Delivery Apps Need to Start Treating Suppliers as Partners

by Scott Duke Kominers and Ian Macomber - July 03, 2020

Six months ago, on-demand home delivery was far from mainstream - a luxury for those willing to pay for convenience, skewing towards young professionals in major cities. The Covid-19 crisis changed that, almost overnight. Now everyone is ordering everything from household staples to ice cream on-demand. Existing delivery services like DoorDash and Instacart have stepped up operations, and new entrants have appeared as well; the payments platform Toast, for example, announced its own delivery offering. But there have been growing pains: food delivery companies have struggled with margins, and even marketplace giant Amazon has had to delay Prime Day, its annual sales bonanza.

This upheaval, and the windfall it has brought to certain companies, also presents a novel business challenge: delivery service marketplaces have inverted from demand-constrained to supply-constrained almost overnight. As recently as mid-March, most of those marketplaces were focused on growing market share. Suddenly, customers are showing up in droves - a survey on food delivery run by Brick Meets Click/Mercatus, for example, shows more than threefold customer growth relative to August 2019. The resulting increases in ordering have left platforms scrambling to build more fulfillment capacity.

While some of the challenges of meeting new demand are logistical, there are also reputational dangers to firms that get this moment wrong, as controversies around fees charged by companies such as UberEats and Grubhub illustrate. What’s clear, however, is that the current dynamics are changing the way suppliers are thinking about e-commerce and could be the key to a new, marketplace-driven retail future. As such, now is the time for marketplaces to help their suppliers invest in the infrastructure and business practices that will enable them to compete in a world in which having a delivery sales presence is essential. 

One of us (Kominers) studies the design and operation of marketplace businesses; the other (Macomber) is the director of analytics at Drizly, the world’s largest alcohol delivery marketplace. No one knows how long the Covid-19 crisis will last, but, at least from where we stand, it’s clear that retail won’t be returning to normal anytime soon. And with consumer awareness and utilization of delivery options at an all-time high, delivery demand is likely to persist even after the pandemic is over.

The Shift to Delivery

Drizly is a prime example of a platform being transformed by market inversion. Since March 2020, the company has seen 500% growth rates with hundreds of thousands of new buyers joining the platform. At the same time, there have been inventory stockouts, closed stores, and supply chain disruptions due to Covid-19 - all while the customer service team has been inundated with order volume. That’s consistent with the experience of other mid-size delivery platforms - and even that of Amazon. These platforms have had to switch their focus overnight and develop expertise around the new supply-side constraints.

For Drizly, this has meant a less immediate focus on customer acquisition and retention and more investment in metrics and technology for supporting retailer operations. Pre-crisis, for example, a common complaint on the platform was that drivers weren’t receiving enough orders. Now, those same drivers are overwhelmed with demand, and Drizly has had to figure out how to build product solutions to help stores balance their delivery loads.

Part of the struggle here is that many suppliers didn’t have the infrastructure set up to make delivery work at scale. Until this spring, e-commerce was still a relatively small chunk of the overall alcohol market (2–4%, depending on whom you ask). As a result, platforms like Drizly weren’t a core part of their suppliers’ revenue or in-store operations. Store layouts were optimized for foot traffic, which often made delivery fulfillment unwieldy. (Imagine pulling an order from aisles designed to maximize product discovery, impulse purchases, and time spent in-store!)

But now, it’s worthwhile for suppliers to invest in supporting delivery directly. That’s already happening organically: With in-person retail restricted or outright eliminated, suppliers have been reimagining their store layouts and operations around online fulfillment. More broadly, the crisis has presented an opportunity for “mom-and-pop shops” - including liquor stores - to modernize their technology and pivot their business models towards “omnichannel retail,” simultaneously leveraging marketplace platforms, a self-managed online presence, and traditional in-person sales.

A Bigger Role for Marketplaces

On-demand marketplace businesses are well-positioned to help their suppliers manage this transition. Today, couriers often pack orders from the same shelves as in-store customers and check out using the same cash registers. But once delivery becomes a substantial fraction of a store’s sales, those orders shouldn’t be processed that way; leveraging cross-store learning, marketplaces can help coach suppliers on more efficient fulfillment. They can identify and share best practices around staffing, store layout, and delivery processes. And they can provide technology solutions to help small businesses optimize their operations around delivery, with, for example, cloud-based inventory logs and modern point-of-sale systems.

Marketplace platforms have vision into the whole market, which enables them to predict demand - an advantage they should use to the benefit of their suppliers. Third-party delivery companies can help improve stores’ operational efficiency by structuring a balanced mix between scheduled and on-demand orders and forecasting when to schedule extra drivers on an hour-by-hour basis. They can also increase capital efficiency by helping stores match inventory levels to predicted future demand. In the long run, marketplaces could use their overview of the market to help retailers get closer to an “ideal world,” with exactly the right products on the shelves, and driver teams staffed in direct proportion to order volume. These improvements benefit both parties but require information sharing and communication on the part of platforms.

Shared Benefits

When suppliers become better-optimized around marketplace transactions, the consumer experience on the platform improves, too - often due to increased availability, selection, and price options. Drizly has found that having more stores to choose from and better inventory overall results in much higher conversion rates: a customer with three stores and 1,000 items to choose from spends 67% more per session than a customer facing just one store with 300 items. Plus with suppliers better-optimized for delivery transactions, those orders are processed more smoothly, and with fewer errors, all of which improves the customer experience. If platforms can help their suppliers invest in these sorts of improvements, that will translate into stronger consumer engagement post-crisis.

Meanwhile, for now, delivery marketplaces’ overall consumer value proposition has changed. Before Covid-19, a delivery service’s product-market fit was mostly determined by convenience, speed, and price. Now, by contrast, safety, availability, and breadth of selection are priorities. Customers are placing bigger orders and are comfortable with longer lead times. (Drizly’s “acceptable”  estimated-time-of-arrival windows have widened, and both Instacart and Amazon have delayed order windows by days.) This means many marketplaces can swing economic incentives back towards the supply side. Platforms can lower their take rates to increase supplier participation - especially among chains and other established supplier networks. They can also shift customer service efforts to prioritize responsiveness to retailers and allocate developer resources towards solving suppliers’ operational problems.

On the consumer side, increased order minimums make sense where they wouldn’t have before: a liquor store can’t justify taking an $18 order when there are many $50+ orders in the backlog. Likewise, some fees should be shifted over to the consumers, since they’re now the “long” side of the market. In particular, it might make sense to institute per-order delivery fees, to encourage consumers to place large delivery orders instead of more frequent small ones, as well as to make it more valuable for a retailer to take an additional order. There’s also leeway to make delivery windows wider and more variable to increase the ease of routing and batching orders.

This transition may be especially necessary in the rapidly maturing food delivery space, where the tension between restaurants and delivery companies has increased during the Covid-19 lockdown, and high supply-side fees have come under scrutiny. One restaurant had its Grubhub receipt go viral after showing a take-home of $376.54 on $1,042.63 worth of orders (although some have pointed out that the gap narrows after accounting for order adjustments and promotional discounts). Meanwhile, the San Francisco mayor temporarily capped delivery fees at 15%, and DoorDash and Caviar have reduced commissions, while GrubHub has deferred payments. Food delivery marketplaces’ supplier-weighted cost structure may have worked when restaurants saw having a small stream of delivery orders as a promotional subsidy for in-person traffic - but it isn’t working in the current, supply-constrained marketplace environment.

Bars and restaurants will eventually reopen on a broader scale, and consumers will become comfortable shopping for goods in person again. But the supplier networks that Drizly and other marketplace platforms build will remain. When platforms invest in suppliers as partners, those suppliers will come out of the crisis stronger. And they’ll be better-optimized for online transactions, broadening marketplace offerings, and improving the customer experience in the long run. It’s a three-way win - for suppliers, platforms, and consumers.

Scott Duke Kominers is the MBA Class of 1960 Associate Professor of Business Administration in the Entrepreneurial Management Unit at Harvard Business School, and a Faculty Affiliate of the Harvard Department of Economics. Prior to that, he was a Junior Fellow at the Harvard Society of Fellows and the inaugural Saieh Family Fellow in Economics at the Becker Friedman Institute.

Ian Macomber is the Director of Analytics at Drizly Group, the world’s largest alcohol delivery marketplace. He received an MBA with Distinction from Harvard Business School in 2019. Prior to Drizly, Ian worked on recommendation and pricing algorithms for Wayfair, and marketplace auction models for Zillow.

Gig Workers Are Here to Stay. It’s Time to Give Them Benefits.

by Alex Rosenblat - July 03, 2020

Over 48 million Americans have applied for Unemployment Insurance (UI) in the wake of the Covid-19 pandemic. And though ridehail drivers are considered “essential” workers, Uber’s business dipped by 80% in April as shelter-in-place orders kept passengers at home. As demand for rides has plummeted, many ridehail drivers have also become uneasy about continuing to work because of the health risk to themselves, their families, and their passengers.

Julie*, based in Cincinnati, has enjoyed driving for Uber for the last four years. She’s proud to be the sole breadwinner for herself and her 16-year-old daughter, but she was scared to continue even after switching from passenger to food delivery. “I applied for unemployment because I delivered to four different houses and each of the people tipped me just a little over a dollar and I’m sorry, but my life is not worth that,” she explained.

Historically, gig workers like Julie have not been eligible for unemployment benefits. But in March, the federal CARES Act extended Pandemic Unemployment Assistance to independent contractors such as gig workers (an outcome that Uber lobbied for). Julie added, “I don’t feel it would be anyone’s responsibility for my finances except myself. I am so grateful for the help, but I feel absolutely awful for having to take it. I would much rather be out driving people around and pointing out all the cool stuff and history of Cincinnati!”

While labor advocates support getting financial assistance to gig workers, many worry that interventions like Pandemic Unemployment Assistance will validate Uber’s contentious claim that their drivers should be classified as independent contractors, not employees. These concerns are legitimate, but they also overlook a larger public policy opportunity to make gig work in the U.S. work better for everyone. This crisis is a chance to update our benefit and safety net systems for how people actually work (and sometimes don’t work) right now - we shouldn’t let it pass us by.

To be sure, classification isn’t just a matter of terminology. Categorizing drivers as independent contractors has long enabled Uber and Lyft to avoid paying employee payroll taxes for their drivers, taxes which fund benefits like state and federal UI programs. This means that taxpayers are effectively subsidizing many gig employers under the CARES Act, and state budgets are losing out on a significant source of revenue. New Jersey, for example, alleges that Uber evaded taxes and incurred fines amounting to $650 million by misclassifying their drivers. Similarly, California may have missed out on $413 million in contributions from ridehail companies to its rapidly depleting UI fund.

However, despite these costs, the biggest threat to the American economy right now is mass unemployment, not misclassification. This crisis is an opportunity for policymakers to break out of the contractor-employee binary by creating a permanent social safety net that would cover all types of workers. This would let companies like Uber (along with other employers) off the hook for the costs of traditional employment. But as more people seek out gigs to make ends meet, it could significantly improve economic security for independent workers.

After all, this is bigger than just ridehail. During this recession, as in previous ones, firms that are struggling themselves will likely increase their reliance on subcontracted and gig labor rather than hiring full-time employees. Today’s gig economy sprung from the last recession, and these gig work platforms - which offered a job to anyone who wanted one - emerged as a lifeline for many facing financial instability. This trend is likely to be even more pronounced as the current crisis is pushing many people to search specifically for non-traditional forms of employment that can be done from home.

Ultimately, gig work exists because companies, workers, and customers all benefit from it. In the past, even when Uber blatantly evaded transportation and employment laws, regulators hesitated to crack down because both shutting down popular services like ridehailing and eliminating jobs with a low barrier to entry were understandably unpopular stances. We can anticipate that as states reopen for business, politicians will once again encourage people to find or create any job they can to mitigate mass unemployment. And Uber’s gig economy model, despite its flaws, is excellent at one thing: connecting a worker in need of a job with a customer who wants a service.

To be sure, there are major problems with the gig work system - and the current interventions are an imperfect solution to the financial precariousness that stems from both misclassification and mass unemployment. The unemployment insurance that’s currently available to gig workers, along with other temporary benefits, is just one of the rights employee status confers on workers. A temporary emergency bailout of gig employers’ UI obligations does not make obsolete that entire bundle of rights, which includes OSHA protection, overtime pay, collective bargaining, and more. In addition, the current status quo of misclassifying drivers puts employers who do pay their employment taxes at a disadvantage.

Given the unemployment landscape we’re facing, however, we need to acknowledge and plan for the reality of a rapidly expanding gig economy. Instead of hoping in vain for gig employers to reclassify their workers as employees, we should accept that the gig model will only become more entrenched, and as such we should focus on expanding the temporary gains gig workers have seen during the pandemic into a permanent social safety net. This will likely necessitate corresponding changes in how companies that rely on gig workers, such as Uber, pay into that system. Uber has signaled their willingness to make compromises, such as supporting portable benefits, so if policymakers can meet them in the middle with a new model for taxing employers, it could create a more stable foundation for all gig businesses.

The pandemic has demonstrated that workers’ access to UI - not to mention other vital benefits - shouldn’t depend on their employer’s classification choices, and that it is entirely possible for the benefits of employment to be detached from any particular job. Some labor scholars suggest that the longer-term solution to fissured or sub-contracted workplace relationships - as well as other threats to formal employment, such as automation - is to shift certain costs of employment from employers onto society at large. Instead of pushing gig employers to reclassify their workers (which is unlikely to be successful on a national scale, given the significant financial disincentives in place), we should think more broadly about delinking healthcare, unemployment insurance, and other vital benefits from specific forms of employment, while providing a protective labor standard for all workers that includes collective bargaining (even for self-employed workers), OSHA, and other workplace rights.

Creating buffers, from extended UI to a universal basic income, that support a baseline of broad economic security for all working people (including those who cannot or should not go to work due to health concerns, layoffs, or any other valid reason) could improve the status quo for workers across the wider spectrum of low-wage and unstable work. The CARES Act shows that there is bipartisan support for distributing public resources more equitably among workers. It’s time for lawmakers to think bigger, and work towards making permanent changes that protect all vulnerable workers - regardless of their employment status - through this crisis and the next.

Alex Rosenblat is the author of Uberland: How Algorithms Are Rewriting the Rules of Work. She is a Senior Researcher at the Data & Society Research Institute and a Fellow at the Aspen Institute’s Tech Policy Hub.

Turn Your Covid-19 Solution into a Viable Business

by Dirk G. Schroeder - July 02, 2020

As the challenges associated with the coronavirus pandemic mount, there is no shortage of innovative entrepreneurs who have stepped up to help. During March and April 2020 alone, virtual Covid-19-innovation competitions (aka hackathons) drew in tens of thousands of participants from 175 countries.

From the Atlanta high school student who started an organization delivering free meals to front line hospital workers, to a group of Colombian engineers building low-cost ventilators from scratch, innovators worldwide are creating novel solutions to the problems caused by the pandemic. And many are looking to turn their Covid-19 inspired innovations into sustainable businesses that will continue on past the immediate crisis.

As an entrepreneur who co-founded, built, and sold a mission-driven company, and a professor of social enterprise and global health at Emory University, I’d suggest that today’s Covid-19-inspired innovators take four key steps if they want to turn that project into a viable business for the long term.

1. Determine whether your innovation is addressing a long-term problem.

The best innovations are created in response to specific, urgent, and sizeable problems. In some ways, the Covid-19 crisis has made our most urgent problems and their potential solutions more obvious. For example: Health care providers needed masks; production facilities were idle; workers were furloughed and needed jobs. A social enterprise could address all three of these urgent problems simultaneously: Train workers to make masks in underused production facilities for health care providers.

But will this cluster of problems still need your solution three to five years from now?

Some coronavirus-inspired entrepreneurs are building on existing trends that have been amplified and accelerated by the pandemic, such as the explosive growth in telehealth, remote patient monitoring and the use of AI in health care. One MIT Covid-19 Challenge winner, for example, built a model to track the national distribution of critical medical supplies for hospitals in highest need. The efficient distribution of healthcare supplies is obviously an urgent problem today, but even beyond the current crisis, will be of value to healthcare systems that need to reduce waste and lower costs. On the other hand, some Covid-19 inspired organizations have been established in response to problems that are urgent and important today but are unlikely to be as critical once circumstances change. Free meal delivery services that were started to help health care workers may fall into this second category.

In order to determine whether your new product or service is addressing a long-term or short-term problem, I recommend that entrepreneurs start by looking to the past. Construct a market-opportunity analysis using data from 2019 and earlier. Was the problem you are addressing now a problem then? And, if so, how big was it? Next, list what specifically changed with the emergence of Covid-19 that created or amplified this problem and the need for your innovation.

For example, the need to care for patients from a distance, a problem solved by telehealth and remote-patient monitoring, certainly existed prior 2020. What changed with Covid-19 were the widespread stay-at-home orders, more widely available video and home-based technologies and, in the case of telehealth, changes in regulations and reimbursement, which, together, have led to a tremendous demand for these services.

2. Identify your long-term market.

The next step is projecting whether there will be a large, passionate market for your product or service in a post-Covid future. Research conducted by CB Insights prior to the pandemic found that a lack of market demand was the most common reason for failed startups’ demise, with 42% of companies citing it as a contributing cause.

I came close to becoming a member of the “failed-startup-founder club” myself 20 years ago when I relinquished tenure at a top university to co-found an early digital health company. Our mission was to build an online health resource for Latin America. Soon after we incorporated, however, we realized that there were only a couple million Spanish-speaking consumers online at the time - a market too small to build a viable business around. On top of that, we made another mistake common to rookie entrepreneurs: We were too focused on the technology, and not enough on the customer.

User-centered design has taught us that a key to building a lasting business is having a deep understanding of who your customers are and how your product or service fits into their world.

As a Covid-19 inspired entrepreneur, ask yourself two questions: Are you delivering an innovation that your customers are passionate about? And will there be a large enough number of these passionate customers to grow a business once coronavirus is under control?

3. Proactively pivot, if you need to.

If you determine that your current target market may not be large enough in a post-Covid future, you may need to pivot, like we did.

For the first five years of our company, we kept the lights on by selling translation and marketing services to U.S. hospital systems that served Hispanic patients, buying ourselves time until the market of Spanish-speakers passionate about health information eventually grew to half a billion people.

If it’s your turn for a strategic pivot, do whatever you can to pivot early, proactively, and thoughtfully. There are ample stories in the media these days of startups that are pivoting - but are doing so reactively in a frantic scramble for survival.

4. Map your business model.

Many of today’s Covid-19 inspired innovations are being given away for free, or are supported by donations, as is appropriate during an emergency. The leaders of these startups should be aware that contributions to non-profit organizations that are not Covid-19 centric are way down. Maintaining a donation-exclusive organization over the long-run in the face of today’s economic circumstances will likely be difficult.

Covid-19 inspired innovators should consider revenue models native to the field of social entrepreneurship. Social enterprises have a dual mission of social impact and financial growth and have developed an array of business models to achieve these parallel goals. For example, a Covid-19 inspired innovator in the U.K. is using the “buy one, give one” sales model to distribute the newly invented “hygienehook.”

Today’s entrepreneurs who are working on mapping their business model should also look to the past, when other economic disruptions similarly forced many companies to rethink their businesses. During the “great recession” of 2008, for example, Mark Johnson, Clayton Christensen, and Henning Kagermann presented a framework for reinventing your business model that is as relevant today as it was then. I suggest today’s entrepreneurs use this framework to define their company’s customer value proposition (CVP), profit formula, and the key resources and processes needed to deliver the offering as they navigate a future that is likely to demand novel solutions for some time to come.

The Covid-19 pandemic has clearly confirmed the maxim that crisis breeds innovation and opportunity. We have been reminded that WWII yielded the first programmable digital computers as well as unexpected discoveries like super glue.

It is unclear at this time which of the tens of thousands of Covid-19 inspired entrepreneurs are creating products and services that will succeed in the long-term, but by going through these steps, more of today’s innovations will be the ones that people are using years and decades from now.

Dirk G. Schroeder, ScD, MPH is an Associate Professor of Social Entrepreneurship and Global Health at Emory University, the CEO of Updraft Health Innovation Advisors, and the Co-Founder of HolaDoctor Inc., a Spanish-language, digital health company. Learn more at www.dirkschroeder.com.

Sponsoring a Protégé - Remotely

by Sylvia Ann Hewlett and Kennedy Ihezie - July 02, 2020

For the past three months, executives have scrambled to manage through the ongoing crisis. Many have found creative ways to lead teams and listen to clients and customers in a world where face-to-face contact is impossible.

Despite the transition to remote work and economic uncertainty, career development doesn’t stop. It’s important to meet the needs of top junior talent looking to ensure careers aren’t stalled. Remember that young stars are mobile - in 2002 and again in 2008, it was the top producers on Wall St. and on Main St. that were lured away by competitors eager to show them more “love” through leadership development opportunities as well as higher salaries. In sharp contrast, poor performers tended to stick around. They had nowhere else to go.

To retain and fully realize the brightest and the best - and to secure the current and future success of your organization - managers and executives must prioritize sponsorship. They need to figure out how to continue to invest in a small, diverse portfolio of high performers using virtual tools and tactics.

The value of winning a sponsor is well known: A junior manager with a sponsor is 21% more likely than a junior manager without a sponsor to progress to the next rung of the career ladder. The other side of the relationship is just as promising: A manager or executive with a protégé is 53% more likely than a manager or executive without to progress to the next rung of the career ladder.

But the benefits aren’t just at the individual level. According to research by the Center of Talent Innovation, when at least a third of managers and executives proactively invest in a small portfolio of diverse protégés that include at least two individuals who are of a different identity - which happens in only 22% of companies - that company is 45% more likely to see improvement in market share and 70% more likely to capture a new market. This research traces the precise link between diversity and innovation and is a rich source for both data and case studies.

Whether you are an up-and-coming talent or an established leader, becoming a sponsor and having a protégé are great investments for individuals and companies, and these relationships can be built successfully, even in virtual working environments. Here’s how.

Make It Reciprocal

A protégé needs to give as well as get. This exchange of value and respect reflects the foundational premise of sponsorship. The biggest shift for a manager moving from being a mentor to being a sponsor is taking on board and actualizing this two-way street.

Sponsors value high performing junior talent who leave their ego at the door. In mid-2020 when so many business models are under stress, it’s particularly important for a protégé to pitch in and do whatever it takes to enable the team to hit a target or deadline. Putting up your hand to fix a tech snafu, or proactively reaching out via phone or Zoom to soothe a needy stakeholder, will improve your stock and standing.

A high-performing junior talent often has skillsets or life experiences that are not known to a sponsor. This is particularly true when the sponsor/protégé relationship crosses lines of gender, ethnicity, or any other line of difference. An efficient tactic here for a time-starved sponsor (and most managers are overloaded in these difficult times) is to ask your pick to create a one-page detailed inventory of their assets. This will allow you to better visualize the value being brought to the table. Ask your protégé to stress skillsets and experiences that are not currently on offer in the team, and make sure to include contacts and networks outside of work in the wider business world. This tactic is particularly helpful to sponsors who want to have a line of sight into potential of a junior talent of a different identity, someone who is not a “mini-me.” An inventory of assets often includes military service and not-for-profit leadership roles, as well as more predictable elements such as a language skill or global experience.

Demonstrate Commitment

Sponsors demonstrate full commitment to a protégé when they “use up a chip” on behalf of the junior talent. Reach out to a senior colleague or an important client (via phone or Zoom), talk up the impressive skill sets of your protégé, then make a watertight case for why they should be considered for a specific big opportunity. Vigorous advocacy is made easier if you have an inventory of your protégé’s assets in hand.

Alternatively, identify a project that your protégé may not have been included in prior to remote work and invite them to participate. As the project kicks off, make sure to introduce your protégé with respect and enthusiasm (perhaps in the first conference call) lifting up key strengths and outlining the value add this bringing to bear. Again, having an inventory of your protégé’s assets at hand is enormously useful.

Emphasize Gravitas in One-on-one Meetings

No matter how high performing, most protégé need to grow their soft skills. Top of list is learning how to project gravitas - how does a junior talent convey that they know their stuff cold? Working from home precludes modeling leadership behavior in person, but sponsors are becoming inventive, leaning on external resources (a remote media coach can be a life saver for protégé facing a high stakes virtual presentation) and plunging in themselves with 30-minute targeted coaching via video chat. Over the last few months we’ve interviewed executives across a range of sectors, including finance, tech, and media, and found out what dimensions of the gravitas they zero in on most frequently in their virtual coaching sessions. Among the top traits are decisiveness, authenticity, confidence, likability, poise, grace under fire, and vision.

Of course, successful sponsors focus on tone as well as tactics when investing in protégés. Conveying respect for junior talent whatever their background or identity, demonstrating sensitivity, and communicating informed empathy are critical behaviors for any manager seeking to sponsor a portfolio of diverse talent because these behaviors engender trust - a foundation stone of reciprocal, fully aligned sponsorship relationships. These issues of tone and trust are particularly important in a time when the country faces mounting racial and equal opportunity challenges. Sponsors are well advised to put these values center stage.

Creating or continuing a trust-filled, mutually beneficial sponsorship relationship is difficult in a remote setting - but it is possible. A manager or executive needs to be much more self-conscious about how to celebrate a protégé, even as they engage more in a conference calls or virtual meetings, where face-to-face options aren’t available. One senior executive gave us this golden rule: “Place the word respect in the center of your brain, and the details of inclusive interaction in cyberspace will fall into line.”

Sylvia Ann Hewlett is an economist and the CEO of Hewlett Consulting Partners. She is also the founder and Chair Emeritus of the Center for Talent Innovation. She is the author of fourteen critically acclaimed books, including Off-Ramps and On-Ramps; Forget a Mentor, Find a Sponsor; and Executive Presence. Her latest book is The Sponsor Effect.

Kennedy Ihezie is senior director, diversity and inclusion strategy at Macy’s Inc. A former vice president at the Center for Talent Innovation (CTI), a NYC-based think tank, where he led an initiative on Black talent, and coauthored a report on disabilities and inclusion, Ihezie is recognized as a thought leader on intersectionality.

 A Guide to Building a More Resilient Business

by Martin Reeves and Kevin Whitaker - July 02, 2020

In the midst of the Covid-19 crisis, we have become painfully aware of the fragility of supply chains, health care, and other critical systems. Many leaders have announced the intention to build back their businesses more resiliently, but not many know how to do so. Few business schools teach resilience, and today’s managerial toolkit is dominated by financial performance management. As a result, very few companies are able to explicitly design for, measure, and manage resilience.

Why Resilience Is Important

We can usefully define resilience as a company’s capacity to absorb stress, recover critical functionality, and thrive in altered circumstances.

Resilience is especially important today because the business environment is becoming more dynamic and unpredictable. This is a result of several enduring forces stressing and stretching business systems - from accelerated technological evolution to a greater interconnectedness of the global economy to broader issues such as rising inequality, species depletion, and climate change.

There is no better example of system stress than the coronavirus crisis. Humans impinging on the natural environment have enhanced the risk of cross-species infections. Dense urban populations facilitated the rapid initial outbreak of the disease. International travel facilitated its global spread. Extended global supply chains have broken down. Economic activity has been massively disrupted, and inequalities and social tensions have been exacerbated.

And Covid-19 is not a one-off. SARS, MERS, and Ebola forewarned an inevitable global pandemic, and there is every reason to expect that we will see others in the future. Furthermore, the same circumstances are also conducive to the spread of a cyber-virus and to economic instability that could result from climate change or social tensions.

The Challenge of Measuring and Managing Resilience

Traditional management approaches have several important limitations that make measuring and achieving resilience difficult:

• Companies have been designed predominantly to maximize shareholder value from dividends and stock appreciation. Very few companies even attempt to measure resilience beyond merely disclosing specific material risks.
• Companies and shareholders often focus on maximizing short-term returns. In contrast, resilience requires a multi-timescale perspective: forgoing a certain amount of efficiency or performance today for the sake of more-sustained performance in the future.
• Companies have been mainly focused on creating and executing stable plans, which works well when causal relationships are clear, predictable, and unchanging. Resilience deals with what is unknown, changeable, unpredictable, and improbable - and has significant consequences.
• In the current model of corporate capitalism, each company is treated as an economic island to be optimized individually. While this simplifies management and accountability, it masks the extent of economic and social interdependence between different stakeholders. In contrast, resilience is a property of systems: an individual company’s resilience means little if its supply base, customer base, or the social systems upon which it depends are disrupted.

Managing for resilience therefore requires more than just grafting new ideas or tools onto today’s approaches. It requires a fundamentally different mental model of business - one that embraces complexity, uncertainty, interdependence, systems thinking, and a multi-timescale perspective.

Of course, many companies already undertake some form of risk management - but mostly to understand and minimize exposure to specific, known risks. Resilience must deal also with unidentified risks, and it must consider the adaptations and transformations a company must make to absorb environmental stress and even turn it to advantage.

Building Resilient Enterprises  

Companies can structure their organizations and decision processes for resilience by embracing six principles of long-lasting systems:

• Redundancy buffers systems against unexpected shocks, albeit at the expense of short-term efficiency. It can be created by duplicating elements (such as by having multiple factories that produce the same product) or by having different elements that achieve the same end (functional redundancy).
• Diversity of responses to a new stress helps ensure that systems do not fail catastrophically, albeit at the expense of the efficiencies obtainable through standardization. In business, this requires not only employing people from different backgrounds and with different cognitive profiles but also creating an environment that fosters multiple ways of thinking and doing things.
• Modularity allows individual elements to fail without the whole system collapsing, albeit while forgoing the efficiency of a tightly integrated organizational design. Because a modular organization can be divided into smaller chunks with well-defined interfaces, it is also more understandable and can be rewired more rapidly during a crisis.
• Adaptability is the ability to evolve through trial and error. It requires a certain level of variance or diversity, obtained through natural or planned experimentation, in combination with an iterative selection mechanism to scale up the ideas that work best. Processes and structures in adaptive organizations are designed for flexibility and learning rather than stability and minimal variance.
• Prudence involves operating on the precautionary principle that if something could plausibly happen, it eventually will. This calls for developing contingency plans and stress tests for plausible risks with significant consequences - which can be envisioned and prepared for through scenario planning, war games, monitoring early warning signals, analyzing system vulnerabilities, and other techniques.
• Embeddedness is the alignment of a company’s goals and activities with those of broader systems. It is critical to long-term success because companies are embedded in supply chains, business ecosystems, economies, societies, and natural ecosystems. Articulating a purpose - the way in which a corporation aims to serve important societal needs - is a good way to ensure that the company does not find itself in opposition to society and inviting resistance, restriction, and sanction.

Beyond these structural options, a company can deploy migration strategies, such as shifting its business portfolio mix across products, channels, geographies, or business models to maximize opportunities and minimize adversity. The principal lever for this is capital allocation. Most companies tend to spread resources relatively equally across different businesses and units, but extreme circumstances usually need more-decisive reallocation, which requires both the business intelligence and the mental agility to see new risks and opportunities before they become apparent to competitors. A key concept here is sufficiency: Many companies will be seeing and piloting new models under changing conditions, but only those that allocate sufficient capital with sufficient speed will succeed in shifting the center of gravity of their business.

Then there are strategies of environmental shaping. To a latecomer in an established market, the business environment is a given. But a pioneer in an emerging opportunity can shape the environment. By imagining possible new realities, especially in dynamic environments, and then realizing them through shaping and persuasion, companies can reduce their exposure to unfavorable shocks. Migration and shaping go beyond risk mitigation by creating and exploiting new opportunities to flourish.

Finally, companies can increase their resilience through collaboration with other players. Business ecosystems, such as digital platforms, can increase their collective resilience through access to new capabilities, through increased flexibility, and by reducing the fixed cost of entry into businesses where assets can now be shared. Shared platforms essentially create “real” insurance against the unexpected through investment in shared execution, adaptation, and innovation mechanisms.

The Benefits of Resilience

When confronted with unanticipated stress, a company that employs resilience principles has multiple advantages that play out sequentially:

First is an anticipation benefit, representing the ability to recognize threats faster. Though this may not be immediately manifested in performance, it can be detected via other signals, such as when a company articulates its resilience plans (something most companies were slow to do in the case of Covid-19). It can also drive advantages in subsequent phases.

Next is an impact benefit, representing the ability to better resist or withstand the initial shock. This can be achieved through better preparation or a more-agile response.

Then there is a recovery speed benefit, representing the ability to rebound from the shock more quickly by identifying the adjustments needed to return to the prior operating level and implementing them swiftly and effectively.

Finally, there is an eventual outcomes benefit, representing increased fitness for the new post-shock environment.

Cumulatively, the four gaps produce a significant difference in value. As we observed in China during the initial Covid-19 shock, most sectors and companies came down rapidly and synchronously, but during the recovery phase there was a marked divergence in company performance.

How to Become a More Resilient Company

Crises are opportunities for change. With Covid-19, companies have a unique opportunity and necessity to revisit their business models to build greater systemic resilience, starting with the following six actions.

1. Seek advantage in adversity. Don’t merely endeavor to mitigate risk or damage or restore what was; rather, aim to create advantage in adversity by effectively adjusting to new realities.
2. Look forward. In the short run, a crisis many appear tactical and operational, but on longer timescales, new needs and the incapacitation of competitors create opportunities. Crises can also be the best pretext for accelerating long-term transformational change. One of the key roles for leaders is therefore to shift an organization’s time horizons outward.
3. Take a collaborative, systems view. In stable times, business can be thought of as performance maximization with a given business model in a given context. Resilience, by contrast, concerns how the relationships between a business’s components or between a business and its context change under stress. It requires systems thinking and systemic solutions, which in turn depend on collaboration among employees, customers, and other stakeholders.
4. Measure beyond performance. The health of a business is not captured only by measures of value extracted, which tend to be backward-looking. Measuring flexibility, adaptation, and other components of resilience is critical to building a sustainable business. This can be done quite simply by looking at either benefits or capabilities.
5. Prize diversity. Resilience depends on being able to generate alternative ways of reacting to situations, which in turn depends on the ability to see things with fresh eyes. Resilient businesses prize cognitive diversity and appreciate the value of variation and divergence.
6. Change as the default. Alibaba founder Jack Ma sees change, not stability, as the default. Resilience is less about occasional adjustments under extreme circumstances and more about building organizations and supporting systems predicated on constant change and experimentation. This is partly to avoid rigidity and partly because iterative incremental adjustment is far less risky than a massive one-shot adjustment.

With the mainstream of business education and managerial practice focused on managing performance, resilience represents not just an opportunity to mitigate risk but also an opportunity for competitive advantage for enterprises who choose to focus on it. Andy Warhol famously said that in the future, everyone will be famous for 15 minutes. In today’s business world, transient high performance is commonplace; it is sustained performance by resilient companies that stands apart.

Martin Reeves is the chairman of the BCG Henderson Institute in San Francisco and a coauthor of The Imagination Machine (Harvard Business Review Press, forthcoming).

Kevin Whitaker is the head of strategic analytics at BCG Henderson Institute. He can be reached at whitaker.kevin@bcg.com.

How One Health System Combines Telemedicine and Hands-on Care

by Rajiv K. Sethi , Aditya V. Karhade , Michael G. Glenn and Gary S. Kaplan - July 01, 2020

Until the Covid-19 pandemic struck, surgical patients in the U.S. had been increasingly traveling to designated Centers of Excellence, health systems that met stringent criteria for providing exceptional, high-value care for specific procedures such as knee replacement and spinal surgery. In some cases, large employers such as Walmart entered into contracts with the COE providers to care for their employees, whose travel to the specified provider for evaluation and, if needed, surgery, would be fully covered. In other cases, patients would travel from afar using other coverage to receive this specialized care.

Our institution, Virginia Mason, along with others including Geisinger, the Mayo Clinic, and Johns Hopkins are designated Centers of Excellence. Among the services patients have traveled to us for are complex spine surgeries, one of the most challenging procedures.

By shutting down most travel, the pandemic might have put an end to such programs, at least for the duration. But at Virginia Mason, prior investments in telemedicine technology for virtual patient encounters and virtual multidisciplinary perioperative clinical-team conferences have allowed us to continue providing surgery and other spine care to both local and remote patients traveling from hundreds or thousands of miles away, as well as to enhance virtual patient care broadly.

The Spine Team Approach

Based in Seattle, we were among the first organizations to confront the Covid-19 pandemic and, as such, had no blueprint to guide our response. Regulatory guidelines were constantly evolving and there were widespread shortages of personal protective equipment (PPE). Travel restrictions were keeping patients from many states away from Seattle and, fearing infection with the novel virus, local patients were deferring needed care. A ban on elective procedures resulted in precipitous and profound decreases in clinical care revenue and financial pressures were intensifying.

The pandemic forced us to quickly respond to novel clinical challenges, but we also needed to develop new ways to coordinate our sophisticated care teams and to safely engage with patients, including those traveling to Virginia Mason for complex spine surgery.

Like many leading organizations, Virginia Mason emphasizes a multidisciplinary approach to value-based care, which focuses on improving outcomes while reducing costs. The “Seattle Spine Team Approach” is a fully developed example of such comprehensive and condition-specific care. This model involves pre-surgical team conferences (now held virtually) that include orthopedic surgeons, neurosurgeons, physiatrists, pain medicine specialists, specialty-trained nurses and physician assistants, hospitalists, psychologists, and anesthesiologists. These conferences, along with the requirement that two attending surgeons are present during complex spine surgeries and the institution of a tailored intraoperative anesthesia protocol, have resulted in a three-fold reduction in major complications in the most complex spinal procedures. Many team members see these conference as the cornerstone of the entire spine care program.

When a patient is referred for spine surgery, the team holds a virtual “patient clearance” conference to evaluate whether he or she will decisively benefit from the procedure or may be as effectively treated without it. (In our prior studies of in-person visits where referred patients were presumed to need lumbar surgery, we found that 58% in fact didn’t need it.) For those patients found to be good candidates for surgery, the team conducts a risk stratification to determine which require immediate surgery and begins pre-surgical “optimization,” evaluating patients for surgical risk factors such as obesity, diabetes or smoking. In non-urgent cases, the team postpones surgery to allow time to address these.

Our clinicians have embraced the virtual conference format. We have seen increased attendance and continued engaged discussion by our clinical staff. Further, providers who rotate between clinical sites can attend these more easily than the previous physical meetings. As a result, the spine team has now committed to all-virtual patient-clearance conferences as its “new normal” and expects to continue with these virtual conferences even after restrictions on in-person meetings are lifted.

Combining Virtual and Hands-on Care

A recent case illustrates how we are integrating traditional destination care and new virtual care models. A 57-year-old man from Alaska had been experiencing progressive weakness in his arms and legs and for several weeks was unable to get timely outpatient evaluation because of the pandemic. As his symptoms became severe, his local doctor referred him to one of our physicians. The team held a virtual care conference and the same day a consultation with his local doctor, determining that the patient would require complex cervical spine reconstructive surgery. Within a day of those meetings, the patient was on a plane from Alaska to Seattle where he was scheduled to undergo immediate surgery at Virginia Mason. Two weeks later, the patient returned to Alaska and all further communication with the patient and his local doctor has been conducted virtually. Within three months after surgery, the patient had regained full use of his arms and legs and returned to work. We are continuing to follow him through serial virtual visits that include his surgeon, specialized spine physician assistants, rehab physicians and pharmacy.

While the pandemic hasn’t substantially interrupted our destination care program for patients needing urgent specialized spinal surgery, it has underscored the less dramatic, but equally important element of the program – it’s focus on identifying candidates for surgery who in fact can be effectively managed without it. It’s now clear that, going forward, many nonsurgical patients could receive a comprehensive evaluation and treatment without physically traveling to Seattle. These patients can be managed virtually by our non-operative spine specialists and continue their treatment plan without travel-related interruption. With virtual multidisciplinary care we have actually increased access to quality care while, with the decrease in required travel, dramatically reducing the costs of evaluation and treatment.

Acknowledging the terrible human suffering and financial toll of Covid-19, we anticipate some positive lasting changes. Virtual multidisciplinary conferences and telemedicine allow us to provide our model of care to all patients, not just those in COE programs. For patients back home after surgery, telemedicine allows for close and timely follow-up without the burden of travel. Virtual multidisciplinary conferences can improve care by allowing same-day, real-time assessments of the urgency of patients’ needs and facilitating immediate triage. In addition, they can serve as a consult resource for patients’ local providers. The potential silver lining of the current Covid crisis may be its role as a catalyst to enable a better paradigm of value-based care.

Rajiv K. Sethi, MD, is the executive director of the Neuroscience Institute and the Health Economics unit at Virginia Mason and clinical professor of Health Services Research at the University of Washington in Seattle.

Aditya V. Karhade, MD, MBA is a resident in the Harvard Combined Orthopedic Surgery program in Boston.

Michael G. Glenn, MD, is chief medical officer of the Virginia Mason Health System in Seattle.

Gary S. Kaplan, MD, is chairman and CEO of Virginia Mason Health System in Seattle.

Look to Military History for Lessons in Crisis Leadership

by Marc Feigen , Benjamin Wallach and Anton Warendh - July 01, 2020

In November 2019, before giving a talk on crisis leadership to 15 financial services chief executives, we asked for a show of hands asking how many in the room had experience leading in a crisis. Not a single hand went up.

Today, executives everywhere are adapting to the Covid-19 pandemic and an important social justice movement in the U.S. and Europe. Information is changing daily, solutions are unclear, and supplies are often limited. As the CEO of a $50 billion company that operates in more than 100 countries told us, “There is no business playbook for a pandemic.” And decisions bear life or death consequences, as the virus in the U.S. has now taken twice as many lives as the U.S. lost in Vietnam. At the same time, Americans and Westerners are holding companies to a higher standard of social responsibility than ever before.

So where can today’s business leaders facing multiple crises at the same time turn to for answers? For thousands of years, military leaders have experienced challenges of this magnitude, and if operating today sometimes feels like “the fog of war,” we can usefully turn to lessons from some of history’s most effective military leaders for insight to our pressing peacetime challenges:

Be decisive. Many business leaders today are facing some of the toughest challenges they have ever known. Whole businesses will have to be restructured. Millions are losing jobs. Business leaders can learn from one of the first lessons taught in the military: Don’t dwell on your losses. For example, in 1812, after Napoleon invaded Russia, the celebrated Field Marshal Mikhail Kutuzov knew that strategically he had to abandon Moscow to the French, who looted and burned the spiritual capital of Russia, in order to regroup and fight Napoleon from a position of strength, which he did, successfully.

Be in the trenches. Great military leaders fight side by side with their soldiers as Hannibal did in the Second Punic War. The Duke of Wellington is said to have remarked that Napoleon’s very presence on the battlefield was worth 40,000 fighting men.

Be agile. When Winston Churchill became prime minister in May of 1940, he attacked the slow-moving British war bureaucracy by printing red “ACTION THIS DAY” labels, which he personally pasted to many documents he dispatched. Napoleon was famous for his laser-focused planning and obsession with time management. But Wellington beat Napoleon at Waterloo with agility - he famously moved constantly among the troops, repositioning whole armies on the fly.

Lead with confidence. Mood is everything. In a pandemic, workers and their families are on the front line, the CEO included. Great military leaders know they must lead with confidence underpinned by optimism. At Agincourt, when many other commanders would have chosen to retreat, confident in his strategy and buttressed by his investment in new technology (the more accurate and powerful long bow),Henry V turned and faced an army three times his size. He had utter confidence in his team - “The Band of Brothers” memorialized by Shakespeare - and was victorious.

Communicate to inspire. Wartime leaders know that communicating transmits vital information and strengthens resolve. “Churchill mobilized the English language and sent it into battle,” the great World War II CBS correspondent Edward R. Murrow reported from London. Napoleon sent pithy daily, uplifting dispatches to the troops, which built morale. Too much communication, however, can also be a problem. During Vietnam, the U.S. military flooded inboxes with long communiques, many of which were labelled urgent. (There was even a category above urgent, called “superflash.”) Bogged down by too many urgent memos, the result was predictable confusion rather than clarity.

Move leaders and tasks rapidly. In war, some leaders rise to the occasion. Military leaders give more and more command to those who succeed, promoting them quickly up the ranks and expanding their responsibilities. Those struggling are not fired, but their workload is reduced, and step-by-step instruction is given until they are effective. In this way, all leaders perform at their peak. Napoleon, Prussian Field Marshal Helmuth Von Moltke, and German General Erich Ludendorff all gave considerable latitude to their leading commanders and were quick to promote those who proved victorious.

Rest the troops. Military leaders may not take time off - during the six years of World War II, Churchill took eight vacation days (and even then, he read his daily dispatches). At Waterloo, Wellington slept for only 9 hours during the 90-hours battle. But soldiers in the field need food, rest, leisure, pay, and entertainment. During the Revolutionary War, Washington chose to rest his troops at Valley Forge, directly defying demands from Congress to attack the British in Philadelphia. While hardly a vacation, Valley Forge was a place to rest and regroup (and Washington could not have known how fierce the winter would be). During the Second World War, the USO arranged for entertainers like Bob Hope and countless others to perform before American soldiers to boost their morale. As we all work harder than ever during Covid-19, many of us glued to Zoom and a variety of screens, leaders need to make sure employees are rested, that weekends exist (if they’re not reinvented), and that, as summer approaches, ways are found to provide vital vacation time.

At the heart of managerial leadership is strategy, and the word strategy itself comes from “Strategos,” the Greek word for general. Now, as leaders turn to the hard job of safely re-opening their workplaces, salvaging and strengthening their businesses, and motivating their teams, they must lock-in the lessons learned from crisis and build a new management paradigm, one characterized by decisiveness, working side-by-side, agility, optimism, inspiring communication, more fluid work assignment, and enhanced work life balance. As they are planning, however, we would all be wise to remember Eisenhower’s helpful caution about strategy itself that “Plans mean little; planning is everything.”

Marc Feigen is the CEO of Feigen Advisors LLC, a CEO-advisory firm that helps high-performance CEOs drive value in their companies. The firm also publishes the Feigen Advisors New CEO Report.

Benjamin Wallach is an Associate at Feigen Advisors LLC, a CEO-advisory firm that helps high-performance CEOs drive value in their companies. The firm also publishes the Feigen Advisors New CEO Report.

Anton Warendh is the Managing Associate at Feigen Advisors LLC, a CEO-advisory firm that helps high-performance CEOs drive value in their companies. The firm also publishes the Feigen Advisors New CEO Report.