Knowledge that Transforms

Recently, technological advances have led neuroscientists to develop a new and more sophisticated framework. It shifts the focus of study from the activity of specific brain regions to how networks of brain regions activate in concurrent patterns. In this article, two experts in brain science explain important discoveries that have been made about four key networks: the default network, which is engaged in introspection and in imagining a different time, place, or reality; the reward network, which activates in response to pleasure; the affect network, which plays a central role in emotions; and the control network, which is involved in understanding consequences, impulse control, and selective attention. These discoveries hold major implications for managers. In particular, they shed light on: the best way to generate Eureka! thinking what motivates employees whether you should trust your gut and listen to your emotions in decision making the opportunities and pitfalls of multitasking These insights are just the beginning, say the authors, who believe that a hugely productive dialogue between neuroscience and business will develop as more findings emerge. INSETS: Idea in Brief;4 Networks in a Nutshell;Does the Brain Know Things Before We Do?.

The article notes research has shown a wage gap concerning men's and women's compensation and also notes the authors' study on newly hired chief financial officers (CFOs) in the U.S. The study found the female CFOs' pay at two years into the job was about five percent less than the male CFOs. The assumptions that women want family-friendly working conditions and are less likely to leave the firm are mentioned. A strategy for preventing these stereotypes from impacting compensation is noted.

The story of the PC industry has been etched in the minds of strategists as a template for how industries evolve in the knowledge economy. In the natural order of things, so the story goes, industries disaggregate as interfaces between various stages of the value chain become open and standardized, allowing value to migrate up or down the value chain. But value migration away from established players doesn't have to be inevitable, argue authors Michael Jacobides and John Paul MacDuffie. Auto manufacturers, for example, have kept a fairly constant share of their industry's total market capitalization despite much recourse to outsourcing and intense competition in the sector. Carmakers and other industry leaders like Apple and Google gain and hold on to strategic control and value in their industries in four key ways: 1. Controlling the assets least likely to be commoditized (and blocking others' efforts to do the same) 2. Serving as guarantor of quality to the end customer (including assuming responsibility for the entire product, even components made by suppliers) 3. Staying in close touch with changing customer needs (changes in the end consumer are often accompanied by shifts in who captures the most value in an industry) 4. Balancing the imperatives of growth and strategic control of the value chain Through the lens of the auto industry, the authors look at how established players can defend value in their industries and how emerging players can change the competitive landscape to drive value their way. INSETS: Idea in Brief;Cars and Computers: Where Has All the Value Gone?;Industry Stability and Creative Stagnation;How Incumbents and Challengers Shift Value.

Letters to the editor are presented in response to an article published in the April 2013 edition of Harvard Business Review journal on topics including the need for companies to focus on quality before value in products and the importance of generating revenue.

Emerging economies are often thought of as environmental laggards; they're perceived to be focused more on addressing poverty than on protecting the planet. But when the Boston Consulting Group and the World Economic Forum went looking for the best sustainable business practices in the developing world, their researchers uncovered many visionary enterprises that defied that stereotype. These organizations show that in markets where resource depletion is most keenly felt, conservation efforts can be a wellspring of innovation-and a source of competitive advantage. Some of these enterprises pursue sustainability out of pragmatism; some out of idealism. But all have consistently generated above- average (and in some cases, astounding) growth rates and profit margins. They've achieved them by following one or more of three general approaches: (i) taking a long view and investing in initially more-expensive sustainable operating methods that eventually lead to dramatically lower costs and higher yields; (2) bootstrapping-making small adjustments that generate big savings, which then fund purchases of advanced technologies; and (3) extending their sustainability efforts to the operations of their customers and suppliers (and in the process, devising new business models). Collectively, these companies demonstrate that there need be no trade-off between sustainability and financial performance. Rather, the pursuit of sustainability can be a powerful path to reinvention for all. HBR Reprint R13O3K.

Lured by the success of marketplaces such as eBay, many companies have tried operating as multisided platforms, which let buyers and sellers transact directly with one another. But resellers-which acquire and then resell products and services-often fare better. To determine the right position on the continuum between pure reseller and pure multisided platform, companies must consider four factors: Scale effects. Amazon draws on its formidable scale economies as a reseller for high-demand items but serves as a multisided platform for low-demand products. Aggregation effects. Resellers can extract value from buyers by bundling products and exploiting complementary relationships between them, as Apple has with its iTunes-iPod combination. The buyer and seller experiences. As Zappos realized in its early days as a multisided platform, some buyers do not want to deal with multiple sellers. And individual sellers might have a better experience selling to a reseller than to a buyer in a marketplace. Market failures. Many multisided platforms have avoided collapse by using mechanisms that keep buyers and sellers honest. It can take more than one move for a company to reach its optimal position: Companies that should ultimately be multisided platforms sometimes need to start out as resellers and vice versa. And as the competitive landscape changes, managers must be diligent about reevaluating their positioning. HBR Reprint R13O3J INSETS: Idea in Brief;How Companies Use Different Sales Models;Creating a Marketplace Is Harder Than It Looks.

Letters to the editor are presented in response to the article The Performance Frontier: Innovating for a Sustainable Strategy by Robert G. Eccles and George Serafeim concerning environmental, social, and governance (ESG) issues in corporations, which appeared in the May 2013 issue.

The article presents information on business models and growth strategies which incorporate category creation and the development of innovative products. Topics include studies on the profitability of the 100 fastest-growing U.S. companies; examples of companies such as the Keurig coffee machine manufacturer which created their own product category; and the attitudes of senior executives regarding the challenges of category creation. Competition from start-ups for the development of breakthrough innovations is discussed, along with the expense of category creation.

In 1965, a time when quantitative, computer-driven planning was very much in vogue, Royal Dutch Shell started experimenting with a different way of looking into the future: scenario planning. Shell's practice has now survived for almost half a century and has had a huge influence on how businesses, governments, and other organizations think about and plan for the future. The authors interviewed almost every living veteran of the Shell scenario planning operation, along with top Shell executives through the years. They identify several principles that both define the process at Shell and help explain how it has survived and thrived for so long. For instance, Shell scenarios are stories, not predictions, and are designed to help break the habit, ingrained in most corporate planning, of assuming that the future will look much like the present. They must above all be plausible, with a logical story line, in order to encourage intuition and judgment. They create a safe space for dialogue and for acknowledging uncertainty. They must also be relevant, not simply disruptive and challenging. And they need some quantification to be credible-but the numbers must flow from the stories, rather than the other way around. Otherwise, there's always the danger that quantitative models will hide assumptions and constrain thinking rather than refine it. Because scenarios follow a rhythm distinct from the annual strategy cycle, they allow an organization to see realities that would otherwise be overlooked. INSET: Idea in Brief.