Today is a good day to recall the thoughts of Alfred P. Sloan (born May 23, 1875), who spent three decades making General Motors the largest corporation in the world. Sloan brought together disparate companies supplying and building automobiles to create a whole — the first industrial cluster.

Sloan reflected on those times: “when we started on this great adventure in the early 1900s the whole automotive industry was searching for ways and means to find itself. . . The number of sales by dealers was unknown. The number of cars held by dealers was unknown. Trends in consumer demand were unknown… There were no statistics on the different cars’ market penetration; no one kept track of registrations…”

As Peter F. Drucker put it, “The times were ripe for a man who could think imaginatively about the great corporate entities that were being created. . . and Sloan was the man.”

Sloan’s words about flexibility and adaptability are worth considering now, 138 years after his birth:

My generation had an opportunity unique in the history of American industry. When we started in business, the automobile was a new product, and the large-scale corporation was a new type of business organization. We knew that the product had a great potential, but I can hardly say that any of us, at the beginning, realized the extent to which the automobile would transform the United States and the world, reshape the entire economy, call new industries into being, and alter the pace and style of everyday life.

. . . It was our task to find out what forms of organization were suitable to our company. This meant, above all, an organization that could adapt to great changes in the market. Any rigidity by an automobile manufacturer, no matter how large or how well established, is severely penalized . . .

There have been and always will be many opportunities to fail in the automobile industry. The circumstances of the ever-changing market and ever-changing product are capable of breaking any business organization if that organization is unprepared for change.

. . . To meet the challenge of the market place, we must recognize changes in customer needs and desires far enough ahead to have the right products in the right places at the right time and in the right quantity.

In describing the General Motors organization I hope I have not left an impression that I think it is a finished product. No company ever stops changing. Change will come for better or worse. I also hope I have not left an impression that the organization runs itself automatically. An organization does not make decisions; its function is to provide a framework, based upon established criteria, within which decisions can be fashioned in an orderly manner.

The task of management is not to apply a formula but to decide issues on a case-by-case basis. No fixed, inflexible rule can ever be substituted for the exercise of sound business judgment in the decision making process.

Each new generation must meet changes- in the automotive market…in a changing world. For the present management, the work is only beginning. Some of their problems are similar to those I met in my time; some are problems I never dreamed of. The work of creating goes on.

History Matters: The Scanlon Challenge

Elizabeth Haas Edersheim, NYCP Founder

Where are you, Joseph Scanlon? The bonds that hold Americans together seem to be breaking apart as the 99 percent confront the 1 percent, or politicians highlight the 47 percent “who believe they are victims,” and as  outsourcing and downsizing stir resentments.

I’m convinced we desperately need the genius of Scanlon, a professional boxer turned accountant and organizational innovator. By helping workers and management find common cause, Scanlon did more than almost anyone in the past century to save American companies and their jobs.

Scanlon is rarely mentioned these days,  so a brief background:  In the 1930s, he was an accountant at an Ohio steel mill, where tenselabor-management relations and challenging economic times had driven the business near  bankruptcy. He proposed that the company president take the unusual step of attending a steelworkers union meeting.  The result was a groundbreaking agreement: workers promised to find ways to produce higher quality steel more efficiently, while cooperating with managers on deciding how  to measure improvements and defining success for the company. The savings would show up on paychecks; everyone would have a tangible stake in jointly making the company more competitive.

The union and management had to  go beyond simply cooperating; they had to trust each other, test and learn from new ideas together. The result:  the company was resuscitated, the mill stayed open, and everyone’s jobs were saved.

Scanlon became a local union president, and then research director for the National Steelworkers of America. His approach spread far beyond that Ohio steel town. A machine tool company in Massachusetts soon copied it, as did many other companies.  Professor Douglas McGregor invited Scanlon to teach at MIT, where he developed the “Scanlon Plan.”

Much of the gains at these companies was built not on the formula, but on Joe Scanlon’s broader perspective on labor-management cooperation. With greater transparency in their organizations,  he believed, workers would become involved in problem-solving. Breaking from the views of many management experts of the early- and mid-century, he argued that money was not the only motivator; workers wanted to believe in their company and take part in changing it. Workers yearned  for greater involvement and recognition.

No one in the nascent field of management studies caught the imagination of the media and the public like Scanlon.

“The most sought-after labor-relations adviser in the U.S. today is Joe Scanlon, 56, onetime prizefighter, open-hearth tender, steel company cost accountant, union local president and now a lecturer in industrial relations at Massachusetts Institute of Technology,” a glowing profile in Time magazine proclaimed in 1955. “Wearing an open-neck sport shirt and studding his shop lingo with four-letter words, Joe Scanlon looks and sounds like anything but what he is: a fervent evangelist for the mutual interests of labor and management, who knows how to sell the idea to both sides.”

Although he had a notable impact a century ago, what does Joe Scanlon have to offer in the digital age? We live in a different world.  Those workers were doing repetitive tasks, sometimes on complex machines, unlike today’s growing legions of  knowledge  workers.

Still, the basic problems Scanlon addressed persist, with a 21st century twist:

Many executives fail to understand  how to make the most of the impact of knowledge workers on their organizations – how to capture the ideas of engineer in the GM research lab or the salesman on the floor of the AT&T store.  In fact, many workers –  are less than fully engaged in their organizations. Having workers feel bound  to the successes of their companies is even more vital these days. Millions continue working from home long after traditional 9 am – 5pm shifts are over, and millions more work remotely, without supervisors or colleagues nearby.  Employees are shouldering greater responsibility  as  customers demand more responsive service and customization based on their unprecedented knowledge of the competitive landscape  And despite their greater autonomy and status, knowledge workers aren’t  fully invested in the companies they work for – they feel like modern-day steelworkers, who could be replaced at any time by cheaper substitute workers far away. Or even machines.   

We need updated answers to the Scanlon Challenge for enterprises in this century:

  1. How much of what each employee can contribute are they contributing?  How  can employees make a difference?
  1. Is the environment set up to help them make a difference – for example, by working together on testing their ideas?
  1. How can they be recognized and compensated  appropriately for their contributions?

Fortunately, I’m seeing several impressive Scanlon-like projects, ranging from  a huge Chinese manufacturing company to American start-ups, and including innovative non-profits. More on those in future blogs.

Organizational “Weave” – What It Is and Why It Matters

Elizabeth Haas Edersheim, NYCP Founder

In 2002, my client was a large, growing electronics distributor on Long Island. Patrick, the star they had hired from Intel six weeks earlier, was quitting. I sat with Patrick and asked why. His response was simple: “I have lost the bounce in my walk.” He explained: At Intel, he would wake up every morning proud to be going to work. When people asked him what he did, he’d beam, “I work for Intel.” The new job doubled his salary and gave him a shot at being CEO that he’d never have at Intel. But, when he started the day, although he was excited about the work he was doing, he was not excited by the organization.
He ended up calling Intel, taking a slight demotion from his previous job, which had been filled, and returning to the West Coast. I recently spoke with Patrick(not his real name). Intel today probably does not have the magic it had ten years ago. But he doesn’t regret his return. “The bounce has been here for 10 years.”

In 2011, my client was a cutting-edge iPad-based firm with 90 employees, growing fast. When I asked a dozen very talented employees, one-by-one, to discuss their contributing to the organization: What percentage of their talent were they giving?. The answer, again and again, was, “Not what I want to.” Even the founder was frustrated by his ability to contribute.
In 2010, Arron Jiang was graduating from engineering school in Shanghai. He had two job offers –IBM and Haier. Since Haier’s starting  salary was about 20% lower, I asked why he chose the company. He lit up and said, “If I joined IBM, I’d join the systems engineering group and I’d be there for the next ten years growing in my engineering skills, but never learning to be an entrepreneur.” Instead, Haier told him he’d be in the U.S. installing SAP for two years, “with the promise that my next job will be in Marketing somewhere else in the world.” When I spoke with him a few days ago – sure enough – he was happily in Spain – in Marketing.

In the first two situations, both companies were innovative  but the lack of an organizational weave was stymieing the company. In the case of Haier, the company’s agility helped make it an attractive place to work, but the weave, and its very essence were what made it  a hotspot of talent. Some used to talk about organizational “glue” or controls holding a company together through good times and bad, but that image is outdated. Glue connotes a company or non-profit that is inflexible, unable to bend with customers changing needs. These days, I speak of  organizational “weave,” which holds organizations together as they continually reinvent themselves and innovatively connect with other organizations – always learning to adjust and re-apply their  capabilities. Organizational weave can free organizations from holding onto the past, and approach the future with agility and a historical base.  . 
What attracts talent? How do you nurture and retail talent? And what sets talent up to fully grow and contribute to the organizations? Organizational weave.

What helps organizations be agile and adapt to the shifting needs of customers, geography, and technology?  How do the best companies keep reinventing themselves?  Organizational weave.
Over the past, research has touched on this — from Elton Mayo and the Hawthorne Experiments (see our previous Blog) to Henry Mintzberg’s work on Organizations and Society explaining what makes communities effective. This agility, this weave, has never been more vital to organization’s sustainability than it is today.  Consider organizations that demonstrate the most success:  Apple, Haier, Mahindra & Mahindra. They are masters at serial change – innovating from a base with weave.

History Matters: The Hawthorne Experiment’s Legacy for Today

Elizabeth Haas Edersheim, NYCP Founder

Because of the unceasing, 24/7 demands of work, most executives don’t take time to reflect on the lessons from business history.

They should.  The past decades offer insights and guidance for today’s managers, even those in global and high-tech companies.

Consider one of the most-famous but least-understood studies of the 20th century: the Hawthorne Experiments.  The project marked the first time in management history that the power of collaboration was recognized. That was 80 years ago, in 1932, when the first results were reported.

The experiments were resulted from a confluence of factors – a CEO open to outsiders, a team of researchers who knew which questions to ask, and a country searching for answers about productivity.

The power of collaboration has never been as powerful as it is today in the connected world.  In a moment, I will show how a multinational company, Unilever, these days successfully draws from the knowledge gleaned back then. But first a quick recap of those groundbreaking experiments:

Hawthorne Works, a Western Electric plant near Philadelphia, was a studied for eight years staring 1924 and 1932, roughly the time of Franklin Roosevelt’s administration. The President and Congress worked together then to push innovation: The Tennessee Valley Authority built dams and power stations in the South; Social Security started; the Civilian Conservation Corps hired 250,000 young men (at that time, women were not included).

Fortunately, Western Electric – the manufacturing arm of AT&T – had a president, a retired Army colonel, who was persistent in seeking answers. Five teams of engineers had studied the plant and could not find methods for enhancing the productivity or improving attendance on a particularly vexing assembly line. They’d tried financial incentives, but even those failed.

At the time, business leaders believed in the rigid Scientific Management of the leading theorist of the time, Frederick Taylor. But Hawthorne had the experts wondering: Why couldn’t human cooperation be exactly determined by the administrative organization?

Consider two parts of the research. One, the Relay Assembly Experiments, identified several variables on the productivity of workers assembling telephone relays. Some of the variables: Changing payment to a group amount, as opposed to individual payments; changing the length of breaks; shortening the work day; introducing sympathetic observer.

Researchers found that changing a variable was almost guaranteed to increase productivity and output; that worked even if the variable simply meant switching back to the standard environment. Elton Mayo, the Harvard professor who oversaw the experiments, realized that human nature can adapt quickly and regain “equilibrium.” More important, when the group returned to what it considered the normal environment, production increased.  The team was now functioning in a way that “gave itself wholeheartedly and spontaneously to cooperation in the experiment,” Mayo noted. The experiments showed the importance of employee attitudes and sentiments, even as pay incentives failed to boost productivity.

In a second phase, called the Interviewing experiments, workers opened up to the interviewer about personal and business matters. Again, productivity increased, bolstering Mayo’s notion that cooperation provides for social needs.

The takeaway for today: An effective supervisor is one who can look at the whole of the human problem, and remain personal while maintaining enough distance to remain impartial.

The major breakthrough from these works was the realization that collaboration cannot be left to chance. As Mayo wrote:

“For at least a century of the most amazing scientific and material progress and by inadvertence we have abandoned the effort of collaboration. Our methods are all pointed at efficiency; none at the maintenance of cooperation… we do not know how to ensure spontaneity of cooperation – that is, teamwork.”

Teamwork, of course, is as vital today as it was then.  Mayo added:

“The desire for continuous and intimate association in work and with others remains a strong, possibly the strongest human capacity.”

Probably the most perceptive synopsis of the Hawthorne effect came from Stuart Chase, writing in 1941 for Reader’s Digest.  He said, “There is an idea here so big that it leaves one gasping – a management man and a union man did not have a difference of opinion. “

Chase went on, “Their whole attitude had changed from that of separate cogs in a machine to that of a congenial group trying to help the company solve a problem.”

That collaboration is especially important these days, when companies face competitors thousands of miles away. The difference today is that the best managers recognize that workers want connections not just in the same company, but with the outside community, the larger world – and even with customers.

That brings me to what is required today:  Innovative connectors or collaborator, rather than  competitors.  This is what Michael Porter means when he discusses clusters.   This is what Unilever CEO Paul Polman is doing to take Unilever from a stodgy company without the “edge” of its rivals, Procter & Gamble and Colgate; now Unilever is a connector of the future. Polman, who cut his teeth at P&G, has emphasized corporate social responsibility. A marathon runner and mountaineer, he’s made sustainability the key phrase at almost every level of Unilever.  He often discusses with Oxfam’s Barbara Stocking – who until very recently opposed multinational companies like Unilever– how together they can use less water in food production.  “At Unilever,” Polman has said, “we believe collaboration will become the only way of doing business in the future.”

While other chief executives deny or ignore scientific findings about climate change, Polman has embraced scientists and asked for their help changing manufacturing, the supply chain, and distribution. The Unilever Sustainable Living Plan, which started in 2010, sets a goal of doubling the size of business by 2020 while reducing environmental impact.  It includes promises to help a billion people worldwide improve their health, and to source all agricultural raw materials sustainably. Science, the plan says, will be “a critical catalyst and enabler of behavior change.”

In Polman’s words:  “In a world where temperatures are rising, energy is costing more, sanitation is worsening and food supply is less secure, companies can no longer sit on the sidelines waiting for governments to take action.”

He continued, “We have to see ourselves as part of the solution to these problems.”

Unilever’s pro-environmental stand has led to unusual alliances.  For example, the company has endorsed the U.N. Global Compact, which calls on companies to join with government and labor for sustainability and transparency.  And this year, the company announced the formation of The Unilever Foundation, “dedicated to improving the quality of life through the provision of hygiene, sanitation, access to clean drinking water, basic nutrition, and enhancing self-esteem.”

Polman’s actions were unheard of in the consumer industry just a few years ago. Yet they’re boosting the bottom line. Even during a worldwide recession, Unilever’s business has increased, and employee retention is up. There’s a buzz inside and outside the company.  Unilever seems to be inspiring other companies, such as Wal-Mart and Deloitte, which have announced that they view sustainability as good for business.

This is the continuing legacy of the Hawthorne Effect.

And now, a challenge:  Identify an important problem at your company, school or non-profit.   Ask two colleagues how a new collaboration could solve that problem. What can your company draw on Hawthorne’s lessons to increase productivity and satisfaction of employees?

Teach for America – Tomorrow’s Effective Leaders

Make more noise, be louder, push harder.

That’s the advice from feminist leader Gloria Steinman and civil rights leader John Lewis at this weekend’s Teach for America Alumni Summit, which drew 11,000 people.

The results Teach for America, their alumni, the enterprises they have launched, and their friends have accomplished is mind-boggling.  Thanks to Teach for America , students  who had been ignored  are  living dreams – completing college and breaking out of poverty.  Schools built by alumni are breaking levels of performance that were assumed impossible.  For example, Julie Jackson, the principle, at NorthStar Academy in Newark, has taken one of the worst performing schools in the state and is delivering results comparable to the best school in New Jersey.

Communities that had the poorest education standards in the country – New Orleans and Washington DC – are starting to rise from the dust, and even offering some lessons in what can be done right.   In Baltimore, a new generation of public officials is emerging – people who have lived in a classroom.   Colorado is passing promising legislation focused on teacher excellence after senators are visiting the TFA classrooms.

I would speculate that if we check out Facebook in 2020, TFA alumni will dominate the list of the most admired leaders, just as Peace Corps alumni did 30 years ago.

Across the country, teaching is getting renewed respect.  Teaching jobs are now some of the most sought after positions by the best performing college students.  TFA is the only institution that can consistently compete against Goldman Sachs and McKinsey for candidates and win.   Parents who demand excellence of their sons and daughters are no longer questioning their children’s decision to go into teaching.  President Obama and Secretary Arne Duncan recognize the new standards of possible.   And for me, a business-person, the number and scope of entrepreneurial ventures that have been launched on efforts as diverse as training principals to providing one-on-one mathematical teaching with computers is nothing short of Silicon Valley.

It is the synergy and focus within this group that is making these leaders, leaders extraordinaire.  As part of Teach for America, groups in a school meet and collectively learn from each other and mistakes, not unlike the Japanese education system.   At this conference, the number of formal and informal meetings trading ideas and helping each other was a community collectively solving problems and creating new possibilities for education in America.

TFA believes that good leadership will lead to good teaching –- if you know how to lead and manage your classroom, it will lead to achievement gains with your students, regardless of their race or socioeconomic status.  Effective leadership is creating a culture so that the impossible is possible.  That is what this group is doing individually and collectively in and out of the classroom.  The optimism, caring, commitment, and energy of the 11,000 people is contagious.

Teach for America’s challenge now is to scale fast without losing the  focus on putting their core members in the high-need and hard-to-staff places.   America’s challenge is that we can not afford not to. It is this community of 11,000 that have convinced me we will.

The BP Culture’s Role in the Gulf Oil Crisis

I’ve been watching BP carefully long before anyone heard of a “top kill” or “Lower Marine Riser Package Cap.”

I lived in Cleveland in 1979, when BP was acquiring Standard Oil of Ohio and worried for my friends who worked there. But I got reassurance at the time from Marvin Bower, a founder of McKinsey & Co. He told me BP wanted Standard Oil’s expertise in Alaska, along with their North American distribution system. Marvin emphasized that BP had a very human, non-hierarchical culture, respect for Standard Oil’s people and careful style of doing business. “The executives at British Petroleum,” he said, “are people of integrity.”

Now, 31 years later, in 2010, that culture seems to be lost. Culture is an organization’s operating system, the values that everyone lives by. The operating system helps humans communicate and make decisions. The operating system will not allow communication or decisions that could harm the values or purpose of an organization. It is like a translator.

In the case of BP, the culture didn’t work effectively and now its failure is on full display. It is possible that the error messages were so frequent that everybody chose to ignore them. A good culture would, by default, close all the possible doors to viruses or malware. A good culture or operating system is always going to respect priorities that keep the system working with integrity. Has the culture given way to a voracious need for corporate profits or is the problem simply arrogance? Did management become so cocky that they forgot that drilling in 5000 feet of water means pushing the edge of technology?

BP’s culture allowed extreme shortsightedness in pursuit of profit at the cost of safety or environmental stewardship. As the drill was planned, BP chose a cheaper casing seal, which reportedly contributed to the blow-up. Also, the company intentionally cut corners on procedural and safety. For example, last June, exceptions to BP safety standards were taken to senior executives who approved them. And according to a rig survivor interviewed on “60 Minutes,” BP ordered partners to cut corners because their absurdly ambitious drill schedule was off by several weeks. Hours before the explosion, multiple warnings arose; yet all were ignored. So much for the values of Standard Oil and BP. Incredibly, these penny-pinching moves were made as BP racked up record-breaking profits!

Even worse, the broken values appear to appear to go on, thanks to the company and the government. Consider BP’s attempt to disperse oil with Corexit, the dispersant already banned for 10 years in Europe. It’s highly toxic, but it does get the oil to sink below the surface, where it can’t be seen, thus decreasing the visual horrors as the goo comes ashore. It pushes the oil below the surface into the ocean column where it kills underwater sea life, and breaks it up into such tiny morsels that it can actually be absorbed into the skin of ocean and marsh-dwelling beings. BP snubbed the Environmental Protection Agency’s suggestion to stop using Correxit. In response, the EPA blandly called for a “study” of other dispersants.

This fiasco has become more about public relations than public’s right to know. Rather than releasing realistic figures of the volume of oil flowing into the environment, BP knowingly cited a very conservative estimate. They initially put up a video loop instead of live feed, until Rep. Ed Markey of Massachusetts forced a change. Their website excluded information about damages to fish and wildlife. Remember the Tylenol tampering scandal? James Burke and his team led a company culture that admitted the problem and set out to rectify it without pinching pennies. Along the way, they retained customers’ loyalty. And they did the right thing. That’s an example of a comapny culture leading the way forward and stands in stark contrast to what we see coming from BP today.

In the last couple of days, I called my old friends from Standard Oil of Ohio. One had retired, and lamented that the company’s values had disappeared in the wildcatter ’90s. The other just said, “It isn’t Standard Oil anymore.” How true.

Elizabeth Haas Edersheim founded NYCP, a management effectiveness firm, advises large and small businesses and not-for-profits and has written various management articles and books, including McKinsey’s Marvin Bower, and The Definitive Drucker.

THE DRUCKER FORUM: Three Messages for Managers

8:51 AM Wednesday December 9, 2009
by Elizabeth Haas Edersheim
(Originally posted: HBR Blog)

I recently returned from the Peter Drucker Global Forum Vienna, Austria, an event held as part of the centennial celebration of Peter Drucker’s birth. Having studied and written about Drucker extensively, spent years infusing his thinking into my own management consulting work, and befriended him late in his life, I take three messages from the centennial celebrations.

1. Drucker’s work is widely accepted as foundational in creating a theory of management as the foundation of a functioning society, despite not being widely taught in business schools. Leading scholars consistently see him as a source of insight and inspiration, many of whom credit Peter Drucker not only as the creator of the discipline of management but as the basis for their own work. Stephen Covey, author of The 7 Habits of Highly Effective People, said, “I can find everything I’ve written in Peter’s work, 25 years before I thought of it.” Professor Hideyuki Inoue of Keio University said, “Everything we know about knowledge worker productivity is built on the foundation Peter Drucker wrote about 50 years ago.” Phillip Kotler, Distinguished Professor of International Marketing at the Kellogg School said, “If I am the father of marketing, Peter Drucker is the grandfather.” Jim Collins was so bold as to state, “Peter Drucker contributed more to the triumph of freedom and free society over totalitarianism, as anyone in the 20th century, including, perhaps, Winston Churchill.” Jim went on to explain that Drucker used his pen to, “rewire the brains of those who wield the swords.” In fact, Churchill insisted that all his officers carry Drucker’s book, The End of Economic Man, in their backpacks so they could remember why they were fighting the war.

2. Drucker created a new mindset in the practitioners who studied him, not only improving their skills but changing their lives. For example, Timotheus Sattelberger, currently a member of the board of Deutsche Telekom, found himself in a job where his values were at odds with the Chairman’s, and he was miserable. After reading Drucker, he went to his boss and said, “This clown is leaving to find another circus. He will not work in this one anymore.” Sattelberger continued, “It was the best move of my life. I assumed responsibility for my values.” Similarly, Cheol-hui Park, the CEO of Korean startup Park Electronics, talked about how Peter Drucker gave him the courage to move home and create jobs in an emerging company.

3. The third message is becoming more pressing every day: Because the new world is already here, the old world must vanish. Nearly every speaker at the centennial events around the world echoed that message. The old world was described as Cartesian, as a reduction of society to economics, as scattershot tools and frameworks that have dominated the past half-century. We are in a new world. Craig Wynett, Chief Innovation Officer at Procter and Gamble emphasized the power and importance of creativity in this world when he spoke in Vienna at the Centennial celebration. He said we talk about innovation, but creativity is that weird guy that we sometimes talk to in the gym. We need to challenge our assumptions about creativity and contributions, CK Prahalad emphasized a second change in this world issuing a call for “a new social compact of business.

Drucker advocated a social compact by focusing on being effective managers. “Management Effectiveness” means having the perspective and judgment to do the right things, about leveraging the power of people and their creativity in doing so throughout the repeating cycle of vision, execution, and outcome. Far from blind execution of orders, effectiveness requires synthesizing information and stepping up to challenge conventional wisdom. Effectiveness is the wholeness of the decisions – it’s synthesizing and balancing multiple, often competing, objectives in a manner that enhances individuals and society with no negative impact. Effectiveness also means the ability to make mistakes and learn from them.

That is our challenge as practitioners and as academics. It is a new world.

Elizabeth Haas Edersheim conducts case-study-based research on critical leadership issues — often in collaboration with corporations and speaks frequently at management events.


Accelerating Medical Progress Through A More Collaborative Research

by Elizabeth Haas Edersheim

April 30, 2009

In 2005, as we were working together on his biography, The Definitive Drucker, Peter told me to keep an eye on a most innovative collaboration that we both admired—The Myelin Repair Foundation.

Despair: MS Research in 2005

MS was no closer to a cure than in 1975; the conventional academic research model had stalled completely. To push for more effective research with substantive near-term results, businessman Scott Johnson—head of a start-up, a former senior executive at FMC, and a Multiple Sclerosis (MS) sufferer himself—spearheaded a new, more collaborative research model targeted at myelin repair. Does he think MRF will provide him with a cure? “I don’t think so, but it will help other, more recently diagnosed individuals and next-generation sufferers.” Noting that MS often runs in families, Scott continued, “I don’t want anyone to have to experience what I have for the last 30 years; that is why it matters to me.”


The Launch of The Myelin Repair Foundation

The Myelin Repair Foundation’s (MRF) research program was launched in late 2004 with the goal of licensing its first target for commercial development in 2009—10 to 15 years sooner than most thought possible. With an organizational design modeled on the Manhattan Project, MRF seeks to break down the traditional barriers of secrecy in academic research and to expedite breakthroughs in drug discovery.   Their objective is to accelerate medical research dramatically and potentially stop this heretofore “incurable” degenerative disease that runs in families. The underlying idea was that the best scientists could make more and better progress if they worked together in collaboration rather than separately in competition, and if they focused on a very clear and specific research objective.

The shocking story of medical research including publicly funded efforts, is that the very labs that are supposed to work for the common good are often more interested in doing their own thing. They don’t want to cooperate with others, whom they may perceive as competitors, because they fear losing their exclusivity, their competitive edge, and ultimately their funding. Maddened by this inefficiency, Scott Johnson created MRF to pioneer a new model for medical research. In essence, MRF is a virtual research lab that links together institutions with diverse specialized expertise and focuses the world’s greatest MS researchers on solving a very well-defined problem: to find a way to repair myelin and thus reverse the progress of the disease. The foundation simply ignored counterproductive research practices and conventions, abandoning the notion that a research institution has to do everything itself, echoing ideas Drucker wrote about in The Post-Capitalist Society.

To establish this unprecedented “horizontal” collaboration, Scott Johnson brought together five leading neuroscientists from high-powered research universities—McGill, Stanford, Case, Northwestern, and the University of Chicago—former competitors in the race for new myelin discoveries. He provided robust financial incentives and communications infrastructure for these five universities to break from conventional practices and collaboratively participate in the effort. Johnson also committed funding for the principal investigators and created a working culture that facilitated the collaboration of the scientists.

Johnson’s new model, the Accelerated Research Concept (ARC), goes beyond the virtual research lab, with a multitude of formal and informal connections among the scientists which include quarterly meetings, collective planning, and cross-university telephone conferences and e-mails, sometimes daily.

MRF manages for results and bridges the academic and the commercial, working across organizations, institutions, and disciplines to create a powerful focus and success rate. The process has built trust between the former competitors and a shared emotional commitment to the results. They have vastly accelerated the progress of MS research.

For more information on the MRF organizational model, see The Definitive Drucker (New York: McGraw-Hill, 2007) and visit their website http://www.myelinrepair.org/

What is Myelin?

Multiple Sclerosis (MS) attacks myelin, a fat and protein compound wrapped around axons, the fibers that sprout out of nerve cells and carry nerve signals. Think of myelin as a form of insulation. As the myelin insulation is eaten away, scar tissue forms in its place, and nerve signals are slowed, distorted, or halted. These splutters and failures create the symptoms of MS.  Johnson believes that repairing myelin will address these symptoms, much as insulin does for diabetes.


What the Myelin Repair Foundation Accomplished in 4-1/2 Years

Nothing illustrates the power of collaboration like results. As of April 2009, The Myelin Repair Foundation, and its scientists and partners, have:

  • Been awarded one patent, with eight more patent applications pending—at approximately one-quarter the cost per patent of academic institutions
  • Published more than 50 articles in scientific publications, with an unprecedented number of them co-authored by scientists from multiple institutions
  • Identified more than 40 discoveries—targets, pathways, and tools, including a battery of measuring tags to assess precisely the state of a patient’s myelin and the progress of re-myelination.  This tool should greatly accelerate the validation of clinical testing
  • Remained ahead of schedule in achieving the goal of having a myelin repair target licensed by a pharmaceutical company within the foundation’s first 5 years
  • Defined the next round of targets and launched the research to achieve them
  • Set up a Drug Discovery Advisory Group to spearhead the foundation’s collaboration with the commercial world. This group helps outline the strategy for the next set of milestones, e.g., determining whether the academic myelin repair solution can be converted into a therapeutic for patients, devising a systematic flow stream to validate that targets are reproducible with industrial rigor
  • Initiated a target validation process with Contract Research Organization partners. MRF’s goal is to complete this validation process for two of its programs by late summer this year.

If you want to assist an organization that is curing disease, relieving human suffering, and changing the conduct of medical research in the process, consider supporting the Myelin Repair Foundation.


The Challenges Facing the Myelin Repair Foundation in 2009

Having achieved so much, MRF must build on its success and push its research results through the pharmaceutical development pipeline and out to MS patients. In so doing, MRF expects to benefit financially from the commercialization of new therapies. By reaping these rewards, MRF can become a sustainable social business (to use the term coined by Peter Drucker). Meeting the goal of sustainability could take 3 to 5 more years and poses two substantial challenges for MRF today:

Challenge #1: Motivate pharmaceutical companies to work on drug discovery based on MRF’s research—to spur them to invest in targets for MS that did not exist 5 years ago. By intensifying its collaboration with pharmaceutical companies, MRF is bridging “the valley of death.”  There is an enormous gap that prevents discoveries made in academic labs from being commercialized by private pharmaceutical companies. MRF and its academic labs are in conversation with multiple players regarding drug development and are seeking to establish at least two sound research partnerships with pharmaceutical companies this year. These partnerships will bring pharmaceutical investment into MRF and get the foundation’s scientists in touch with the industry’s drug development infrastructure. If their joint research proves successful, MRF’s efforts will have a real therapeutic impact on patients, and will be the foundation will gain an ongoing revenue stream. Commercial success is by no means guaranteed, and the time required to achieve it is not predictable. MRF is bringing the academic and commercial worlds together in a way that nobody else has.

Challenge #2: Attract the short-term funding needed to complete the journey to a commercial solution and fund a second round of MRF research. Although MRF will become self-sustaining as its research solutions are commercialized, the foundation faces an immediate need to raise funds to continue its efforts in the interim. These are challenging times for development and fundraising; many philanthropies have been crippled by the current economic crisis. Scott Johnson has responded by intensifying his own effort. He‘s literally in 6-1/2 days a week burning the midnight oil.

MRF has secured a $10 million pledge—$5 million for 2009 and $5 million for 2010—contingent on MRF finding matching funds. Scott is bringing to this fundraising effort the same creativity that has marked the foundation’s efforts since its inception.

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Imagine a world in which accelerated scientific discoveries are rapidly streamed into the drug pipeline and delivered to patients who can’t afford to wait. It begins with collaboration.

Does a relative have MS? You may also be at risk. 

Although environmental factors may play a central role in triggering MS, the disease clearly has a genetic component. In the general population, the incidence of MS is about 1 in 1,000. The identical twin of a person with MS has a 1 in 3 chance of getting it; a sibling, about 1 in 25. The child of a person with MS has a 1 in 40 chance of getting it. A niece or nephew of a person with MS has a 1 in 60 chance of being diagnosed with MSMark.

Many believe that possibly 100 genes may be involved with MS, but only a handful has been identified to date. MS is NOT considered a hereditary disease, in which there is a 100% chance that a family member will get the disease if he or she has the gene. However, family members of MS patients do have a “genetic predisposition” or increased likelihood (1 to 3 percent) of getting the disease. MRF reports that in several of its supporter families, siblings have been diagnosed, and one individual’s father and grandfather both had MS. MRF believes that early diagnosis and myelin repair therapeutics are the best ways to stop the disease’s progression.


The new buzzword in management is sustainability.

Sustainability is vital to the 60-year-old founder of a company that has grown to $200 million whose board members are continually asking her, “What would happen if you were hit by a bus?”  It is equally important to the principal of a Bronx school for gifted children who is continually raising money and worried about losing a major donor.  Likewise, it is important to the Newsday reporter who is experiencing the third ownership change in 8 months.  Sustainability is a company’s ability to adapt and thrive over time.  It is a new, sometimes painful reality in a world that has been for far too long over-focused on quarterly numbers.

The average life of a corporation on the Fortune 500 list is just 4 years.  Only slightly more than 50 percent of CEOs last more than 3 years.  Less than half of the CFOs stay in their jobs for 3 years.  The lifespan of players, companies, and even industry sectors has changed in the linked world.  And, according to a recent McKinsey survey, the American public has less faith in management today than at any time in the last 50 years. Less faith than post-Watergate.

The linked world transmits errors and successes instantaneously and makes cost structures much more transparent.  The time period from when an industry is born of an innovative market idea until the landscape becomes one of cost-competitive commoditization with multiple players chasing a once “proprietary” market has shrunk, by a factor of 10, according to the Gartner Group.

Sustainability is a big challenge that cuts across all types of enterprises – not-for-profits, businesses, and governments.  The enterprises that appear set to sustain themselves seem to share three characteristics, which are in and of themselves challenging: (1) being disciplined and innovative; (2) targeting results that both contribute socially and run with sound financial underpinnings; and (3) focusing on long-term and short-term financial results simultaneously.

This blog will discuss the first of these three challenging characteristics.  Let’s start with two stories.

Corning Inc. has always been an innovative organization with a history of successful investment in new technologies that take advantage of the company’s deep knowledge of glass, glass ceramics, and inorganic materials.  For example, it developed a process for producing colored and unbreakable railroad signal lenses that made railroad crossings safe.  In the 1970s, it invented the core of the catalytic converter, the basis for most automotive pollution control systems.  More recently, Corning pioneered the development of optical fiber capable of effective transmission of digitized data.

Despite its history of transformative innovations, between 2000 and 2002 Corning began to fail because of a lack of discipline, as well as over-investment in the telecommunications industry.  Management fought to recover by bringing in discipline and “protecting” innovation.

The senior team’s focus has been on creating discipline that nurtures innovation around keystone components.  The discipline includes a new strategy and strategic planning process focused on innovation and made real by a willingness to invest huge amounts of money to take advantage of an opportunity.  The process routinely taps into knowledge and experience of outsiders (academics, industry experts, advisers, consultants).  In other words, the company no longer relies on occasional feedback from customers for inspiration.  There is also a disciplined tracking process that facilitates course-correction when new ideas are missing targets.  Corning management has taken this mindset beyond planning.  It modified the company’s reward system to encourage risk taking.

There is a new training program for project leaders that focuses on simultaneous discipline and intuition.  At a recent session, Wendell Weeks, the chairman, commented that, “information transparency lets the leaders make more mistakes, because they can correct faster and hence be more innovative.” He continued, “You can’t really know how something works until you know why it doesn’t work.  And I expect you to learn how a lot of things don’t work.” The group meets for a week every quarter to collaborate on being innovative and disciplined.

The second story is about how Muhammad Yunus, the Nobel Peace Prize winner and the founder of the Grameen Bank in Bangladesh, pioneered micro credit, a program that provides poor people with small loans to launch a business.  He tried to get traditional banks to lend to the poor.  He found that, “the idea of lending to such people flew in the face of every rule the bankers lived by.”

“Conventional” bankers’ discipline and risk-aversion would not let them try it.  Muhammad intuitively knew this was an opportunity – knocking down institutional barriers that treat the poor as nonentities, but doing so with discipline.  In 1983, he began building the Grameen Bank to have the discipline and innovation to be self-sustaining.  Over time, what began as simply banking expanded to include training, exporting, and the provision of Internet, energy, and health care services.  The system never collapsed.  In 2006 and 2007, the bank paid $20 million in dividends to its owners, in this case the borrowers, while showing a strong sustainability profile.

We have all seen other enterprises struggle with this balance over the last few years.  For example, at Bear Stearns, Ace Greenberg was both intuitive and disciplined.  His handpicked successor, Jim Cane, ran a well-disciplined organization but appeared to lose the intuitive touch with the market.  In 2008, the Fed and JP Morgan had to step in and rescue a failing enterprise.  Steve Jobs was fired when discipline was required at Apple only to be replaced by John Scully who brought in discipline without innovation.  That failed.  Apple had time to adjust, and Steve Jobs returned as a more disciplined, seasoned executive.  These are but a few examples of today’s reality – namely, sustainability of the enterprise needs both discipline and innovation.

Greg Brown, the new CEO of Motorola, is constantly reminded that neither of his two predecessors lasted 5 years – and, like Brown, every executive needs to build sustainability into his/her thinking and decisions.  Sustainability is continually building tomorrow while solidly managing today. It is using discipline as a system of freedom and responsibility within a framework of innovation, intuition, and judgment.

The next blog will focus on the second characteristic shared by enterprises that are well positioned for sustainability – namely, targeting results that both contribute socially and run with sound financial underpinnings.

Elizabeth Edersheim

LET’S TALK ABOUT: Reality – Testing Your Business Theory

Peter first touched on the concept of “the theory of the business” in a 1962 article in Harper’s Magazine, and 30 years later, he spoke exclusively to the topic in a 1994 Harvard Business Review article. “The Theory of the Business” is the passion of the company. It is the fundamental assumptions of purpose and rationale – why the business exists, what the business contributes, and why it will continue to exist. In today’s world testing the veracity and living these assumptions constantly is critical. This need has been made more challenging with our rapidly altering 21st century landscape that can quickly turn assumptions into irrelevant “givens.”

“There are indeed quite a few CEOs who have successfully changed their theory of the business…But for everyone of these apparent miracle workers, there are scores of equally capable CEOs whose organizations stumble.”

Peter F Drucker
HBR Sept -Oct 1994, “The Theory of the Business”

Expert Thought

“To me, there’s a bigger idea – The purpose of a company must be understood by the people. It must be worthy of followership. I have believed for a long time that most people only give to an employer enough of themselves to not lose their job. The percentage of a mere mortal’s human capacity that is delivered to an average employer is very low. We should be shocked, absolutely shocked, by the number of people that work this way – employees, suppliers, …The concept and purpose of a business if aligned with the leadership can directly elevate the motivation of everyone who is involved. Peer group satisfaction – this is where the horsepower is. My entire concept of leadership revolves around that which will elevate and sustain motivation. Inspiration, aspiration and perspiration. This creates the emotional fuel within a company that determines its level of success.”

Richard Block, retired CEO of AGI, COACH and board member of Getting Out and Staying Out (A re-entry program for the population of Rikers Island)

How are the following kinds of business theory reality &ndash testing a routine and constant part of your work as CEO?

  1. “Preventative” testing
    1. Periodic challenging/abandonment of the status quo &ndash If you were not in it already (with “it” covering everything from end product, service, policy, distribution channel), would you do it today?
    2. Robust study of non-customer &ndash typically, they are the first group where signs of fundamental change shows up
  2. “Early diagnostic” to uncover critical warning signs
    1. Objectives have been met &ndash it’s time for new thinking
    2. Rapid growth &ndash existing business theory is likely now outgrown
    3. Unexpected successes
    4. Unexpected failures