What Is Disruptive Innovation?

What Is Disruptive Innovation?

by Clayton M. Christensen , Michael E. Raynor and Rory McDonald

From the December 2015 Issue

The theory of disruptive innovation, introduced in these pages in 1995, has proved to be a powerful way of thinking about innovation-driven growth. Many leaders of small, entrepreneurial companies praise it as their guiding star; so do many executives at large, well-established organizations, including Intel, Southern New Hampshire University, and Salesforce.com.

Unfortunately, disruption theory is in danger of becoming a victim of its own success. Despite broad dissemination, the theory’s core concepts have been widely misunderstood and its basic tenets frequently misapplied. Furthermore, essential refinements in the theory over the past 20 years appear to have been overshadowed by the popularity of the initial formulation. As a result, the theory is sometimes criticized for shortcomings that have already been addressed.

There’s another troubling concern: In our experience, too many people who speak of “disruption” have not read a serious book or article on the subject. Too frequently, they use the term loosely to invoke the concept of innovation in support of whatever it is they wish to do. Many researchers, writers, and consultants use “disruptive innovation” to describe any situation in which an industry is shaken up and previously successful incumbents stumble. But that’s much too broad a usage.

The problem with conflating a disruptive innovation with any breakthrough that changes an industry’s competitive patterns is that different types of innovation require different strategic approaches. To put it another way, the lessons we’ve learned about succeeding as a disruptive innovator (or defending against a disruptive challenger) will not apply to every company in a shifting market. If we get sloppy with our labels or fail to integrate insights from subsequent research and experience into the original theory, then managers may end up using the wrong tools for their context, reducing their chances of success. Over time, the theory’s usefulness will be undermined.

This article is part of an effort to capture the state of the art. We begin by exploring the basic tenets of disruptive innovation and examining whether they apply to Uber. Then we point out some common pitfalls in the theory’s application, how these arise, and why correctly using the theory matters. We go on to trace major turning points in the evolution of our thinking and make the case that what we have learned allows us to more accurately predict which businesses will grow.

First, a quick recap of the idea: “Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality - frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.

 Is Uber a Disruptive Innovation?

Let’s consider Uber, the much-feted transportation company whose mobile application connects consumers who need rides with drivers who are willing to provide them. Founded in 2009, the company has enjoyed fantastic growth (it operates in hundreds of cities in 60 countries and is still expanding). It has reported tremendous financial success (the most recent funding round implies an enterprise value in the vicinity of $50 billion). And it has spawned a slew of imitators (other start-ups are trying to emulate its “market-making” business model). Uber is clearly transforming the taxi business in the United States. But is it disrupting the taxi business?

According to the theory, the answer is no. Uber’s financial and strategic achievements do not qualify the company as genuinely disruptive - although the company is almost always described that way. Here are two reasons why the label doesn’t fit.

Disruptive innovations originate in low-end or new-market footholds.

Disruptive innovations are made possible because they get started in two types of markets that incumbents overlook. Low-end footholds exist because incumbents typically try to provide their most profitable and demanding customers with ever-improving products and services, and they pay less attention to less-demanding customers. In fact, incumbents’ offerings often overshoot the performance requirements of the latter. This opens the door to a disrupter focused (at first) on providing those low-end customers with a “good enough” product.

In the case of new-market footholds, disrupters create a market where none existed. Put simply, they find a way to turn nonconsumers into consumers. For example, in the early days of photocopying technology, Xerox targeted large corporations and charged high prices in order to provide the performance that those customers required. School librarians, bowling-league operators, and other small customers, priced out of the market, made do with carbon paper or mimeograph machines. Then in the late 1970s, new challengers introduced personal copiers, offering an affordable solution to individuals and small organizations - and a new market was created. From this relatively modest beginning, personal photocopier makers gradually built a major position in the mainstream photocopier market that Xerox valued.

A disruptive innovation, by definition, starts from one of those two footholds. But Uber did not originate in either one. It is difficult to claim that the company found a low-end opportunity: That would have meant taxi service providers had overshot the needs of a material number of customers by making cabs too plentiful, too easy to use, and too clean. Neither did Uber primarily target nonconsumers - people who found the existing alternatives so expensive or inconvenient that they took public transit or drove themselves instead: Uber was launched in San Francisco (a well-served taxi market), and Uber’s customers were generally people already in the habit of hiring rides.

Uber has quite arguably been increasing total demand - that’s what happens when you develop a better, less-expensive solution to a widespread customer need. But disrupters start by appealing to low-end or unserved consumers and then migrate to the mainstream market. Uber has gone in exactly the opposite direction: building a position in the mainstream market first and subsequently appealing to historically overlooked segments.

Disruptive innovations don’t catch on with mainstream customers until quality catches up to their standards.

Disruption theory differentiates disruptive innovations from what are called “sustaining innovations.” The latter make good products better in the eyes of an incumbent’s existing customers: the fifth blade in a razor, the clearer TV picture, better mobile phone reception. These improvements can be incremental advances or major breakthroughs, but they all enable firms to sell more products to their most profitable customers.

Disruptive innovations, on the other hand, are initially considered inferior by most of an incumbent’s customers. Typically, customers are not willing to switch to the new offering merely because it is less expensive. Instead, they wait until its quality rises enough to satisfy them. Once that’s happened, they adopt the new product and happily accept its lower price. (This is how disruption drives prices down in a market.)

Most of the elements of Uber’s strategy seem to be sustaining innovations. Uber’s service has rarely been described as inferior to existing taxis; in fact, many would say it is better. Booking a ride requires just a few taps on a smartphone; payment is cashless and convenient; and passengers can rate their rides afterward, which helps ensure high standards. Furthermore, Uber delivers service reliably and punctually, and its pricing is usually competitive with (or lower than) that of established taxi services. And as is typical when incumbents face threats from sustaining innovations, many of the taxi companies are motivated to respond. They are deploying competitive technologies, such as hailing apps, and contesting the legality of some of Uber’s services.

Why Getting It Right Matters

Readers may still be wondering, Why does it matter what words we use to describe Uber? The company has certainly thrown the taxi industry into disarray: Isn’t that “disruptive” enough? No. Applying the theory correctly is essential to realizing its benefits. For example, small competitors that nibble away at the periphery of your business very likely should be ignored - unless they are on a disruptive trajectory, in which case they are a potentially mortal threat. And both of these challenges are fundamentally different from efforts by competitors to woo your bread-and-butter customers.

As the example of Uber shows, identifying true disruptive innovation is tricky. Yet even executives with a good understanding of disruption theory tend to forget some of its subtler aspects when making strategic decisions. We’ve observed four important points that get overlooked or misunderstood:

1. Disruption is a process.

The term “disruptive innovation” is misleading when it is used to refer to a product or service at one fixed point, rather than to the evolution of that product or service over time. The first minicomputers were disruptive not merely because they were low-end upstarts when they appeared on the scene, nor because they were later heralded as superior to mainframes in many markets; they were disruptive by virtue of the path they followed from the fringe to the mainstream.

Most every innovation - disruptive or not - begins life as a small-scale experiment. Disrupters tend to focus on getting the business model, rather than merely the product, just right. When they succeed, their movement from the fringe (the low end of the market or a new market) to the mainstream erodes first the incumbents’ market share and then their profitability. This process can take time, and incumbents can get quite creative in the defense of their established franchises. For example, more than 50 years after the first discount department store was opened, mainstream retail companies still operate their traditional department-store formats. Complete substitution, if it comes at all, may take decades, because the incremental profit from staying with the old model for one more year trumps proposals to write off the assets in one stroke.

The fact that disruption can take time helps to explain why incumbents frequently overlook disrupters. For example, when Netflix launched, in 1997, its initial service wasn’t appealing to most of Blockbuster’s customers, who rented movies (typically new releases) on impulse. Netflix had an exclusively online interface and a large inventory of movies, but delivery through the U.S. mail meant selections took several days to arrive. The service appealed to only a few customer groups - movie buffs who didn’t care about new releases, early adopters of DVD players, and online shoppers. If Netflix had not eventually begun to serve a broader segment of the market, Blockbuster’s decision to ignore this competitor would not have been a strategic blunder: The two companies filled very different needs for their (different) customers.

Because disruption can take time, incumbents frequently overlook disrupters.

However, as new technologies allowed Netflix to shift to streaming video over the internet, the company did eventually become appealing to Blockbuster’s core customers, offering a wider selection of content with an all-you-can-watch, on-demand, low-price, high-quality, highly convenient approach. And it got there via a classically disruptive path. If Netflix (like Uber) had begun by launching a service targeted at a larger competitor’s core market, Blockbuster’s response would very likely have been a vigorous and perhaps successful counterattack. But failing to respond effectively to the trajectory that Netflix was on led Blockbuster to collapse.

2. Disrupters often build business models that are very different from those of incumbents.

Consider the health care industry. General practitioners operating out of their offices often rely on their years of experience and on test results to interpret patients’ symptoms, make diagnoses, and prescribe treatment. We call this a “solution shop” business model. In contrast, a number of convenient care clinics are taking a disruptive path by using what we call a “process” business model: They follow standardized protocols to diagnose and treat a small but increasing number of disorders.

One high-profile example of using an innovative business model to effect a disruption is Apple’s iPhone. The product that Apple debuted in 2007 was a sustaining innovation in the smartphone market: It targeted the same customers coveted by incumbents, and its initial success is likely explained by product superiority. The iPhone’s subsequent growth is better explained by disruption - not of other smartphones but of the laptop as the primary access point to the internet. This was achieved not merely through product improvements but also through the introduction of a new business model. By building a facilitated network connecting application developers with phone users, Apple changed the game. The iPhone created a new market for internet access and eventually was able to challenge laptops as mainstream users’ device of choice for going online.

3. Some disruptive innovations succeed; some don’t.

A third common mistake is to focus on the results achieved - to claim that a company is disruptive by virtue of its success. But success is not built into the definition of disruption: Not every disruptive path leads to a triumph, and not every triumphant newcomer follows a disruptive path.

For example, any number of internet-based retailers pursued disruptive paths in the late 1990s, but only a small number prospered. The failures are not evidence of the deficiencies of disruption theory; they are simply boundary markers for the theory’s application. The theory says very little about how to win in the foothold market, other than to play the odds and avoid head-on competition with better-resourced incumbents.

If we call every business success a “disruption,” then companies that rise to the top in very different ways will be seen as sources of insight into a common strategy for succeeding. This creates a danger: Managers may mix and match behaviors that are very likely inconsistent with one another and thus unlikely to yield the hoped-for result. For example, both Uber and Apple’s iPhone owe their success to a platform-based model: Uber digitally connects riders with drivers; the iPhone connects app developers with phone users. But Uber, true to its nature as a sustaining innovation, has focused on expanding its network and functionality in ways that make it better than traditional taxis. Apple, on the other hand, has followed a disruptive path by building its ecosystem of app developers so as to make the iPhone more like a personal computer.

4. The mantra “Disrupt or be disrupted” can misguide us.

Incumbent companies do need to respond to disruption if it’s occurring, but they should not overreact by dismantling a still-profitable business. Instead, they should continue to strengthen relationships with core customers by investing in sustaining innovations. In addition, they can create a new division focused solely on the growth opportunities that arise from the disruption. Our research suggests that the success of this new enterprise depends in large part on keeping it separate from the core business. That means that for some time, incumbents will find themselves managing two very different operations.

Of course, as the disruptive stand-alone business grows, it may eventually steal customers from the core. But corporate leaders should not try to solve this problem before it is a problem.

What a Disruptive Innovation Lens Can Reveal

It is rare that a technology or product is inherently sustaining or disruptive. And when new technology is developed, disruption theory does not dictate what managers should do. Instead it helps them make a strategic choice between taking a sustaining path and taking a disruptive one.

The theory of disruption predicts that when an entrant tackles incumbent competitors head-on, offering better products or services, the incumbents will accelerate their innovations to defend their business. Either they will beat back the entrant by offering even better services or products at comparable prices, or one of them will acquire the entrant. The data supports the theory’s prediction that entrants pursuing a sustaining strategy for a stand-alone business will face steep odds: In Christensen’s seminal study of the disk drive industry, only 6% of sustaining entrants managed to succeed.

When new technology arises, disruption theory can guide strategic choices.

Uber’s strong performance therefore warrants explanation. According to disruption theory, Uber is an outlier, and we do not have a universal way to account for such atypical outcomes. In Uber’s case, we believe that the regulated nature of the taxi business is a large part of the answer. Market entry and prices are closely controlled in many jurisdictions. Consequently, taxi companies have rarely innovated. Individual drivers have few ways to innovate, except to defect to Uber. So Uber is in a unique situation relative to taxis: It can offer better quality and the competition will find it hard to respond, at least in the short term.

To this point, we’ve addressed only whether or not Uber is disruptive to the taxi business. The limousine or “black car” business is a different story, and here Uber is far more likely to be on a disruptive path. The company’s UberSELECT option provides more-luxurious cars and is typically more expensive than its standard service - but typically less expensive than hiring a traditional limousine. This lower price imposes some compromises, as UberSELECT currently does not include one defining feature of the leading incumbents in this market: acceptance of advance reservations. Consequently, this offering from Uber appeals to the low end of the limousine service market: customers willing to sacrifice a measure of convenience for monetary savings. Should Uber find ways to match or exceed incumbents’ performance levels without compromising its cost and price advantage, the company appears to be well positioned to move into the mainstream of the limo business - and it will have done so in classically disruptive fashion.

How Our Thinking About Disruption Has Developed

Initially, the theory of disruptive innovation was simply a statement about correlation. Empirical findings showed that incumbents outperformed entrants in a sustaining innovation context but underperformed in a disruptive innovation context. The reason for this correlation was not immediately evident, but one by one, the elements of the theory fell into place.

Smart disrupters improve their products and drive upmarket.

First, researchers realized that a company’s propensity for strategic change is profoundly affected by the interests of customers who provide the resources the firm needs to survive. In other words, incumbents (sensibly) listen to their existing customers and concentrate on sustaining innovations as a result. Researchers then arrived at a second insight: Incumbents’ focus on their existing customers becomes institutionalized in internal processes that make it difficult for even senior managers to shift investment to disruptive innovations. For example, interviews with managers of established companies in the disk drive industry revealed that resource allocation processes prioritized sustaining innovations (which had high margins and targeted large markets with well-known customers) while inadvertently starving disruptive innovations (meant for smaller markets with poorly defined customers).

Those two insights helped explain why incumbents rarely responded effectively (if at all) to disruptive innovations, but not why entrants eventually moved upmarket to challenge incumbents, over and over again. It turns out, however, that the same forces leading incumbents to ignore early-stage disruptions also compel disrupters ultimately to disrupt.

What we’ve realized is that, very often, low-end and new-market footholds are populated not by a lone would-be disrupter, but by several comparable entrant firms whose products are simpler, more convenient, or less costly than those sold by incumbents. The incumbents provide a de facto price umbrella, allowing many of the entrants to enjoy profitable growth within the foothold market. But that lasts only for a time: As incumbents (rationally, but mistakenly) cede the foothold market, they effectively remove the price umbrella, and price-based competition among the entrants reigns. Some entrants will founder, but the smart ones - the true disrupters - will improve their products and drive upmarket, where, once again, they can compete at the margin against higher-cost established competitors. The disruptive effect drives every competitor - incumbent and entrant - upmarket.

With those explanations in hand, the theory of disruptive innovation went beyond simple correlation to a theory of causation as well. The key elements of that theory have been tested and validated through studies of many industries, including retail, computers, printing, motorcycles, cars, semiconductors, cardiovascular surgery, management education, financial services, management consulting, cameras, communications, and computer-aided design software.

Making sense of anomalies.

Additional refinements to the theory have been made to address certain anomalies, or unexpected scenarios, that the theory could not explain. For example, we originally assumed that any disruptive innovation took root in the lowest tiers of an established market - yet sometimes new entrants seemed to be competing in entirely new markets. This led to the distinction we discussed earlier between low-end and new-market footholds.

Low-end disrupters (think steel minimills and discount retailers) come in at the bottom of the market and take hold within an existing value network before moving upmarket and attacking that stratum (think integrated steel mills and traditional retailers). By contrast, new-market disruptions take hold in a completely new value network and appeal to customers who have previously gone without the product. Consider the transistor pocket radio and the PC: They were largely ignored by manufacturers of tabletop radios and minicomputers, respectively, because they were aimed at nonconsumers of those goods. By postulating that there are two flavors of foothold markets in which disruptive innovation can begin, the theory has become more powerful and practicable.

Another intriguing anomaly was the identification of industries that have resisted the forces of disruption, at least until very recently. Higher education in the United States is one of these. Over the years - indeed, over more than 100 years - new kinds of institutions with different initial charters have been created to address the needs of various population segments, including nonconsumers. Land-grant universities, teachers’ colleges, two-year colleges, and so on were initially launched to serve those for whom a traditional four-year liberal arts education was out of reach or unnecessary.

Many of these new entrants strived to improve over time, compelled by analogues of the pursuit of profitability: a desire for growth, prestige, and the capacity to do greater good. Thus they made costly investments in research, dormitories, athletic facilities, faculty, and so on, seeking to emulate more-elite institutions. Doing so has increased their level of performance in some ways - they can provide richer learning and living environments for students, for example. Yet the relative standing of higher-education institutions remains largely unchanged: With few exceptions, the top 20 are still the top 20, and the next 50 are still in that second tier, decade after decade.

Because both incumbents and newcomers are seemingly following the same game plan, it is perhaps no surprise that incumbents are able to maintain their positions. What has been missing - until recently - is experimentation with new models that successfully appeal to today’s nonconsumers of higher education.

The question now is whether there is a novel technology or business model that allows new entrants to move upmarket without emulating the incumbents’ high costs - that is, to follow a disruptive path. The answer seems to be yes, and the enabling innovation is online learning, which is becoming broadly available. Real tuition for online courses is falling, and accessibility and quality are improving. Innovators are making inroads into the mainstream market at a stunning pace.

Will online education disrupt the incumbents’ model? And if so, when? In other words, will online education’s trajectory of improvement intersect with the needs of the mainstream market? We’ve come to realize that the steepness of any disruptive trajectory is a function of how quickly the enabling technology improves. In the steel industry, continuous-casting technology improved quite slowly, and it took more than 40 years before the minimill Nucor matched the ​revenue of the largest integrated steelmakers. In contrast, the digital technologies that allowed personal computers to disrupt minicomputers improved much more quickly; Compaq was able to increase revenue more than tenfold and reach parity with the industry leader, DEC, in only 12 years.

Understanding what drives the rate of disruption is helpful for predicting outcomes, but it doesn’t alter the way disruptions should be managed. Rapid disruptions are not fundamentally different from any others; they don’t have different causal mechanisms and don’t require conceptually different responses.

Similarly, it is a mistake to assume that the strategies adopted by some high-profile entrants constitute a special kind of disruption. Often these are simply miscategorized. Tesla Motors is a current and salient example. One might be tempted to say the company is disruptive. But its foothold is in the high end of the auto market (with customers willing to spend $70,000 or more on a car), and this segment is not uninteresting to incumbents. Tesla’s entry, not surprisingly, has elicited significant attention and investment from established competitors. If disruption theory is correct, Tesla’s future holds either acquisition by a much larger incumbent or a years-long and hard-fought battle for market significance.

We still have a lot to learn.

We are eager to keep expanding and refining the theory of disruptive innovation, and much work lies ahead. For example, universally effective responses to disruptive threats remain elusive. Our current belief is that companies should create a separate division that operates under the protection of senior leadership to explore and exploit a new disruptive model. Sometimes this works - and sometimes it doesn’t. In certain cases, a failed response to a disruptive threat cannot be attributed to a lack of understanding, insufficient executive attention, or inadequate financial investment. The challenges that arise from being an incumbent and an entrant simultaneously have yet to be fully specified; how best to meet those challenges is still to be discovered.

Disruption theory does not, and never will, explain everything about innovation specifically or business success generally. Far too many other forces are in play, each of which will reward further study. Integrating them all into a comprehensive theory of business success is an ambitious goal, one we are unlikely to attain anytime soon.

But there is cause for hope: Empirical tests show that using disruptive theory makes us measurably and significantly more accurate in our predictions of which fledgling businesses will succeed. As an ever-growing community of researchers and practitioners continues to build on disruption theory and integrate it with other perspectives, we will come to an even better understanding of what helps firms innovate successfully.

Clayton M. Christensen was the Kim B. Clark Professor of Business Administration at Harvard Business School and a frequent contributor to Harvard Business Review.

Michael E. Raynor is a director at Deloitte Consulting LLP. He is the coauthor, with Mumtaz Ahmed, of The Three Rules: How Exceptional Companies Think (New York: Penguin Books, 2013).

Rory McDonald is the Thai-Hi T. Lee (MBA 1985) Associate Professor of Business Administration in the Technology and Operations Management unit at Harvard Business School.

7 Strategies for Promoting Collaboration in a Crisis

by Heidi K. Gardner and Ivan Matviak - July 08, 2020

Crises like the Covid-19 pandemic highlight the importance of effective collaboration for long-term commercial success. Particularly in a crisis, organizations need to pull together experts with unique, cross-functional perspectives to solve rapidly changing, complex problems that have long-term implications. The diversity of experience allows a group to see risks and opportunities from different angles so that it can generate new solutions and adapt dynamically to changing situations.

Research shows, however, that anxiety makes people more risk-averse in a crisis; as a result, they are less likely to seek out differing perspectives. They tend to fall back on actions and solutions that have worked in the past - what researchers call “threat rigidity.” The desire to try to bring things under control can also lead to a go-it-alone mentality. And as resources (finances, job opportunities, even physical supplies) dry up during a crisis, people often focus on self-preservation. As a result, collaboration across an organization can break down. Our research on the 2008 financial crisis, however, shows that collaboration leads to sustainably higher commercial performance. In this article, we offer seven actions that leaders can take to foster collaboration.

We collected a decade’s worth of data on collaboration and financial performance across dozens of organizations, including professional service firms, financial institutions, and health care organizations. In interviews with some of the subjects, we asked open-ended questions about how they handled work during the crisis. Very different collaboration patterns became obvious. The exhibit below shows the outcomes for one law firm, which were typical across many of the companies we studied.

Records from project and financial databases showed how partners worked before, during, and after the crisis and their relative performance outcomes. To control for outliers, we excluded the partners with the highest and lowest performance historically and those in groups that were likely to flourish during a downturn, such as the bankruptcy and restructuring practices. We separated the remaining 400-plus partners into deciles based on the proportion of their work conducted with other partners versus on their own. Then we plotted their respective revenue generated during the period.

The results were stark. The most highly collaborative workers - the top 10% - grew their business during the crisis and continued that upward trajectory afterward (see the green line). The performance of the middle group (second and third deciles) declined slightly during the crisis, but their revenues started to recover within a year (see the yellow line). People in the third group (the bottom 70%) hunkered down and dramatically reduced their collaboration with others. They guarded their clients and hoarded work. The revenue generated by this group contracted during the crisis and still had not recovered five years after the recession had ended. We saw a similar pattern in other kinds of organizations.

Why did people work this way? As uncertainty and stress increased during the crisis, the highly collaborative people evolved their approach to developing business and executing work. They expanded their network across functional and industry silos and increased the number of colleagues they worked with. They were willing to pitch in on others’ projects. They talked about how, as the crisis evolved and pressure rose, they teamed up with trusted colleagues to identify and pursue new opportunities - even when it meant getting less personal glory on a project-by-project basis. As a result, they ended up working on a wide variety of clients or projects, essentially spreading their bets across different kinds of opportunities. It’s not that they hit only home runs; it’s that they had more at-bats, and they played different positions as needed.

The self-focused, uncollaborative people took a wholly different approach. They erected walls around their projects, pushed colleagues away, held their business and clients closely, and hoarded work. As a result of their self-interested behavior, their network diminished. They had no “tribe” to help bring them into existing opportunities and to identify new ones. In one health care organization, for example, when grant funding started to dry up, the loners suffered because they weren’t involved in enough different kinds of research initiatives to keep money flowing into their labs.

The obvious conclusion: The degree of collaboration during a crisis has a huge impact on whether companies and individual employees thrive.

Here is some advice for how leaders can promote collaboration:

1. Encourage naïve questions and constructive challenge. At McKinsey, where one of us (Heidi) once worked, this was called the “obligation to dissent”: It’s not only accepted but expected that people challenge each other’s assumptions and offer new ideas. This means that nobody feels like she risks looking foolish by asking teammates with different functional backgrounds from hers to explain their thinking or define a technical term. Involving people with a wide variety of skills in an effort to tackle novel and complicated problems can help the group collectively see potential risks or solutions that would elude individual experts - especially when they are encouraged to be inquisitive.

2. Watch out for hoarding behaviors. Be imaginative about data sources that might show you behavioral patterns inside your organization: Nearly all leaders with whom we have worked have been surprised that they have access to various kinds of data that can show collaboration patterns (e.g., project management databases used to track grant funding or product development, CRM systems that show sales pipelines).

If such data isn’t available, use pulse surveys to capture people’s self-reported actions; a well-designed three-question survey can be completed in just a few minutes and reveal places where individualistic behavior is starting to creep in. For example, it might ask those surveyed the extent to which they agree or disagree  - on a to-5 scale (1=strongly disagree; 5=strongly agree) - with these statements: 1) The group has a shared sense of purpose; 2) there is a high degree of trust within the group; and 3) colleagues regularly take credit for the work of others.

3. Connect with the front lines. Make direct contact with people down the hierarchy so you have unfiltered information about people’s actions and states of mind. (This is especially critical when people are working remotely.) Such interactions can help leaders understand how employees are coping, identify areas where risks of go-it-alone behaviors are more likely, and establish linkages among people so that they are better able to support each other. Arlene Zalayet, an executive at Liberty Mutual who has 1,800 employees in her department, recently began holding 18 check-ins a month by video with groups, including entry-level workers. In one of these town halls, an administrative worker shared how Covid-19 was affecting her African-American community, sparking an important discussion about the value of the company’s diversity efforts and what it would take to support different kinds of workers through this crisis.

4. Reinforce the business’s purpose and goals frequently. A belief that their work fulfills a higher purpose motivates people to think and act in a more collective fashion - to be more open to collaboration. Clearly understanding the business goals helps people see how their own knowledge contributes to - but doesn’t fully satisfy - the complex needs of the business.  Leaders need to lower employees’ sense of uncertainty and boost their confidence to reach out to colleagues. So even if your message hasn’t changed, you need to repeat it because the world has changed and employees need to know that the existing direction still holds.

5. Get team members to reflect on their preferred ways of working. This includes the leader. When you’re under stress, you’re more likely to retreat to your comfort zone, so it’s crucial that you think about what kinds of behaviors come most naturally to you. When the pressure builds, are you more likely to pick up the phone to commiserate and brainstorm with a colleague or to hole up and go it alone? As part of this process, revisit that behavioral assessment you completed last year. And get others’ perspectives. For instance, ask people with whom you’ve been sheltering what they’ve observed you do when you’re stressed. As team members becomes more aware of their typical styles, they can start to figure out how to use those tendencies to work more effectively as a group.

6. Play to your strengths. Rather than trying to change your natural tendencies - which is almost impossible during the stress of a crisis - focus instead on consciously using your style to improve collaboration. If you are naturally drawn to working on teams, then use your enthusiasm to foster an esprit de corps - for example, by calling out when the team has reached even a small milestone. Boosting engagement and morale isn’t “soft work”; it leads to quantifiable gains in productivity and other “hard” business outcomes. We saw this firsthand with Gillian, a senior manager at one of the Big 4 accounting firms we recently advised. She deliberately builds team members’ confidence and trust in each other’s competence by highlighting their expertise, calling out ways their knowledge helps to achieve the team’s goals and then widely sharing team-based success stories. If you share Gillian’s teamwork orientation, just be careful you don’t overdo it and join many teams at once. Be selective and focus on the highest-priority projects.

If you’re inclined to work independently, you can use that tendency to improve teamwork by helping drive execution. Sameer, a finance director at a software company that we studied, has been nicknamed the “teamwork tsar” because he’s the one most likely to point out when working as a group is worth it and when independent work will be more effective. His go-it-alone preference is a healthy counterpoint that keeps the team focused on the task when others might get bogged down in seeking consensus or when group discussion leads down an unproductive rabbit hole.

Leaders need to appreciate that it doesn’t take a single type of person to boost collaboration; they need to draw on the diversity of behavioral styles and coach each team member to play their own part in boosting cross-silo working.

7. Champion collaborative leaders and teams. Many leaders undermine their talk about the importance of collaboration when they focus praise exclusively on individual employees for hitting a sales target or working overtime. While recognizing individual effort, also acknowledge the team that helped make the person a hero by calling out the specific actions it took to provide support and the ways all of its members accomplished a goal together. Especially when employees are working from home, leaders should emphasize the role of supporting players by mentioning family members’ role in making it possible for workers to be productive.

At some point leaders should examine and address organizational structures such as compensation and incentive systems and hiring practices to see whether they support or undermine a culture of collaboration. But obviously, that will probably have to wait until the crisis has passed. In the meantime, try applying the seven strategies. By promoting cross-silo collaboration, your organization is more likely to survive the current hard times and thrive when they’re over.

Heidi K. Gardner is a distinguished fellow at the Center on the Legal Profession and faculty chair of the Accelerated Leadership Program at Harvard Law School.

Ivan Matviak is a co-founder of Gardner & Company and an executive in residence at Battery Ventures. He previously was an executive vice president at State Street Bank.

Working Parents, Your Family Needs a “Board of Directors”

by Priscilla Claman - July 08, 2020

Many of the roles we play in our lives do not fit neatly into professional and personal categories. Covid-19 has brought this into high relief, by significantly eroding the distinction between work and home. Coping with life’s challenges in this ambiguous context can become a real challenge, but there’s an office practice that can help: mentoring.

Our thinking about professional mentoring has evolved in recent years. The traditional model involved a senior-level mentor who advised and actively promoted the careers of more-junior employees, but a new and more effective model has emerged in which employees attach themselves to a whole set of mentors - a personal board of directors, as it were, that you can consult regularly to get advice and feedback on your work and career.

This new model can actually help you at home as much as it does at work. Consider expanding your personal board of directors to include people who can help you think about family issues. It should comprise people you trust, have an interest in you and your family, and have experience or perspective to share. You’ll want to select a range of people from all different aspects of your life. Since each person has their own network of contacts, choosing mentors whose networks don’t overlap will make your interactions with them more beneficial.

Here are some suggestions of people to include and how they can help:

• Someone who shares your family’s goals. This person will help you support your family ambitions. Committed teachers or coaches are possible resources. If you want your daughter to get a soccer scholarship to college, the right coach can cultivate your daughter’s talent, recommend activities to help her improve her skills, help assemble a highlight reel, and ultimately write her a college recommendation. If your son is great at academics but lonely, his junior-high drama teacher can help him develop confidence and friends as well as acting skills.
• One or more work colleagues who have families. These people can help with employer issues, such as how to ask for a raise, which departments are hiring, or which managers are sympathetic to working parents. You’ll find these colleagues through casual conversation. Notice and comment on the family photos on a person’s desk. Listen for folks who chat about their families at work in a way that you admire. Or bring in pictures of your own to share at work.
• Working parents of children the same age as yours. You’ll find lots of candidates organically through your children’s schools or activities. These parents can help you through crises great and small, such as, “Should I allow my kid to get that app?” or “How do I help the kids accept our divorce?” These parents can help you find the up-to-date resources and referrals you need.
• Working parents of children who are older than yours. Connect with at least one mentor who has children who are a school farther along than yours. If your child is in elementary school, tap someone with a middle-schooler. These mentors will give you a hint of what’s coming as well as some optimism about the future. I asked my school-ahead mentor how she was managing as the empty nester I would become in a few years. “There are some compensations,” she replied. “Like private time with my partner on Sunday afternoons.”
• Parents with children who are younger than yours. These parents give you some perspective on what you and your family have already achieved, which is easy to forget but should be a source of pride. Sharing the tactics that worked for getting your child to do her homework may help the younger parents too - whether it’s the tactics themselves or just the knowledge that your family has also struggled in this area.
• A parent you like and respect but who frequently disagrees with you. There isn’t a clear right way to handle most of what life hands working parents. When things are confusing and ambiguous and you don’t know how to act, a little disagreement from a source you respect can go a long way toward helping you understand what to do and why. I have a go-to relative for this kind of advice. Usually, 90% of the time I don’t do what he suggests as the “only reasonable” thing to do. But the discussion always helps me think it through.
• Someone who thinks you and your family are wonderful. This person is a consistent cheerleader, maybe a grandparent or special aunt, someone your family is in regular contact with. These mentors see your potential and your future. They know you can get frustrated by the day-to-day, and they can remind you of the big picture. I remember when my husband and I were trying to assemble a simple swing set. My parents-in-law were kibitzing from lawn chairs. “These things are never easy to put together. But you’re doing great! The kids are going to love it.” They were right.

Once you’ve assembled your board of directors, stay in touch - and not just with holiday cards. Connecting on social media is the easiest and most fun to do. Pictures are wonderful ways to convey what you and your family are up to. But every so often, take an extra step to reach out to say thank-you for their friendship and support. It’s important. So is letting them know how their advice turned out. It doesn’t have to be elaborate. Just an email saying, “I followed your advice and talked to her teacher. It really worked!”

But as all the writing on mentors will tell you, contributing your gifts in return is key to sustaining strong mentoring relationships. Pay it forward by contributing not just to your mentors but to their contacts and the professional or community organizations they support. Something as simple as donating to your mentor’s charity walk or buying pecans to support their kid’s school fundraiser. And if they help you with a reference to a great pediatrician, it’s easy to pay them back with a tip about a job lead.

You probably already have friends or family whom you consult when you need to, so expanding them into a board of directors isn’t difficult. It’s only a matter of being intentional about it. With a little thought and effort, your board of directors will provide your working-family juggling act with resources, information, and emotional support, as well as a sense of perspective - the gift of a new way of thinking.

Priscilla Claman is president of Career Strategies, Inc., a Boston-area firm offering career coaching to individuals and career management services to organizations. She is also a contributor to the HBR Guide to Getting the Right Job.

Research: Poor Health Reduces Global GDP by 15% Each Year

by Jaana Remes , Martin Dewhurst and Jonathan Woetzel - July 08, 2020

Covid-19 has put health on the agenda of every company. Businesses have adapted to remote work, reconfigured physical workspaces, revised logistics and supply networks, and changed operating procedures to cope with the pandemic’s effects. Never before has the direct connection between the health of the global population and our economic prosperity been so visibly demonstrated.

But what happens next? New research by the McKinsey Global Institute shows that making prudent investments in the health of the world’s population can dramatically improve people’s quality of life, protect against downside risks such as pandemics, and lead to large economic returns from increased output and productivity. The upside for the economy and society would be enormous: a $12 trillion economic opportunity, hundreds of millions of lives saved, and better health across the global population.

In a new report, Prioritizing Health: A Prescription for Prosperity, we estimate that poor health reduces global GDP by 15% each year - about twice the pandemic’s likely negative impact in 2020 - from premature deaths and lost productive potential among the working-age population.

Prevention is key to achieving health improvements. We find that 70% of the economic benefits could be achieved with cleaner and safer environments, supporting adoption of healthier behaviors, and more access to vaccines and preventive medicine. The remainder would come from treating diseases and acute conditions with proven therapies, including medication and surgery.

Making the shift to prevention is no small challenge. It would require not only shifting incentives in health systems from disease treatment to health promotion, but also making better health a social and economic priority. A focus on addressing chronic conditions such as diabetes, high blood pressure, obesity, and mental health, all massive contributors to premature deaths and lower quality of life, would be key.

What’s more, the shift to prevention can be realized at relatively low cost. We found that focusing on known health improvements such as vaccines and preventive medications for heart conditions could deliver an incremental economic benefit of $2 to $4 for each $1 invested. In higher-income countries, implementation costs could be more than offset by productivity gains in health care delivery. But low income countries would need to build out health infrastructure.

Now is the time for a health transformation. The pandemic response has demonstrated that rapid transformation of our health care architecture is possible. Rethinking patient and workforce flow in Covid-19 wards and the fast transition to digital consultations are just two examples. Plus billions of people around the world are demonstrating that behavior can readily change in certain circumstances, for instance, as they wear masks, prioritize handwashing, and reduce face-to face interactions to curtail the spread of the virus.

Furthermore, the pandemic has catalyzed fast-speed innovation and global collaboration, which if sustained could help the world address other major health conditions such as many cancers, cardiovascular diseases, and mental health disorders. As of July 2020, scientists had shared more than 50,000 viral genome sequences and almost 180 vaccines were in the pipeline, many representing cross-sector and cross-country collaborations.

Companies are playing a central role in the transformation. Health care providers, pharmaceutical companies, and the med-tech industry are at the heart of the pandemic response. They could build on recent innovations to help shape how nations remake health systems, including how collaboration and alignment of incentives can help advance broad-based health and prosperity.

Most companies outside health care are adjusting to new ways of working and serving their customers. Our research makes a strong economic case for why they should invest in the long-term health of their employees as well. In today’s work environment occupational risks are increasingly related to mental health stressors, sleep health, and high levels of sedentariness, with mental health a special concern as the pandemic and economic uncertainty take a toll. Research shows that chronic conditions, including low back pain, mental health, and migraines can reduce the productivity of workers by up to 5%. Companies should consider steps ranging from providing access to mental health resources to allowing greater flexibility in working hours and time off.

Last, companies can proactively help shape healthy communities around them. One of the most effective ways would be to invest in communities so that children can grow up and live long and healthy lives. For example, reducing behavioral health conditions among children would contribute almost $600 billion in 2040 to global GDP. Healthy children who realize their full physical and cognitive potential build the future knowledge workforce that companies depend on.

As countries emerge from the Covid-19 crisis, we have a once-in-a-generation opportunity to rethink the role of health in a post-pandemic future. Making health a priority and shifting focus to areas with highest return can improve resilience, reduce health inequity, and promote greater individual, social, and economic well-being.

Jaana Remes is a partner at the McKinsey Global Institute (MGI), McKinsey’s business and research arm. based in San Francisco.

Martin Dewhurst is a McKinsey senior partner based in London. He coleads McKinsey & Company’s Pharmaceuticals & Medical Products Practice globally.

Jonathan Woetzel is a Senior Partner at McKinsey & Company. He is the global leader of its Cities Special Initiative and the Asia-based director of the McKinsey Global Institute. He has also led McKinsey’s Energy and Materials practice in Asia and is co-Chair of the Urban China Initiative.

Adventures in Alternative Work Arrangements

by Michele Benton - July 07, 2020

Before having kids, we tend to envision ourselves as the devoted company worker, always present, fully committed, and willing to give extra effort to get the job done. But with kids come new demands, especially for the majority of us who are in dual-career households. Our commitment and career ambitions hold true, it’s just harder to fit life around traditional work structures. It would seem that alternative work programs - flexible hours, remote work, part-time salaried work, job shares, and lateral moves - create a win-win for employers, employees, and families.

Unfortunately, alternative work is a bit of a ruse. Most employers offer it, usually as part of their inclusion programs to attract quality talent (you!). But, often it’s an empty gesture as few employees ever use these options. Research in the U.S. and Europe confirms consequences we already know: using these programs means certain career death.

We desperately need these options. Not on paper, but in practice in our lives. With no yellow brick road to follow, we must find our own way forward. Here are four steps to making an alternative work program work for you:

Get real. Just because a company is recognized as a top employer for parents doesn’t mean alternative work is mainstream. Often, it functions like a glorified mommy track, and access is based on manager preference (and what works in one department may not work in yours). In developing your alternative work proposal, look around, chat with colleagues, and tap into HR to assess potential acceptance and barriers:

• Do senior leaders “get it”? How many are parents of young children or part of a dual-career couple? What unstated messages are sent about family and work?
• What types of alternative work are accepted? Is it only “work from home Fridays” or are other types commonplace? Which department or roles permit it? Are certain managers more accepting?
• What happens to people who use alternative work? How do they get big projects or promotions? Do they have a senior-level sponsor, a plan to ramp back up, or something else for support?

Make it worthwhile. Build on areas of acceptance and overcome barriers by helping your leaders realize there are different ways to show career commitment:

• Craft a value proposition. Assess what impact you have on revenue, profit, efficiency, or costs, and connect it to your proposal. For example, your part-time role saves one million dollars in outside vendor fees, working 3-days-remote delivers $300,000 in sales, or a lateral move closes a gap without costs/downtime of a temp. Be creative - for ideas, tap a finance friend.
• Talk outcomes not hours. Many cultures tend to focus on busy-ness, time, or effort when discussing work. Instead, highlight your efficient method, innovative use of resources, or creative thinking skills. (Think of yourself as a consultant who charges by project deliverable, not billable hours.) During performance reviews, champion your accomplishments and make the case for a meaningful salary increase and bonus. Steer conversations toward your bottom-line value.
• Protect what you hope to gain. If your goal is fewer hours, don’t automatically work longer than agreed or overcompensate in exhaustive frenzy while at work. If you want less intensity in your lateral position, make sure an additional project brings promotable skills or senior stakeholder visibility before you take it on. Be selective when giving discretionary effort.
• Make it normal. Avoid signaling that alternative work is wrong. You wouldn’t apologize to colleagues if you weren’t available one evening or on a Sunday morning, so don’t apologize for not working “conventional” hours. Simply state what’s possible, I’m not available Monday, but I’m open 9–2 Tuesday. Or, I can have it ready Friday, would that work? Choose words that reinforce professionalism, such as work remotely (vs. work from home), or I’m in transit (vs. I’m in my car).
• Push for career support. Seek senior-level mentors and talk up how your alternative work arrangement is creating results. Before talent discussions, check in with your manager to prepare them to advocate for you. Let decision-makers know you’re interested in high-potential leadership training and resources.

Buck gender assumptions. Even though family structures have evolved into countless variations, stereotypes of life divided between a working husband and a stay-at-home wife linger. With alternative work programs, men get the benefit of the doubt while women get punished as motherhood seems incompatible with work commitment. At home, alternative work for women usually translates into more domestic burden, like childcare or housework, but for most men, it facilitates other work arenas like training or a side gig. Consider how gender assumptions intersect with the life you’re trying to create:

• When changing job structure, be clear about what things you’re taking on outside work. Make sure you and your partner feel expectations and tradeoffs are fair, and frame shared duties the same way (is it parenting or babysitting?).
• A lot of advice today encourages women to recast their definition of success away from power and money, to things like well-being or family satisfaction, and to be at peace with dropping the ball or opting out. Define success for yourself.

Vote with your feet. Finally, if you can’t get support for an alternative program that works for you, take your talent elsewhere. Re-allocate discretionary time to job searching. In your exit interview, tell HR exactly why you’re leaving, as company execs read these reports.

When it comes to creating career opportunities that support your life and goals outside of work, your words and actions can help transform alternative work from good policy to good practice.

Michele Benton is President of lime LLC, a marketing strategy, capabilities, and performance consultancy. Fed up that society’s message to working parents is “Embrace the Suck”, she runs the blog and resource center BeSaturated.com to help contemporary professionals create a good life in today’s global, social, and digital times. Follow Michele on Twitter @michelebphd

How Businesses Have Successfully Pivoted During the Pandemic

by Mauro F. Guillén - July 07, 2020

The nearly instantaneous economic recession triggered by the Covid-19 shutdown has wreaked havoc on businesses large and small. Our very way of life is also said to be threatened. On the basis of sweeping proclamations about “the end of commuting,” “the demise of retail,” and “the collapse of globalization,” many executives have come to assume that everything will change. Accordingly, the recipe for survival is supposed to be a thorough transformation of the entire company - or else a bankruptcy filing.

The reality of how companies are dealing with the crisis and preparing for the recovery tells a very different story, one of pivoting to business models conducive to short-term survival along with long-term resilience and growth. Pivoting is a lateral move that creates enough value for the customer and the firm to share.

Consider Spotify, the global leader in music streaming. In principle, this type of platform has all the ingredients for success in the lockdown economy: customers trapped in their homes who would like to escape from a depressing reality by listening to songs seamlessly streamed to a playback device without any need for physical distribution.

And yet the Swedish company struggled to find a pivot that would enable it to overcome a basic issue: Unlike Apple Music, Spotify disproportionately relies on free users who must listen to advertisements. Before the pandemic, the company figured that advertising revenue would grow even faster than the free user base, thus making a key contribution to the bottom line. Although the model was already showing some signs of maturity, its limitations did not become readily apparent until the pandemic hit and advertisers cut their budgets.

One pivot Spotify made in response was to offer original content, in the form of podcasts. The platform saw artists and users upload more than 150,000 podcasts in just one month, and it has signed exclusive podcast deals with celebrities and started to curate playlists. The shift in strategy means that Spotify could become more of a tastemaker. At long last, the company is doubling down on Netflix’s not-so-secret recipe for success in a business in which copyright owners enjoy healthy margins while pure-play streamers struggle to become profitable.

Pivoting definitely works for digital platforms, but does it help traditional businesses? Let’s examine the world of restaurants. They have been battered by the lockdown, with many owners pondering whether to close for good. The usual way to think about restaurants includes envisioning a seating area next to a kitchen. However, restaurants are kitchens whose output can be delivered to customers in a number of ways and using various kinds of business models. Eat-in, take-out, delivery, and catering are just the tip of the iceberg.

One pivot would be to offer a flat rate for a set number of meals per week or per month, with limited menu choices. Restaurants could increase their margins as they learned how to manage captive demand. Another pivot would be to offer a combination of precooked dishes with sides or additions that could be prepared at home using ingredients supplied by the restaurant. The restaurant could send a link to a video that walks the customer through preparation, thus incorporating an experiential and learning element. Deliveries could be in amounts large enough for several meals in a given week. Both pivots would lead to a greater variety of business models, which could become a permanent feature of the restaurant landscape, especially if the trend toward remote work from home consolidates over the long run.

The crisis has also led to broken supply chains, as reflected in the ominous images of empty supermarket shelves - a void that presented small farmers with a unique opening. After seeing their sales to restaurants and specialty stores plummet during the lockdown, many small-scale farms have set their sights on the needs of the homebound consumer. This pivot requires investments in information technology, marketing, and logistics that could prove profitable over the long run if the trend toward shorter supply chains gains momentum. Alternatively, some farmers and local stores are flocking to Shopify, the Canadian e-commerce platform, which has seen a boom in e-commerce activity at distances of less than 15 miles between sellers and buyers - a segment of the online market that behemoths like Amazon have traditionally neglected. Shopify’s key pivot has been to offer a comprehensive cloud-based bundle of services that help vendors manage expenses, pay bills, anticipate cash-flow problems, and optimize deliveries.

We’ve also seen large incumbent companies pivot during the crisis. As demand has soared for essential products, consumer-goods powerhouse Unilever has pivoted to prioritize its packaged food, surface cleaners, and personal hygiene product brands over other products, such as skin care, where demand has fallen. The company does not yet know which changes might become permanent. If the upswing in remote work endures, Unilever might find that some of its pivots will remain in place. In fact, the move toward in-home consumption might require a repositioning of not only food brands but also personal care offerings.

An even bigger threat to established brands is consumers’ increased willingness to experiment with different offerings during the crisis. Consumers are holding brands and companies to a higher standard than previously, favoring those perceived as doing more for society. Companies like Unilever and Procter & Gamble, whose portfolios include hundreds of brands, have no choice but to pivot in response. Brand loyalty can no longer be taken for granted, and brand repositioning may be necessary in many cases. But brand purpose and messaging will need to be laterally tweaked, not overhauled, because consumers are becoming more interested in safety, experience, and comfort as a result of the pandemic.

Not all pivots result in good business performance. Three conditions are necessary for such lateral moves to work. First, a pivot must align the firm with one or more of the long-term trends created or intensified by the pandemic, including remote work, shorter supply chains, social distancing, consumer introspection, and enhanced use of technology. For instance, if social distancing remains the rule for the near future, the casual dating platform Tinder will need to follow competitors Bumble and Facebook Dating in offering video dating.

Second, a pivot must be a lateral extension of the firm’s existing capabilities, cementing - not undermining - its strategic intent. Faced by the sudden collapse in travel, Airbnb moved swiftly to help hosts financially and connect them with potential guests. Hosts can now offer online events focused on cooking, meditation, art therapy, magic, songwriting, virtual tours, and many other activities, with users joining for a modest fee. This pivot represents one more step in Airbnb’s evolving approach from its traditional business model of facilitating matches between hosts and guests to its move to become a full-range lifestyle platform. In the future, online experiences could help travelers discover new destinations and on-site activities and help hosts offer better service. Airbnb could become a platform that people use not just to arrange their next vacation but to develop a cosmopolitan mindset throughout the year, learning about other cultures from a distance and celebrating the diversity of the world on a daily basis.

Third, pivots must offer a sustainable path to profitability, one that preserves and enhances brand value in the minds of consumers. The economic crisis triggered by the pandemic does not necessarily spell the end of entire industries or companies. It does weed out business models that fail to pivot toward the new reality characterized by shorter value chains, remote work, social distancing, consumer introspection, and enhanced technology use.

Mauro F. Guillén is a professor at the Wharton School and the author of the forthcoming book, 2030: How Today’s Biggest Trends Will Collide and Reshape the Future of Everything.

Research: How Workers Shift from One Industry to Another

by Michelle R. Weise - July 07, 2020

With unemployment claims in the United States now reaching more than 45 million, the pandemic is laying bare the great deficiencies of the American education and workforce infrastructure, which has never been well-suited to helping low-wage workers navigate to higher economic ground.

Prior to the pandemic, my team of education and workforce researchers was focused on how and why millions of workers displaced by the 2008 financial crisis did not recover economically, while the top 1% of the U.S. labor market captured 85% of the income growth in the years that followed the Great Recession.

Over the course of more than 100 hour-long interviews, we heard working-age adults say things like: “Where do I turn?”; “There’s no roadmap”; and “I had no GPS.” One after the other, whether in Austin, Providence, or Washington, D.C., these people wished for more guidance - someone to point them in the right direction after a big setback. The ability to find a new job and become upwardly mobile has little do with skills or ambition. Rather, low-wage workers lack access to relevant and actionable information to navigate unexpected job transitions.

Today, millions of Americans who labored in retail and hospitality jobs, which remain decimated by the stay-at-home directives issued during the Covid-19 crisis, might need to pivot to new fields in search of employment.

Transitioning from one industry to another, rather than advancing in a more linear way from role to role within a specific occupation or field, presents an economic chicken-or-egg problem that has long frustrated job seekers and labor market economists alike. Hiring managers typically demand that workers demonstrate the exact skills and work experience “required” to do the jobs for which they’re applying. But outside of formal education and training programs, there aren’t easy ways to endorse the acquisition of skills that are transferable between industries or to validate skill similarities and put them into neat packages that employers recognize. According to a National Bureau of Economic Research working paper released before social-distancing measures took effect, we already had 71 million low-wage workers without degrees but with the abilities to perform higher-wage work who were consistently overlooked by employers.

Enabling pivots into new fields is a wholly different challenge from the one we faced during the Great Recession. But unlike in 2008, we now have ways to chart a more equitable recovery and to guide state and federal investments to get Americans back to work faster.

Decades of digital breadcrumbs left by online job postings and applicant tracking systems, used by most employers to sort and filter candidates, have given rise to a new breed of AI-enabled labor market information that enables us to identify on-ramps - and lane changes - to opportunity for our most vulnerable workers.

We can now map the trajectories of people who have successfully made the leap to different industries and higher-wage roles. And we can see which skills have been particularly valuable in propelling job transitions across fields.

These three charts from the labor market analytics firm Emsi show some of the shifts made by thousands of workers in three industries from 2010 to 2020. The data tracks people’s first major job transition three years after their first stable job -  one in which they had worked for more than 90 days.

The first chart shows that out of a sample of 6,813 hospitality and food services workers, 138 (2.0%) jumped to human resources roles. In a more detailed analysis of those social profiles and resumes, we can see that those job seekers successfully navigated their transitions by adding complementary skills such as talent sourcing and payroll and benefits administration to the skills they already had. Developing skills in fundraising, event management, and relationship building enabled 344 (5.0%) to move into marketing, advertising, and public relations, while 129 (1.9%) pivoted to business analysis and operations.

The chart above surfaces lane changes for workers starting in retail. Out of a total of 10,708 retail workers, 328 (3.1%) moved into accounting and finance by layering on skills in auditing, risk analysis, and compliance; 534 (5.0%) were able to move to human resources; and the largest set of transitions shifted 1,126 retail workers (10.5%) to marketing, advertising, and public relations.

If these percentages seem low, that’s precisely the point. Relatively few workers have successfully navigated career pivots across domains. Sadly, these shifts tend to reflect labor market exceptions rather than the rule. Workers are charting paths that are idiosyncratic rather than prescriptive.

Despite their infrequency, however, transitions to better opportunities are doable, and they’re critical to track. Capturing the skills that workers add to the transferrable skills they already have offers a roadmap we can begin to replicate for other workers so that they can navigate to better jobs with higher-than-average earnings.

This is true even in industries that may appear to have few opportunity for career pivots. For transportation workers, as an example, we might assume (and the data bears this out) that a great many workers stay in transportation and warehousing.

From a sample of 3,066 transportation workers, 921 (30.0%) stayed in the same field. Yet we can capture anomalous movements into other industries. Hundreds pivoted to production and manufacturing (6.7%), marketing (5.7%), or sales (7.2%), advancing to higher salaries ranging from $61,429 to $90,306 per year.

We can see how and where investments in the development of new skills can move entire categories of workers into better-paying work. Displaced workers do not have to start from scratch. A retail worker might be 80% of the way toward a role in human resources. A server might be 30% of the way toward an in-demand role as a network analyst. Now more than ever, newly laid-off workers in these fields need to see their own potential and a way forward.

It’s hard for learners to evaluate the economic returns associated with some 4,000 degree-granting colleges and universities and more than 700,000 unique credentials. But through this new lens on career trajectories, we can begin to build more targeted, precise, and cost-effective training experiences that can lead to exponential gains in wages.

Companies including SkyHive, AstrumU, FutureFit AI, and Emsi have all been working on artificial intelligence-driven platforms that enable better navigation. They’re using data to help workers recognize their skills gaps and figure out how to fill them through various educational content engines, such as massive open online courses (MOOCs), employers’ own training and development content, Pluralsight, and other forms of digital learning.

Against that backdrop, policymakers should take note of research suggesting that investments in not just education and training but also navigation can boost social mobility. The data tells us that investments in the first two are a necessary but insufficient component of the public sector’s crisis response. By illuminating already-trodden pathways, we can reproduce them through more-precise reskilling opportunities optimized for local labor markets and ultimately enable greater career mobility as we recover from the next recession.

Michelle R. Weise, Ph.D., is an entrepreneur-in-residence and senior advisor at Imaginable Futures, a venture of the Omidyar Group. She is the former chief innovation officer of Strada Education Network and Southern New Hampshire University, as well as the co-author with Clayton Christensen of Hire Education: Mastery, Modularization, and the Workforce Revolution.