Corporate leaders have long

subscribed to the belief that

the sole purpose of business
is to make money. That narrow
view, deeply embedded in the
American capitalist system,
molds the actions of most
corporations, constraining
them to focus on maximizing
short-term prots and returns
to shareholders at the expense
of worker safety and health, the
environment, and society in
general. In this article, HBS pro-
fessor Kanter argues that a very
dierent logic informs the prac-
tices of most high- performing
and sustainable companies: An
institutional logic.
These companies believe
that they are more than money-
making machines; they are a
vehicle for advancing societal
goals. They deliver more than
just nancial returns; they also
build enduring institutions.
At great companies, insti-
tutional logic takes its place
alongside economic logic
in research, analysis, and
managerial decision mak-
ing. Six facets of institutional
logica common purpose, a
long-term focus, emotional
engagement, partnering with
the public, innovation, and
self- organizationradically
alter leadership and corporate
behavior and form the building
blocks of a more sustainable
competitive advantage.
HBR Reprint R1111C
Excellence in community
engagement, labor relations,
environmental protection, cor-
porate governance, and supply
chain accountability isnt easy
to achieve. But in the long run,
top performance in those areas
strengthens an organization, as
the ve companies proled in
this article demonstrate. They
prove that doing the right thing
isnt at odds at all with building
the bottom line, and in fact it
can be integral to a rms eco-
nomic logic.
Dutch chemical maker Royal
DSM, for instance, not only
specializes in nutritional and
environmental products but
gives them away to people
in need. That unconventional
move is helping DSM win the
talent war and crack critical
markets. Southwest has become
Americas largest domestic air-
line by committing to employee
happiness. Chinas Broad Group
has won industrial customers
worldwide with its energy-
e cient air conditioning and
ltration systems and is now
moving into sustainable building
construction. PotashCorp, a
Canadian fertilizer company, has
raised the bar on transparency
in governanceand is reaping
the reputational rewards. And
Unilever has proved that it is
possible to make your supply
chain more sustainable, even
if you sell 170 billion products
across 180 countries a year and
run 250 factories.
HBR Reprint R1111E
He may not appear to be
one, but Murthy is quite the
contrarian. At a time when few
Indians felt they could become
entrepreneurs, he founded In-
fosys with just $1,000. When no
one believed that India could
compete in the high tech arena,
he dared to develop software
services for export. In an era
when hardly anyone in India
conducted business ethically,
he set out to create a values-
based corporation.
Over his 30-year tenure,
Murthy has largely succeeded.
He helped create a $6 billion
technology rm with over
134,000 employees, pioneered
an innovative way of deliver-
ing software services globally,
and strove to make Infosys the
epitome of a good company.
Thats a reputation that
is hard won and easily lost,
especially in India today, where
companies are notorious for
their lack of transparency. In
fact, public outrage against
corruption reached a ashpoint
in August 2011, with millions
taking to the streets in protest.
As businesses gird for
change in India, Infosys faces
its own turning point. In August,
Murthy stepped down as
chairman, according to plan. In
this interview, Murthy explains
that building a values-based
rm is a never-ending process.
Leaders must demonstrate
that values matter every day, at
every turn.
HBR Reprint R1111D
Spotlight
HowGreat Companies
Think Dierently 66
by Rosabeth Moss Kanter
What Counts
As Good? 68
Compiled by HBRs
editors
Its Hard to Be Good 88
by Alison Beard and
Richard Hornik
The Good Company
ARTWORK Sarah Morris
Mogul [Clips], 2009
Gloss household paint on
canvas, 48.03" x 48.03"
Why Dont We Try to Be
Indias Most Respected
Company? 80
An interview with N.R.
Narayana Murthy
The For-Benet
Enterprise 98
by Heerad Sabeti
The companies that
performbest over
time build a social
purpose into their
operations that is as
important as their
economic purpose.
HBR.ORG
November 2011 Harvard Business Review 65
STRATEGY
How Great Companies
Think Dierently
Rosabeth Moss Kanter |
page66
ORGANIZATION & CULTURE
Its Hard to Be Good
Alison Beard and Richard
Hornik | page 88
LEADERSHIP
Why Dont We
Try to Be Indias Most-
Respected Company?
An interview with Infosys
founder N.R. Narayana Murthy
by Anand P. Raman | page80
Executive Summaries
SPOTLIGHT ON THE GOOD COMPANY
Adhering to nonnancial corporate
principles can be di cult, especially
in tough times. To succeed, develop
a rationale that aligns with your other
strategic objectives; attract dedicated
capital; create an eective, supportive
organizational structure; and nurture
the right talents.
1377 Nov11 ExecSumms.indd 162 9/28/11 6:25 PM
The Big Idea
They want informationlots of it.
The case for telling Wall Street more
by Baruch Lev
ILLUSTRATION: JOHN HERSEY
The Big Idea
HHHHHHHHHHHHHoooooooooooooowwwwwwwwwwwwww tttttttttttttttoooooooooooo
IIIIIIIIIIIIIInnnnnnnnnnnnnnnnvvvvvvvvvvvvvvvveeeeeeeeeeeeeeeeesssssssssssssstttttttttttttttooooooooooooooorrrrrrrrrrrrrrrrsssssssssssssss
HBR.ORG
November 2011 Harvard Business Review 53
FINANCE & ACCOUNTING
How to Win Investors Over
Baruch Lev | page 52
Providing earnings guidancepublicly releas-
ing managerial forecasts of a companys
protshas become a highly controversial
practice, with critics ranging from Warren
Buett to a McKinsey team to the U.S. Cham-
ber of Commerce. Yet more than a thousand
U.S. corporations issue such forecasts each
year. Are they making a mistake?
On the contrary, argues Lev, an accounting
professor at NYU Stern: Investors want more
information, and they will reward companies
that make it available. Conventional wisdom
notwithstanding, Lev maintains that investors
care a lot about what drives a companys
long-term growth; however, they often need
help understanding what the drivers are.
Guidance, non-GAAP pro forma earnings
statements, and executive conference calls
with investors and analysts after the release
of earnings statements are potent tools.
Done right, they can bring higher stock prices,
lower volatility, and reduced cost of capital,
and they may also temper shareholder litiga-
tion and its consequences.
Some guidance for guiders is in order:
Oer guidance only if your predictions are
consistently better than analysts consensus
forecasts. Dont stand out as a guidance
refusenik in a sector where guidance is
prevalent. Maintain credibility and dont duck
the truthmanipulating expectations so that
reported earnings will comfortably exceed
them breeds mistrust. Resist legal advice to
be cryptic or bland, and dont overlook the
value of soft information; executives narra-
tive and tone color many investors decisions
and account for most stock price changes in
the wake of nancial reports.
These are not easy times to be an execu-
tive dealing with nancial markets. But run-
ning away from disillusioned investors only
makes things worse. Far better is to gure out
what they value and to shape your nancial
reporting and communications strategies
accordingly.
HBR Reprint R1111B
A growing number of socially
motivated entrepreneurs have been
creating new kinds of organizations
that combine a social mission with
a business engine. Unlike typical
for-prots, these for-benet
enterprises have social or environ-
mental outcomes as their ultimate
bottom line; and unlike typical
nonprots, they derive their income
mostly from the sale of goods and
services rather than from grants
and donations. They defy classica-
tion as pure business or nonprot;
rather, they are a blend of the two.
Many more such enterprises
would exist, except that few
entrepreneurs have been able
to choose for-benet as a legally
recognized organizational structure.
Most countries legal and economic
systems allow only for-prot or
nonprot activity; entrepreneurs
must shoehorn their vision into one
or the other structure.
All this seems destined to
change. For-benets will become
more commonplace as entrepre-
neurs learn to better navigate
existing constraints, and as an eco-
system of supportincluding nan-
cial markets, accounting standards,
and professional servicesdevelops
around them. The even bigger news
is what will happen then, writes the
author. With formalization of the
for-benet structure, we will see
the emergence of a fourth sector of
the economy, interacting with but
separate from government, non-
prots, and for-prot businesses.
The rise of that sector is likely to
reshape the future of capitalism.
HBR Reprint R1111F
GOVERNANCE
The For-Benet
Enterprise
Heerad Sabeti | page 98
November 2011
HBR.ORG
We asked
over 1,700
CMOs about
todays newly
empowered
customer.
See what they said.
ibm.com/CMOstudy3
1377 Nov11 ExecSumms.indd 163 9/28/11 6:25 PM
Businesses that
thrive on social
platforms dont
just sell stu
they also help
people connect.
by Mikoaj Jan
Piskorski
M
ore than a billion people use social plat-
formssuchasFacebook, eHarmony, Renren,
and LinkedIn. Whats the attraction? They
satisfy two basic human needs: to meet newpeople
and to strengthen existing relationships. Fee-based
dating websites, which collectively grossed $1 bil-
lion in 2010 by connecting strangers, nowaccount
for anestimatedone insixnewmarriages. Facebook,
which fortifes friendships, boasts a staggering 750
millionusers andavaluationinexcess of $100billion.
Numbers likethoseattract traditional companies,
which have launched Facebook fan pages and Twit-
ter accounts in hopes of fnding newcustomers and
engaging existing ones. But fewof those companies
succeedingenerating profts onsocial platforms, de-
spite collecting lots of friends andfollowers.
Social Strategies
That Work
HBR.ORG
November 2011 Harvard Business Review 117
The Great
Repeatable
Business
Model
Leveraging a simple formula allows
corporations to create newand
more-lasting dierentiation.
by Chris Zook and James Allen
ILLUSTRATION: MICK WIGGINS
DIFFERENTIATIONISTHEessenceof strategy, theprime
source of competitive advantage. You earn money
not just by performing a valuable task but by being
different from your competitors in a manner that
lets you serve your core customers better and more
proftably.
The sharper your differentiation, the greater
your advantage. Consider Tetra Pak, a company that
in 2010 sold more than 150 billion packages in 170
markets around the world. Tetra Paks carton pack-
ages extend the shelf life of products and eliminate
the need for refrigeration. The shapes they take
squares and pyramids, for examplestack more
HBR.ORG
November 2011 Harvard Business Review 107
AndrewMcAfee is a principal research scientist at MITs Center for Digital Business and the coauthor, with Erik Brynjolfsson, of the e-book Race Against the Machine (Harvard Busi- ness Review Press, 2011). Twitter: @amcafee.
What Every
CEO Needs to
Know About
The Cloud
The true benets of cloud
computing will surprise
you. But youll need the
right people to lead the
transformation.
by Andrew McAfee
PHOTOGRAPHY: GETTY IMAGES
HBR.ORG
November 2011 Harvard Business Review 125 124 Harvard Business Review November 2011
KFCs Radical
Approach to China
To succeed, the fast-food
giant had to throw out its U.S.
business model. by David E.
Bell and Mary L. Shelman
The Globe
G
lobal companies face a critical
question when they enter emerg-
ing markets: How far should they
go to localize their oferings? Should they
adapt existing products just enough to
appeal to consumers in those markets? Or
should they rethink the business model
fromthe groundup?
Thetypical Westernapproachtoforeign
expansion is to try to sell core products or
services pretty much as theyve always
been sold in Europe or the United States,
with headquarters watching closely to
make sure the model is exported correctly.
This often starts with selling imported
goods to the expat community or opening
one or two stores for a trial run. Once such
an approach is entrenched, companies are
reluctant to rethink the model. U.S. retail-
ers and food corporations that have spent
years saturating the huge home market
tend to cling to what has worked in the
past. Dominos Pizza nearly failed in Aus-
tralia because it underestimated the need
to adapt its offerings to local tastes; only
after it turned the country over to a local
master franchisee did Dominos become
the largest pizza chainthere.
Amaster of adaptationis the Swiss food
giant Nestl, which has created an array
of products that incorporate differing re-
gional favorsandcater tolocal tastesin
cofee, chocolate, ice cream, and even wa-
ter. For a hundred years Nestls country
At a KFC in Beijing
PHOTOGRAPHY: GETTY IMAGES
HBR.ORG
November 2011 Harvard Business Review 137
Features
Global comanles lace a cruclal
questlon when they enter emerglng
markets: now lar should they go
to locallze thelr oerlngs Jylcally
they try to sell core roducts or
servlces retty much as theyve
been sold ln uroe or the unlted
states, wlth headquarters calllng all
the shotsand usually wlth dlsa-
olntlng results.
Jhe authors, both ol narvard
suslness school, examlned why
klC Chlna has been able to nd
lertlle ground ln a market that ls
notorlously challenglng lor western
last-lood chalns. klCs executlves
belleved that the domlnant loglc
behlnd the chalns growth ln the
u.s.a llmlted menu, small stores,
and an emhasls on takeout
wouldnt roduce the klnd ol suc-
cess they were looklng lor ln Chlna.
klC Chlna oers lmortant lessons
lor global executlves seeklng guld-
ance ln determlnlng how much ol
thelr exlstlng buslness model to
kee ln emerglng marketsand
how much to throw away.
HBR Reprint Rk
INTERNATIONAL BUSINESS
KFCs Radical
Approach to China
David E. Bell and Mary L. Shelman
age )
POSTMASTER
send domestlc address changes,
orders, and lnqulrles to: Harvard
Business Review, subscrltlon servlce,
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Reglstratlon No. 1241s84s46. erlodlcal
ostage ald at soston, Hassachusetts,
and addltlonal malllng olllces.
rlnted ln the u.s.A. Harvard Business
Review (lssN 0011-8012; uss 02s8-620),
ubllshed monthly wlth comblned lssues
ln Januarylebruary and JulyAugust lor
rolesslonal managers, ls an educatlon
rogram ol narvard suslness school,
narvard unlverslty; Nltln Nohrla, dean.
ubllshed by narvard suslness school
ubllshlng Cororatlon, 80 narvard way,
soston, HA 0218s.
Copyright 2011 Harvard Business
School Publishing Corporation. All
rights reserved. Volume 89, Number 11
THE GLOBE
Cloud comutlng ls a sea change ln
the way comanles use technology;
lts as lnevltable and slgnlcant
as the shllt lrom steam ower
to electrlclty on the lactory oor.
secause crltlclsms ol the cloud
have gotten a lot ol hye, however,
many comanles are hesltant to
exlore lt. ln thls artlcle HcAlee, a
rlnclal research sclentlst at HlJs
Center lor Dlgltal suslness, debunks
commonly clted concerns about
the cloud. when lt comes to cost,
rellablllty, and securlty, he says, the
cloud romlses to equal or better
on-remlse comutlng. Horeover,
as the exerlences ol comanles
llke H, the global contractor sal-
lour seatty, and the consultlng rm
CsC show, cloud comutlng oers
slzable benets, such as lmroved
roductlvlty, easler collaboratlon,
the ablllty to mlne data lor lnslghts,
and hlgher caaclty wlthout major
caltal lnvestment.
nere, HcAlee walks readers
through the three baslc categorles
ol cloud comutlng: infrastructure-
as-a-service (the leaslng ol raw
comutlng caaclty), platform-as-
a-service (the leaslng ol comuters
ready lor soltware develoment),
and software-as-a service (the
hostlng ol allcatlons lor users).
Argulng that COs and senlor man-
agers need to take the lead on the
shllt to the cloud, he then outllnes
how comanles can get started.
HBR Reprint RJ
MANAGING TECHNOLOGY
What Every CEO
Needs to Know
About the Cloud
Andrew McAfee age a(
Jhe sharer a comanys dleren-
tlatlon, the greater lts cometltlve
advantage. ln studylng comanles
that sustalned a hlgh level ol
erlormance over many years, the
authors, both artners at saln, have
lound that more than 8o% ol those
comanles had a well-dened and
easlly understood dlerentlatlon
at the center ol strategy. sut dll-
lerentlatlon can wear wlth age: Jhe
growth lt generates creates com-
lexlty, and comlex comanles
tend to lorget what theyre good
at. Olten they resond by trylng
to relmaglne thelr entlre buslness
models qulckly and dramatlcally.
Jhats rarely the answer, the
authors wrlte. Really successlul
comanles relentlessly bulld on
thelr lundamental dlerentlatlon,
golng lrom strength to strength.
Jhey learn to dellver lt to the lront
llne, creatlng an organlzatlon that
llves and breathes lts strateglc
advantages day ln and day out.
Jhey learn to sustaln lt through
constant adatatlon to changes ln
the market. And they learn to reslst
the slren song ol todays hot market
better than thelr less-locused
cometltors do. Jhe result ls a
slmle, reeatable buslness model
that a comany can aly to new
roducts and markets over and
over agaln to generate sustalned
growth.
HBR Reprint RG
Although most comanles have
collected lots ol lrlends and lol-
lowers on soclal latlorms such as
lacebook, lew have succeeded ln
generatlng rots there. Jhats be-
cause they merely ort thelr dlgltal
strategles lnto soclal envlronments
by broadcastlng thelr commerclal
messages or seeklng customer
leedback.
Jo succeed on soclal latlorms,
says narvard suslness schools
lskorskl, buslnesses need to devlse
soclal strategles that are conslstent
wlth users exectatlons and behav-
lor ln these venuesnamely, eole
want to connect wlth other eole,
not wlth comanles. Jhe author
denes successlul soclal strate-
gles as those that reduce costs or
lncrease customers wllllngness to
ay by hellng eole establlsh or
strengthen relatlonshls through
dolng lree work on a comanys
behall.
Cltlng successes at zynga, esay,
Amerlcan xress, and 1el, lskor-
skl shows that soclal strategles can
generate rots by hellng eole
connect ln exchange lor tasks
that benet the comany such as
customer acqulsltlon, marketlng,
and content creatlon. ne lays out
a systematlc way to bulld a soclal
strategy and shows how a major
credlt card comany he advlsed
used the method to roll out lts own
strategy.
HBR Reprint Rn
GROWTH
The Great Repeatable
Business Model
Chris Zook and James Allen
age o6
STRATEGY
Social Strategies
That Work
Mikoaj Jan Piskorski age 6
EXECUTIVE SUMMARIES
166 narvard suslness RevlewNovember 2011
How I Did It
When Peters became
president of O ce Depots
North American opera-
tions, in 2010, its customer
service scores (as graded
by a third-party mystery-
shopping rm) were soar-
ingbut sales were falling.
To understand why, he went
undercover, quietly visiting 70 stores in more
than 15 states. He talked to customers and
observed their behavior. What struck him
most was how often they walked out of the
store empty-handed. It turned out that O ce
Depots customer service scores depended
on factors that shoppers didnt really care
aboutsuch as the cleanliness of oors and
bathrooms. And its employees were oered
incentives to focus on the wrong things. (In
fact, the company learned that some of
its associates preferred interacting with
stock over interacting with people.) Peterss
conversations with customers gave him three
insights: The chain needed to oer smaller
stores, dramatically improve the in-store
experience, and add value with services such
as shipping and copying. O ce Depot has
since rolled out 30 pilot stores, retrained
associates, and begun to see the rst signs of
improvement.
HBR Reprint R1111A
LEADERSHIP
O ce Depots President on How
Mystery Shopping Helped
Spark a Turnaround
Kevin Peters | page 47
W
p
N
ti
s
b
s
in
To
Oce Depots President on
HowMystery Shopping
Helped Spark a Turnaround
PHOTOGRAPHY: (CLOCKWISE FROM LEFT) GETTY IMAGES; COURTESY OF OFFICE DEPOT
hen I became the leader of
Ofce Depots retail stores in
the United States, in 2010, the
frst thing I tried to do was fgure out the
meaningof apuzzlingset of facts. Our sales
had been declining, and although thats
not unusual in a weak economy, they had
declined faster than the sales of our com-
petitors and of retailers in general. At the
sametime, thecustomer servicescores our
third-party mystery-shopper service was
reportingweregoingthroughtheroof. This
didnt makeanysense. Howcouldit bethat
we were delivering phenomenal service to
our customers, yet they werent buying
anything?
Tounderstandthese contradictorydata
points, I decided to do some mystery shop-
ping myself. I didnt wear a suit. I didnt
wear a blue Ofce Depot shirt like the ones
employees wear in all our U.S. stores. In-
stead I wore a faded pair of jeans, a T-shirt,
andabaseball cap. I didnt tell anyoneI was
coming to visit, and in most cases I didnt
let anyone knowafterward that Id been in
thestore. What I wantedwas toexperience
Ofce Depot in the same way our custom-
ers do. Over thenext several weeks I visited
70stores in15 or more states.
At each location I followed the same
routine. First I pulled into the parking lot
and just watched customers go in and out
by Kevin Peters
The oce products retailer
was measuring customer
service using metrics
such as the cleanliness of
bathroomsthat didnt
drive sales. Its new presi-
dent is trying to x that
by retraining the sta and
transforming the company.
THE IDEA
Kevin Peters is Oce Depots president for North America.
PHOTOS Peters (center at upper right; on the right below) with Oce Depot employees
November 2011 Harvard Business Review 47
HowI Did It
HBR.ORG
Managing Yourself
What does it take for an av-
erage manager to become
a highly eective leader?
There are countless books,
models, and formulas for
success. But the truth is
that leadership transforma-
tion is deeply dependent
on circumstances. The key
for those who seek it is to absorb the insights
that can be drawn from the successful experi-
ences of others. During their in-depth study
of seven CEOs, Fuda and Badham uncovered
seven interdependent metaphors, which
they went on to test with more than 10,000
managers on four continents. The authors
discuss four of those metaphorsre, snow-
ball, mask, and moviehere, in the context of
individual managers experiences.
HBR Reprint R1111L
W
e
a
T
m
s
th
ti
o
Fire, Snowball, Mask,
Movie: HowLeaders Spark
And Sustain Change
by Peter Fuda and Richard Badham
MANAGINGYOURSELF
W
hat does it take for aninef-
fective manager to become a
highly efective leader? Talk
to 50topCEOs, management consultants,
andacademics, andyoull get a diferent
answer fromeach. There are countless
books, models, andformulas for success.
But the truthis this: Leadershiptransfor-
mationis deeply dependent oncontext.
Everyone follows his ownpath, has her
ownstory. The key for people who are
seeking transformationis to identify the
commonthreads inthe experiences of
others who have achievedsuccess and
absorb the insights they fndthere.
That was our ambitionfve years ago,
whenwe embarkedona doctoral research
project. We beganwithanin-depthstudy
of sevenCEOs whose success intrans-
forming themselves, their leadership
teams, andtheir organizations was well
documented. They hadall seenradical
improvement in360-degree feedback
ontheir personal efectiveness, along
withsignifcant gains for their units or
organizations infnancial performance,
customer approval, andemployee engage-
ment. We capturedtheir stories through
a series of lengthy interviews, conducteda
rigorous linguistic analysis, anddiscov-
eredthat several themes were commonto
all seveninthe challenges they facedand
the strategies they used.
Inensuing conversations withthese
chief executives, we discoveredthat one
of the best ways to elicit deepandbroad
discussionof those key themesandto
describe the CEOs mastery of what they
hadlearnedwas throughmetaphor. ILLUSTRATION: INFOMEN
CASE STUDY 150 Will a sad spouse upend a companys expatriate program?
SYNTHESIS158 Newapproaches to managing risk
LIFES WORK168 Frank Gehry on the architects role as problem-solving project manager
Experience
Managing Your Professional Growth hbr.org
November 2011 Harvard Business Review 145
Fire, Snowball, Mask, Movie:
How Leaders Spark and
Sustain Change
Peter Fuda and Richard Badham | page 145
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1377 Nov11 ExecSumms.indd 167 9/28/11 6:25 PM
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