Harvard Business Review

Executive Summaries

Cover Feature

The Four Truths of the Storyteller

Peter Guber Reprint: R0712C

A well-told story's power to captivate and inspire people has been recognized for thousands of years. Peter Guber is in the business of creating compelling stories: He has headed several entertainment companies--including Sony Pictures, PolyGram, and Columbia Pictures--and produced Rain Man, Batman, and The Color Purple, among many other movies. In this article, he offers a method for effectively exercising that power.

For a story to enrapture its listeners, says Guber, it must be true to the teller, embodying his or her deepest values and conveying them with candor; true to the audience, delivering on the promise that it will be worth people's time by acknowledging listeners' needs and involving them in the narrative; true to the moment, appropriately matching the context--whether it's an address to 2,000 customers or a chat with a colleague over drinks--yet flexible enough to allow for improvisation; and true to the mission, conveying the teller's passion for the worthy endeavor that the story illustrates and enlisting support for it.

In this article, Guber's advice--distilled not only from his years in the entertainment industry but also from an intense discussion over dinner one evening with storytelling experts from various walks of life--is illustrated with numerous examples of effective storytelling from business and elsewhere. Perhaps the most startling is a colorful anecdote about how Guber's own impromptu use of storytelling, while standing on the deck of a ship in Havana harbor, won Fidel Castro's grudging support for a film project. Forethought

What Health Consumers Want

Caroline Calkins and John Sviokla Reprint: F0712A

Consumers of health care constitute a highly diverse market, but the idea that companies might segment customers and profit by addressing their varied needs seems almost foreign to the health industry. You can tap hidden value by making use of patterns in the demand for health products and services, especially if you segment consumers according to health and wealth at the same time.

Pandemic Preparedness: Who's Your Weak Link?

George Abercrombie Reprint: F0712B

A company's ability to function during a flu pandemic is only as good as the weakest link in its supply chain. Hoffman-La Roche, the maker of a frontline antiviral drug, works closely with its suppliers to ensure that their preparedness plans are as robust as its own.

Mao's Pervasive Influence on Chinese CEOs

Shaomin Li and Kuang S. Yeh Reprint: F0712C

Executives of multinationals partnering with Chinese firms should be alert to Mao Zedong's lingering influence on some of the country's most successful executives--and, in particular, watch for a leadership tactic that can undermine a joint venture.

The Truth About Private Equity Performance

Oliver Gottschalg and Ludovic Phalippou Reprint: F0712D

Private equity fund performance is most often reported in a way that exaggerates the truth. A modified calculation gives a more accurate read of performance and can change a fund's relative rank.

Selecting Management Tools Wisely

Darrell Rigby and Barbara Bilodeau Reprint: F0712E

With so many management tools out there, from benchmarking to outsourcing, it's hard to decide which ones to try. To help executives make informed choices, the authors compare levels of use and satisfaction for the most popular tools, and chart the evolution of a select few.

The Best Advice I Ever Got

Hans-Paul Bürkner Reprint: F0712F

By watching a colleague assemble diverse, high-performing teams, the CEO of the Boston Consulting Group learned the art of nurturing individual strengths and steering team members away from tasks that would expose their weaknesses.

Hotter Heads Prevail Reprint: F0712G

A detached and impassive executive may seem like the corporate decision-making ideal, but people make better choices when they're experiencing intense emotions, according to new research.

Conversation with Ed Zore Reprint: F0712H

Ed Zore is the CEO of Northwestern Mutual, a highly admired 150-year-old insurer. Relevance, not innovation, matters most to customers, he says, and should matter most to companies as well.

The Flaw in Customer Lifetime Value

Detlef Schoder Reprint: F0712J

Marketers commonly estimate customer lifetime value in order to decide which customers are worth continued investment. But the way companies typically calculate that value is flawed because it overlooks the real option of abandoning unprofitable customers.

Reviews

Featuring A Farewell to Alms: A Brief Economic History of the World, by Gregory Clark. HBR Case Study

The Customers' Revenge

Dan Ariely Reprint: R0712A

Venerable Detroit automaker Atida Motors has a new call center in Bangalore that the company hopes will raise its reputation for customer service. But it doesn't appear to be doing so yet. Complaints about the Andromeda XL--the hip new model Atida hopes will capture the imagination of Wall Street--are flooding the call center. Call backlogs are building, and letters of complaint are piling up. One loyal Atida customer is so upset about getting the brush-off that he's not only talking to a lawyer but threatening to go on YouTube and take his case to the court of public opinion. In the internet age, does Atida need a new way to deal with unhappy customers?

Tom Farmer, the creator of the unintentionally viral PowerPoint presentation "Yours Is a Very Bad Hotel," says that Atida needs to stop defining customer service solely as a response to bad news and nip problems in the bud by making online dialogue intrinsic to the brand experience.

Nate Bennett, of Georgia Tech, and Chris Martin, of Centenary College, observe that Atida has violated its customers' sense of fairness within three dimensions--distributive, procedural, and interactional--thus increasing their desire for revenge.

Lexus Vice President for Customer Service Nancy Fein thinks Atida isn't even in the ballpark when it comes to world-class customer service. She offers as an example a Lexus rep who drove 80 miles to deliver $1,000 to a stranded Lexus owner whose purse had been stolen.

Barak Libai, of Tel Aviv University and MIT's Sloan School, suggests that Atida invest in a CRM system so that it can determine which customers have enough purchasing and referral value to be given the red carpet treatment and which should be gently let go. Features

Making Relationships Work

A Conversation with Psychologist John M. Gottman Reprint: R0712B

Unless you're a hermit, you can't avoid relationships. And your professional career certainly won't go anywhere if you don't know how to build strong, positive connections. Leaders need to connect deeply with followers if they hope to engage and inspire them.

Despite the importance of interpersonal dynamics in the workplace, solid research on the topic is only now beginning to emerge--and psychologist John M. Gottman, executive director of the Relationship Research Institute, is leading the way. His research shows that how we behave at work is closely related to how we behave at home.

Few people understand personal relationships better than Gottman, who has studied thousands of married couples for the past 35 years. He and his colleagues use video cameras, heart monitors, and other biofeedback equipment to measure what goes on when couples experience moments of either conflict or closeness. By mathematically analyzing the data, Gottman has provided hard scientific evidence for what makes good relationships.

In this interview with HBR senior editor Diane Coutu, Gottman emphasizes that successful couples look for ways to accentuate the positive: They try to say yes as often as possible. Even thriving relationships, however, still have room for conflict. Individuals embrace it as a way to work through essential personality differences. Gottman also points out that good relationships aren't about clear communication--they're about small moments of attachment and intimacy. Still, he warns, too much of a good thing can be a menace in the workplace, where simple friendships can spill over into emotional affairs.

China + India: The Power of Two

Tarun Khanna Reprint: R0712D

China and India are burying the hatchet after four-plus decades of hostility. A few companies from both nations have been quick to gain competitive advantages by viewing the two as symbiotic. If Western corporations fail to do the same, they will lose their competitive edge--and not just in China and India but globally.

The trouble is, most companies and consultants refuse to believe that the planet's most populous nations can mend fences. Not only do the neighbors annoy each other with their foreign policies, but they're also vying to dominate Asia. Moreover, the world's fastest-growing economies are archrivals for raw materials, technologies, capital, and overseas markets.

Still, China and India are learning to cooperate, for three reasons. First, these ancient civilizations may have been at odds since 1962, but for 2,000 years before that, they enjoyed close economic, cultural, and religious ties. Second, neighbors trade more than non-neighbors do, research suggests. Third, China and India have evolved in very different ways since their economies opened up, reducing the competitiveness between them and enhancing the complementarities.

Some companies have already developed strategies that make use of both countries' capabilities. India's Mahindra & Mahindra developed a tractor domestically but manufactures it in China. China's Huawei has recruited 1,500 engineers in India to develop software for its telecommunications products. Even the countries' state-owned oil companies, including Sinopec and ONGC, have teamed up to hunt for oil together.

Multinational companies usually find that tapping synergies across countries is difficult. At least two American corporations, GE and Microsoft, have effectively combined their China and India strategies, allowing them to stay ahead of global rivals.

Breakthrough Thinking from Inside the Box

Kevin P. Coyne, Patricia Gorman Clifford, and Renée Dye Reprint: R0712E

Companies often begin their search for great ideas either by encouraging wild, outside-the-box thinking or by conducting quantitative analysis of existing market and financial data and customer opinions. Those approaches can produce middling ideas at best, say Coyne, founder of an executive-counseling firm in Atlanta, and Clifford and Dye, strategy experts at McKinsey. The problem with the first method is that few people are very good at unstructured, abstract brainstorming. The problems with the second are that databases are usually compiled to describe current--not future--offerings, and customers rarely can tell you whether they need or want a product if they've never seen it.

The secret to getting your organization to regularly generate lots of good ideas, and occasionally some great ones, is deceptively simple: First, create new boxes for people to think within so that they don't get lost in the cosmos and they have a basis for offering ideas and knowing whether they're making progress in the brainstorming session. Second, redesign ideation processes to remove obstacles that interfere with the flow of ideas--such as most people's aversion to speaking in groups larger than ten. This article offers a tested approach that poses concrete questions. For example, what do Rollerblades, Häagen-Dazs ice cream, and Spider-Man movies have in common? The answer: Each is something that adults loved as children and that was reproduced in an expensive form for grown-ups. Asking brainstorming participants to ponder how their childhood passions could be recast as adult offerings might generate some fabulous ideas for new products or services.

What Every Leader Needs to Know About Followers

Barbara Kellerman Reprint: R0712F

Countless studies, workshops, and books have focused on leaders--the charismatic ones, the retiring ones, even the crooked ones. Virtually no literature exists about followers, however, and the little that can be found tends to depict subordinates as an amorphous group or explain their behavior in the context of leaders' development. Some works even fail to sufficiently distinguish among varying types of followers--barely registering the fact that those who tag along mindlessly are a breed apart from those who are deeply devoted and consciously, actively involved. These distinctions have critical implications for the way leaders should lead and managers should manage, according to Kellerman, a professor at Harvard's Kennedy School of Government. Additionally, today's followers are influenced by a range of cultural and technological changes that have affected what they want and how they view and communicate with their ostensible leaders.

In this article, Kellerman explores the evolving dynamic between leaders and subordinates and offers a typology that managers can use to determine and appreciate how their followers are different from one another. Using the level of engagement with a leader or group as a defining factor, the author segments followers into five types: Isolates are completely detached; they passively support the status quo with their inaction. Bystanders are free riders who are somewhat detached, depending on their self-interests. Participants are engaged enough to invest some of their own time and money to make an impact. Activists are very much engaged, heavily invested in people and process, and eager to demonstrate their support or opposition. And diehards are so engaged they're willing to go down with the ship--or throw the captain overboard.

Deals Without Delusions

Dan Lovallo, Patrick Viguerie, Robert Uhlaner, and John Horn Reprint: R0712G

Pursuing a merger or acquisition is inherently difficult. Things get even harder when executives are blind to their own faulty assumptions, say Lovallo--a professor at the University of Western Australia Business School and a senior adviser to McKinsey--and three of his McKinsey colleagues. The authors identify biases that can surface at each step of the M&A process and provide practical tips for rising above them--an approach they call targeted debiasing.

During the preliminary due-diligence stage, biases abound. To overcome the confirmation bias, aggressively seek evidence that challenges your initial hypothesis about a deal. The best medicine for overconfidence in identifying revenue and cost synergies is to learn from precedents at your firm and others. Avoiding underestimation of cultural differences between your company and the target requires understanding the differences in the ways people interact at each organization. Misjudging the time and resources you need is at the core of the planning fallacy, which you can elude by formally identifying best practices and continually revisiting them. Finally, dilute conflict of interest by soliciting dispassionate external expertise.

The bidding phase is vulnerable to the winner's curse, a phenomenon common in auctions. To avoid paying too much for a target, actively generate alternatives to the deal under consideration and develop a set of bidding cutoff rules.

After offering an initial bid, deal makers are susceptible to anchoring, whereby they remain attached to their original price estimate, and to the sunk cost fallacy that they've invested too much to stop now. The secret to overcoming both: Use your newly available access to the target's books to better assess the investment case--and change your tune accordingly.

Simplicity-Minded Management

Ron Ashkenas Reprint: R0712H

Large organizations are by nature complex, but over the years new business challenges--globalization, innovative technologies, and regulations, to name a few--have conspired to add layer upon layer of complexity to corporate structure and management. Organizations have become increasingly ungovernable and unwieldy: Performance is declining, accountability is unclear, decision rights are muddy, and data are crunched repeatedly, often with no clear purpose in mind. To avoid frustration and inefficiency, executives need to systematically attack the causes of complexity in their companies.

Ashkenas and his partners at Robert H. Schaffer & Associates have worked with dozens of firms to help them develop strategies for simplifying. In this article, the author details the elements of a simplicity-minded strategy: Streamline the structure; prune products, services, and features; build disciplined processes; and improve managerial habits.

ConAgra Foods' experience illustrates how one company turned itself around through careful execution of a simplicity strategy. The packaged-food supplier had become enormously successful by acquiring well-known brands and then allowing them to operate autonomously, evolving into a $14 billion organization with more than 100 brands, a food services business, and a commodity trading operation. ConAgra, however, had no common method for reporting, tracking, or analyzing results. Over time, therefore, it became a highly unwieldy enterprise, riddled with inefficiencies and unable to communicate adequately with investors and other stakeholders. When CEO Gary Rodkin came on board, in 2005, he invested in a series of initiatives to combat complexity. The tactic not only made life easier for customers and employees but also saved millions of dollars in costs.

This article has an online interactive questionnaire that can help you assess your own company's level of complexity.

Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio

George S. Day Reprint: R0712J

Minor innovations make up most of a company's development portfolio, on average, but they never generate the growth companies seek. The solution, says Day--the Geoffrey T. Boisi Professor of Marketing and a codirector of the Mack Center for Technological Innovation at Wharton--is for companies to undertake a systematic, disciplined review of their innovation portfolios and increase the number of major innovations at an acceptable level of risk.

Two tools can help them do this. The first, called the risk matrix, graphically reveals the distribution of risk across a company's entire innovation portfolio. The matrix allows companies to estimate each project's probability of success or failure, based on how big a stretch it is for the firm to undertake. The less familiar the product or technology and the intended market, the higher the risk.

The second tool, dubbed the R-W-W (real-win-worth it) screen, allows companies to evaluate the risks and potential of individual projects by answering six fundamental questions about each one: Is the market real? explores customers' needs, their willingness to buy, and the size of the potential market. Is the product real? looks at the feasibility of producing the innovation. Can the product be competitive? and Can our company be competitive? investigate how well suited the company's resources and management are to compete in the marketplace with the product. Will the product be profitable at an acceptable risk? explores the financial analysis needed to assess an innovation's commercial viability. Last, Does launching the product make strategic sense? examines the project's fit with company strategy and whether management supports it.

The Four Truths of the Storyteller

The stories that move and captivate people are those that are true to the teller, the audience, the moment, and the mission.

by Peter Guber

I'm in the business of creating compelling stories. As a filmmaker, I need to understand how stories touch audiences--why one story is an instantly appealing box office success while another fails miserably to connect. I've been fortunate enough to work with some of the world's most talented storytellers--gifted directors, novelists, screenwriters, actors, and other producers--and from them I've gleaned insights into the alchemy of great stories. Make no mistake, a hit movie is still an elusive target, and I've had my share of flops. But experience has at least provided me with a clear sense of the essential elements of a story and how to tap into its power.

The power of storytelling is also central to my work as a business executive and entrepreneur. Over the years, I've learned that the ability to articulate your story or that of your company is crucial in almost every phase of enterprise management. It works all along the business food chain: A great salesperson knows how to tell a story in which the product is the hero. A successful line manager can rally the team to extraordinary efforts through a story that shows how short-term sacrifice leads to long-term success. An effective CEO uses an emotional narrative about the company's mission to attract investors and partners, to set lofty goals, and to inspire employees.

Sometimes, a well-crafted story can even transform a seemingly hopeless situation into an unexpected triumph.

In the mid-1980s at PolyGram, I produced a television series called Oceanquest, which took a team of expert divers and scientists around the world--from Antarctica to Baja California to Micronesia--to film their aquatic adventures. The cast included former Miss Universe Shawn Weatherly, a novice who served as a stand-in for the viewers at home.

One of the planned segments critical to the success of the series was to explore the forbidden waters of Havana harbor, where galleons and pirate ships had carried treasure since the sixteenth century. There was only one problem: Neither the U.S. government nor the Communist regime of Fidel Castro wanted a team of Americans filming there.

Pleading that our mission was purely scientific and peaceful, we managed, with support from former secretaries of state Henry Kissinger and Alexander Haig, to get permission from the U.S. State Department. But the go-ahead from the Cuban government for underwater filming proved more elusive. Gambling that we could win approval, we sailed to Cuba, set up our equipment in Marina Hemingway, and filmed a few surface shots in various locations as we waited for word from the regime. Millions of dollars in sunk costs hung in the balance.

A local official finally turned up with a surprise announcement: Fidel Castro had taken a personal interest in our project and would be visiting the harbor. (Castro, we learned, was an environmental advocate and scuba enthusiast.)

"May we use this visit to ask for permission to film in the harbor?" we asked.

The official shrugged. "El Presidente will be here for ten minutes only," he replied. "But you are certainly free to tell your story. Just remember, no autographs and no gifts."

Of course, we'd already provided all sorts of information about our project to the Cuban government's Washington office. But it was soulless data with no emotion, life, or drama. No wonder our request had elicited a perfunctory "no." I was determined not to make the same mistake again.

Castro (or Cool Breeze, as we'd privately code-named him) arrived, his entourage in tow. To make his experience interactive, we'd arranged a display of our most elaborate equipment on the deck of our main ship--underwater vehicles, diving suits, high-tech cameras. Cool Breeze was suitably impressed by it all--though he seemed most taken by the friendly welcome from Ms. Weatherly, still wearing her bathing suit from that day's filming.

The ice broken, I began telling the story of Havana harbor and its centuries at the heart of world commerce, diplomacy, intrigue, and war. The central motivation for early explorers of the New World had been the quest for treasure. As the focal point of Spain's trading empire and the strategic "key to the Gulf of Mexico," Havana had been integral to this quest, its port the shipping center through which the gold of the Americas flowed on its way to the Spanish royal court. Pirates, privateers, spies, and rival imperial forces--including Britain's Royal Navy--had plied its waters, seeking booty, probing for military and economic secrets, and vying for influence. I explained how we would use the latest technology to bring Cuba's history to television viewers worldwide.

As I spoke, I watched Castro toy with the equipment and listen with growing interest to the story of Havana harbor's past. Finally, breaking the bureaucrat's rule, I presented the Cuban leader with a giant tooth (seven inches long, five inches wide) from a megalodon, a prehistoric shark that had once prowled Havana's waters.

The upshot? Castro spent four hours visiting with our film crew, and he gave us permission to film anywhere in the harbor we wanted. We captured hours of compelling television footage. My impromptu story--and Havana's story--won the day. "The seas belong to all humankind," I reminded Castro, "and so does history. You are the steward of Havana's history, and it is up to you to share it with the world."

This experience led me--not for the first time and certainly not for the last--to try to gather some basic truths about how storytelling can be used to get people's help carrying out your goals and ultimately to inspire business success. Stories can, of course, take many forms, from old-fashioned words on a page to movies laden with digital special effects. In this article I'll restrict myself primarily to stories like the one I used with Castro: oral narratives in which a single teller addresses one or more listeners. Whether the audience is a handful of colleagues or clients at lunch or 10,000 convention-goers listening to a formal address, the secrets of a great story are largely the same.

The Leader as Storyteller

As part of my continuing effort to unlock these secrets, I recently persuaded a diverse group of leaders and storytelling experts from the worlds of business, education, and entertainment to come together over a meal and exchange their insights about storytelling. One beautiful spring evening, we gathered at my home in Los Angeles. With a feast laid out on a great low table and the city lights twinkling in the hills below us, we luxuriated in a cascade of ideas. As the wine flowed, so did the jokes, stories, and observations drawn from the centuries' worth of life experience in that room. And as varied as our backgrounds were, I found that we kept returning to one theme: the crucial importance of truth as an attribute of both the powerful story and the effective storyteller.

Before I go further, let me clear up two misconceptions about storytelling that many businesspeople have.

First, many think it is purely about entertainment. But the use of the story not only to delight but to instruct and lead has long been a part of human culture. We can trace it back thousands of years to the days of the shaman around the tribal fire. It was he who recorded the oral history of the tribe, encoding its beliefs, values, and rules in the tales of its great heroes, of its triumphs and tragedies. The life-or-death lessons necessary to perpetuate the community's survival were woven into these stories: "We don't go hunting in the Great Wood--not since that terrible day when three of our bravest were killed there by unknown beasts. Here's how it happened..."

Storytelling plays a similar role today. It is one of the world's most powerful tools for achieving astonishing results. For the leader, storytelling is action oriented--a force for turning dreams into goals and then into results.

Second, many people assume that storytelling is somehow in conflict with authenticity. The great storyteller, in this view, is a spinner of yarns that amuse without being rooted in truth. The image of Hollywood as "Tinseltown"--a land of make-believe and suspended disbelief that allows us to escape reality, even manipulates us into doing so--reinforces this notion. But great storytelling does not conflict with truth. In the business world and elsewhere, it is always built on the integrity of the story and its teller. Hence the emphasis on truth as its touchstone in our dinner symposium.

Reflecting on the lessons and ideas from our conclave, I've distilled four kinds of truth found in an effective story.

Truth to the Teller

Authenticity, as noted above, is a crucial quality of the storyteller. He must be congruent with his story--his tongue, feet, and wallet must move in the same direction. The consummate modern shaman knows his own deepest values and reveals them in his story with honesty and candor.

Jim Sinegal, cofounder and CEO of Costco, tells a business story that embodies the values he's helped build into his company. Back in 1996, he often recounts, Costco was doing a brisk business in Calvin Klein jeans priced at $29.99. When a smart buyer got a better deal on a new batch of the jeans, company guidelines calling for a strict limit on price markups dictated a lower price of $22.99. Costco could have stuck to the original price and dropped seven extra dollars a pair straight into its own pocket. But Sinegal insisted on passing the savings on to customers, because he saw the company's focus on customer value as the key to its success. The story continues to be told in Costco's hallways today. It vividly conveys a message about the company's values--one that resonates, in part, because it's aligned with the personality of its author. Sinegal answers his own phone, draws an annual salary of just $350,000 (a fraction of what most big-company CEOs earn), and has signed an employment contract that's only one page long--all of which means less cost for customers to absorb.

At the storytelling dinner I held, Oscar-winning screenwriter Ron Bass put it this way, drawing a parallel to the world of politics: "When I pitch a story, I have to sell myself--who I am. The same is true of every leader, in business or any other field. Take Barack Obama. His story is all about who he is. And everything about him is part of it, down to his physical presence: the eye contact, the hand on the shoulder, the sound of his voice."

Being true to yourself also involves showing and sharing emotion. The spirit that motivates most great storytellers is "I want you to feel what I feel," and the effective narrative is designed to make this happen. That's how the information is bound to the experience and rendered unforgettable.

But sharing emotion isn't easy. As Teri Schwartz, the dean of Loyola Marymount University's film and television school, pointed out, "It demands generosity on the part of the storyteller." Why? Because it often requires being vulnerable--a challenge for many leaders, managers, salespeople, and entrepreneurs. By willingly exposing anxieties, fears, and shortcomings, the storyteller allows the audience to identify with her and therefore brings listeners to a place of understanding and catharsis, and ultimately spurs action. When I told the story of Havana harbor to Castro--standing on the deck of a ship strewn with expensive equipment that we'd essentially brought there on spec, trusting in my ability to win the confidence of Cuba's all-powerful ruler--both my vulnerability and my enthusiastic commitment to the risky project were on full display.

Here is the challenge for the business storyteller: He must enter the hearts of his listeners, where their emotions live, even as the information he seeks to convey rents space in their brains. Our minds are relatively open, but we guard our hearts with zeal, knowing their power to move us. So although the mind may be part of your target, the heart is the bull's-eye. To reach it, the visionary manager crafting his story must first display his own open heart.

Truth to the Audience

There's always an implicit contract between the storyteller and his audience. It includes a promise that the listeners' expectations, once aroused, will be fulfilled. Listeners give the storyteller their time, with the understanding that he will spend it wisely for them. For most businesspeople, time is the scarcest resource; the storyteller who doesn't respect that will pay dearly. Fulfilling this promise is what I mean by "truth to the audience."

To meet the terms of this contract--and ideally even overdeliver on it--the great storyteller takes time to understand what his listeners know about, care about, and want to hear. Then he crafts the essential elements of the story so that they elegantly resonate with those needs, starting where the listeners are and bringing them along on a satisfying emotional journey.

This journey, resulting in an altered psychological state on the part of the listener, is the essence of storytelling. Listeners must remain curious and in suspense--wondering what's going to happen to them next--while trusting that it is safe to give themselves over to the journey and that the destination will be worthwhile.

Truth to the audience has a number of practical implications for the craft of storytelling.

First, you'll want to try your story out on people who aren't already converts, to get a realistic sense of how your real audience might respond. Ron Bass finds this strategy useful: "In effect," he says, "I have my own story development company. It consists of three or four young women who represent my `marketing department.' I bounce everything off them--every new idea, scene, plot twist, character development, big speech. I study their reactions and then, even more important, study my reaction to them. I don't necessarily follow their advice. What I must follow is my own deepest instinct, and this is best revealed to me as I see how I respond to the feelings and thoughts of other people."

Business leaders too need to be in touch with their listeners--not slavish or patronizing, but receptive--in order to know how to lead them. Getting your story right for your listeners means working past a series of culs-de-sac and speed bumps to find the best path.

Second, you'll need to identify your audience's emotional needs and meet them with integrity. It's not enough to get the facts right--you've got to get the emotional arc right as well. Every storyteller is in the expectations-management business and must take responsibility for leading listeners effectively through the story experience, incorporating both surprise and fulfillment. At the end of the story, listeners should think, "We never expected that--but somehow, it makes perfect sense." Thus, a great story is never fully predictable through foresight--but it's projectable through hindsight.

Third, you'll want to tell your story in an interactive fashion, so people will feel they've participated in shaping the story experience. This requires a willingness to surrender ownership of the story. The storyteller must recognize that the story is bigger than she is and must enlist her audience's help.

This can mean, as screenwriter Chad Hodge pointed out during our dinner, "helping people to see themselves as the hero of the story," whether the plot involves beating the bad guys or achieving some great business objective. "Everyone wants to be a star, or at least to feel that the story is talking to or about him personally," Hodge said. Business leaders need to tap into this drive by using storytelling to place their listeners at the center of the action. As Hodge advised: "Encourage your people to join your journey, your quest, and reach the goal that lies at its end." Recall, for example, how I shone a spotlight on the chain of history of Havana's great harbor and placed Castro at the center of the story, as the harbor's current steward.

LMU's Teri Schwartz picked up on Hodge's idea: "Make the `I' in your story become `we,' so the whole tribe or community can come together and unite behind your experience and the idea it embodies."

Consider how Sallie Krawcheck--formerly the CEO of Smith Barney and now, in her early forties, the youthful chair and CEO of Citigroup's Global Wealth Management division--connects with people who might be intimidated by her reputation for brilliance and her rapid rise to the top of the financial services industry. She often tells her life story in a way that anyone can identify with, recalling how she felt like an outcast at her all-girls school as a teenager--with glasses, braces, and corrective shoes--and how that prepared her for the rigors of her professional life. She has said in the business press that "there was nothing they could do to me at Salomon Brothers in the '80s that was worse than the seventh grade."

When you hear Krawcheck describe her journey in these terms, you know exactly how she feels. You can't help rooting for her--and if you're a member of her team at Citigroup, you're ready to follow her wherever she leads.

Perhaps of equal import, business leaders must recognize that how the audience physically responds to the storyteller is an integral part of the story and its telling. Communal emotional response--hoots of laughter, shrieks of fear, gasps of dismay, cries of anger--is a binding force that the storyteller must learn how to orchestrate through appeals to the senses and the emotions.

Nowhere is this more apparent than at the story's ending. Getting the audience to cheer, rise, and vocalize in response to a dramatic, rousing conclusion creates positive emotional contagion, produces a strong emotional takeaway, and fuels the call to action by the business leader. The ending of a great narrative is the first thing the audience remembers. The litmus test for a good story is not whether listeners walk away happy or sad. Rather, it's whether the ending is emotionally fulfilling, an experience worth owning, a great "aha!"--not just sticky fingers and a few uneaten kernels of popcorn.

Orchestrate emotional responses effectively, and you actually transfer proprietorship of the story to the listener, making him an advocate who will power the viral marketing of your message.

Truth to the Moment

A great storyteller never tells a story the same way twice. Instead, she sees what is unique in each storytelling experience and responds fully to what is demanded. A story involving your company should sound different each time. Whether you tell it to 2,000 customers at a convention, 500 salespeople at a marketing meeting, ten stock analysts in a conference call, or three CEOs over drinks, you should tailor it to the situation. The context of the telling is always a part of the story. In the case of my pitch to Castro, the story had to seem spontaneous, a natural response to the inspiring historic setting of Marina Hemingway (itself named after one of the twentieth century's great storytellers). And it did, though the information had been gathered in advance. Its organization and delivery were in essence the "premiere" of this particular story.

There is a paradox here. Great storytellers prepare obsessively. They think about, rethink, work, and rework their stories. As Scott Adelson, an investment banker who uses storytelling to help clients raise capital in public markets, said at our dinner: "Sheer repetition and the practice it brings is one key to great storytelling. When we help companies sell themselves to Wall Street, we often see the CEO and his team present their story 10, 20, 30 times. And usually each telling is better and more compelling than the one before."

At the same time, the great storyteller is flexible enough to drop the script and improvise when the situation calls for it. Actually, intensive preparation and improvising are two sides of the same coin. If you know your story well, you can riff on it without losing the thread or the focus.

At the storytelling dinner, scientist and science fiction writer Gentry Lee told us about appearing on a public panel about alien abductions. The other three members of the panel were two people who claimed they'd been taken by aliens, and John Mack, the late Harvard psychiatrist who believed in and researched such stories. As you might expect, the two abductees had colorful, vivid, fascinating stories to tell. The listeners were literally standing on their feet, clapping and cheering. Mack poured fuel on the fire by testifying that these stories could be confirmed by many others he'd studied.

Lee had prepared, from a scientist's perspective, a detailed response to the abduction stories, showing how the power of the imagination can conjure up fantasies that look, feel, and appear compellingly real. But he could see that the frenzied audience was in no mood to absorb his lengthy presentation. Instead, he decided to avoid a war of dueling stories by simply using a single startling observation to deflate the abductees' tales. All he said was this:

"My friend Carl Sagan used to say, `Extraordinary claims require extraordinary evidence.' Well, we've heard some wonderful stories today, and they make extraordinary claims. I would just point out the following: Hundreds of people who believe they've been abducted by aliens have told stories like the ones we've just heard. And yet, despite all these hundreds of supposed abductions, not a single souvenir has ever been brought back--not a single tool or document or drinking glass or so much as a thimble! Given the total absence of any physical evidence, can we really believe these extraordinary claims?"

This simple, unadorned statement--improvised on the spot to startle the audience into a fresh way of thinking--completely transformed the situation. Most of the throng changed from true believers to thoughtful skeptics in just a few moments.

For the well-trained storyteller, spontaneity and economy can be elegant and powerful.

Truth to the Mission

A great storyteller is devoted to a cause beyond self. That mission is embodied in his stories, which capture and express values that he believes in and wants others to adopt as their own. Thus, the story itself must offer a value proposition that is worthy of its audience.

The mission may be on a national or even global scale: To land a man on the moon and return him safely to Earth. To win the Cold War and bring freedom to millions of people around the world. To reverse global warming and save the planet.

Or the cause may be more modest but still important, at least to the storyteller and his audience: To turn around a company that is floundering and save hundreds of jobs. To bring a great new service to market and improve the lives of customers.

In any case, the job of the teller is to capture his mission in a story that evokes powerful emotions and thereby wins the assent and support of his listeners. Everything he does must serve that mission.

This explains the passion that great storytellers exude. They infuse their stories with meaning because they really believe in the mission. I truly believed that our program on the history of Havana harbor was important: We had shown up to do something that was bigger than the swirl of temporary political bargaining between our countries, and we had bet the farm on the journey.

When truth to the mission conflicts with truth to the audience, truth to the mission should win out. The leader who knows his listeners is able to gain their trust and spend that currency wisely in pursuit of the mission. But this doesn't mean telling people exactly what they want to hear. That's pandering and, as Hollywood has learned, a formula for a mediocre story. Indeed, sometimes you need to do just the opposite. At our dinner party, Colin Callender, president of HBO Films, noted that several of HBO's most acclaimed productions are ones that audience pretesting marked as losers.

Even in today's cynical, self-centered age, people are desperate to believe in something bigger than themselves. The storyteller plays a vital role by providing them with a mission they can believe in and devote themselves to. As a modern shaman, the visionary business leader taps into the human yearning to be part of a worthy cause. A leader who wants to use the power of storytelling must remember this and begin with a cause that deserves devotion.

One of today's most creative business leaders is Muhammad Yunus, founder of Bangladesh's Grameen Bank and pioneer of the microcredit movement, which advocates providing small loans to the poor. When he addresses would-be partners to solicit support for microcredit, he tells some version of this story:

"It was a village woman named Sufiya Begum who taught me the true nature of poverty in Bangladesh. Like many village women, Sufiya lived with her husband and small children in a crumbling mud hut with a leaky thatched roof. To provide food for her family, Sufiya worked all day in her muddy yard making bamboo stools. Yet somehow her hard work was unable to lift her family out of poverty. Why?"

(Of course, "Why?" is a rhetorical question. But posing it to the listeners engages their curiosity and makes them eager to hear the answer, which they trust Yunus to supply.)

"Like many others in the village, Sufiya relied on the local moneylender to provide the cash she needed to buy the bamboo for her stools. But the moneylender would give her this money only on the condition that he would have the exclusive right to buy all she produced at a price he would decide. What's more, the interest rate he charged was incredibly high, ranging from 10% per week to as much as 10% per day.

"Sufiya was not alone. I made a list of the victims of this moneylending business in the village of Jobra. When I was done, I had the names of 42 victims who had borrowed a total of 856 taka--the equivalent of less than $27 at the time. What a lesson this was for me, an economics professor!

"I offered $27 from my own pocket to get these victims out of the moneylenders' clutches. The excitement that was created among the people by this small action got me further involved. If I could make so many people so happy with such a tiny amount of money, why not do more?

"That has been my mission ever since."

When Yunus tells this story of the origins of microcredit, his listeners--including bankers, CEOs, and high government officials--are moved. They are riding the emotional arc of Yunus's tale, which culminated in 2006 with the awarding of the Nobel Peace Prize jointly to Yunus and Grameen Bank. When he concludes his story by asking his listeners to help bring affordable credit to every poor person in the world, he almost always receives a standing ovation--along with a flood of pledges.

The Unchanging Heart of Storytelling

Story forms have evolved continually since the days of the shaman. Literary genres from epic poetry to drama to the novel use stories as political or social calls to action. Technological breakthroughs--movable type, movies, radio, television, the internet--have provided new ways of recording, presenting, and disseminating stories. But it isn't special effects or the 0's and 1's of the digital revolution that matter most--it's the oohs and aahs that the storyteller evokes from an audience. State-of-the-art technology is a great tool for capturing and transmitting words, images, and ideas, but the power of storytelling resides most fundamentally in "state-of-the-heart" technology.

At the end of the day, words and ideas presented in a way that engages listeners' emotions are what carry stories. It is this oral tradition that lies at the center of our ability to motivate, sell, inspire, engage, and lead.

China + India: The Power of Two

China and India, ancient allies and modern competitors, are rebuilding economic ties after almost five decades. Consequently, multinational companies face the most challenging--and potentially rewarding--business landscape ever.

by Tarun Khanna

A historic event, largely unnoticed by the rest of the world, took place on the border between China and India on July 6, 2006. After 44 years, the Asian neighbors reopened Nathu La, a mountain pass perched 14,140 feet up in the eastern Himalayas, connecting Tibet in China to Sikkim in India. Braving heavy wind and rain, several dignitaries--including China's ambassador to India, the Tibet Autonomous Region's chairperson, and Sikkim's chief minister--watched as soldiers removed a barbed wire fence between the two nations.

Companies all over the world would do well to hear the winds of change roaring through Nathu La (which in Tibetan means "Listening Ears Pass"). The decision to reopen the world's highest customs post marked the culmination of a slow but steady process of rapprochement between China and India. The friends turned foes in 1962, when they fought a short but bloody war. After that, the two nations' armies glared at each other, weapons at the ready, until their governments decided to fight poverty rather than each other. In the past few years, China (under President Hu Jintao and Premier Wen Jiabao) and India (led by Prime Minister Manmohan Singh) have forged links anew. China now supports India's bid for a permanent seat on the United Nations Security Council; their armies have held joint military exercises; and at World Trade Organization negotiations, the countries have adopted similar positions on international trade in agricultural products and intellectual property rights.

The two nations are also reviving their old cultural and religious ties. Beginning in 2012, they will allow tourists to use Nathu La, which will increase the number of cross-border pilgrimages. The pass makes it easy for China's Buddhists to offer prayers at monasteries in Sikkim, such as Rumtek, and for India's Hindus and Jains to visit sacred Mount Kailash and Manasarovar Lake in Tibet. The bonds between China and India run deep. Four out of five Chinese, from a broad cross-section of society, told me in an informal survey that Bollywood movies come immediately to mind when they think about India. That's despite the fact that it has been more than a decade since Indian movies were the only foreign films shown in China. Ignoring these facts would be a mistake; several scholars, such as Baruch College's Tansen Sen, have argued that religion and culture lubricate the wheels of commerce.

China and India are also rebuilding their business bridges. Although Nathu La's reopening may be largely symbolic--the two countries allow the trade of only a few products, such as raw silk, horses, and tea, across the pass--it indicates a fresh camaraderie between the planet's fastest-growing economies. Their desire to strike a partnership is evident: High-level official visits often take place between them; businesspeople from each country participate in conferences held in the other; and forecasts of the flow of goods and services between them keep rising. Sino-Indian trade stagnated at around $250 million a year in the 1990s, but it touched $13 billion in 2006, will cross the $20 billion mark in 2007, and may exceed $30 billion in 2008--a growth rate of more than 50% a year.

Yet most enterprises and experts gloss over this budding business axis. I hear the naysayers all the time. China and India can't collaborate; they can only compete, say many Western (and not a few Chinese and Indian) academics and consultants. Both nations are vying to be Asia's undisputed superpower, and they are suspicious about each other's intentions. China and India have nuclear weapons; they have created the world's biggest armies; and they are trying to dominate the seas in the region. China continues to support Pakistan, which India isn't happy about, and India still lets in Tibetan refugees, which China resents. The United States, meanwhile, plays India against China. In addition, since most adult Chinese and Indians grew up seeing each other as aggressors, it's tough for them to trust each other.

Moreover, the argument runs, China and India are business rivals at heart. The former's remarkable economic rise threatens India, which trails its neighbor on almost every conventional socioeconomic indicator. China may be strong in manufacturing and infrastructure and India in services and information technology, but the latter's manufacturing industry is becoming globally competitive, while China's technology sector threatens to match India's in a decade. Both have a growing appetite for natural resources such as oil, coal, and iron ore, for which they compete fiercely. They also fight for capital, especially for investments by multi-national companies from North America, Europe, and Japan. All this makes it difficult to believe that China and India can ever cooperate. Few people think to ask, "Can China and India work together?" Instead, a big question debated in boardrooms is whether India can catch up with China.

This perspective is incomplete. China is home to 1.3 billion people; India has a population of 1.1 billion. In the next decade, they will become the largest and third-largest economies in terms of purchasing power. By 2016 they will account for around 40% of world trade, compared with 15% in 2006. That's roughly the position they occupied about 200 years ago. Economist Angus Maddison has calculated that in the 1800s, China and India together accounted for 50% of global trade. It is impossible to make predictions about the integration of these countries into the global economy, because past events, such as Germany's reunification and the fall of the Iron Curtain, don't compare. After those occurrences in 1990, a large number of people entered the global economy, but the numbers pale in significance when compared with the China-India double whammy. Like it or not, the world's future is tied to China and India.

Sidebar Icon India + China (Located at the end of this article)

Both countries have put feeding their millions ahead of border disputes, and they can't turn the clock back on liberalization. They have too much to lose by not working together. This doesn't suggest that a lovefest will ensue; it only implies less hostility and suspicion between two fast-maturing nations.

China and India have taken different routes to enter the world economy, and that has resulted in their gaining complementary strengths. Some business leaders have learned to make use of both countries' resources and capabilities, as I shall show in the following pages. In the process, they have become globally competitive. Multinational companies will only lose if they don't take advantage of the complementarities between the two economies. If they embrace both countries, however, they can tap into diverse strengths almost as easily as Chinese and Indian companies will.

Fathoming the Depth of Their Relationship

The tensions between China and India are real, but they will eventually prove to be aberrant. There are three good reasons for believing that: one historic, one economic, and one strategic.

First, China and India sealed their borders in modern times, but in the 2,000 years preceding the conflict of 1962, the two countries enjoyed strong economic, religious, and cultural ties. By the second century bc, the southern branch of the Silk Road--an interconnected series of ancient trade routes on land and sea--linked the cities of Xi'an in China and Pataliputra in India. Trade on the Tea and Horse Road, as the Chinese called it, was a significant factor in the growth of the Chinese and Indian civilizations. Seen in that light, the closing of the Sino-Indian border--not the border's reopening--is the anomaly.

In fact, Buddhism traveled from India to China in 67 ad along the Silk Road. In those days, the relationship between China and India was one of mutual respect and admiration. The monk Fa-hsien (337 to 422 ad), who traveled from China to India to study Buddhism, referred to the latter as Madhyadesa (Sanskrit for "Middle Kingdom"), which is similar in meaning to Zhongguo, the word the Chinese used to describe China. In the 1930s, no less a scholar than Beijing University's Hu Shih said that the sixth century ad marked the "Indianization of China." Even today, visits by Chinese and Indian leaders include a trip to a Buddhist shrine in the host nation.

There was also much goodwill after the birth of the two modern states, India in 1947 and China in 1949. During the 1930s, India's future prime minister Jawaharlal Nehru frequently wrote about how India supported the struggles of fellow Asians under the foreign yoke. He organized marches in India in support of China's freedom, organized a boycott of Japanese goods, and in 1937 sent a medical mission to help the Chinese. India was the second non-Communist country, after Burma, to recognize the People's Republic of China, in 1950. Five years later, India supported the idea that China should attend the Bandung Conference, in Indonesia, which led to the creation of the Non-Aligned Movement, an alliance of developing countries that supported neither the United States nor the Soviet Union. In those heady years, one slogan heard in India was Hindi Chini Bhai Bhai ("Indians and Chinese are Brothers"). The slogan hasn't been forgotten; China's premier, Wen Jiabao, repeated it in 2006 when he visited the Indian Institute of Technology in Delhi.

Second, economists tell us that neighbors tend to trade more than other nations do. An official committee set up to encourage commerce between China and India recently suggested that bilateral trade could touch $50 billion by 2010. Even the official numbers understate the potential, according to economists who use gravity models to estimate what the trade between two countries should be. Such models calculate potential bilateral trade as a function of the size of the nations, the physical distance between them, and other factors such as whether they share a language, a colonial past, a border, membership of a free-trade zone, and so on. Sino-Indian trade today is up to 40% less than it could be, according to those models. Moreover, Sino-Indian trade is more balanced than China's trade with the United States and Europe; the latter countries' large deficits cause political friction.

Third, China and India, after they cut themselves off from each other, evolved in complementary ways that reduced the competitiveness between them. What China is good at, India is not--and vice versa. China instituted sweeping economic reforms in 1978 and has steadily opened up thereafter. A balance-of-payments crisis forced India's reforms in 1991, but because of political factors, liberalization has been slow and piecemeal there ever since. China uses top-down authority to channel entrepreneurship; in fact, the government is the entrepreneur in many cases. India revels in a private sector-led frenzy, and its government is incapable of efficiency. China struggles to control fixed asset investment, while India is constrained by scarce capital. China welcomes foreigners, shunning only those who are not part of its power structure. India shuns foreigners and mollycoddles its own. China's capital markets are nonexistent; India's are among the best in the emerging markets. And so on. There are no two countries more yin and yang than China and India.

Sidebar Icon How China and India Have Developed Differently (Located at the end of this article)

As a result, the kinds of companies that flourish in China and India are very different. As my HBS colleague Krishna Palepu and I argued in an earlier HBR article ("Emerging Giants: Building World-Class Companies in Developing Countries," October 2006), companies are usually reflections of the institutional contexts in their home countries. In China, where protection of intellectual property rights is nascent and the government curtails some forms of expression, entrepreneurs don't push the creative envelope. Instead, it makes sense for them to build manufacturing plants that leverage the superb infrastructure. In India, companies that depend on highway systems and reliable power find it hard to thrive. Those that train and deploy tens of thousands of technically sophisticated, English-speaking university graduates, in contrast, flourish. Both China and India are witnessing an explosion of entrepreneurship, but in ways that make their companies more complementary than the world realizes.

Getting the Best of Both Worlds

These complementarities pose both an opportunity and a threat. It's easy to spot the advantages of treating China and India synergistically and getting the best of both worlds. Companies can use China to make almost anything cheaply. They can turn to India to design and develop products cost-effectively; they can also hire Indian talent to market and service products. For instance, China's Lenovo, which purchased IBM's PC business in 2005, recently moved its global ad-management function from Shanghai to Bangalore. That's because India has a highly creative and sophisticated advertising industry.

To be sure, Chinese and Indian companies will compete intensely with each other. That doesn't mean that the rise of one will necessarily be at the expense of the other. For instance, as the Chinese government tries to develop a software industry, Indian companies such as Infosys, Tata Consultancy Services, and Satyam have been among the first to recruit Chinese engineers. Does that mean they are sowing the seeds of their own destruction? Not really. Most Indian companies have gone into China to provide software services to their multinational clients. Chinese firms will try to compete for those contracts, even as Indian companies fight for a share of the local Chinese market. China will gain from having a software industry, but the benefits may not come at the expense of India's software industry.

The coming together of China and India puts at a disadvantage many companies, especially from the West, that refuse to react to this trend. They will not be able to generate the synergies that their Chinese and Indian rivals can. If they lose share in those two markets, they are--given China's and India's size--unlikely to remain market leaders for very long. Thus, Sino-Indian emerging giants pose a stiffer threat to multinational incumbents than the latter have so far assumed.

Cooperating with Each Other

Already, some Chinese and Indian companies are beginning to view the two countries symbiotically. They are driven not by political factors but by hardheaded self-interest.

India comes to China.

Three years ago, Mahindra & Mahindra, the Indian tractor and automobile maker, reckoned that it would be cheaper to manufacture tractors in China than in India. Besides, the Indian company could gain access to the fast-growing Chinese market only by producing tractors locally. M&M set up a joint venture, Mahindra (China) Tractor, with the Nanchang city government. The partners could not be more different: M&M is a private company led by the third-generation scion of an Indian business family--a far cry from the Chinese government. The Sino-Indian entity purchased Jiangling Tractor, whose plant is located halfway between Shanghai and Guangzhou and has a production capacity of 8,000 tractors per annum.

M&M's low-powered tractors are ideal to till India's fragmented farmland. In 2006 the company held a 30% share of the Indian market, while its closest rival had a 23% share. These tractors also suit China, where the size of the average landholding is now akin to India's. When China's communes broke up and the number of farmers mushroomed, the demand for tractors boomed. The Chinese government also offered financial incentives so farmers would switch from power tillers to tractors, which would reduce the demand for petrol. M&M entered the Chinese market with Jiangling Tractor's FengShou brand. The company has cleverly designed and engineered the model at its facilities in India, while its Chinese company manufactures it.

Mahindra (China) Tractor makes the compact FengShou tractors in the 18-to-35 horsepower (hp) range for the Chinese and foreign markets. It also imports M&M's more powerful 45 hp to 70 hp tractors from India and sells them in China. In February 2005, when I spoke to Anand Mahindra, M&M's CEO, he had nothing but praise for the Chinese company. "We are breaking the myth that it is hard to make money in China or that cultural assimilation is difficult," he told me. "The local disco in Nanchang now plays bhangra (a genre of Indian folk music), and the ex-chairman of the Chinese company sang songs from Indian movies at our first banquet." Mahindra said that he had faced no problems in getting Chinese and Indian executives to work together. M&M has posted 15 Indians to the Chinese facility, all of whom report to Chinese supervisors. According to Mahindra, the Indians are none the worse for the experience.

That's not all. M&M realized that it could enter some niche markets in the United States. Many baby boomers have retired from stressful urban lives to places like Flagstaff, Arizona, where for the price of a San Francisco apartment they have bought several acres of land. These hobby farmers need only a small tractor to till the soil. From 2000 to 2005, M&M wrested a 6% share of the U.S. under-70 hp tractor market from companies such as John Deere, New Holland, Agco, and Kubota Tractor. In some southern states such as Texas, M&M's market share is as high as 20%. M&M is giving John Deere in particular a run for its money. In 2004 a Deere dealer advertisement promised a $1,500 rebate to every consumer who traded an M&M for a John Deere. According to M&M executives, when they tracked down tractor owners who had seen the ad, 97% said that they were satisfied with their Made in China and India tractors and did not go for the rebate.

China comes to India.

Just as Mahindra & Mahindra is using China's hard infrastructure, China's Huawei is leveraging India's soft infrastructure to sustain its global edge against Western giants like Cisco. In 1999 the Chinese telecommunications equipment manufacturer set up an Indian company that currently employs around 1,500 engineers. This facility, which is based in Bangalore, develops software solutions in areas such as data communications, network management, operations support systems, and intelligent networks. In 2006 the company opened a second facility in Bangalore, where 180 software engineers develop optical network products and wireless local-area-network solutions.

Huawei has announced that it will invest an additional $100 million to create a single 25-acre campus in Bangalore for 2,000 people. This will enable Huawei India to enter new areas such as optical-transmission networking and sharpen its focus on third-generation networking. While Huawei's development center in Shenzhen is its most important facility, the Bangalore center (which accounts for about 7% of the company's R&D efforts) is emerging as the second most important. That's partly because of its capabilities. In August 2003, the Indian facility earned the coveted Capability Maturity Model Level 5 certification--the highest quality level for software producers.

Huawei's strategy is noteworthy because India's bureaucracy and polity did everything it could to prevent the company from setting up base. The company persisted, realizing that employing engineers, rather than outsourcing software development to Indian companies, would give it better footing. Jack Lu, who oversees human resources, headed the Bangalore office for three years after setting it up. He says that the main challenge is to overcome each country's stereotypes of the other. For instance, the Indian media portray the Chinese as opportunists set on stealing India's security, software, and telecommunication secrets, and vice versa.

State-owned companies cooperate.

Public-sector corporations, the direct arms of two supposedly hostile governments, are also learning to work together. China and India are incredibly energy-deficient, with China importing almost 50% of its oil needs and India more than 70%. Energy companies in both nations have made it a priority to search for "equity" oil. They invest in several countries' petroleum industries to protect themselves against the possibility that one day, political instability in the Middle East will choke off their supplies. This strategy turned China and India into intense rivals in the international energy industry. Between January and October 2005, China's Sinopec and China National Petroleum Corporation (CNPC) and India's Oil and Natural Gas Corporation (ONGC) clashed over purchases of oil assets in Angola, Ecuador, Kazakhstan, Myanmar, Nigeria, and Russia. Although the Chinese companies won several contracts, they paid more because of the Indian company's aggressive bidding.

In April 2005, Wen Jiabao suggested that China and India think about cooperating in the energy sector. After several meetings of executives from the countries' oil companies, the Chinese and Indian governments signed an agreement in January 2006 about working together on bids for energy resources, and the oil companies signed memorandums of understanding. Incidentally, China teamed up with India partly because it hoped that its companies would get preferential treatment when they bid for infrastructure-related contracts in India.

The Sino-Indian oil hunt has delivered results. In December 2005, CNPC and ONGC won a bid for a 37% stake in Syria's Al Furat Petroleum. Another joint venture between Sinopec and ONGC won a 50% stake in the Colombian oil company Omimex de Colombia in August 2006. In April 2007, ONGC and CNPC agreed to team up to acquire oil assets in Angola and Venezuela. They may also offer each other stakes in other companies they have invested in. Thus, enterprises that everyone thought would bid up the prices of oil assets dramatically are working together in the best interests of China and India.

Viewing the Two as One

It's not surprising that multinational companies find it tough to develop a joint strategy for China and India. Three years ago, I studied the Chinese and Indian subsidiaries of 20 Asian companies such as Japan's Asahi Glass, Hitachi, Honda, Mitsui, and Toshiba; South Korea's Samsung, Hyundai, and LG Electronics; and Singapore's DBS Bank and Singapore Telecommunications. Many had operations in both countries, although I included some enterprises that operated in only one of them.

These companies have customized their business models to the local institutional context, which makes it tough for them to generate synergies from their subsidiaries in the two countries. For instance, the Chinese subsidiaries are less transparent than the Indian ones because capital allocation does not occur through the financial markets in the former as it does in the latter. The opacity has made it harder for Indian subsidiaries to collaborate with their Chinese counterparts. The Indian ventures also depend on local suppliers more than the Chinese ones do, since they have operated for 39 years, on average, in India and only 18 years in China, having been forced out of the country in the aftermath of the Cultural Revolution. However, even in corporations that have entered both countries in the past five years, the reliance on local suppliers is 60% in India and 10% in China. Thus, the Chinese and Indian subsidiaries use different business models and generate few synergies. Moreover, 31 of the 33 Chinese subsidiaries I studied viewed themselves as independent of their Indian counterparts, which precluded the chances of cooperation. Relatively few China and India country managers report through their hierarchies to a common decision maker, and companies reward them on the basis of their performance in each country. These organizational factors make it almost impossible for companies to identify opportunities in both China and India that would benefit their strategies.

A final barrier to developing a China-India strategy arises from success. For instance, at Motorola, one of the most successful investors in China, it's easy to imagine a hotline snaking from the China headquarters to Schaumburg, Illinois. Because Motorola has not focused on India nearly as long, that market is starved for attention. The converse is true of Unilever. The company's success in India means that the Indian subsidiary has a direct line to London and Rotterdam, while the China operation doesn't enjoy the same privileges. China shines in Motorola's world; India sparkles in Unilever's. The companies have neglected one of the two markets--and both have achieved less than they could have.

Succeeding from the Outside

It may be difficult for multinational companies to make the best use of China and India, but it isn't impossible. In fact, as GE and Microsoft show, you can skin the proverbial cat in many ways.

GE's approach.

The simplest, and most powerful, way of combining China and India is to focus on hardware in China and on software in India. As is now well known, that's exactly what GE Healthcare does. For instance, it developed the 719 parts of a high-end Proteus radiology system in a dozen countries. It created the software algorithms and the scanner's generator in Bangalore and allocated part of the hardware manufacturing and assembly to Beijing. The ability to set up parallel groups of highly skilled engineering talent in both countries raises the efficiency of product development and fits in with GE's competitive culture, a senior executive told me.

It's tempting to attribute GE's success to a well-run country manager system. But most companies have similar matrix structures, so that is not the full story. GE did well in China and India because it tailored its business model to the realities of each market. Its early forays into China and India didn't work: GE's business units were unable to profitably sell or develop products locally. Nor could they produce the equipment in other countries at a low enough cost to cater to the low-income populations in the two markets. Experimentation led GE to develop in China and in India parts of what it needed. That process also allowed the company to find ways in which the two subsidiaries could work together. Chinese managers in GE felt that it was in their interest to collaborate with their Indian counterparts, and vice versa. This process took the better part of two decades to come to fruition.

GE also succeeded because it became a good corporate citizen in both countries. Its aircraft engines business has transferred several technologies to China, and its medical diagnostics business is engaged in the debate about health care there. In India, GE was one of the pioneers of business process outsourcing, the practice that put the country on the world's business map. In a vote of confidence in both countries, GE has opened cutting-edge R&D centers in Shanghai and Bangalore. In both China and India, several companies owe their existence to GE. Some were set up by former GE executives; others became world-class by supplying raw materials or components to GE.

Microsoft's approach.

While GE has split the value chain between China and India, Microsoft takes a different tack. It develops innovations that are best suited to China and India respectively.

For example, the company decided to develop mobile-phone-based computing in China, since the country had more than 450 million cellular telephones in 2006 and only 120 million PCs. India had a smaller base of only 166 million mobile phones in 2006. Microsoft created a mobile phone that doubles as a computer when the user attaches it to a device mounted on the side of a TV. You can access the device, FonePlus, with a keyboard, and use the TV screen as a PC monitor. If this experiment succeeds in China, Microsoft will find ways of using FonePlus globally.

In India, Microsoft conducted experiments that would have been much harder to pull off in China. In 2004 the company launched the Windows XP Starter Edition at $25-$30 apiece in India, compared with the pricey full-functionality product. Microsoft decided not to launch the Starter Edition in China, where the top four PC manufacturers control close to two-thirds of the market. The local companies were reluctant to push a low-priced product, since they earn more from the higher-priced version. Because Indian consumers didn't buy the full-functionality Windows, the risks of offering the Starter Edition there were lower than in China. Microsoft's trials in India suggest that the Starter Edition either targets first-time users or induces nonadopters to try out the full-functionality product, so Microsoft China might be willing to market it in the future.

At the same time, Microsoft's China subsidiary is trying to leverage India by forming a three-way venture with the Chinese government and India's largest software company, Tata Consultancy Services (TCS). After entering China in 2002 by setting up a fully owned enterprise in the Hangzhou Special Economic Zone, TCS received the go-ahead in 2007 to expand its presence there. The National Development and Reform Commission authorized the technology parks in Shenzhen and Beijing to buy into TCS's Chinese operations. Incidentally, TCS has gone through three phases in China: It entered China because its global clients were setting up shop there; it then used the country as a base to cater to Asian companies; and, finally, TCS is now going after the Chinese market.

Meanwhile, Microsoft is trying to help the Chinese government build a globally competitive software industry. In keeping with that strategy, Microsoft plans to buy a stake in TCS China, creating an entity that will be 65% owned by TCS, 25% owned by the Chinese software parks, and 10% owned by Microsoft. The Chinese government likes this idea because Microsoft's technologies will spread along with those of TCS. The new venture will develop banking applications for the Beijing and Tianjin city governments. TCS will develop the applications, and Microsoft will use its 17 centers across China to roll them out to the banks. The largest banking applications project TCS has so far undertaken is at the State Bank of India, which has 10,000 branches and 100 million accounts, compared with Bank of China's 22,000 branches and 360 million accounts. That's one more reason China and India are often relevant to each other; no other country has such sprawling networks. It's likely that TCS and Microsoft will one day apply in India the experience they gain in China.

To ensure that China and India don't lack attention, Microsoft has elevated the two country heads to the rank of corporate vice president. They report directly to the person who oversees Microsoft's international operations. They meet frequently to learn from each other. Since there are laboratories and development centers in Beijing and Hyderabad, the heads of R&D in China and India both report to the head of Microsoft's worldwide R&D. The company has also extended the scope of its Redmond, Washington-based Unlimited Potential division, which seeks to bring computer skills and jobs to communities that don't already have them. The division looks at how products that Chinese consumers are using can be sold in India and vice versa, and looks at products that can be sold in other emerging markets worldwide.

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It is strange that many people perceive the rise of China and India only as a threat. The idea that these countries' ascent is a zero-sum game--it can occur only at everyone else's expense--defies economic logic. For instance, the United States' job losses in recent times as companies relocated manufacturing facilities and services to China and India are smaller than the unemployment in past decades attributable to structural changes in the U.S. economy. Instead of balking at the inevitable expansion of economic power beyond New York and London, companies will do well to recognize the complementarities between Beijing and New Delhi and, in a fast-changing world, try to wrest competitive advantage from them. India + China

India

• Area 3,287,590 sq km (2007)
• Population 1.13 billion (2007)
• GDP real growth rate 9.4%
• GDP per capita (ppp)* $3,800
• Unemployment 7.8% (2006)
• Population below poverty line 25% (2002)
• Exports $112 billion
• Imports $187.9 billion
• Exchange rate 39.80 rupees per $ (2007)
• Imports from China, U.S., Germany, Singapore
• Exports to U.S., UAE, China, UK
• Literacy rate 61% (2001)
• Life expectancy 68.59 years (2007)

*purchasing power parity

Sources: CIA World Factbook; www.xe.com. Data are based on 2006 estimates, except where otherwise specified.

China

• Area 9,596,960 sq km (2007)
• Population 1.32 billion (2007)
• GDP real growth rate 11.1%
• GDP per capita (ppp)* $7,800
• Unemployment 4.2% (2005)
• Population below poverty line 10% (2004)
• Exports $974 billion
• Imports $777.9 billion
• Exchange rate 7.52 RMB per $ (2007)
• Imports from Japan, S. Korea, U.S., Germany
• Exports to U.S., Japan, S. Korea, Germany
• Literacy rate 90.9% (2000)
• Life expectancy 72.88 years (2007)

*purchasing power parity

Sources: CIA World Factbook; www.xe.com. Data are based on 2006 estimates, except where otherwise specified. How China and India Have Developed Differently

China and India are large, populous Asian neighbors, but the similarities end there. The differences between them make the whole greater than the sum of the parts.

Breakthrough Thinking from Inside the Box

A semistructured approach can generate great ideas even in familiar settings--and works better than unfettered brainstorming or strict quantitative analysis.

by Kevin P. Coyne, Patricia Gorman Clifford, and Renée Dye

cD- VIDEO: Click here to watch author Kevin Coyne describe a better way to stimulate innovation with 21 provocative questions.

Imagine that we asked you to invent an idea for a new business in the next 20 minutes. The task is so broad and vague that you would probably think you couldn't do it. We have often seen people give up without really trying when confronted with such an amorphous challenge.

Instead, let us pose a narrower question: What do Rollerblades, Häagen-Dazs ice cream, and Spider-Man movies have in common? The answer is they are all based on the same business concept. In each case, a firm has taken something children love and reproduced it in an extreme, more expensive form for adults. The same notion has led to over 25 new product categories, including gourmet jelly beans, baseball fantasy camps, $200 sneakers, 20-foot-high sand castles for corporate parties, paintball, space tourism, and Disney collectibles. Now that you see this, we are confident you could think of how to reproduce something that was emotionally powerful to you as a child in an expensive form for adults. That's because we have conducted this exercise as a warm-up to our workshops with hundreds of managers, and they have always generated interesting ideas.

What did we just do, and why did it work? In our quest for breakthrough ideas, we didn't ask you to think outside the box. Nor did we ask you to think more intently inside your usual box. We gave you a new box and asked you to think inside that.

Most managers and professionals are quite capable of thinking effectively inside a box. They live with constraints all the time and automatically explore alternatives, combinations, and permutations within their confined space. We have found that if you systematically constrain the scope of their thinking (but not too much), people are adept at fully exploring the possibilities, and they can regularly generate lots of good ideas--and occasionally some great ones. Setting the right constraints is a matter of asking the right kinds of questions: ones that create boxes that are useful, but different, from the boxes your people currently think in.

Ten years ago, as part of a larger project for McKinsey's strategy practice, we led a team of consultants who developed such an approach to brainstorming. It involves posing concrete questions and orchestrating the process for answering those questions. Since then we have successfully used this method with more than 150 clients engaged in everything from major product innovations and industry-shaping moves to simple process improvements. Our technique helped a consumer goods company identify an opportunity for a chilled beverage that captured 20% of the market in the first six months after its launch. A print media company used it to come up with ways to triple the firm's penetration of the Hispanic market. A plastic pipe manufacturer uncovered an immediately exploitable opportunity to reduce costs by 75%. A regional bank came up with a process that more than doubled the sales productivity of the branches involved in the pilot. Even those whose job it is to be creative have benefited from the methodology: The editors of a group of prominent magazines who had been stuck in a rut in their efforts to come up with story angles have begun using the approach to develop fresh new articles for every issue.

Now that it has been road tested, we'd like to share our approach. A good place to begin is to examine what's wrong with conventional approaches to brainstorming.

Why Brainstorming Doesn't Work

Many managers fail to generate a stream of solid ideas because they employ two common techniques: They encourage their people to go wild and think outside the box or they assign them the task of slicing and dicing the old boxes (in the form of existing market and financial data or specially commissioned market research) in new ways.

The problem with the first method is that most people are not very good at unstructured, abstract brainstorming. Imagine a random product you are trying to improve in a typical facilitated brainstorming session. Outside-the-box possibilities could include making the product bigger or smaller, lighter or heavier, prettier or more rugged (or changing its appearance in any of a hundred ways). Further ideas could involve making the product more expensive or less, or maybe breaking it into parts or bundling it with other products. They could involve changing the product's functionality, durability, ease of use, or the way it fits with other products. Or its availability, affordability, or repairability. How do you know which dimensions are fruitful to explore? More often than not, the facilitator will say, "There are no bad ideas," which only compounds the confusion. Without some guidance, people cannot judge whether they should continue in the direction of their first notion or change course altogether. They cannot handle the uncertainty, and they shut down.

The second method--slicing the data in new ways--almost always produces only small to middling insights, for different reasons. The contents of every database are structured to correspond to insights that are already recognized, not ones that aren't. (Why are sales data often organized by region? Because someone already knows that the contrasts from region to region are meaningful.) Moreover, any insights produced by recrunching publicly available numbers will probably be discovered quickly by competitors' armies of MBAs, who are most likely using the same techniques and the same data as your people.

Market research suffers from another sort of limitation. Whenever an organization embarks on a journey to come up with a big, new idea, someone inevitably declares, "We should ask the customer, because customers aren't stupid, you know." True, customers aren't stupid, and they can tell you if they perceive your product to be inferior to competitors' offerings in some particular way. However, they can rarely tell you whether they need or want a product that they have never seen or imagined. Market surveys famously said the ultimate demand for computers was five units. That people didn't need Xeroxes because they would never need more than three copies of anything and carbon paper could handle it. That cellular phone demand was limited. That the Sony Walkman would be a flop. Market research can be invaluable in getting reactions to an idea once it is fully formed and tangibly demonstrated to the customer. It rarely, however, finds the latent need.

Our approach takes a middle path between the two extremes of boundless speculation and quantitative data analysis. When you ask questions that create new boxes to think inside, you can prevent people from getting lost in the cosmos and give them a basis for making and comparing choices and for knowing whether they're making progress. But posing the right questions is only half the battle. How you organize and conduct brainstorming sessions also matters enormously. You must redesign your ideation processes so that they remove obstacles that interfere with the flow of ideas--such as most people's aversion to speaking in groups of more than ten. We'll talk about the process of structuring an effective brainstorming session in a moment. But first, let's examine more closely where great questions come from.

Asking the Right Questions

In conducting its research ten years ago, the McKinsey team learned of a study by Mihaly Csikszentmihalyi, then a psychology professor at the University of Chicago. In its descriptions of how Nobel laureates and other creative people achieved their breakthroughs, an interesting insight emerged: Once they asked themselves the right question, their ideas flowed rapidly. This revelation prompted us to examine how the most successful companies in recent history had achieved their positions. We looked at two groups: The first were already large companies that became industry-shaping enterprises in a relatively short time. The second grew from garage-based start-ups into firms with more than $1 billion in (profitable) sales in less than six years. In every case, their successes were built on breakthrough ideas that redefined the products and services in their markets.

We found that a number of their innovations sprang from responses to particular questions. But, subsequently, we realized that it didn't matter whether they had actually asked a question or not. What mattered was whether there was a question that could have uncovered the kind of extraordinary opportunities that CNN, Google, USA Today, eBay, and Amazon identified and exploited.

We then zeroed in on 50 breakthrough ideas from a spectrum of industries and reverse engineered them to find the focused questions that could have led any intelligent manager to the same epiphany. Obviously, some of the questions were specific to their industries. However, we found many that are universally applicable, including those featured in the exhibit "21 Great Questions for Developing New Products."

Sidebar Icon 21 Great Questions for Developing New Products (Located at the end of this article)

One question that can generate insights in any business is, "What is the biggest hassle about using or buying our product or service that people unnecessarily tolerate without knowing it?" Entrepreneurs who focused on eliminating such hassles gave us Jiffy Lube (on demand, fast turnaround oil changes), CarMax (used cars with warranties purchased in a pleasant environment at reasonable, fixed prices), prepaid cell phones that can be bought off-the-shelf (thus avoiding the 20-minute setup process and the risk of racking up unexpectedly high phone bills), and something as low-tech as single-use packages of real fire logs (for those who have no place to store a cord of wood).

The world is still full of such opportunities. Take gasoline retailing. What's the biggest "invisible" hassle? Having to go to a gas station. The average car is driven only about 500 hours a year and sits somewhere--often in a large parking lot--for the remaining 95% of the time. What if a small tanker truck could visit that parking lot and fill up any subscriber's vehicle displaying a "please fill this car" flag? Would it work? Operational issues would have to be overcome, of course. But just ask any motorist pumping gas at a self-service station on a cold, rainy day how he or she likes the idea.

The same questions can, of course, lead to different ideas. Consider the opportunities that different divisions of a bank might generate by pondering the question, "For which subset of users are the procedures associated with our product least suited?" This exercise could prompt the lending department to focus on marginally profitable loans to small businesses for which the paperwork is burdensome to both sides. One possible remedy the bank might offer: industrial pawn shops, which, like their consumer counterparts, would allow a business to secure a loan by parking an asset in exchange, minimizing the need for documentation. The same question could spark the bank's credit card division to think about which potential customers might not be well represented in the credit-history databases owned by external credit bureaus. This line of questioning could lead to a business initiative aimed at marketing credit cards to immigrants who have good credit histories in their home countries but no credit history in the United States. Similarly, asking, "Who does not use my product for one particular reason?" has already led to the creation of several museums for the blind, where information is delivered through aural, tactile, and olfactory sensations.

The most fertile questions focus the mind on a subset of possibilities that differ markedly from those explored before, guiding people to valuable overlooked corners of the universe of possible improvements. To develop your own list, ask yourself every time you come across a new business idea that you think is really clever, "What question would have caused me to see this opportunity first?" In other words, reverse engineer every great idea or innovation you see. That's what we did to invent the question about the ice cream, Rollerblades, and Spider-Man that we use in our warm-up exercise. Using this approach, we have built and tested an arsenal of more than 250 questions.

Should you want to be more systematic about the search for new questions, you can employ a simple logic tree that starts with a high-level question and successively breaks it down into more tightly defined probes. This rigor has proven useful even in unusual settings. For example, imagine you are the editor of a trendy mass-market magazine that covers popular music. Your articles consist mainly of interviews with and profiles of new bands, singers, and occasionally a venerable star. But the formula is getting tired. A simple tool like the exhibit "A Music Magazine's Logic Tree for Generating Fresh Article Ideas" could assist you in pursuing a much wider range of story angles on the same trends and keep readers engaged.

Sidebar Icon A Music Magazine's Logic Tree for Generating Fresh Article Ideas (Located at the end of this article)

We have found that the right level of abstraction tends to occur about three to six levels down the tree. If you stop at the first level, the question would be too broad; if you were to continue too far down, the questions would start becoming too specific to generate useful answers. In addition to aiding you in coming up with novel ideas, such trees can also help you see when you are stuck in a rut and are producing conceptually similar ideas. If all your ideas originate from the same few questions, you'll profit substantially from exploring the other branches of the tree.

Better Orchestrating the Process

The fact is, virtually all brainstorming sessions violate the fundamentals of how human beings actually think and work together. Consider the following all-too-familiar situation.

About 20 people--most of them chosen for political reasons--gather in a room. The leader is either their boss, whose presence makes some people reluctant to offer what may be perceived as a silly idea, or a "creativity moderator," who neither understands the business nor thinks he should have to. Three pushy people dominate the session with their pet ideas, while the others sit in silence. After the group is instructed to think outside the box, ideas pop up randomly: "Let's paint it blue!" "We can sell it in Germany." "How about an upscale version?" "The problem is the sales force." Since "there are no bad ideas," preposterous dreams consume much of the time and energy. ("If we could invent a cheap pill that could substitute for gasoline....") Finally, because everyone knows you cannot force people to come up with good ideas, participants think it's okay to produce nothing--or to not follow up on anything the workshop did create.

Now let's adjust the process, aligning each step with what we know about how people work best in groups:

Bound the range of acceptable ideas, then select and tailor the questions accordingly.

How often have you heard someone say after a brainstorming session, "I had thought of that but didn't say it because I didn't think it was the kind of idea you were looking for"? How often have you been presented with ideas that were patently infeasible given your budget, staffing, or time constraints? How often have people offered up incremental steps when you were looking for a big idea? All of these problems are easily avoided if you take the time, before the meeting, to clarify what constitutes the criteria for, and boundaries of, a good idea in your particular case. Do you want big ideas or safe, surefire winners? How much money can the company afford to spend? What level of staffing is the company willing to commit? How soon do you need a payback?

Then consider the particular requirements of the problem you're trying to solve. That will help you avoid asking questions that will lead to the same insight. For example, if all customers can use your product in only one way (like large cranes used inside industrial plants), it doesn't pay to ask, "For which current customers are our products least suited?" and also, "For what particular usage occasions is our product least suited?" since in this case, those questions will result in the same answer. However, those two questions might produce excellent and distinct insights in situations where each customer uses the product in several ways and the customers are themselves quite different from one another (which is the case for automobiles, for example). When choosing among possible questions, go for those that approach the problem from angles that are as far as possible from the ways you have approached it in the past. As a whole, think of the series of questions as a portfolio, each one creating a distinct box that comes at your situation from a different point of view.

Once you've settled these parameters, you will be able to tailor the language of your questions to best fit your specific goals and constraints. The wording of questions that will generate radical ideas differs substantially from that which will generate moderate, low-risk ideas. On the one hand, for example, a leader of a computer vendor who asked his senior managers in the late 1980s, "How can I reduce costs?" would probably have elicited solid but incremental ideas like "consolidate shipments" or "reduce store staffing." On the other hand, asking them, "What element of our business would we have to eliminate to cut costs 50%, and are there customers who do not need that element?" could have led the vendor to beat Michael Dell in pioneering the mail-order distribution model that so successfully challenged the retail store approach to selling personal computers.

The number of questions in your portfolio will depend on the size of your brainstorming group and the time available. For reasons that will become obvious below, you will need one question for every four or five participants every 30 minutes. However, you might consider giving your best question or two to more than one group if you can't think of enough excellent questions to go around. Finally, test each question on yourself. Which ones make you think of the most ideas?

Select participants who can produce original insights.

Sure, you always have to invite some people for political reasons who will not contribute much. But make sure there are enough other people who can contribute. If, for instance, you intend to ask, "Who is using our product in ways we did not expect or intend?" or "Who is using our product in enormous amounts?" you should plan to include participants who are in a position to know firsthand. There's a very good chance these people will not be on your own staff and may be found in unexpected places. For example, the surprising potential for a line of foods aimed at elderly consumers was discovered a number of years ago by a sales manager who found that one of his reps in Florida sold much more baby food than his territory's demographics suggested should be possible. Eventually, the salesman revealed his secret: People in nursing homes were eating the baby food. Similarly, mountain bikes were the result of bicycle manufacturers learning about a subset of customers who, having subjected their bikes to extreme abuse, kept replacing them very frequently.

Ensure that everyone is fully engaged.

You must accept that under normal brainstorming circumstances most of your attendees will care less about the success of the meeting than you do. Therefore, don't be shy about resorting to parlor tricks. We once had the top six executives of a $100 billion company working full tilt because each had bet $20 that his team could come up with the best idea. If a small trick could inspire those multimillionaires, imagine what you could do with your participants. Perhaps you could let the winning team pick the color of the logo on the final product or appear as extras in a television ad. Whatever the incentive, its purpose is clear: getting 100% of the participants to work at 100% of their capacity 100% of the session.

Structure the meeting to ensure social norms work for you, not against you.

In almost all meetings of ten or more people, the social norm is to keep quiet or to speak only a minimum amount. A few pushy people break this rule, and the others let them fill the airtime. In contrast, observe what happens when a manager breaks a 20-person session into groups of four. First, in any group of four, the social norm is for everyone to participate, so no one can hide without seeming uncooperative. Second, if there are five subgroups instead of one combined group, five people rather than just one are offering their ideas at any given time. Finally, put all those pushy people who feel compelled to dominate the discussion in the same group. That will prevent them from silencing the 16 people in the other groups.

Focus every discussion using your preselected questions.

At the outset of the meeting, explicitly state the ground rules you've decided on--whether you want big ideas or incremental improvements, what the budget is, and so on. Don't worry about stifling creativity. It is precisely such boundaries--the outline of your new box--that will channel their creativity.

Then, once you've divided people up into their small groups, give each a single highly focused task. Have them spend 20 to 30 minutes discussing one question and report back to everyone the best ideas that came from just that question. Here's what typically happens: The first five minutes of each session sound like any other brainstorming meeting. But then the participants return to the better ideas and refine them. Thoughtful variants emerge. The interplay results in complex, multilayered notions that have a higher likelihood of growing into a true killer idea.

Do not rely solely on one brainstorming session.

It is surprising how many managers limit the participation of others in their ideation effort to one workshop. That, again, ignores how people actually think and work together. Some individuals don't work well in a workshop format, no matter how well structured the session is. What's more, the legitimate answer to some questions is "I don't know, but we could find out if this workshop weren't ending at 5:00." And sometimes the ideas keep improving over time. For all these reasons, brainstorming should be a multifaceted process, not a single event. You might, for instance, assign someone before the workshop to gather data; you might need to schedule a follow-up meeting or two; or you might just need to provide a way to gather additional information from individuals after the session.

Narrow the list of ideas to the ones you will seriously investigate right away.

Nothing is more deflating to the participants of a brainstorming session than leaving at the end with no confidence that anything will happen as a result of their efforts. So don't push off the task of sorting the ideas to later. Do it right then and there. For most ideation sessions, the selection process does not have to be complex. If you wait until some later point to sort the ideas, the odds are overwhelming that nothing will come from the effort.

In sharp contrast to traditional brainstorming, our process typically generates a surfeit of constructive ideas. A 20-person workshop produces about 20 ideas an hour, on average. Thus, the eight hours of idea generation that normally occurs in a two-day workshop generates more than 150 ideas! True, usually about a quarter are awful, and only about half of the others will be worthy of serious consideration. However, that still leaves some 50 ideas to choose from. Many managers are reluctant to pick winners out of fear of disappointing those whose ideas are not selected. This is a mistake. Most people prefer the choice to be made in front of them so they can learn from your thought process and produce better ideas next time.

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When you introduce our think-inside-the-box approach in your organization, keep in mind one other basic law of human dynamics: People are nervous about change. It could take time and effort to coax all those quiet, thoughtful souls who have hated traditional brainstorming sessions dominated by blowhards to emerge from the shadows and open up. They may come mentally unprepared to participate the first time and may not have done their homework. After all, they never had to be on their toes before in quite this way. However, most, if not all, of them eventually will see and appreciate the change. Within the safe confines of new boxes, they will shower you with good, and great, ideas. Then it will be your job to turn those ideas into profitable reality. 21 Great Questions for Developing New Products

"De-average" buyers and users

Which customers use or purchase our product in the most unusual way?

Do any customers need vastly more or less sales and service attention than most?

For which customers are the support costs (order entry, tracking, customer-specific design) either unusually high or unusually low?

Could we still meet the needs of a significant subset of customers if we stripped 25% of the hard or soft costs out of our product?

Who spends at least 50% of what our product costs to adapt it to their specific needs?

Explore unexpected successes

Who uses our product in ways we never expected or intended?

Who uses our product in surprisingly large quantities?

Look beyond the boundaries of our business

Who else is dealing with the same generic problem as we are but for an entirely different reason? How have they addressed it?

What major breakthroughs in efficiency or effectiveness have we made in our business that could be applied in another industry?

What information about customers and product use is created as a by-product of our business that could be the key to radically improving the economics of another business?

Examine binding constraints

What is the biggest hassle of purchasing or using our product?

What are some examples of ad hoc modifications that customers have made to our product?

For which current customers is our product least suited?

For what particular usage occasions is our product least suited?

Which customers does the industry prefer not to serve, and why?

Which customers could be major users, if only we could remove one specific barrier we've never previously considered?

Imagine perfection

How would we do things differently if we had perfect information about our buyers, usage, distribution channels, and so on?

How would our product change if it were tailored for every customer?

Revisit the premises underlying our processes and products

Which technologies embedded in our product have changed the most since the product was last redesigned?

Which technologies underlying our production processes have changed the most since we last rebuilt our manufacturing and distribution systems?

Which customers' needs are shifting most rapidly? What will they be in five years? A Music Magazine's Logic Tree for Generating Fresh Article Ideas

One tool for systematically generating effective brainstorming questions is a logic tree. It begins with a high-level question that is broken down into increasingly specific queries. Often the questions five or six levels down are most fruitful.

Such is the case in this example of a music magazine trying to rethink the way it generates story ideas. The questions on the first few branches are quite general--probably the ones the editors would ask every day. But say we move down a branch (as we have here along one particular one in bold), we can see that the questions get more specific and perhaps more original.

For example, the question, "How can we make readers experts on the trend?" yields three intriguing possibilities that, in turn, lead to further questions that are still sufficiently abstract yet focused enough to work. Following the other branches leads to equally stimulating possibilities.

What Every Leader Needs to Know About Followers

The distinctions among followers are every bit as consequential as those among leaders--and have critical implications for how managers should manage.

by Barbara Kellerman

There is no leader without at least one follower--that's obvious. Yet the modern leadership industry, now a quarter-century old, is built on the proposition that leaders matter a great deal and followers hardly at all.

Good leadership is the stuff of countless courses, workshops, books, and articles. Everyone wants to understand just what makes leaders tick--the charismatic ones, the retiring ones, and even the crooked ones. Good followership, by contrast, is the stuff of nearly nothing. Most of the limited research and writing on subordinates has tended to either explain their behavior in the context of leaders' development rather than followers' or mistakenly assume that followers are amorphous, all one and the same. As a result, we hardly notice, for example, that followers who tag along mindlessly are altogether different from those who are deeply devoted.

In reality, the distinctions among followers in groups and organizations are every bit as consequential as those among leaders. This is particularly true in business: In an era of flatter, networked organizations and cross-cutting teams of knowledge workers, it's not always obvious who exactly is following (or, for that matter, who exactly is leading) and how they are going about it. Reporting relationships are shifting, and new talent-management tools and approaches are constantly emerging. A confluence of changes--cultural and technological ones in particular--have influenced what subordinates want and how they behave, especially in relation to their ostensible bosses.

It's long overdue for leaders to acknowledge the importance of understanding their followers better. In these next pages, I explore the evolving dynamic between leaders and followers and offer a new typology for determining and appreciating the differences among subordinates. These distinctions have critical implications for how leaders should lead and managers should manage.

A Level Playing Field

Followers can be defined by their behavior--doing what others want them to do. But for the purposes of this article, and to avoid confusing what followers do with who they are, I define followers according to their rank: They are low in the hierarchy and have less power, authority, and influence than their superiors. They generally go along to get along, particularly with those in higher positions. In the workplace, they may comply so as not to put money or stature at risk. In the community, they may comply to preserve collective stability and security--or simply because it's the easiest thing to do.

History tells us, however, that subordinates do not follow all the time. As the ideas of the Enlightenment took hold in the eighteenth century, for instance, ordinary people (in industrialized societies especially) became less dependent on kings, landowners, and the like, and their expectations changed accordingly--as did their sense of empowerment. The trend continues. Increasingly, followers think of themselves as free agents, not as dependent underlings. And they act accordingly, often withholding support from bad leaders, throwing their weight behind good ones, and sometimes claiming commanding voices for those lower down in the social or organizational hierarchy.

Witness the gradual demise of communism (and totalitarianism) in the former Soviet Union, Eastern Europe, and now China. And consider the social and political upheavals, all of them antiauthority, in the United States and elsewhere during the 1960s and 1970s. Similarly, there has been a dispersion of power at the highest levels of American business, partly because of changes in the cultures and structures of corporations as well as the advance of new technologies. CEOs share power and influence with a range of players, including boards, regulators, and shareholder activists. Executives at global companies must monitor the activities of subordinates situated thousands of miles away. And knowledge workers can choose independently to use collaborative technologies to connect with colleagues and partners in other companies and countries in order to get things done. The result is reminiscent of what management sage Peter Drucker suggested in his 1967 book The Effective Executive: In an era dominated by knowledge workers rather than manual workers, expertise can--and often does--trump position as an indicator of who is really leading and who is really following.

Types of Followers

Over the years, only a handful of researchers have attempted to study, segment, and speak to followers in some depth. To various degrees, Harvard Business School professor Abraham Zaleznik, Carnegie Mellon adjunct professor Robert Kelley, and executive coach Ira Chaleff have all argued that leaders with even some understanding of what drives their subordinates can be a great help to themselves, their followers, and their organizations. Each researcher further recognized the need to classify subordinates into different types. (See the sidebar "Distinguishing Marks: Three Other Follower Typologies.")

Sidebar Icon Distinguishing Marks: Three Other Follower Typologies (Located at the end of this article)

Zaleznik classified subordinates into one of four types according to two sets of variables--dominance versus submission and activity versus passivity. His research findings intended to inform corporate leaders in particular. By contrast, Kelley and Chaleff were more interested in the welfare of those lower down the corporate ladder. Their work was designed to challenge and counteract what Kelley called the "leadership myth"--the idea that leaders are all-powerful and all-important.

Kelley classified subordinates into five types according to their levels of independence and activity, but his special interest was in fostering "exemplary" followers--those who acted with "intelligence, independence, courage, and a strong sense of ethics." These individuals are critical to the success of all groups and organizations, he argued. Meanwhile, Chaleff placed subordinates into one of four categories based on the degree to which the follower supports the leader and the degree to which the follower challenges the leader.

All three did pioneering work--and yet, as indicated, it seems to have had little impact on how current leader-follower relationships are perceived. In part, this is because of cultural, organizational, and technological changes that have taken place in just the past few years. Manual laborers, for instance, have been replaced by younger, tech-savvy knowledge workers, who are generally less disposed to be, in Zaleznik's parlance, "masochistic" or "withdrawn."

The most important point of all these typologies, however, is that leader-follower relationships, no matter the situation, culture, or era in which they are embedded, are more similar than they are different. Underlying them is some sort of dominance and some sort of deference. Segmenting followers, then, serves at least two broad purposes: In theory, it enables us all to impose an order on groups and organizations that up to now has been largely lacking. In practice, it allows superiors and subordinates alike to discern who in the group or organization is doing what--and why.

A New Typology

The typology I've developed after years of study and observation aligns followers on one, all-important metric--level of engagement. I categorize all followers according to where they fall along a continuum that ranges from "feeling and doing absolutely nothing" to "being passionately committed and deeply involved." I chose level of engagement because, regardless of context, it's the follower's degree of involvement that largely determines the nature of the superior-subordinate relationship. This is especially true today: Because of the aforementioned changes in the cultures and structures of organizations, for instance, knowledge workers often care as much if not more about intrinsic factors--the quality of their interpersonal relationships with their superiors, for instance, or their passion for the organization's mission--than about extrinsic rewards such as salary, titles, and other benefits.

A typology based on a single, simple metric--as opposed to the multiple rating factors used by the creators of previous segmenting tools--offers leaders immediate information on whether and to what degree their followers are buying what they're selling: Do your followers participate actively in meetings and proceedings? Do they demonstrate engagement by pursuing dialogues, asking good questions, and generating new ideas? Or have they checked out--pecking away at their BlackBerries or keeping a close eye on the clock? I categorize followers as isolates, bystanders, participants, activists, and diehards. Let's look at each type.

Isolates are completely detached.

These followers are scarcely aware of what's going on around them. Moreover, they do not care about their leaders, know anything about them, or respond to them in any obvious way. Their alienation is, nevertheless, of consequence. By knowing and doing nothing, these types of followers passively support the status quo and further strengthen leaders who already have the upper hand. As a result, isolates can drag down their groups or organizations.

Isolates are most likely to be found in large companies, where they can easily disappear in the maze of cubicles, offices, departments, and divisions. Their attitudes and behaviors attract little or no notice from those at the top levels of the organization as long as they do the