The Best of the September Issue

 

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September 08, 2014 By Best of the Issue Vision Statement The Chart That Organized the 20th Century The Editors In 1910, the Union Pacific and Southern Pacific railway drew up a diagram showing how its 80,000 workers related to one another, and the modern organization chart was born. Take even a quick look at it, annotated here with contemporary insights offered by Railway Age editor Ray Morris, and you will see that it shows strong leadership at the top and a centralized office responsible for spreading best practices throughout the organization. But its purpose was in fact to lay out a structure that would allow its eight constituent railroads to operate with the fullest measure of autonomy and to ensure that the company would not have to depend on a rock star leader. "It is possible for a strong and gifted leader, by pure force of personality…to bring about a fair result," Morris says, understatedly. That's why, he argues, that "a test of a good organization is whether the efficiency is appreciably affected by the absence of any one man." The Big Idea Profits Without Prosperity William Lazonick Five years after the end of the Great Recession, rising corporate profits aren't translating into rising prosperity, and much of the blame, says this economics professor, belongs to stock buybacks. Between 2003 and 2012, fully 449 of the S&P 500 devoted 54% of their earnings – some $2.4 trillion – to buying back their own stock on the open market. Another 37% of earnings were devoted to dividends. That left precious little either for investment in productive capabilities or for higher incomes for employees. Even investors are worried that these companies aren't investing in future growth. So why is this happening? Simply put, corporate executives are being paid mainly in stock, and buybacks raise its price in the short term. To remove the pocket-lining mechanism, argues Lazonick, the SEC should not allow companies to buy back their stock on the open market, and boards should rein in stock-based pay. Spotlight Contextual Intelligence Tarun Khanna Managers and entrepreneurs everywhere are all basically trying to do the same thing: create value and motivate talent. But what constitutes value and what motivates people vary wildly from place to place, this Harvard Business School professor has concluded after two decades of study. He's got particularly impressive data demonstrating that once you move beyond the U.S. and OECD countries, knowing something about the performance of an industry in one country tells you absolutely nothing about its structure or likely returns in another. That's why contextual intelligence – the ability to understand the limits of our knowledge and to adapt it to an environment different from the one in which it was developed – is so important. Once you accept that, you'll find, surprisingly, that the hard stuff – adjusting your operating model to local conditions – is not all that difficult. But the soft stuff – political differences, prevailing ways of thinking – is really tough to grasp. There's simply no substitute for experience and the time it takes to acquire it. Spotlight What's Your Language Strategy? Tsedal Neeley and Robert Steven Kaplan It's much easier to join in a common cause if you speak a common language. So it's hardly surprising to find that research shows choosing a lingua franca can dramatically improve the effectiveness of a global corporation. But that does introduce challenges. Language proficiency may make some people's ideas sound smarter than they are. Those not fluent in the common tongue may hesitate to offer their views, and share them only in small cabals of people fluent in their own language. To address these challenges intelligently, top executives need to devise a corporate language strategy. Such a strategy should include some accommodation during the hiring process for those that don't speak your language, and serious language training after they come on board. Managers of global teams need to make an extra effort to ensure that every voice is heard. And perhaps most controversial, the authors recommend that expatriates responsible for foreign business units should be expected to hire and train a local successor, instead of handing off the reins to another expatriate, when their tours of duty are over.

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