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strategy and business
 / Fall 2005 / Issue 40(originally published by Booz & Company)


Recent Research

This flies in the face of the accepted entrepreneurial wisdom that people are the driving force behind a business’s growth and that consistency of personnel is a key to growth. According to the authors, by the third annual report after the IPO, only 50 percent of the companies had the same CEO as when the business plan was created. And of the next five most senior executives, only 25 percent remained.

The authors conclude that to make a successful leap from smart idea to IPO, old-fashioned structural capital and getting the basics right — such basics as the business plan, the business model, and a clear point of differentiation — carry a great deal more weight than who’s running the company.

The Lean Green Machine?
Andrew J. Hoffman ([email protected]) and Max H. Bazerman ([email protected]), “Changing Environmental Practice: Understanding and Overcoming the Organizational and Psychological Barriers.” Click here.

The old assumption that what’s good for the environment is bad for business no longer holds. The growth of the “green” consumer and green investment funds, for example, shows that individuals and shareholders are increasingly prepared to support environmentally aware businesses.

The development of products such as fuel cell vehicles and biomaterials to replace fossil fuel also indicates that green solutions exist. Yet most companies have been slow to adopt environmentally friendly business practices, even though consumers and investors might thank them for it. The problem is that many firms are hardwired to behave in ways that damage the environment, say Andrew J. Hoffman, the Holcim Professor of Sustainable Enterprise at the University of Michigan Business School, and Max H. Bazerman, the Jesse Isidor Straus Professor of Business Administration at Harvard Business School.

The actions of Ben Cone, a forester in North Carolina, illustrate the point. In the 1970s, Cone noted red-cockaded woodpeckers, an endangered species, on his property. But because he didn’t want to log their habitat at that time, his discovery caused no immediate problems. 

That changed in 1991 when Mr. Cone wanted to sell some timber from his land, and the presence of the woodpeckers was formally recorded. Mr. Cone hired a wildlife biologist to determine the number of birds and learned that under the Fish and Wildlife Service’s guidelines, a circle with a half-mile radius had to be drawn around each colony, within which no timber could be harvested. If Mr. Cone harvested the timber, he would be subject to a severe fine and imprisonment.

Concerned that the woodpeckers might take over more of his land, Mr. Cone abandoned a 60-year tradition of sustainable forest management, instead adopting massive clear-cutting of his trees. It turned out that the birds’ habitat involved only 15 percent of his forest, and conserving it would have allowed him to continue his original strategy of merely thinning the trees on his property each year, cutting only those mature enough to be logged and replacing them with seedlings. This approach lets foresters produce consistent revenue while continually replenishing their property. But the environmental and commercial damage was already done.

The forester destroyed his property because he assumed that any outcome desired by the government would be bad for him. This, say the authors, is a common assumption among businesspeople. As a result, businesspeople fail to look for trade-offs that might benefit both sides.

A knee-jerk reaction to environmental dilemmas is typical of the business mind-set, say Professors Hoffman and Bazerman. It is rooted in something they call the “mythical fixed pie of negotiation” — the belief that negotiators are fighting over a finite number of resources. Yet, they note, there is now a ready supply of good ideas about how to improve the environment in ways that are also good for business.

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