Sheryl Sandberg’s How to Stand Out Make Big Data HOW MILLENNIALS

Leadership Style on Social Media Work for YOU ARE CHANGING

PAGE 50 PAGE 56 PAGE 44
THE WORLD PAGE 108

MANAGEMENT
The Magazine of the
Rotman School of Management
UNIVERSITY OF TORONTO

4
TIPS
Bill FOR LEADING
AT YOUR BEST

Gates:
PAGE 74

The Power
of Optimism
VALUABLE
INSIGHT
ON LEADERSHIP
FROM JOHN
KOTTER
PAGE 86

DISCOVER
the Architecture
of Management
PAGE 24

HOW TO BE A
THOUGHTFUL
(and more
successful) LEADER
PAGE 6
 MANAGEMENT
FALL 2015

Bill Gates samples clean water cre-

ated from human waste by the Janicki
Omniprocesser, which also produces
electricity and ash. Why would anyone
want to turn waste into drinking water?
Because two billion people use latrines
that aren’t properly drained. The waste
contaminates drinking water, killing
some 700,000 children each year. “If
we get this right,” Gates has said, “it will
be a good example of how philanthropy
can provide seed money that draws
bright people to work on big problems,
eventually creating a self-supporting
industry.” More from Bill (and Melinda)
on page 82.

Features

EXIT 23

Nudgeville
1 mile

6 18
The Thoughtful Leader:
A Model of
Integrative Leadership
by Jim Fisher
Thoughtful leaders get results
by being clear about what needs to
be done, why it should be done, and
how each person can contribute.
The Last Mile: Using
Behavioural Insights
to Create Value
by Dilip Soman
Leaders spend too much time on
strategy and innovation, and too little
time on ‘the last mile’—where
consumer decisions actually get made.
24
Leadership Forum:
The Architecture
of Management
by H. Ibarra, G. Polzer, T. Erickson,
and V. Nayar
Two of the world’s leading
management thinkers and two
global CEOs discussed the
changing nature of leadership.
 30
Joining Forces: Collaborative
Leadership for Sustainability
by D. Kiron, N. Kruschwitz, K. Haanaes, M.
Reeves and S. Fuisz-Kehrbach and G. Kell
Corporate sustainability is evolving
towards transformational initiatives
that engage multiple entities.
50
Portrait of a Leader:
Sheryl Sandberg
by Stewart D. Friedman
Facebook COO Sheryl Sandberg
personifies ‘Total Leadership’ by being
authentic, whole and innovative.
68
Co-Creating the Future:
The Dawn of System Leadership
by P. Senge, H. Hamilton and J. Kania
The systemic challenges we
face are beyond the reach of existing
institutions. We sorely need
more system leaders.
38
The Digitization of Just
About Everything
by Erik Brynjolfsson and Andrew McAfee
The authors look at three
fundamental forces enabling what
they call ‘the second machine age’.
56
Retweet This: The Power of a
Multidimensional Approach
to Twitter
by Eileen Fischer and Rebecca Reuber
What kind of message is
your organization (perhaps
unintentionally) signaling
via social media?
74
How to Lead at Your Best
by Joanna Barsh and Johanne Lavoie
Four simple exercises can help
you shift the mindsets that
limit your potential as a leader.
44
The Path to Prescription:
Closing the Gap Between the
Promise and the Reality of Big Data
by Bernardo Blum, Avi Goldfarb
and Mara Lederman
Organizations need to build
tighter links between data analytics
and everyday conversations.
62
All Aboard: Making Board
Effectiveness a Reality
by J. Bailey, D. Beatty, T. Koller
and M. Fullbrook
Is your board of directors doing its job?
A veteran director finds many
boards wanting — and considers
how to improve them.
“Talented people
don’t want to
follow you into the
future: they want
to co-create it
with you.”
– Linda A. Hill, p. 12
 Rotman Management
Fall 2015
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FROM THE EDITOR Karen Christensen
The Leading Edge
THE STATE OF LEADERSHIP has been under the microscope of late,
and for good reason. Once again this year, the Edelman Trust
Barometer demonstrated a serious crisis of confidence in leaders
of both business and government. The biggest declines were in
Canada, Argentina, Germany, Australia and Singapore — all of
which witnessed double-digit drops in trust.
By a two-to-one margin, respondents in all nations feel that
developments in business are moving too fast, and that there
is not adequate testing. Worse yet, 54 per cent said ‘business
growth’ or ‘greed/money’ are the real impetuses behind innova-
tion. That’s twice the number who said business innovates out of
a desire to make the world a better place.
On the bright side, we are seeing the dawn of a new gen-
eration of business leader: one that is intent on creating value
for society and for shareholders, simultaneously. These lead-
ers — people like Paul Polman at Unilever and Jim Sinegal of
Costco — exemplify the fact that business is not either a force for
good or bad per se: it can be either — and much more. What makes
the difference has something to do with the rules of the market-
place, an organization’s culture, and crucially, how it is led.
In this issue, we turn our attention to the skills and mind-
sets being exhibited by today’s most effective leaders and orga-
nizations. We kick the issue off on page 6 with The Thought-
ful Leader, an excerpt from Vice Dean Emeritus Jim Fisher’s
forthcoming book of the same title, where he integrates some
classic leadership theories. Then, on page 18, Rotman’s Corus
Chair in Communication Strategy, Dilip Soman, argues that
the smartest leaders pay close attention to human behaviour at
the point of decision making, in The Last Mile: Using Behav-
ioural Insights to Create Value.
On page 24, we feature output from the Global Drucker Fo-
rum, an annual event held each fall in Peter Drucker’s home-
land, where a panel including INSEAD’s Herminia Ibarra and
Vineet Nayar discusses The Architecture of Management.
And on page 50, Wharton Professor Stewart Friedman defines
the attributes of ‘Total Leadership’ in his Portrait of a Lead-
er: Sheryl Sandberg. Despite the May death of her beloved
husband, Friedman leaves no doubt that Sandberg’s journey of
leadership excellence will continue.
Elsewhere in this issue, MIT’s Peter Senge et al look at
The Dawn of System Leadership on page 64; and we open our
Idea Exchange with a moving essay about The Power of Opti-
mism by Bill and Melinda Gates. This section also features in-
terviews with Rotman School Dean Tiff Macklem (p. 90), IEX
founder Brad Katsuyama (p.97), Millennial generation leader
David Burstein (p. 107) and Rotman faculty members Rich-
ard Nesbitt (p. 105), Partha Mohanram (p. 114) and Mihnea
Moldoveanu (p. 124).
The late-great Peter Drucker was one of the first to empha-
size that management is about ‘doing things right’, while leader-
ship is about ‘doing the right things’. As Richard Edelman re-
cently said, “Business must embrace a new mantra: move beyond
earning a License to Operate — the minimum required standard
— towards earning a License to Lead, whereby business serves the
needs of shareholders and broader stakeholders by being profit-
able and acting as a positive force in society.” That comes pretty
close to our definition of leading-edge leadership.
Karen Christensen, Editor-in-Chief
christen@rotman.utoronto.ca
Twitter: @RotmanMgmtMag
rotmanmagazine.ca / 5
THE
THOUGHTFUL
LEADER:
A Model of Integrative Leadership
Thoughtful leaders get results by making clear what needs to be done,
why it should be done, and how each person can contribute.
By Jim Fisher
TIME AND AGAIN, through my own eyes and those of my students, I
have seen the impact of poor leadership. Indeed, it has become
somewhat fashionable to lament the state of leadership today,
and part of the reason is that as our political, social and institu-
tional environment has become increasingly volatile, we have
developed new expectations of how leaders should act.
The old model of ‘leading by taking charge and issuing
instructions’ has lost its luster. Today’s most effective leaders do
much more than get results: they also develop the capabilities of
the people around them and build effective teams and systems,
so that unimagined results can be achieved, both in the moment
and after they are gone.
If this sounds like a tough job, that’s because it is; and if it
sounds like a job that requires a great deal of thought, that’s be-
cause it does. In this article, I will present a framework that rec-
onciles the key theories about ‘what leaders do’ into an integrat-
ed model that addresses the new demands of leadership.
Three Models of Leadership
My road to creating a successful leadership course at the Rot-
man School of Management — and the recognition that lead-
ership is thoughtful work—was influenced by two key indi-
viduals. The first is Nobel Laureate Daniel Kahneman, whose
insight into how our brains function was captured in his book,
Thinking Fast and Slow. In it, Kahneman demonstrates that our
day-to-day actions are driven by ‘fast thinking’, which can be
useful and efficient, but is prone to error. ‘Slow thinking’, on the
other hand, is less likely to result in errors, but it is hard work,
and tiring for the thinker. Leaders often need to react quick-
ly, but they need to think slowly — doing the hard thoughtful
work — in order to guide those quick responses. The integrated
leadership model that I will present provides a framework for
thinking slow in preparation for those moments that require
thinking fast.
The second individual who inspired my framework is
former Rotman School Dean Roger Martin, whose insights
into Integrative Thinking were captured in The Opposable Mind.
Roger argues that we deal with complexity by developing mod-
els of the world that simplify it to make it more manageable. But,
instead of choosing one option over another, integrative think-
ers combine elements of existing models to create new and more
powerful models.
rotmanmagazine.ca / 7
 People want some control over
what they do at work every day.
Armed with these and other insights, I began to teach vari-
ous elements of leadership theory to MBA students and execu-
tives. But the classroom conversations I had were far from one-
way, and I often found myself in the middle of discussions about
how all of the theories of leadership fit together. My students lit-
erally forced me to become more thoughtful about ‘what leaders
do’, to become an integrative thinker in the realm of leadership,
and to develop an integrative model that embraces three influen-
tial concepts: Managing, Directing and Engaging.
Importantly, these three models do not work in isolation. In
fact, they work best when they are combined, and hence I call
my framework a Model of Integrative Leadership. I will examine
each aspect of the model in turn.
Model 1: Managing. The Managing model is akin to the original
‘great person’ model of leadership. Those who embrace this
approach believe that people and groups need to be managed:
meetings need agendas and follow up, and team members need
defined assignments and due dates.
The Managing model has been stated in different ways over the
years, but it invariably includes three elements:
1. The obligation to plan;
2. The need to assign and organize work; and
3. The necessity of monitoring to control the results.
This three-part ‘managing cycle’ implies a command-and-con-
trol mindset and a scientific approach to work: ‘Be very clear
about what has to be done’; ‘Make sure everyone knows their
job’; and, ‘Set goals, and don’t forget to follow up!’
The managing cycle is not just for large enterprises: people
in industry have long followed it, but so does the teacher in the
classroom, who has a plan for the day, the week, the term and
the year. Assignments are handed out, tasks assigned and work
evaluated. Likewise, in a busy hospital, the nurse manager pos-
sesses recognized technical expertise, but he or she is also an
intuitive expert at planning, organizing and controlling. Even if
neither the teacher nor the nurse went to business school to learn
the managing cycle, it is has become so deeply engrained in ‘the
way we do things’ that it feels natural.
Model 2: Directing. As the pace of change accelerated over
time, it became clear that the Managing model had its limits.
The need for leaders to do something beyond managing was
8 / Rotman Management Fall 2015
most influentially noted by Harvard Business School Professor
John Kotter, in his seminal 1990 article, “What Do Leaders
Really Do?” Having surveyed the wreckage of ‘well-managed’
companies and the emergence of new powerhouses throughout
the 1980s, Kotter concluded that the most effective executives
were not just managers: they did something else entirely, which
he called leading. I prefer to call this skill Directing, because I
believe there is more to it than the elements laid out in Kotter’s
model. Nomenclature aside, Kotter’s model was a significant
addition to the Managing model, and it includes three key ele-
ments.
START WITH VISION. Kotter’s approach starts with the idea that
in a world of constant change, it is critical to have a compass—
a central idea of what the enterprise is trying to achieve. Simon
Sinek captured this in his best-seller, Start with Why: How Great
Leaders Inspire Everyone to Take Action. His powerful-yet-simple
idea is this: we are more effective when we know why an action is
required. The job of the leader, then, is to articulate the why — the
reason each individual should care about the work that she has
been asked to do.
Importantly, it is not just the job of the CEO or founder to
have a clear vision: the IT specialist working on a software project
will be more effective if there is a vision for what this particular
project is intended to accomplish, articulated in a way that is mean-
ingful to each member of the team. Is the goal to find a quick fix
to a problem, or does the team need to work towards more sub-
stantive change? Is there an opportunity to build connectivity
across the enterprise?
BUILD ALIGNMENT. Because Directing starts with an idea that
can be articulated as a vision or ‘statement of purpose’, it begins
with a lot of thought and care. It is hard enough to formulate and
commit to a vision; but once that vision is crystallized, it is even
tougher to build alignment. The fact is, a vision will go nowhere if
it cannot be effectively sold, and as a result, the next hard task of
leadership is to be able to articulate the vision — to find powerful
words that capture the idea and the courage to take a stand. Every
vision statement includes some things and leaves out others; and
every vision statement sets an aspiration, a bar against which the
leader will be assessed.
To achieve alignment, leaders must be highly effective com-
municators, using whatever style or forum they find most effec-
tive to get people to understand the vision, recognize its possibili-
ties and limitations and, ultimately, agree that it articulates the
best way forward — and that they want to be part of the journey.

It takes explicit, thoughtful effort to achieve the commitment
that comes from alignment.
FIND MOTIVATION. It is great for people to know the direction
the organization is taking and to agree that it is right; but it is not
enough. It takes proactive effort to make changes, and the best
leaders pay attention to the range of elements that motivate
changes in behaviour. Although a good deal of management
theory focuses on economic motivation, there are many other
motivators, including a feeling of belonging, an opportunity to
contribute to something meaningful, an increased sense of self-
worth, the opportunity to grow as a person, and perhaps an op-
portunity for some tangible reward — a promotion opportunity,
or just a pat on the back. Thoughtful leaders employ all of these
tools.
To summarize, Managing tells people what to do; and Di-
recting tells them why they are doing it. Powerful ideas, especial-
ly when combined, as they bring a sense of order and purpose to
the daily grind of work. But in our volatile, uncertain and com-
plex world, Managing and Directing are no longer enough.
Model 3: Engaging. Unpredictable change is the new normal,
and in a world that may never again be characterized as stable or
orderly, leaders need workers who are so highly engaged in their
work that they respond and react when needed—not only when
asked or when told to do so. As a result, we need a third model:
Engaging.
Several decades ago, Joseph Badaracco and Richard Ells-
worth wrote Leadership and the Quest for Integrity, in which they
set out three workable models of leadership behaviour founded
on different ideas about workplace motivation. They called the
three approaches Values Driven, Directive and Political, and they
argued that leaders tend to prefer one approach to another.
Based on all my years in the classroom and the boardroom,
I have modified these approaches somewhat, evolving them into
three aspects of engaging today’s employees: Involvement, Clar-
ity and Values. I will describe each in turn.
INVOLVEMENT. This first behavioural directive is based on
the simple idea that people want to contribute to the decisions
that affect their lives; and they want to contribute in two ways.
First, at a basic level, they want some control over what they do
every day at work. They don’t want to be told every last detail
about how to do their job: they want to know what is expected
of them, but then they want some latitude in determining how
it gets done. But a truly engaged workforce wants even more
A Model of Integrative Leadership
Managing Directing Engaging
Plan Vision Values
Organize Alignment Clarity
Control Motivation Involvement
FIGURE ONE
than that: it wants to contribute to the success of the whole en-
terprise. When people have ideas, they want someone to pay
attention to them — and not via an old-school suggestion box.
Leaders who build truly engaged workforces ensure that work
is organized in such a way that people are encouraged to use
their creativity and initiative on a regular basis, and that the
available mechanisms for additional contribution are clear and
accessible.
CLARITY. The thoughtful leader knows that an involved
workforce is an extremely valuable asset, as people will find new
and better ways to do their own jobs and contribute ideas to the
overall enterprise. She also recognizes that people are likely to
put more effort into something that was their own idea than in
implementing another person’s idea. But thoughtful leaders also
know that there cannot be chaos in an organization: people can’t
disrupt the main flow of the enterprise for every idea that they
might dream up. As a result, the thoughtful work required here is
the ability to shape a consensus around the leader’s own agenda,
so that people feel that they ‘own it’ — and it was not simply im-
posed from above.
Derived from what Badaracco and Ellsworth called Direc-
tive Leadership, my notion of Clarity sets the boundaries for In-
volvement. The research of my Rotman colleague Gary Latham
and University of Maryland Professor Edwin Locke shows
that people are most motivated by the challenge of meeting
rotmanmagazine.ca / 9
externally-set goals that are tough yet clear. It is far better to set
a specific goal than to just ask people to ‘do their best’. People are
drawn to — and prone to follow — leaders who are able to make
clear, strong decisions. They look to those who will make tough
calls and lament those who leave big questions unanswered.
VALUES. The Values-focused leader knows that people want
to feel that what they do is meaningful when measured against
a set of principles that they believe in. In the best of all worlds,
they want to feel that they work for an inherently-good organiza-
tion that does intrinsically valuable work, alongside colleagues
they respect. The Values-focused leader believes that people
are more likely to make the right choices on substantive mat-
ters if they are guided by the right set of values. She articulates
and lives those values as a role model for the organization, and
people follow her because they feel better about themselves for
Brain-Based Leadership by John Randolph and Steven Rothke
In Becoming a Manager, Harvard Business School Professor Linda
Hill writes that a manager’s role—and by extension, any leadership
position—is characterized by overload, ambiguity and conflict.
Successfully navigating such challenges requires distinct sets
of cognitive, emotional and behavioural skills enabled by regula-
tory mechanisms that are housed in specific regions of the brain.
Understanding the processes by which these skills develop, are
utilized, and are sometimes inhibited, can enable leaders to gain
mastery over their roles and responsibilities.
This topic is the subject of a relatively new discipline called
Neuroleadership, which is partly informed by recent advances in
functional MRI (fMRI)—a brain imaging technique that enables
researchers to observe the normal brain responding to various
types of situations, such as being criticized or performing problem-
solving tasks. Following are four mindsets that characterize
‘managing with the brain in mind’. When adopted, these principles
can help to foster a psychologically healthy—and more produc-
tive—workplace.
ONE THING AT A TIME. While multitasking is often seen as a
solution to busy work lives, research says otherwise. In fact, taking
on multiple tasks at once leads to more errors, less efficiency, and
reduced brain activity in the frontal lobes (home to executive func-
tions) and hippocampus (where memory is housed). Curiously,
people who promote themselves as ‘great multitaskers’ are actu-
ally worse at multitasking and tend to be more easily distracted.
Furthermore, multitasking becomes harder later in life, suggesting
that middle or late-career leaders should be particularly wary of
this approach. Instead, we recommend unitasking: planning out a
10 / Rotman Management Fall 2015
being part of a powerful community.
As indicated, the most effective leaders today don’t simply
choose one popular model of leadership over another. Instead,
they integrate them: they Manage, Direct and Engage, consis-
tently and coherently. The result: a Thoughtful Leader who
is prepared to navigate the rocky terrain of the modern environ-
ment.
Leaders who proactively choose to integrate these three
models will find that each serves to make the others more ef-
fective. For example, all plans have within them an implied or
stated vision and an implied or stated set of values; and the vision
will likely be realized if it is embedded in the plan and supported
by the values. It doesn’t really matter where one starts in the inte-
grated model: if all of the elements are lined up and consistent, it
will make each of them more effective.
project in advance, reducing external distractions to increase and
sustain task focus, working through the task methodically, one
step at a time, and completing it before starting something else.
NO MORE QUICK DECISIONS. We tend to be creatures of habit,
and often develop routine responses that become reflex-like in
certain situations. Research has shown that if a response can be
withheld—even briefly—a more thoughtful one will often emerge;
but this requires the critical executive functions of cognitive and
emotional inhibition. Leadership approaches such as scenario
planning or even a brief period for self-reflection prior to finalizing
a major decision can be very effective in preventing impulsive, off-
target reactions and responses.
KINDNESS AS A MANAGEMENT VIRTUE. Correcting and moti-
vating employees is one of the key functions of management, but
avoiding humiliating workers is critical to promoting a more pro-
ductive work environment. Neuroscience informs us that feedback
must be perceived as ‘fair’, and that managers should look for ways
to increase an employee’s sense of ‘in-group’ membership. One
study by Carnegie Mellon’s Golnaz Tabibnia and her colleagues
considered whether perceived-as-fair financial offers were linked
to brain-related changes. Indeed, a sense of fairness was associat-
ed with activation of the brain’s reward system—the same regions
that activate during a good meal or a financial windfall.
Groundbreaking work by Naomi Eisenberger and Matthew
Lieberman at UCLA has also shown that when we experience
social pain, such as embarrassment or humiliation, brain regions
almost identical to those engaged when we feel physical pain
become active. These findings suggest that during the feedback
 The most effective leaders Manage, Direct
and Engage, consistently and coherently.
In closing
There is no question about it, leadership is more challenging by
the day, with no end — or even a slowdown — in sight. But despite
this irreversible fact, I remain highly optimistic about the state of
leadership in our world.
When I started out in the classroom, many leaders were
still stuck in the command-and-control mindset, with an image
that they could climb the corporate ladder by ‘bossing’ people
around. It was a revelation to lay out the ideas of John Kotter —
about the need to be visionary, to be a committed salesperson for
the vision, and to focus on motivation rather than compliance.
I am pleased to report that based on my experience, to-
day’s students of leadership fully embrace the idea that to
lead is to bring out the best in the people around you. There are
many would-be leaders out there, armed with great ideas and
process, efforts to increase a sense of fairness (for example, by
providing a reasonable balance between praise and constructive,
forward-thinking feedback) may lead to better follow-through and
a more positive experience for supervisor and direct-report alike.
Providing a team-oriented perspective (“You’re a great team player,
and here’s a thought on how you can provide even more value”)
can empower rather than demean the employee. A ‘feedforward’
approach—focusing on next steps rather than past problems—is a
way to positively frame feedback and feels less threatening to the
colleague receiving it.
DON’T IGNORE EMOTIONS AND INSTINCTS. Another critical skill
set for brain-based leaders relates to improving self-awareness and
managing emotion. Developing insight into internal emotions—in
ourselves and in those we coach—can pay dividends towards
effective collaboration, decision-making and resilience. This type
of insight is often referred to as Emotional Intelligence—an ability
to appreciate and understand our own and others’ emotions and
perspectives.
A study by Roderick Gilkey and colleagues at Emory Univer-
sity asked managers to evaluate workplace dilemmas while undergo-
ing brain imaging. Findings revealed that managers with the best
solutions relied less on the prefrontal cortex (a region traditionally
considered to be the home of strategic problem solving) than on
social-emotional processing regions lying deeper in the brain. This
suggests that the most effective managers value their ‘gut’ respons-
es and don’t rely exclusively on decision-making skills that are more
emotionally detached.
Rebounding from emotionally-charged interactions is another
intentions, and one thing is certain: a world where more people
step up to lead when they see a need will be a better world.
Jim Fisher is Professor Emeritus and the former Vice Dean
of the Rotman School of Management. He started his career
with McKinsey before founding The Canada Consulting
Group, which became the Canadian office of The Boston
Consulting Group. He joined George Weston Ltd. in 1986
and served as Executive Vice President of Weston Foods, Chairman and
President of William Neilson Limited and President of George Weston
North American Bakeries. Voted ‘Teacher of the Year’ by MBA students,
Jim is the author of the forthcoming The Thoughtful Leader (Rotman-UTP
Publishing, 2016), from which this article is adapted.
critical skill that all leaders need to thrive. Some have warned
against the ‘amygdala hijack’, which occurs when we feel a real
or perceived threat in our environment. The resulting emotional
upheaval—generated by the amygdala and other mid-brain struc-
tures—causes the prefrontal cortex to become less active, leading
to decreased concentration and sub-optimal decision making.
Leaders in these mental states can also infect others with their
negative emotions, potentially reducing a team’s effectiveness. A
useful tool for addressing these emotional processes is the ‘Emo-
tional Audit’ described by Relly Nadler in Leading with Emotional
Intelligence.
In closing
Looking ahead, leadership skill development will continue to be
informed by brain and behavioural science, particularly as these
disciplines continue to evolve. Integrating key early insights from
Neuroscience can help leaders master the challenges of self- and
organizational management.
John Randolph is an Adjunct Professor of Psychiatry at Dartmouth’s Geisel
School of Medicine, a clinical neuropsychologist, and an executive coach.
He is the editor of Positive Neuropsychology: Evidence-Based Perspectives on
Promoting Cognitive Health (Springer, 2013). Steven Rothke is an Assistant
Professor of Clinical Psychiatry and Behavioural Sciences at Northwestern
University’s Feinberg School of Medicine and chair of the Organizational
and Business Consulting Psychology section of the Illinois Psychological
Association.
rotmanmagazine.ca / 11
 The Harvard professor and Thinkers50 member describes
how today’s most innovative leaders view their role.

Thought Leader Interview:

Linda A. Hill
by Tiziana Casciaro

You have found that in a business environment that demands
innovation, it is no longer enough to be a value creator. Please
explain.
The fact is, much more is expected from all of us today, because
it takes more than ever to build a successful organization and
sustain that success. The leaders we spoke to told us that it is not
enough to be a value creator: you now have to be both a value cre-
ator and a ‘game changer’. Value creators know how to identify
and close ‘performance gaps’ — the gaps between where you are
now and where you should be; while game changers are able to
competitors will close the gap, and your stakeholders will expect
the same from you. That is why organizations need more people
who know how to lead innovation.
In Collective Genius: The Art and Practice of Leading Innova-
tion, you challenge the traditional concept of leadership as
an individual, ‘heroic’ activity, describing scenarios where
people innovate collectively. What is the role of the leader in
this environment?
My colleagues and I became obsessed with the question, What
ILLUSTRATION BY MARION MASON

close ‘opportunity gaps’ — gaps between where you are now and
where you could be.
We define innovation as ‘creating something that is both new
and useful’, and we found that sometimes you need to innovate
in order to close a performance gap. But you definitely need to in-
novate to close an opportunity gap — and unless you have enough
people who know how to do that, opportunity gaps will eventu-
ally become performance gaps. That’s because some of your
do exceptional leaders of innovation do? Over a 10-year period,
we studied 16 leaders in seven countries whose organizations
have innovated repeatedly, and we observed their day-to-day
behaviour. After spending hundreds of hours literally watching
them work — at places like Google, Pixar and Pfizer — we found
that leading innovation is really about one thing: creating a con-
text in which others are both willing and able to do the hard work
of innovation.

12 / Rotman Management Fall 2015

 Talented people don’t want to follow you into the future;
they want to co-create it with you.
Although these leaders had vision, they didn’t define their
role as that of a visionary — someone who creates a vision, com-
municates it and inspires others to follow it. In fact, several of
them told us they don’t read books about leadership, because
that is not what they ‘do’. One leader summed up what he thinks
he does as follows: “My job is to set the stage, not to perform
on it.”
When a leader succeeds at creating this context, she enables
what you call ‘collective genius’. Please define this term.
As indicated, leaders of innovation face two key challenges: cre-
ating a place where people are willing to do the hard work of in-
novation — with all of its stresses and paradoxes; and creating
an environment in which they are able to do this work. We found
that the latter involves building your organization’s capacity for
three things: collaboration, discovery-driven learning, and in-
tegrative decision making. Together, these elements constitute
what we call Collective Genius. The most effective leaders build
core capabilities in each of these areas: creative abrasion for col-
laboration; creative agility for learning through discovery; and
creative resolution for integrative decision making.
Tell us a bit more about the core capabilities for Collective
Genius.
‘Creative abrasion’ occurs when a leader succeeds in developing
a marketplace of diverse ideas, often through discourse and de-
bate. Rather than seeking a single flash of insight, these leaders
know that possible solutions will emerge from a series of ‘sparks’,
as group members play off of one another. We use the word ‘abra-
sion’ because, by its very nature, this involves a certain level of
conflict and disagreement — and that’s why it works best when
practiced by a diverse community whose members are bound by
a common purpose.
‘Creative agility’ involves developing and testing differ-
ent options by conducting rapid experiments, learning from
the outcome — whether it be positive or negative — and making
adjustments. An adjustment might entail a modification of the
action just taken, but it could also involve determining that the
experiment succeeded and should be scaled up, or that the idea
just won’t work and should be abandoned. Along the way, people
learn ‘what works’ and are able to evolve better options.
The third capability, ‘creative resolution’, is far from sim-
ple, because it concerns decision-making. The most innovative
14 / Rotman Management Fall 2015
solutions are often a combination of ideas — including oppos-
able ideas that were once considered to be mutually-exclusive.
Even if you have mastered the first two capabilities, without an
ability to make integrative decisions, innovative solutions will
remain elusive.
Together, these three capabilities constitute a group’s abil-
ity to innovate, but they depend upon the group’s sense of com-
munity, based on common and compelling purpose and shared
values — the key components of the willingness to innovate. The
leader’s role here is to ensure that all of these elements are alive
and well within his or her group.
You touched on the ability to work with ‘opposable ideas’.
How does this play out?
With innovation comes a paradox: on one hand, you have to un-
leash ideas, talents and passions; and on the other, you have to
harness these things, so they can be leveraged for the collective
good. The leaders we studied told us that most innovations are
not born as fully-formed ideas. More often, they are a combina-
tion of old ideas — or a reconfiguration of old ideas to deal with
new problems and opportunities. And importantly, these are of-
ten ‘opposable’ ideas, in that they require putting things together
that most people would never think of combining.
Here’s an example. Pixar ran into a critical problem when
it needed to render two films simultaneously; but its ‘Ren-
derFarm’ computer system was designed to handle only one
at a time. They considered many solutions, but in the end, it
seemed the only viable options were to buy or borrow more
computing power. Cloud solutions at the time were inadequate,
and buying all-new equipment was inordinately expensive, but
Pixar knew this wouldn’t be the last time they ran into this
problem. Borrowing the computing power (say, from Disney)
wasn’t optimal either: Disney had its own network, file servers,
software and operating systems, and they were incompatible
with Pixar’s.
To solve the immediate problem, Pixar borrowed 250 of
Disney’s servers, trucking four-to-five tons of equipment to
its campus. Meanwhile, Pixar’s engineers focused on perfect-
ing an automated installation process that, going forward,
would allow the studio to borrow the computing capacity it
needed from other organizations and get it up and running in
a matter of one or two days. By combining the best elements of
ideas that once seemed mutually exclusive, Pixar was able to

reach an innovative solution to its immediate rendering prob-
lem, while also developing a critical technical capability that
would serve the studio in the future.
When you work with opposable ideas and try to combine
them, it often leads you to re-frame your problem in a new way,
and to take advantage of the best aspects of opposable alterna-
tives to come up with a third — far better — solution. The tricky
part is, once you unleash people and they create a marketplace of
solutions, unless you have a decision process that allows for op-
posable ideas — or aspects of them — to be incorporated, you’re
not going to get to the innovation. In most cases, one idea is se-
lected and the other is discarded. But at places like Google, even
when they pick one solution over another, they take what they
have learned (and not used) and share it with other groups. They
make sure to use all of the knowledge, and that often leads to
combining ideas.
This ability to keep multiple options open requires what
[former Rotman Dean] Roger Martin calls an ‘opposable mind’.
As Roger explains in The Opposable Mind, people with this ability
are able to hold two opposing ideas in their mind at once; then,
without panicking or simply settling for one alternative or the
other, they create a new idea that combines the two, but is superi-
or to both. This explains why creative integration is so rare: for in-
dividuals and groups alike, working through complexity creates
anxiety, and most people react to that tension by simplifying the
problem into, stark alternatives, dealing with them separately,
and eliminating all but one. Asking people to forgo this approach
entails asking them to willingly live with ambiguity — which most
of us avoid.
You have noted that innovation can be very emotionally tax-
ing. Why is that?
My Harvard colleague Amy Edmondson’s work on ‘psycholog-
ical safety’ explains a good part of it. In a psychologically-safe
environment, people feel comfortable speaking up, disagreeing
with others and sharing their ideas without fear of repercus-
sions. But the fact is, most workplaces do not provide enough
psychological safety.
Even in a psychologically-safe environment, innovation is
emotionally taxing, because the process entails really giving of
yourself. For instance, Kit Hinrichs, an innovation leader we
studied at the design partnership Pentagram, told us that he
still gets nervous whenever he presents at partner meetings. At-
Three Elements of Creative Agility
1. Pursue new ideas quickly and proactively through multiple
experiments.
2. Reflect on and analyze the outcomes of experiments.
3. Adjust subsequent actions and choices based on what
you’ve learned.
tendance at these meetings is mandatory, and the partners —
renowned designers with international reputations — give each
other blunt feedback on their work. As he told us: “You bare a
piece of your soul, and you want the partners to say, ‘Wow, that
was a knockout!’ And sometimes you get that; but sometimes
you don’t.” When people are allowed to play out their passions, it
puts pressure on them to do their best work.
Can Collective Genius be characterized as a form of ‘shared
leadership’?
If you’re asking whether you can ‘get there’ without a leader—
with more of a distributed leadership model — I think you can.
But even distributed leadership involves people at the top focus-
ing on proactively building a context. In that sense, leadership is
distributed in most of the organizations we studied. For example,
at Pixar, not one, but three people ran the organization: founder
Ed Catmull worked very closely with John Lasseter and Steve
Jobs. They always felt that it was the combination of the arts,
technology and business that made them successful. They knew
that they had to be able to work across those three areas, and to-
gether they built a context that enabled collaborative effort.
How does diversity fit into the Collective Genius scenario?
One thing we found in these organizations is that they have lots
of talented ‘cooks in the kitchen’ — and the cooks are all very dif-
ferent. What you have to do is get those cooks to collaborate, to
get to that creative abrasion we discussed earlier. This is why un-
leashing diversity is one of the key challenges for today’s leaders.
Of course, when you do that, you are bound to encounter con-
flict, and as a result, many leaders instinctively try to minimize
diverse thinking — and to focus instead on what everyone has in
common. But if you want to spark innovation, you need to create
a marketplace of competitive ideas, and that means amplifying
diversity — not covering it up.
One of the exemplars you focused on is Bill Coughran of
Google. Can you describe his approach?
Bill is an exceptionally talented individual, and he certainly had
vision, but he never saw it as his role to be a visionary. His be-
lief was that talented people don’t want to follow you into the
future; they want to co-create it with you. Not surprisingly, Bill
and his colleagues tried to keep conventional management to a
minimum. In the words of then-CEO Eric Schmidt, managers
rotmanmagazine.ca / 15
 The Willingness to Innovate
PURPOSE
Why we exist
A SENSE OF
COMMUNITY
SHARED RULES OF
VALUES ENGAGEMENT
What we agree How we interact and
is important think about problems
FIGURE ONE
at Google were intended to be ‘aggregators of viewpoints, not
dictators of decisions’. But that didn’t mean Bill exercised little
influence: on the contrary, in his regular review meetings with
each team throughout one major project we followed, he always
asked difficult and probing questions, raised points of view that
needed more attention, shared information about what the oth-
er teams were doing, and required each team to demonstrate
that its ideas could work in a real-world setting via prototypes —
then ‘bumping’ them up against the operations team, who shed
critical light on the limitations of each ‘solution’. Throughout
this process, Bill gave the teams autonomy and responsibility.
He told us that one way to preserve a ‘bottom up’ culture where
people take risks is to let them make choices — and even mis-
takes. These were some of the key ways he created an environ-
ment for innovation.
Google employees were, at the time, encouraged to pursue
an exploratory project that interested them for up to 20 per cent
of their time at work. But once these ideas required further in-
vestment, Bill and others had to figure out which ones to nurture.
This exemplifies a fine balance between top-down direction and
bottom-up initiative. So, while Google lacked many of the control
mechanisms typical of a traditional organization, it did institute
a number of management practices that fostered innovation, il-
lustrating the importance of finding a balance between improvi-
sation and structure.
16 / Rotman Management Fall 2015
The Ability to Innovate
CREATIVE
ABRASION
The ability to generate
ideas through discourse
and debate
CREATIVE CREATIVE
RESOLUTION AGILITY
The ability to make The ability to test and
integrative decisions experiment through quick
that combine disparate pursuit, reflection and
ideas adjustment
FIGURE TWO
You have described the leaders you met as holistic thinkers,
yet action-oriented. Discuss this apparent paradox.
These people were definitely holistic or integrative thinkers: they
embraced problems in all of their complexity, and truly enjoyed
the process of unraveling them. Yet they could take action, too:
they were highly inclined to try things out and experiment, again
and again. They knew that solutions emerge from trial and error,
not from thinking alone.
We also noted some other paradoxes about them. For one,
they were generous, yet demanding. Leading for innovation is
hard, never-ending work, much of it behind the scenes. If they’d
wanted, most of these people could have been a star in their own
right; yet they believed in fostering other peoples’ ‘slices of ge-
nius’, and letting them take the spotlight. That takes generos-
ity and a willingness to share power, control and credit. Many
of them were reluctant to be singled out when we talked about
what their organization had accomplished; instead, they con-
sistently pointed to the individual and collective talents of their
colleagues. But at the same time, they held people accountable
and expected results; they didn’t hesitate to change what wasn’t
working or terminate people who couldn’t perform.
If you could change one characteristic of today’s leaders-in-
training, to enable them to foster Collective Genius—what
would you change?
I really wish we could help the leaders of tomorrow understand
New from University of
— and deeply believe — that everybody has a slice of genius. If you
don’t believe that everyone possesses a slice—albeit, very dif-
Toronto Press
ferent slices, of different widths and shapes—it is impossible to
embrace Collective Genius, because you won’t recognize that The Last Mile
everyone contributes to it. Creating Social and Economic Value
from Behavioral Insights
In educational programs, we tend to teach people to focus on
what makes them special, as opposed to fostering the notion that by Dilip Soman
everybody is special, and that you have to appreciate the talents The Last Mile dives into the psychology
of choice, money, and time and
of others. The most innovative organizations out there are able
presents practical advice on how
to elicit and combine their members’ individual slices of genius. behavioral science lessons can be
applied to business, retail, and
Through your research, you got a preview of what lies ahead government.
for leaders of innovation. Tell us about that.
A handful of the leaders we met were conducting experiments
to learn how to address a rapidly-changing world. The problems
they aspired to solve required reaching outside of their firm to
locate collaborators — in some cases, across sectors. These lead-
ers had recognized what research confirms: business problems The Inequality Trap
Fighting Capitalism Instead of Poverty
no longer fit neatly into the ways companies and institutions —
and even knowledge — have been typically organized. Finding by William Watson
solutions increasingly depends on the ability to combine orga- In this book, William Watson takes
nizations and categories of expertise that have previously been a bold stand and argues that if we
respond to growing inequality by
separate — and in some cases, have been in competition. These fighting capitalism rather than poverty,
‘futuristic’ leaders were building ecosystems that break down tra- we may end up both poorer and less
ditional boundaries between organizations and sectors. equal.
In the end, you can’t plan for innovation or tell people to in-
novate. But here’s the good news: you can organize for it. Lead-
ing in an innovative context is about building an organization
where individual slices of genius can come together to create
a single work of Collective Genius. As indicated, this happens
through collaboration, discovery-driven learning and integrative
decision making. My co-authors and I firmly believe that organi- Leadership is Half
zations won’t be able to innovate consistently until they revisit the Story
A Fresh Look at Followership,
their assumptions around what it means to lead innovation.
Leadership, and Collaboration
by Marc Hurwitz and
Samantha Hurwitz
This book introduces the first model
to seamlessly integrate leadership,
followership, and partnerships and
provides new ideas and practical advice
for anyone working in an organization.

Linda A. Hill is the Wallace Brett Donham Professor of Business Administra-

tion at Harvard Business School and the co-author of Collective Genius:
The Art and Practice of Leading Innovation (Harvard Business Review Press,
2014.) A member of the Thinkers50 ranking of the world’s most influential
management thinkers, she is the faculty chair of the HBS Leadership
Initiative and has chaired numerous Executive Education programs. She was
interviewed by Rotman Associate Professor of Organizational Behaviour
utppublishing.com
Tiziana Casciaro, who taught at Harvard between 1999 and 2007.

rotmanmagazine.ca / 17
 EXIT 23

Nudgeville
1 mile
 The Last Mile:
Using Behavioural Insights
to Create Value
Leaders spend too much time on ‘first-mile’ issues like strategy, and too
little time on the ‘last mile’, where consumer decisions are actually made.
By Dilip Soman

EVERY ORGANIZATION — regardless of industry, mission or location
— shares a common quest: they are all in the business of changing
human behaviour. For-profit companies try to convince consum-
ers who currently purchase a competitor’s product to switch to
theirs; governments want to convince citizens to pay their taxes
on time or renew their driver’s license online; and a welfare orga-
nization might want to encourage families to sign up to receive
tuition support for their childrens’ education.
Yet if you think about what people actually do in organiza-
tions from day to day, the bulk of their efforts are spent on what
I call ‘first-mile problems’. These include the efforts devoted to
thinking through the competitive landscape; developing strate-
gies to address it; designing processes of innovation; and coming
up with new products and services.
Very little attention is paid to the ‘last mile’ — the part where
a potential customer actually gets to your website, walks into
your retail store, or talks to your sales representative, and then
makes the decision to purchase your product (or not.) The last
mile is also the place where an individual visits a government of-
fice to gain access to a public service — and either chooses to stay
and wait, or throws up her hands in frustration and goes home.
If you take some time to think about the last mile and listen
to stories from consumers who have had a bad experience there,
you will quickly realize that it is not ‘big things’ that make a differ-
ence here: it is the small things that matter. Things like the man-
ner in which a decision is presented; the ambiance of the room;
the nature of the questions that are asked; or the disposition of
the agent with whom the consumer interacts. These are all key

rotmanmagazine.ca / 19
 When people don’t obey the laws of Economics,
they’re not being irrational; they’re just being human.
determinants of peoples’ decisions to buy a product, open an ac-
count, or consume a service.
As a society in general, I would argue that we have not spent
nearly enough time thinking about this realm. In my view, this
is a big mistake, and in this article I will describe how to better
understand what I call ‘the last mile problem.’
A Two-Part Journey
It was a beautiful summer’s day in 1997. I was on a road trip
across the United States, and the last leg took me from Upstate
New York to Boston. These were the days before Google Maps
and GPS. I had been told that the drive would take about six-and-
a-half hours; so, imagine my surprise when, at the end of six-and-
a-half hours, I approached a sign on the highway that said, ‘Bos-
ton, 1 mile’. I was pleased that my drive time had matched the
prediction, and began to feel like I had ‘arrived’: but I was wrong.
Some of you may remember that in those days, Boston was
undergoing a major road renovation program known as The Big
Dig: roads were being dug up and elevated highways were being
reconstructed underground. When I left the expressway for my
destination in downtown Boston, I got stuck in a maze of con-
struction, one-ways and slow earth-moving equipment. It took
me a full 50 minutes to get to where I wanted to be. I had become
a victim of the last-mile problem.
When I look back on this journey, I am struck by the fact that
it had two distinct parts: in part one, I zipped along the highway
from upstate New York to Boston; in part two, I left the highway
and had to inch my way to a precise downtown address. This
story is not unique to Boston, of course; if you have ever zipped
along the motorways in England and exited towards a destina-
tion in London, you have likely experienced the same sense of
frustration. Likewise in India, where you come down the Pune-
Bombay expressway only to find that it takes three hours to get
to Bombay.
These examples are analogous to many other situations in
the real world. Imagine that you own a company and you are
looking to distribute your products across the U.S. Think about
20 / Rotman Management Fall 2015
the difficulty of transporting goods from upstate New York to
Boston, and then the cost involved with transporting those
goods — once they’ve arrived in Boston — to individual stores or
households. As you can imagine, the cost of this second part of
the distribution system is going to be significant. It is much like
my drive: the time and energy spent on the first part will pale in
significance to the time, energy, and frustration experienced in
the second part.
The term ‘last mile problem’ comes from the early days
of the telegraph — a now obsolete technology whereby people
would send messages to each other through wires that were
strung across the country. Before that, the only way to commu-
nicate with others was through posted letters, which took a long
time to reach the recipient. With a telegraph, the recipient at the
end of the line could receive a message within a matter of hours.
Of course, there was also a last-mile problem with the telegraph:
while it was easy for messages to zip from the place of origin to
the end of the telegraph line, someone still had to get on a horse
or bicycle and physically bring that message over ‘the last mile’
to the intended recipient. The last mile of any communication
network is the part that actually reaches the customer.
Last-mile problems show up across industries. I live in To-
ronto, and last year we had an election for a new mayor. One of
the big issues in this election was public transit, which is impor-
tant for ensuring connectivity and for reducing the burden on
the roads of any major city. This is something that every city in
the world should focus on, because we know that it cuts down
on the use of gas, reduces congestion, and makes connectivity
easier.
However, there is one interesting problem that designers of
transit have to think more about: while it might be easy to trans-
port people from point A to point B — say, two stations on a transit
network — we also need to worry about how people get to point A
from their homes, and how they get to their workplace from point
B. One big barrier to using public transit is the cost — in terms
of money, time and psychological angst — of these often-ignored
aspects of the experience.
 How can we solve this particular last mile problem? There
are a number of possible solutions. In Toronto, for example,
many buses are equipped with bicycle racks, so you can ride your
bike to a bus station, attach it to a rack, board the bus, and hop
back on it when you disembark.
In Europe, there is the Hiriko City Car. This is a two-person
electric vehicle that solves the gap between getting from your
home to the public transit station, and from the public transit
station to your office. Other solutions include a folding electric
motor scooter called a RoboScooter, and an electric-assisted bike
called the Green Wheel. All of these simple solutions can help to
overcome the last mile problem, thereby facilitating the use of
public transit.
Issues Around Adoption
Depending on which survey you read, new product success rates
are typically in the region of one-to-25 per cent. In other words,
more than 75 per cent of new products fail. Why does this hap-
pen? Perhaps the product has features that are difficult to use?
Maybe the marketing or advertising was problematic? Perhaps
the product wasn’t physically distributed properly, or the pricing
was wrong?
There is a much simpler behavioural story that might explain
the bulk of this high rate of failure, and it has to do with the fact that
the product developers didn’t spend any time thinking about the
last mile. In short, they failed to recognize the proactive effort that
would be required by consumers to adopt and use the new product.
Here’s a public-sector example. In Canada, the government
introduced a new welfare initiative called the Canada Learn-
ing Bond (CLB) — a wonderful program that provides eligible
low-income families with $500 to use towards their childrens’
education. While there are obviously some parameters around
how the money can be spent, this is, in effect, ‘free money’ for
these families.
An economist would say, ‘Wow, $500, free; who wouldn’t
take the money?’ Her prediction would be that the take-up rate
for the Canada Learning Bond would be close to 100 per cent.
And yet, in the first year the bond was introduced, adoption rates
were as low as 16 per cent, and the reason had nothing to do with
the quality of the program: it was a classic last-mile problem. In
order to benefit from the program, eligible families needed a
bank account. But the reality was that many eligible families sim-
ply didn’t have the time to go out and open a bank account. These
parents were juggling multiple jobs, and they had children to look
after. Their inability to physically get to a bank proved to be the
primary reason why this program failed.
Many authors have written about the fact that human de-
cision-making is not rational — that people make choices that
conflict with the standard economic model of decision mak-
ing. For instance, in Nudge, Richard Thaler and Cass Sunstein
make a distinction between ‘econs’ and humans. Econs are the
‘unicorns’ of the decision-making world: the mythical beasts
that inhabit the pages of Economics textbooks. These forward-
looking creatures have infinite computational ability; they are
unemotional; and they have an uncanny ability to assign ‘utility’
to every product or service they consume. On the other hand, real
people are myopic and impulsive; emotion guides their decision-
making, and they often make decisions quickly, without thinking
too much. In short, they are irrational, as Dan Ariely described
in his best-seller, Predictably Irrational.
My take on irrationality is slightly different: if people are not
obeying the laws of Economics, I don’t think they’re being irra-
tional; I just think they’re being human. I am more concerned
about two other versions of irrationality: first, I believe it is ir-
rational for an organization to believe that its stakeholders are
rational and to design last-mile interfaces accordingly; and sec-
ond, there is a mismatch between what individuals want to do,
and what they actually do. People are often not as influenced
by features of a product or program that marketers or policy
makers expect them to be influenced by; and conversely, they
might be influenced by factors that have been deemed irrelevant
to their decision.
Here’s an example, based on research by Columbia Univer-
sity’s Eric Johnson and Dan Goldstein, who set out to better
rotmanmagazine.ca / 21
 The First Mile vs. The Last Mile
First Mile
• Strategy
• Focus on the WHAT: played out in boardrooms, research and
development facilities, planning committee sessions
• New product development
• Policy development
• Welfare program design
FIGURE ONE
understand the realm of organ donation. In their article in the
journal Science, they present a chart that shows the percentages
of people saying that they’re willing to donate organs in several
European countries. What they found was interesting: in some
countries, organ donation rates were very low. Denmark, for
example, had 4.35 per cent and Germany 12 per cent. However,
in others, consent rates were incredibly high: Austria had 99.98
per cent; France had 99.91 per cent; and Hungary had 99.97 per
cent. What might explain these differences?
The simplest explanation turned out not to be true: it wasn’t
the case that the penetration of advertising programs in one set
of countries was different from the other. The only thing that
was different across these countries was what is called ‘the de-
fault option’.
Think about the organ donation process in North America.
In Canada, if someone wants to donate her organs, she needs
to go to a provincial Service Office and obtain a form. Long and
complicated, it is typically given to a customer at the end of
whatever work she came in to do. For instance, after renewing
your driver’s license, you might be handed the form and asked
whether you would consider being an organ donor. If you do not
complete and hand in the form, you will not be an organ donor.
This is what we call ‘an explicit consent’ or an ‘opt-in’ pro-
cess. In such processes, anybody who wants to register needs to
take some action. The default is different in places like Austria,
which is an example of a ‘presumed consent’ or ‘opt-out’ process.
You retain your freedom of choice about whether (or not) to do-
nate your organs, but the assumption is that, unless you fill out
and hand in a form, you do want to donate. This simple difference
between an explicit consent process and a presumed consent process
can push organ donation rates from, say, 4.25 per cent (in Den-
mark) to 99.98 per cent (in Austria.)
Defaults are tremendously powerful, for two reasons. The
first is that research shows that human beings are supremely
lazy, both physically and cognitively, and as a result, we stick to
22 / Rotman Management Fall 2015
Last Mile
• Tactics
• Focus on the HOW and WHEN: played out in retail spaces, customer
service locations, web pages and online/telephone support
• New product adoption and use
• Policy implementation and delivery
• Welfare program adoption and take-up
defaults. People are averse to undertaking any new effort, so un-
less a default option is something we are particularly averse to,
we will stick with it. The second reason why defaults work is that
they tend to signal some sort of a ‘social norm’. If the default is
that ‘everybody is donating organs’, we think that we, too should
donate our organs. Likewise, if the default is that ‘nobody is do-
nating their organs’, we are likely to accept that as a suggestion.
Opting-In vs. Opting Out
Defaults shape our choices in a wide variety of domains. In one
informal study a number of years ago, I was interested in seeing
how to get more people to visit their doctor for an annual check-
up. In this particular population, the percentage of people going
for an annual checkup was low — around 16 per cent. I wanted
to understand why.
When I asked people, the most common excuse I heard
was, “I’m just too busy.” They claimed that they had every in-
tention of going, but they just could not find the time. However,
these same people somehow found the time to go on vacations,
read books, watch TV and have relaxing barbeque get-togeth-
ers. The reality of the situation was simpler: some of them felt
busier than they were. More importantly, there was some effort
required to pick up the phone, make an appointment, and then
set up their schedule to ensure they would be available dur-
ing that time frame. While the economic costs of taking action
were very low, it just seemed like a nuisance: the ‘hassle costs’
were too high.
We tried something that, in hindsight, sounds incredibly
simple: we used a random date generator to assign people to a
doctor’s appointment. A mailing to one of the participants might
say, for example, “Sally, thank you for enrolling in a health plan.
As part of your plan, you are entitled to an annual checkup with
your doctor. You have been assigned to see the doctor at 10 a.m.
on June 26th. Should you not be able to make it, please give us a
call. Otherwise, we look forward to seeing you then.” This simple
 The solution to last-mile problems isn’t so much about
creating awareness as it is about facilitating action.

act resulted in an increase in the number of people going for their In closing
annual checkup from 16 to 64 per cent. Six years since the publication of Thaler and Sunstein’s highly in-
The fact that simply changing a default can significantly fluential book, Nudge, people still don’t exercise as much as they
change preferences leads to an important insight: preferences should; they still don’t take public transit often enough, and they
are dramatically dependent on the context in which a decision is still work too hard and don’t spend enough time with their fami-
made. In short, ‘context is everything’; it significantly influences lies. As indicated herein, it isn’t that people don’t want to do these
our decision-making, and this is the first of three pillars of human things; but given human nature, organizations must take proac-
decision making. tive steps to help facilitate them.
The second pillar is something that is easily explained by Sir Looking ahead, there is much work to be done to success-
Isaac Newton’s Laws of Motion: a body at rest will continue to fully embed the science of behavioural insights into the DNA of
be at rest, unless it is given some sort of an external push; and both government and for-profit organizations. Hopefully, all of
a body that is in motion will continue to move, unless some ex- us will embrace the challenge and use these early insights to cre-
ternal force slows it down. Human decision-making is very much ate value — one nudge at a time.
like that: people will continue to do whatever it is they are doing,
unless they are nudged to do something different. As a result,
something simple like changing defaults can often change deci-
sion-making.
The third principle that explains much of human decision
making is ‘inter-temporal choice’. This is the study of the relative
value people assign to two or more payoffs that occur at different
points in time. Most choices — including those related to savings,
work effort, education, nutrition, exercise, health care and so
forth — require a decision-maker to trade-off costs and benefits
at different points in time.
American author Augusten Burroughs wrote one of my
favourite books, Magical Thinking, and one particular quote
from it has stuck with me: “I myself am made entirely of flaws
stitched together with good intentions.” In my view, this de-
scribes human behaviour nearly perfectly. Everybody intends
to be good: we intend to eat healthy food, exercise regularly and
save money for the future. But as indicated, there is usually a Dilip Soman is the Corus Professor of Communication Strat-
gap between our intentions and our actions. As a result, the so- egy, Professor of Marketing and a member of the Behavioural
Economics in Action Research Cluster at the University of
lution to last-mile problems isn’t so much about creating aware-
Toronto. He is the author of The Last Mile: Creating Social and
ness as it is about facilitating action. Economic Value from Behavioural Insights (Rotman-UTP Pub-
lishing, 2015), from which this article is an adapted excerpt.

rotmanmagazine.ca / 23
Leadership Forum:
The Architecture
of Management
At the 6th annual Global Peter Drucker Forum, two of the world’s
leading management thinkers and two global CEOs discussed
the changing nature of leadership. Compiled by Karen Christensen

Herminia Ibarra
Professor of Leadership
and Learning, INSEAD

THE AGE-OLD DISTINCTION between management and leadership is

that management entails ‘doing today’s work as efficiently as
possible within established goals and procedures’; while lead-
ership is aimed at ‘creating change in what we do and how we
do it’ — which requires working outside of established goals and
procedures. When doing leadership work, you are asking, ‘What
should we be doing, instead of what we’re currently doing?’ Lead-
ers spend their time exploring things that might not have any im-
mediate payoff — or might not pay off at all.
The definition of great leadership has evolved over time,
and the pendulum currently seems to be swinging away from
egocentric, inspirational ‘stagecraft’ towards steady, competent
execution. For example, Intel CEO Brian Krzanich’s roots in
Engineering initially worried some investors, who wondered
whether he had the necessary ‘oomph’ for the job; but he has
since emerged as a practical leader with a shrewd approach who
Illustrations by Kagan Mcleod

is steadily repositioning the company to compete in a post-PC

world. And Google’s famous experiment in creating a ‘manager-
free organization’ was not only short-lived, it paved the way
for a talent management system designed to rely more on proce-
dure than instinct.

24 / Rotman Management Fall 2015

HERMINIA IBARRA, CONT’D
Last fall, Harvard Business Review put out a list of the top-per-
forming CEOs, touting ‘the rise of the engineer CEO’: 24 out of
the 100 CEOs were engineers — praised for their ability to bring
a kind of ‘nuts and bolts’ thinking to organizations. The article
cited headhunter James Citrin as saying, “Engineers excel at ar-
chitectural thinking and logical problem-solving.”
The idea of ‘architectural thinking’ for leaders is very in-
teresting — of leaders designing environments and cultures to
enable innovation and success. The problem is, we don’t really
teach these skills, and we don’t help leaders think about how
to do the hard work of changing the antiquated systems in their
organizations.
My INSEAD colleague Jean-François Manzoni polled the
senior managers he teaches, asking them to estimate how much
time they spend in four areas: ‘doing’ things, mobilizing people,
strategizing, and architecting systems. He found that they spend
most of their time doing, and they do a good bit of mobilizing in-
terpersonally and through inspirational speaking. But he found
that they don’t do enough strategizing — and they’re aware of
that; and they do even less architecting, but they’re not aware
that they should be doing this. It’s not even on their radar. As I
describe in my book, in order to ‘act like a leader’, you have to
devote much of your time to four activities: bridging across di-
verse people and groups; envisioning new possibilities; engaging
people in the change process; and embodying that change.
Herminia Ibarra is the Cora Chaired Professor of Leadership and Learning
at INSEAD and the author of Act Like a Leader, Think Like a Leader (Harvard
Business Review Press, 2015.) She is Vice-Chair of the World Economic Fo-
rum’s Global Agenda Council on Women’s Empowerment and is a member of
the Thinkers50 ranking of the world’s most influential management thinkers.

Georg Polzer
Founder and CEO,
Teralytics AG

FRESH OUT OF UNIVERSITY, along with a group of fellow engineers,

I started up Teralytics, which uses Big Data to offer deep insights
into human behaviour. In the beginning, we did just about every-
thing ourselves. I spent the first six months in our data centre —
sometimes sleeping there. We began with ten people, and now
there are almost 50, from 21 nationalities.
In contrast with leaders who come into a huge, existing or-
ganization, I consider myself very lucky, because I get to choose
who I work with. One thing that all of our people have in common
is, they are extremely smart and hungry — and that creates very
specific challenges in terms of leading them. I have discovered
that it all boils down to problem solving. When we are recruit-
ing, one of the key skills we look for is an ability to solve com-
plex problems, and the way I lead is totally focused on providing
people with extremely interesting problems to tackle.
When someone joins our company, they have very likely
also had offers from giants like Google or Facebook. Compa-
nies like these provide endless perks, but that’s not what drives
people to work there: it’s all about having interesting problems
to solve.
CONTINUED ON PAGE 26

rotmanmagazine.ca / 25
GEORGE POLZER, CONT’D
Even salary is an afterthought for these individuals. From my
experience, talented people will stay around for as long as you
have interesting problems for them to chew on and solve.
Another aspect of my leadership approach is the way we work
together in this company. It’s much less about different levels for
leaders and employees, and more about being on an even level
where we all work together on interesting problems. Despite this
partnership model, some traditional tools also work very well for
us. For example, we’ve embraced things like Objectives and Key
Results (OKRs) and bi-annual performance reviews. Google is a
big proponent of OKRs, which enable company-wide objectives
and key results to trickle down and become part of every team
and individual’s objectives. It’s totally transparent: employees
can see each others’ reviews. This has been a very powerful tool
for us to facilitate accountability and transparency around where
we are headed, and how that connects to each person’s goals.
My mantra is, ‘only implement as much structure and orga-
nization as is necessary’. The question of how much leadership
vs. how much management you require is very much determined
by the product or service you offer. We’re not building games or
websites here; our product is a software that sits in high-security
data centres — and that means we have to be much more diligent
than the average tech startup. At Google, there is this sense of,
“Let’s put a beta product out there and let people try it out; if it
fails, no problem!” But when Teralytics ships a piece of software
to a high-security data centre, every piece of code has to work
from day one. Changing that mindset in our people has required
balancing some more traditional management tools alongside
the newer idea of working as partners.
Georg Polzer is the Founder and CEO of Teralytics, a global leader in
behavioural data analytics with offices in New York, Zurich and Singapore.

Tammy Erickson
Executive Fellow,
London Business
School

I HAVE SPENT CLOSE TO 40 YEARS helping senior leaders answer,

questions like, ‘How can I be more innovative? and, ‘How can I
get my people more engaged?’ In particular, my conversations
with young leaders — people in their 30s and early 40s — have re-
ally struck me. I remember speaking to one young man, who was
clearly very successful in the eyes of his company’s leaders. They
were investing a lot in him, sending him to all kinds of leader-
ship development programs. We got to talking about the execu-
tives at his company, and he said to me, “Tammy, I don’t know
why anyone would ever want to do what those guys do.” I replied,
“Well, don’t you think they think that you want to do what they
do?”“Maybe so,” he said, “but I don’t. I don’t admire them. I don’t
care for the way they’ve led the company, and I don’t want to rep-
licate that.”
The leadership landscape is clearly shifting, and the young
people coming along are converging around a new type of lead-
ership. Based on my work with them, I would say leadership re-
quires four things today. First, leaders have to create the capacity
for information to flow back and forth. I refer to this as creating
‘collaborative capacity’. Second, they have to disrupt their

26 / Rotman Management Fall 2015

TAMMY ERICKSON, CONT’D
organization — to make sure that it is constantly filled with chal-
lenging new ideas and perspectives. The worst thing a leader can
do is let her organization stagnate. Third, they have to figure out
how to bind the organization together. Leaders must create the
‘glue’ — I call it meaning, others call it a sense of purpose, but
basically, it means providing an answer to the question, ‘Why are
we all here, and what is holding us together?’ Everyone through-
out the organization must be very clear on that. The fourth aspect
is the ability to ask great questions. Leaders today don’t need to
have all the answers, but they do have to know how to ask great
questions — and they have to continually ask them in a way that
invites others to be part of the solution.
The great thing about these four abilities is that they
don’t require you to be some kind of super-human, one-in-a-
million individual: these are things that we can all learn to do.
There is a lot known today about how to create collaborative
capacity and how to design a workplace environment so that it’s
meaningful for employees, and these things can be taught.
I agree with Herminia that today’s leaders should think of
themselves more like architects, whose role is to create a context
within their organization. An architect can walk into any building
and say, ‘There’s a crack in the ceiling over there; and that door
is in a really awkward place’. They can figure out what needs at-
tention within minutes — and leaders have to be able to do the
same thing.
Tammy Erickson is a McKinsey Award-winning author who has been named
three times to the Thinkers50 ranking of the world’s most influential manage-
ment thinkers. She is an Executive Fellow at London Business School, where she
has designed and co-directs its Leading Businesses into the Future program,
and the CEO of Tammy Erickson Associates.

Vineet Nayar
Former CEO,
HCL Technologies

IN 2005, HCL WAS IN A HORRIBLE STATE: We were losing mind share,

market share and talent share, and the question staring at us
was, ‘How can we turn this around to create a high performance
organization with a competitive advantage?’
Most companies answer this question by tweaking their
strategy on the ‘what’ axis, in terms of what product and ser-
vices they sell. Instead, we decided to innovate on the ‘how’
axis, in terms of how we ran the company. We basically turned
our culture into our competitive advantage by putting employ-
ee empowerment and satisfaction at the heart of everything.
This was the birth of a concept we called Employees First, Cus-
tomers Second.
As is true with everything, if a great idea is not executed
well, it will not work. I was born on the same day as Mahat-
ma Gandhi, and it occurred to me that Gandhi landed on the
shores of India in 1915. Was he the inspirational leader India was
looking for? Yes. Was non-violence the inspirational, market-
shaping idea that could get India to independence? Absolutely;
so, why did it take 38 years for India to become independent?
CONTINUED ON PAGE 28

rotmanmagazine.ca / 27
VINEET NAYAR, CONT’D
The missing piece of that puzzle was that, other than Gandhi and
a few others, nobody truly wanted to be independent.
So, the first learning for us was, before we could get to the ex-
ecution stage, we had to put in place the ‘architecture’ for change.
This was a three-step process. The first step was to create in our
people the desire and need for change. As indicated, unless there
is dissatisfaction with the status quo, nobody is going to change
their behaviour. So, we went across our company and exposed
our dirty linen, saying, “This is broken; and so is that.” A lot of
people got scared, and left; but we soon started to attract ‘pot-
ters’ — people who get excited by the very notion of working with
‘rough clay’.
The second step in building our cultural architecture entailed
defining a vision for tomorrow that was so compelling that people
would jump out of bed each day to come and work for us. On my
first day, at an open house with 5,000 people, I was asked, “What
is your vision for this company?” When I admitted I didn’t have
one yet, the employee replied, “That is stupid.” I said, “I know
that; but you have to stick with me, because I do have a vision for
you.” I then asked the audience, “When you meet someone at a
party, and they ask where you work, do you say, ‘I work for an IT
services company’, or do you say ‘I work at HCL’? Ninety per cent
of the employees admitted that they never mentioned HCL. So,
I said, “My vision is that in five years’ time, when someone asks
this question, 90 per cent of you will say ‘I work for HCL’.”
The third aspect was very important for us: experimenta-
tion. The journey from Point A to Point B is never a straight line: it
is a series of experiments. As an Engineering graduate, I learned
early on that great inventions are the result of many incorrect hy-
potheses. Every initiative we launched started out as an experi-
ment, and everybody shared in the process.
Vineet Nayar is the former CEO of HCL Technologies and the founder of
Sampark Foundation, which aims to provide disadvantaged Indian households
with opportunities to increase their income by 30 per cent. He is the author of
Employees First, Customers Second: Turning Conventional Management Upside
Down (Harvard Business Review Press, June 2010).
The preceding is excerpted from a panel discussion held at the 2014 Global
Peter Drucker Forum — a conference dedicated to the father of modern manage-
ment, Peter Drucker (1909-2005). The Forum is held annually in November,
in Drucker’s home town of Vienna, by the Peter Drucker Society of Europe.

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28 / Rotman Management Fall 2015

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 Joining Forces:
Collaborative Leadership
for Sustainability
Through collaborations, organizations can shape the context in which
they operate — and explore vital new market opportunities.
By David Kiron, Nina Kruschwitz, Knut Haanaes, Martin Reeves, Sonja-Katrin Fuisz-Kehrbach and George Kell
OVER THE PAST TWO DECADES, the importance of sustainability as a
business issue has grown steadily. Most businesses now under-
stand that their sustained success depends upon the economic,
social and ecological contexts in which they operate.
The problem is, the stability of those contexts can no longer
be taken for granted: the physical environment is becoming in-
creasingly unpredictable; a more interconnected global econo-
my is altering social conditions; and technological innovation is
transforming the nature of both consumption and production. As
a result, corporate sustainability has evolved from expressing good
intentions to addressing critical business issues involving a complex
network of strategic relationships and activities.
As sustainability issues become more pivotal to success,
leading-edge companies realize that they can’t go it alone.
Through strategic networks, a business can — and arguably
must — tackle some of the toughest sustainability issues, such
as access to stressed or non-renewable resources, avoiding
human rights violations in value chains, and moderating cli-
mate change.
We recently set out to study the critical role of sustainabil-
ity collaborations and the role of boards of directors in guiding
a company’s efforts, surveying nearly 3,800 managers and in-
terviewing sustainability leaders from around the world. In this
article, we will present our findings.
A World of Mutual Reliance
The network of interdependencies among companies, govern-
ments and the public has created a world of mutual reliance in
which collaboration is a necessary route to progress. Take the
issue of education: most companies realize that poor-quality
education can’t merely be an issue for social reformers to talk
about; it also has profound business implications. Poorly-edu-
cated populations are a barrier to success for companies, which
depend upon a literate populace as a source of both an employ-
able workforce and customers willing and able to buy products
and services.
Intel is one company that has long championed the social
value of education, investing nearly US$500 million in literacy
rotmanmagazine.ca / 31
 As sustainability issues become more global and pivotal to success,
leading-edge companies realize that they can’t go it alone.
and education projects around the world since 2001. But Intel un-
derstands that it can’t go it alone or simply expect public institu-
tions to do the work. As a result, it partners with teacher groups
to provide training and conduct research on the most effective
learning methods. It also teams up with for-profit entities that
depend on educated populations, such as publishers and broad-
band providers in under-served regions.
As with any large societal problem, the goal is to create po-
tent, comprehensive solutions. “We look at things holistically,
including the ultimate outcome,” says Intel’s director of Global
Education Sales Programs, Brian Gonzalez. “From there, we
determine which industry, government and academic organiza-
tions we can engage to help us create and deliver the optimal so-
lution, based on local needs.”
Intel is by no means alone in its collaborative problem-
solving strategy: businesses around the globe are partnering to
surmount sustainability challenges that impact their viability
and success. Nutrition is another prime example. One in nine of
the world’s inhabitants don’t have enough food to live a healthy
life. A less well-known statistic: one in three of the world’s
population has a diet that lacks the vitamins and minerals es-
sential to well-being. In developing nations — which can offer
new avenues for corporate activity and growth — malnutri-
tion drives a vicious cycle of poor health that leads to low
productivity, which in turn drives down overall income and in-
creases food insecurity. The cycle can crush up to two per cent
of a country’s GNP.
“Governments don’t produce food, so adding essential
nutrients to food is not something they can do,” says Andreas
Bluethner, director of food fortification and partnerships at the
German chemical company BASF. “The private sector can’t do
it alone, because public health is not its core purpose, and NGOs
can’t do it because they don’t have all the necessary technical
expertise. Making nutrition affordable for the poor requires part-
nerships between all sectors, on a global scale.”
To tackle global nutrition challenges, BASF became a found-
ing member of the Strategic Alliance for the Fortification of
Oil and Other Staple Foods (SAFO), working with NGOs such
as the Global Alliance for Improved Nutrition (GAIN), and
federal and local governments to add important nutrients, such
as vitamin A, to basic foods.
The efforts of Intel and BASF are emblematic of our find-
ings, which indicate that corporate sustainability is moving
steadily from the old model — comprised primarily of ad hoc or
opportunistic efforts that produced tense relationships with the
32 / Rotman Management Fall 2015
public sector — towards transformational initiatives that engage
multiple entities.
As sustainability issues become increasingly complex, lead-
ers realize that they can’t make the necessary impact acting
alone: 90 per cent of our respondents agreed that businesses
need to collaborate to address sustainability challenges. The be-
lief is echoed by a growing chorus of academic and non-profit
leaders and has spawned considerable research from organi-
zations such as the Network for Business Sustainability and
the Forum for the Future, in conjunction with the business
community. Despite nearly unanimous consensus on the im-
portance of these collaborations, practice lags behind belief. We
found that only 47 per cent of businesses are currently engaging
in a sustainability-related partnership. A majority (61 per cent) of
those assesses their collaborations as ‘quite’ or ‘very’ successful.
Taken together, however, these responses indicate that less than
30 per cent of all surveyed managers say their companies are en-
gaged in such partnerships.
The same gap rears its head on board engagement with
sustainability matters: 86 per cent of respondents believe that
their board of directors should play a strong role in driving their
company’s sustainability efforts, but only 42 per cent of boards
are perceived to be at least moderately engaged with the com-
pany’s sustainability agenda. This gap can significantly hamper
success. Organizations where the board is actively engaged in
collaborations are twice as likely to report success with those
efforts. The time has come to deepen board engagement on
sustainability issues.
The Drivers of Sustainability Collaborations
We found that the four most important drivers of sustainability
collaborations for businesses are:
• Boosting brand reputation;
• Improving product and service innovation;
• Fostering market transformation; and
• Mitigating risk.
Brand or company reputation is often the strongest motive: 78
per cent of those surveyed rated it as ‘very’ or ‘quite’ relevant.
This finding, which is consistent with our previous research that
examined the strategic drivers of corporate sustainability, could
fuel the common criticism that companies pursue sustainability
as ‘window dressing’, rather than rigorously linking it to their
strategies. However, as Jason Clay, a senior vice president at
WWF, pointed out, reputation is more than a PR issue. “In the
1970s, more than 80 per cent of corporate value was based on
tangible assets,” he told us. “By 2009, 81 per cent was based on
intangible assets such as brand and reputation. The broadening
valuation equation is bringing more companies to the sustain-
ability table.”
“Companies like Walmart can’t be sustainable on their
own,” added Gregory Unruh, a professor at George Mason Uni-
versity. “To be sustainable, Walmart needs a sustainable supply
network, a sustainable customer base and even a sustainable
economy in which to operate. To achieve their goals, companies
inevitably become strategic partners in a global process of sus-
tainability transformation.”
Ryan Schuchard, the manager of Business for Social Re-
sponsibility’s (BSR) climate and energy practice, says strategic
and transformational needs are driving private- and public-sec-
tor partnerships. The goals of private-public collaborations are
varied and can include:
1. Developing standards and promoting common practices;
2. Sharing information to foster discoveries or communicate
externally;
3. Creating a consolidated base of power to influence,
policy makers and suppliers; and
4. Sharing in investments to save costs or reduce risks.
As strategic collaborations become more commonplace, pro-
longed tensions between corporations and NGOs are waning.
Greenpeace, for example, criticized Asia Pulp & Paper’s supply
chain practices, causing customers to withdraw their orders. The
company then made a bold strategic move to remake its business
model and how it acquires raw material — a significant undertak-
ing. To do so, company leaders waved the white flag and invited
Greenpeace into the boardroom to help them change their for-
estry sourcing practices.
“Never in our history would our shareholders sit in the same
room with a ‘radical’ NGO like Greenpeace,” said Aida Green-
bury, a managing director. “So it’s quite groundbreaking that
we now sit together in our boardroom and discuss strategy and
incorporate their input.”
Stonyfield, the Vermont-based yogurt manufacturer, also
faced a strategic challenge: uncertainty in the supply of its or-
ganic banana puree. The company solved it through transforma-
tional collaborations that have changed the face of how its sup-
pliers go to market. “We had been buying organic, rare bananas,
but the growers historically relied on downstream processors to
make them into puree,” says Wood Turner, former vice presi-
dent of sustainability innovation. “There has been considerable
instability on the part of those downstream processors, which
made our supply chain unreliable.”
To address this challenge, Stonyfield has been working with
the non-profit Sustainable Food Lab to develop small-scale fruit-
processing operations. “We decided — in collaboration with the
growers — to disrupt their business model by installing small-scale
processing capability at the grower-association level,” explains
Turner. “Growers are now not just responsible for bananas, but
also for processing and selling them to the global marketplace.”
The collaboration solved Stonyfield’s supply issue and gave the
growers more independence and access to a wider market.
The Israel-based company Netafim provides another exam-
ple of a transformational collaboration that addresses a key sus-
tainability issue: water scarcity. Founded 60 years ago on a small
kibbutz in the Israeli desert, Netafim became the world’s largest
drip irrigation company by transforming the market for water
among small farmers in emerging markets. “We introduced drip
irrigation to agriculture,” says Naty Barak, Netafim’s chief sus-
tainability officer. “At the time, we were struggling. Water was
very limited, but the concept of drip irrigation — which is orders
of magnitude more efficient than flood or sprinkle irrigation —
was unknown and required a great deal of education and aware-
ness. To make progress, we partnered with government bodies,
academia and even with a small NGO.”
After Netafim achieved success in Israel and established its
business in the developed world, it turned its attention to devel-
oping countries, which now account for the majority of its busi-
ness. Netafim’s fastest-growing market is India, where the com-
pany’s average customer owns only two or three acres. “We’re
talking about small farmers, and there is no way we can reach
them on our own,” says Barak. “We need partners who know the
farmers and the culture and can help us sell to and train them.
That means government partners, NGOs and financing organi-
zations such as the IFC and the World Bank. There’s no way we
can do it alone.”
A Spectrum of Partnerships
Nearly 60 per cent of respondents told us their sustainability
collaborations include other businesses, either through indus-
try associations, across industries or within the same industry.
Collaborations that include academia (47%), NGOs (47%) and
government (39%) trailed somewhat behind. Companies with
rotmanmagazine.ca / 33
 Companies that have sustainability as a top agenda
item are more than twice as likely to collaborate.

How Engaged are Boards of Directors

in Sustainability?
A majority of respondents believe their board of suppliers that they need to care more about where their resources
directors should play a strong role in their companies come from and under what conditions their products are manu-
sustainability efforts.
factured.
86% agree that “The board of directors should play In Egypt, the Egyptian Junior Business Association (in
boards should a strong role in my organization’s partnership with the United Nations Global Compact) has a
play a strong role sustainability efforts.” platform for collective action in which small and medium-sized
in sustainability
companies sign a pledge to heed robust anti-corruption policies
and practices. Similarly, companies in some sectors have joined
65% 21% 7% 3% 1% 2%
forces to ensure that their value chains meet key requirements
Agree Agree Neither Disagree Disagree Don’t of the UN Guiding Principles on Human Rights and Business. For
strongly somewhat agree nor somewhat strongly know
disagree example, the Thun Group, an informal circle of seven inter-
42% report that national banks, published a discussion paper last year to frame
To what extent is the board of
their boards are the issues, and a group of German and Swiss tourism compa-
directors engaged in your organi-
substantially
zation’s sustainability efforts? nies embarked on a similar initiative that garnered commit-
engaged in ment to the responsibilities of multinational companies in the
sustainability tourism industry.
22% 20% 15% 14% 13% 15% If a company takes sustainability seriously, it is much more
To great To To small To some Not at all Don’t
extent moderate extent extent know likely to collaborate strategically to achieve its sustainability
extent
aims. For example, companies that have sustainability as a top
management agenda item are more than twice as likely to collab-
orate strategically than companies in which sustainability is only
somewhat or not important. In addition, those companies that
have sustainability as a top management item and who collabo-
rate strategically are up to five times more likely to do the prepa-
more strategic and transformational collaborations tended to ration required to ensure successful outcomes. This includes
collaborate with a wider range of organizations: 35 per cent of the steps like clearly defining roles, having reporting frameworks in
organizations with the strongest focus on strategic and transfor- place and developing clear governance structures.
mational collaborations, for example, were engaged with multi-
laterals, compared to an average of 26 per cent in companies that Four Keys to Successful Collaborations
lack this focus. Our findings emphasize four characteristics of successful col-
For example, outdoor apparel company Timberland is laborations.
working closely with the Leather Working Group to ensure that
the company sources leather from environmentally-responsible 1. REPEATED EFFORT. Not surprisingly, the more collaboration a
tanneries. “Through our work with the group, we can foster best company engages in, the more successful its collaborations are
practices related to energy, chemical and water management reported to be. The value of experience is clearly one of the rea-
and make sure we only buy from silver- or gold-rated tanneries,” sons: the more companies learn from their partnerships, the
says Betsy Blaisdell, manager of environmental stewardship for more successful they are. Among respondents whose organiza-
Timberland. “The work also reduced complexity in sourcing.” tions currently have one-to-three sustainability collaborations
Elsewhere, the Electronic Industry Citizenship Coali- underway, 43 per cent said these ventures are ‘very’ or ‘quite’
tion (EICC) helps support the development of a responsible successful; and of those that have engaged in more than 50, 95
global electronics supply chain by facilitating collaboration and per cent reported the same degree of success.
dialogue among companies, workers, governments, civil soci- Knowledge sharing — both formal and informal — is anoth-
ety, investors and academia. It is bringing companies in differ- er key ingredient to ensuring that collaborations are successful.
ent industries together to exert more power over suppliers. EICC Spending time informally on immersive learning experiences in
companies realize that a coalition can send a strong message to key locales, for example, can help overcome cultural barriers that

34 / Rotman Management Fall 2015

 Often, NGOs and corporations don’t speak the same language.
Having a common dialect is crucial.

Why Organizations Pursue

Sustainability Partnerships

might exist, while also building personal relationships that foster Why is your organization engaged in sustainability collaborations?
good communication. “We spend a lot of time in each locale, get-
Increase reputation and
ting to know the people,” says BASF’s Bluethner. “We also have brand building 50% 28% 12% 6% 2%

local people on the ground in key countries and bring them to Innovate products
and services 39% 28% 17% 8% 6%
Germany every year for training, and also support and train them
Foster market transforma-
in production, marketing and laboratorial work.” tion towards sustainability 32% 25% 22% 12% 7%

Risk management 30% 27% 20% 12% 9%

2. INTERNAL COLLABORATION. How a company partners internally
has a lot to do with how it collaborates externally, says Turner Expand into new markets 29% 24% 20% 13% 12%
of Stonyfield. “Internal collaborations can be very successful
Stakeholder demand 25% 32% 22% 10% 9%
in keeping people excited and aligned with big picture sustain-
ability goals. They also create bridges inside the organization.” Follow industry
21% 31% 25% 13% 8%
trends
Sprint’s Amy Hargroves argues that developing internal sup-
Pre empt regulatory
port can help external collaborations, and vice versa. “People action 21% 22% 22% 16% 16%

who are on sustainability teams, for the most part, own nothing,” Exchange and share
assets, logistics and 18% 24% 25% 18% 12%
she explains. “So the only way to be successful is to build partner- expertise
ships — even within the company.” Hargroves also points out that
Very Quite Somewhat Slightly Not
bringing in external voices can spur collaborations. One of those relevent relevent relevent relevent relevent
roles can be played by what WWF’s Clay calls ‘extrapreneurs’ — Note: Figures don’t add up to 100% due to rounding and exclusion of those who responded “don’t know”

the ‘honeybees’ that ‘pollinate’ multiple institutions and open

doors so that people can see the potential.

3. SHARED LANGUAGE. Often, NGOs and corporations don’t speak

the same language. Having a common dialect, however, is cru-
cial. Tima Bansal, director of Network for Business Sus-
tainability (NBS), talked about the need for ‘boundary span-
ners’—people with the ability to help groups bridge differences
in language and culture. George Mason professor Unruh made
the same case: “Deciphering a partner’s unique sustainability
dialect, and recognizing that you have your own, is an important
first step in a productive partnership,” he said.
Before it began working with Greenpeace, for example, Asia
Pulp & Paper believed it understood the language of sustainabil-
ity by following best practices and national regulations in Chi-
na and Indonesia. However, the company found that at first, it
needed a ‘translator’ to understand what Greenpeace had to say.
Eventually, the language barrier fell, and trust began to develop
between the company and the NGO. Eventually, Greenpeace
helped Asia Pulp & Paper learn how to become a more responsi-
ble company and take a leadership role in the zero-deforestation
movement.
Michael Arnold, head of corporate partnerships at WWF
Switzerland, advocates that non-profits should “agree with the
partner on a truly transformative agenda to avoid controversies.
Exerting a positive impact should be the primary reason to en-
gage with the private sector.” Like many non-profit leaders and
experts, Arnold believes that the private sector has to be involved
if today’s challenges are to be solved.
“Unfortunately, many partnerships fail unnecessarily in
an early stage” says Olivier Jaeggi, managing partner at ECO-
FACT, a company specializing in reputational, environmental
and human rights risk assessments. “The partners might fail to
establish trust and overcome internal concerns about things such
as differences in their respective organizational cultures, the po-
tential partner’s intentions or reputational risks that might re-
sult when engaging with the partner.” NGOs, for example, may
be wary of partnering with a corporation that has ignored hu-
man rights issues in the past, unless they are convinced that the
company is serious about changing its behaviour.
Businesses and non-profit organizations should start with a
structured discussion of the deal. Is it a good opportunity? What
is the best solution from a purely business or NGO perspective?
Once these questions are settled, the conversation can turn to
controversial issues such as the ability and willingness to commit
to and monitor certain standards.

rotmanmagazine.ca / 35
 Getting the board of directors ‘on board’
is key to successful collaborations.

4. BOARD ENGAGEMENT. Getting the board of directors ‘on board’ is context in which they operate and explore vital new market op-
another driver of success. In companies where boards are per- portunities, they must reach out to others. As indicated herein,
ceived as active supporters, 67 per cent of respondents said col- the goals of collaborations vary, but more and more companies
laborations are ‘very’ or ‘quite’ successful; in companies where are finding that by engaging with other organizations, they can
the board is not engaged, the rate of success was less than half advance their own strategic agendas.
that.
BASF’s recently-introduced accelerators program, which
aims to turn all of its products into sustainability all-stars, is
the fruit of a carefully- planned approach to engaging its board.
BASF established a steering initiative for sustainable solutions
that combined a top-down perspective — driven by a sustain-
ability board chaired by a member of the board of directors —
with a ‘middle-out’ perspective, where every business unit as-
sesses its own products against strict sustainability criteria.
The process was deliberate, and moved step by step. To be-
gin, BASF established a corporate sustainability board, which
includes 12 company presidents. The sustainability board then
made an initial proposal to the board of executive directors to
review all products through the lens of sustainability, which was
very positively received. The sustainability board then went to
the business units to secure buy-in from their leaders and draft
strategies for making needed changes. Armed with business-
unit specifics and challenges, the sustainability board then re-
turned to the board and presented its findings. It got a green
light to conduct deep dives into core businesses and create a
‘sustainable solutions approach’ that would encompass every
product line in the company. David Kiron is executive editor
Bringing sustainability into the boardroom also offers of MIT Sloan Management
Review’s Big Ideas Initiative.
guidance to senior managers as they grapple with the risks and Nina Kruschwitz is MIT Sloan
opportunities that affect their futures. More important still, Management Review’s manag-
board support ensures that the issues that matter most to orga- ing editor and special projects
nizations and its market environments are taken seriously, with manager. Knut Haanaes is a
senior partner and managing
a long-term perspective. As Peter Solmssen, former counsel director in the Boston Consult-
for Siemens, put it, “Sustainability is about survival. It means ing Group’s Geneva office and
clean water and clean air, but it also means having an economic global leader of BCG’s Strategy Practice Area. Martin Reeves is a senior part-
ner and managing director in BCG’s New York Office and head of the Bruce
system that works for everyone. It means having responsible
Henderson Institute worldwide. Sonja-Katrin Fuisz-Kehrbach is a knowledge
citizens, both corporate and individual.” expert for sustainability at BCG’s Hamburg office and a core member of BCG’s
sustainability team. George Kell is executive director of the United Nations
In closing Global Compact.
The bottom line is this: companies that want to reap the benefits
The preceeding was adapted from the MIT Sloan Management Review research
associated with addressing sustainability challenges cannot go report, “Joining Forces: Collaboration and Leadership for Sustainability.”
it alone. If they want to help shape the social and environmental The complete report is available for download online.

36 / Rotman Management Fall 2015

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 The Digitization
of Just About
Everything
The authors discuss three fundamental forces enabling
what they call ‘the second machine age’.
By Erik Brynjolfsson and Andrew McAfee
“Have you heard about ______ ?”
“You’ve got to check out ______ !”
SUCH PHRASES ARE THE STUFF OF EVERYDAY LIFE. They’re how we
learn about new things from our friends and colleagues, and how
we spread the word about exciting things we’ve come across.
Traditionally, such ‘cool hunting’ ended with the name of a band,
a restaurant or a movie. But in the digital age, sentences like
these frequently end with the name of a website or a new gadget;
and lately, they often refer to a smartphone application. The two
major technology platforms in this market — Apple’s iOS and
Google’s Android—have more than 500,000 ‘apps’ available.
Not long ago Matt Beane, a doctoral student at MIT and
a member of our Digital Frontier team, gave us just such a tip:
“You’ve got to check out Waze; it’s amazing.” But when we found
out Waze was a GPS-based app that provided driving directions,
we weren’t immediately impressed: our cars already had navi-
gation systems and our iPhones could give driving directions
through the Maps application. We could not see a need for yet
another ‘how-do- I-get-there?’ technology.
However, as Matt patiently explained, using Waze is like
bringing a Ducati to a drag race against an oxcart. Unlike tradi-
tional GPS navigation, it doesn’t tell you what route to your des-
tination is best in general; it tells you what route is best right now.
The idea for Waze originated years ago, when Ehud Shabtai
was given a PDA with an external GPS device pre-installed with
navigation software. His initial excitement quickly gave way to
disappointment: the product didn’t reflect the dynamic changes
that characterize real conditions on the road. Ehud decided to
take matters into his own hands. His goal? To accurately reflect
the road system, state of traffic, and all the other information rel-
evant to drivers at any given moment.
Anyone who has used a traditional GPS system will recog-
nize Ehud’s frustration. Yes, they know your precise location;
they also know about roads — which ones are highways, one-way
streets, and so on—because they have access to a database with
this information. But that’s about it. The things a driver really
wants to know about — traffic jams, accidents, road closures—es-
cape a traditional system.
Ehud recognized that a truly useful GPS system needed
to know more than where a car was on the road: it also needed
to know where other cars were, and how fast they were moving.
When the first smartphones appeared, he saw an opportunity,
founding Waze in 2008 along with Uri Levine and Amir Shi-
nar. The software’s genius is to turn all the smartphones running
it into ‘sensors’ that upload constantly to the company’s servers
their location and speed information. Therefore, as more and
more smartphones run the application, Waze gets a more com-
plete sense of how traffic is flowing throughout a given area. In-
stead of just a static map of roads, it also has current updates
rotmanmagazine.ca / 39
 Exponential improvement in computer gear is one of the
three fundamental forces enabling ‘the second machine age’.
on traffic conditions. Its servers use the map, these updates, and
a set of sophisticated algorithms to generate driving directions.
That Waze gets more useful to all of its members as it gets
more members is a classic example of what economists call a net-
work effect — a situation where the value of a resource for each of
its users increases with each additional user. And the number of
Wazers, as they’re called, is increasing quickly. As of June 2013,
Waze had 50 million users, according to Yahoo. This community
had collectively driven billions of miles and had typed in many
thousands of updates about accidents, sudden traffic jams, po-
lice speed traps, road closings, new highway exits and entrances,
cheap gas, and other items of interest to their fellow drivers.
In short, Waze makes GPS what it should be: a system for
getting where you want to go as quickly and easily as possible,
regardless of how much you know about local roads and condi-
tions. It instantly turns you into the most knowledgeable driver
in town.
The Economics of ‘Bits’
Waze is possible, in no small part, because of Moore’s Law and ex-
ponential technological progress. The service relies on vast num-
bers of powerful-but-cheap devices (the smartphones of its us-
ers), each of them equipped with an array of processors, sensors,
and transmitters. Such technology simply didn’t exist a decade
ago, and hence, neither did Waze; it only became feasible in the
past few years because of accumulated digital power increases
and cost declines.
Exponential improvement in computer gear is one of the
three fundamental forces enabling what we call ‘the second ma-
chine age’. Waze also depends critically on the second of these
three forces: digitization. In their landmark 1998 book, Infor-
mation Rules, economists Carl Shapiro and Hal Varian define
this phenomenon as “encoding information as a stream of bits.”
Digitization, in other words, is the work of turning all kinds of
information and media—text, sounds, photos, video, data from
instruments and sensors, and so on—into the ones and zeroes
that are the native language of computers and their kin. Waze,
for example, uses several streams of information: digitized street
maps, location coordinates for cars broadcast by the app, and
alerts about traffic jams, among others. It is Waze’s ability to
bring these streams together and make them useful for its users
that causes the service to be so popular.
We thought we understood digitization pretty well—based
on the work of Shapiro, Varian, and others, and our almost con-
stant exposure to online content; but in the past few years, the
phenomenon has evolved in some unexpected directions. It has
40 / Rotman Management Fall 2015
also exploded in volume, velocity and variety, and this surge in
digitization has had two profound consequences: new ways of
acquiring knowledge and higher rates of innovation.
Like many other modern online services, Waze exploits two
of the unique economic properties of digital information: such
information is non-rival, and it has close to zero marginal cost of
reproduction. In everyday language, we might say that digital in-
formation is not ‘used up’ when it gets used, and it is extremely
cheap to make another copy of a digitized resource.
Let’s look at each of these properties in a bit more detail. Ri-
val goods, which we encounter every day, can only be consumed
by one person or thing at a time. If the two of us fly from Boston
to California, the plane that takes off after us cannot use our fuel;
Andy can’t also have the seat that Erik is sitting in and can’t use
his colleague’s headphones if Erik has already put them on to lis-
ten to music on his smartphone. The digitized music itself, how-
ever, is non-rival: Erik’s listening to it doesn’t keep anyone else
from doing so, at the same time or later.
If Andy buys and reads an old hardcover copy of the collect-
ed works of science-fiction writer Jules Verne, he doesn’t ‘use
it up’; he can pass it on to Erik once he’s done. But if the two of
us want to dip into Twenty Thousand Leagues Under the Sea at the
same time, we either have to find another copy or Andy has to
make a copy of the book he owns. He might be legally entitled
to do this because it’s not under copyright, but he’d still have to
spend a lot of time at the photocopier. In either case, making that
copy would not be cheap; and a photocopy of a photocopy of a
photocopy gets hard to read.
But if Andy has acquired a digital copy of the book, with a
couple of keystrokes or mouse clicks, he can create a duplicate,
save it to a physical disk, and give the copy to Erik. Unlike pho-
tocopies, bits cloned from bits are usually exactly identical to the
original. Copying bits is also extremely cheap, fast, and easy to
do. While the very first copy of a book or movie might cost a lot to
create, making additional copies cost almost nothing, and this is
what we mean by ‘zero marginal cost of reproduction’.
These days, of course, instead of handing Erik a disk, Andy
is more likely to attach the file to an e-mail message or share
it through a cloud service like Dropbox. One way or another,
though, he’s going to use the Internet. He’ll take this approach
because it’s fast, convenient, and, in an important sense, essen-
tially free. Like most people, we pay a flat fee for Internet ac-
cess at home and on our mobile devices. If we exceed a certain
data limit, our Internet Service Provider might start charging
us extra, but until that point we don’t pay by the bit; we pay the
same no matter how many bits we upload or download. As such,
there is no additional cost for sending or receiving one more
chunk of data over the Net. Making things free, perfect, and in-
stant might seem like unreasonable expectations for most prod-
ucts, but as more information is digitized, more products will
fall into these categories.
Shapiro and Varian elegantly summarize these attributes by
stating that in an age of computers and networks, “Information is
costly to produce, but cheap to reproduce.” Instantaneous online
translation services take advantage of this fact. They make use of
paired sets of documents that were translated — often at consid-
erable expense — by a human from one language into another.
For example, the European Union and its predecessor bod-
ies have, since 1957, issued all official documents in all the main
languages of its member countries, and the United Nations has
been similarly prolific in writing texts in all six of its official lan-
guages. This huge body of information was not cheap to gener-
ate, but once it is digitized, it is very cheap to replicate, chop up,
and share widely and repeatedly. This is exactly what a service
like Google Translate does: when it gets an English sentence
and a request for its German equivalent, it essentially scans all
the documents it knows about in both English and German, look-
ing for a close match (or a few fragments that add up to a close
match), then returns the corresponding German text. Today’s
most advanced automatic translation services, then, are not the
result of any recent insight about how to teach computers all the
rules of human languages and how to apply them. Instead, they
are applications that do statistical pattern matching over huge
pools of digital content that was costly to produce, but cheap to
reproduce.
The Role of User-Generated Content
What would happen to the digital world if information were no
longer costly to produce? What if it were free, right from the
start? We’ve been learning the answers to these questions in
the years since Information Rules came out, and they’re highly
encouraging.
The old business saying is that, ‘time is money’, but what’s
amazing about the modern Internet is how many people are will-
ing to devote their time to producing online content, without
seeking any money in return. Wikipedia’s content, for example,
is generated for free by volunteers all around the world. It is by
far the world’s largest and most consulted reference work, but
no one gets paid to write or edit its articles. The same is true for
countless websites, blogs, discussion forums, and other sources
of online information. Their creators expect no direct monetary
reward and offer the information free of charge.
When Shapiro and Varian published Information Rules in
1998, the rise of such user-generated content had yet to occur.
Blogger, one of the first weblog services, debuted in August
1999, Wikipedia in January 2001, and Friendster, an early social
networking site, in 2002. Friendster was soon eclipsed by Face-
book, which was founded in 2004 and has since grown into the
most popular Internet site in the world. In fact, six of the ten most
popular content sites throughout the world are primarily user-
generated. All of this user-generated content isn’t just making us
feel good, by letting us express ourselves and communicate with
one another; it is also contributing to some of the recent science-
fiction-into-reality technologies we are seeing.
Siri, for example, improves itself over time by analyzing the
ever-larger collection of sound files its users generate when in-
teracting with the voice-recognition system. And Watson’s da-
tabase — which consisted of approximately two hundred million
pages of documents taking up four terabytes of disk space — in-
cluded an entire copy of Wikipedia. For a while, it also included
the salty-language-filled Urban Dictionary, but this archive of
user-generated content was removed after — to the dismay of its
creators — Watson started to include curse words in its responses.
Perhaps we shouldn’t be too surprised by the growth and
popularity of user-generated content. After all, we humans like
to share and interact. What’s a bit more surprising is how much
our machines also apparently like talking to each other. Machine-
to-machine (M2M) communication is a catch-all term for devices
sharing data with one another over networks like the Internet:
ATMs ask their banks how much money we have in our accounts
before letting us withdraw cash; when you search the popu-
lar travel site Kayak for cheap airfares, its servers immediately
send requests to their counterparts at various airlines, which
write back in real time without any human involvement; sensors
in semiconductor factories let headquarters know every time a
defect occurs; and countless other M2M communications take
place in real time, all the time.
According to a story in The New York Times, “The combined
level of robotic chatter on the world’s wireless networks . . . is like-
ly soon to exceed that generated by the sum of all human voice
conversations taking place on wireless grids.”
The Data Explosion
As we move deeper into the second machine age, digitization
continues to spread and accelerate, yielding some jaw-dropping
statistics. According to Cisco Systems, worldwide Internet
traffic increased by a factor of 12 in just the five years between
2006 and 2011, reaching 23.9 exabytes per month. An exabyte is a
rotmanmagazine.ca / 41
 Digitization has had two profound consequences: new ways
of acquiring knowledge and higher rates of innovation.
ridiculously big number — the equivalent of more than two hun-
dred thousand of Watson’s entire database. However, even this is
not enough to capture the magnitude of current and future digi-
tization: technology research firm IDC estimates that there were
2.7 zettabytes, or 2.7 sextillion bytes, of digital data in the world in
2012, almost half as much again as existed in 2011. And this data
won’t just sit on disk drives; it will also move around. Cisco pre-
dicts that global Internet Protocol traffic will reach 1.3 zettabytes
by 2016. That’s over 250 billion DVDs of information.
As these figures make clear, digitization yields truly Big
Data. In fact, if this kind of growth keeps up for much longer,
we’re going to run out of metric system. When its set of prefixes
was expanded in 1991 at the General Conference on Weights and
Measures, the largest one was yotta, signifying one septillion;
we’re only one prefix away from that in the ‘zettabyte era.’
The recent explosion of digitization is clearly impressive,
but is it important? Are all of these exa- and zettabytes of digital
data actually useful? They are incredibly useful. One of the main
reasons we cite digitization as a main force shaping the second
machine age is that it increases understanding by making huge
amounts of data readily accessible, and data are the lifeblood
of science. By ‘science’, we mean the work of formulating the-
ories and hypotheses, then evaluating them. Or, less formally,
guessing how something works, then checking to see if the guess
is right.
A while back, Erik guessed that data about Internet
searches might signal future changes in housing sales and pric-
es around the country. He reasoned that, if a couple is going
to move to another city and buy a house, they are not going to
complete the process in just a few days: they’re going to start in-
vestigating the move and purchase months in advance. These
days, those initial investigations take place over the Internet
and consist of typing into a search engine phrases like ‘Phoenix
real estate agent’ or ‘Phoenix two-bedroom house prices’. To
test this hypothesis, Erik asked Google if he could access data
about its search terms. He was told that he didn’t have to ask;
the company made these data freely available online.
Erik and his doctoral student Lynn Wu — neither of whom-
was versed in the economics of housing—built a simple statisti-
cal model to look at the data utilizing the user-generated content
of search terms made available by Google. Their model linked
changes in search-term volume to later housing sales and price
changes, predicting that if search terms like the ones above were
on the increase today, housing sales and prices in Phoenix would
rise three months from now. The simple model worked: in fact,
it predicted sales 23.6 per cent more accurately than predictions
42 / Rotman Management Fall 2015
published by the exsperts at the National Association of Realtors.
Researchers have had similar success using newly-available
digital data in other domains. After the 2010 earthquake in Haiti,
a team led by Rumi Chunara of Harvard Medical School found
that tweets were just as accurate as official reports when it came
to tracking the spread of cholera; they were also at least two
weeks faster. And Sitaram Asur and Bernardo Huberman of
HP’s Social Computing Lab found that tweets could also be used
to predict movie box-office revenue. They concluded that “this
work shows how social media expresses a collective wisdom
which, when properly tapped, can yield an extremely powerful
and accurate indicator of future outcomes.”
These are just a few examples of better understanding and
prediction — in other words, of better science — via digitization.
Hal Varian, who is now Google’s chief economist, has for years
enjoyed a front-row seat for this phenomenon. He also has a way
with words. One of our favourite quotes of his is, “I keep saying
that the sexy job in the next ten years will be statisticians. And
I’m not kidding!” When we look at the amount of digital data be-
ing created and think about how much more insight there is to be
gained, we’re pretty sure he’s not wrong, either.
In closing
Digital information isn’t just the lifeblood for new kinds of sci-
ence. Because of its role in fostering innovation, it is the second
fundamental force (after exponential improvement) shaping the
second machine age.
Waze’s founders realized that as digitization advanced and
spread, they could overcome the shortcomings of traditional
GPS navigation. They made progress by adding social and sen-
sor data to an existing system, greatly increasing its power and
usefulness. This style of innovation is one of the hallmarks of our
current time. It’s so important, in fact, that it is the third and last
of the forces shaping the second machine age.
Erik Brynjolfsson is the Schussel Family
Professor at MIT’s Sloan School of Manage-
ment and Director of the Center for Digital
Business. Andrew McAfee is associate director
of the Center for Digital Business at MIT.
They are co-authors of The Second Machine Age: Work, Progress, and Prosperity
in a Time of Brilliant Technologies (W.W. Norton & Company, 2014).
MASTER’S PROGRAMS FOR WORKING PROFESSIONALS

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 THE PATH TO
PRESCRIPTION:
Closing the Gap Between the Promise
and the Reality of Big Data
To extract the full value of their data investments,
organizations need to build tighter links between data analytics
and everyday business conversations.
By Bernardo Blum, Avi Goldfarb and Mara Lederman
DESPITE ALL THE HOOPLA AROUND BIG DATA these days, the fact is,
there is nothing dramatically new about having data at our fin-
gertips. Businesses and governments have always collected data
to varying degrees. What is new is that modern technology has
increased the types of data that can be collected and made it
cheaper, easier and faster to collect, store and analyze that data.
An immediate and obvious implication is that with better data
and faster technology, businesses can ‘do analytics’ better and
faster. A less obvious, but more important implication, is that,
with better data and new technologies, businesses should do
analytics differently.
A Scientific Approach to Business
About 25 years ago, the health care industry adopted what is now
known as ‘evidence-based medicine’. This approach recognized
that patient care decisions should be based on the results of rigor-
ous scientific studies, rather than a physician’s individual clinical
experience and/or beliefs. To be sure, physician judgement re-
mains a critical part of patient care: doctors interpret and evalu-
ate the evidence, determine which studies are most relevant to
a particular case, and help patients make difficult trade-offs.
However, medicine, as a field, determined that whenever possible,
decisions should be based on data and evidence rather than intu-
ition or personal beliefs. In short, the medical profession adopted
data-driven decision-making, and it did so because it led to bet-
ter outcomes for patients, at lower costs.
So, our question is, why is the business world struggling to
adopt data-driven decision-making? Why don’t we talk about
‘evidence-based business’?
For years, the business world has accepted — even celebrat-
ed — decisions based on intuition, gut instinct and lucky guesses.
Perhaps this is because businesses didn’t have the technological
capabilities to systemically collect and analyze data; perhaps it
is because they didn’t have the infrastructure to carry out ran-
domized experiments — the cornerstone of scientific research.
Or, perhaps it is because the speed of decision-making is faster
today, making it impossible to collect, analyze and interpret data
at a relevant pace.
Big Data — and the technologies that enable it — changes
all of this. Businesses now have access to enormous amounts of
rotmanmagazine.ca / 45
 Prescriptive analyses can deliver stark recommendations about
particular courses of action that an organization should take.
data — in many cases, data that is generated and stored in real-
time, and they have access to inexpensive (often free) software
programs that can quickly analyze this data. With so much eco-
nomic and social activity moving online, they also have access
to a platform for running experiments. In short, Big Data allows
companies to do analytics differently, enabling evidence-based
business. Of course, it takes some work to get there.
While many different types of data and analytical techniques
exist, it is helpful to consider three broad ways that organizations
can utilize the data they collect.
DESCRIPTIVE ANALYSES. The simplest way that companies can use
data is to describe, or ‘take stock’ of what is happening or has
happened. Descriptive analyses keep track of your key perfor-
mance indicators, typically consisting of simple statistical anal-
yses — tables, graphs, and charts. What was our year-over-year
change in sales? How many calls came into our call centre this
week? What was the average handling time per call?
This form of data analysis is sometimes called ‘dashboard-
ing’ because — like the dashboard of a car — it provides timely
and easily accessible information on your most important parts
and systems. Today, dashboarding is ‘table-stakes’ in any data-
literate organization, and as with a car’s dashboard, such anal-
yses are largely used to identify where problems may exist or
which areas need attention. While descriptive analyses may in-
form business decisions, on their own, they generally do not gen-
erate enough information to provide solutions.
PREDICTIVE ANALYSES. Predictive analyses use your organization’s
existing data — both structured and unstructured — to predict the
value of variables that you don’t possess, but would benefit from
knowing. For example, beverage companies predict sales for
each brand and package type in order to make production deci-
sions; retailers predict the number of customers that will shop in
their stores at Christmas time, to make hiring decisions; and hos-
pitals predict the number of incoming emergency room patients
so they can make staffing decisions.
Much of the enthusiasm around Big Data and advanced
analytics has centered on the potential for carrying out faster,
better and more reliable predictions. The popular press is awash
with now well-known examples of predictive analyses: Target
famously predicted which of its customers were likely to be preg-
nant; the Obama campaign predicted which voters were likely
46 / Rotman Management Fall 2015
to vote democrat (if they made it to the polls); and the Oakland
Athletics predicted which players were likely to generate the
most wins.
While it is indeed true that Big Data and advanced analyt-
ics techniques allow for greater predictive power, the basic ideas
behind predictive analytics haven’t changed dramatically. More-
over, the critical issue for most managers is not which predictive
algorithm to use; rather, it is identifying the metrics that are most
valuable for your business to predict, and determining how to act
on the output of the predictive exercise.
PRESCRIPTIVE ANALYSIS. Prescriptive analyses are different from
descriptive or predictive analyses in that they provide direct in-
sight into the consequences of different actions by uncovering
the key cause-and-effect relationships that impact the outcomes
your organization cares about. While they often involve similar
analytical techniques as descriptive and predictive analyses, they
require a more subtle and nuanced interpretation of the data.
Prescriptive analyses are about understanding what-
causes-what, and why. While a predictive analysis aims to pre-
dict the value of an outcome of interest (sales, hospital wait-
times), a prescriptive analysis aims to understand the factors
that determine that outcome, so that it can be influenced in the
organization’s favour. For example, a beverage company might
predict that one of its brands is unpopular with female buyers.
But, to figure out how to increase its popularity with female
customers, it needs to determine what is causing women not
to like the product. Is it the taste? The marketing? The distribu-
tion channels?
While prescriptive analyses are the most difficult to carry
out, they can deliver stark recommendations about particu-
lar courses of action that an organization should — or should
not — take.
The Path to Prescription
Prescriptive analyses are the underpinnings of an evidence-
based approach to business, but as indicated, they are difficult.
That’s because they require hard thinking — not just hard ana-
lytics. Following are three critical steps to getting started on the
path to prescription.
1. FOCUS ON WHY AND HOW, NOT JUST ON WHAT, WHO AND WHICH
Descriptive and predictive analytics are about the ‘what’, ‘who’
and ‘which’ of a business. A good dashboard will tell you things
like ‘what sales were last quarter’ or ‘which markets have grown
most quickly over the last year’. A good predictive model might
tell you ‘who is most likely to click on an online ad’, or ‘which of
your trucks will require servicing next’. To be sure, these are valu-
able uses of data, but organizations today should not be satisfied
just answering the what, who, and which: they should also be
probing deeper into the why and the how.
Consider the fundraising department of a large academic
hospital. The department likely has detailed data on all dona-
tions received to date, and some data on the demographics and
other characteristics of its donors. It also likely has data on its
own marketing, engagement and outreach activities, ideally in a
way that can be matched to particular donors. So, how should
the department use this data to grow its donor base and increase
donation amounts?
The department may begin by describing donation activity
over the past year: how much was raised? What was the average
donation amount? What was the average donation frequency? It
may build a profile of its donor base, including age, income, occu-
pation and hospital visits. It may want to distinguish donor types
— one-time versus monthly, and compare the characteristics of
the different types. It could go a step further and build a model
that predicts the likelihood that a one-time donor converts to a
monthly donor, or a model that predicts the likelihood that a do-
nor will increase her donation amount over time.
The output of these exercises would certainly help the team
better target its marketing and engagement efforts. However,
none of these analyses address the problem the fundraisers really
want to solve: what actions can they take to increase donations?
For this, they need to know why some people donate and
others don’t; why some people donate year after year, while oth-
ers stop; and why some people increase their donations over
time, while others decrease. More specifically, they want to
know whether donor behaviour is influenced by actions they
themselves have taken — or could take in the future. Did that re-
cent TV campaign result in higher donations? Did offering tours
of the hospital lead people to donate? Are email campaigns ef-
fective? Answers to each of these questions would prescribe a
particular set of actions.
On the surface, these questions don’t seem that difficult to
answer. Take the TV campaign. Couldn’t the team measure the
volume of donations that came in the month before the cam-
paign ran, and the month after? Unfortunately, it’s not that
simple: perhaps the campaign ran during the holiday season,
when people tend to be more charitable; or, perhaps it ran in the
month before the deadline for tax receipts for charitable giving.
If the data show higher donations after the campaign, can the
fundraisers really conclude that the campaign caused the incre-
mental donations?
Consider the case of hospital tours. A naïve analysis might
compare donations by those who went on a tour and those who
didn’t. Suppose the data indicate that those who went on the tour
donated twice as much, and were more likely to convert from
one-time donors to monthly donors: can the fundraisers con-
clude that hospital tours increase donations? Or, could it be that
more committed donors are simply more interested in touring
the hospital?
One might question whether all of this analysis is really
necessary: couldn’t the fundraisers just ask people why they
did or didn’t donate? Not that long ago, if you wanted to know
why your customers were behaving in a particular way, you
would run a focus group, or perhaps send out a survey, ask-
ing questions like, ‘Do you like our cars?’ If people answered
affirmatively, you would then ask, ‘Why do you like our cars?’
Participants might say things like, ‘Your cars are safe, and I like
safe cars. That is the most important thing to me’. You might
then ask, ‘What else do you like?’ ‘They get great mileage and
they’re environmentally friendly, and I like to know that my car
is safe and environmentally friendly.’ Problems arise, however,
when these seemingly-meaningful answers turn out to have
come from an individual who owns a car that is neither safe
nor environmentally friendly!
We have long understood that people don’t necessarily
say what they think, and that actions can be more revealing
about true motivations. Indeed, the difference between what
people say and what they do can be substantial. What prescrip-
tive analysis does is infer, or uncover, why people behave in
the way they do, based on the decisions they are observed to
have made.
2. KNOW WHERE YOUR DATA COMES FROM
Knowing your data well is always important; but as our examples
show, knowing the process — the set of decisions and behaviours
that is generating the data — is critical to performing a prescrip-
tive analysis.
rotmanmagazine.ca / 47
 Statistician Abraham Wald’s work provides a particularly
salient example of the importance of understanding the behav-
iour that generates your data. During World War II, aircraft re-
turning from bombing raids would often be riddled with bullets
from anti-aircraft fire. Parts of the aircraft could be reinforced
with stronger armor, but only up to a point: too much armor
would make the aircraft too heavy. Thus, the objective was to fig-
ure out where to put the extra armor.
Wald offered a simple recommendation: fortify the planes in
the areas without bullet holes. This recommendation was coun-
terintuitive to the engineers who had been focusing on examin-
ing the parts of the planes that had been hit by bullets. But, it is
in fact quite sensible (and obvious) once you consider the process
that generated the data the engineers were studying.
How did the planes return to base? By staying in the air.
Therefore if a plane had a bullet hole, and it returned, the loca-
tion of that bullet hole did not need to be fortified. Since it is dif-
ficult to aim anti-aircraft fire, Wald assumed that the planes that
did not return to base were shot in the places where the returning
planes were not hit. By understanding the process that gave rise
to the data in the first place, he was able to suggest an effective
plan of action. Similarly, returning to the hospital fundraising ex-
ample, understanding the process that led some donors to tour
the hospital while others did not is critical to understanding how
to interpret the two groups’ behaviour.
These same ideas apply to modern businesses. Consider
eBay, arguably one of the most successful and enduring internet
companies. The site — which offers an online platform for buy-
ers and sellers to interact — has established a reputation system
whereby buyers can rate the sellers they purchase from. The re-
sulting ‘reputation score’ is the fraction of reviews that are posi-
tive. New buyers can see the ratings that previous buyers have
left, and are able to use this information to determine whether
a seller is trustworthy. Such a mechanism is important, because
without face-to-face interaction, trust is particularly difficult to
establish online.
A few years ago, eBay managers noticed something curious:
seller reputations were overwhelmingly positive. Indeed, most
sellers had never received negative feedback, and less than half
of one per cent of all feedback was negative. As a leading data-
driven organization, eBay wondered whether these reputation
scores were reliable. One possibility was that the buyers were
overwhelmingly happy; but an alternative was that unhappy
48 / Rotman Management Fall 2015
buyers were simply not giving reviews at all.
Digging further into its data, eBay discovered that formal
disputes — whereby a buyer appeals to eBay about a seller —
were twice as common as negative reviews. It also had some data
on emails between buyers and sellers, and discovered that emails
with negative or nasty words were six times as common as negative
reviews. Together, this made eBay question whether its reputa-
tion system was working. If disputes between buyers and sellers
were happening, why weren’t they showing up in the reputation
data? Did the reputation metric need to be redesigned?
In order to figure out how to proceed, eBay considered the
process that generated the seller feedback data. It realized that
while the metric measured the percentage of a seller’s reviews
that were positive, it missed an important step: the fact that buy-
ers first decide whether to give the seller a review. eBay realized
that an unhappy buyer actually had two choices: give a negative
review, or give no review.
If the buyer gave no review, how would eBay know that
they were unhappy? Given that eBay had data on everything
that takes place on its site, it came up with a proxy for being a
very unhappy buyer: it began to identify buyers who stopped
coming to the site after a transaction. eBay tracked the behav-
iour of these users and discovered that a handful of sellers was
generating non-returning buyers. Not surprisingly, it found that
these were the same sellers who generated disputes and nasty
emails; yet, their average feedback score was still high. Recog-
nizing that these sellers were hurting their company, ebay set
out to develop ways to direct buyers to the sellers that made
people return to the site, and to direct them away from those
who generated non-returning customers.
Importantly, only by understanding the process that generated
the reputation score did eBay realize that the score was not serving
its intended purpose.
3. THE BURDEN OF PROOF
Adopting an evidence-based approach to business requires you
to determine what, in fact, is admissible as evidence. It is widely
accepted that the best evidence comes from controlled experi-
ments, which allow one to isolate the impact of a single variable
on the outcome of interest. As economic and social activity con-
tinues to migrate online, businesses can, at relatively low-cost,
run experiments that can deliver stark conclusions about which
actions impact key organizational outcomes. Google, Facebook,
Data and analytics are only valuable if they are used to generate insights,
learning and evidence that inform business decisions.
Amazon and many other software-focused companies run
thousands of experiments each year. As examples, Google ex-
perimentally tests improvements to its search algorithm before
implementing them system-wide, Facebook continually tests ad
campaigns to determine the most effective types of advertising
on its site, and Amazon uses experiments to test changes to its
webpage design.
Such experiments are not limited to online businesses.
Consider our hospital fundraising group, and their assessment
of whether hospital tours generate donations. The finding that
people who went on tours donated twice as much as those who didn’t
should not pass the burden of proof, because it is possible —
even probable — that the individuals who chose to take the tour
were already more engaged with the hospital and more likely to
donate. Suppose, instead, that the fundraisers invited potential
donors to sign-up for tours, and then randomly chose half of
those who signed up to go on a tour, while the other half was told
that there was insufficient space that year. Now, the fundrais-
ers could determine whether the tour was the reason why those
individuals donated more — since both those who went on the
tour and those who didn’t had expressed interested in the tour.
This set-up would provide clear evidence on the value of offering
tours for potential donors.
Unfortunately, organizations can’t always run such experi-
ments. Much of the data companies have comes from regular
day-to-day operations, and much of the analytics companies
carry out is based on this type of data. Such data can still be
incredibly useful. The key question managers need to ask is
whether the relationships uncovered in these data can be inter-
preted as if they were generated from an experiment. Often they
can, and a few pointed questions will help to uncover key issues
that need to be considered.
For example, in the case of hospital tours and donations, the
fundraisers should be asking questions like, Did the people who
went on the tour also give more in the previous year? Was the
tour only offered to the hospital’s largest donors? Did the timing
of the tours coincide with other marketing efforts by the hospital?
Are the demographics of those who went on the tour different
than those who didn’t? If the answers to these questions — all
of which can be uncovered in the hospital’s data — suggest that
those who took the tour are otherwise pretty similar to those
who didn’t take the tour, the case can be made that tours posi-
tively impact donations.
Closing the Gap
Big Data has the potential to revolutionize the way organiza-
tions make decisions. But data, on its own — or even combined
with cutting-edge technologies and highly skilled data scien-
tists — isn’t enough. Data and analytics are only valuable if they
are used to generate insights, learning and evidence that inform
business decisions — and this means that managers have a criti-
cal role to play.
It is up to managers to identify where analytics can add value
and improve decision-making. This means that analytics need
to start as business questions that are relevant to the decisions
faced by managers. For this to happen, managers must have a ba-
sic level of data literacy so that they can determine which types
of decisions could be improved by data analytics. In addition, as
we’ve seen throughout our examples, interpreting data requires a
deep understanding of the behaviours and decisions that gener-
ated the data in the first place.
Because of their deep domain expertise and their involve-
ment with day-to-day decision making, managers are uniquely
positioned to help data analysts understand the nuances and
details of where a company’s data comes from. Managers and
analysts must learn to work together, marrying business exper-
tise with data expertise, so that analytics are done purposefully
and usefully.
If analytics are not driven by business decisions, the role of
analytics in your business will be underwhelming at best, and de-
structive at worst. On the other hand, if your analytics are moti-
vated by the key decisions and challenges facing your managers,
then Big Data truly has the potential to transform your organiza-
tion for the better.
Bernardo Blum is an Associate
Professor of Business Econom-
ics at the Rotman School of
Management. Avi Goldfarb
is the Ellison Professor of
Marketing at the Rotman School. Mara Lederman is an Associate Professor
of Strategic Management at the Rotman School. Together, they teach the
Rotman School’s Executive Program in Data Literacy. Rotman faculty research
is ranked #4 globally by the Financial Times.
rotmanmagazine.ca / 49
 PORTRAIT OF
A LEADER:
Sheryl Sandberg
Sheryl Sandberg personifies Total Leadership by being authentic,
acting with integrity and pursuing innovation.
By Stewart D. Friedman
“I CAN’T CODE; AND I’M NOT VERY TECHNICAL,” acknowledged Sheryl
Sandberg, COO of Facebook and, at the time, the lone woman
on the company’s board of directors. She was addressing a tech-
savvy audience gathered at the Grace Hopper Celebration of
Women in Computing conference. Sandberg had come not to
opine on the future of social media, but to encourage the women
in the audience to think differently about their work, their per-
sonal lives, and, more generally, the growing importance of tech-
nical skills.
The 42-year-old leader owned the stage, her voice com-
manding respect, even as she admitted her own deficiency: “I
would be better at my job if I were more technical.” The speech
was an inspiring mix of stories and statistics, ranging from the
dearth of women in corporate leadership to the oppression of
girls around the world, delivered in a sometimes humorous, al-
ways humble tone.
As a business leader, Sandberg has been described as ‘tough’
and ‘fearless’; but her manner was warm, open and friendly. It
was a speech she gave regularly after Facebook CEO Mark Zuck-
erberg convinced her to become the company’s chief operating
officer in 2008. Even before becoming a household name in 2013
with her book, Lean In, Sandberg was much more than merely a
COO; she was the public face of her company, and the one re-
sponsible for many tasks that would usually be handled by a CEO
— if he weren’t a publicity-averse 27-year-old who preferred cod-
ing to management. Hiring, firing and the nitty-gritty of opera-
tions, growth and revenue were skills Sandberg had honed in her
previous job, as vice president of global online sales and opera-
tions at Google.
Although the jury may still be out on the future of Facebook,
Sandberg is credited with helping Zuckerberg transform the site
into a real business. In 2008, the year she arrived, Facebook had
70 million users, but not much revenue. As of this writing, it is
worth more than $100 billion, counts more than 1.2 billion active
users, and earned more than $1 billion in net income on $6.9 bil-
lion in revenue over the past 12 months.
After she was hired, Sandberg set up a weekly meeting with
senior executives to address the issue of profitability, laying out
two paths: charge users or sell ads. Soon she had Facebook’s leaders
agreeing that advertising — delivered in a subtle way that didn’t
violate individual privacy — was the way forward. But Sandberg
didn’t just make Facebook profitable: she cemented her image as
a leader that people want to work for.
She spent her first two weeks introducing herself to existing
Facebook employees. Her ‘office’ is a desk pushed together with
the desks of Zuckerberg and three other executives in an open
space; anyone can walk right up and talk to her. In the male-
dominated culture of Facebook, Sandberg isn’t afraid to be an
outspoken voice for women and the issues they face in the work-
place: she established a Women’s Leadership Day that would
rotmanmagazine.ca / 51
 Although the jury may still be out on the future of Facebook, Sandberg
is credited with transforming it into a real business.
encourage female executives to talk about challenges they face
as they climb the corporate ladder, and share solutions; and her
best-selling book, Lean In, is filled with practical advice for wom-
en — drawing on illustrations from her life and backed up by cur-
rent Social Science — for how to succeed at the highest levels by
not taking a back seat. As an executive, bringing her ‘whole self ’
to work means acknowledging that both she and her employees
have lives outside of the office, and that the two domains need
not be in perennial conflict.
The Road to Facebook
Sandberg entered Harvard as a freshman in 1987 and, in part be-
cause she thought she would go into public service, majored in
Economics. When she earned the top score on her Public Sector
Economics midterm and then repeated the feat on the final, she
won the attention of the professor, Larry Summers, who was
later to become U.S. Treasury secretary and president of Harvard
University. When she and a fellow student founded the group
Women in Economics and Government, Summers signed on
as faculty adviser. Later, he volunteered to serve as Sandberg’s
senior thesis adviser, helping her tackle a project on how eco-
nomic inequality contributes to spousal abuse.
Sandberg graduated Phi Beta Kappa in 1991 and planned to
stay at Harvard for law school. But when Summers became chief
economist at the World Bank that year and asked her to join him
as a research assistant, she took the job. Part of her work includ-
ed traveling around India for a project to curb leprosy. “There is
nothing like working on something like that to really make you
think about what you’re doing with your time, and what you have
to give back,” she has said.
After two years at the World Bank, she returned to Harvard,
this time to the business school. After graduating in 1995, she,
like many recent MBAs, took a consulting job. But when Sum-
mers called again in 1996 — after he had become the deputy sec-
retary of the Treasury — she jumped at the chance to return to
public service as his chief of staff.
Although Sandberg looks back on her time in Washington as
formative — years that taught her to think systematically about
problems — she left politics after the Democrats lost the 2000
presidential election. She sorely needed a change, both person-
ally and professionally: her first, brief marriage had ended, and
while she was ready to leave politics, she still wanted to do some-
thing that would make an impact. During her time at the World
Bank, she had seen the impact technology could have on people’s
lives; so she headed to Silicon Valley.
In 2001, she joined Google as the business-unit general
manager of the 300-person start-up. It was there that she made
her mark as a business leader. After making AdWords a money-
maker for the company, she then focused on a second innova-
52 / Rotman Management Fall 2015
tion: AdSense, a program in which Google places advertisements
on external websites in return for a small percentage of the rev-
enues. Sandberg was also a key player in the development of
Google.org, the company’s billion-dollar philanthropy effort.
Upon her arrival at Google, she started creating divisions. A
colleague from the time told Jessi Hempel of CNNMoney, “We
were a ten-person team and we were thinking, ‘Why are you go-
ing to hire [more people for] that?’ And she said, ‘Trust me, we
need to think not about now, but where are we going to be in five
steps and ten steps.’” Sandberg has a remarkable ability to ‘look
around corners’, as Google’s David Fischer terms it. “While the
rest of us were planning three quarters ahead, she was thinking
about jumping ahead a number of years.”
While others praised her leadership achievements, for years
she felt like a fraud, explaining away her successes by saying, for
example, that she had gotten into Harvard because her parents
had helped with the application essay, that she had scored a job at
the World Bank because she had taken a class with the right pro-
fessor, and so on. One day in 2005, just shy of seven months preg-
nant, she was sitting in her office at Google when the phone rang.
It was a doctoral student working on a research project on how
women ‘do it all’. Sandberg suggested that someone who already
had a child might be a better interview subject, but the student
was adamant, suggesting that she and her husband had certainly
worked out most of the details — who would leave work early, etc.
“Two minutes into it,” she confessed recently, “I’m crying; tears
pouring down my face.” Even with all her skills — and, as a well-
paid executive, with the resources to hire help — Sandberg feared
taking on her new role as a mother.
Today, Sandberg and her second husband, Dave Goldberg
— a fellow Harvard undergrad and long-time friend before they
married in 2004 — have two children: a seven-year-old son and
a four-year-old daughter, and her career has shown no signs of
slowing. [EDITOR’S NOTE: Dave Goldberg died tragically
while on vacation with his family on May 1 of this year. In a
Facebook post on June 3, 2015, Sandberg wrote: “When trage-
dy occurs, it presents a choice: you can give in to the void—the
emptiness that fills your heart... or you can try to find mean-
ing. When I can , I want to choose life and meaning.”]
After having children, Sandberg steadily climbed Fortune
magazine’s list of the 50 Most Powerful Women in Business —
and that was before she wrote a New York Times best-seller and
founded a social movement alongside it. This isn’t to say that
motherhood hasn’t changed her approach to work or her com-
mitment to making the world a better place. Rather, it has
forced her to focus in new ways on her priorities in each realm of
her life.
For example, after the birth of her first child, she shifted her
standard 7:00 to 7:00 daily time-in-the-workplace schedule to
9:00 to 5:30, working online at home early in the morning and
in the evening. She also didn’t shrink from finding ways to meet
certain needs; for example, she would pump breast milk during
conference calls. Sandberg learned to ruthlessly prioritize to get
everything done, and now she urges her colleagues to do the
same. “If there are five projects you want to do, you need to pick
the three most important.”
Women of Silicon Valley
Sandberg is quick to talk to friends and colleagues about the chal-
lenges working women face and the ways she has managed them.
She does this not only in performance reviews and job interviews,
but also at the monthly Women of Silicon Valley gatherings she
hosts at her home in Menlo Park.
The Principles of Total Leadership
The Total Leadership approach is about improving performance
in all parts of life – work, home, community and self – by
finding mutual value among them. There are three principles
of this approach, and for each principle there are skills for
enacting them.
BE REAL: Act with Authenticity by Clarifying What’s Important
1. Know what matters: You know how important each of the
different aspects of your life is to you.
2. Embody values consistently: You are able to be yourself
wherever you are, wherever you go. You act in ways that are con-
sistent with your core values.
3. Align actions with values: You make choices about how to
spend your time and energy in ways that match what you really
care about.
4. Convey values with stories: You tell stories about the key
people and events that have shaped your values in a way that
binds you to others.
5. Envision your legacy: You have a vision for where you are
headed and the legacy you want to leave.
6. Hold yourself accountable: You hold yourself accountable
for doing what is most important to you in your life.
BE WHOLE: Act with Integrity by Respecting the Whole Person
7. Clarify expectations: You communicate with people impor-
tant to you about expectations you have of each other, and you
make sure these expectations are clear.
8. Help others: You look for opportunities to help many different
people.
9. Build supportive networks: You are able to convince people
to support you in your goals.
These gatherings began, she told me, when journalist An-
drea Mitchell came to give a book talk at Google. “I knew her
from DC, so I asked her, ‘What are you doing afterwards? I’d love
to have you over for dinner. Could I invite my book club so we can
talk about your book?’ And she said, ‘Sure’.”
“I realized, wow, I have Andrea Mitchell coming to my house!
I shouldn’t just invite the ten women in my book club. So, I invited
some more friends, and we sat in my living room; there were prob-
ably 20 of us. She talked to us about her life and the challenges she
faced. I realized how infrequently I was ever in a room with that
many women, talking about women; so I started inviting more
guests like Andrea—friends, colleagues from work, women I met.
I continue to do these dinners roughly once a month.”
Guests have included boldface names such as PepsiCo
10. Apply all your resources: You use skills and contacts from
different parts of your life to help meet any need or goal.
11. Manage boundaries intelligently: You are able to delineate
and maintain boundaries between the different parts of your life.
12. Weave disparate strands: You are able to weave together
the pieces of your life so that it has coherence.
BE INNOVATIVE Act with Creativity by Experimenting
with How Things Get Done
13. Focus on results: You focus on the results of your efforts to
accomplish goals and are flexible about the means for achieving them.
14. Resolve conflicts among domains: You seek creative solu-
tions to conflicts rather than sacrificing one part of life for another.
15. Challenge the status quo: You challenge traditional assump-
tions about how things are done, experimenting to make things
better whenever possible.
16. See new ways of doing things: You are willing to question
old habits and innovate in managing life’s demands.
17. Embrace change courageously: You look forward to
change—seeing it as an opportunity—rather than fear it.
18. Create cultures of innovation: You look for opportunities to
encourage others to learn new ways of doing things.
Rate yourself by writing next to each skill a number from 1 to 5, with
1 meaning you ‘Strongly Disagree’ that you possess this skill and 5
indicating you ‘Strongly Agree’. You can also do this assessment
for free online at qualtrics.com/totalleadership. It takes four min-
utes, and you’ll get a full report on what your assessment tells you
about how to further develop your skills.
- Stewart Friedman, from Leading the Life You Want: Skills for Integrating
Work and Life (Harvard Business Review Press, 2014)
rotmanmagazine.ca / 53
CEO Indra Nooyi, Harlem Children’s Zone founder Geoffrey
Canada, and lesser-known speakers whose causes Sandberg
wants to support, such as Somaly Mam, a Cambodian activist
who was sold into slavery as a child and now runs a foundation
that fights human trafficking. Inspired by Mam’s talk, Sandberg
asked her guests who would help organize a fundraiser. Every
hand went up, and the subsequent event raised more than $1
million for the foundation.
Mam is only one beneficiary of Sandberg’s philanthropy.
After working at the World Bank, where she focused on ridding
India of leprosy, and the U.S. Treasury department, where she
worked on African relief efforts, Sandberg has formulated a vi-
sion of what types of aid most help those in need. She tries to
target her philanthropy outside of her own local neighborhood,
on children who need food and water, and looks for systemic
solutions to problems. Feeding a child does no good if the child
dies from drinking contaminated water, so she aids projects
that develop the infrastructure that can pull entire countries out
of poverty.
Skills for Integrating Work and Life
In Sheryl Sandberg, we see a woman with a thoroughly modern
way of enacting what it means to be real, to be whole, and to be
innovative — the key principles of what I call ‘Total Leadership’
(see p.53). Following are the skills that she most exemplifies in her
approach to bringing Total Leadership principles to life.
CONVEY VALUES WITH STORIES. Sandberg can pinpoint events in her
life that have played a meaningful role in the development of her
values, and she allows others to gain insight into her authentic
self by sharing her stories. She displays both confidence and vul-
nerability by opening herself up to others, laying the foundation
Six Role Models of Total Leadership
In Leading the Life You Want, I profile six exemplary leaders, each
of whom personifies the Total Leadership skills for integrating work
and life. Following is a brief introduction to them, noting which of
the skills they demonstrate.
Tom Tierney
Tierney is chairman and co-founder of The Bridgespan
Group and the former CEO of Bain & Co. Throughout
his career, he has sought creative ways of fitting together the
domains of his life — including learning from his children about
what really matters — and has built organizations that encourage
personal growth by, for example, rewarding results and not face
time, and by motivating people with an inspiring vision of contribut-
ing to the greater good. Principles he personifies: Envision Your
Legacy, Weave Disparate Strands, See New Ways of Doing Things
Sheryl Sandberg
As COO of Facebook, Sandberg has redefined what it
means to be a leader. She is a powerful advocate for new
54 / Rotman Management Fall 2015
for building relationships based on mutual honesty, appreciation,
and trust.
Sandberg encourages men and women to think through their
own positions on hiring, promotion, and the politics of everyday
life in organizations. She also gives specific advice for how to deal
with obstacles, such as salary negotiations. She has learned how
to be open about her own insecurities and her tendency to yield
too quickly. With self-deprecating humour, she describes how
her views on women and work have evolved as a result of her per-
sonal experience.
In telling stories in which she is the protagonist, she be-
comes more accessible to others, for listeners can see themselves
in her stories. This identification makes it easier both to trust and
to follow her as a leader. When one person is willing to reveal an
awkward moment in which she felt slighted, even degraded, a
dialogue is sparked. Despite her own rise to the top of the corpo-
rate world, she too has experienced the problems of inequality;
she ‘gets it’, and it is this vulnerability that enables her to capture
attention and argue for change.
BUILD SUPPORTIVE NETWORKS. Sandberg is able to convince people
to support her in reaching important goals. Her career and her life
outside of work testify to the many ways in which she has tapped
into her personal and professional networks. With her passion —
and her reputation as someone who goes out of her way to con-
nect people — she convinces others to dedicate time and energy
to support her. And the support comes, because others trust her,
share her vision of the future, and want to help her realize it.
When she arrived at Facebook — as a non-techie in a senior
executive role at a technology company — Sandberg had to make
it easy for people to approach her so that she could understand
their needs and respect what was on their minds. That’s essential
models for women’s advancement in society, ideas she conveys with
the confidence of a seasoned storyteller. Her candor about the chal-
lenges she faces in resolving conflicts among different parts of her
life — as an executive, a catalyst for social change, a friend, a wife,
a sister and a mother — and about the non-traditional means she
employs for doing so, make her a persuasive role model. Principles
she personifies: Convey Values with Stories, Build Supportive
Networks, Resolve Conflicts Among Domains
Eric Greitens
This humanitarian, author and founder of a non-profit
organization has experienced many lifetimes’ worth of
adventure. After completing his PhD, he forsook high-paying career
opportunities for a chance to become a Navy SEAL, earning a Purple
Heart for his service in Iraq. After a difficult search for a meaningful
next step, he founded The Mission Continues, an organization that
helps wounded war veterans heal by guiding them to be of service
in their communities. Principles he personifies: Hold Yourself Ac-
countable, Apply All Your Resources, Focus on Results
 “While the rest of us were planning three quarters ahead,
[Sheryl] was looking ahead a number of years.”
for building support. The physical arrangement of her office —
open for ready access — was a good start. And spending the first
couple of weeks personally introducing herself to employees was
smart, too.
The pursuit of change almost always meets resistance.
People are most effective in building support when they are ask-
ing for help to make things better—not for themselves, but for
others. Sandberg is now garnering global support for the Lean
In movement in part because it is intended to help other women
succeed.
RESOLVE CONFLICTS AMONG DOMAINS. Sandberg seeks creative solu-
tions to conflicts to meet goals in different parts of life. She does
not accept the notion that engaging in one area of her life must
always require sacrifices in the others. Instead, she looks for ways
to create win-win solutions that meet multiple goals.
When she first decided to speak publicly about her life and
to reach out to audiences of other working women, she was told
that ‘women in business don’t talk about being women’, and that
doing so would derail her career. Conventional wisdom held that
talking about herself as a woman and mother (and sharing her
awareness of her inner struggles) would undermine her authority
in the corporate world. But she believed that the chance to en-
courage and teach others outweighed the personal risks; so she
tried it, turning the apparent conflict into an opportunity.
Even those with all the wealth in the world, great intelli-
Michelle Obama
The self-described Mom-in-Chief has always said that her
daughters are her first priority, even if this stance rankles
those who would have her do more in seeking broader political and
cultural change. In making sure her own children were receiving the
most nutritious food possible, she began to advocate for better nutri-
tion for all kids through the national initiative Let’s Move!
Principles she personifies: Align Actions with Values, Manage
Boundaries Intelligently, Embrace Change Courageously
Julie Foudy
Foudy was part of the iconic U.S. soccer team that garnered
Olympic gold in 1996, silver in 2000 and gold again in 2004.
Off the soccer field, she has led an array of organizations that promote
athletics for young people, empower young women and advocate for
social causes. Her success is an outgrowth of her passion for soccer, her
insistence on pursuing the most fruitful expression of her talents and her
ability to fuse all the important parts of her life. Principles she personi-
fies: Know What Matters, Help Others, Challenge the Status Quo
gence, and loads of social support must make difficult choices in
certain moments. To be innovative is to be on the lookout for new
ways to get things done that make sense to you and those who
matter most to you—not every minute of every day, but over the
course of a life.
In closing
Sheryl Sandberg is a new breed of executive. For her, it’s not
about yielding to either/or; instead, it’s about searching for both/
and. Along the way, she has struggled, adapted, and felt intense
guilt, but she is actively pursuing four-way wins over the long run.
No matter where you are on the arc of your life, she offers a model
for how to shape your journey by being authentic, building sup-
portive networks, and continually seeking ways to resolve ten-
sions among the different aspects of your life.
Stewart D. Friedman is the Practice Professor of Management
at the Wharton School at the University of Pennsylvania and
the founding director of the Wharton Leadership Program and
Wharton’s Work/Life Integration Project. He is the author of
Leading the Life You Want: Skills for Integrating Work and Life
(Harvard Business Review Press, 2014), from which this is adapted. Learn
more at totalleadership.org.
Bruce Springsteen
Springsteen has said he creates music “to make people
happy, and feel less lonely, but also [to be] a conduit
for a dialogue about the events of the day, the issues that impact
people’s lives, personal and social and political and religious”. With
his hard-won clarity of purpose, it follows naturally that he makes
clear what he expects from the people around him. He’s called ‘The
Boss’ for a reason. Principles he personifies: Embody Values
Consistently, Clarify Expectations, Create Cultures of Innovation
- Stewart Friedman, from Leading the Life You Want
rotmanmagazine.ca / 55
 Retweet
This:
The Power of a Multi-Dimensional
Approach to Social Media
What kind of message is your organization (perhaps unintentionally)
signaling via its online communications?
By Eileen Fischer and Rebecca Reuber
A KEY CHALLENGE facing entrepreneurial ventures—and any com-
pany with a game-changing new offering — is to reduce audience
uncertainty about the quality of a new product or service. Thank-
fully, recent studies indicate that certain types of communica-
tions are more effective than others in achieving this goal. For
example, in an IPO prospectus, narrative content that portrays a
firm as ‘an aspiring leader with a track record’ has been shown
to reduce uncertainty, as reflected in issue-valuation premiums.
Researchers have also found that press releases emphasiz-
ing the factors that differentiate a firm from its competitors at-
tract the most attention from analysts and mainstream media,
thus increasing the chance that investors will provide resources.
Currently, however, we lack insight into the potential impact
of the stream of brief communications conveyed via social
media. We recently set out to determine what kinds of com-
municative approaches attract audience responses that af-
firm quality and distinctiveness, thereby contributing to positive
impressions among important stakeholders that can lead to
firm growth.
The Realm of the Twittersphere
We decided to focus our research on Twitter, for two reasons.
First, given our goal of understanding the impact of social media
communications that differ in type from those studied previous-
ly, Twitter represents an ‘extreme case’, as it requires content of
not more than 140 text characters. Each specific Twitter message
therefore features text that is extremely brief relative to what is
possible on conventional media, as well as other social media
channels such as Facebook and YouTube. And because Twitter
communications are primarily text-based, they lack the rich di-
versity of the ‘symbolic communications’ that are possible when
people interact. Second, growing numbers of entrepreneurs are
using Twitter to communicate with target audiences. Studies in-
dicate that more than 50 per cent of INC 100 firms have used it,
and a survey of close to 2,000 North American entrepreneurial
firms showed that 72 per cent had embraced it — up from 58 per
cent just a few months earlier.
To conceptualize the types of communication that are pos-
sible on Twitter, we compared and contrasted them with other
rotmanmagazine.ca / 57
 ‘Unique Attribute Cues’ indicate what is unique about
your company’s offerings, relative to competitors.

forms of communication (see Figure One). We refer to com-
munications that are enabled by social media such as Facebook
and Twitter as ‘communicative streams’. This term captures
the reality that individual posts on a social media platform can
be seen as part of a larger body or ‘stream’ of such posts that a
firm makes over time. As Figure One indicates, communica-
tive streams share some characteristics with ‘formal narratives’,
some with ‘symbolic actions’, and some with neither. Like for-
mal narratives, communicative streams are composed of text,
although the text is much briefer. However, unlike formal nar-
ratives that are issued at a single point in time, communicative
streams and symbolic actions both consist of multiple messages
conveyed over a span of time.
To begin our research, we composed a sample of eight en-
trepreneurial firms (see Figure Two). We chose to focus only on
business-to-business firms, since prior research has tended to
do so, and we wanted to compare our findings with the existing
literature. The firms in our study are identified in this article by
pseudonyms.
We purposely included firms whose products varied in
terms of the extent to which they were digitized. They ranged
from those whose products were completely digital and de-
livered online to those whose products were not at all digi-
tized or delivered online. We used this criterion because we
wanted to take into account the possibility that norms of com-
munication might vary by industry, and that audiences might
engage more or differently with firms whose businesses were
more ‘virtual’.
Content Categories
After analyzing the content of the companies’ tweets, some con-
sistent patterns emerged. We were able to identify eight ‘content
codes’, grouped into three thematic categories.
1. Quality
Tweets corresponding to this theme are most directly relevant to
reducing uncertainty related to quality in the eyes of audiences,
and many companies posted a range of tweets in this category.
We identified three types of content as conveying the theme
of quality:

A Comparison of Types of Communications

FORMAL NARRATIVES COMMUNICATIVE STREAMS SYMBOLIC ACTIONS

Format A single written text conveyed at Multiple, brief written texts Talk, written texts, and artifacts
a single point in time conveyed over time conveyed over time

Content elements A ‘story’ with a narrative subject
striving to achieve a goal, with
forces enabling or constraining
goal achievement conveyed
within the text
Signals embedded in texts Signals embedded in talk, texts
posted on a particular platform and artifacts displayed during
Wide: any interested audience interpersonal interactions with
member can access stakeholders

Breadth of potential Wide: any interested audience Wide: any interested audience Variable: only targeted audience
audience reach member can access member can access members can access actions
conveyed during interactions
and on site

Stability of access Relatively permanent: audience
over time members can access at any
point after document is created
Relatively impermanent: access
to older posts is increasingly
difficult
Variable in permanence: some
‘actions’ can be repeatedly ac-
cessed; others, such as conver-
sations, are fleeting and can only
be experienced once

Customization of Low Moderate to low High

the communications

FIGURE ONE

58 / Rotman Management Fall 2015

 Characteristics of the Firms in our Sample
Level of Social media to which publicly available posts are
Product/service product/service Age of made by the firm, its founder, or employees acting
Firm Pseudonym offering digitization company on the firm’s behalf

BookkeepCo Online bookkeeping High 12 years Twitter, Blog, User forums, LinkedIn
services

ConnectorCo Community Medium < 2 years Twitter, Blog, LinkedIn

management

GiftwareCo Corporate giftware Low 12 years Twitter, Blog, YouTube, Flicker, LinkedIn

WebsiteCo Website design High < 2 years Twitter

PublicityCo Public relations Medium 15 years Twitter, Blog, LinkedIn

AppwareCo Application High < 3 years Twitter, YouTube, LinkedIn

development
software

VenCapCo Venture capital Low 12 years Twitter, Blog, LinkedIn

VideoCo Video production Medium < 1 year Twitter, Blog, YouTube, LinkedIn

FIGURE TWO

FIRM REPUTATION CUES. Examples of tweets that were considered
to signal a company’s reputation included those that signified
achievements or recognition of the company. For instance, Ap-
pwareCo publicized the fact that it had been ranked as ‘an
up-and-coming firm’ by a website that reports on the industry
in which it competes: “AppwareCo named by IDC as one of
the Top 10 companies in mobile & wireless to watch today —
[link]”. Companies further indicated their reputation by tweet-
ing about instances when they were featured in the business
press. For example, GiftwareCo noted: “Wow — GiftwareCo
featured in the Globe & Mail’s Report on Business [link].”
There has been considerable prior literature on the reputa-
tions of entrepreneurial firms, establishing that firm-level repu-
tations lower uncertainty with respect to quality and can make
companies more attractive to audiences such as investors, cus-
tomers, suppliers, and employees. Collectively, tweets that indi-
cate that a company has been recognized or honoured thus help
to signal that the firm is of high quality.
MANAGEMENT EXPERTISE CUES. These are tweets suggesting that
a company’s managers or staff have the competencies that are
relevant to their business. Based on research emphasizing the
importance of perceptions of management team competence
and professionalism in judgments made by important external
resource providers, we posit that such tweets have the potential
to help convey the company’s quality.
For example, VenCapCo tweeted: “VenCapCo-Blog: Is the
credit crunch ending?: The credit crunch is starting to thaw a
snick...” This tweet is typical of posts signaling expertise in that
it links to the company’s blog, where a full analysis of the topic
can be offered. It is also typical in that it is directly relevant to the
industry in which the company competes.
Tweets that signal reputation also often identify areas of
expertise. For example, AppwareCo signaled its founders’ ex-
pertise in mobile commerce, as well as the company’s growing
reputation among business journalists, in the following tweet:
“Check out @AppwareCo CEO’s @BNN_TV interview today
with PayPal GM about #mcommerce [link].”
PRODUCT/SERVICE VALUE CUES. The third type of quality-focused
tweets relates directly to the products and services provided
by companies. Tweets in this category either announce some
new, value-added service or product or highlight the value of
an existing product or service. For example, BookkeepCo fre-
quently announced enhancements to its offering via Twitter, as
in the following post: “But wait … there’s more! BookkeepCo now
supports VAT/Tax numbers for International clients: [link]”.
In another example, WebsiteCo indicates the value of its
design work by retweeting praise received from one of its cli-
ents: “RT @Client: Your beautiful #Client website design was
noticed on this list: [link].” Collectively, tweets that are grouped
into this theme suggest that the company and its offerings are
of good quality, and that the company as a whole is staffed by
highly-skilled individuals.

rotmanmagazine.ca / 59
2. Relational Orientation
A second identified theme was content conveying a warm, rela-
tional orientation towards the audience. We grouped two con-
tent codes into this theme:
STAKEHOLDER RECOGNITION CUES. These sometimes draw atten-
tion to some new initiative or achievement on the part of a
stakeholder connected to the company. For example, Connec-
torCo recognized a funding achievement made by a firm within
its network: “Congrats to ConnectorCo member EnergySavvy!
RT @TechCrunch EnergySavvy Raises $315 K For Home Energy
Smarts Site [link]”
In other cases, this type of recognition simply directs at-
tention towards stakeholders’ ongoing activities. For example,
GiftwareCo drew attention to the hiring practices of a company
that is part of a professional network to which the founder of
GiftwareCo belongs, tweeting: “Great post on @parceldesign’s
hiring best practices on @clearfit’s blog [link] ….” Stakeholder
recognition can also take the form of thanking. For example,
WebsiteCo thanked a client who included the company in
a list of start-ups deemed worthy of support: “@erin_bury
Thanks for including #WebsiteCo in your #can30 slide of
Canadian startups to support.”
OPPORTUNITIES FOR DIRECT INTERACTION. In addition to recogniz-
ing stakeholders, some companies used Twitter to promote op-
portunities for direct interaction with them. Many of the best
examples of this came from BookkeepCo, which frequently pro-
motes such opportunities. For example, in the following tweet,
it invited people to attend a local event that its staff was attend-
ing: “We here at BookkeepCo think this event is going to rock:
[link] …. In Toronto next Tuesday? You should come!” Connec-
torCo also routinely used Twitter to organize interaction op-
portunities, in particular monthly events called ‘ConnectUps’.
The following tweet invites people to attend, saying: “Need a
startup fix? Attend #ConnectUp tonight & hear from local start-
ups @DamnHeels @WeGoWeGo @EndloopStudios.” Regard-
less of whether people actually take advantage of the opportu-
nities being promoted, such tweets convey an impression of the
organization as one that welcomes engagement with outsiders.
3. Distinctiveness
While the first two categories relate to signals that reduce
quality-related uncertainty, the final category is more relevant
to signaling what is distinctive about the firm, which might dif-
ferentiate it from competitors. Several of the companies in our
sample frequently issued three types of tweets that could col-
lectively convey their distinctiveness:
UNIQUE ATTRIBUTE CUES.These cues indicate what might be
unique about a company’s offerings relative to competitors. For
60 / Rotman Management Fall 2015
example, BookkeepCo differentiated itself by highly individu-
ated attention to customers. In one post, it tweeted: “When’s the
last time you did something utterly surprising for a customer or
friend? The world needs more of this: [link] ….” The link is to a
blog post about a kind act from one friend to another, serving to
reinforce the company’s positioning as one that treats customers
as unique and valued individuals.
VALUE CUES. These cues contribute to creating an impression of a
company’s distinctiveness by reflecting its values. For example,
PublicityCo used its Twitter account to draw attention to causes
or charities the company supported. After the earthquake in
Haiti, it issued a number of tweets similar to the following: “Help
disaster relief charity ShelterBox Canada @SBCanada send aid
to #Haiti. More info at [link].”
CULTURE CUES. A third category of distinctiveness-related tweets
provides insight into a firm’s internal culture. Often, such tweets
portray the company as having a light-hearted side, as in the fol-
lowing from BookkeepCo: “@ashok, one of our dev team stalwarts,
is a man of many talents. Presenting: “Beer’O’Clock with Ashok”
[link] ….” In other cases, tweets might give a sense of mutual sup-
portiveness amongst staff. During the 2010 Winter Olympics, a
staff member of PublicityCo was a torchbearer for a segment of the
torch relay. The company then issued a series of tweets about this,
including the following: “Big surprise at the office this morning —
@trevorb’s mom flew in to see him run the torch.” Such tweets have
the potential to signal and amplify what sets the company apart,
both in terms of its offerings and its culture.
In addition to these catagories of cues, one of our key over-
all findings was that positive affect, or emotion, in tweets con-
tributes to an overall positive impression of the company. In
some cases, tweets convey positive affect through word choice.
ConnectorCo frequently used the term ‘awesome’, an adjective
conveying positive sentiment. For example, it tweeted: “Awe-
some story about entrepreneurs connecting on @ConnectorCo
[link] ….” Occasionally, tweets used sentence structure or punc-
tuation (especially exclamation marks or emoticons) to convey
positive affect. An example is the following tweet where Pub-
licityCo announced the first blog posting by its founder: “Really
(head scratch)? Really (emphatic)! @[foundername]’s first blog
post. Really (with conviction).”
The notion that positive affect can matter in new venture
narratives has received support from research on entrepreneur-
ial passion. This research indicates that ‘displays of passion’ can
be influential in convincing people to invest in or otherwise be-
come engaged with a firm.
Four Distinct Communication Streams
To identify specific types of communicative streams, we com-
pared firms with regard to:
 Multi-Dimensional communication entails a mix of signals of quality,
relational orientation and distinctiveness, as well as signals of positive affect.
• the extent to which the content of their tweets reflected the
three themes we identified;
• the extent to which they conveyed positive affect; and
• the volume of tweets issued.
Our analysis points to four distinct types of communicative
streams. Note that, while these streams were enacted by these
firms, we recognize that they might not have been conscious
and deliberate.
1. SPARSE. The first type of communicative stream is charac-
terized by a very low tweet volume compared to other firms.
Only one firm, VideoCo, exhibited this approach. Despite the
owner’s stated intentions to use Twitter to grow her business,
VideoCo issued only one tweet that mentioned the company
by name over the five-month period under consideration. By
virtue of having a low volume of tweets, a firm has few op-
portunities to signal its quality, its relational orientation, or
what makes it distinctive. We label this type of communicative
stream ‘Sparse’ because the sheer paucity of communications
seems to leave audiences with little basis for affirming quality
or differentiation.
2. DISTINCTIVENESS FOCUSED. The second type of stream is char-
acterized by a low proportion of total tweets conveying quality,
a low-to-moderate proportion conveying relational orienta-
tion, and a high proportion signaling distinctiveness. Compa-
nies with a high proportion of tweets signaling distinctiveness
tended also to have a high proportion conveying positive
affect. WebsiteCo and PublicityCo both exhibited this type
of stream.
3. QUALITY FOCUSED. The third type of communicative stream
displays a high proportion of tweets with content that falls within
the ‘quality’ theme, and a low proportion signaling relational
orientation, distinctiveness or positive affect. In our sample, the
companies enacting this third type of communicative stream
also posted a comparatively low overall volume of tweets. Ap-
pwareCo and VenCapCo both exhibited this type of stream.
4. MULTI-DIMENSIONAL. This final type of communicative stream is
characterized by a high proportion of tweets signaling quality, re-
lational orientation and distinctiveness and a relatively high pro-
portion conveying positive affect. In our sample, firms that en-
acted this type of stream also posted a comparatively high overall
volume of tweets. We call this type of stream ‘Multi-Dimension-
al’ because it entails a mix of signals of all three kinds (quality,
relational orientation and distinctiveness), as well as signals of
positive affect. GiftwareCo, ConnectorCo, and BookkeepCo en-
acted this type of communicative stream.
So, which approach best affirms the quality and distinctive-
ness of a firm? The patterns of results we observed suggests that
the firms enacting a Multi-Dimensional communicative stream
attracted the highest levels of audience responses affirming
their quality. Surprisingly, firms that adopted a Quality-Focused
stream (AppwareCo and VenCapCo) received very few explicit
audience responses affirming quality. Of the very small number
of tweets about each of these two firms, the majority merely dis-
seminated information. The firms that enacted a Distinctive-
ness-Focused stream (WebsiteCo and PublicityCo) were equally
likely to elicit audience responses that affirmed their quality.
This pattern of results suggests that audiences do indeed re-
act differently to different types of communicative approaches,
and that the outcome of quality affirmation requires a stream
with a high volume of tweets and a high proportion conveying
each of the three themes we identified—quality, relational ori-
entation and distinctiveness, with a sizable proportion of tweets
reflecting positive affect.
In closing
Based on our study, firms that enact a Multi-Dimensional com-
municative stream — which entails a comparatively large volume
of tweets, a high proportion of which signal quality, relational ori-
entation and distinctiveness as well as positive affect—are likely
to receive higher levels of audience responses that affirm quality
than are firms enacting any other type of communicative stream.
This finding is preliminary evidence that some kinds of con-
tent are more appropriate than others on Twitter. We hope that
our findings can help entrepreneurs — and innovators every-
where — become more consciously aware of what they are seek-
ing to convey via Twitter, and of the potential value of a Multi-
Dimensional approach. If nothing else, we hope to sensitize lead-
ers as to what they may, unintentionally, be signaling via their
online communication.
Eileen Fischer is the Anne and Max Tanen-
baum Chair of Entrepreneurship and Family
Enterprise and Professor of Marketing at the
Schulich School of Business at York University.
Rebecca Reuber is a Professor of Strategic
Management at the Rotman School of Management. The paper on which this
article is based appeared in the Journal of Business Venturing. Rotman faculty
research is ranked #4 globally by the Financial Times.
rotmanmagazine.ca / 61
 ALL

AB
OA R D
 All Aboard
Making Board
Effectiveness a Reality
Is your board of directors effective? A veteran director finds many
boards wanting — and considers how to improve them.
By Jonathan Bailey and Tim Koller
BOARDS OF DIRECTORS HAVE ALWAYS represented the shareholders
in publicly-traded companies, validating financial results, pro-
tecting their assets, and counseling the CEO. It’s a tough and
demanding responsibility, requiring individual directors to learn
as much as they can about a company and its operations so that
their insights and advice can stand up alongside those of execu-
tives. That, at least, is the ideal.
One litmus test of whether or not the ideal is coming any-
where close to being the reality these days is the growth and in-
volvement of ‘activist investors’. Simply put, if boards were do-
ing their jobs, there would be no activist opportunities. That’s
according to David Beatty, Conway Chair of the Clarkson
Centre for Board Effectiveness at the Rotman School of Man-
agement. However, they are apparently doing badly enough that
there has been huge growth in activist firms, says Beatty, who
interprets that growth as “a direct comment on boards and their
past performance.”
He ought to know. In addition to his academic position, Be-
atty has served on more than 38 boards in five different jurisdic-
tions and has been board chair at eight publicly-traded compa-
nies. He currently serves on three boards — one as chair — and
is the leader of the Directors Education Program offered by the
Institute of Corporate Directors and the Rotman School’s
Executive Programs. In a recent interview, he discussed the role
of corporate boards in guiding and overseeing public companies,
offered recommendations for directors, and shared his thoughts
on the CFO’s role in working with boards.
What do you see as the most important change in the way
corporate boards function?
Frankly, we used to be pretty lazy about boards. They were large-
ly seen as being ‘rewards’ for past service. Boards were large
and often perfunctory in the performance of their duties. I have
been on the board of a large financial institution in a developing
rotmanmagazine.ca / 63
 Boards of public companies have been doing badly enough
that there has been huge growth in activist firms.
economy that had more than 50 directors—and the main event
was always the lunch that followed the three-hour meeting.
But those days are over. Partly because of external circum-
stances, collapses and stock-market failures, there is a growing
sense that boards have to be smaller, harder working, and more
expert. And they have to be able to commit the time to do their
work. The last study I saw reported that directors were spending
an average of around 240 hours per year across the S&P 500. That
includes time spent at home studying, committee time, and board
time. That number should be at least 50 per cent greater — and if
a potential director can’t put in 300 to 350 hours a year, she or he
shouldn’t take the job.
Even 300 hours per year has to be compared with the 3,000
hours that each member of a management team devotes to his or
her work. And most managers these days have spent a lifetime
working in their industry. Even a ‘gifted amateur’ director who
works hard is not likely to be able to add much value to an expe-
rienced management team regarding day-to-day business. The
only place outside directors can really add value — aside from po-
licing and oversight functions — is in offering a different perspec-
tive on the competitive environment and the changes in that envi-
ronment. That’s where their general business judgment comes in,
helping management think through strategy and specific objec-
tives for three to five years down the line. That’s where directors
have the best chance to make a difference.
On average, how well are the boards of directors doing at most
large public companies?
Not well. Think of the long list of disgraceful performances at
the beginning of this century; the collapse of the financial sector,
which destroyed an aggregate of $1.2 trillion in shareholder value;
and the more recent collapse of the mining sector, which oblit-
erated over $900 billion in shareholder value. You have to ask,
where were the directors?
64 / Rotman Management Fall 2015
Boards of public companies have been doing badly enough
that there has been huge growth in activist firms. As a direct re-
sult, it’s not uncommon for the CEO to assume control of the
agenda and be closed-minded about the potential value the
board can add. CFOs actually have a unique capability to unlock
the potential of the board: the CFO knows the numbers, under-
stands the business, and lives with the top-management team
but does not ‘own’ the business in the way the operating manag-
ers do. The CFO is therefore in a unique position to work with
and help the other members of the C-suite understand the needs
of the board, and to work towards making it effective.
How do you see the role of the board chair?
Benjamin Zander once observed that he suddenly discovered,
at age 45, that as conductor of the Boston Philharmonic Or-
chestra he was the only person on the stage who didn’t make a
sound. His job, he realized, was to create great things out of the
individual talents that were in front of him. That is a great de-
scription of the job of a board chair: to bring out the very best in
the talent around the table, both the directors and the managers.
A chair is responsible for bringing individuals with the right mix
of talent together, utilizing their time to the greatest possible ef-
fect, and ensuring that the tone around the boardroom is open,
transparent and productive.
Talent and time are relatively easy components of the chair’s
task; the tough part is the third ‘T’: sensing and managing the
tone of the board. Tone breaks down into two components: trust
and tension. There has to be trust around the board table among
the directors themselves, and there has to be trust between the
board and management. At the same time, there has to be a cer-
tain tension between the board and the CEO, and the CEO and
his or her team, since they have different jobs to do. The job of
the chair is to make sure everyone comes together to make beau-
tiful music.
 The first executive I would add to any
North American board would be the CFO.
Speaking of that tension, do you think the chair and CEO
should be separate roles?
Definitely. I can’t see any excuse for the U.S. practice. The fun-
damental difficulty is that the same person can’t do both jobs:
it is too difficult for the fox to oversee the henhouse. And that
kind of problem can spread much deeper, if a CEO fills other
board positions with friends and colleagues who always agree
with her or, for example, appoints her personal accountant to
chair the Audit Committee.
The practice isn’t likely to change in the United States, but
there are work-arounds. A strong ‘lead director’, for example, can
take control of the situation and ensure, over time, that a board
is independent of management. But it’s an even tougher job than
normal, given the dual role of the CEO and the chair. If the lead
director can’t establish an effective open, transparent, creative
interface between the board and management and has done
pretty much everything she could, then she should resign; that’s
exactly what I’ve done in those circumstances.
How long should individual directors expect to serve on a
board?
It’s very hard to get rid of directors, so I am definitely in favour of
term limits, whatever the cost. The UK has decided that in pub-
licly-traded corporations, nine years is enough; they can extend
that to 12, but from nine years on, a director can’t sit on the Audit
Committee, the Nominating Committee or the Compensation
Committee, so her functional utility drops by about 60 per cent,
and typically she just leaves.
That also brings up the question of board evaluations. This
is a practice that’s grown up over the past decade, where boards
formally sit down and appraise themselves. That can be a pa-
per-driven appraisal, and it could be done in-house or by third-
party experts.
When I’m the chair of a company, I tend to alternate between
paper and personal. Every year, I sit down with each director and
run through an extensive agenda of questions about the three
Ts: the board’s talent, use of time and tone. Every second year,
I supplement that with a six-page questionnaire that inquires
in more detail about the functioning of the board. I then use a
third party to collate those results and report to the governance
committee so that any critique of the chair can be included in
the results.
Peer evaluations are not very common, and can often be
problematic. The basic purpose is an open and honest appraisal
of colleagues against certain performance standards. The peer
evaluation is designed to be helpful, not harmful, to individu-
als. If somebody is clearly underperforming, it’s the chair’s job
to figure that out, seek the advice of other senior directors, and
then act.
As chairman, I’ve asked two directors to leave major
boards, and it’s a miserable job. But in both instances, I felt that
the benefits of having that person continue were greatly over-
whelmed by the potential costs. As a chair, I no longer use peer
evaluations, relying instead on continual contact with my fel-
low directors.
How can a board decide whether a company is making the
right trade-offs between its short-term performance and its
long-term health?
This is another topic that I would raise with the chair during in-
camera meetings. Say you’re coming out of a one-and-a-half-day
strategy session, leading to decisions on capital expenditures and
a competitive way forward, and you have anxiety about the tim-
ing. So, at the in-camera meeting, ask, ‘Did anybody else feel that
these investment decisions were being shaped more from a share-
price perspective over the next six months than what’s in the lon-
ger- or medium-term interests of the company?’ Just putting it out
there as a topic for discussion can be a very powerful tool.
rotmanmagazine.ca / 65
 Interestingly, in Canada, family-controlled companies
that are publicly owned have significantly outperformed the
rest of the market [see The Distinct Challenges of Family-
Firm Boards, below]. It’s kind of intuitive that they would have
a longer investment horizon — you don’t invest in your kids’
education for the next quarter. By their nature, CEOs of family-
controlled businesses think longer term than the hired gun you
bring in from outside to be the CEO and pay with a lot of options.
The average tenure of an external CEO in the U.S. is around five
years, so of course he or she is thinking shorter term. You get
what you pay for.
Happily, most other markets in the world are family con-
trolled, so short-termism may be an endemic disease only in the
U.S., the UK and some parts of Canada. It is built into our system,
The Distinct Challenges of Family-Firm Boards by Matt Fullbrook
After more than 10 years of measuring and rating board effective-
ness in widely-held Canadian publicly-traded companies, the
Clarkson Centre for Board Effectiveness (CCBE) published a
report in 2013 about the performance of family-controlled
corporations. Our key finding surprised many people: over the
15-year period from 1998 to 2012, Canadian publicly-listed family
firms outperformed the S&P/TSX Composite Index by a total of
25 per cent.
Given that family-firm boards are run quite differently from
those of widely-held companies, this outcome encouraged us
to reconsider some of our core assumptions about what consti-
tutes ‘good corporate governance’. We wanted to understand
how that impressive performance was achieved, and we now
believe the answer is that a longer-term perspective is quite
literally baked into family firms’ DNA.
Published annually, our Board Shareholder Confidence Index
(BSCI) measures boards’ adoption of recognized best practices
and transparent communication. BSCI scoring metrics are chal-
lenging for even the most cutting-edge issuers; but for family
firms—whose approach to governance is so different—it is simply
not possible to achieve a high rating. For example, using the 2014
BSCI criteria, having a ‘dual class share structure’ and a few (but
not a majority of) non-independent directors — typical for family-
owned firms — loses a candidate up to 17 points right off the bat,
automatically tying them for 50th place on the ranking.
In 2014, the highest ranked family-controlled corporation in
the BSCI was Maple Leaf Foods Inc. (MFI), which ranked 46th
out of 242 issuers. MFI did reasonably well because it has adopted
practices more typical of a widely-held issuer than a family firm.
For example, the only non-independent director on its board is the
CEO and controlling shareholder, Michael McCain. After MFI, the
next highest ranked family firm was Saputo Inc., in 101st place.
Given that Canadian family firms are among the best
performers in the country — and also appear to be relatively
resistant to major blow-ups — the fact that they were consistently
66 / Rotman Management Fall 2015
and we’ve fallen into the trap of measuring and compensating
CEOs against ‘the market’. Fortunately, we’re now also hiring
more from inside than outside — by a ratio of about 70 to 30 for
the S&P. That’s a huge plus, because it means you don’t have to
go into the market to attract, retain and motivate these gifted po-
tential CEOs. But as long as we have options, we’re probably not
going to get away from short-termism.
What should the CFO’s role be with respect to the board?
I have a radical proposition: I’m a fan of the English system,
where there are more executives on the board than just the CEO:
and the first executive I would add to any North American board
would be the CFO. That would give the CFO certain specific
responsibilities with respect to his or her relationships with the
ranking towards the bottom of our ranking deserved urgent atten-
tion. The result: the world’s first family-firm board rating.
In 2014, we interviewed directors and executives represent-
ing 21 family-controlled and publicly-listed issuers, and found
enough evidence to support the creation of a new family firm
board effectiveness index, which we named The Long View —
reflecting the clear advantage that family firms have in avoiding
the temptations of short-term gains. The Long View will measure
family firms against criteria that are specifically tailored to their
governance realities, providing a framework to compare them
against each other, rather than against the norms of widely-
held issuers.
The process of developing the ranking began with a philo-
sophical adjustment, as many BSCI criteria reflected generally
accepted governance concerns, including the beliefs that:
• Highly independent boards and committees help to ensure
appropriate and impartial oversight of strategy, operations
and management;
• Enhanced disclosure of executive compensation leads to
a level of rigour that can withstand external scrutiny; and
• Majority voting policies provide minority shareholders
with greater influence over the composition of the board
of directors, who are their key representatives.
For our inaugural ranking, we selected 24 criteria against which we
scored 37 Canadian family firms. Some criteria from our original
ranking were included without any adjustment, while others were
included with slightly different definitions or thresholds; still more
were developed specifically for The Long View. The full methodol-
ogy can be downloaded from our website: rotman.utoronto.ca/
FacultyAndResearch/ResearchCenters/ClarksonCentrefor-
BoardEffectiveness
audit committee, as well as with the board chair and other direc-
tors. It would also significantly enhance the quality of decision
making around the board table over the medium term, and em-
power the CFO to have an independent point of view—not nec-
essarily in conflict with the CEO, but simply to have an honestly
transmitted perspective on the company.
Where that doesn’t happen, I’d encourage CFOs to think
about their relationship with directors from the director’s point
of view — and how they can help directors do their job better.
Certainly, a CFO should let the CEO know she was planning to
do this, but she could reach out to directors independently and
ask them what they feel about the quality of the material com-
ing from her department. Are the numbers just too intense? Do
they want more synthesis of what’s going on? Would they like
Following are three key areas where the The Long View is criteria
differs materially from our original ranking for publicly-held firms.
1.CEO/Chair Split is Not Required. The trend of splitting these
roles has proliferated across Canada over the past 20 years, but as
indicated, it is not the norm with family firms: approximately 65 per
cent have either chosen not to split these roles or have appointed
a non-independent family member to serve as Chair of the board.
Our interviews revealed that this is because they believe a family
member — as a representative of the controlling entity — is best
positioned to guide the board in its strategic decision making.
Although they are less likely to split these roles, family firms are
deeply concerned about the inherent conflict-of-interest that this
structure presents. As a result, most have appointed an indepen-
dent Lead Director, and have empowered this individual to fully
monitor and ensure the independent operation of the board.
2. Director Interlocks Are Acceptable. A ‘director interlock’ oc-
curs when two directors sit on two different public boards together.
Both of our ratings allow for no more than one director interlock
per board, in order to receive full marks; but in the case of The Long
View, there are no limits on interlocks between affiliated public
issuers. For example, if two directors sit on the board of a family
firm as well as the board of its publicly-listed subsidiary, this does
not count against their rating. Only those firms with more than one
director interlock with non-affiliated corporations receive a deduc-
tion in The Long View.
In our interviews, family firm board members explained that
it is often of great benefit for them to have a small number of
directors who sit on multiple affiliated boards. This arrangement
helps to ensure that the strategic and financial interests of each
entity are suitably aligned. It also enables a more efficient flow of
information throughout the group of companies. As opposed to
interlocks between widely-held corporations — which can pres-
ent the risk of decisions being made in the interests of an entirely
more in-depth analysis? The CFO has the numbers and the in-
telligence, and understands the business without emotionally
‘owning’ it.
David R. Beatty, C.M., O.B.E.,
is Conway Director of the
Clarkson Centre for Board
Effectiveness and Adjunct
Professor of Strategic Manage-
ment at the Rotman School of Management. He has served on over 35 Boards
and has been Chair of eight publicly-traded companies. Currently, he serves as
a Director of FirstService Corporation, Walter Energy and Canada Steamships
Lines. He was the founding Managing Director of the Canadian Coalition for
Good Governance. Jonathan Bailey is a consultant in McKinsey’s New York
City office, where Tim Koller is a principal. The next Director’s Education
Program is being offered in October at the Rotman School of Management.
separate entity — interlocks within a family firm’s larger corporate
structure can present a governance benefit.
3. Regular Meetings Without Management. Allowing direc-
tors to meet without management present is a simple yet highly
effective governance mechanism. According to many people we
spoke to, it may be the single-most important practice to ensure
that family firm boards make effective and independent deci-
sions. For The Long View, credit is given as long as independent
directors meet without management at every full board meeting.
If the board holds a strictly transactional meeting — i.e., to simply
approve a single item that has already been discussed — we
do not expect the board to hold an ‘in camera’ session without
management.
In closing
As with our first BSCI rating in 2002, the inaugural Long View
scores will not be published, in order to provide sufficient op-
portunity for us to communicate further with family firms and
determine how to improve the rating. In January 2016, the results
of the second Long View survey will be published on the CCBE
website.
Over time, The Long View will evolve, as the BSCI has, to
include new and more nuanced criteria that represent the ever-
changing landscape of corporate governance. In coming years,
it is our hope that family firms will no longer be frowned upon
with respect to their corporate governance. We also intend to
incorporate the lessons we learn from these organizations into
the broader discussion of corporate governance for the benefit
of all businesses.
Matt Fullbrook is Manager of the Clarkson Centre for Board Effectiveness
at the Rotman School of Management.
rotmanmagazine.ca / 67
 The systemic challenges we face are beyond the reach of existing
institutions. We sorely need more system leaders.
By Peter Senge, Hal Hamilton and John Kania
WITH THE PASSING OF NELSON MANDELA in 2013, the world celebrat-
ed a remarkable life. But the spotlight on Mandela’s accomplish-
ments relegated to the shadows much of the reason that he has
had such a lasting impact — in South Africa and beyond. Above
all, Mandela embodied a ‘system leader’: someone able to bring
forth collective leadership. In countless ways, he undertook
interventions aimed at bringing together the remnants of a di-
vided country to collectively face common challenges and build
a new nation.
At no time in history have we needed such leaders more. The
systemic challenges we face are beyond the reach of existing in-
stitutions and their hierarchical authority structures. Problems
like climate change, destruction of ecosystems, growing scarcity
of water, youth unemployment, and embedded poverty and in-
equity require unprecedented collaboration between organiza-
tions, sectors — and even countries.
Sensing this need, countless collaborative initiatives have
arisen over the past decade. Yet more often than not, they have
floundered — in part because they have failed to foster collective
leadership within and across the collaborating organizations. In
this article we will attempt to demystify what it means to be a sys-
tem leader, and to continue to grow as one.
Core Capabilities of System Leaders
Although they differ widely in personality and style, genuine
system leaders have a remarkably similar impact: over time,
their profound commitment to the health of the whole radiates to
nurture similar commitment in others. Their ability to see real-
ity through the eyes of people very different from themselves
encourages others to be more open, as well; and they build re-
lationships based on deep listening, so that networks of trust
and collaboration begin to flourish. They are so convinced that
something can be done that they don’t wait for a fully developed
plan, freeing others to step ahead and learn by doing. Indeed,
one of their greatest contributions can come from the strength
of their ignorance, which gives them permission to ask obvious
questions and to embody an openness and commitment to their
own ongoing learning.
As system leaders emerge, situations previously suffering
from polarization and inertia become more open, and organi-
zational self-interest becomes re-contextualized, as people dis-
cover that their own and their organization’s success depends
on creating well-being within the larger systems of which they
are a part.
Following are three core capabilities that system leaders use
to foster collective leadership.
1. THEY SEE THE LARGER SYSTEM. In any complex setting, people
typically focus their attention on the parts of a system that are
most visible from their own vantage point. Helping people see
the larger system is essential to building a shared understanding
of complex problems. This understanding enables collaborating
organizations to jointly develop solutions that are not evident to
any of them individually, and to work together for the health of
the whole system rather than pursuing symptomatic fixes to in-
dividual pieces.
rotmanmagazine.ca / 69
 Problems like climate change, youth unemployment, and inequity
require unprecedented collaboration between organizations.
2. THEY FOSTER REFLECTION AND GENERATIVE CONVERSATIONS.
Reflection means thinking about our thinking, holding up the
mirror to see the assumptions we carry into any conversation
and appreciating how our mental models may be limiting us.
Deep, shared reflection is a critical step in enabling groups of
organizations and individuals to ‘hear’ a point of view differ-
ent from their own, and to appreciate — emotionally as well as
cognitively — each other’s reality. This is an essential doorway
for building trust where distrust had prevailed, and for fostering
collective creativity.
3. THEY SHIFT THE COLLECTIVE FOCUS FROM REACTIVE PROBLEM SOLV-
ING TO CO-CREATING THE FUTURE. Change often begins with condi-
tions that are undesirable, but artful system leaders help people
move beyond just reacting to these problems to building posi-
tive visions for the future. This typically happens gradually,
as leaders help people articulate their deeper aspirations and
build confidence based on tangible accomplishments achieved
together. This shift involves not just building inspiring visions
but facing difficult truths about the present reality and learn-
ing how to use the tension between vision and reality to inspire
truly new approaches.
Gateways to System Leadership
Watching people grow as system leaders has shown us the
depth of commitment it requires and has clarified the particu-
lar gateways through which budding system leaders begin their
developmental journeys. Those unwilling to pass through the
following gateways are unlikely to make much progress in em-
bodying their aspirations.
RE-DIRECTING ATTENTION. Real change starts with recognizing that
we are part of the systems that we seek to change. As a result,
this first gateway entails seeing that the problems ‘out there’ are
also ‘in here’—and how the two are connected. Continuing to do
what you are currently doing, but doing it better, is not likely to
produce a very different outcome. The fear and distrust we seek
to remedy also exist within us — as do the anger, doubt and frus-
tration. Our actions will not become more effective until we shift
the nature of the awareness and thinking behind those actions.
70 / Rotman Management Fall 2015
Founded in 1988, Roca, Inc. is a Boston-area community
youth development organization that works with youths whom,
by and large, no one else will work with. Many of the organi-
zation’s staff are former gang members, who now work on the
streets to help current gang members redirect their lives. In 2013,
89 per cent of the high-risk youth in Roca’s program for parol-
ees and ex-convicts had no new arrests; 95 per cent had no new
technical violations; and 69 per cent remained employed. On the
strength of these outcomes, in 2013 Massachusetts entered into a
$27 million ‘social impact bond’ with Roca, whereby Roca will be
paid to keep at-risk youth out of prison, receiving remuneration
directly in proportion to the positive outcomes it achieves.
Critical to Roca’s success has been its ability to build trans-
formative relationships with the young people it works with.
It does this by what it calls ‘relentless’ outreach and relation-
ship building. “Our first job is simply to ‘show up’ for kids,” says
founder and CEO Molly Baldwin. “The truth is that many have
never had someone they could count on consistently in their
lives.” Showing up for young people means using processes like
‘peacekeeping circles’, a Native American practice that Roca has
applied in diverse settings, from street conflicts to sentencing
and parole circles. The practice begins by getting all the critical
players in any situation into a circle and opening with each per-
son saying a few words about his deepest intentions. The central
idea is that what affects the individual affects the community,
and that both need to be healed together.
Developing peacekeeping circles has not been easy. At the
first circle training 15 years ago, “Forty people came — young
people, police and probation officers, community members, and
friends,” recalls Baldwin, and “halfway through the session, ev-
erything blew up: people were screaming, the kids were swear-
ing, everyone was saying, ‘See! This is never going to work!’
Watching the session break down was wrenching, but eventually,
I understood how committed I was to divisiveness and not to
unity—how far I was from being a peacemaker. I understood on a
visceral level the problems with ‘us vs. them’ thinking, and how
I perpetuated that, personally and for the organization. Continu-
ing to insist, ‘The issue is you, not us, because we hold the moral
high ground!’ was a big source of what was limiting our ability to
truly help people.”
 People typically focus their attention on the parts of a system
that are most visible from their own vantage point.
In their book Leading from the Emerging Future, Otto
Scharmer and Katrin Kaufer describe three ‘openings’ needed
to transform systems:
• Opening the mind (to challenge our assumptions);
• Opening the heart (to be vulnerable and to truly hear one an-
other); and
• Opening the will (to let go of pre-set goals and agendas and
see what is really needed and possible.)
These three openings match the blind spots of most change ef-
forts, which are often based on rigid assumptions and agendas
and fail to see that transforming systems is ultimately about
transforming the relationships among the people who shape those
systems. Many otherwise well-intentioned change efforts fail
because their leaders are unable or unwilling to embrace this
simple truth.
Baldwin’s development as a system leader started with her
willingness to face her own biases and shortcomings (and how
these shortcomings limited Roca’s effectiveness in their work)
and her openness to gradually setting a tone for the whole organi-
zation. This willingness to open the mind, heart, and will has ex-
tended far beyond the four walls of Roca as the organization has
evolved into a critical interface between gangs, police, courts,
parole boards, schools and social service agencies. Indeed, many
of Roca’s important allies are the police departments in the com-
munities it serves. It has been a long journey for former social ac-
tivists who often saw the cops as the enemy.
RE-ORIENTING STRATEGY. This entails creating the space for
change and enabling collective intelligence and wisdom to
emerge. Ineffective leaders try to make change happen. System
leaders focus on creating the conditions that can produce change
and that can eventually cause change to be self-sustaining. As we
continue to unpack the prerequisites for success in complex col-
laborative efforts, we increasingly appreciate this subtle shift in
strategic focus and the distinctive powers of those who learn how
to ‘create the space for change’.
For Darcy Winslow, the journey to becoming a system
leader began in 1998, when she was responsible for Nike’s ad-
vanced research department and was reviewing a toxicological
analysis that “showed, for the first time, the chemicals embed-
ded in one of our top-selling running shoes. Our VP of product
looked at the results — the known toxins embedded in our prod-
ucts and processes and the many chemicals that posed uncer-
tain risks — and then surprised us, by asking what we thought
he should do. We figured he was the head of this part of the
business and would know; but after some time, we understood:
the stuff that was in our products was there because of cost,
function, and our design and material choices. The real ques-
tion became, ‘Who could — and should — lead in tackling this
complex problem?’”
Over the ensuing weeks and months came an epiphany for
Winslow. “Nike creates products,” she says. “Our first maxim is,
‘It is in our nature to innovate.’ So, the people we had to reach
were the designers. While Nike had about 25,000 employees at
that time, there were only about 300 designers. Five to 10 per
cent of our designers represented only 15 to 30 people. Suddenly,
building an initial critical mass seemed far less daunting; so I
went knocking on doors.”
With the report in hand, Winslow simply showed the re-
sults to designers and asked what they thought. “Within two
minutes, you could tell if the person was stirred to do anything,”
she says. “If they weren’t, I moved on; if they were, I asked for
a second meeting.”
Soon Winslow was bringing together groups of engaged de-
signers and others in related functions, and a new network began
to emerge. “If you tell a great designer something is impossible—
like ‘you cannot make a world-class running shoe without glue’—
they get very excited. It is the challenge that engages them.”
Within two years, about 400 designers and product managers
convened for a two-day summit, where leading sustainability ex-
perts and senior management explored the concept of design for
sustainability. A movement was born within Nike.
Today, Nike’s efforts have spurred collective leadership
throughout the sports apparel industry on waste, toxicity, water,
and energy. For example, the Joint Roadmap Towards Zero Dis-
charge of Hazardous Chemicals—an initiative of Greenpeace,
Nike, Puma, Adidas, New Balance, and others—aims to sys-
tematically identify major toxins and achieve zero discharge of
hazardous chemicals in the entirety of the sport apparel manu-
facturing industry worldwide, starting in China.
rotmanmagazine.ca / 71
 Plans are, of course, always needed; but without openness,
people can miss what is emerging.
We are all on a steep learning curve in understanding this
particular gateway, but it seems to be crucial not only in initiating
collaborative efforts, but in what ultimately can arise from them.
A few years ago, one of us co-authored an article describing five
conditions for achieving progress at a large scale through a dis-
ciplined approach to collaboration called ‘collective impact’. To-
day as we research and observe effective collective-impact initia-
tives, what stands out beyond the five conditions is the collective
intelligence that emerges over time through a disciplined stake-
holder engagement process— the nature of which could never
have been predicted in advance.
Systemic change needs more than data and information: it
needs real intelligence and wisdom. Jay Forrester, the founder
of the system dynamics method that has shaped our approach,
pointed out that complex non-linear systems exhibit ‘counter-in-
tuitive behaviour’. He has illustrated this by citing the large num-
ber of government interventions that go awry by aiming at short-
term improvement in measurable problem symptoms while
ultimately worsening the underlying problems—like increased
urban policing that leads to short-term reductions in crime rates,
but does nothing to alter the sources of embedded poverty and
worsens long-term incarceration rates.
For those new to system leadership, creating space can seem
passive or even weak. For them, strong leadership is all about
executing a plan. Plans are, of course, always needed, but with-
out openness, people can miss what is emerging, like a sailor so
committed to his initial course that he won’t adjust to shifts in the
wind. The conscious acts of creating space, of engaging people
in genuine questions, and of convening around a clear intention
with no hidden agenda, create a very different type of energy
from that which arises from seeking to get people committed to a
plan. System leaders understand that plans and space are the yin
and yang of leadership; both are needed. But what is needed even
more is balance between the two.
A Toolbox Emerges
Fortunately, a rich set of tools has emerged for developing these
core system leadership capabilities. The tools that matter have
two functions: they produce practical benefits and they affect
how people think and see the world. Following are two categories
72 / Rotman Management Fall 2015
of tools and how they can be applied to develop system leader-
ship capacities.
1. TOOLS THAT FOSTER REFLECTION AND GENERATIVE CONVERSATION.
These tools are aimed at enabling groups to slow down long
enough to ‘try on’ other people’s viewpoints regarding a complex
problem. They enable organizations and individuals to question,
revise, and in many cases, release their embedded assumptions.
Examples include the peacekeeping circles used by Roca and the
dialogue interviews conducted by Winslow.
Two other tools that we have seen used by system leaders
are ‘peer shadowing’ and ‘learning journeys’. Both have been
used to build the Sustainable Food Lab, a network of more
than 70 of the world’s largest food companies and global and lo-
cal NGOs working together to make sustainable agriculture the
mainstream system. Starting in 2004, with Oxfam, Unilever
and the Kellogg Foundation as initial conveners, a team of 30
senior managers from food businesses and social and environ-
mental NGOs spent time in each others’ organizations and trav-
eled together to see aspects of the food system they had never
seen. Corporate executives visited farmer co-ops and social
activists saw the operations of multi-national food companies.
“This almost never happens in our normal busy focus on tasks
and results,” said Andre van Heemstra, a member of the man-
agement board at Unilever and the founding Lab team.
Gradually, as business and NGO partners got to understand
one another better as people and as professionals, the cognitive
dissonance between them lessened, and the power of their dif-
fering views grew. “We do see the world very differently—and
that is our greatest strength,” said a corporate participant about
a year into the process. Today the Lab has become a powerful in-
cubator for collaborative projects, such as companies and NGOs
learning together how to manage global supply chains for long-
term reliability based on the health of farming communities and
ecologies. Practices like Learning Journeys are regularly incorpo-
rated into projects and gatherings.
2. TOOLS TO SHIFT FROM REACTING TO CO-CREATING THE FUTURE. Build-
ing the capacity to shift from reacting to co-creating is anchored
in relentlessly asking two questions: What do we really want to
 System leaders focus on creating the conditions
that can produce change.
create? And, What exists today? This creative tension — the gap
between vision and reality — generates energy, like a rubber band
stretched between two poles. Helping themselves and others
generate and sustain creative tension becomes one of the core
practices of system leaders.
One approach that we have seen help large, multi-stakehold-
er initiatives is the Appreciative Inquiry (AI) Summit. An initia-
tive begun in 2010 used an AI Summit to bring together police,
grassroots advocates, courts, probation officers, state agencies,
private agencies, education institutions, health care providers,
and philanthropy to reform the New York state juvenile justice
system. At the outset, few thought it possible to get this group of
20 stakeholders to agree (one group was actually suing another).
To start, people were encouraged to collectively imagine
that ‘The rates of recidivism in New York have become the low-
est in the nation, and the New York state juvenile justice system
has become a model for other communities across the nation.’
Buoyed, almost miraculously, by collectively imagining the di-
mensions of this compelling future, the group was eventually
able to agree on two goals that they could work together on: im-
proving public safety and effectively rehabilitating youths who
were involved with the state justice system.
Within ten months, the group had turned those goals into a
full-fledged reform plan. A year later, components of this reform
plan were adopted by the governor, passed into legislation, and
rolled out in communities across the state. Three years into the
reforms, New York had 45 per cent fewer youths in the custody of
the state juvenile justice system, without any increase in crime.
Many of those initially involved cite the AI Summit as a seminal
event that turned the tide from people holding on to past realities
into a network of organizations and individuals excited about a
more compelling future.
In closing
While we undoubtedly at ‘the beginning of the beginning’ in
learning how to catalyze and guide systemic change at a scale
commensurate with the problems we face, we believe there are
reasons for optimism. First, as the interconnected nature of core
societal challenges becomes more evident, a growing number
of people are trying to adopt a systemic orientation. Though
we have not yet reached critical mass, a foundation of practical
know-how is being built.
Second, over the last 30 years, there has been an extraordi-
nary expansion in the tools to support system leaders, some of
which we have touched on here. We have observed numerous in-
stances where the strategic use of the right tool at the right time
— with a spirit of openness — can shift the ability to create collec-
tive success.
Lastly, there is a broad and growing hunger for processes of
real change, along with a widespread suspicion that the strategies
being used to solve our most difficult problems are too superficial
to get at their sources. This can easily lead to a sense of fatalism
— a quiet desperation that our social, biological, economic and
political systems will continue to drift towards chaos and dys-
function. The good news is, it will also lead more people to be
open to new paths.
Peter Senge is a senior lecturer
at MIT’s Sloan School of Man-
agement, the founding chair of
The Society for Organizational
Learning and co-founder of
the Academy for Systemic Change. He is the author or co-author of several
best-sellers, including The Necessary Revolution: How Individuals and Organiza-
tions Are Working Together to Create a Sustainable World (Crown Business,
2010) and The Fifth Discipline: The Art and Practice of the Learning Organiza-
tion (Doubleday, 2006). Hal Hamilton is director of the Sustainable Food Lab
and co-founder of the Academy for Systemic Change. John Kania is a board
member and managing director of FSG, a social impact consultancy. A longer
version of this article first appeared in Stanford Social Innovation Review.
rotmanmagazine.ca / 73
 HOW TO
LEAD AT
YOUR BEST
Embracing four aspects of ‘centered leadership’
will help make you the best leader you can be.
By Joanna Barsh and Johanne Lavoie

WHEN WE THINK OF LEADERSHIP, we often focus on the what: exter-
nal characteristics, practices, behaviour, and actions that exem-
plary leaders demonstrate as they take on complex challenges.
While this line of thinking is a great place to start, we won’t reach
our potential as leaders by looking only at what is visible. We
need to see what lies underneath to understand how remarkable
leaders lead — and that begins with mindsets.
Indeed, because of the underlying power of a leader’s mind-
set to guide an organization towards positive change, any ef-
fort to become better a leader should start with recognizing the
thoughts, feelings and emotions that drive us.
In this article, we will share four simple exercises adapted
from our book, Centered Leadership. These approaches will en-
able you to start making deliberate choices about the mindsets
that will best serve you in a given moment and to learn, through
practice, how to shift mindsets without missing a beat.
1. Practice the Pause
We all face challenges at work: impossible deadlines, missed
budgets, angry customers, sharp-elbowed colleagues, unreason-
able bosses. When the upset caused by any of these experiences
threatens something at stake for you, you are likely to suffer an
‘amygdala hijack’ — that moment when your brain sends cortisol
and adrenaline coursing through your body to help you defend
yourself. You may lash out in anger, walk out on your colleagues,
or simply stop in your tracks. Instead of that ‘fight, flight, or
freeze’ reaction, what if you could pause, reflect, and then man-
age — creatively and effectively — what you’re experiencing?
Here’s a tool to help. Recall an upsetting thing that hap-
pened recently but still carries an emotional charge. You were
not at your best; you felt fear or anger in the moment, along with
unpleasant physical sensations: a racing heart, a knot in your
stomach, or even nausea. Put yourself back in that moment, and
as you do, keep in mind the metaphor of an iceberg, where little
is visible above the surface.
• In this moment, notice the impact on yourself: What are you
doing or not doing? What are you saying or not saying? How
are you acting? What effect are your words and actions having?
• Look below the waterline: What are you thinking and feeling
but not expressing? What negative outcomes are you most
worried about?
• Deeper still, look at your values and beliefs: What is most
important to you? What belief do you hold about this situa-
tion, about yourself, and about others?

rotmanmagazine.ca / 75
 If we want to inspire trust, we must
learn what others value.
• Go even deeper, examine your underlying needs. What is
at stake for you here? Are you aware of any deeper desires
and needs?
Surprisingly, perhaps, we most often create the outcome we fear.
Worried about losing control? When you snapped at your team,
you just did. Worried about not being heard? When you argued
defensively, people turned away.
Pause and ask, ‘What did I really want for — and of — myself
in that moment?’ By noticing when our attention is focused on
needs that we want to protect, and redirecting it instead toward
the experience we want to create, we can open up access to a
greater range of behaviour.
One senior executive, we worked with was involved with a
large operational-change effort. He had been at a team meeting
to discuss safety standards, and things didn’t go well — he had
not created the outcome he wanted. He had hoped for a learn-
ing session that generated solutions and empowered the local
general manager leading it. Instead, he had remained largely
quiet and offered broad-brush advice based on his own experi-
ence. The meeting felt like a surface-level discussion or, worse,
a top-down audit.
Examining his own motivations, the executive saw he was
leery of destroying the general manager’s confidence by speak-
ing; he wanted people to rise to the challenge and learn. But he
also wanted to preserve group harmony and be liked. By avoid-
ing conflict and not taking a stand, he was creating the outcome
he feared: a vicious cycle of inaction, disengagement, and de-
fensiveness. With this recognition, he could begin to shift. When
he felt this same tension rising, he practiced pausing, thinking
about his intentions, and then constructively voicing his con-
cerns or asking a question. His example prompted others on his
team to do the same, opening the door for more learning-focused
interactions — his initial goal.
Further, to help teammates increase their self-awareness, he
instituted a ‘check-in’ at every meeting’s start. During this step,
colleagues would each briefly describe something happening
‘under the waterline’ for them—say, a stressful project deadline.
This ritual helped all team members to pause, reflect, and better
understand their own mindsets and those of colleagues. It also
sparked more honest, productive conversations and encouraged
76 / Rotman Management Fall 2015
teammates to trust each other — a key factor, as we’ll see.
By figuring out how to pause and reengage our ‘thinking
brains’ (the parts governing executive functions, such as rea-
soning and problem solving), we can make the shift from a
mindset of threat avoidance (a fear of losing) to one of learning
and of getting the most out of the moment.
2. Forge Trust
Senior leaders need a community of supporters to achieve auda-
cious goals, for communities are built through shared objectives
and mutual trust. Yet not everyone views trust in the same way, so
as leaders we must learn what others value if we want to inspire
trust. At a minimum, the effort leads to greater understanding.
In fact, simply recognizing and embracing the differences in
how people perceive trust can strengthen it. Once we are aware
of our own — or others’ — profiles, we tend to adjust our behav-
iour subconsciously. When we do so deliberately as well, the re-
sults are quite powerful. After all, it’s our behaviour that instills
trust in others, not our intentions.
Take this test to see what aspects of trust matter most to you.
For each of the elements below, score yourself from 1 ‘I rarely do
this’ to 7 ‘I regularly do this’:
• Reliability. I don’t make commitments I can’t keep; I always
clarify expectations and deliver on promises.
• Congruence. My language and actions are aligned with my
thinking and true feelings.
• Acceptance. I withhold judgment or criticism; I separate
the person from the performance.
• Openness. I state my intentions and talk straight; I’m
honest about my limitations and concerns.
Consider the case of the CEO of a large bank who was dissatis-
fied with how his company had changed: what had once seemed
to be a collaborative environment now felt like the opposite.
Executives reported an atmosphere of defensiveness, bureau-
cracy, and pervasive mistrust. These feelings reinforced a ‘silo’
culture that made it harder to collaborate on launching new
products.
The senior team used the exercise above to spark a broader
discussion about trust and the company’s culture. Fairly quickly,
the team recognized that the bank’s moves to become more fo-
cused on key performance indicators (consistent with reliability)
were the source of the tension. Digging deeper, it learned that
the big emphasis on performance had, over time, discouraged
managers from raising concerns about the implications of the
program for employees and customers. This, in turn, lowered the
quality of debate in meetings and encouraged defensive and bu-
reaucratic behaviour.
Consequently, the changes were widely seen to be in opposi-
tion to acceptance and openness — trust elements that mattered
dearly to employees. People were concerned that openness with
customers was being sacrificed to ‘make the numbers.’ This re-
alization spurred the senior team to find areas where reliability
and openness could be seen as complements, not opposites—a
shift in mindset and, ultimately, behaviour that helped the bank
to improve its customer experience significantly.
When you shift your mindset from, ‘trustworthy people are
a scarce resource’ to, ‘I can inspire almost everyone to trust me
more,’ your community of supporters will expand effortlessly.
3. Choose Your Questions Wisely
What propels leaders to carry out unprecedented, audacious vi-
sions? Fear? Foolishness? Ambition? A sense of duty?
Hope. Leaders we admire tend to use fear as fuel for ac-
tion, but they favour hope. Fear is of value because it gets our
adrenaline flowing, sharpens us, and makes extraordinary con-
tributions possible. But it’s easy to succumb to fear and feel
overwhelmed by downside risks. Fear can spread through an
organization like a contagion, and without the counterbalance
of hope, it becomes paralyzing. So how can you find the right
mix of both? Start with the questions you ask.
Try this exercise: find a discussion partner and ask that per-
son to discuss his or her most pressing work problem with you.
However, at first, use only these questions to guide the conver-
sation:
• What’s the problem?
• What are the root causes?
• Who is to blame?
• What have you tried that hasn’t worked?
• Why haven’t you been able to fix the problem yet?
In a few minutes, stop, thank your partner, and ask for a redo.
Restart the discussion, using these questions instead:
• What would you like to see (and make) happen?
• Can you recall a time when the solution was present, at least
in part? What made that possible?
• What are the smallest steps you could take that would make
the biggest difference?
• What are you learning in this conversation so far?
Five minutes in, stop again and debrief your partner about his or
her thoughts and feelings during the first versus the second dis-
cussion. What did you notice? What were his or her underlying
mindsets? What were yours?
The difference will be tangible. The first set of questions,
while great for solving technical problems, often prompts de-
fensive reactions and leaves participants feeling drained. By
contrast, participants report feeling animated, curious, and en-
gaged the second time around. Unfortunately, we tend to use the
first set more often. These problem-focused questions work well
for linear issues that have ‘right’ answers. As we move up the
ranks as leaders and the challenges become more complex, our
problem-solving instincts can lead us astray. By contrast, when
we develop solution-focused instincts, we empower and engage
others, deliberately infusing hope. Remember that employees
with problems already feel fear: problem-focused questions
only fuel it.
A plant manager we know used this approach to spark bet-
ter ideas and improve accountability on the front line. He cre-
ated a pack of cards that shop-floor supervisors could use with
line workers in daily operational problem-solving sessions. On
one side of the card was the problem-focused question; on the
other, a solution-focused translation. The supervisors quickly
found that using both sides of the card brought markedly better
results than the traditional questions alone—and that the range
and quality of solutions improved dramatically.
The plant manager’s message was simple, yet powerful:
look for problems and you will find them; look for solutions and
people will offer them. By choosing our questions thoughtfully,
we can shift our mindset from ‘my organization is a problem to
be solved’ to ‘my organization holds solutions to be discovered.’
rotmanmagazine.ca / 77
 Look for problems and you will find them;
look for solutions, and people will offer them.

4. Make Time to Recover
Who wouldn’t want to work in high-performance mode non-
stop? A desire for achievement and competitive success urges us
on — often past our physical and mental limits. But while profes-
sional athletes build in time to recover, executives rarely do. Why
not? The limiting beliefs are well accepted: commitment is no-
ticed through hard work and suffering; only slackers take time off
during the day. People tell the story of a hospitalized colleague
with awe: ‘He worked so hard that he collapsed, in service of the
company.’ Hero? Not really.
If that young executive had the self-awareness to shift his
mindset from managing time to managing and balancing energy, he
might have remained in good health. The solution is simple: find
ten minutes, twice each day (morning and afternoon) to recover,
stepping back into a zone of low but positive energy to recharge.
Consider all four sources of energy: physical, mental, emotional,
and spiritual activities can each fuel you. Schedule recovery ac-
tivities, and stick to them until this is your new normal. Here are
some examples we’ve observed:
• Physical. A Brazilian executive walks up a few flights of
stairs quickly — more flights if she is agitated or upset—and
then she slowly walks down, giving herself the time to reflect
and come back to centre. An Italian senior manager has an
afternoon coffee, walking to the lobby café instead of the
coffee stand on his own floor.
• Mental. When a U.S. CEO needs to recharge his energy lev-
els, he consciously seeks out conversations with employees,
so he can learn something new.
• Emotional. A Mexican company vice president chooses to
recharge by reaching out to friends regularly to send thanks
and love. A Swedish entrepreneur reviews an e-mail folder
where she keeps compliments, thank-you notes, and warm
greetings.
• Spiritual. A technology executive turns her chair to look
out the window, meditating on nature and life in the form of
the oak tree that fills her view. A pharmaceutical executive
brings an empty chair, representing patients, to important
meetings, to remind everyone why they are there.
Of course, managing energy isn’t necessarily a solitary activity;
we’ve seen leaders inject recovery practices into daily business
routines. For example, the CFO of an aerospace company found
that a weekly meeting he chaired was draining people. To ener-
gize his team, he changed the format, starting each discussion
with the prior week’s notable lessons and achievements. The new
format was a hit: attendance went up, the meetings’ substance
improved dramatically, and what had been a pure number-
crunching exercise began to generate new ideas that the com-
pany could use. The meetings were more fulfilling for the CFO,
too. “I finally feel like I’m a thought partner to the business,” he
told us, “rather than a cop.”
In closing
In our work with executives, we have found that tools, prac-
tices, and exercises like those outlined herein help leaders un-
derstand — and shift — the mindsets that govern their actions.
Remember, trying to change your behaviour (what is seen and
judged) will fail, unless you first address internal patterns with
conscious effort. To make change stick, unwire and rewire from
the inside.
Joanna Barsh is a director emeritus in McKin-
sey’s New York office, and Johanne Lavoie is a
master expert in the Calgary office. This article
is based in part on the authors’ book, Centered
Leadership: Leading with Purpose, Clarity, and
Impact (Crown Business, March 2014).

78 / Rotman Management Fall 2015

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Idea Exchange

84 BILL & MELINDA GATES on the power of optimism

88 JOHN KOTTER on the importance of leadership agility

92 TIFF MACKLEM on a CEO’s freshman year

95 FRED KIEL on ‘return on character’

99 BRAD KATSUYAMA on a new breed of stock exchange

101 MARK BARDEN on ‘beautiful constraints’

105 RICHARD NESBITT on key leadership lessons

108 DAVID BURSTEIN on empowering Millennials

111 ALINE FRANKFORT & JEAN-LOUIS BAUDOIN on ‘Shapership’

114 PARTHA MOHANRAM on the Black Box of Accounting

117 JON KOLKO on what design offers to innovation

121 LARRY ROSEN on entrepreneurial thinking

124 MIHNEA MOLDOVEANU on Education 2.0

 POINT OF VIEW Bill + Melinda Gates
The Power
of Optimism
Optimism isn’t a passive expectation that things will get better;
it is a conviction that we can make things better.
WHEN PAUL ALLEN AND I started Microsoft,
we wanted to bring the power of com-
puters and software to the people — and
that was the kind of rhetoric we used. At
the time, only big businesses could buy
computers. We wanted to offer the same
power to regular people — to democratize computing.
By the 1990s, we saw how profoundly personal com-
puters could empower people. But that success created
a new dilemma: if rich kids got computers and poor kids
didn’t, technology would make inequality worse. That
ran counter to our core belief: that technology should
benefit everybody. So we worked to close the digital di-
vide. I made it a priority at Microsoft, and Melinda and
I made it an early priority at our Foundation — donating
personal computers to public libraries to make sure ev-
eryone had access.
The digital divide was a focus of mine in 1997, when I
took my first trip to South Africa. I went there on business,
so I spent most of my time in meetings in downtown Johan-
nesburg, staying in the home of one of its richest families.
It had only been three years since the election of Nelson
Mandela marked the end of apartheid. When I sat down
for dinner with my hosts, they used a bell to call the butler.
After dinner, the men and women separated, and the men
smoked cigars. I thought, “Good thing I read Jane Austen,
or I wouldn’t know what was going on.”
The next day, I went to Soweto — the poor township
82 / Rotman Management Fall 2015
southwest of Johannesburg that had been a centre of the
anti-apartheid movement. It was a short distance from the
city into the township, but the entry was sudden, jarring
and harsh: I passed into a world completely unlike the one
I came from.
My visit to Soweto became an early lesson in how na-
ïve I was. Microsoft was donating computers and software
to a community centre there — the kind of thing we did in
the United States. But it became clear to me very quickly
that this was not the United States. I had seen statistics on
poverty, but I had never really seen poverty. The people there
lived in corrugated tin shacks, with no electricity, no water,
no toilets. Most people didn’t wear shoes; they walked bare-
foot along the streets. Except there were no streets — just
ruts in the mud.
The community centre had no consistent source of
power, so they had rigged up an extension cord that ran
about 200 feet to a diesel generator outside. Looking at the
setup, I knew the minute the reporters and I left, the genera-
tor would get moved to a more urgent task, and the people
who used the community centre would go back to worrying
about challenges that couldn’t be solved by a PC.
When I gave my prepared remarks to the press, I said:
“Soweto is a milestone. There are major decisions ahead
about whether technology will leave the developing world
behind. This is to close the gap.” As I was reading these
words, I knew they were irrelevant. What I didn’t say was:
“By the way, we’re not focused on the fact that half a million
 If you want to do the most, you have to see the worst.
people on this continent are dying every year from malaria.
But we’re sure as hell going to bring you computers.”
Before I went to Soweto, I thought I understood the
world’s problems, but I was blind to the most important
ones. I was so taken aback by what I saw that I had to ask
myself, ‘Do I still believe that innovation can solve the
world’s toughest problems?’ I promised myself that before
I came back to Africa, I would find out more about what
keeps people poor.
Over the years, Melinda and I learned more about the
most pressing needs of the poor. On a later trip to South
Africa, I paid a visit to a hospital for patients with MDR-TB,
or multi-drug-resistant tuberculosis, a disease with a cure
rate of under 50 per cent. I remember that hospital as a
place of despair. It was a giant open ward with a sea of
patients shuffling around in pajamas, wearing masks. There
was one floor just for children, including some babies lying
in bed. They had a little school for the kids who were well
enough to learn, but many of the children couldn’t make it,
and the hospital didn’t seem to know whether it was worth
it to keep the school open.
I talked to a patient there in her early thirties. She had
been a worker at a TB hospital when she came down with a
cough. She went to a doctor, and he told her she had drug-
resistant TB. She was later diagnosed with AIDS. She wasn’t
going to live much longer, but there were plenty of MDR pa-
tients waiting to take her bed when she vacated it.
This was hell with a waiting list; but seeing hell didn’t
reduce my optimism: it channeled it. I got in the car and told
the doctor who was working with us: “Yeah, I know, MDR-
TB is hard to cure. But we should be able to do something
for these people.” This year, we’re entering phase three with
a new TB drug regime. For patients who respond, instead of
a 50 per cent cure rate after 18 months for $2,000, we could
get an 80-90 per cent cure rate after six months for under
$100. That’s better by a factor of a hundred.
Optimism is often dismissed as false hope. But there is
also false hopelessness. That’s the attitude that says we can’t
defeat poverty and disease. We absolutely can.
MELINDA: Bill called me after he visited the
TB hospital. Ordinarily, if we’re calling
from a trip, we just go through the agenda
of the day: ‘Here’s what I did; here’s who
I met.’ But this call was different. He said:
“Melinda, I’ve gone somewhere I’ve nev-
er been before,” and then he choked up and couldn’t talk.
Finally he just said: “I’ll tell you when I get home.” I knew
what he was going through. When you see people with so
little hope, it breaks your heart. But if you want to do the
most, you have to see the worst. That’s what Bill was doing
that day.
I’ve had days like that, too. Ten years ago, I traveled to
India with friends. On the last day there, I spent some time in
a home for the dying. I walked into a large hall and saw rows
and rows of cots. Every cot was attended, except for one far
off in the corner that no one was going near; so I walked over
there. The patient was a woman who seemed to be in her
thirties. I remember her huge, brown, sorrowful eyes. She
was emaciated, on the verge of death. Her intestines weren’t
holding anything — so they had put her on a cot with a hole
cut out in the bottom, and everything just poured through
into a pan below. I could tell she had AIDS, both from the
way she looked, and the fact that she was off in the corner
alone. The stigma of AIDS is vicious — especially for women
— and the punishment is abandonment.
When I arrived at her cot, I suddenly felt totally help-
less. I had absolutely nothing to offer her. I knew I couldn’t
rotmanmagazine.ca / 83
 If we have optimism without empathy, it doesn’t matter
how much we master the secrets of science.
save her, but I didn’t want her to be alone. So I knelt down
next to her and reached out to touch her — and as soon as
she felt my hand, she grabbed it and wouldn’t let go. We sat
there holding hands, and even though I knew she couldn’t
understand me, I just started saying: “It’s okay. It’s okay. It’s
not your fault.”
We had been there together for a while when she point-
ed upward with her finger. It took me some time to figure out
that she wanted to go up to the roof and sit outside while it
was still light out. I asked one of the workers if that would be
okay, but she was overwhelmed by all the patients she had
to care for. She said: “She’s in the last stages of dying, and
I have to pass out medicine.” Then I asked another, and got
the same answer. It was getting late and the sun was going
down, and I had to leave, and no one seemed willing to take
her upstairs.
Finally, I just scooped her up and carried her up the
stairs. On the roof, there were a few of those plastic chairs
that will blow over in a strong breeze, and I set her down on
one of those, and I helped prop her feet up on another, and
I placed a blanket over her legs. And she sat there with her
face to the west, watching the sunset. I made sure the work-
ers knew that she was up there so they would come get her
after the sun went down. Then I had to leave her.
But she never left me. I felt completely and totally inad-
equate in the face of this woman’s plight; but sometimes it’s
the people you can’t help who inspire you the most.
Optimism, for me, isn’t a passive expectation that
things will get better; it is a conviction that we can make
things better — that whatever suffering we see, no matter
how bad it is, we can help people if we don’t lose hope and
we don’t look away.
BILL: Melinda and I have described some devastating scenes.
But we want to make the strongest case we can for the power
of optimism. Even in dire situations, optimism can fuel inno-
vation and lead to new tools to eliminate suffering. But if you
never really see the people who are suffering, your optimism
can’t help them. You will never change their world. And that
84 / Rotman Management Fall 2015
brings me to what I see as a paradox.
The world of science and technology is driving phe-
nomenal innovations. We’re on the verge of mind-blowing
breakthroughs in what human beings can do for each other,
and people are really excited about the future. At the same
time, if you ask people, ‘Is the future going to be better than
the past?’ most say: ‘No. My kids will be worse off than I
am.’ They think innovation won’t make the world better for
their children.
So, who’s right? The people who say innovation will cre-
ate new possibilities and make the world better? Or those
who see a trend towards inequality and a decline in opportu-
nity, and don’t believe innovation can change that?
In my view, the pessimists are wrong — but they’re not
crazy. If technology is purely market-driven, and we don’t
focus innovation on the big inequities, we will be left with
amazing inventions that leave the world even more divided.
We won’t improve public schools. We won’t cure malaria.
We won’t end poverty. We won’t develop the innovations
poor farmers need to grow food in a changing climate.
If our optimism doesn’t address the problems that af-
fect so many of our fellow human beings, then our optimism
needs more empathy. If empathy channeled our optimism,
we would see the poverty and the disease and the poor
schools, we would answer with our innovations, and we
would surprise the pessimists.
In Soweto, I started learning that if we’re going to make
our optimism matter to everyone and empower people ev-
erywhere, we have to see the lives of those most in need. If
we have optimism without empathy, it doesn’t matter how
much we master the secrets of science: we’re not really solv-
ing problems; we’re just working on puzzles.
MELINDA: Let your heart break. It will change what you do with
your optimism. On a trip to South Asia, I met a desperately
poor mother who brought me her two small children and
implored me: “Please, take them home with you.” When I
begged her forgiveness and said I could not, she said: “Then,
please take one.”
 On another trip, to South Los Angeles, I was talking to a
group of high school students from a tough neighbourhood
when one young woman said to me: “Do you ever feel like
we are just somebody else’s kids whose parents shirked their
responsibilities, that we’re all just leftovers?”
These women made my heart break — and still do. And
the empathy intensifies if I admit to myself: that could be
me. When I talk with the mothers I meet during my travels,
I see that there is no difference at all in what we want for
our children. The only difference lies in our ability to give
it to them.
What accounts for that difference? Bill and I talk about
this with our kids at the dinner table. Bill worked incred-
ibly hard and took risks and made sacrifices for success. But
there is another essential ingredient of success, and that in-
gredient is luck — absolute and total luck.
When were you born? Who were your parents? Where
did you grow up? None of us earned these things: they were
given to us. When we strip away our luck and privilege and
consider where we’d be without them, it becomes easier to
see someone who’s poor and sick and say, ‘that could be me.’
This is empathy: it tears down barriers and opens up new
frontiers for optimism.
In the course of your lives, you will come to see suffering
that will break your heart. When this happens — and it will —
don’t turn away from it; turn toward it. That is the moment
when change is born.
Bill Gates is an American entrepreneur, business mogul, investor and
philanthropist. Widely recognized as one of the world’s most influential
people, he co-founded Microsoft in 1975, and with wife Melinda Gates,
established the Bill & Melinda Gates Foundation in 2000 — the same
year he stepped down as Microsoft’s CEO. The Gates Foundation is
the largest transparently-operated private foundation in the world,
with an endowment of US$42.3 billion as of Nov. 2014. For more:
gatesfoundation.org. The preceeding has been adapted from the com-
mencement address given by Bill and Melinda at Stanford University in
June, 2014. Published with permission from The Gates Foundation.

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 QUESTIONS FOR John Kotter

Q
&A A veteran leadership
guru discusses
the importance of
agility in the evolving
Many people use the terms management and leadership
interchangeably, but you believe they are very different.
Please explain.
These are very different roles, covering completely differ-
ent functions. Management involves all the processes as-
sociated with operational planning, budgeting, structuring
systems to execute those plans, staffing them and setting
up metrics to measure whether you’re achieving the plan.
It also entails being able to spot when things go off track,
and problem-solving to get back on course. Done well, great
management can take a large group of people — even if they
are geographically dispersed — and enable them to produce
a particular product or service with a high degree of reliabil-
ity and efficiency.
Leadership is completely different. It is associated with
creating a vision, and with the step after that, which is cre-
leadership landscape. ating a strategy for getting to that vision. Leadership entails
winning over hearts and minds, and motivating people not
Interview by Karen Christensen
just to move in a particular direction, but to move with ener-
gy and passion, summoning all the creativity they can mus-
ter. Leadership is also associated with anticipating opportu-
nities and hazards before they get too close, and ‘mobilizing
the troops’ in a way that helps your organization progress
into a desired future.

86 / Rotman Management Fall 2015

 That’s the beauty of change: that which creates a big
downside also creates an equitable upside.
What is the biggest challenge faced by both managers
and leaders today?
In a macro sense, the biggest thing happening today is that
the rate of change continues to increase, with no end in
sight. There are dozens of drivers of this, but the two big-
gest ones are technological advances and globalization. These
forces are creating havoc for most organizations — but they
also present humongous opportunities. That’s the beauty of
change: that which creates a big downside also creates an
equitable upside.
You have found that most leaders are not very good at
something that is critical to thriving in a fast-changing
environment. Please describe it.
The skill is called ‘strategic agility’, and it is the capacity to
spot strategic issues that are coming at you, in time to act on
them. Leaders who display strategic agility are able to turn
perceived threats into opportunities quickly, and they ex-
ecute just as quickly. Often, this involves a capacity to dodge
a little to the left or to the right — or to run 40 degrees off
course from the direction you’re currently headed in. Not
surprisingly, most big bureaucracies are terrible at this.
What role does hierarchy play in the realm of strategic
agility?
While many people wish that it would disappear, manage-
ment hierarchy is not going away, and the main reason is
that nobody has found a way to get work done efficiently
and reliably without clearly-defined jobs and metrics. If you
throw all of that away, in my mind, you’re setting yourself up
for a disaster.
The big challenge for today’s leaders is to accept the
fact that a certain amount of hierarchy is necessary, and
design a separate system for innovation, right alongside it. I
call this a ‘dual operating system’, and it doesn’t force you
to choose bureaucracy over innovation: it’s not either/or, it’s
and and. It enables you to operate part of your organization
like a startup — with all of the agility that entails — while at
the same time running an efficient, reliable system that ex-
cels in what you already do well.
Which company best exemplifies a dual operating sys-
tem?
I think immediately of Southwest Airlines, which has
done a remarkable job of holding onto a network structure
alongside a very precise, metrics-driven hierarchy. This has
enabled them to be the most successful airline in the world
over the last 25 years. But they are the exception: most com-
panies lose that ‘startup’ element after just a few years and
start to run on metrics-driven hierarchies.
I am convinced that every company you can name that
has been highly successful has gone through a stage where it
operated with a dual operating system. The problem is, it is
not an easy thing to hold onto, unless you know what it is and
why it’s so important. It is very difficult to take an organiza-
tion that has settled into the traditional form that everybody
recognizes — which is basically ‘high management, low
leadership’, and get it to move towards a ‘high management,
high leadership’ setup comprised of two different structures
and sets of processes.
Why is it so important to develop and role model urgency
in today’s organizations?
When we studied firms that have successfully designed the
two-sided organization I have described, a pattern emerged,
and it had eight characteristics (see Figure One.) The first
step in the process has to do with a sense of urgency.
Change isn’t easy; we all know that, and the core issue is
that people don’t want to reorganize: they usually think the
current approach is fine. But the fact is, a management-driv-
en hierarchy that is built for reliability and efficiency leans
against the significant change required to implement a dual
operating system. Its silos, levels, rules, short-term plans
and narrow jobs systematically create complacency — and
group complacency is an unbelievably powerful force.
The only solution is to create a force that is power-
ful enough to counteract the inclination to stall large-scale
change. Traditional task forces, bonuses and strategy con-
sultants don’t come close to creating that force: what you
have to do is develop and maintain a strong sense of urgency
that is focused on a Big Opportunity.
rotmanmagazine.ca / 87
 FIGURE ONE: An 8-Step Change Model

1
CREATE
Sense
8 of Urgency 2
INSTITUTE BUILD In my experience, the best way to develop urgency is
Change Guiding
Coalition to role-model it. That means starting to talk about strategic
challenges and possibilities in hallway conversations, bring-
ing them up in meetings, and sliding them into emails—basi-
7 3
SUSTAIN THE BIG FORM cally, inserting mentions of them whenever an issue related
Acceleration OPPORTUNITY Strategic Vision to the Big Opportunity comes up. Don’t go around telling
& Initiatives others what they should do, but without boasting, indicate
what you are doing to work towards the Big Opportunity, and
6 4 why it is so important.
GENERATE ENLIST Years ago, I met someone who can only be described as
Short Term 5 Volunteer
ENABLE an ‘urgency machine’: he was a senior VP in a high-tech or-
Wins Army
Action by ganization, and on the day I spent with him, he inserted into
Removing various conversations — at least a dozen times over six hours
Barriers
— some variation of a ‘past-success-guarantees-nothing’
speech. This was not served up as criticism, but rather, as an
honest reminder of the way the world works. He peppered
his conversations with examples of people who were taking
actions that could lead the firm towards a huge opportunity.

On the other hand, you caution leaders that a false sense

Urgency means that significant numbers of people wake
up each morning and have, somewhere in their heads and
hearts, a compelling desire to do something that day to move
the organization forward, towards the big strategic opportu-
nity. With aligned energy among enough people, you have a
targeted, passionate force that is unlike anything found out-
side of wildly successful entrepreneurial firms.
of urgency can be a terrible thing. Why is that?
A false sense of urgency is often driven by anxiety, and it
makes people run around in circles. This is what is happen-
ing when you see people having meeting after meeting, as-
sembling taskforce after taskforce: but it’s just activity — it’s
not productivity. This is very dangerous, for two reasons.
First of all, it wears people out; and second, from the top
of an organization looking down, it often looks like a true
sense of urgency. As a result, people start to feel satisfied;
they think they’ve ‘got it’, and they start working on other
problems — but they don’t realize that the very foundation of
what is needed to make serious change simply is not there.

How can leaders develop urgency?
The first requirement is to be aware of what’s going on
around you, to think seriously about what it means for your
business, and to be open to and excited about new possi-
bilities. ‘Bringing the outside in’ means using every pos-
sible communication mechanism to import the reality of
your situation. It might mean, for example, arranging for
external speakers at meetings; sending groups to visit or-
ganizations that are facing similar threats or opportunities;
or selectively hiring people who see and appreciate the tur-
bulence you face. It also means having regular dialogues
about the opportunities that often arise during of a crisis.
Talk a bit about incremental change vs. true innovation.
No matter what industry you’re in, it is easier to say, ‘Let’s
just do a variation on what we’ve been doing, and we’ll be
fine.’ But the fact is, we have come to a point where incre-
mental adjustments aren’t enough. Unfortunately, organi-
zations often have to hit a wall before they realize that ‘What
got us here isn’t going to get us there’.
This is tied to a second problem, whereby everybody
— including executives who were raised in a system envi-
ronment — has learned that the solution to chaos is control.
So, they continue to manage through a hierarchical system
— when the real solution is to add a second system that you

88 / Rotman Management Fall 2015

 Every highly successful company you can name
has operated with a dual operating system.
can’t entirely control. Not surprisingly, this builds anxiety in
people. The combination of the natural human tendency to
stick with what we know, and the anxiety that comes from
a system that can’t be controlled, causes people to resist
change. But a system that can’t be controlled doesn’t mean
that ‘the inmates are running the asylum’: quite the con-
trary; when it works right, the two parts of a dual operating
system work hand-in-glove.
In the end, what we really need today is more leader-
ship, and by that I mean a greater number of people who are
The Principles of a Dual-Operating System
Many people can drive important change, and from
everywhere — not just the usual few appointees.
Every great leader throughout history has demonstrated
that it is possible to find many change agents, and from
every corner of society — but only if people are given a
choice and feel they truly have permission to step forward
and act.
Fostering a ‘get to do’ mindset, not a ‘have to do’ one.
The desire to work with others for an important and excit-
ing shared purpose, and the realistic possibility of doing
so, are key.
Action that is head-and-heart driven, not just head
driven. Most people won’t want to help if you appeal only
to logic, with numbers and business cases. You must also
appeal to how people feel. The great leaders throughout
actually providing leadership — not just managing, respond-
ing and ‘doing’ from day to day.
John Kotter is recognized as the world’s foremost authority on leader-
ship and change. He is Professor of Leadership, Emeritus, at Harvard
Business School and founder and chairman of Kotter International,
a management consulting firm. His latest book is Accelerate: Building
Strategic Agility for a Foster Moving World (Harvard Business Review
Press, 2014).
history have spoken to the genuine and fundamental human
desire to contribute to some bigger cause and to take an
organization into a better future.
Much more leadership, not just more management.
The guts of any organization are managerial processes;
but in order to capitalize on unpredictable windows of
opportunity which might open and close quickly (and some-
how spot and avoid unpredictable threats), the name of the
game is leadership.
An inseparable partnership between the hierarchy and
the network — not just an enhanced hierarchy. The two
systems must work as one, with a constant flow of informa-
tion and activity between them. This approach works in part
because the people essentially ‘volunteering’ to work in the
network already have jobs within the hierarchy.
rotmanmagazine.ca / 89
 FACULTY FOCUS Tiff Macklem
A Look Back at a CEO’s
Freshman Year
Interview by Karen Christensen
Not unlike Apple’s Tim Cook, you took
over the helm of an organization that
had enjoyed unprecedented growth
under an iconic leader. What have been
the key challenges of your first year?
I would highlight two. The first one was
figuring out, What’s next for Rotman?
Roger Martin set a bold vision to grow the School to a glob-
al scale and to lead with outstanding scholarship, and that
vision has been realized: today, we have more than 1,000
MBA students across three programs; a unique undergradu-
ate Commerce program; and innovative new programs like
the Master of Finance. This year, our faculty’s research was
ranked fourth in the world, as was our PhD program. That
puts us alongside Harvard, Stanford, Wharton and NYU
Stern. So, now what?
Of course, this is a very high-quality problem to have.
It’s a big, exciting challenge. Having worked closely with
90 / Rotman Management Fall 2015
faculty and staff over the past eight months, in a nutshell,
‘what’s next for Rotman’ involves deepening and extending
our impact around the world. By impact, I mean the impact
of our graduates in transforming their organizations, start-
ing new businesses and tackling society’s biggest problems;
the impact of Rotman thought leadership at management
and board tables; and the life-long learning and connectivity
of our alumni around the world.
The second aspect I would highlight is that the land-
scape of business education is shifting, giving students more
choices than ever. There is intense competition, and new en-
trants are using new technology platforms to deliver online
learning, challenging the traditional university model. At
the same time, new research on ‘how people learn’ is also
creating new opportunities. We can and must seize all of
these opportunities.
For example, the new competition is forcing us to think
deeply about how best to use face-to-face, ‘together time’
 You can have a wonderful corporate governance
structure in place on paper, but that doesn’t mean
the right things are happening in practice.
at a university, so we are putting more emphasis on experi-
ential learning, customized, small group learning, and even
one-on-one coaching. Our delivery mechanisms are chang-
ing to create a much richer and more memorable learning
experience for our students.
In short, all of this new competition is putting intense
pressure on business schools — and on business school
deans! But it has never been a better time to be a student.
You are about to reach the one-year mark in your five-
year term. What has surprised you the most over the past
10 months?
Moving from the Bank of Canada to academia was a big
pivot for me. One of the things that really attracted me to the
Rotman School was its innovative approach to management
education and the breadth of its vision. We need inspired
management and bold leadership in business, government
and not-for-profits.
I knew there was lots of ingenuity going on here, but
I have to say, I did not expect the tremendous breadth and
rich diversity of activities that are underway. Now that the
School has achieved both a scale and a level of scholarship
that is truly outstanding, it has the capacity to bring together
the best thinking in the world — from Economics, Account-
ing, Finance, Sociology, Psychology, Statistics, History, Ge-
ography and more — and to apply these to business prob-
lems, public policy problems, and societal problems. This
is manifesting itself not just in our faculty’s research, but in
activities that are highly interactive between students, busi-
ness and government.
For example, at the Creative Destruction Lab, we’re
seeing entrepreneurship come to life, with new deep-sci-
ence ventures being accelerated with management exper-
tise from MBA students and coaching from experienced
entrepreneurs; our Behavioural Economics Program
is implementing ‘nudge economics’ to help firms engage
with their customers and governments to achieve public
policy goals; and at Rotman DesignWorks, students are
involved in customer-centric thinking that involves study-
ing human behaviour, empathizing with people, and de-
signing solutions.
I’ve only been here ten months; but every week, I dis-
cover a new gem. I really am in awe of the faculty and the
tremendous breadth of the School, and how it’s bringing
together thinking from all sorts of disciplines.
What three words would you use to describe your own
leadership style?
That’s a tough question. I would say I’m determined; col-
laborative; and even-keeled. But perhaps you should ask the
students, faculty and staff at Rotman!
The reputation of corporate governance and top leaders
has been muddied in recent years. Talk a bit about the
perceived failure of leadership.
One thing we’ve learned is that you can have a wonderful
corporate governance structure in place on paper, but that
does not mean the right things are happening in practice.
I think what some people really missed is that it comes down
to your organization’s culture. We saw this with Lehman and
other banks. Even if you have a chief risk officer and a Mon-
day morning risk meeting every week, if your culture is one
where people can’t challenge each other, and the emphasis
is on short-term profits, there will be a bias towards excess.
Through the financial crisis, the institutions that fared
the best were those that genuinely cared about their cus-
tomers and took a long view. Their approach was: ‘We are
going to be there for our customers through thick and thin,
because we are in business to serve them; and yes, along
the way, we expect to make a profit.’ When markets became
very stressed, these companies were willing to dilute share-
holders and build up additional capital, so that they would
have extra buffers. In contrast, financial institutions that fo-
cused on near-term profits and shareholder value were very
reluctant to dilute shareholders, and they delayed raising
new capital until it was too late.
rotmanmagazine.ca / 91
 If your culture is one where people can’t challenge
each other, and the emphasis is on short-term profits,
there will be a bias towards excess.
We also saw some truly unbelievable moral and ethi-
cal failures. Again, if you have a culture where the test is,
‘Is this product or service going to solve a genuine problem
for a customer or for another business?’ — that leads you to
put service first. But if your culture is, ‘If it’s legal and we
can make money from it, let’s do it’ — that only encourages
employees to start stretching the definition of what is legal.
There is lots of talk these days about ‘shared’ leadership
within organizations. Are you a proponent of this ap-
proach?
Partly, it depends on what your business is; form follows
function. If I were to contrast my previous employer to my
current one, the Bank of Canada makes a relatively small
number of very important decisions. As a result, it requires
a fairly hierarchical structure with a single spokesperson in
the form of the Governor. A university is a very different
kind of place: it demands a much flatter structure and more
of a shared leadership model. The Rotman School is a collec-
tion of amazing thought leaders.
But regardless of your organization, there does need to
be an overarching mission and a clear set of objectives that
everybody is working towards. We all need to work together
to deliver outstanding educational programs, and the lead-
ership is then shared in terms of achieving that broader
mission. A powerful organization leverages the talents of
a large number of smart, dedicated, hardworking people,
moving in the same direction.
What is your favourite example of ‘leading-edge Finance’
right now?
I would point to the realm of Behavioural Finance. Finance
is usually very rational, technical and mathematical; and I
can’t deny it, I love all of that stuff! But one of the lessons
that wasn’t getting the front-line attention it deserved is
that, we have to remember that financial decisions are taken
by people. People do make decisions based on analysis, but
they have cognitive limitations — we are not Watson — and
92 / Rotman Management Fall 2015
we also make decisions based on emotion. It is important to
bring an understanding of how people really make decisions
into the analysis, and the burgeoning field of Behavioural Fi-
nance is extremely promising in this regard.
Five years from now, what do you hope to have accom-
plished at Rotman?
Simply put, I want the Rotman School to be the place where
the world’s business, government and non-profit leaders
come for intrepid thinking, and to hire incisive and inventive
leadership talent. At the centre are our students and alumni.
We need to attract the very best students in the world — high
impact women and men from many cultures — and we need
to ensure that they have a truly transformational experience.
Then, we need to stay connected to them in a life-long en-
gagement. The bottom line is, our success is embodied in
the success of our graduates.
Scholarship is also very important, because it exposes
our students to new thinking and brings them to the cutting
edge. In the modern world, the answers are no longer ‘at the
back of the book’: you need to be able to think creatively.
Exposing students to leading-edge thinking, and to prob-
lems where the answers have not yet been worked out, is
a key element of their training at Rotman. Five years from
now, I want the world knocking on our doors, looking for
bold thinking and unique talent.
Dr. Tiff Macklem is Dean of the Rotman School of Management.
In May 2015 he was named Chairman of the Global Risk Institute for
Financial Services. Previously, he rose to Senior Deputy Governor
of the Bank of Canada, which he joined in 1984.
QUESTIONS FOR Fred Kiel

Q
&A
An executive coaching
pioneer defines
‘leadership character’,
and explains how it
affects the bottom line.
. You have identified four universal principles of ‘leader-
Interview by Karen Christensen
You have noted that there is no widely-accepted defini-
tion of the term ‘character’. How do you define it?
I define character in two ways. First, there is the private ver-
sion, which is the character you think you have, based on
what’s in your heart and what your intentions are. The sec-
ond version is the public version, which is how other people
observe you and your behaviour. Abraham Lincoln once
said that ‘character is like a tree, and reputation is like its
shadow’. It would be wonderful if people judged us based on
our intentions, but in fact, people judge us based on our be-
haviour, which, over time, adds up to our character.
Think about someone you view as a person of strong
character. It’s almost certainly because of the way they be-
have: they tell the truth, they keep their promises, they own
up to their mistakes, they show forgiveness and curiosity
when other people make mistakes; and they treat people as
people, not as objects. When you see someone behaving this
way consistently, you admire them and you label them as
having strong character.
ship character’. Please describe them.
My colleagues and I did an extensive literature review on
this subject, and we discovered, from the field of Cultural
Anthropology, that there are certain human universal prac-
tices and beliefs that are shared by all cultures around the
world. We selected four of those traits as being particularly

rotmanmagazine.ca / 93
 Virtuoso CEOs bring in nearly five times greater
return on assets.

The Life Journey’s Two Paths

THE Tell us about your findings on the connection between

INTEGRATED leadership character and business results.
HUMAN We enrolled over 100 CEOs in our study, and ended up with
complete data sets for 84 of them. As a result, we were able
to draw connections between leadership character and re-
turn on assets over the previous two years. We named this
measure the Return on Character, or RoC.
What we found is that neither age nor tenure impact the
bottom line. But a leader’s character does, and we measure
that based on behaviour. We studied the extremes — the
top-end ‘strong character’ leaders — and compared them to
Success ‘weak character’ leaders. We called the top group Virtuoso
Leaders, and the bottom group Self-Focused Leaders, for
Failures/
Mistakes obvious reasons. We were astounded to discover that Vir-
Mentors Mental complexity
Jobs tuoso CEOs brought in nearly five times greater return on
Worldview assets. In addition, they enjoyed a 26 per cent higher level
Education
of workforce engagement, and their corporate risk profile
Self-awareness
Influential was much lower.
adult Character
Parents LIFE EXPERIENCES habits
Describe the observable differences between a Virtuoso
and a Self-Focused leader.
The key difference lies in how they treat people. We ended
up with over 8,500 random employee ratings on these 84
OUTER INNER
JOURNEY JOURNEY CEOs, and the Virtuosos were described as demonstrating
all four of the universal principles in their day-to-day behav-
iour. The Self-Focused CEOs were found to exhibit those
characteristics half the time or less, and they were rated as
‘telling the truth’ only about half of the time.

indicative of character: integrity, responsibility, forgiveness
and compassion.
If you think about it, every parent around the globe
teaches their children about integrity: they teach them to tell
the truth and to keep their promises. They also teach them
to be responsible for their actions, and they teach them for-
giveness and compassion. These traits are universally-ad-
mired, and together, they define ‘leadership character’. We
then figured out a way to put some metrics around this and
‘measure’ the character of individual leaders.
Provide an example of a Virtuoso leader, and explain why
they deserve the title.
At the top of my list is the recently-retired CEO and founder
of Costco Wholesale, Jim Sinegal. Jim’s employees de-
scribed him as embodying the four principles and infusing
the resulting value system throughout the organization.
If you think about it, everyone who visits a Costco store
comes out with a smile on their face, and that’s because
employees are very focused on service; they treat their
‘members’ like guests, rather than annoying customers —

94 / Rotman Management Fall 2015

 About 70 per cent of us overestimate the strength
of our character as perceived by others.

The Return on Character Matrix

HEAD HEART
INTEGRITY FORGIVENESS
• Telling the truth • Letting go of one’s
• Acting with principles, mistakes
values and belief • Letting go of others’
and that’s all because of the culture Jim established. (i.e. ‘walking the talk’) mistakes
When the company was founded in the mid-1980s, Jim • Standing up for what • Focusing on what’s right
made three promises. First, he promised Costco members is right versus what’s wrong
that he would never stock anything but quality merchandise, • Keeping promises
and he would never mark it up by more than 15 per cent.
Somehow, Costco buyers have found ways to get great deals, RESPONSIBILITY COMPASSION
• Owning one’s personal • Empathizing with others
and they have stuck to that promise. For example, once they
choices • Empowering others
got an amazing deal on 40 or 50 grand pianos, and after • Admitting mistakes • Committing to others’
the 15 per cent markup, customers were able to buy one for and failures development
about $8,000 — instead of the usual $40,000. • Expressing a concern for
The second promise Jim made was to his employees: the common good
that they would be treated with respect and paid a living
wage. The average warehouse worker earns almost double
what they pay at Sam’s Club, their closest competitor. They
also close early on holidays and Sundays, so that their em-
ployees can enjoy their family lives. As a result, Costco en-
joys a remarkable retention rate that is amongst the best in
the retail industry. It also has a very low ‘shrink rate’ — the
term used for spoiled, lost or damaged goods. Most shrink
in the retail world is due to of employee theft; but Costco
hardly has any of that, and they have built a culture where Focused CEOs rated themselves 30 points higher than their
employees will report it if they observe it. employees rated them, and higher than the Virtuosos rated
The third promise Jim made was to investors: that he themselves.
would do his best to deliver a good return; however, that This tends to be true of people in general, and it means
would not be the focus of the business. The focus would al- that about 70 per cent of us overestimate the strength of
ways be on customers and employees. For the smart inves- our character as perceived by others. We all tend to live in
tors who saw the wisdom of this approach, a USD$1,000 our own version of reality, and I suspect that as much as 70
investment in Costco when it went public in 1985 is worth per cent of us don’t have an accurate view of the strength of
$60,000 today. That’s an annualized compound return of our own character.
16.5 per cent.
Talk a bit about the traditional Economic model of human
Is it possible to judge one’s own character? behaviour versus the newer Integrated Model, and how
People are actually very limited in their capacity to ac- they relate to leadership.
curately judge their own character. All 84 of the CEOs in Classic economic theory assumes that all people are totally
our study rated themselves as being people of very strong rational and self-interested. The problem is, this is an inac-
character, when in fact, only about 30 per cent of them curate view of human nature — and all sorts of bad results
were accurate. Overall, Virtuoso CEOs rated themselves come from assuming that people are 100 per cent selfish.
a little lower than their employees rated them — indicating Neuroscientists, geneticists and psychologists have come
a certain level of humility and self-awareness. But the Self- up with a much more complete view of human nature. This

rotmanmagazine.ca / 95
 view agrees that we are all born with a certain degree of self- fore you engage with others, you don’t consciously think
concern, but it also says that we are born to connect, to coop- about how to act: you just engage in a way that feels natu-
erate and to be in relationships with other people. ral to you, and that is based on the habits you’ve learned for
We all have this dual nature of being both very self- interacting with people.
concerned and very ‘other-concerned’, and Virtuoso leaders We all know someone who doesn’t treat other people
are able to keep those in balance. It’s not that they sacrifice well. But once you become aware of your own habits and
themselves totally, but they are also focused on other people how others really see you, you can make changes. Neurosci-
and contributing to the common good. These ‘integrated be- ence is making great headway in understanding how to help
ings’ are curious about the world and open to learning. This people change their habits. My colleagues and I are incorpo-
‘updated’ view of human nature is much more complete, rating these findings into our work, and we’re looking into
and it should be embraced widely. using gaming as a way of taking people through simulations
that provide tools for strengthening their good habits — and
Millennials represent 60 per cent of the global population weakening bad ones.
and are on the cusp of supplying leaders to every corner
of the globe. What is your message to them in terms of
building character?
I think very highly of Millennials. All of the in-depth stud-
ies of them show that they’re not going to follow the path of
Baby Boomers or Gen X. As the first generation of ‘digital
natives’, they’re much more connected: the average Millen-
nial has 250 friends on Facebook, and many of those are
global. So, there’s this new generation of people who see
themselves as part of a global community, rather than being
focused on one particular culture. As a result, they will be
much more focused on the common good.
They are also known to be very mistrusting of big insti-
tutions — and rightly so. They’re motivated to make those
institutions change, and as they get into leadership roles, I
believe they will. Of course, there are going to be some bad
actors, as well as outstandingly good actors; but as a genera-
tion, they are more highly-educated and optimistic about
the future than previous generations. I’m putting all of my
hope for the future on them, and I will do whatever I can
to empower them and educate them about the importance
of character — and how to hold other people accountable to
their standards.

Fred Kiel, PhD, is a founding partner of KRW Internationals and a

Can character be learned?
pioneer of the field of executive coaching. Called ‘the global dean of
It can, because as we discovered, the way you treat other CEO coaches’, he is the author of Return On Character: The Real Reason
people is a matter of habit, and habits can be changed. Be- Leaders and Their Companies Win (Harvard Business Review Press, 2015).

96 / Rotman Magazine Fall 2015

QUESTIONS FOR Brad Katsuyama

Q
&A A stock market innovator
describes his view
from the leading edge.
Interview by Jessica Leigh Johnston
After discovering that a regulatory loophole had created the
conditions for pervasive predatory high-frequency trading,
former RBC trader Brad Katsuyama launched IEX, an al-
ternative stock market, in 2012. He describes his journey to
Rotman Management.

We have to go back a few years to understand your story:

a turning point for the U.S. stock market came in 2007,
with the introduction of Reg NMS. What was this regula-
tion intended to do, vs. what it actually did?
Prior to Reg NMS, we had what were called ‘trade throughs’,
which means that a trade was happening on one exchange
at a price that was inferior to the best price on another ex-
change. Reg NMS was intended to harmonize markets and
prevent trade throughs — to deliver the best price available
in the market.
However, the idea of ‘best price’ turned out to be com-
plicated, because what people believe to be the price right
now — well, what does right now mean? One second had be-
come an eternity in stock trading: people were measuring
things in microseconds and nanoseconds. This is where the
inefficiencies started to come in, and the markets evolved
into a competition as to who could be the fastest.

rotmanmagazine.ca / 97
 It took us nine-and-a-half months to raise
our first real round of capital, because we
didn’t want to take money from any big banks.
What problems arose out of this focus on speed?
One was that it forced exchanges and brokers — trading on
behalf of clients — to create technology called ‘smart order
routers’, to try to route orders across different marketplac-
es. Basically, people would pick up signals and information
from one market and use it to affect trade on a subsequent
market. This led to electronic ‘front-running’, whereby
brokers detect intent to buy or sell from one venue and race
you to another one to trade ahead of you. So, what the av-
erage investor believes to be one atomic action across the
market is actually a series of actions separated by millisec-
onds that computers can arbitrage like it’s happening in
slow motion.
The second problem is that in this harmonized mar-
ket, you had to have a central understanding of the best
bids and offers at each of the exchanges. This was the idea
behind the securities information processor (SIP), which is
this central tape of information for all trades and quotes.
The SIP processes all this information and distributes it in
a fairly efficient manner; but the problem is, it’s very slow
compared to the direct proprietary feed that each exchange
sells. That allowed some market participants to actually
build a faster version, which essentially created a two-
tiered playing field. Anyone who relied solely on the SIP
was now inherently getting information slower than some-
one buying all of the direct feeds. Essentially, it created a
‘class system’ in the market.
It took some world-class sleuthing to figure out what had
changed. Can you describe the process of piecing it all
together?
I started working at Royal Bank of Canada in Toronto full
time in 2001, after interning for two years, and then moved
to the United States in 2002. I was trading energy and tech-
nology stocks, and in 2007 — around the same time Reg
NMS came into play — they promoted me to run U.S. trading
for RBC. That’s where I really started to see the problems.
I noticed that, whatever bids or offers I saw on my
screen, I could never actually trade the amount that was be-
ing shown to me. My screens were essentially an ‘illusion’ of
98 / Rotman Management Fall 2015
a market that I once knew. This went on for quite some time.
In 2009, RBC offered me the opportunity to run global elec-
tronic sales and trading, and I went from managing a group
of traders to managing a group of developers and engineers
who were building algorithms and infrastructure that were
interconnecting the exchanges and RBC. Taking over that
group gave me knowledge that I never would have had if
I’d continued down the trading path. Understanding the
stock market isn’t about tuning in to CNBC or watching peo-
ple running around on the floor; for me, it was actually about
understanding the networks, the hardware, the servers —
everything about how the stock exchange worked.
That was the spark, and we eventually figured out that
people were ‘racing us’ between exchanges, and that the
exchanges were enabling this by selling high-speed data
and technology. I realized there was this gross inefficien-
cy in the market, and it was being exploited by the largest
stock exchanges and some high-speed traders.
You came up with a tool called Thor, to prevent front-run-
ning. Tell us a bit about it.
With the team I’d assembled at RBC, we started to realize
that the exchanges had a lot to do with enabling high speed
trading; we just didn’t know exactly how. When I pulled up
a quote on my screen and I saw 100,000 shares of Intel of-
fered to sell at, say, $21, it wasn’t 100,000 shares on NAS-
DAQ, it was actually 100,000 shares divided up and spread
out. When I tried to buy those 100,000 shares and sent an
order through RBC’s system, it went to a smart-order router,
which said, ‘Okay, there are 5,000 at this exchange, 10,000
at that exchange, and 12,000 at this exchange’, etc., and it
blasted orders out to the different markets. But because the
exchanges were located in different geographies, the orders
would arrive at different times.
My partner said to me, “What if someone is able to
arbitrage the time it takes for us to get from this first ex-
change to the last one?” At the same time, I hired Ronan
Ryan, who had built high frequency trading infrastruc-
ture and networks, and he came in and said, “By the way,
it takes RBC two milliseconds to get from this building to
 The vision was to build a market dedicated to being
transparent and fair; and I think we’ve done that.
that building; I can get from this building to that building in
476 microseconds, which is four times faster.” For context,
it takes approximately 300 milliseconds to blink your eye;
so we’re talking about imperceptible differences in speed.
At that point, you realize, ‘Oh my god — what I believe
to be this instantaneous transaction isn’t actually instanta-
neous, because someone can get in between all those or-
ders.’ The first thing I said to Ronan was, “Well, can we get
faster?” He said no, so the only way we could really battle
this was to get slower. That’s what led to the development of
the software behind Thor. We decided to try to stagger the
orders as they went out to try to arrive at all of the exchanges
at the same time. We eventually got the variance from two
miliseconds down to 290 microseconds, which meant that
whatever I saw on my screen, I could now buy or sell the
full amount. This changed everything: it was a really big dis-
covery.
At what point did you decide to take that discovery and
start a whole new exchange?
At RBC, our revenue growth skyrocketed, but about 12
months in, it started to trail off. As I started to call around
and ask questions of clients, one that really resonated said
to me, “I love what you guys are doing, but you’re only solv-
ing three per cent of my trading problem.” And I was like,
what are you talking about? “Three per cent — that’s the
amount of trades that I can execute with RBC — what about
the other 97 per cent of my trades?” A lot of these big mu-
tual funds and hedge funds wanted to trade with multiple
brokers, so the idea that RBC would capture 100 per cent of
their trading was just impossible. It wasn’t scalable.
At the same time, people on my team were getting job
offers; I was getting job offers, and I realized that this group
was going to get broken up. So, we sat back and thought
about how to create a larger-scale solution, and the answer
that dawned on us was to go out there and build a new kind
of stock exchange.
The fact is, stock exchanges have enabled most of what
has happened. High frequency traders are capitalists in
a system that’s inefficient, but the exchanges are the ones
that have actually made it inefficient. So, building a new
stock exchange became the scalable solution.
What was the vision for IEX?
We wanted to go back to the roots of the stock market, to
break all of the complexity down to the most atomic level
and rebuild the simplest market we could — and the fairest
market we could. By ‘simple’, I mean that everyone under-
stands how it works. Simple means stripping out advantages
for some, and getting people to come here for the right rea-
sons. The vision was to build a market dedicated to being
transparent and fair; and I think we’ve done that.
What did it take to get IEX off the ground?
The first thing we had to do was build our core team, which
was made up of a small group from RBC, some people from
NASDAQ and some people from high-frequency trading
firms. Next, we had to build the technology system. We’ve
developed most of our own technology, in-house. The oth-
er side is regulatory. We had to get the right approvals; you
can’t just launch a stock market and have people connect to
you. The rest of it was just like any start up.
It took us nine and a half months to raise our first real
round of capital, primarily because we didn’t want to take
money from any of the big banks. When I left RBC, I had
a huge number of offers for funding, but I turned them all
down because we wanted to be independent from the banks.
We didn’t want any conflicts. That was the only way to really
make this scale. Doing all of these things was far more work
than I ever imagined.
What has the response been to IEX?
We have had a huge amount of support, but not surprisingly,
the people that we’ve disrupted and those that have been
called out are very unhappy. We expected that. You can’t
affect change without taking money out of certain people’s
pockets, and no matter how much money they have made,
they still get very, very angry when you try and take it away.
The good news is that the amount of support we have re-
ceived far outweighs any of the detractors.
rotmanmagazine.ca / 99
 This adventure landed you as the central character in
Michael Lewis’s book, Flash Boys. How did you and Lewis
come to meet?
Michael was writing an article for Vanity Fair about Sergei
Alenikov, the programmer who got thrown in prison for
high frequency trading computer code. He contacted a cou-
ple of guys from The Big Short, one of his prior Wall Street
books and said, “I need to learn about high frequency trad-
ing — who should I call?” And they pointed him to me.
For the first few months, it was just me giving him back-
ground about high frequency trading in general, without
spending much time talking about IEX. I was helping him
write a story about somebody else. When he came to New
York, he asked to come by our office — which was horrifying
because at the time, we were working in a 200-square-foot
room with no windows. I’d always been a fan, and I was like,
oh my gosh, this is where I’m going to meet Michael Lewis.
But the second he came in, he looked around and I could see
the light in his eyes.
He started to ask lots of questions about IEX at that
point, and it grew from there. In a way his journey through
the stock markets and the exchanges was similar to mine,
where the more time he spent asking questions, the more in-
terested he became in the topic. By the end, he said, “This is
going to be explosive.”
What have been the effects of the book’s publication, for
you and for IEX?
For business, it’s been amazing: we were able to raise a large
round of capital, and we continue to break records for vol-
ume and market share. The amount of adoption continues to
grow, as we have over 150 brokers connected to IEX. It’s def-
initely helped to educate people on the problem we’re trying
to solve, and I don’t think we could have asked for anything
more than that.
Personally, the spotlight was never something that I
longed for, and it’s definitely changed my life. I get recog-
nized on the street, and I get invited to do all sorts of things
— most of which I can’t do, because we’re so busy. It did
create a firestorm on Wall Street, but overall, it gives us the
100 / Rotman Management Fall 2015
ability to convey our message, and it’s very important for the
markets — and for society — that this gets fixed.
What’s next for you and IEX?
When you quit a job and start a company, you can’t really
have any expectations, because you have no idea what’s go-
ing to happen. So, we kind of live milestone-to-milestone.
If you were to tell me that we’d be this far along after three
years, I don’t think I would have believed you. We’ve ex-
ceeded any expectations that anyone has had for us.
The next thing is to become a national stock exchange.
Right now we’re a ‘dark pool’, which isn’t allowed to publish
quotes. If you go on Google or Yahoo finance, you won’t be
able to see a bid or an offer from IEX, because we’re not a
national stock exchange. We’re filing to become one, and we
hope to have approval later this year. This would allow us to
compete directly with the New York Stock Exchange and
NASDAQ.
In a way, we’ve had all this growth at IEX, but we’ve
been fighting with one hand tied behind our back by not be-
ing a registered stock exchange. Hopefully that other hand
comes loose later this year, and then we can really get going.
There’s a lot more we can do.
Brad Katsuyama is the co-founder and CEO of IEX. Before founding
IEX, Canadian-born Katsuyama worked for many years at the Royal
Bank of Canada, where he rose to the position of Global Head of
Electronic Sales and Trading.
QUESTIONS FOR Mark Barden

Q
&A A consultant and author
explains why we need
to change our opinion
about constraints.
‘Constraints’ have a bad rap with most people; but you
see them as ‘catalytic forces that stimulate new possi-
bilities’. Please explain.
A constraint is a limitation imposed by outside circum-
stances — or ourselves — that materially affects our ability
to do something. So, of course, most people think of con-
straints as limiting. But in our work with challenger brands
and entrepreneurs over the past 15 years, we’ve seen many
of them turn limitations into opportunities, ultimately find-
ing better solutions than they might have if they’d been un-
constrained.
For example, Zappos, the online shoe retailer, faced
a huge constraint from the beginning: people couldn’t try
on the shoes before buying them. That limitation spurred
them to introduce free shipping both ways, on unlimited
Interview by Karen Christensen pairs of shoes — two signature elements of what they call
‘wow’ service. These ideas, borne of constraint, created
Zapppos evangelists, whose word of mouth drove the com-
pany’s growth.
I remember when I first heard about Twitter, and its
limitation of 140 characters per message. My first thought
was: is that even possible? Surely, it was just going to en-
gender an endless series of sound bites. And sure enough,

rotmanmagazine.ca / 101
 The whole concept of a brand is, in effect, a beautiful constraint.
it has; but at the same time, Twitter is unique in its ability to
let us ‘take the pulse’ on what’s happening, leading to some
profound impacts on culture — and all from the significant
constraint of just 140 characters.
There are so many of these kinds of stories right across
the board, and as a result, my colleagues and I are on a quest
to change the way people engage with constraints. If more
people start to view constraints as opportunities, we feel cer-
tain it will lead to more game-changing moments—in busi-
ness and in the world more broadly.
You have said that the whole concept of a brand is, in ef-
fect, ‘a beautiful constraint’. How so?
The art and science of brand management is about defin-
ing — very specifically — what the ‘guardrails’ are for your
brand. What does it offer, and what does it not offer? Who
is it for, and who is it not for? When this is done really well,
you can contain an awful lot of power within a very tight
definition. And when brands go wrong, it’s because people
fail to do that.
When my partner Adam and I were on the book tour
earlier this year, he was in the bookshop at LAX, looking
for our book, when he saw this Harley-Davidson neck pil-
low for air travellers. We now use that as an illustration of a
brand that has forgotten what it’s about: if Harley-Davidson
is trying to sell rebellion to middle-aged men via motor-
cycles at the same time that it’s selling cushy neck pillows,
something is amiss. That’s kind of a simplistic example of
what it looks like when you forget about the constraints that
give your brand power.
When working with brands, it is important to set param-
eters around what the brand is. And this turns out to be quite
liberating, because having a single-minded idea of what the
brand is about forces people to explore the many dimensions
of that single idea. It gives them a concrete place to start ide-
ating, which is so much less terrifying than a blank sheet of
paper. Advertising legend David Ogilvy talked about ‘the
freedom of a tight brief.’ If you look at great brands like Nike
or Apple, they worked really hard in their early days to de-
fine themselves, and now, 20-30 years on, they have some
latitude to expand that core idea into lots of different catego-
ries. The skill comes in knowing how not to dilute the brand
when you expand it.
102 / Rotman Management Fall 2015
You work with lots companies that set out to challenge
big incumbents. What does it mean to ‘think like a chal-
lenger’?
Challenging is first and foremost about having ambitions
that clearly exceed your resources, and then having a will-
ingness to embrace the implications of that gap. Take the
airline industry, and the series of challengers we have seen
to the major domestics. Southwest Airlines was the first
to fly to small airports around the U.S. With tickets as low
as $69.00 and the playful attitude of their crews, they set
out to democratize air travel. They only had three planes at
the beginning, yet they needed to fly four routes. That con-
straint forced them to innovate in the turnaround, introduc-
ing ideas like ‘no seat assignments’, for example, to speed
up boarding.
A number of years later — after lots of hideous experi-
ences flying domestic airlines in the U.S. — JetBlue came
in and said, ‘We’re going to put humanity back into air trav-
el,’ challenging many industry practices of that time. For
instance, they flipped the convention of ‘more legroom at
the front’ and gave passengers ‘more legroom at the back’.
And then Virgin America, more recently, set out to put
glamour into the skies. With very little marketing budget,
it partnered with others to create unique onboard experi-
ences to drive social sharing, including a fashion show in
the sky with Victoria’s Secret and the premiere of season
three of Entourage.
You initially found that when it comes to dealing with
constraints, there are three different types of people.
Describe them, and how your thinking evolved.
The first type we identified is the Victim. When confronted
with a constraint, these people say, ‘Okay, I’m going to have
to reduce my ambitions because of it.’ That’s a victim men-
tality; you’re giving up before you even start. It’s an entirely
human response, and we all do it.
Somewhere further along the spectrum is the Neutral-
izer, who says, ‘Okay, I see that constraint. But I can prob-
ably figure out a work-around that allows me to still meet
my ambitions.’ Lastly, there are the Transformers. These are
people who see the constraint as an opportunity. They may
not know exactly how at the beginning, but they understand
that constraints contain the possibility of transformation.
 Entrepreneurs and start-ups are not bound by self-limiting
beliefs about how the world works.
We developed this hypothesis of ‘three types of people’,
and then we went out to talk to about 30 successful indi-
viduals who had been able to make constraints beautiful, to
share our model with them.
Michael Beirut, the renowned Pentagram designer
and partner, said to us, “Actually, I don’t think these are
three different types of people at all; I think these are three
stages that all of us go through — even me!” He went on to
explain that he gets ‘impossible’ briefs from clients all the
time, and he always starts in the Victim mindset. “I always
go to that place of, ‘Oh, this is impossible’.” Basically, it takes
a few days to calm down, and then he starts to think, “Well, I
guess there is some way to do this.”
In his own personal journey, he often ends up in the
Transformer phase, where he finds opportunities hidden in
these impossible briefs to do something very different. He
tells a wonderful story about his work on the exterior of the
New York Times building in New York. The project came with
all these seemingly impossible restrictions that, in the end,
provided the stimulus for an unusual and quite beautiful de-
sign solution that simply wouldn’t have been imagined with-
out the almost ludicrous set of constraints he had to work
with. It’s a remarkable story; google it!
Michael totally changed our thinking, so we started test-
ing this new hypothesis with other people, and they agreed.
The Victim mindset is a very human response to threat —
it’s kind of like the fight-or-flight response, when we throw
up your hands and shout, ‘This can’t be done.’ We advise
leaders to allow their teams to indulge in that moment: let
them talk about how the situation ‘sucks’, so they get it all
out and have a cathartic moment. Then you can say, ‘Okay,
great, we’ve sat at the Victim table for a while, and it’s been
cathartic. Now, let’s move to the next table and see the situ-
ation through the Neutralizer lens.’ We’ve experimented
with this quite literally — walking people around the room
from the Victim table to the Neutralizer and Transformer
tables, to allow them to have those different relationships
with the constraints.
Our goal is to make the journey more visible to people,
and help them get to the Transformer stage, where they can
practice ‘Can-If ’ thinking. ‘Can-If ’ is a piece of language
that forces optimism into the conversation to create a flow of
ideas on how to make constraints beautiful.
Four Categories of Constraints
Constraints of Foundation. These occur when we are
limited in something that is usually seen as a foundational
element of success.
Constraints of Resource. These occur when we are
limited in an important resource, such as money or people.
Constraints of Time. These occur when we are limited
in the amount of time we have to do something.
Constraints of Method. These occur when we are
limited by having to do something a certain way.
What is a ‘propelling question’, and why are they so im-
portant?
There’s a concept in the academic literature called ‘path
dependence’, which came out of the world of technology.
The easiest example of path dependence is the QWERTY
keyboard, which we all have on our computers and tablets.
Although it is arguably not the most efficient way to type,
at some point in history, someone developed the keyboard
that way, and we’ve stuck with it. We’ve become path de-
pendent.
Likewise, inside organizations, we see cultural path
dependence all the time. There are certain ‘ways that we
go about’ things, that are founded on historical behaviour
that once served us well. The modern corporation is de-
signed to be an efficiency machine, so if we do something
very early on that works, everybody says, ‘That worked;
let’s repeat it.’
These systems get baked into our DNA: we hire people
who are good at doing that same thing, making us even
better at doing it: and the metrics we put in place help us
measure our ability to do it. These become ‘grooves’ that
an organization takes flight on. Over time, however, these
grooves can become ruts that we get stuck in, blinded to the
opportunities that exist in newly-added constraints. This is
rotmanmagazine.ca / 103
 Can-If Thinking

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— but the impact on their supply chain was profound. Less
waste means greater yields from the same resources and
more income for the farmers; and it’s been great for margins
throughout the system. This process of questioning old as-
sumptions, breaking path dependence, and applying ‘can-if
thinking’ has led to change across the entire system. Unile-
ver is well on its way to meeting its ambitious goal; and it was
all enabled by that big propelling question from the very top.
why entrepreneurs and start-ups are so good at dealing with
constraints: they’re not bound by self-limiting beliefs about What is required of a leader who wants to embrace the
how the world works. concept of beautiful constraints?
Over time, we realized how important it is to ask what The best place to start is to ask people to go back into their
we call a ‘propelling question’, which forces people out of own personal biography and think hard about a situation
their conventional, everyday path. It’s about taking a con- where they were able to embrace a constraint, or go back
straint and bringing it into the middle of the conversation: into the history of the company and find a story about it.
‘We are going to take these constraints we’ve always had, Most people can find a time in their lives when they have
and make them levers of opportunity in our business. And responded as a Transformer, and the history of any success-
let’s do something quite counterintuitive and increase our ful company will have moments of inventiveness that can be
ambitions in the face of these constraints’. harnessed for ongoing inspiration.
This is the opposite of all that blue-sky thinking that so In the book we talk about the 3Ms: mindset, method
many corporations embrace when they’re looking for new and motivation. The mindset has to come first: you will only
ideas. Our approach says, don’t do that; instead, be very re- be open to exploring ways to make a constraint transforma-
alistic and focus on the constraints you face; make them the tive if you believe it is possible.
source of new paths to your ambitions.
When Paul Polman became the CEO of Unilever,
he posed a high-level propelling question: “How can we
double the size of Unilever by 2020, while at the same time,
cutting our environmental impact in half?” He forced the
search for answers to these questions deep into the Unilever
supply chain. We spoke to Pier Luigi Sigismondi, the head
of global supply chain at Unilever, about this, and he told us
that everyone knew immediately that they couldn’t deliver
on Polman’s vision without challenging some deeply-held
assumptions and questioning many conventional practic-
es. That big propelling question triggered an avalanche of
Mark Barden runs the west coast business for eatbigfish in the U.S.
smaller propelling questions deep into the organization, and He is the co-author, with Adam Morgan, of A Beautiful Constraint:
Sigismondi’s team began looking at ways to reduce waste in How to Transform Your Limitations Into Advantages, and Why It’s
the tomato supply chain. Everyone’s Business (Wiley, 2015).

104 / Rotman Management Fall 2015

FACULTY FOCUS Richard Nesbitt (MBA ‘85)
Leadership Lessons
From a Financial
Services Veteran
Interview by Karen Christensen
You recently retired as CIBC’s Chief Operating Officer,
where you were responsible for the global operations of
Wholesale Banking, Technology and Operations, Strate-
gy and Corporate Development, International Operations
and Treasury. What were the key challenges of this multi-
dimensional job?
When I took on the role in 2008, it was a
particularly difficult time for CIBC, due
to the credit crisis. There was certainly
no time to learn on the job: I had to start
making decisions on the first day. The
most important challenge for any senior
executive is to form a strong management
team, and in my experience, that takes up to a year — some-
times two. For a while, you’re running things on your own,
and it can be a very lonely time. By January of 2009, I had
hired a full management team — people from all over the
world, who came to Toronto to help us sort out our problems.
I have never been a fan of siloes, where certain departments
put their interests ahead of the whole company. People are
extremely important, no matter where they are in the firm or
what they’ve chosen to do in life, and leaders must encour-
age everyone to work as a team.
As indicated, you had a ‘bird’s eye view’ throughout the
financial crisis. What key lessons do you hope finance
leaders have taken from it?
For the next 30 years, people will be debating the causes
of the crisis, but to me it’s crystal clear: excess. Excess in
terms of the amount of leverage people were taking; ex-
cess in terms of mortgage debt; and excess in the types
of securities that were being created — which were much
higher-risk than the rating agencies said they were. In my
view, the dangers of excess and the lack of personal re-
sponsibility we witnessed are the most important lessons
to be learned.
Of course, there are other lessons. From day one, I
taught my people that they were personally responsible for
the risk of our bank. They couldn’t blame anybody else or
say, ‘I thought somebody else was handling that.’ Another
lesson is, don’t bet the bank: never bet your organization on
a single venture or series of transactions. Some companies
have to do this — if you’re an aviation firm building a new air-
plane, for example — but most don’t. The fact is, some banks
were betting their entire futures on perpetually-increasing
housing prices and mortgage markets, and that is an unac-
ceptable thing to do.
Before joining CIBC, you were the chief executive of TSX
Group, which operates the Toronto Stock Exchange. On
page 97 of this issue, we interview Brad Katsuyama, the
founder of IEX. What is your take on ‘alternative trading
systems’?
I’ve read Flash Boys, and I found it very entertaining. I would
agree, 100 per cent, that front-running is wrong. It’s illegal,
and people who are convicted of it should pay the price.
However, since the launch of the book, there have been very
few — if any — prosecutions for front running, and the rea-
rotmanmagazine.ca / 105
 From day one, I taught my people that they were personally
responsible for the risk of our bank.
son is that the structure of the industry was approved by the
SEC and other regulators, so the exchanges and their clients
are operating under approved rules. The question to ask is,
when you move to multi markets and electronic trading,
how will people compete? It was clear when the system was
established: they will compete on price, features and speed.
This is neither good nor bad, but it was entirely predictable.
To make an analogy, I don’t think it makes any sense
to run the Kentucky Derby with horses that are older than
three years old. That’s the whole purpose of the Derby: to
find the fastest three-year-old. And I don’t think we should
let certain horses start further down the track from others.
However, if we find out that somebody is doping a horse or
operating in another illegal way, that should be taken very
seriously. People have to live by certain rules. So, IEX is an
interesting perspective on the modern markets, and the
modern markets are an evolution of something that people
wanted. Market participants deserve choice, and IEX is an-
other choice; that is the way it should be.
You have been recognized for your pioneering efforts to
advance women into leadership positions. Why is this is-
sue so important?
First and foremost, this is a business issue involving people.
I can say in all honesty that, every time I’ve added a woman
to a management team, uniformly, doing so has improved
the quality of decision-making by that department or busi-
ness. As I became more senior, I started to say, “Wow, this
really works; the whole organization should do it.” As a re-
sult, we did a number of things. For one, we addressed our
hiring practices, making sure that women were always be-
ing interviewed and that a certain number of the graduates
we hired were women. We did our best to ensure that the
‘plumbing’ of the company was appropriate — that there was
no built-in bias in our recruiting or promotion committees.
We also addressed our maternity policies, to get women
back in the office after having children feeling good about
the firm’s support. We made certain that women were mov-
ing up at all levels as visible role models — for both women
and men.
The fact is, in order to make progress in this arena, you
have to work with men. Today, women make up less than five
106 / Rotman Management Fall 2015
per cent of CEOs running public companies. We seen to ac-
cept that some women can run companies, but it’s not seen
as a universal attribute. The fact is, the research shows the
complete opposite: if you add women to a management
team or a board, performance improves. Some men are
already advocates of advancing women on boards and in
management, but once more men recognize that doing so
will improve their performance, I believe things will start to
change fairly quickly.
You yourself did not come to this conclusion until you had
substantial leadership experience. Was there a specific
person or incident that got you thinking about this?
I always tell the story about the time I was running the eq-
uity division at CIBC Wood Gundy, when, all of a sudden,
several of the young women in the division got pregnant. I
avoided the issue for as long as I could, but it became clear to
me that these women were very unhappy with our maternity
policies. My view at the time was, “What’s it got to do with
me? I don’t run this company; I run the equity division, and it
is doing just fine, thank you very much!” The person who re-
minded me that I should care was Richard Venn, then-pres-
ident of Wood Gundy. Richard called me in one day, and he
didn’t want to talk about how well my division was doing: he
wanted to talk about the concerns within my division, and
what this said about me, as a manager. I said to him, “You
are the president — why don’t you fix it?” And he said, “You
are going to fix this.”
So, I met with my people, and found out what they
wanted. They kept telling me that our policies were not ‘on
market’ — even though the HR department insisted they
were. So, I did my own research to determine what ‘on mar-
ket’ meant, and sure enough, we weren’t there. I had the
facts to back me up, so HR had to listen. I unilaterally de-
cided that Now I would change the policies for the equity
division. When I told the employees, they were very pleased
— but they wondered about the rest of the company. I indi-
cated that the rest of the company would either get on board,
or they would have their own issues to face. What happened
next amazed me: every other division adopted these poli-
cies. Even today, CIBC has the best maternity policy of any
investment bank in Canada; but it only happened because
 I’ve tried to soften my approach over the last 15 years,
because as a senior executive, you have to take everybody’s
feelings and considerations into account.
I recognized that as a leader, I had the responsibility for es-
tablishing policies that were an integral aspect of retaining
talented women.
You had a reputation as a tough leader; how did you get
this rep, and once you realized you had it, did you adjust
your approach?
The fact is, if you look at my career, I’ve always taken on diffi-
cult situations that needed to be turned around, or situations
where a product didn’t exist and it had to be created. Over
time, I got this reputation that, when a tough situation arises,
‘that’s where you put Richard, because he will sort it all out’.
I believe that leaders must act to protect the people and the
firm who will be there when the business is returned to an
acceptable operation, and doing that often requires layoffs,
changes in direction, and favoured people not being favoured
anymore. I’ve never been one to hold back on change, and I
think that’s how the reputation emerged. There’s a reason
why [Rotman Professor] Ajay Agrawal uses the term ‘cre-
ative destruction’: any change that involves creation inevita-
bly involves destruction.
I’ve tried to soften my approach over the last 10 to 15
years, because as a senior executive, you really have to
take everybody’s feelings and considerations into account.
You can’t go along like when you were younger — with an
attitude of, “I know this to be true, and everybody else be
damned.” A senior leader has to look beyond that perspec-
tive. I never think of myself as the smartest person in the
room, and as a former trader, I can change my mind 180 de-
grees if someone has a better argument. But if I come upon a
vacuum of leadership, I will fill it, because I don’t think that’s
appropriate for any organization. People value their jobs and
their livelihoods — and they have a right to expect someone
to lead them.
I’ve always been happy to take on very opaque situ-
ations, where we don’t know what the future’s going to be
like, because we have to create it. That’s what we did with
the Toronto Stock Exchange by acquiring the Canadian
Venture Exchange in 2001 and then creating TSX Group.
No one in Canada had ever created a for-profit, public stock
exchange; no one believed that we could combine the best
of the Toronto and Montreal exchanges to create a single
multi-asset class, full service marketplace. But that is what
our teams did.
For me, the highlight of leadership is assembling a team
of people to help create the future — and these are actually
the most exciting challenges for employees, too. People will
put a lot of effort into something that they believe will have a
lasting impact on the economy or society.
You are now involved with the Mind-Brain-Behaviour Hive
at Rotman, which is exploring the neurological founda-
tions of learning and decision making. What can we ex-
pect from it?
This exciting new initiative is being headed up by Profes-
sor Mihnea Moldoveanu, and I chair the advisory board.
We will be conducting research into how the brain reacts to
different stimuli, and how to use that information to create
better instruction for managers — and thereby, better lead-
ers. For example, there are now various types of eyeglasses
out there that record reactions; in the brain; how might we
use similar technology in a management situation? We will
also be looking into how managers’ brains react in different
situations. For instance, should they make decisions before
or after they eat? Under different lighting conditions? If we
can define the conditions under which people make the best
decisions, we can train better managers. I believe this work
will ultimately change the way we educate future leaders at
Rotman.
Richard Nesbitt (MBA‘85) is an adjunct professor at the Rotman School
of Management and Chair of the Advisory Board of the Mind Brain
Behaviour Hive, University of Toronto. He will be teaching a course
for MBA students called “How Banks Work: Management in a New
Regulatory Era”. He joined Canadian Imperial Bank of Commerce in
2008 and retired in September 2014 as CIBC’s chief operating officer.
He received the 2014 Visionary Award from Women in Capital Markets
for his work to advance women in finance.
rotmanmagazine.ca / 107
 QUESTIONS FOR David Burstein

Q
&A The Millennial political-
movement founder
and author describes
his generation’s approach
You have spoken and written about the Millennial genera-
tion’s ‘pragmatic idealism’. How do you define this term?
Idealism is the belief that we should adopt moral princi-
ples, even if they have negative effects on our lives. The
idealist is willing to suffer in order to do what she thinks
is right. Pragmatism, on the other hand, is a rejection of
idealism. If the Idealist’s principles get in the way, the
Pragmatist does whatever is deemed as practical, with no
concerns for morality.
For a very long time, we have looked at pragmatism
and idealism as lying at opposite ends of a spectrum. We’ve
gone through periods where we’ve been deeply idealistic
as a country and as a society; and periods when we’ve been
deeply pragmatic.
Today, it has never made more sense to blend the two
and be a ‘pragmatic idealist’. That’s because the scale of
to life and work. the challenges we face is so huge — beyond anything that’s
come before — while at the same time, our ability to take
Interview by Jennifer Anikst
them on is greater than ever, thanks to all the unique oppor-
tunities provided by technology. To me, pragmatic idealism
means that you want to change the world for the better, and
you believe that the tools exist to figure out how to do that.
The fact that my generation thinks this way bodes very well
for the future.

108 / Rotman Management Fall 2015

 Leaders have to be proactive about digging into what
their young employees are passionate about.
Why do you call Millennials the ‘pro-reality’ generation?
People born between the early 1980s and the early 2000s
are the first generation to have had no choice but to accept
the many harsh realities of our world. For example, with
climate change, we are the generation that will have to live
with its impact more than previous generations, and we
don’t get to choose whether or not we believe that it’s real.
Millennials are being forced to accept — for better or for
worse — the reality of the world we live in, and we are oper-
ating from that acceptance as a basis for understanding and
seeking progress.
What are some of the key differences between Millenni-
als and other generations in the workplace?
It’s important to note that this generation will make up half
of the workforce by 2020: for the first time in history, a gen-
eration will represent both the largest consumer force and
the largest employee force, simultaneously. Any conversa-
tion about Millennials in the workplace needs to be ground-
ed in that understanding.
As a generation, we have a very different attitude
around what it means to ‘have a job’. Over half of Millen-
nials say they want to be entrepreneurs, and many others
are seeking careers — not just jobs — much earlier than pre-
vious generations. They seem to be saying, ‘I want to have
meaning and purpose in my life, and I want a job that serves
me in an impactful way.’ That means jobs that allow them
to contribute, not just to the betterment of an organization,
but of the world, as well. These young people are looking
around and asking themselves, ‘Where can I focus my ef-
forts and make a positive change?’
Much of the world — not just Millennials — is hyper-con-
nected through digital technology, and you believe that’s
a good thing. How so?
The relatively new ability to tap resources anywhere in the
world is extremely powerful. It allows us to share ideas and
questions, and to make real improvements. Millennials are
the most global generation in history, and that is very much
tied to the fact that they are the most technology-driven
generation. It’s not just about texting, e-mailing or tweeting:
it’s about a new way of existing, where connections — and
solutions — can be created globally and efficiently — some-
times within seconds.
You have said that the average Millennial will have 14
jobs. Why is that, and what can organizations do to retain
young workers for as long as possible?
Millennials think about their careers in a more linear func-
tion than vertically. Once they have learned everything they
can from a particular job, and grown in all the ways they can
grow, they are ready to move on to the next challenge. It’s
not that they can’t hold down a job or figure out what they
want to do with their lives, but rather that they want to have
lots of different experiences. They are very eager to learn
new things, and they want to grow and continue to pursue
that sense of meaning I touched on earlier.
The best thing leaders can do is focus on shaping their
corporate culture. They really have to be proactive about
digging into what their young employees are passionate
about, and create a meaningful, valuable experience for
them. The great news is, this is a prime opportunity to build
better organizations and create progress for the future —
because when we talk about Millennials, what we’re really
talking about is the future. We’re talking about the prefer-
ences, goals and values that are going to be part of every-
thing in our world for the next 20 to 30 years. By addressing
these things and being thoughtful about them, you can get
ahead of the curve.
How do Millennials interact differently with brands? And
which brands have most successfully marketed to, or in-
teracted with Millennials?
Millennials are increasingly demanding that the brands they
buy demonstrate a commitment to social responsibility.
They want companies to become more deeply engaged in
socially- responsible practices, including going green, pro-
viding low-cost, direct impact in terms of charitable work
and pursuing a new agenda of responsible business prac-
tices — from fair trade to international labour standards.
rotmanmagazine.ca / 109
 Companies that have built a strong reputation
in philanthropy and social engagement
are more likely to attract Millennial loyalty.

Since Millennials are the largest consumer force in decades, a company to succeed, all the elements we’ve talked about
these concerns have been heard loud and clear by major need to come together and create a symbiotic relationship.
corporations.
Coca-Cola, for one, has done a terrific job of main- What is the best way to train young leaders so they can
taining its brand while expanding its marketing platform. affect change at a societal and global level?
It created a ‘reciprocal communication system’, whereby As indicated, Millennials are hungry to address the world’s
customers can talk to the company directly, as well as to problems, and they realize they have the tools and potential
other Coca-Cola fans, creating a sense of community and to do so. As a result, the challenge is to ground them and
engagement. When you achieve that, the result is tremen- centre them around their responsibility for the future. Every
dous brand loyalty — often, for a lifetime. organization and educational institution should be thinking
Companies that have built a strong reputation in phi- about the best way in which these young people can contrib-
lanthropy and social engagement also have a demonstrated ute their skills, resources and passions to make a real dif-
ability to attract Millennial loyalty. With their commitment ference. It is the Millenial generation’s responsibility to get
to environmental causes, Trader Joe’s and Burt’s Bees us to a better place in the world. As we settle into being the
have proven particularly adept at this and the same is true of dominant generation for the next 30 years, I really see that
Gap, Starbucks, Apple, Converse and American Express as our mission.
— all of them partnered with Project (RED) — which aims
to help alleviate the AIDS crisis in Africa.
Even without an explicit social agenda, young com-
panies often gravitate towards a high degree of social re-
sponsibility. Twitter is one such company. Although many
tweets are mundane or trivial, its ‘real-time’ capabilities
have played an important role in generating global aware-
ness for political movements like the Iranian revolution in
2009. It has been used by public figures from Lady Gaga to
New York Times columnist Nicholas Kristof to raise aware-
ness and funding for issues from bullying to the crisis in
Bahrain. Like most Millennial-era platforms, it is a forum
for expression in which positive social action regularly oc-
curs.

How do you respond to the criticism that Millennials are

often ‘entitled’ and are not hard workers?
I simply don’t believe that is true! I think the claim arises out
of what we say about every group of young people that comes
along. Looking back, the exact same things were said about
Generation X, and about young people in the 1960’s. This is
how older generations tend to describe young people. Em-
ployers have to shoulder some of the responsibility for ad-
justing to this group of 80 million young people. In order for
David Burstein is the CEO and founder of Run for America, a citizen-
powered movement to reimagine politics, reinvigorate government,
and restore the promise of America for the 21st century. He is the
author of Fast Future: How the Millennial Generation is Shaping Our
World (Beacon Press, 2014), the first book about the Millennial
Generation written by a Millennial.

110 / Rotman Management Fall 2015

POINT OF VIEW Aline Frankfort + Jean-Louis Baudoin
The Art of Shaping
the Future
Amidst all the diverse opinions in our
world at the moment, most people can
agree on one thing: we will not be able to
solve 21st century issues with 20th century
ways of thinking and acting. The inher-
ited organizational vocabulary around
leadership and the ‘windows’ that it opens
up in our minds are insufficient to face the
complex challenges of our times. In this
article we will introduce an approach that
invites each of us — regardless of gender,
race or education level — to become a
Shaper of the future.
The fact is, in today’s interconnected world, you no lon-
ger have to hold a leadership title in order to take a stand,
do something important, and make an impact on society.
‘Shapership’ is our term for the art of shaping new realities,
armed with a clear acknowledgement of what is and a trans-
formative vision of what could be. At its core lies a completely
different way of being, seeing and acting that brings new
‘shapes’ and models to the world.
Shapers do not act alone, especially in our highly-net-
worked age. Instead, they create new forms of collabora-
tion where people join their ecosystem because they want to
be part of the journey. Whether it is through a movement,
a company or a community, Shapers unite people around a
shared purpose.
Three fundamental elements lie at the heart of the
Shaper’s mindset:
• Creative resistance
• A transformative vision
• Anticipative experimentation
We will examine each in turn.
1. Creative Resistance: The Big NO
While most people accept a given situation as ‘just the way
things are’, Shapers perceive the status quo as something
to be overcome or disrupted. Creative resistance emerges
from looking at reality and seeing the need for a new reality
to take shape.
By looking at reality in a fresh way, the Shaper initiates
a creative reconstruction of what is possible. While creative
resistance is a durable attitude, it is not enough on its own.
As the great scientist and futurist, Buckminster Fuller
once said:
“ You never change things by fighting the existing reality. To
change something [you have to] build a new model that
makes the existing model obsolete”.
In short, a Transformative Vision is required.
2. Transformative Vision: The Big YES
Shapers embrace ‘what could be’ and set out to bring it to
life, armed with a deep commitment to a meaningful and
transformative vision. Using this vision as a ‘lens’, they open
up new paths towards the future, embodying the change they
want to see happen in the world. As they go about practicing
what they preach, their transformative vision becomes the
axis upon which they align their thoughts and actions.
3. Anticipative Experimentation: The Creative How
A Transformative Vision calls for transformative actions,
and Shapers explore and learn by doing. Indeed, to begin
to shape new realities, they often completely reinvent the
 Shapers embrace ‘what could be’ and set out to bring it to life.
Shapers of the Past and Present
• Abraham Lincoln (United States 1809-1865) and
Mahatma Gandhi (India, 1869-1948): Shapers of Nations
• Rosa Parks (United States 1913-2005): Shaper of Social
Justice and Freedom
• Martin Luther King Jr. (United States 1929 -1968):
Shaper of New Dreams.
• Pastor Jose Maria Arizmendiarrieta (Basque Province
of Spain 1915-1976): Shaper of a Regional Destiny
• Nelson Mandela (South Africa, 1918-2013): Shaper
of Freedom
• Muhammad Yunus (Bangladesh 1940-): Shaper
of Development Through Credit for the Poor
• Baltasar Garzón (Spain, 1955-): Shaper of Universal
Justice
• Daniel Barenboim (Argentina and Israel, 1942-): Shaper
of Peace Through Music
• Sanjit ‘Bunker’ Roy (India, 1945-): Shaper of Barefoot
Education
• Catia Bastioli (Italy, 1957-): Shaper a New Model
of Sustainable Development
• Ricardo Semler (Brazil, 1959-): Shaper of Industrial
Democracy
• Gunter Pauli (Belgium, 1956-): Shaper of the Blue
Economy
• Michel Onfray (France, 1959-): Shaper of Freedom
of Thought through Philosophy
• Rob Hopkins (United Kingdom, 1968-): Shaper of
the Transition Town Movement
• Salman Khan, (Bengali, 1976 - ): Shaper of Education
for Many
way things operate. To achieve this, they rally a formidable
ecosystem of committed actors and partners, so that antici-
pative experimentation can be a place for co-creation and
direct contact with users.
Following are two examples of Shapers who have
embraced this process and gone on to shape our world for
the better.
112 / Rotman Management Fall 2015
1. Maria Montessori (1870-1952)
CREATIVE RESISTANCE: After graduating from the University of
Rome in 1896 as Italy’s first female medical doctor, Montes-
sori started out by focusing on mentally disabled children
who, at the time, were considered ‘uneducable’. She was
convinced that their problem was not so much medical, but
rather pedagogical: when adequately stimulated, these chil-
dren improved greatly.
TRANSFORMATIVE VISION: THE BIG ‘YES’. Deeply inspired by her
background in Pediatrics, as well as by her psychological,
anthropological and philosophical knowledge, she called for
a complete transformation of current educational methods.
Montessori had a vision of Education strongly based on
Science, but aiming at the transformation and improvement
of human beings. She strongly believed in childhood educa-
tion as the master route to build a more compassionate hu-
mankind and as a key to the reform of society.
The goal of the Montessori method is to develop a
child’s sensory and cognitive skills, while at the same time
enhancing practical life skills, natural abilities, initiative and
character—what she called ‘Connected Heads, Hands and
Heart’. In Montessori’s view, each child has a unique poten-
tial for growth and development waiting to be expressed
and revealed, and such potential is best developed by letting
the child be free to explore and manipulate the surrounding
environment. The role of the teacher should not be that of
directing the child’s activities, but rather that of continually
adapting the environment in new and exciting ways in or-
der to let the child fulfill her potential at growing degrees of
complexity.
ANTICIPATIVE EXPERIMENTATION. In 1899, after beginning to
disseminate her ideas about child pedagogy at the national
level, Montessori was asked to direct the State Orthophren-
ic School in Rome, where she continued her experiments
and observations of how children can reach new levels of
autonomy and self-motivation. As she refined her method-
ology, she managed to lead mentally-challenged children
to pass state exams with the same performance as normal
children. This is what amplified her questioning of the va-
lidity of the conventional system of education for ‘normal’
 Anyone with a strong vision for improving
their community or society can become a Shaper.
children. In 1906, she started organizing a school for the
children of indigent working mothers in the slums of Rome.
In 1907 the first Casa dei Bambini (‘Children’s House’) was
founded, and soon became a model school to be visited by
educators and researchers from all over the world. By the
end of 1911, Montessori Education was officially adopted in
public schools internationally.
We should not be surprised to learn that modern-day
Shapers like Larry Page and Sergey Brin, the inventors and
founders of Google, and Jeff Bezos, Founder of Amazon,
all studied with the Montessori Method. Same goes for Pe-
ter Drucker, Yo Yo Ma, Anne Frank, George Clooney and
many others.
2. Dr. Govindappa Venkataswamy (1918-2006)
CREATIVE RESISTANCE: In India, 12 million people are blind.
After retiring from performing eye-care surgery at the
Government Medical College in Madurai (south India), Dr.
Venkataswamy — known as Dr. V — decided, at age 55, to
devote the rest of his life to eliminating blindness among
India’s poor.
TRANSFORMATIVE VISION: Driven by his higher purpose, he
founded the Aravind Eye-Care Hospital in 1976. Surpris-
ingly, he considered McDonalds as a source of inspiration
in terms of efficiency: how was is that it could deliver the ex-
act same hamburger to customers all over the world? What if
it were possible to deliver the same high quality eye surgery
to those who needed it around the world?
ANTICIPATIVE EXPERIMENTATION. After starting with 11 beds,
Aravind has grown into the world’s largest provider of eye-
care. The Aravind Eye-Care System is a model of efficien-
cy, admired globally as not only a health success, but also
a financial success. This despite the fact that eliminating
blindness among India’s poor required high quality eye-
care services at low prices. It also required an ecosystem
approach in south India: a network of hospitals, clinics,
community outreach efforts to create an effective refer-
ral system in rural India (including women trained for eye
diagnosis, non-physicians to gather diagnostic data and
counsel patients, telemedicine centers), factories, research
and training institutes.
Today, the Aravind system manages some 2.5 million
outpatient visits and 300,000 eye surgeries. It has been
calculated that it does 60 per cent more eye surgeries than
the United Kingdom’s National Health System per year, at
one-hundredth of the cost. The majority of Aravind patients
(55 per cent) pay only a symbolic amount, or nothing at all:
the system makes enough on paid surgeries to not only cover
those who cannot pay market rates, but also to generate a
nearly 40 per cent gross operating margin.
In closing
As indicated herein, anyone with a strong vision for improv-
ing their community or society can become a Shaper. De-
spite the wide range of areas they impact, one thing Shapers
have in common is a dream to somehow enhances the dig-
nity and the significance of human life.
This approach is particularly relevant at the moment,
as the world sorely needs new shapes, forms, models and
approaches to deal with the wicked problems we face. Go-
ing forward, we encourage you to do what you can to en-
able Shapers of the future to emerge and thrive. As a wise
person once said: “Those who do not believe in the ‘impos-
sible’ are requested not to discourage those who are busy
realizing it.”
Aline Frankfort is the founder and director of Creative ConsulTeam,
a strategic innovation consultancy, and Professor of Creativity and
Innovation at the University of Louvain-La-Neuve (Louvain School of
Management). Jean-Louis Baudoin is Partner at Creative ConsulTeam
and invited lecturer of Creative Thinking at Solvay Business School.
rotmanmagazine.ca / 113
 FACULTY FOCUS Partha Mohanram
Opening Up the Black
Box of Accounting
Interview by Karen Christensen
Describe the ‘accrual anomaly’ that you
have studied, and its effects.
The accrual anomaly relates to the nega-
tive association between accounting ac-
cruals (the non-cash component of a
company’s earnings) and future stock re-
turns. This anomaly has been recognized
by researchers and practitioners alike for over 20 years, and
was first highlighted in 1996 by Richard Sloan, who is now a
professor at Berkeley. Prof. Sloan found that firms with high
accruals (i.e. high earnings but lower cash flows) have weaker
performance in future years, while firms with low accruals
(low earnings but higher cash flows) have stronger perfor-
mance in future years. This is predictable, and you can earn
returns based on it.
This was one of the most persistent stock market inef-
ficiencies ever identified. It is referred to as an ‘anomaly’ be-
cause it is something so basic that it shouldn’t predict future
returns, and yet it seems to — or at least it did, for quite a
long time.
Why does this happen?
There are two explanations. The first is a mispricing-based
explanation, which states that investors don’t understand
that earnings consist of a cash flow component and an accru-
als component. The cash flow component of earnings tends
to persist, while the accruals component tends to reverse,
because that’s the way the accounting process works: you
can call something a ‘receivable’ in a given period and then
collect it in the following period, or if you have a lot deprecia-
tion in one period, you will have less in another period, and
114 / Rotman Management Fall 2015
so on. Because investors don’t understand this ‘differential
persistence,’ they consistently get misled. The second expla-
nation is that risk is not being measured properly, and the
higher returns are the result of taking additional risk.
In your most recent research, you found that the accrual
anomaly might have disappeared; please explain.
The accruals based strategy consistently produced returns,
but in the past decade, it anomaly has apparently disap-
peared, and in my research, I link this with another interest-
ing phenomenon: the emergence of analysts issuing cash
flow forecasts.
For a long time, analysts — like investors — were getting
misled by accruals. My research looked at the emergence of
analysts issuing cash flow forecasts in addition to their earn-
ings forecasts, suggesting that over time, they began to pay
attention to accruals. My question was this: as analysts pay
more attention to accruals and thereby provide better fore-
casts to the markets, will there be a decline in the accrual
anomaly? And that is exactly what I found.
Basically, as analysts started forecasting earnings and
cash flows, they were less likely to be misled by ‘differential
persistence’. As analysts are such important conduits of in-
formation to the capital markets, the markets were also less
likely to be misled. Simply put, analysts started doing a bet-
ter job of forecasting as they were paying attention to accru-
als, and as a result, the anomaly has all but disappeared.
In some sense, my findings support the mispricing ex-
planation mentioned earlier, by showing that in the past,
information was poor and investors made decisions very
mechanically, and that’s why they were misled. These days,
as information has gotten better (in part thanks to analysts’
efforts) investors are less likely to be misled.
This is not the only explanation for the decline of the
accrual anomaly in the last ten years. Another explanation is
that institutional investors are actively investing in accruals
based strategies, which has also ‘arbitraged away’ some of
the returns.
You have also devised a way to grade growth stocks.
Please describe it.
In much of my research, I focus on how people make deci-
sions by using information mechanically, without thinking
about what is behind the information. The fact is, a large part
of any growth valuation is hype. A company might have had
fantastic recent performance — so investors naively belief
that it’s going to persist forever. The dot.com boom is an ex-
treme example of what I refer to as ‘naïve extrapolation’.
In 2005, I came up with an index called the GSCORE,
to separate out the overly-hyped firms from the solid-growth
ones. The GSCORE looks at three kinds of signals. The first
is earnings and cash flows, focusing on firms that earn more
and generate more cash flows than peer firms. The next set
of signals is the variance of profitability and sales growth.
I argue that if the variance is lower, you are more likely to
have consistent, stable performance going forward. Your
current strong performance was probably not just the effect
of luck — it was probably something that you were genuinely
capable of.
The third set of signals is related to a firm’s account-
ing practices, and how their approach might be hurting cur-
rent profitability, but might actually help future profitability.
Simply put, if firms are undertaking certain kinds of activi-
ties, they are more likely to have future profitability and live
up to their valuation. The three cues the GSCORE looks at
are R&D investments, advertising and capital expenditures.
I have found that, even if the firm’s current performance
isn’t great, if it is investing heavily in these areas, it is creat-
ing value for the future.
What firms would you recommend, based on your ap-
proach?
First, an update: my GSCORE paper came out in 2005, and
more recently, I’ve been working with my Rotman colleague
Kevin Li to refine it further, by combining it with other
methods for fundamental analysis. Basically, we try to com-
bine financial statement-based strategies (like the GSCORE
strategy) with formal valuation methods that measure ‘in-
trinsic value’. Basically, our new approach tries to focus on
high GSCORE firms that are trading below their intrinsic
value to invest in — i.e. clearly undervalued firms. Converse-
ly, our strategy recommends shorting low GSCORE firms
that are trading above their intrinsic value.
I don’t have access to 2014 financials yet, but I can tell
you what forecast I would have made in early 2014, based
on 2013 data. One firm that scored very highly on both my
valuation screen and my ratio analysis screen is JetBlue
Airlines, and since June of 2014, it has earned a 50 per cent
return — significantly higher than the S&P’s four per cent
over the same time frame. Other firms that scored highly are
Brocade Systems, which went on to earn 23 per cent, and
Hewlett-Packard, which earned 11.7 per cent.
It is important to note that this strategy may not work
for individual stocks, because there is too much firm-spe-
cific risk. It will work much better in a portfolio setting. My
approach actually suggested a couple of firms in the oil in-
dustry, and clearly, that sector has gone through a very bad
period. So, one company, Helmerich & Payne, went on to
post -43 per cent returns. On the whole, the strategy works
very well, but the way to implement it is to look at maybe 30
stocks and focus on building a portfolio of those stocks. You
have to do your own math and then apply these approaches
to ‘screen in’ and ‘screen out’ firms. But I don’t recommend
using the GSCORE in isolation — and certainly, don’t use it
for just one or two stocks.
What is your advice for investors who want to add a mar-
gin of safety when searching for growth stocks?
Say a firm has a very high GSCORE. As indicated by my
current research, that isn’t enough to recommend it any-
more. It is best to use multiple lenses — to combine formal
valuation models with indexes, so that you have two, three
or even four screens to compare when you’re looking at a
stock, and you can focus on firms that score positively on
every screen.
For example, you might use the GSCORE and a simple
ratio like the PEG ratio, which is a stock’s price-to-earnings
ratio divided by the growth rate of its earnings for a speci-
fied time period. Think about it this way: if three different
people tell you that somebody is very good at what they do,
that has more credibility than if one person says so, and the
same applies to stocks.
rotmanmagazine.ca / 115
 There is a lot of flexibility in accounting; but some
of it is being used in a manipulative fashion.
In an attempt to beat the market, some investors buy
high-scoring stocks and sell low-scoring stocks short. Do
you recommend ‘short-selling’?
Not for individual investors; it’s more for institutional in-
vestors and people with deep pockets, because when you
go long in a short stock, the maximum you can lose is your
investment. So, let’s say you spend $100 to buy some shares
of a company. If the stock price goes down to 0, your $100 is
the maximum you can lose. But if you short a company that
is trading at $100, and the stock price rises to $1,000, your
loss is $900.00. So, your losses are technically infinite, and
hence shorting is very risky.
If you’re going to do this as part of a portfolio — say,
‘buy these 30 stocks and short these other 30 stocks’ — that
might be one way to do it. A second approach is, you can rep-
licate a short-like strategy through options. So, essentially,
buy put options, so you have the opportunity to benefit from
a decline in stock price. But your losses are not going to be
infinite, which is the case with short-selling. For individual
investors, I recommend focusing on the long side.
In other research, you investigated whether managers
manipulate earnings to inflate their own compensation.
What did you find?
I am one of many researchers who have looked into this
phenomenon, and it happens all the time. One of my papers
on this topic looked at option exercises. The way manage-
ment compensation is structured, in many cases, managers
receive options every year. So, at any given point of time, an
individual manager will have a lot of options — some from
last year, some from two years ago, etc. Typically, these op-
tions have a vesting period of, say, three or four years, and
they are in play for another five or six years. This gives man-
agers opportunities to decide, ‘You know what, I’m going to
exercise a bunch of options next year; and then I’m not going
to exercise any for the next few years’.
Of course, the way accounting works is, you can move
stuff around across periods — for instance, by deferring
revenues or pre-loading expenses. So these leaders can es-
sentially ‘make’ the year that they plan to exercise their op-
tions a really good year. We looked at firms where the CEO
appeared to have abnormally large option exercises, and we
found a pattern whereby that year was a fabulous year for
their firm. You might argue that it was just market timing,
or that the person knew that there were strong microeco-
nomic or industry-specific factors that year. But we investi-
gated further, and that wasn’t the case: there was very strong
116 / Rotman Management Fall 2015
evidence of “earnings management” to make the previous
years look bad, or the year leading up to the option exercise
look really good. I’m not suggesting that doing this is illegal,
but it certainly is manipulative. The fact is, there is a lot of
flexibility in accounting. But some of that flexibility is being
used in a manipulative fashion.
Your work underscores the importance of checking
the balance sheet before investing in a company. What
should investors be looking for?
I wrote an op-ed in Forbes during the financial crisis, where I
argued that one of the reasons for the crisis was that people
weren’t looking at balance sheets. The fact is, it’s the only
way to understand the risk and the quality of the assets a
firm has.
One key thing to look for is whether a firm is manipu-
lating its earnings by ‘capitalizing expenses’. Sometimes, ex-
penses are not shown as such — they’re shown as assets. For
example, if you have a lot of R&D underway, you can some-
times refer to that as an asset rather than an expense. Or, if
you have a lot of branding expenses, you can refer to them as
a ‘brand asset’. If you see a lot of these capitalized expenses,
you will realize that this is the reason why the firm is show-
ing higher earnings. Understanding what the assets actually
are, and whether they deserve to be there, is a critical part
of financial statement analysis; but not many investors do it.
It’s very important for investors — and executives and
managers — to have basic financial literacy, and to un-
derstand the basics of Accounting. People shouldn’t view
Accounting as a black box, and think of accountants as a
bunch of bean counters. In reality, the numbers they pres-
ent have real implications. There are stories behind the
numbers.
Partha Mohanram is the CPA Ontario Professor of Financial Accounting
at the Rotman School of Management. He serves as an editor of Contem-
porary Accounting Research and on the editorial board of The Accounting
Review and Review of Accounting Studies. He is an expert in the areas of
valuation, financial statement analysis and executive compensation. His
highly cited research has been featured in The New York Times, Forbes,
CNBC, TVO and other major outlets. Prof. Mohanram joined Rotman
after serving on the faculties of Columbia and New York University.
Rotman faculty research is ranked #4 globally by the Financial Times.
QUESTIONS FOR Jon Kolko

Q
&A A Design Thinking
pioneer describes
the distinctive approach
to innovation that is
empowering companies like JetBlue,
Starbucks and Airbnb.
Interview by Karen Christensen
Leading-edge innovators like Airbnb, JetBlue and Star-
bucks leverage a distinct way of thinking. Please de-
scribe it.
These companies all leverage some variant of a clear and
repeatable process that has its roots in design. This process
follows four steps. The first step entails seeking signals from
the marketplace by spending time with communities and
observing their behaviour directly — instead of looking at
some report filled with summary data. The signals you get
from this will not tell you what to create; instead, market
signals give you ‘provocations’. Most business schools teach
students to listen to customers, but the ‘listening’ often in-
volves a questionnaire or a survey. I have found that compa-
nies that are successful in driving innovative products have
spent time watching groups.
The second step is conducting ethnographic research
— looking at the actual behaviour of individuals. I worked
with one company that was building a product for college
students, so we spent time in dorm rooms. With permis-
sion, we went through students’ bags, looking at all the

rotmanmagazine.ca / 117
 Insights and Big Data can live in harmony: the former
will drive big innovations whereas the latter will drive
important incremental improvements.
‘stuff ’ that describes a college student today. We also had
college students walk us through their day, and we watched
them do college-student stuff. Our goal was not to under-
stand them, but to gain empathy with them — to see the
world through their eyes, and to feel what they feel.
A simple exercise such as this can generate four to five
hours’ worth of transcription data per student; there’s a lot
to weed through. So the third step is synthesizing all of that
data into provocative insights. The way to do that is to ‘ex-
plode’ the data: you write down each individual utterance
on a small piece of paper, covering everything each person
said, and post them on the wall. A four-hour behavioural
study can lead to 500 different utterances, and a compre-
hensive study with 20 people can lead to a massive amount
of data. To derive meaning from all that, you look for com-
mon themes and start to group them. When you’re looking
at a particular group, you can start to make observational
statements about the behavior you see emerging; for ex-
ample, in our college study we might have said, “College
students exhibit anxiety around their education.”
Then comes the most important part of the whole
thing: asking ‘Why?’ about each observation you made,
and then answering that. In our case, we made a provoca-
tive claim about why students feel a certain way, and we de-
scribed it as if all students feel that way: ‘Students exhibit
anxiety around their education because they have no sup-
port network.’ This is where a statistician might cringe and
say, ‘Hey, you’re introducing all sorts of inferential leaps
here, based on a small sample’. And yes: that’s it, exactly!
We are creating inferential leaps that are grounded in hu-
man behaviour. And we trust these leaps, introducing risk
into the picture but driving innovation.
The last piece of the puzzle is leveraging those insights to
create manifestations of a product or service. The insights
tell you what to build and they also constrain the building
space. In this way, products and services can be built on the
solid scaffold that is human behaviour. I’ve worked with lots
118 / Rotman Management Fall 2015
of startup founders, who are the people driving this mind-
set. There are some large companies that realize the benefit
of this process, but the truth is, I haven’t found it in many
Fortune 500 companies.
You have defined an insight as ‘a hypothesized guess
about human behaviour, framed as a definitive truth.’ In
a world obsessed with Big Data, what is the value of hy-
pothesized guesses?
My belief is that Big Data is best for driving incremental
change. It’s a great way to understand whether A works bet-
ter than B, and it allows you to fine-tune using ‘telemetry’
— to hone in on really tiny details. The problem is, Big Data
can’t come up with anything new: you have to have the in-
put of what A and B already are, in order to make that as-
sessment. The newness has to come from somewhere else,
and increasingly, the best new products are based on behav-
ioural insights.
In a way, insights and Big Data can live in harmony, be-
cause each has its place: the former is what will drive big
innovations and broad, blue sky thinking, with all of the ex-
citement — and risk — that implies; whereas the latter will
enable you to make predictions that drive small, incremen-
tal changes.
It’s rare to see companies embrace both, and there are
many examples of companies on the Big Data bandwagon.
For example, Google is not driving innovation, it is buying
innovation. When Google started out, it was an innovative
entity, creating things like Gmail and other new-to-the-
world products. Of course, they’ve also invented a number
of things that have failed, like Google Buzz; but their culture
of innovation seems to have gone by the wayside in favour
of optimization.
Honeywell and Nest make similar products (thermostats)
and have access to the same talent pools; so why did
Google decide to acquire Nest for $3.2 billion?
 Differentiation comes from recognizing and catering
to emotional and experiential factors.
4 Steps for Moving from Design
Thinking to Design Doing
1. Determine a product-market fit by seeking signals
from a community of users.
2. Identify behavioural insights by conducting
ethnographic research.
3. Sketch a product strategy by synthesizing complex
research data into simple insights.
4. Polish the product details using visual
representations to simplify complex ideas.
Nest personifies many of the qualities we’ve been talking
about, whereas Honeywell has always had a strong engi-
neering culture. It is filled with very smart people who ba-
sically invented the HVAC industry; they know how things
work inside and out, and they emphasize and celebrate fea-
tures, functions, algorithms and optimization. That’s what
engineers are great at, and it’s what they love to do.
If you poke around inside the culture of a company
like Honeywell, you will find a very feature-rich approach
to product development, where people ask, ‘What are the
things people might want to do?’ Well, there’s a chance
people might want to set the temperature in the house for
different temperatures every day. ‘So,’ they reason, ‘let’s
create a function that allows them to do that’. And there are
a lot of things people might do, so they create features for all
of those things. But that complexity can be overwhelming.
Nest took a different approach, asking, ‘What are the
main things people actually do? Let’s optimize for those,
and let the engineering sort of fall to the background; rather
than celebrating engineering, let’s celebrate simplicity’.
And it worked. Nest has been incredibly successful. Of
course, if you talk to an engineer about Nest, they verbally
destroy it. They say ‘It’s terrible, it doesn’t do this and it
can’t do that,’ — and they’re right; but that doesn’t stop Nest
from selling millions of units.
In the environment you describe, you believe the role of
Product Manager takes on increased significance. How
so?
There are basically three different perspectives on the role
of a product manager. The first is the ‘engineering-driven
product manager’, and you see lots of these at Google and
Microsoft. As indicated, in an engineering culture, you’ll
find people celebrating optimization and algorithms and
features; this perspective produces things like Microsoft
Word, which can do 800 million different things, but doesn’t
do anything particularly well.
The second approach comes from marketing, and
is often called a ‘brand manager’. We see this at Procter
& Gamble or Johnson & Johnson, where the people in
charge of what a product does and how it’s thought of come
from a business or marketing background. Good marketers
think about things like pricing and competitive advantage,
and as a result, you end up with products like the MACH3
razor. The innovation is actually in the way people think
about it; ‘Let’s add another blade’, as if, somehow, more
blades mean a better shave.
The third perspective is this new approach driven by
empathy. In this model, the product manager focuses on
‘design-led product management’. These individuals are
always thinking about people, and when people are at the
centre of your world, you are naturally going to drive that
into your products. The goal for these managers becomes,
‘Make things easier for people,’ or, ‘Help people solve prob-
lems’. This is quite different from focusing on leveraging
new technology, or focusing on competitive products and
services.
Describe the importance of every organization, big or
small, of having a ‘value-goal statement’.
Instead of focusing on creating a product or a service, I ad-
vise organizations to shift their thinking to ‘creating value’.
Once you synthesize the signals you find in the market,
you can begin to identify the value that you hope to deliver.
rotmanmagazine.ca / 119
 How to Frame Value
INSTEAD OF THINKING LIKE THIS:
I’m the product manager for Google Maps.
I’m the product manager for Airbnb.
I’m the product manager for Virgin Airlines.
Value often speaks to intangible human characteristics such
as connection, respect or pride, and it is these things — not
product features — that differentiate you in the marketplace.
For example, in the airline industry, differentiation
doesn’t come through the addition of engineering features.
Every plane needs to fly, and every seat need to hold the
weight of passengers. Instead, differentiation comes from
recognizing and catering to emotional and experiential fac-
tors. How does the customer feel before, during and after
the flight? A value-goal statement for an airline like Virgin
might read something like this: ‘We help travelers build
memories in foreign lands by providing long-haul flights
that are extremely comfortable. Unlike, say, United Air-
lines, our product frames a unique cultural experience on
the ground with a soothing cultural experience in the air.’
You have taught aspects of Design Thinking to countless
executives at Fortune 500 companies, consulting firms
and government entities. What is your key takeaway from
your interactions with all of these non-designers?
Like any other buzzword, some executives view ‘design
thinking’ as a silver bullet that is going to solve all their
problems. Obviously, that’s not the case. A major challenge
to bringing design into an organization is getting people to
let go of the comfort they feel around logical, rigorously
analytical processes. People have learned a way of doing
things, and over time, that becomes entrenched. Any form
of change is threatening. Also, people who have gravitated
towards executive roles often do not view themselves as
being creative. Suddenly, they are asked to both be creative
and manage creative people; that’s difficult, and some-
times scary.
120 / Rotman Management Fall 2015
TRY THINKING LIKE THIS:
I help people gain confidence finding their way quickly
and effectively.
I help people get a good night’s sleep as they gain unique
cultural experiences in a new city.
I help people build memories while enjoying physically
and emotionally comfortable long-haul flights.
How important are all of these skills for the workplace
of 2025?
I believe thinking like a designer — by leveraging empathy
in making new products, systems and services — is para-
mount to the workplace of the future, because organiza-
tions are becoming more chaotic, with less of a top-down,
command-and-control model. Pretty soon, nobody is going
to tell you what to do: jobs are going to be extraordinarily
ambiguous, and they’re going to be changing all the time.
Design is one of the only disciplines in existence that em-
braces constant change and provides some comfort amidst
all the ambiguity.
Jon Kolko is the founder and director of the Austin Center for Design
and the author of Well-Designed: How to Use Empathy to Create Products
People Love (Harvard Business Review Press, 2014). He has worked
extensively with Fortune 500 clients, including AT&T, Bristol-Myers
Squibb, Ford and IBM, and startups such as Socialware, Spredfast, Vast
and Attivio. Jon is also the Vice President of Design at Blackboard, which
he joined via the acquisition of MyEdu, a startup focused on helping col-
lege students manage their college experience. He tweets at @jkolko.
QUESTIONS FOR Larry Rosen

Q
&A
How does Harry Rosen Inc. continue to be so successful?
We’ve been in business for 60 years now, and businesses that
last that long have to keep reinventing themselves, so that
they are relevant again for new generations. I’ve watched
so many businesses die out, because they simply aged with
their current clients and didn’t do anything differently. We
plan to be around when we’re 100 — and even 150; and to do
that, change and innovation must be part of our DNA.

What leadership skills are required to leverage change?

One is the ability to think strategically, versus tactically. If
you ask me who I think is going to go farthest on our senior
management team, it’s the forward-looking people, because
they are able to look at the bigger picture and see a strategic
vision of where to take the company. It’s not the people who
say, “I’ve got this big problem here in front of me, and I’ve
The View From got to solve it.” Forward-looking people have a clear picture
the C-Suite. — a 10,000-mile-high view — of where they’re going, and
how they are going to get there.
Interview by Mark Leung Another aspect is allowing people to challenge you and
make you feel a bit uncomfortable, but remaining on target
with your strategy. Great leaders get teams to produce great
things by not hogging the limelight. It’s about allowing ev-
erybody to take centre stage and be recognized. As far as
I’m concerned, it doesn’t have to be my idea; in fact, it’s bet-
ter if it isn’t my idea. The best solutions are collaborative,
and when people see that happening around them, it’s a re-
ally positive thing. As a leader, you have to create a culture
where everybody’s contribution is appreciated. In my mind,
that is a distinguishing feature of great leadership.

rotmanmagazine.ca / 121
 We all know creativity is important in business—and yet,
many leaders struggle with it. How do you approach it?
My father founded our company in 1954. In the early 1960s,
a lot of the guys — young and old — from the advertising
agencies shopped with him, because he brought a very cool
look to Toronto. A couple of advertising executives became
close to him, and they said: “Harry, you should really start
advertising, and we want to help. Book a page in The Globe
and Mail, and for each ad we create, you give us a suit. You
can tell us if each ad works or if it doesn’t, and we’ll amend
it; but let’s be clear, your job is not to change the message or
re-invent the ads.”
That was a very powerful lesson about managing cre-
ativity, and my father and I live by it. As a business person,
you sometimes get these delusions that you might also be
creative; but your form of creativity lies in business — not
in design, marketing or writing. Your job is to structure the
environment so that people — including the creatives you
hire — can do their best work.
Tell me more.
Basically, the leader’s job is to tell the team what the compa-
ny’s objectives are, and then let them do their jobs. You have
to allow talented, young creative people do the work, but you
do have to make sure that they understand the business ob-
jectives, because it’s not just about creativity, it’s about busi-
ness. Sure, challenge people to surprise you with new, inno-
vative directions that you wouldn’t expect; but don’t go nuts!
You still have a business to run.
Having said that, when an idea comes back that you’re
not entirely comfortable with, sometimes you just have to
take a deep breath, let it go and try something new and in-
teresting. I’m a 58-year-old guy, managing a company that
buys fashion for men as young as their 20s. Sometimes I
(jokingly) say that with the younger fashion, if I like it, it’s
probably wrong!
While you argue that creativity isn’t your strong suit (par-
don the pun), I would say that you are actually very cre-
ative, but your canvas is business.
That’s a nice way of expressing it. I do think of business as a
place for creativity, but managed creativity. My father was
not an educated businessman, but he intuitively and in-
122 / Rotman Management Fall 2015
stinctively understood strategy — what his key competitive
strengths were, what differentiated him in the marketplace,
and why customers chose him. He was the entrepreneur
who created this organization, and then I brought strategy,
structure, systems and discipline to the table, such that we
didn’t lose the entrepreneurial spirit.
We have an annual discipline of taking our top senior
people and going through a process of evolving and recon-
firming our strategic direction — the key priorities, and how
we’re going to achieve them. What makes us so strong, in
my view, is that we are so clearly focused on what the most
important things are for our business, and we understand
that the customer experience is our key competitive advan-
tage. Simply put, we are the menswear experts, and our
strategy reflects that. Any activity that we undertake must
reinforce this.
We are so focused on this strategy that we can be cre-
ative about it. For example, this year we introduced our
Sartorial Loyalty Program. Where our competitors’ mem-
bership programs are about points and gifts, ours is about
experiences within the store and spontaneous recognition.
As a result, our customers are absolutely delighted and in-
spired. This builds on our brand, the experience, the busi-
ness and the strategy.
You have a Law background and an MBA, yet you work
in this creative business. How do you balance these as-
pects of yourself?
I’m a big believer in analytics, but the problem with analyt-
ics is that they can show you ‘what was’ and ‘what is’, but
they can’t show you ‘what will be’ or even ‘what might be’.
As a result, I believe in using analytics to support decisions,
but I also recognize the value of intuition. You need to un-
derstand what happened in the past and what is happening
today, then use your intuition to extend it to ‘what will be’ in
the future.
The best retailers are really a combination of analytics-
and intuition-driven. Really weak retailing is based solely
on analytics, and undisciplined, sloppy retailing is just pure
intuition. The key is to find that middle ground where you
use fact-based information — what your systems tell you
about customer behaviour—but you also take steps to ex-
tend your boundaries and create an experience that hasn’t
yet been imagined. As they say: “If you always do what you
always did, you will always get what you always got.”
How do you bring other people along with you as a
leader?
You’ve got to paint a big-level picture as to where you are and
where you want to go, and get people to buy into that picture.
You have to indicate, ‘This is the vision of where we need to
be in the next 2-3 years’, and let your people figure out how
to get there. I think my biggest job is ‘painting pictures’ of
where we need to get to, and empowering and encourag-
ing people to work out the ways of getting there. Sometimes
the pictures are fact-based; in e-commerce, you can look at
your visits, your conversion rates, how often people interact
and enter various parts of the site. Other times it is more in-
tuitive, like creating a rich customer experience, which is a
whole different area.
You can know that your conversion rate has to go up,
and that you have to increase the number of visits to your
site; but for me, the real magic is figuring out what is going
to make it a rich customer experience. That’s something
that is very hard to research. Intuition plays a valuable role,
as does really knowing your customers.
How do you do that?
I like to go through reports and see things that way, but I
also travel across the country to all of our stores. I usually
spend Saturdays going around the stores, talking to custom-
ers and our associates, watching what people are buying,
asking questions and introducing myself. It’s really a pro-
cess of osmosis. I call it my ‘laboratory’, and I learn so much
by doing that.
The other thing that keeps me connected is that I deal
with customer concerns and queries. We have an ‘Ask Har-
ry’ button on the website, and I have my personal e-mail on
there as well. When people have a problem, I want to step
in and resolve it. The recovery is what makes a customer.
I would say that 95% of the time, we turn a customer con-
cern into an advantage, so that at the end of the day, they’re
saying, “What a great organization. I’m going to be loyal to
you forever.” This is because we are very, very proactive.
Globally, there are five really great retail cities: New
York, London, Milan, Paris and L.A., and I visit those cities
once or twice a year to see what is happening there. Cre-
ativity often involves just taking an idea you have seen and
reinterpreting it. When I go around and visit great stores
and see great customer experiences around the world, I
take away so much more than I would by reading a report
in my office.
What are some of the biggest misconceptions around
innovation and change?
People think the best innovation is disruptive, but I am a big
believer in evolutionary change. The idea is to keep moving
forward. There are periods in every business where you go
through profound reinvention. It may not be in your entire
business; it might just be in one area, but you have to wel-
come and embrace the uneasiness that comes with that re-
invention. Part of change will always be discomfort: if you’re
always in your comfort zone, you are — or will soon be — a
dinosaur.
What changes in education would better prepare our
next generation to do what you do?
Ten years ago, MBA programs were churning out finance
clones, but today, I see a lot more emphasis on entrepreneur-
ial thinking. Education is not anywhere near as straight and
narrow as it used to be, and neither is business; we need lots
more ‘Renaissance people’ who have diversified knowledge.
Teaching people how to think through problems from begin-
ning to end is really important for our future.
Larry Rosen is the Chairman and CEO of Harry Rosen Inc., a luxury
menswear chain based in Toronto. Mr. Rosen is the winner of the 2014
DesignThinker of the Year award, presented at the annual Design Think-
ers conference by the Rotman School of Management and the Associa-
tion of Registered Graphic Designers. Design Thinkers 2015 will be held
November 12-13 in Toronto. Details: designthinkers.com
rotmanmagazine.ca / 123
 FACULTY FOCUS MIHNEA MOLDOVEANU
Education 2.0
Harnessing Brain Science and Wearables
for Personalized Learning
WE ARE ON THE CUSP of a radical shift in
our understanding of the mind-brain in-
terface and the mind-brain-behaviour
nexus. ‘Brain mapping’—wearable sens-
ing and remote integration of brain-body
states, bio-feedback-based enhance-
ments in self-awareness and the causal
understanding of one’s environment—makes possible a
whole new set of approaches to behavioural change and en-
hanced learning.
In recent years, the range and sophistication of mea-
surement scales and techniques for capturing the elusive
phenomena of empathic accuracy, mental acuity, logical
depth and informational breadth of reasoning and argu-
mentation have increased dramatically, and as a result,
by the end of this shift in our understanding of the mind-
brain behaviour nexus, we will have un-learned much of
what we have learned about cognitive and affective sci-
ence. For instance, that brain function and IQ are ‘hard-
wired’; that aging necessarily makes us slower and more
forgetful; that intelligence itself cannot be taught; and that
IQ, EQ [emotional intelligence], MQ [moral intelligence]
and xQ [execution intelligence] are the best we can do in
terms of measuring the intelligence and ingenuity of the
pragmatic-yet-thoughtful doer.
We will also have synthesized ways and means of ‘get-
ting smarter’, of building quicker, nimbler, more stable and
more robust minds and ‘behavioural blueprints’ by produc-
tively interacting with the very brains on which mental be-
haviour supervenes; and engineered novel blueprints for
dealing (more) productively with adversity, setback, ambi-
124 / Rotman Management Fall 2015
guity, uncertainty, complexity and conflict.
The remote sensing of the brain-and-body states of an
individual and the ability to feed back to her precise feed-
back on how she feels, what she sees and attends to, how
she breathes, how nervous she might be, what is making
her nervous, and how conscious she is at any one point in
time makes possible the discovery of mechanisms for learn-
ing and behavioural change that are both grounded in basic
Neuroscience and subject to deployment.
As a result of this progress, the ‘project’ of every educa-
tional enterprise—to transfer useful, useable skills and im-
part meaningful behavioural change to its participants—is
about to receive a transformational boost from the gamut
of discoveries of neurophysiological mechanisms underly-
ing behavioural change and skill acquisition, as well as from
the newly available set of technologies for the recognition,
mapping and shaping of behavioural responses at the indi-
vidual level.
Just as ‘personalized medicine’ is the next step in
health care—enabled by the synchronous deployment of
genetic mapping and analysis, remote access of patients’
medical records, test results and instantaneous physiolog-
ical states, and Web 3.0 platforms enabling the collabora-
tive aggregation of expert opinions and the integration of
patient and condition-level data—‘personalized learning’
and self-development must be the next step in all levels
of education.
The empirical record of cognitive, developmental and
social psychology and recent econometric work on the
lifetime value of acquired skills—especially of non-cogni-
tive skills—suggests that behavioural change is difficult,
 ‘Personalized learning’ and self-development must
be the next step in all levels of education.
unreliable and rare but also possible and immensely valu-
able. It is also clear that behavioural change and skill
transfer correlate very highly with personalized, timely,
participant-specific feedback: every human needs her own
‘transformational path’, which the ‘batch processing’ ap-
proach to education and the large-sample size approach to
outcome evaluation do not deliver on.
The technological revolution in wearable computing
devices and brain-body sensing is well underway: there are
already 500 wearable companies, with over $50 billion in-
vested, and the advances in brain-specific mapping of tasks
Remote Sensing of the Brain-Body Environment
FIGURE ONE
and stimulus response patterns will enable both learners
and teachers to ‘search inside themselves’ in real time and
receive timely, guided, specific, physiologically detailed
and behaviourally- actionable feedback of the kind that can
be used to optimize learning on a per-user basis.
Think about it: what experienced executive would
not want to know the right mood and body states in which
to call a particular meeting or make a key decision, given
sound evidence that physiological variables like blood sug-
ar levels impact the way even experienced decision makers
think, perceive, relate, empathize, speak, move and react?
EEG measures brain activity
Camera measures visual activity
Microphone measures acoustics and noise
EKG measures heart rate / variability
Respiration monitor measures breathing rate
BVP measures blood volume and pulse
GSR measures skin conductivity
Thermometer measures temperature
EMG measures muscle tension
rotmanmagazine.ca / 125
 Physiological variables like blood sugar levels impact the way even
experienced decision makers think, perceive, relate, and react.

What CEO would not welcome an early-warning sys-
tem for the onset of states of anxiety, rage or contempt and
an app that suggests just-in-time remedies given the over-
whelming evidence that the affective heat of such emotion-
al demons cripples the reasoning and perception of even
the soundest minds?
What trader would not want to reconstruct and shape
her daytime ‘rationality quotient’—given evidence that
mood, context and body states can influence trades that can
make or break their funds?
What educator would not want data on behavioural
outcomes and brain-level data on skill transfer across do-
mains of practice (athletics academics; music math; verbal
reasoning rhetorical craft; etc.), given good evidence for
neuroplastic changes in brain connectivity and activation
as a result of specialized training?
What city planner would not want ‘anxiety indices’ of
people interacting in various settings, around various plac-
es, and under various levels of time and social pressure?
What athletics coach would not want to be able to guide her
trainees through the ebbs and flows of movement, posture,
gesture, breath and self-talk, given instantly available maps

The Virtual Classroom

Bio feedback
(Self)
Brain Brain activity
Self-perception sensors

Visual activity
Bio feedback (Other)

Google Auditory activity

Participant Participant glasses

Body Voice activity

sensing

Body Heart rate/variability

sensors

Respiration
VIRTUAL CLASSROOM
Self-presentation coaching Wearables Temperature
Real-time cognitive assistance
COACH Blood pressure

Skin conductance

FIGURE TWO

126 / Rotman Management Fall 2015

 Wearable devices will turn the Big Data revolution into
the Smart Data revolution.

of the ‘inner world’ of the athlete?
Sensing the right data at the right time, and displaying it
in the right format for the right purpose will enable wearable
devices to turn the Big Data revolution into the Smart Data
revolution. What lies ahead goes way beyond the discovery
of new models of learning and behavioural transformation—
to the production of new educational tools, interventions,
models, modules and platforms for the optimization of learn-
ing and skill transfer.
The rapid evolution of wearable technologies and sen-
sor suites alongside the proliferation of mobile computing
and augmented reality platforms such as the Google Glass,
the Intel Recon, and the Meta SpaceX devices make pos-
sible both instantaneous access of the instructor or facili-
tator to otherwise-indiscernible but behaviourally-relevant
changes in the brain-body states of the leaner and enhanced
access for the learner himself to the brain body states which
shape, screen and often determine his experience.
In order to embrace these exciting developments, The
Mind-Brain-Behaviour Institute has been established at
the University of Toronto. Also known as the Mind Brain
Behaviour Hive, MBBH is a research and development lab

Collaborating to Create Education 2.0

University of Toronto
Faculty of Arts & Science
Rotman School of University of Toronto
Management Faculty of Music
Psychology Computer Neuroscience
Science

RESEARCH RESEARCH RESEARCH RESEARCH

Mind-Brain-Behaviour Hive: Development

Skill Inventories and Behavioural Change Models/Modules:
New learning tools
Startups:
Educational platforms
Wearable neuroscience
devices
Brain-science based
learning techniques
Neurophysiological Foundations
Brain-Body Sensing Platforms (hardware)
Software Platforms New pedagagy
Mind-Brain-Behaviour Hive: Prototyping
Prototyping & Real Time
Development of New Platforms and Tools
New courses

FIGURE THREE

rotmanmagazine.ca / 127
 powered by the latest in wearables technology and state-
of-the-art brain science, aimed at both uncovering basic
mechanisms of learning and adaptive behavioural change
and applying them in the classroom—and developing and
commercializing technologies and applications that will
power Education 2.0.
The Hive will play at the intersection of learning prac-
tice, brain science and wearable computing to bring real
time skill transfer and behavioural change to education.
In doing so, it will help to create the foundations for a new
wave of Big Data—let us call it ‘mega-data’. Quite often, the
implicit goal of Big Data training and analysis is to ‘tame
complexity’ to simplify, truncate, classify, enumerate, re-
duce and compress. Yet the opportunity arising from the re-
mote sensing of the brain-body environment of individual
learners points us in a different and complementary direc-
tion: more, rather than less, data, of the right kind, available
at the right time, in the right format, with the right action-
prompts and user interfaces—are needed to instrument real
skill transfer and development programs.
A multi-disciplinary and trans-disciplinary enterprise,
the Hive draws on researchers from the University of To-
ronto’s Faculty of Arts and Sciences, the Faculty of Music
and the Rotman School of Management to create a distrib-
uted problem solving environment that addresses head-on
the challenge of accelerating and enhancing human learn-
ing and behavioural change.
The MBBH will generate a suite of technologies, tech-
niques and methods for the neuro-physiologically informed
acceleration of learning by using — and continuously im-
proving upon — the tools of neuro-imaging (fMRI, Real
Time fMRI/EEG), neuro-feedback, neuro-measurement
and neuro-intervention to the end of designing, engineer-
ing and producing change in the cognitive, affective, behav-
ioural and perceptual patterns, propensities and proclivities
of learners.
This ground-breaking new institute benefits from its
embedding into one of the health sciences and bio-medical
research and development hubs of North America, which
allow its researchers and developers to use a suite of state
128 / Rotman Management Fall 2015
of the art brain imaging, visualization and modeling facili-
ties. It is also embedded in one of the largest research inten-
sive universities in North America, enabling direct access
to a multi-disciplinary research team and a proving ground
for its educational innovations. Under the guidance of its
Founding Advisors, the Hive will create commercializable
technologies and tools that will enhance learning in the
classroom and lab, in the online environment, on the sports
field, in the boardroom and on the performance stage.
Functioning as a pedagogical R&D engine, the Mind-
Brain-Behaviour Hive will fuel the coming shift from tradi-
tional classroom-based learning to personalized learning
environments, producing the platforms, tools and tech-
niques for personalizing skill transfer and identification
that will shape the $4.4 trillion global education market.
Keep an eye on these pages as Education 2.0
unfolds.
Mihnea Moldoveanu is Founder and Director of the Mind-Brain-Behav-
iour Hive at the University of Toronto. He is Vice Dean, Learning and
Innovation, and Director of the Desautels Centre for Integrative Think-
ing at the Rotman School of Management, where he is also Professor
of Business Economics and Desautels professor of Integrative Think-
ing. He is the founder and CEO of Redline Communications, Inc.
(TSX:RDL), a leading manufacturer of wireless broadband communica-
tions systems for mission critical applications in government, military
and oilfield environments.
Author’s Note: Dedicated, with gratitude, to the memory of Joe Rotman,
whose support of the Hive was instrumental to its establishment.
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Upcoming Events
Complete details are available at rotman.utoronto.ca/events
September 2, 4:00-5:00pm, Toronto
Speaker: Richard Nisbett, Newcomb Distinguished University
Professor of Psychology, U of Michigan & Author
Topic: Mindware: Tools for Smart Thinking (Doubleday, 2015)
September 16, 5:00-6:00pm, Toronto
Speaker: J.P. Pawliw-Fry, President, Institute for Health
and Human Potential & Author
Topic: Performing Under Pressure: The Science of Doing Your
Best When It Matters Most (Crown Business, 2015)
September 16, 5:30-6:30pm, Toronto
Speaker: Jonathan Haidt, Cooley Professor of Ethical Leadership,
Stern School of Business, New York U & Author
September 23, 5:00-6:45pm, Toronto
Speaker: Dilip Soman, Corus Chair in Communications Strategy,
Rotman & Author
Topic: The Last Mile: Creating Social and Economic Value from
Behavioral Insights (Rotman–UTP Publishing, 2015)
September 25, 8:00-9:00am, Toronto
Speaker: Jane McGonigal, Director - Game Research and
Development, Institute for the Future & Author
Topic: SuperBetter: A Revolutionary Approach to Getting Stronger,
Happier, Braver and More Resilient (Viking, 2015)
September 28, 5:00-6:00pm, Toronto
Speaker: Robert Reich, Chancellor’s Professor of Public Policy -
Goldman School of Public Policy, U of California, Berkeley;
former U.S. Secretary of Labour (1993-97) & Author
Topic: Saving Capitalism: For the Many, Not the Few
(Knopf, Sept. 29, 2015)
September 29, 4:00-5:00pm, Toronto
Speaker: Kevin Page; Pépin Research Chair on Canadian Govern-
ment, School of Political Studies, U of Ottawa; former Parliamen-
tary Budget Officer, Government of Canada (2008-13) & Author
Topic: Unaccountable: Truth and Lies on Parliament Hill (Viking,
Sept. 29, 2015)
October 15, 5:30-6:30pm, Toronto
Speaker: Nilofer Merchant, Fellow, Martin Prosperity Institute,
Rotman & Author
October 19, 5:00-6:00pm, Toronto
Speaker: Edy Greenblatt, President, Execu-Care Coaching &
Consulting, Inc.; Visiting Fellow, Desautels Centre for Integrative
Thinking, Rotman & Author
Topic: Restore Yourself: The Antidote for Professional Exhaustion
(Execu-Care Press, 2009)
October 20, 5:00-6:00pm, Toronto
Speaker: Peter Aceto, President and CEO, Tangerine Bank
(formerly ING Direct Canada) & Author
Topic: Weology: How Everybody Wins When We Comes Before Me
(HarperCollins, 2015)
October 26, 5:00-6:45pm, Toronto
Speaker: Esther Kaplan, Editor, The Investigative Fund
at The Nation Institute
Topic: “Big Data and the New World of Work”
November 10, 6:30-8:30pm, London, UK
2 Speakers:
Sally Osberg, President and CEO, Skoll Foundation & Author
Roger Martin, Premier’s Research Chair in Productivity
and Competitiveness, Rotman & Author
Topic: Getting Beyond Better: How Social Entrepreneurship Works
(HBR Press, Oct. 6, 2015)
November 12, 5:00-6:00pm, Toronto
Speaker: Ben Bernanke, former Chair, U.S. Federal Reserve
(2006-14); Distinguished Fellow, Brookings Institution;
Special Advisor, Citadel LLC and PIMCO LLC & Author
Topic: The Courage to Act: A Memoir of a Crisis
and Its Aftermath (Norton, Oct. 6, 2015)
November 13, 8:00-9:00am, Toronto
Speaker: Carolyn Wilkins, Senior Deputy Governor,
Bank of Canada
November 24, 5:00-6:00pm, Toronto
Speaker: Clive Veroni, President, Leap Consulting & Author
Topic: Spin: How Politics Has the Power to Turn Marketing
on Its Head (Anansi, 2014)
November 25, 5:00-6:00pm, Toronto
Speaker: Hari Sankaran, Vice Chairman and Managing Director,
Infrastructure Leasing & Financial Services Limited (IL&FS)
(Mumbai)
Topic: Investing in India
 PM: 40062461

Short Talks by Thought Leaders

Public talks by experts take place frequently at Rotman. These 15 smart people will speak at the
School in September, October, November and December. Dates, times and topics for their talks
and many others are at rotman.utoronto.ca/events

RICHARD NISBETT, KEVIN PAGE, CAROLYN WILKINS,

Newcomb Distinguished University
Professor of Psychology, U of Michigan;
Author
J.P. PAWLIW-FRY,
President, Institute for Health and Human
Potential; Author
DILIP SOMAN,
Corus Chair in Communications Strategy,
Rotman School of Management; Author
JANE MCGONIGAL,
Director - Game Research and Develop-
ment, Institute for the Future; Author
Pépin Research Chair on Canadian
Government, School of Political Studies,
U of Ottawa; Author
EDY GREENBLATT,
President, Execu-Care Coaching
& Consulting, Inc.; Author
PETER ACETO,
President & CEO, Tangerine Bank
(formerly ING Direct Canada); Author
ESTHER KAPLAN,
Editor, The Investigative Fund at
The Nation Institute; Author
Senior Deputy Governor, Bank of Canada
CLIVE VERONI,
President, Leap Consulting; Author
HARI SANKARAN,
Vice Chairman and Managing Director,
Infrastructure Leasing & Financial
Services Limited (IL&FS)
ROGER MARTIN,
Premier’s Chair in Productivity & Com-
petitiveness & Academic Director - Martin
Prosperity Institute, Rotman School of
Management; Author

ROBERT REICH, BEN BERNANKE, ALVIN ROTH,

Chancellor’s Professor of Public Policy - former Chairman, U.S. Federal Reserve; McCaw Professor of Economics,
Goldman School of Public Policy, Special Advisor, Citadel LLC and PIMCO Stanford U; Co-Recipient, 2012 Nobel
U of California, Berkeley; Author LLC; Author Prize in Economics; Author