient the outcome. Next, the researchers wanted to learn how the presence of a third player—sometimes a member of the community, sometimes a stranger from another village—impacted the game. In some of these experiments the

New research reveals how connectivity in local social networks promotes cooperation.

Sharing Central

Automation and communication technology have evolved to the

point that a large number of small units may be better, cheaper, or more efficient than a small number of large units.

means of transportation, and equipment increase, capital costs per unit and operating costs decline, while increased productivity makes the cost of labor more efficient. For example, 100 ten-ton dump trucks would require many more drivers than a fleet of 10 hundred-ton dump trucks. Further motivations for scaling up include geometrical efficiency (such as increasing the ratio of volume to area) and spreading out the fixed costs of certain components like control and safety systems. But automation and communication tech-nology have evolved to the point that a large number of small units may be better, cheaper,

or even preferred. They conclude that many industries are approaching tipping points that will soon make transitioning to small modular infrastructure practical and cost effective. Their analysis first looks at compara-tive capital costs to make a rough estimate of feasibility. For example, they found that the cost of capital for a car engine to produce a certain amount of power is far lower than a large-scale power plant producing that same amount of power. They also examine whether automation technology is advanced enough to lower labor costs to the point where manufac-turing or operating smaller units becomes cost

time, which further reduces cost and risk. “If a city’s electricity demand is growing, a utility firm doesn’t have to finance a gigawatt power plant that might take four or five years to come online,” van Ryzin says. “It can instead deploy smaller plants as needed.” In turn, a firm doesn’t incur the cost of building a large plant right away—one that might not operate at full capacity immediately. And adding smaller units as needed does not require large invest-ments or a lengthy time horizon. For firms, this flexibility to deploy gradually over time reduces investment cost and risk, creating significant economic benefits. Smaller units also offer geographic flex-ibility: they can be used together at a single location or concentrated around key supply or demand sources. They can produce savings on operating costs too because firms don’t have to operate all the units if they aren’t needed. And they offer insurance against large system fail-ures: it’s much less likely that a large number of small units would all fail at the same time. Those that do fail would be easy to replace quickly. Finally, the researchers thought they might find that smaller units were less durable and might need replacing more often, but in many sectors smaller units are just as durable as larger ones. Even so, the flexibility offered by small units may trump considerations of durability in some industries. The implications of this shift are profound and accordingly, as van Ryzin and Lackner acknowledge, not without barriers. But few of these barriers are technological or financial. To really facilitate mass produc-tion, for example, industries will have to agree on standard interfaces and controls, just as the PC industry standardized on “Win-tel” (Windows and Intel) architecture. The most significant hurdle may be convincing engi-neers, designers, investors, policy makers, and firms to rethink the “scale, scale, scale” mantra they’ve been taught and have embraced for decades. Instead of asking if a project can

“scale up,” stakeholders must learn to ask if a project scales down. “That also means using different frameworks for evaluating return on investment—traditional net present value measures might capture the cost of capital but they won’t capture the flexibility benefits that small units offers,” van Ryzin points out. “Especially in the area of energy, people are really starting to ask how we can switch from traditional energy sources to new sources,” van Ryzin says. “We may have to reinvent the world’s energy infrastructure, and we may need to ‘think small’ to do that.” •

or more efficient than a small number of large units. Consider supercomputers: until the 1990s, the supercomputer industry focused on increasing computing speed and capacity by building bigger, more specialized machines with greater processing power. “But by the mid-1990s it had become cheaper to network the capacity of CPUs and memory from large numbers of personal computers and computer workstations rather than relying on a single microprocessor,” van Ryzin notes. This shift from large to massively modular computing led to an abrupt collapse of the traditional supercomputer industry in the 1990s. Are we now on the cusp of a similar radical shift in other industries? The researchers, who also worked with doctoral students Eric Dahlgren and Caner Göçmen, conducted a plausibility analysis to show why thinking smaller might be viable

effective and whether small scale units offer enough flexibility on other fronts to offset their costs. Small chlorine plants illustrate these last two factors. “Chlorine is widely used but hazardous to ship so there is motivation for producing it locally,” van Ryzin says. “Some companies have developed small modular chlorine plants that use relatively innocuous ingredients to make chlorine on site. They are automated and remotely monitored.” The small scale of the plant meets essential needs at competitive costs while reducing the risk of a large-scale accident in manufacture or transport. Can the same logic behind these small-scale chlorine plants can be applied more broadly? The flexibility of small-scale infrastruc-ture is attractive because it gives firms the ability to deploy investments gradually over

Breza’s larger goal in pursuing this research is to use what economists have learned about how the peer dynamics within social networks can be adapted to complement formal financial products for the poor.


MARKETING

SOCIAL ENTERPRISE

READ THE RESEARCHBreza, Emily, Arun Chandrasekhar, and Horacio Larreguy.

“Mobilizing Investment through Social Networks: Evidence from a Lab Experiment in the Field.”Working paper, Columbia Business School, 2012.

Emily Breza is assistant professor of finance and economics at Columbia Business School.

IDEAS AT WORKIDEAS AT WORK

Ready Set Innovate

judge—the third person—was allowed to spend his or her own allocation of 100 rupees to punish other players by reducing their total winnings if he deemed their allocations unfair. “The set up simulates local contract enforcement or local arbitration by bringing in a third party with the power to monitor and, in some cases, punish the other partici-pants for behavior that he deems unfair,” Breza says. “The judge’s visibility and identity are key because past studies done with anony-mous players find that third-party punish-ment helps to increase efficiency of the game.” As before, the closer the relationship in the social network the more efficient the outcome is likely to be. “But what really increases efficiency is going from having a judge with unimportant social status to a judge of impor-tant social status,” Breza says. But the way in which the judge is important matters: having a judge who was widely connected across the network

yielded different results than having high social or political status. Using Eigenvector centrality, a network measure of importance and connectedness, the researchers identified villagers who act as information hubs, trans-ferring information easily around the network. When one of these centrally connected villagers took the role of judge, the outcomes were the most efficient. In contrast, judges who were politically important but not central to the network tended to play in a way that maximized only their own allocations rather than ensuring that resources were maximized between the sender and receiver. The games were also less efficient when judges were close friends with one of the other players. In other words, network importance rather than close-ness, wealth, or titles most often yielded the best benefits. Breza’s larger goal in pursuing this line of research is to use what economists have learned about the powerful influence of social

networks and how the peer dynamics within them can be adapted to complement formal financial products for the poor. One such project addresses savings. “Banks in India are very unwilling to provide new tailored prod-ucts to the poor, but they do have no-frills accounts that let users maintain lower balances. But the accounts are not well used. Savers have a hard time meeting saving goals. This may be because they have to walk the three kilometers to the bank; it may be due to other obstacles, such as procrastination.” In the savings project, Breza and her co-researchers are studying whether reporting savings activity to a third-party monitor in the same village can help would-be savers surmount those obstacles. “And should that person be the highly central person or the close friend? Our aim is to identify a solution that leverages the local social network and the formal banking system to help people achieve their goals.” •

Interview by Jen ItzensonPhotography by Don Hamerman

Before joining Fahrenheit 212 in 2005, when it was an eight-person start-up, Peter Maulik ’04 (EMBA) says he knew nothing about innovation. In his previous work, he’d helped companies from Time Inc. to Saks Fifth Avenue develop strategies for growth, but always found himself thinking of new ways of driving business—and wanted to be involved beyond the planning stage. As Fahrenheit 212’s chief strategy officer, Maulik is responsible for leading the company’s innovation strategies, managing its performance-based compensation model, and developing talent—including making sure that new hires can deliver innovations that pay off for such clients as Samsung Electronics and Capital One. Maulik, a Minnesota native who played football in his undergraduate years and now devotes his excess energy to his daughters’ school, explains why he believes innovation is a skill that can be learned.

As chief strategy officer at fahrenheit 212, Peter Maulik ’04 (EMBA) bets on—and delivers— innovation.

24 Columbia Business / Spring 2013 25gsb.columbia.edu/magazine

IDEAS AT WORK

Columbia Business asks: Can you explain the business model behind Fahrenheit 212? Peter Maulik: We’re a bit unique in that our business model is more akin to a private equity firm than to a traditional consultancy—we have skin in the game on all of the projects that we work on. The ideas we come up with can’t just be interesting; they actually have to work. Innovation is, by its nature, unpredictable. So what we strive for here is to bring a level of predictability to innovation—to deliver a transforma-tional outcome without requiring a company to transform its business. If you can give amazing results in a manner that allows a company to assess more accurately what its return on investment will be, your chance of helping the company reach that goal is much higher. So we obsess a lot over working to deliver the type of innovations that don’t require you to take a leap of faith.

Innovation seems to mean different things to different people. How do you define it?An innovation is something that creates meaningful value in the market-place, that actually drives change. Having a good idea—even a really good idea—isn’t that hard. But coming up with a great innovation is incredibly difficult. To create meaningful value, you’ve got to do something that’s different from the norm. And that scares the heck out of big companies, because their business in many ways is predicated on predictable performance. When you’re guided by quarterly reports, your earnings are supposed to be 1 percent greater than they were last quarter. It’s very difficult to say to analysts,

‘Well, actually my earnings were a lot lower, and that’s because I’m investing in this idea that’s going to be the greatest thing since sliced bread.’ And because of that, it’s hard for big companies to create real innovation that drives change in the marketplace.

You’ve described innovation as a skill that can be taught. How can someone learn to be an innovator? Are there any elements that can’t be taught?We’ve learned that it’s not just luck that leads to success. There are tenets of innovation that can be used in any situation, in any category— and we’ve worked in everything from fashion to food to financial services. By understanding these rules, we’ve been able to create a process and a training system for everyone who works here. It’s like asking a group of athletes to play a sport they haven’t played before. The minute you get these athletes on the field and tell them what the rules are and give them the opportunity to showcase their natural gifts, they learn to perform at a very high level very quickly. That’s why we’ve been able to bring in people from industries like private equity and investment banking and have them sit next to people from architecture and toy design. Together they make up a team that delivers innovation for clients across all these different industries.

But what natural gifts do you look for in these ‘athletes’?Because there isn’t an innovation consulting industry—because the sport we’re playing doesn’t exist—we have to find athletes who are playing a different sport and determine whether they have what it takes to play ours. [See sidebar.] We’ve found that great innovation exists at the intersection of com-mercial strategy—or knowing where the money’s coming from—and having a really powerful creative insight. You can tell these folks very quickly; if they’re coming from investment banking, they’re the most creative bankers on the floor. On the flip side, it’s the person in a cre-ative industry who, when presented with a great idea, is obsessing over how you can make money on it. The second question we ask ourselves about a candidate: is this person decisive? In traditional consulting, you’re trained to ask ques-tions because questions create projects. It sounds counterintuitive, but we want people who love answers—and who get an absolute thrill out of rapid problem solving. We’ve found that this characteristic is more prevalent in entrepreneurs than it is among traditional consultants. Entrepreneurs are very quick to say, ‘This is the answer, the world needs this!’ And that passion and conviction often motivates speed and decisive action. The third quality we look for is a commitment to something big-ger than yourself. It could be anything—a sport, a religion, a cause. One, it means that you believe in the possible. But it also means you’re not doing it on your own. You’re someone who links arms with other believers and works toward a common goal. And that’s essential. As soon as someone allows cynicism to enter the relationship or breaks that link that’s holding us together—that’s the quickest recipe for fail-ure in innovation.

What inspired you to enter this field? I’d finished my MBA at Columbia, and I was thinking of what I wanted to do next. I had been in traditional strategy consulting when I started EMBA, and when I finished the program, I had an offer to go work in Singapore for another established consultancy. And I got a call from a

headhunter saying a guy who’d started a firm on innovation consulting was moving here from Auckland and that his firm had a performance-based compensation model. I thought that was either the craziest thing in the world or it was brilliant.

Performance-based compensation sounds like a big risk if you’re working in innovation. It was! But I knew that the world needed innovation consulting— even though I didn’t know it existed. And the performance-based compensation model forces you to attack problems with an entre-preneurial perspective and work as if your mortgage depends on it, because it does. I thought that if you could bottle that, you could revolutionize the industry.

How did your background prepare you for this uncharted territory? A lot of what we do is based on the strategies and schools of thought that I learned at Columbia. Commercial strategy and creativity is really the intersection of two fundamental disciplines that I took away from my MBA. One was behavioral economics: understanding that people don’t make decisions based entirely on rational drivers. And the second is value investing, which is thinking of how you can drive growth but not just focusing on the top line—creating sustainable and profitable growth. Those two disciplines, which I learned from Bob Bontempo and Bruce Greenwald, are pillars of our process. And it’s paid off: we’ve gone from eight people to 50 and a client list that I couldn’t have imagined when we started. Looking back, sometimes I wonder what the heck were we thinking. We started a company in a field in which none of us had experience—in a category that didn’t exist, working on projects we couldn’t talk about because of nondisclosure agreements, with a busi-ness model that could shut us down within a year. It was insane that we made that leap. But it was a chance to try something that hadn’t been tried before.

Hire Qualities— Not QualificationsINNOVATORS ARE...

Passionate, interested, curious. Whether an analyst hired from a bank, a great graphic designer, or a key support role, innovators love to ask questions. Innovators devour new information, constantly seeking insights, stimulation, and opportunities.

Travelers. Restless people take holidays in unusual places and come back to share what they’ve learned.

Expats. People who’ve lived abroad are, by definition, confident risk-takers who share that ex-pat sensibility of looking to see what’s around the corner. Understanding different cultures fuels an ability to under-stand what people might want.

Omnivorous eaters. People who explore new foods, restaurants, and concepts are curious seekers.

Constructive critics. Folks who are fascinated by and opinionated about films, architecture, fashion, hotels, and websites are interesting and important to conceiving innovative solutions.

Readers. Look for those people who walk down the street reading. They know stuff you don’t, but should.

X factors. Be alert to the unusual quirk that catches you off guard and suggests that the box you might expect them to be in is not all it seems. A passion for acting, bagpipes prowess, or being a leading expert on poodle behavior indicates commitment. An important corollary: verify these intriguing bits of information.

One fellow we recently interviewed put “plays the banjo” on his resume. Little did he

know he’d picked the one office equipped with a banjo. Sadly, we were not treated to a bluegrass medley, let alone the theme from

“Deliverance.” We do, however, often refer to this great moment in our HR history as the banjo lesson.

Play well. Hire better.

Farenheit 212, “How to Hire Innovators,” 2009. Copyright © 2013. All rights reserved.

Having a good idea—even a really good idea—isn’t that hard. But coming up with a great innovation is incredibly difficult.

The ideas we come up with can’t just be interesting; they have to actually work.


LEADING CHANGE

How do employees learn an organization’s culture? Professor Ray Fisman draws from organizational economics to reveal how leaders drive culture change.

As a leader, how do you talk about your organization’s culture? To reinforce certain values or reset your organization’s direction, what’s your plan?

For many leaders, articulating—and shaping—their organization’s culture is a nebulous, daunting endeavor. It’s also a key quality of effective leadership—if not,

as Ray Fisman and Tim Sullivan suggest in their new book, The Org: The Underlying Logic of the Office (Twelve, 2013), “the very definition of leadership.”

Illustration by Luci Gutiérrez

In the book, Fisman, the Lambert Family Professor of Social Enterprise and co-director of the School’s Social Enterprise Program, and Sullivan, an executive editor at Harvard Business Books, use organizational economics to parse how and why orgs do what they do. It’s an eye-opening and forthright survey of the tradeoffs—and dysfunctions—faced by firms big and small, with case studies from organizations ranging from the Methodist Church to the FBI.

“By better understanding the nature of the org,” the authors write, “you should be able to bridge, and perhaps even shrink, the disheartening gap between expectations and reality.”

LEADING CHANGE


Q&AQ&Avalue and culture statements with tangible action. Cultures of cus-tomer orientation are explained through accounts of employees going to insane lengths to satisfy insane customer demands. Clothing retailer Nordstrom, for example, corroborates its stated policy of outstanding customer service with celebrated anecdotes about eager-to-please

“Nordies,” such as one who gift-wrapped clothes bought at Macy’s, and another who cheerfully provided a refund on tire chains, though Nordstrom has never sold automotive accessories of any kind. These customer-centric employees were presumably lavished with praise and possibly promotion, further reinforcing the sense of what’s valued at the company. In an org that wants to change, though, the challenge is for the leader to discuss what the new culture ought to be and then to put money where his or her mouth is—demonstrating to everyone just how serious the org is about the change. Does “almost” at a pharmaceutical

company mean that scientists can set their own hours or go to conferences at will, just like an academic department? Then let’s see the HR practices and budget to accommo-date those practices. Leaders may even want to engineer a crisis so they can show what’s truly valued by the company. It’s easy to turn down inappropriate customers when business is good. But only the truly committed will say, “Thanks, but we’re not interested in your money,” when teetering on the edge of bankruptcy. Bob Sutton, a Stanford University psychologist, gives the example of the van Aartrijk Group, a small market-ing strategy firm, which has an explicit

“No Assholes Policy” for both employees and customers. Founder Peter van Aartrijk recounts a story from the company’s early days, of a client CEO who chewed out a van Aartrijk tech guy for a PowerPoint mal-function. Van Aartrijk swallowed hard and told the customer the company didn’t want to take on more work. He lost a lucrative account but also made it clear that he really meant it when he said he wanted to keep assholes away from his young firm. It’s what Gibbons describes as “nearly going off the rails.” You don’t really know the depths of commitment to a principle

until the organization confronts life-and-death circumstances. So for changing culture, leadership matters—or, to turn it around, shaping culture may be the very definition of leadership. Once you get beyond tautological descriptions (from the Merriam-Webster dic-tionary: “leadership—the act of leading”), most attempts at capturing what leaders do center on setting the direction for an organization. It’s another reason why CEOs spend 80 percent of their workdays in face-to-face meetings. Most of what’s required to set the organization’s course are the ineffable directives and guidance that can’t be expressed or enforced through a rule book, written memo, or incentive contract—the very stuff that collectively constitutes organizational culture.

Excerpt from THE ORG: The Underlying Logic of the Office by Ray Fisman and Tim Sullivan Copyright © 2013 Ray Fisman and Tim Sullivan. Reprinted by permission of Twelve Books, New York, NY. All rights reserved.

Here, in an excerpt from the chapter “The Economics of Org Culture,” Sullivan and Fisman, who writes a monthly column for Slate and whose first book (with Ted Miguel), Economic Gangsters: Corruption, Violence, and the Poverty of Nations (Princeton University Press, 2008) was widely praised for its engaging and accessible approach, pull back the curtain on organizational culture.

LEADING CHANGE

Culture is useful in precisely those situations where there’s more than one way groups can “decide” to do things, such as driving on the left or right side of the road. Even if we’re all made better off by switching all at once to the new custom or norm, each individual remains jointly bound to the old way of doing things. Stepping out of line means head-on collision with the dominant culture. We can’t change our ways one person at a time. What’s required is public statements from someone whose opin-ion we respect—and even more important, someone whose opinion we know everyone else respects—to point us in the same new direction. But culture tends to be squishy, which makes it harder for leaders even to define the change they’re trying to get people to follow. Consider this example from Robert Gibbons and Rebecca Henderson, two organizational economists, about Merck, a pharmaceutical company that wishes to become more research focused and tries to attract freshly minted PhD scientists with the promise that their jobs will be “almost like at a university lab.” The hope is that this will allow Merck, with an empty pipe-line of new products, to attract the very best and brightest young scientists, ones who are motivated by curiosity rather than paychecks, and who are also more likely to lay the scientific foundations for developing the next wave of blockbuster drugs. For aspiring scientists, the decision between academic jobs and joining a cor-porate bureaucracy hinges critically on the meaning of almost. The company never pre-tends to be exactly like a university. It’s set up to make money for shareholders, so it can’t always indulge itself in the kind of knowledge-for-knowledge’s sake exploration as an academic setting. Yet it is this freedom in pur-suit of innovation that it needs in order to develop new ideas. No contract can clearly delineate the line that’s drawn between these sometimes competing considerations. If you can’t contractually define almost, what can organizations and those leading them do to reassure their research staff that they’ll have the autonomy to pursue scientific discoveries? Current and future employees instead learn the definition of almost through stories and anecdotes that circulate within the org and beyond. Culture is learned through direct experience and stories, not rule books or style manuals. Many of the stories that form the backbone of organizational culture sometimes feel manufactured—and they may very well be— to clarify the extremes to which an organization will go to back up its

Columbia Business asks: Organizational culture can be difficult to pin down. How do you define it? Ray Fisman: Economists emphasize the notion of culture as an “equilibrium,” where people have similar expectations about how one behaves. If you think about culture as the unwritten rules of an organization—part coordination and part conscience—that help define collective behavior, then economic analysis can be very useful in analyzing and diagnosing radically different ways of doing things.

You write about how anecdotes and legends—a kind of institutional folklore—have more to do with defining an organization’s culture than mission statements or manuals. How can leaders harness this “squishy” element to effect change?My co-author and I are not really in the business of offering advice; we are diagnosti-cians rather than gurus. But at least part of a leader’s job is repeating stories that delineate the expectations and ethos of an organiza-tion. These are things that are hard to put in a written contract but crucial to making an organization function. It’s curious to note that some of the most effective stories and corporate legends likely aren’t even true. But they’ve served nonetheless to reinforce the culture, telling employees what to do when faced with unexpected or odd situations. A story that’s often told about the early days of FedEx, for example, which may or may

not be true, holds that founder Fred Smith flew to Vegas to try to make payroll by placing bets at the blackjack table. True or not, it’s a legend that—FedEx management hopes—can help to convey the company’s culture of risk-taking. By repeating stories like that, a leader can remind the org of what their values are, which, together with some clever design and good incentives, can keep everyone carefully aligned.

You suggest that the ability to articulate and promote stories that express an organization’s values is a critical skill for leaders. Besides storytelling, what are other key leadership skills when it comes to driving organizational change?The work we’ve looked at on organizational change at the FBI in the wake of the 9/11 attacks and other attempts at organizational

reform—like what BP has gone through over the past decades—illustrate the serious pitfalls involved in changing an org. Entirely well-meaning reforms often have unintended consequences and can lead to unmitigated disaster. BP, in particular, cut administrative staff and shifted towards performance-based incentives for everything from cost cutting to safety performance. But this came at the expense of vigilance on disaster prevention, to catastrophic effect (for example, the 2005 fire and explosion at BP’s Texas City refinery or the 2010 explosion on its Deepwater Horizon rig). Unfortunately, while economics is very good at describing an equilibrium, it’s not so good at saying how to shift one. So the best advice we can offer is: beware. I think one thing that comes across very nicely in a lab experiment we present in the book is that people always underestimate the difficulties of merging or changing cultures. There’s a lot of wisdom in knowing when changing direction is in fact possible.

How do leaders, even those who have been in the culture for a while, and especially those who come into it from the outside, learn the culture of their organization?People really have a very hard time explaining their own org’s culture. So one thing you can do is ask: What could I do that others in the org would find totally shocking?

Who is a recent leader that comes to mind as a model of someone who has changed their organization’s culture for the better? Tony Hsieh is a genius. He has built an exceptionally congenial—and productive—culture at Zappos (which has been endlessly documented) through some combination of understated charisma and brilliant selec-tion of employees who are a good fit for the culture he wanted to create. I am also a strong believer in Bob Sutton’s “no asshole rule.” And I have great respect for Barclay’s CEO Robert Diamond for trying to apply a version of it (the

“no jerk rule”) at his company. Not only articu-lating but demonstrating to your employees that certain behaviors are unacceptable can be a key to lasting culture change.

— Interview by Simone Silverbush

“We can’t change our ways one person at a time. What’s required is public statements from someone whose opinion we respect—and even more important, someone whose opinion we know everyone else respects.”

with

RAY FISMAN“People really have a

hard time explaining their own org’s culture. One thing you can do is ask: What could I do that others in the org would find totally shocking?”


Non-Profit Org.U.S. Postage PAIDMilford, CTPermit No. 80

Columbia University West 60th Street, 7th FloorNew York, NY 10023-7905

Photograph by Lenny Pridatko

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