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2. TWO YEARS AFTER THE FINANCIAL COLLAPSE, THE IDEAinnovation, and a supporting role in journalist Sheri-of hunkering down and waiting for a return to busi- dan Prassos choices for the best books about China,ness as usual as people did in previous recessions now the worlds second-largest economy. Both areseems a less and less viable strategy. But what shouldespecially timely as organic growth becomes a top pri-you do instead? ority at many companies. In this edition of our annual review of the yearsIn the doing-more-with-less theme, strategy+best business books, you will find a reading list thatbusiness contributing editor Sally Helgesen returnsoffers intriguing and compelling answers to this ques-with a selection of titles that call into questiontion. The list, assembled by a distinguished team ofthe star system of talent (a factor in the recent reces-experts, starts with a select guide to the years tallest sion) and argue for a far more inclusive definition ofstack: titles that parsehuman capital. In a1the recession of 2007complement to Helge-09 for lessons in pre-sens essay, neuroscienceventing another col-author Judith E. Glaserlapse. The reviewer isexamines the years bestDavid Warsh, who cov- books on the humanered economics for themind, which offer exec-best books 2010 introductionBoston Globe for more utives the means tothan two decades andimprove their decisionwon financial journal-making and galvanizeisms Gerald Loeb their workforce.Award twice. David K. Hurst, Next up is Walterour longtime Books inKiechel IIIs essay onBrief reviewer, findsthe best business books that the Great Re-on leadership in acession has not onlyyear when the spotlight emphasized the short-revealed an unflatteringcomings of the mana-view of too many of our gerial status quo, butleaders. Kiechel, whose also yielded a numbercareer included stints as of books that offerthe managing editor ofalternatives in its artFortune and the edito-and practice. Finally,rial director of HarvardUniversity of DenverBusiness Publishing, re-Daniels College ofviews a handful ofBusiness professor Jamesbooks that confront OToole returns withtraditional notions of his ninth consecutiveleadership with new circumstances, including the riseannual best business books essay, which plumbs biog-of social networking. (We didnt cover the topic of raphies and histories on subjects as diverse as Henrystrategy this year, but Kiechels engaging book The Luce and Chinese tea for business lessons that are asLords of Strategy: The Secret Intellectual History of the relevant as todays headlines.New Corporate World [Harvard Business Press, 2010] In a time of halting recovery, frugal consumers,is featured in The Right to Win, by Cesaretight money, and increasing government activism,strategy + business issue 61Mainardi with Art Kleiner, s +b, Winter 2010.)companies urgently need winning strategies. For exec- The ramifications of technologically enabled soci- utives charged with creating and executing thoseeties play a starring role this year in University of strategies, this years best business books are a valuableSouthern California Stevens Institute executive direc-source of insight and inspiration.tor Krisztina Z Hollys review of the best books on Theodore Kinni 3. The Fog of PanicDavid WarshGary B. Gorton, Boris Groysberg,Slapped by the InvisibleChasing Stars: The Myth ofHighlights in aHand: The Panic of 2007 Talent and the Portability(Oxford University Press, of PerformanceLow Year2010) (Princeton University Walter Kiechel IIIPress, 2010)Innovation as aSocial ActKrisztina Z HollyRichard S. Tedlow,Manfred F.R. Kets de Vries,Denial: Why BusinessReflections on LeadershipLeaders Fail to LookProbing Chinasand Career Development:Facts in the Face 72On the Couch with Infrastructureand What to Do about ItTHE ECONOMYManfred Kets de Vries Sheridan Prasso(Portfolio, 2010)(Jossey-Bass, 2010)THE ECONOMY HUMAN CAPITALTalent Redefined77Sally HelgesenLEADERSHIPRichard T. Pascale, JerrySternin, and Monique Sternin, 2Steven Johnson, You Are WhatWhere Good IdeasThe Power of Positive You Think82Come From: The NaturalDeviance: How UnlikelyJudith E. GlaserINNOVATIONHistory of Innovation Innovators Solve the Worlds(Riverhead, 2010) Toughest Problems (HarvardBusiness Press, 2010)best books 2010 s+bs top shelfThe Chorus TakesTHE HUMAN MINDLEADERSHIPa Bow87David K. HurstCHINAPeter Hessler,Country Driving:Daniel Okrent,True Tales of92A Journey through China Last Call: The Rise andFortuneHUMAN CAPITALfrom Farm to FactoryFall of Prohibition(Harper, 2010)(Scribner, 2010)James OTooleMANAGEMENT97INNOVATIONTHE HUMAN MIND102MANAGEMENTIllustrations by Daniel Pelavin107CHINA BIOGRAPHY AND BIOGRAPHY ANDHISTORY HISTORY 4. Gary B. Gorton, Slapped by Gregory Zuckerman, TheSebastian Mallaby, More Simon Johnson and Jamesthe Invisible Hand: The PanicGreatest Trade Ever: TheMoney than God: Hedge Funds Kwak, 13 Bankers: The Wallof 2007 (Oxford University Behind-the-Scenes Story ofand the Making of a New Elite Street Takeover and the NextPress, 2010) How John Paulson Defied (Penguin Press, 2010) Financial Meltdown (Pantheon Wall Street and MadeBooks, 2010)Henry M. Paulson Jr., On the Financial History (Broadway Raghuram G. Rajan, FaultBrink: Inside the Race to Stop Books, 2009)Lines: How Hidden Fracturesthe Collapse of the Global Still Threaten the WorldFinancial System (Business Economy (Princeton UniversityPlus, 2010)Press, 2010)THE ECONOMY3 THEFog OF Panicbest books 2010 the economy by David Warsh T he great uncertainty of all data in war is a peculiar difficulty, because all action must, to a certain extent, be planned in a mere twi- light, which in addition not infrequently like the effect of a fog or moonshine gives to things exaggerated dimensions and unnatural appearance. Carl von Clausewitz Something happened to us during these last three years, a momentous event, perhaps even a turning point in the history of global capitalism. But what, exactly? Everyone remembers the apex of the crisis, when Lehman Brothers perished, Bank of America bought Merrill Lynch, the Fed bailed out American International Group, and the U.S. Treasury Department took control of the U.S. governmentsponsored loan companies Fannie Mae and Freddie Mac. In the time that has elapsed since a brief but heart-stopping paralysis behind the scenes in August 2007 set the stage for the later pub- lic event, a certain amount of sorting out has occurred. An avalanche of good writing, much of it published this year, has been devoted to trying to decipher the chain reaction that took place between August 2007 and September 2008. These accounts may be divided into astrategy + business issue 61 few broad categories. There are narratives of the crisis itself, the analyses and prescriptions of economists, ori- gin stories focused on various participants in the drama (the shorts, the quants, the hedge funds), and, of course, any number of corporate obituaries. 5. tection Act of 2010 probably will BOOKSBEST10The Narrative FramedNone of these books fully answer the question of Reform and Consumer Pro-what to expect as a long-term result of the crisis, butseveral of them, and one in particular, seem to go tonot on its own be enough to stop the next panic.the heart of the puzzle of what exactly happened to get What happened, according to Gorton, was a classicit started.panic, not all that different from the E. coli spinach recall in 2006 or the fear of mad cow disease that shut down British butcher shops a few years back exceptIn the best business book of the year on the economy,that in this case, it was the pervasive fear of toxic assetsSlapped by the Invisible Hand: The Panic of 2007, Gary that shut down the world economy for a time. OtherB. Gorton of Yale Universitys School of Managementobservers are now reaching the same conclusion, in eco-explains in some detail how in August 2007, the finan- nomics textbooks and journals, and, in all likelihood 4cial markets found themselves in the grip of a phenom- since Gorton was among the first witnesses called to tes-enon thought to have been rendered impossible by var-tify in the December 2010 report of the Financialious safeguards: a banking panic of the sort that rocked Crisis Inquiry Commission, chaired by former Cali-global capitalism a dozen times between 1837 and 1907. fornia state treasurer Phil Angelides. In other words, aThis time, however, the spectacle did not consist of indi- consensus is emerging. But with Gortons book, you arevidual depositors lined up outside there as the fog first begins to lift.best books 2010 the economythe locked doors of retail banks, butYou see how and when the narrativerather firms creating runs on otherwas framed. Moreover, Slapped byfirms. Instead of some familiar phys-the Invisible Hand is tightly focusedical address, this occurred at the on prevention. You get a sense ofintersection of the securitization how it could have turned out differ-business and the shadow banking sys- ently, if only the proper diagnosistem, two enormous industries thathad been widely shared among regu-had barely existed 25 years earlier. lators at the time. The story of how a long quiet Why the star turn here? Gortonperiod in American banking is not an ordinary economist. He hasroughly 75 years without a singlea masters degree in Chinese litera-panic gave way to a seismic near-ture, and earned an economics Ph.D.collapse after years of tumultuous at the University of Rochester inbehind-the-scenes change makes for 1983 with a dissertation on bankingfascinating reading. The implicationspanics in the 19th century, whichfor how the authorities might have acted differently iswas highly unfashionable for the academic tastes of theeven more interesting. After all, if the meltdown wastimes. After several years at the Federal Reserve Bankmainly an old-fashioned banking panic at a higher levelof Philadelphia, he moved to the Wharton School of theof abstraction, it should have been easier to fix. University of Pennsylvania and, eventually, to Yale. His The great virtue of Slapped by the Invisible Hand ismost salient experience, however, was as a consultant tothat it was written in real time, as the crisis unfolded.AIG Financial Products, where for more than a decadeThe book consists primarily of two essays that Gorton(beginning in 1996), he modeled markets for exoticwrote for a pair of Federal Reserve conferences. The first financial products for the giant insurance conglomerate.was at Jackson Hole, Wyo., in August 2008, on the eveHaving knowledge of both policy history and currentof the public crisis; the second was a session ninepractice provided him with a privileged position frommonths later, on Jekyll Island, Ga. (where plans for the which to observe the events of 2007 and 2008.Federal Reserve System had been drawn up a hundredAt Jackson Hole, Gorton reminded his listeners ofyears before). It also includes a third paper, written 15history that had been forgotten that half a dozenyears earlier when the shadow banking system was justpanics had occurred in the era of national banking,emerging, which provides historical perspective, and a which spanned the 50 years from 1863 (when Congresscoda, titled A Note to Those Reading This in 2107, authorized national bank charters and established a uni-which makes it clear why the Dodd-Frank Wall Streetform currency) to the creation of the Federal Reserve in 6. 10 1913. They usually happened near business-cycle peaks, Deregulation, securitization, and financial innova- when people worried about losing their savings in ation became the foundation for the shadow banking sys- bank failure. Some unexpected piece of news wouldtem though today it is probably better to call it theBEST send depositors rushing to demand their money and, financial intermediation industry, since it is banking sure enough, since most of the money had been loaned grown far out of its boots. Its lifeblood had become out, the bank would fail, even if it was competently repos (sale and repurchase agreements), meaning the managed. (This is the situation everyone knows fromcash on hand of pension funds, investment houses, Frank Capras film Its a Wonderful Life.) Privately owned insurance companies, money market mutual funds, clearinghouses evolved to squelch rumors about mem-banks, corporations, governments, and every other kind ber banks when they arose sometimes squelching of organization under the sun. Repos were the institu- them successfully, sometimes not.tional equivalent of demand deposits.5 The Federal Reserve Board was created to deal with But there could be no government insurance for panics by imitating the Bank of England as lender ofsums like these. Collateral was required to make this last resort to threatened banks. (J.P. Morgan had demon-short-term borrowing work. Along with a promise to strated the efficacy of this approach by single-handedly return the principal on demand, repo lenders received a stanching the Panic of 1907.) But then the Fed itselfclaim on bonds, often in the form of asset-backed secu-BOOKS panicked after the stock market crash in 1929 and per- rities, sometimes held by a third party. Thus did giantbest books 2010 the economy mitted hundreds of banks to fail. So Congress created afinancial-services firms learn to finance themselves in the number of safeguards of its own: insuring deposits, care-age of Fannie Mae, subprime borrowing, and Walmart. fully defining banking, and restricting entry into the Gorton compares the money grid to the electricity grid.Gorton compares the money grid to theelectricity grid. Everyone takes it for granted until something goes wrong. business. Depositors were reassured that they didnt haveEveryone takes it for granted writing checks, invest- to worry. And for the next seven decades, banking pan- ing in AAA securitized products, etc. until something ics simply disappeared in the United States. goes wrong. Then, he says, the inner workings of the In the 1970s, however, two far-reaching changes in financial system turn out to be very complicated, just the system began to take hold, both of them describedlike the network that supplies electricity. with considerable economy in Slapped by the Invisible The shock that triggered the panic came in the Hand. Financial deregulation commenced when Wall summer of 2007, a few months after a new market for Street ended fixed commissions on May Day 1975. Thecredit default swaps the ABX index was intro- old partitions began crumbling. Money market mutualduced, permitting arbitrageurs to take sides for the first funds began accepting deposits. Junk bond underwriters time on the future of the subprime mortgage market. entered the highly profitable lending business that hadFor seven days in August, quantitative funds, especially previously belonged mainly to the banks. Banks re- those in the high-flying subprime market, found them- sponded with innovations of their own, securitizationselves in a vertiginous twist. The Fed staved off the panic chief among them. For centuries, banks held the mort-with a half-point cut in its discount rate. gage loans they made to maturity. Now they learned to By then, however, the smart money had been put assemble mortgages into large pools, to slice and pack-on notice: Something had gone badly wrong with mort- age the anticipated payment streams into tranchesgage lending. For the next 13 months, the authorities instrategy + business issue 61 according to the seniority of the claim, and to sell Washington tiptoed around the problem while banks the strange new securities that resulted to fast-growing sought to raise capital and confidence waned. What institutional investors looking for a safe, steady return. might have prevented the meltdown from occurring? A This was the originate to dis-frank recognition of the problem and a guaranteed floor tribute system. on the value of subprime mortgages in late 2007 or early 7. 2008 might have done it, says Gorton. Even at Jackson Hole, crucial aspects of the situa-In a word, candor. Paulson con-BESTveys the experience of the fog of BOOKS10A Pair of Paulsonstion remained unclear to central bankers and their eco- war, one surprise after another, as his team pieces thingsnomic advisors. Only after an exchange between Gorton together and the impending collapse is finally, expen-and another participant, Bengt Holmstrm of the sively, halted. The Treasurys Break the Glass bankMassachusetts Institute of Technology, did economists recapitalization plan gradually evolves behind the scenesbegin to zero in on the significance of all the tranches of into the Troubled Asset Relief Program (TARP) as theasset-backed securities. Debt value is supposed to be situation deteriorates. What we did not realize then,immune to most information about it, just as US$100 and later understood all too well, was how changesbills are supposed to be difficult to counterfeit. In nor-in the way mortgages were made and sold, combinedmal times, the complexity of collateral didnt matter.with a reshaped financial system, had vastly amplified6When it became clear that greater scrutiny was required,the potential damage to banks and nonbank financialtransactions slowed down. In the case of repos, theycompanies, writes Paulson. That about sums it up.stopped altogether for a time.The Bush administration may have been a little late Slapped by the Invisible Hand is not an easy book, to the party, but, thanks to Bernanke and Paulson, itbut thats mainly because much of the material is unfa- finally arrived.miliar, and some of it is abstruse. It contains enough The Paulson from the economic events of 200709best books 2010 the economytables and diagrams to help readers follow the argument who will be remembered longest, however, will probablywhere it leads (to some equations, naturally), along with be John rather than Henry. John Paulson is the hedgea timeline to help readers reconstruct what they knew infund proprietor who learned how to use credit defaultthe past three years and when they understood its signif- swaps to short the subprime market with almost none oficance. Its possible to skip the hard parts and still mas- the downside risk associated with traditional short sell-ter the frame. If you do, this is the book that, some years ing, and who then made exactly the right series of bets.from now, you will be most glad to have read. In The Greatest Trade Ever: The Behind-the-Scenes Storyof How John Paulson Defied Wall Street and MadeFinancial History, Wall Street Journal reporter GregoryGary Gortons book has become the framework through Zuckerman, with exemplary clarity, explains how Johnwhich I view almost every other book I have read aboutPaulson groped until he understood the developing sit-the crisis, especially those that fill in parts of the crisis uation better than anyone else and, by trading the ABXmap that might otherwise be labeled Here There Beindex in the summer of 2007, made $16 billion for hisTygers. The first of these, On the Brink: Inside the investors and $4 billion for himself.Race to Stop the Collapse of the Global Financial System, is The Greatest Trade has been overshadowed in book-from former U.S. secretary of the Treasury Henry M. shops by The Big Short: Inside the Doomsday MachinePaulson Jr. (W.W. Norton, 2010), in which Michael Lewis, the Paulson is a lovely person: an Eagle Scout, collegebest-selling author of Liars Poker: Rising through thefootball star, and devoted family man who made his wayWreckage on Wall Street (W.W. Norton, 1989) andvia mergers and acquisitions to the top job at GoldmanMoneyball: The Art of Winning an Unfair Game (W.W.Sachs. But he will probably become the crisis fall guy. Norton, 2003), covers much of the same subprime ter-Whereas Ben Bernanke had studied all his life for his ritory but without Paulson, who was telling his storytask as central banker, a reluctant Paulson was thrustto reporter Zuckerman. Lewis is, I suppose, the moreinto the job and at first had little grasp of the situation gifted storyteller, and he mobilizes a colorful cast ofhe faced. He favored measures that might have beencharacters. But the subprime scandal without Paulson isgood for a firm mark-to-market accounting in partic-Hamlet without the prince. The Greatest Trade Ever is theular but that were not suitable to a fire sale. And perfect companion to Slapped by the Invisible Hand,he focused on the wrong problem: Fannie Mae and which, it should be noted, is so antiseptic in its determi-Freddie Mac. When he ousted their managers, henation to stick to banking and economic issues that itthought he had saved the world. Lehman began to col-contains not so much as an anecdote. Zuckerman, onlapse the next day. the other hand, turns the bubble and its highly prof- What, then, makes On the Brink so worth reading? itable pricking into an adventure story. 8. 10 Risky Businessthan that of chief economist of the International You get a glimpse of what the secretive hedge fund busi-Monetary Fund. It is not surprising, therefore, that all ness is about from John Paulsons story, but if you want to three holders of the job in the last 10 years have writtenBEST know more about how the industry mushroomed in thecogent, journalistic books on the dangers ahead. 1990s, the book to read is More Money than God: HedgeLast year, Kenneth S. Rogoff of Harvard University, Funds and the Making of a New Elite. Author Sebastian in collaboration with Carmen M. Reinhart of the Mallaby was for many years a correspondent for theUniversity of Maryland, wrote the well-received This Economist. He had plenty of access to many of the ordi- Time Is Different: Eight Centuries of Financial Folly narily reclusive money managers who populate this rela- (Princeton University Press). This year, Simon Johnson, tively new niche in the asset management business.who returned from Washington to MITs Sloan School George Soros was the hedge funds only well-of Management, published 13 Bankers: The Wall Street7 known name in 1990, when they managed $39 billion Takeover and the Next Financial Meltdown (with co- in assets. But by the peak in early 2008, the figure wasauthor James Kwak), and Raghuram G. Rajan, back at $1.93 trillion, thanks to such pioneers as Michaelthe University of Chicagos Booth School of Business, Steinhardt, Helmut Weymar, Julian Robertson, Paul delivered Fault Lines: How Hidden Fractures Still Tudor Jones, Bruce Kovner, Stanley Druckenmiller, Threaten the World Economy.BOOKS Thomas Steyer, James Simons, andRajan, who now serves as anbest books 2010 the economy David Shaw, all of whom populate economic advisor to the prime min- the book. (In contrast, the four big-ister of India, writes with the revi- gest banks in the U.S. had $7.7 tril-sionist authority of someone who lion in loans and other assets earlier has come to see the last 30 years this year, more than twice as much aswith fresh eyes. Flying into Moscow, The IMF Playwrights the next 46 banks put together.) he reflects on how far we have come: Hedge funds avoid regulation byThe highways are clogged with cars accepting investments only from in-(which, of course, bring new prob- stitutions and wealthy individuals,lems). Returning to Washington, he and by not advertising. Mallabynotes that since the mid-1970s, thinks that is as it should be, becausenearly 60 cents of every dollar of real fund managers have an outsized ap- income growth has gone to the top petite for risk. They make money by1 percent of households. The rifts betting against central bankers whothat worry him are not just the defend unwise government policies, imbalances in financial flows among lending to institutions in need of liquidity, and scoutingnations; the inequalities that exist within the industrial out mispricings. They are useful discoverers of bad news. democracies are just as dangerous. They are small enough to fail which they regularly doJohnson, who thunders away against the political without jeopardizing the financial system.influence of the financial industry on the influential Mallaby thinks hedge funds may be the new mer-website the Baseline Scenario, spent only 18 months at chant banks, and he likens them to the top investment the IMF before leaving in August 2008 to denounce the banks the Goldman Sachses and Morgan Stanleys ofpolitical power of the banks first in an article in the 50 years ago. If he is correct, it would have been nice toAtlantic (The Quiet Coup), then on his blog, and see him put in a word for the various proposals for finally in 13 Bankers. The big financial firms have quick-response investigations aimed at figuring out become an oligarchy, Johnson argues, comparable to what happened whenever one of them blows up. Afterthose in, say, Argentina, Indonesia, or Russia a self- all, it is what we do when an airplane crashes. perpetuating elite able to use its economic power to dic- strategy + business issue 61 tate government policy even in the midst of a meltdown. Only a bust-up of the biggest banks, based on antitrust Journalists write the playbills, but economists write the principles, would curb their power. With the passage of plays. Few positions offer a better the financial reform act, Johnson lost the battle, at least view of the unfolding drama for now. 9. brought something new to light. BOOKS BEST10 of a century. + David Warsh ([email protected]) is the proprietor of EconomicPrincipals.com, an independent economics journalism site. He covered economics for the Boston Globe for 22 years and is a two-time winner of financial journalisms Gerald Loeb Award.Manfred F.R. Kets de Vries,Charlene Li, Open Leadership: Howard Kunreuther andRobert I. Sutton, Good Boss, Does the debate sound familiar? It is reminiscent ofMarburg noted that every panicReflections on LeadershipHow Social Technology Can Michael Useem, eds., Bad Boss: How to Be thethe climate of opinion in the United States in 1912, inand Career Development: On Transform the Way You LeadLearning from Catastrophes:Best...and Learn from thethe Couch with Manfred Kets(Jossey-Bass, 2010) Strategies for Reaction andWorst (Business Plus, 2010)the aftermath of the Panic of 1907. Expert opinion Accumulating experience should in time enable us tode Vries (Jossey-Bass, 2010) Response (Wharton Schoolthen, too, was bitterly divided about what to do about prolong the interval of recurrence, he wrote, if not Publishing, 2010)the money trust. In a four-way presidential race eventually to prevent the recurrence entirely, just as epi-Republican William Howard Taft, Bull Moose trust-demics of disease, formerly thought inevitable, are nowbuster Theodore Roosevelt, Socialist Eugene Debs, andprevented. It took a while, but he was right. Once weDemocrat Woodrow Wilson the centrist Wilsongot the hang of it, the quiet period lasted three-quarterswon. The Federal Reserve System was established, butotherwise banking continued its familiar patterns. But we havent seen a panic like the one that began 8in 2007 before. That is why, in my view, Gary GortonsSlapped by the Invisible Hand stands out clearly as thebest business book of the year on the economy. He tellsus what happened, and we will be quicker to understandthe next mania, panic, and crash because of it. A hundred years ago, political scientist Theodore best books 2010 leadershipLEADERSHIP Highlights INA Low Year by Walter Kiechel III It hasnt been a good year for leaders, or for books onleadership. Can you think of a political honcho, withthe possible exception of Brazilian president Lula daSilva, who hasnt been battered by anti-incumbent anger? Corporate chiefs fared little better, the heads of BP and Goldman Sachs being only the most brightly painted targets.Although most of the leadership books published this year were not whipped up in a few months time to be sure, some read as though they might have been 10. 10 the sourness of this low, mean year seems to have infect- author, coauthor, or editor of some 30 books. (See Head Shrinking ed even those that took a long time to create. Dont look Manfred F.R. Kets de Vries: The Thought Leader to the current crop for a paradigm-shifting new way toInterview, by Art Kleiner, s+b, Summer 2010.)BEST think about what leaders do or who they are. Expect toAs a mode of therapy, psychoanalysis has been over- be trotted through lots of overly familiar ideas and pre- shadowed by the rise of new treatments (cognitive cepts: Self-awareness is critical to a good leader, for behavioral therapy, for one), new drugs (Prozac and example (who knew?), and the right kind of leadership other serotonin-manipulating antidepressants), and can make a whopping difference to the productivity of skepticism about the scientific underpinnings of Freuds the team. theories. But if youre prepared to accede to a few seem-The books that break through the prevailing torpor ingly commonsense generalizations that our past do so mostly by confronting traditional notions of lead-shapes the kind of individuals we become, that our9 ership with new circumstances, slap-in-the-face chal- behavior often unfolds in repetitive patterns you can lenges almost ripped from the headlines (though bystill find in the psychoanalytic viewpoint a trove of now even that phrase seems pretty old). How do youinsights that are helpful or at least provocative. Kets de lead in a world where everyone under 40 appears to be Vries mines this vein for all its worth. To be sure, hed Facebooking and tweeting? What can you do to prepareprobably say his work is rooted in psychology ratherBOOKS yourself and your organization for those supposedly than in a narrow Freudianism, but its squarely in thebest books 2010 leadership once-in-a-generation disasters that seem to be occurringtradition of the (arguably) good doctor and his intellec- every other month a market-freezing global financialtual heirs. crisis today, a region-crippling oil spill tomorrow? AndAs is the case with most collections of pieces that instead of wasting time debating the finer points ofwere previously published separately, the individual leader versus manager, what if we should just be think- essays assembled here dont always fit obviously into the ing about bosses? three buckets into which Kets de Vries sorts them: the origins of leadership, leadership and personality, and leadership and career development. My advice would be With a twist appropriate to this topsy-turvy year, theto forget the organizing architecture the book is more very best book on leadership represents a return to, or mosaic than unfolding argument and just plunge maybe a retreat into, a form of classicism. Reflections oninto the chapters whose titles catch your eye, whether Leadership and Career Development, by Manfred F.R.its Leadership Archetypes: A New Organizational Kets de Vries, collects and updates articles written over Constellation, The CEO Life Cycle, or Listening the past three decades by one of the foremost propo-with the Third Ear. nents of what might be termed though probably not You will be rewarded with sharp-edged observations by its practitioners the psychoanalytic school of leader- couched in pithy phrases that open up explanations of ship. Its the second in a trilogy whose not completely how particular, recognizable types of executives behave. felicitous subtitle gives away the authors bias: On the Backing these up are sketches of the inner forces that Couch with Manfred Kets de Vries.shape behavior and descriptions of how these often trace The psychoanalytic school fielded some intellectual back to childhood. This is the beauty of the psycho- powerhouses in its time: Elliott Jaques, who first identi-analytic school: More than any other approach, it at- fied and labeled the midlife crisis, as well as Abraham tempts to get at the why of leadership. What makes Zaleznik at Harvard Business School and Harry Lev-some individuals more inspiring than others? What inson at Harvard Medical School. But of late, it hasnt wishes, hopes, and fears, maybe not all of them available been heard from much. Indeed, Kets de Vries, at age 68, to our consciousness, propel us into the role of leader, or strikes me as the only big name still in the fray. Dutchof follower? by birth and educated in Amsterdam, at Harvard (heConsider, for example, Kets de Vriess first chapter, strategy + business issue 61 was a doctoral student of Zaleznik), and in Montreal, Narcissism and Leadership. His starting point that today he operates from multiple bases, including a pro- Narcissists live with the assumption that they cannot fessorship at INSEAD, a leadership coaching centerreliably depend on anyones love or loyalty may be thehe established there, and hissingle best one-sentence summary of what you needown consulting firm. He is the to know about such characters. After a quick march 11. through the clinically recognized symptoms of narcissis-tic behavior, he takes us on a quick exposition of threevarieties and their family backgrounds. The reactives gauge how their organizations BOOKS audits that leaders can use to BEST are doing on various dimensions of openness. You can10work so hard and so anxiously to maintain their inflated tell that the author has been doing a lot of presentationssense of themselves that theyll distort reality beforesince she coauthored Groundswell: Winning in a Worldadmitting anything is wrong. The unending quest of the Transformed by Social Technologies (with Josh Bernoff;self-deceptives to live up to exaggerated parental Harvard Business Press, 2008), which discussed the riseexpectations leaves them with little emotional energy to of social technologies such as Facebook, Twitter, andshare with others. And the constructives remind us YouTube. That volume was called out as a best businessthat we can all use a touch of narcissism if were to be book in our 2008 roundup.bold, thoughtful, and even introspective.With lots of real-world examples, some better di- 10 Such analysis isnt mere theory-spinning. For me, gested than others, Li explores the effect of these newthe careful diagnosis and the etiology make the advice connective technologies on leadership. She considersKets de Vries offers all the more credible. For instance,them in two not always carefully distinguished senses:dont expect to change a narcissistic personality boy, What does it take to be a leading company in thishas that proved true in my managerial experience but emerging era of hyper-openness? And whats required ofknow that devices like 360-degreea leader in the face of these demand- best books 2010 leadershipfeedback may let subordinates alerting new realities? One executive shethe organization to one gatheringquotes, Ron Ricci of Cisco Systems,steam. And whatever you do, dontprovides an elegant summary of theassign credulous, insecure, and inex-underlying challenge: Shared goalsGetting Out Thereperienced people to work for El Loco require trust. Trust requires behavior.Grande; theyll only feed a disaster inAnd guess what technology does? Itthe making.exposes behavior. The delights and rewards ofTo her credit, Li tackles head-onReflections on Leadership and Career the biggest fear that companies regis-Development extend beyond puttingter at the prospect of their peopleparticular types on the couch. Youllblogging, tweeting, or responding toencounter an elegant model of howthose who do: Arent we going toyour inner theater your needs, sharp intake of breath here temperament, even place in the birth lose control of what is said aboutorder shape the competencies you us, on our behalf, or of what we letdevelop and your leadership style. Theres also a full our customers or competitors know? Li sensibly pointsmeasure of the cool, reflective wisdom that a reader out that embracing social technology doesnt automati-would hope for from an author who has spent yearscally mean letting it all hang out, as a pre-Facebookcounseling executives. Learn why no CEO should spend generation used to put it. No, a company still gets tomore than 10 years in the post (and why Kets de Vriesmake choices, as for example Apple does in being openthinks eight an even better limit). The authors thoughtsabout a few things, such as its platform, but mostlyon retirement are in themselves worth a few long walks clammed-up about everything else. (The author doeson the beach: It has often been said that as we grow old, allow that you may have to be as successful as Apple towe have to give up certain things. I prefer to reframe the get away with clamming up in the brave new world.)statement and say we grow old if we fail to give up cer- As for what the new transparency means to individ-tain things.ual executives, Li builds on the work of others, such as Warren Benniss observation that to be a leader you have to display qualities that cause people to trust you.No one would use the word ruminative to describe You may be comfortable being authentic and transpar-Charlene Lis Open Leadership: How Social Technology ent with people within physical shouting distance, butCan Transform the Way You Lead. Her book is perky, thats not sufficient in this new environment, Li argues.buzzy, and full of action recommendations and self-To develop new open relationships, youll have to scale 12. 10your authenticity and transparency. A necessary first contribute essays at the beginning and end to frame thestep is learning to use the technologies yourself. If youdiscussion and bring it squarely into the province offind your skin crawling at the prospect of sharing a few leadership studies. BESTinner thoughts with anonymous legions out there in theThinking about risk isnt as much fun as, say, forg-electronic ether, you may need to look for a different ing strategy or concocting a vision of the corporateline of work.future for everyone to rally around. But trying to imag- For decades now, firebrands like Tom Peters and ine the almost unimaginable and provide against it mayContemplating CatastropheHenry Mintzberg have been preaching that leadershipbe the highest form of leaderly stewardship. And whoshould be demystified and parceled out within organiza-would say that most corporate leaders have been doingtions. With the rise of the celebrity CEO, not to men- a good job on this front of late?tion the installation of employee relationship manage-Dont read Learning from Catastrophes as you would11ment software, it has sometimes seemed that they weremost other business books at a brisk clip, looking forgetting nowhere. Lis book inspired me with the happythe argument to build, expecting to be handed ready-thought that the likes of Facebook and Twitter justpackaged takeaways. (Youd be driven insane trying.)might end up forcing the change that some of us have Experience it instead as the occasion for a series of exec-been waiting for all these years. To survive the transition, utive meditations, thought exercises whose benefits will BOOKShigh-ranking corporate types will have to pick up thecome at you obliquely. Youre probably not that interest-best books 2010 leadershipsubtlety ascribed to one of Lis heroes, Om Bhatt, who ed for its own sake in how the Chinese rebuilt theiras chairman helped revolutionize the State Bank of emergency management system, but in reading aboutIndia, in part through online communication. Bhattthe process youll likely find thoughts bubbling up about Better Bossiness Talk more than others but not too much. Interrupt people occasionally but dont let them interrupt you.Try a little flash of anger now and then.did not give up control, an admirer observed. He let your own organizations preparation or lack thereofgo of control. for coping with the unforeseen. Not that there arent plenty of straightforward pre- scriptions, models, and checklists in Learning fromAs recent events have made clear, there may be one areaCatastrophes. The books lessons include how to balancein which you will want to ratchet up the control level.prevention and mitigation, and how to understand theThis would be in anticipating and if possible averting difference between crisis response and true recovery. Adisaster. For any executive worried that his or her orga-behavioral economics monograph on the cognitive bias-nization might be overtaken by low-probability, high-es that distort our perception of risk, causing us toconsequence events, like a credit default swap implosion underrate the direst possibilities, should leave you bothor a deepwater drilling fiasco, Learning from Catas- a little scared and a lot more vigilant. The variety of thetrophes: Strategies for Reaction and Response could be the contributors and the disasters they treat, from globalfirst step toward sleeping better at night.warming to the financial crisis of 200809, mean thatThis book is hardly beach reading (unless perhapswhen you finish the book youll have a gratifying senseyoure standing on a beach wondering what to do aboutthat youve looked at a tough subject from more anglesa huge oil spill). Its a collection of 15 scholarly mono- than you thought possible.graphs bearing titles such as Acting in Time against strategy + business issue 61Disasters: A Comprehensive Risk-Management Frame-work and Dealing with Pandemics: Global Security,Finally, for a head-clearing blast of sauciness, pick up aRisk Analysis, and Science Policy. The tomes editors,copy of Robert I. Suttons Good Boss, Bad Boss: How toWharton professors HowardBe the Best...and Learn from the Worst. In a year whenKunreuther and Michael Useem,too many leadership books combined solemn with 13. vapid, Suttons decision to focus on the figure of theboss comes across as thoroughly refreshing. Even afterdecades of study, we may not agree on what constitutesbut-still-a-happy-warrior brand BOOKSsmart, been-around-the-block-BESTof wisdom, rooted in a bosss understanding of himself 10a leader or all the proper functions of a manager, butor herself coupled with an appreciation that bosses haveeverybody knows who the boss is.to take action and make decisions, including doing lotsIf its you, however long youve been at it, you canof what Sutton labels dirty work. As a boss it is yourprobably benefit from Suttons breezy tour of the wis-job to issue reprimands, fire people, deny budgetdom he has distilled from scholarly studies, his ownrequests, transfer employees to jobs they dont want, andexperience, and the thousands of responses he receivedimplement mergers, layoffs, and shutdowns. Wiseto his last book, The No Asshole Rule: Building a bosses understand that although they may not be able toCivilized Workplace and Surviving One That Isntavoid such unpleasantness, how they go about the dirty12(Business Plus, 2007). To say that Sutton, a Stanford work makes an enormous difference. Empathy andmean year. +professor, wears his learning lightly is to understate thecompassion are good places to start, says Sutton. Layercase. At times he wears it like a vaudeville comedians on constant communication with the affected, includ-gonzo-striped blazer with accompanying plastic bouton-ing feedback from them you really listen to, howeverniere shooting water. This is a weirdly merry book, per-painful it is. Finally, youll probably need to cultivate afect for a down year but not an measure of emotional detachment,best books 2010 leadershipunserious book. beginning with forgiveness for theConsider, for example, Sutton people who lash out at you. Andon the imperative to take control.maybe reserving some forgivenessYes, you as a leader have to, he coun-for yourself.sels, in the sense that you have to Indeed, Good Boss, Bad Boss is inconvince people that your words and its entirety a page-by-page guide todeeds pack a punch. And he offersbetter bossly self-awareness. Theup a series of fairly familiar gambitsvariety of sources cited can be dizzy-to that end: Talk more than others ing. On one page you may get a but not too much. Interrupt summary of two academic studies, aWalter Kiechel III ([email protected]) has served as thepeople occasionally and dont let quote from Dodgers coach Tommymanaging editor of Fortune and the editorial director of Harvardthem interrupt you much. Try aLasorda, a recollection of SuttonsBusiness Publishing. He is the author of The Lords of Strategy: Thelittle flash of anger now and then.parents, and three examples of badSecret Intellectual History of the New Corporate World (HarvardWhat redeems this from beingbosses sent in to Suttons website. (AtBusiness Press, 2010).mere Machiavellian gamesmanship istimes, the book seems almost crowd-Suttons admission that any control you pretend to is sourced and puts one in mind of Charlene Li on theprobably largely an illusion theres a lot of play-acting power of social technology to expose behavior.) Whatin any executive role, he wants us to know. He makes thegives all this consistency and makes for an enjoyable readcase that pushing too hard in the wrong way is a lotis Suttons voice throughout at times yammering, onmore dangerous than not pushing hard enough. Givenrare occasions bordering on the bumptious, but in gen-the danger of the toxic tandem your people areeral so can you believe this? ready to laugh at thealways scrutinizing you, at the same time that powerauthors own pratfalls, and so eager to help, that the netinvites you to become self-absorbed leaders are effect is sneakily endearing. Rather a comfort in a low,always on the edge of becoming bad bosses, or evenworse, bossholes. So he also advises you to blame your-self for the big mistakes, serves you up a seven-partrecipe for an effective executive apology, reminds you toask the troops what they need, and finishes with theinjunction, Give away some power or status, but makesure everyone knows it was your choice.Another chapter title captures the overall aspirationSutton advocates: Strive to Be Wise. His is a street- 14. 10 INNOVATION BESTSteven Johnson, Where GoodClay Shirky, CognitiveIdeas Come From: TheSurplus: Creativity andNatural History of Innovation Generosity in a Connected(Riverhead, 2010) Age (Penguin Press, 2010)John Hagel III, John SeelyBrown, and Lang Davison, ThePower of Pull: How SmallMoves, Smartly Made, CanSet Big Things in Motion(Basic Books, 2010)13 BOOKSbest books 2010 innovationCreationInnovation AS ASocial Actby Krisztina Z Holly When I was a young engineer, I thought part how-to books perhaps useful, but not particu-innovation was primarily a technolog- larly original. Instead, the years best business books onical act aimed at creating new gadgetsinnovation explore new territory and illuminate theand devices. Then I became an entre-fundamental social principles that underlie the innova-preneur and learned that innovation is also a businesstion process.act, requiring the application of sound management A single thread weaves through these books:principles. Now that Im in the academic world, work- Innovation is a team effort. But not a team effort in theing at the intersection of entrepreneurship and innova- ways that you might imagine. Its an effort among indi-tion, I realize that innovation in its truest, most viduals, organizations, and society as a whole. Eachproductive form goes far beyond the marriage of bus-book highlights a different aspect of the social life ofiness and technology. Innovation is first and foremost ainnovation, along the winding path that ideas takesocial act, and it requires human connections to thrive.through creation, diffusion, and transformation.A surprising number of this years books on innova-strategy + business issue 61tion are focused on the application of design principlesto products and companies. They are worthy books, and To put the social aspect of innovation in context, letsits good to see design thinking gain wider recognition.rewind a few millennia. According to Steven Johnson,But this ground has already beenthe author of Where Good Ideas Come From: The Naturalbroken, and they are for the most History of Innovation, sometime between 10,000 BC and 15. 5000 BC, humankind hit a watershed moment: Peoplebegan inventing in earnest. Before that, they built onone anothers ideas so slowly that it took 30,000 years toBESTJohnson offers double-entry BOOKS her smaller-town neighbor. 10 bookkeeping, a key tool in the practice of capitalism, asadvance from mining to metallurgy. But then a big shiftan example of an important innovation arising from liq-happened. They cast aside their hunter-gatherer ways uid networks. Described by Goethe as one of the finestand settled in cities, and shortly thereafter, a giant explo-inventions of the human mind, double-entry book-sion of innovation occurred. The alphabet, currency, keeping was codified in the trade capitals of northernmeasuring sticks, aqueducts, cement, writing, bread, Italy during the Renaissance. Its development, saysand wheels these are just a handful of the vast num- Johnson, stemmed from the spillover of ideas from oneber of world-changing inventions that our forebearsmerchant to the next as markets morphed from the feu-developed during this period.dal system into early capitalism, and relationships14 Something happened when humans put down between people became less hierarchical and more inter-roots, Johnson argues. Ideas started bouncing betweenconnected. Interestingly, despite the importance of theindividuals, growing and improving, in a web of con- innovation, no one person ever claimed credit for it.nections he calls liquid networks. Unlike a gas, in which Examples like these have implications for the designmolecules rarely bump into one another, or a solid, in of office space and business processes. The proverbialwhich molecules do not move fromwatercooler the site of countlessbest books 2010 innovationplace to place, a liquid represents a discussions ranging from the gossipyfree-flowing, high-contact medium.to the profound can have anCities provided such an environment incredible generative effect. Johnfor human thought; ideas collided Seely Brown, former director ofwithin them, people learned faster, Xerox PARC (Palo Alto Researchand ideas spread more widely. Center), once told me how the cen- I would point out that thisters coffeemaker was connected tonotion of liquid networks can alsoits computer network, sending ahelp explain why universities are friendly notice when the coffee wassuch hotbeds of creativity. Academiabrewed to lure researchers intois based on the philosophy of sharing impromptu social moments thatand building on ideas in an openhelped feed their creative culture.environment, with students and fac- Organizations as diverse as the high-ulty in close proximity, creating a ly successful Pixar Animation Stu-rich intellectual stew. Accordingly,dios Inc., owned by the Walt Disneyover the years universities have germinated game-Company, and CERN (the European Organization forchanging ideas as diverse and valuable as the Internet,Nuclear Research), the organization responsible for therecombinant DNA technology (the basis for theLarge Hadron Collider near Geneva, design cafs andbiotechnology industry), liquid crystal displays, magnet-social areas into the core of their buildings so thatic resonance imaging, Kentucky bluegrass, Plexiglas, employees with varying job descriptions can serendipi-open source software, the pacemaker, insulin, rocket tously meet and form their own liquid networks.fuel, and the seat belt, just to name a few. Executives who are overly focused on titles and report- To support his thesis, Johnson cites a global study ing structures should take note: Networks can be muchby Geoffrey West, a theoretical physicist and former more powerful than hierarchies in stimulating the cre-head of the Santa Fe Institute. West found that the cre- ation and sharing of ideas.ativity of a city scales to the quarter power with respectIn addition to liquid networks, Johnson explores sixto size. What that means is that a metropolis 50 times other patterns that underlie especially fertile ecosystemsthe size of a nearby town is, on average, 130 times more for innovation: the adjacent possible, the slow hunch,innovative on measures such as the quantity of inven-serendipity, error, platforms, and exaptation (a term bor-tors, number of inventions, research and development rowed from biology for the functional shift of a traitbudgets, and so on. Further, West found that the aver- during an evolutionary process). Each pattern is illus-age resident in that city is three times as creative as his or trated with delightfully fresh and often surprising exam- 16. 10Diffusionples from a wide array of sources history, evolution- initiatives of others.ary biology, chemistry, the U.S. Department of Home- The pull approach stands in sharp contrast to theland Security, urban planning, digital culture, and neu-old-fashioned mind-set of push, in which organiza- BESTrology which stretch the readers mind, cultivating tions try to anticipate demand and push their ideas, innew ideas in and of themselves. Although the book doesthe form of products and services, out to their cus-not address the social impacts of creativity per se, itstomers. In this paradigm, bigger is better, resources arethemes and examples clearly underscore the role thatscarce and centrally allocated, elites do the deciding, andsocial phenomena play in the shaping and creation ofall negotiations are zero-sum games. The authors offerideas. For these reasons, I feel it is the best business book compelling and frightening evidence that this widelyof the year on innovation.used approach is outmoded and has led to great instabil-ity and diminishing returns for todays corporations:15Competition is intensifying on a global scale, customerSocial interaction is a critical factor in the generation ofloyalty is declining, corporate returns on assets haveideas, but innovation is more than creativity. Innovation dropped to less than a quarter of what they were a fewis the process of transforming new ideas into tangibledecades ago, stock prices are much more volatile, andsocietal impact. Society plays an essential role in thischurn in the S&P 500 is accelerating. By all measures, BOOKSprocess, which starts when a concept has sparked butthe authors conclude, corporations are ailing, no matterbest books 2010 innovationbefore the fire has spread. how hard they push. An idea is not an innovation unless it is adopted In the push world, knowledge is an asset to be close-and scaled, and the innovators ability to harness societyly guarded. But in the pull world, knowledge goes out of Relying on trust-based relationships to accelerateones business lies outside the comfort zone of most corporations, but it can lead to incredible results.in this quest can either make or break the idea.date much too rapidly to hoard. Modern hunter-gather-Addressing this challenge, The Power of Pull: How Small ers share knowledge because they know they can createMoves, Smartly Made, Can Set Big Things in Motion, by more value by harnessing the flow of new knowledgeJohn Hagel III, John Seely Brown, and Lang Davison, than they can by capturing and stockpiling it. Thestarts where Johnsons book leaves off. (Disclosure: John authors illustrate this point with examples from the soft-Seely Brown is a friend of mine and a member of the ware and apparel industries, in which companies haveboard of councilors that advises me at the University ofleveraged customers, suppliers, and stakeholders in theirSouthern Californias Stevens Institute for Innovation.)search for innovation. The Power of Pull paints an optimistic view of theTake, for example, the experience of SAP AG, oneworld based on a new paradigm, called pull, which isof the worlds largest software companies, during itsenabled by an unprecedented acceleration in technologytransition to a service-oriented architecture. Companyand can be highly profitable if harnessed effectively.leaders were convinced they had a great product on theirUnder this paradigm, individuals and corporations musthands. The value of their technology was not the issue.develop the ability to pull together the building blocksTheir concern was customer adoption, and they faced aof successful innovation, to draw out people and chicken-and-egg scenario in which customers would notresources as needed to address opportunities and chal-be able to see the benefits of the new product until theylenges, according to the authors. This new world had worked with it. In light of this conundrum, thestrategy + business issue 61belongs to global hunter-gatherers who repeatedly company launched a series of forums, blogs, wikis, andput themselves into serendipitous situations. They skill- videos called the SAP Developer Network, which en-fully attract and connect with one another to rapidly couraged peer-to-peer interactions. With 1.2 million add value to their projects, and people now participating in these online communities they add reciprocal value to the and helping one another, the program has been very suc- 17. wide-ranging as multinational BOOKS BEST 10 Transformationcessful at both accelerating product adoption and build- of innovation, citing examples asing and sharing knowledge. At first, The Power of Pull may sound like a reprisecorporations, teen surfers in Maui, Iranian protesters,of Henry W. Chesbroughs book, Open Innovation: TheWorld of Warcraft gamers, and entrepreneurs. The bookNew Imperative for Creating and Profiting from is dense; at times it feels as though the authors tried toTechnology (Harvard Business School Press, 2003). Butfit too much into their manifesto. Expect to spend somethe authors of The Power of Pull are talking about muchtime digesting it; its ideas are complex but also gen-more than a short-term transactional approach to find- uinely game-changing.ing and exploiting ideas; they advocate developinglonger-term relationships based on trust. Relying on such trust-based relationships to acceler- Society plays a critical role in the development and suc-16ate ones business lies outside the comfort zone of most cessful diffusion of innovations, but it also affects inno-corporations, but it can lead to incredible results. I saw vations in a third way: It shapes them. And often, itthis firsthand in 2009 when the USC Stevens Institutechanges them in ways that are outside the control offor Innovation worked with the prestigious TED confer- innovators, meaning that the best innovators can do isences to conceive and host the first independently anticipate and adapt. A good way to do that is to readorganized TED event, TEDxUSC.Clay Shirkys new book, Cognitivebest books 2010 innovationGiven TEDs valuable brand and Surplus: Creativity and Generosity inhigh standard for quality, I was pleas-a Connected Age.antly surprised that TED leadersShirky, who teaches in Newagreed to explore the idea when it York Universitys Interactive Tele-was still in its conceptual stage, communications program, has prov-instead of trying to maintain full en to be one of the most insightfulcontrol and pursue expansion oppor-writers on the revolutionary effect oftunities solely by growing their own the Internet. In this book, he digsorganization. The latter actiondeep into the social DNA of hu-would have followed the traditionalmankind to tell a story an unfin-push model. But TEDs leaders took ished story of an opportunity ofa chance, and once we helped workglobal scale that he challenges theout the kinks, they established thereader to meet. In the process, heTEDx licensing program, whichilluminates how societys partnershipenables nonprofit organizations to with innovation can lead to surpris-host independently organized, TED-like events. Withining and wonderful results.a year, nearly 1,000 TEDx events were scheduled in 60The world has time on its hands, says Shirky, anlanguages all around the globe.inordinate amount of free time totaling more than a tril- The Power of Pull should prompt executives to lion hours a year, which is now spent mostly in front ofreconsider how knowledge, intellectual property, and the television in many modern societies. But instead ofcollaboration are managed within their companies and watching TV, he argues, people should be using thosehow key functions, such as HR, IT, and customer sup- hours in creative endeavors, sharing their work for soci-port, should be changed to take advantage of this newetal gain.paradigm. It should also prompt such questions as: How I celebrate this as an idea whose time has come can power and influence be channeled to the companysyet again. A hundred years ago most of us would haveedges and into its networks? How can pull enable the been rolling up our sleeves to make a living or to fixcompany to learn faster and better? What would the something that was broken. Looking further back, thecompany be like if developing talent were its first prior- creative acts of singing, dancing, and telling stories byity? And most importantly, how can the business attractthe campfire were an essential part of our everyday lives.and access the intellectual energy of people outside its Its only recently, in the last half century, that we haveborders for maximum scale and success? been turning our backs on our tribal heritage of creating Hagel, Seely Brown, and Davison take a broad view and sharing. Weve become consummate consumers, of 18. 10products, services, and media. Fortunately, however, the(Tor, 2009) and Chris Andersons article In the NextInternet our new digital campfire has finally Industrial Revolution, Atoms Are the New Bits inbegun to patch up our temporary estrangement from Wired magazine in 2010 is powered by a new box BESTour communal nature.of tools accessible to practically anyone: US$2,000It is in this context that Shirky introduces a bigCNC (computer numerical control) machines andopportunity, and its only natural that our social side $1,000 MakerBot 3-D printers, easy-to-program micro-challenging and so fascinating. +should embrace it. The Internet and its tools havecontrollers like the Arduino, public open-access work-reduced the cost of and lowered the barriers to creatingshops like TechShop, and micro-factories and globalcontent and connecting people. As a result, everyonesupply chains ready to manufacture and ship smallwho has access to these wonders has the opportunity tobatches of a new product anywhere around the world.shape the future. For instance, the photographs thatManufacturing is becoming democratized; your next-17people upload and the reviews they post by the millions door neighbor might be building the next electric car orcan become the collective foundation for future applica-manufacturing and selling accessories for the iPad.tions and communities. With this newfound ability to The implications of this mashup of free time andparticipate, people can contribute to world-changingtools, whether physical or digital, should not be under-innovations, like Ushahidi.com, a crowdsourced, onlinestated. Shirky demonstrates how a convergence of op- BOOKSreporting platform that was first used portunity, means, and motivationbest books 2010 innovationby Kenyans to report violent crimeswill enlarge societys role in innova-in real time, and now has spread tion. The only question that re-globally.mains: What benefit will emerge?Shirky is a great storyteller. HeShirky wonders whether we will useweaves his points into a journey thatour new digital tools for pursuits asis thought-provoking and accessible; trivial as lolcats or for savinghe explores the many facets of sociallives. He is optimistic about thescience for insights that are fresh andanswer. Lets hope he is right.relevant. Cognitive Surplus strikinglyThe ultimate insight to beillustrates how society is guiding the gained from this years best businessKrisztina Z Holly ([email protected]) is vice provost for innovation at theultimate direction of many innova- books is that innovation is a teamUniversity of Southern California and executive director for the USCtions. Businesspeople should takeeffort and we are all on the team. SoStevens Institute for Innovation. She was the founding executiveheed. If they dont, they might miss although innovation concerns trans-director of MITs Deshpande Center for Technological Innovation,how social media is shaping theirlating ideas into societal impact, itand has been an engineer and entrepreneur.industries, underestimate the oppor- equally concerns the impact of soci-tunity to leverage stakeholders and customers in the cre- ety on the ideas. It is this complex interplay betweenation of their products and services, and fail to grasp the people and ideas that makes the process of innovation soinfluence of open source models on their bottom line.I would offer Facebook as an excellent example ofharnessing societys ability to influence innovation. Icould have never imagined all of the ways people woulduse Facebook when we were getting started 6 years ago,founder Mark Zuckerberg wrote in July 2010, the daythe companys user base hit 500 million. Zuckerbergswillingness to allow his customers to shape his site hasbeen a key ingredient in Facebooks runaway success.My one disappointment with Shirkys book is thatstrategy + business issue 61it focuses only on new digital tools, and misses a paral-lel revolution that is enabling people to create and sharein the physical world. The up-and-coming maker cul- ture highlighted in Cory Doctorows sci-fi novel Makers 19. Marina Yue Zhang with Bruce Peter Hessler, Country Elizabeth C. Economy, The Edward Tse, The ChinaW. Stening, China 2.0: TheDriving: A Journey through River Runs Black: The Strategy: Harnessing theTransformation of anChina from Farm to Factory Environmental Challenge toPower of the Worlds Fastest-Emerging Superpower...and (Harper, 2010) Chinas Future (2nd ed.,Growing Economy (Basicthe New Opportunities (Wiley,Cornell University Press, 2010) Books, 2010)2010) Consumers AriseCHINA depth of understanding needed by corporate strategists.In order to truly comprehend the opportunities as well as the risks posed by this massive nation, we need to read deeper. Rather than glossy overviews that postulate grand top-down theories, the best books about China 18 start on the ground and probingly elevate our under- standing. This year, they delve into Chinas growing technological backbone; the rapid, tendril-like growth of its nationwide highway system; the impact of its eco- nomic development on the environment; and the strate- gic implications of its societal transformation. best books 2010 china The unfortunately titled China 2.0: The Transformation of an Emerging Superpower...and the New Opportunities appears at first glance to be one of those once-over-light- ly, lasso-the-dragon overviews. It is not. Author and management consultant Marina Yue Zhang grew up in mainland China, received her undergraduate educa- tion from Beijing University (her countrys equivalent of Harvard), and then earned an MBA and a Ph.D. in management in Australia. She combines a well- researched perspective with the nuanced understanding of a native mainlander and filters them through well-Probing Chinascommunicated critical analyses. The result is a deeply informative book that examines the impact of technol- ogy on Chinas economic development and ongoingInfrastructure social transformation.Zhang calls this new China 2.0 to distinguish it from the monolithic China of old, where informationby Sheridan Prasso was imparted by the government to the people in top- down fashion and economic development was a func- tion of central planning. She argues that China 2.0 sig-T oo many books about China fall into one ofnifies a new phase in Chinas development and the need two dichotomous categories: good Chinafor completely revamped thinking about what China is and bad China. In the former, a risingand how it works. China presents tremendous opportunities forIt might be tempting to watch the travails of Googlethose who figure out how to lasso and ride the greatand eBay in China and think of the Chinese as techno-dragon, profiting from its enormous economic power. logically backward and isolated. But Zhang demon-In the latter, China is a threat, a rising Yellowstrates that the very opposite is true. Despite livingPeriltinged specter of repression and economic domi-behind the great firewall of censorship, more than halfnation that imperils Western ideals and global suprema-of Chinas 1.3 billion people use mobile phones or thecy. Both approaches have sold well, but neither offers the Internet. This connectivity is having a profound effect, 20. 10according to Zhang. It is mobilizing public opinion and significant enough that Zhang advocates building inter-forging a new social order, as well as creating a level active platforms into all product marketing plans. Sheof political transparency and institutional reforms thatnotes that even a small niche of consumers reached in BESTChinese leaders had managed to avoid until now. this way can create millions of sales and millions of China 2.0 is filled with surprising statistics. Forpotential boycotters for unprepared retailers and makersinstance, more than 160 million Chinese have a person-of consumer products.al blog or other Web space. Zhang suggests that ChinasThe evolution of the Chinese consumer is a partic-one-child-per-family generation is looking for social ularly important topic because Chinese government pol-engagement in cyberspace to compensate for an isolatedicy and the interests of the West are both focused onupbringing. More than 400 million Chinese are regis-promoting domestic consumption as a driver of futuretered for QQ, an instant messaging application, and economic growth. So profound is the change that19more than 75 percent of Chinese Internet users have one Zhang reports that Chinas longtime greeting Have youor more instant messaging accounts, compared to justeaten? (Chi fan le mei you? or just Chi le?) which39 percent in the United States. Chinese rely muchoriginated in Chinas past famines and hardships nowmore heavily on instant messaging than they do e-mail,has a 2.0 version among Chinas young, urban, connect-Road Tripwhich is easier to censor and track. Only 56 percent of ed consumers. They text one another: Where are you? BOOKSInternet users in China use e-mail at (Zai nar ne?)best books 2010 chinaall, Zhang tells us, and then primar-Some commentators argue thatily for business communication. Chinas new form of state capital- Zhang tracks how connectivityism poses a threatening challengeis giving rise to a collective consumer to free markets. Zhang paints apower that could transform themore realistic picture of the naturenature of business in China. Forof Chinese capitalism. Its neitherexample, Chinese consumers usingsingle nor unified, she says. It is amainly mobile phones to communi-body made up of three separatecate organized a spontaneous boycottorgans: state capitalism, which ofof French retailer Carrefour after acourse is omnipresent; a flourishingFrench pro-Tibet activist attacked asector built on private capitalism;wheelchair-bound, retired Chinese and international capitalism. Theathlete during the Olympic torchroles of the latter two are often over-relay in May 2008. Carrefour hadlooked by those observing Chinanothing to do with the attack, butfrom the outside in. Thats why itssuffered the wrath of consumer-driven, nationalisticimportant to have observers like Zhang telling us aboutprotest. The interconnection of millions of Chinesethe transformative changes unfolding in China 2.0 fromempowers them as a group, as consumers, and as social the inside out. Her contextualized revelations providemembers in a political regime to form a collective powerthe means for a new understanding, even for the well-to interact with merchants and policy makers in a way initiated reader.they never experienced before, Zhang writes. Even President Hu Jintao now conducts onlinechats with Chinese netizens, and has publicly stated that Peter Hessler often seems to stumble across insights inhe tries to find time to gauge the publics reactions tohis epic 7,000-mile road trip across China. Along thegovernment policies via postings on the Internet andway, in Country Driving: A Journey through China fromcraft government responses accordingly. Formerly, theFarm to Factory, this years best book on China, he man-Chinese public was a passive receiver of messages fromages to explore the human sides of industrialization,strategy + business issue 61the top of society or within very confined boundaries;entrepreneurialism, urbanization, the creation of thetoday everyone can be a newsmaker and broadcaster, auto industry, the inadequacies of Chinas healthcare sys-writes Zhang. This collective power is only gettingtem, and the impact of the headlong building of thou-stronger and more sophisticated sands of miles of new highways modeled on the U.S.by the day. The implications are interstate highway system. 21. Hessler chooses his route from the only navigationtool at his disposal a 158-page pack of road mapspublished by a company called Sinomaps. The roads on all together in Chinas poor BOOKS to the Jetta. He secretly put them BEST Anhui province, contravening Chinese laws that forbid10these maps look mostly like squiggly red capillaries with- new car makers to enter the market (which the companyout names; they tend to disappear altogether when they later was able to have changed), and suddenly China hadenter sensitive geographic areas that the government its very own national car: the Chery (Qirui). Cherydoes not want exposed to visitors. Hessler decides to fol- Automobile Company is now Chinas largest domesticlow some of the capillaries that snake alongside a seriesautomaker, drawing the ire of foreign rivals for continu-of symbols that looks like this:. Its the ing to copy their designs on the cheap.outline of the Great Wall.In a section titled The Factory, Hessler chronicles Chinas car culture is brand new, of course, and vir- a similar episode that unfolds before his eyes in the 20tually every Chinese on the road today learned to drivesouthern province of Zhejiang. A factory that makes thewithin the last 10 years. Sometimes there are no rules ofsmall metal rings that connect the straps of womens brasthe road, drivers license tests are almost laughable, and has sprung up in the new town of Lishui along one ofChinese peoples ability to read maps is nonexistent.Chinas brand-new, industrialization-creating toll roads.Give rural Chinese people a map and they will turn itIts machinery was made according to specifications pro-upside down wondering what it is vided by the employee of another best books 2010 chinaand how it works. In China, its notfactory, who committed the parts tosuch a terrible thing to be lost.... memory while at work and drewChina is the kind of country where them when he returned home eachyou constantly discover somethingevening. After a fair bit of tweakingnew, and revelations occur on a dailythe replica, the new factory becamebasis, writes Hessler. The place profitable and then enduredchanges too fast; nobody can affordcopycats of its own. Its a problemto be overconfident in his knowl-that many a Western manufactureredge.... Nobody has todays Chinahas faced in China, but as Hesslerfigured out. So, rather than attempt- explains, it is part of the culture anding to paint China with broad-brushthe nature of Chinas current stage ofgeneralizations, he chronicles the his-industrialization.tory and social context of life along If the reader is tempted toits roads in order to illuminate the believe that the nature of China is todramatic changes of the present. copy rather than to advance, Hessler For example, in the 1940s, when the U.S. Army reminds us about Francis Cabot Lowell in the 1800s.sent jeeps to the Nationalist forces of Chiang Kai-shekBack then, the United States was the upstart society,fighting the Japanese and the advancing Red Army, theand the British carefully guarded the designs for theirvehicles suffered an inordinate number of accidents. water-powered Cartwright looms, he writes. ButThey were designed for the right side of the road, but Lowell visited the mills of Manchester under false pre-the Chinese drove on the left. So the U.S. Army pro- tenses and he used his photographic memory to rebuildposed that all of China switch sides, and Generalissimothe machines in Massachusetts, where his companyChiang agreed. This gave a leg up to U.S. automakers,became the foundation for the American textile indus-which rushed to enter China when trade openedtry. The implications for Chinas future are clear.decades later beginning with the saga of American Country Driving explores how China clears the landMotors and its Beijing Jeep in 1979, the textbook case to build new factory towns like Lishui, giving depth andfor failed foreign partnerships. background to the protests over land rights that fre- Hessler follows that story to the origin of Chinas quently pop up in global news articles. It also records theauto industry: A single Chinese engineer went to transformation of a distant suburb of Beijing from ruralEngland and bought equipment from an outdated Ford village to tourist destination and the creation of afactory. Then he went to Spain to acquire designs from class of entrepreneurs building restaurants and guest-a struggling Volkswagen subsidiary making a car similarhouses to take advantage of the change all based on a 22. 10Crisis Reprisednewly constructed road that made the village accessible Beijing is falling short in its ability to address theto Chinas newly minted middle class for the first time. flooding, desertification, water scarcity, and fast-dwin-Hesslers 2001 book, River Town: Two Years on thedling forest resources that threaten its future, Economy BESTYangtze (HarperCollins), which chronicled his time as afinds, and therefore it must increasingly rely on otherPeace Corps teacher in central Sichuan province, has actors, including the private sector, to manage thesebeen a must-read for every initiate to Chinese culture.problems. Further, environmental degradation in ChinaThis latest work, by the writer who has been calledhas contributed to significant public health problems,Americas keenest observer of the New China, providesmass migration, and economic loss. Ignored foran up-to-date companion and an unparalleled curbside decades, even centuries, Chinas environmental prob-view of the vast economic upheavals that a decade of 10lems now have the potential to bring the country to itspercent growth has wrought.knees economically, the author writes. She notes that21 estimates of the cost of environmental damage now range from 8 to 12 percent of Chinas US$4.9 trillionAnother probing examination of the impact of Chinas annual GDP (as of 2009).spectacular economic growth has resulted in an entirely The local impact of these problems is urgently felt.different type of analysis an in-depth look at the Desertification has already affected the lives and produc- BOOKSdepletion of Chinas natural resources and skyrocketingtivity of some 400 million people; in southwest Chinabest books 2010 chinarates of pollution. Elizabeth C. Economys The River alone, almost 100 million will lose their land withinRuns Black: The Environmental Challenge to Chinas 35 years if soil erosion continues at the current rate.Future was a pioneering work when it first appeared in According to the Chinese government, the total land Chinas global influence has grown to the point where companies can no longer separate theirChina strategies from their global strategies.2004. There have been a number of attempts to exam-area in 2007 affected by sandstorms that were caused byine Chinas environment since. But Economys seconddesertification equaled an area half again as big asedition, updated throughout, once again proves the Alaska. The magnitude of these problems could threat-book to be the most comprehensive, well-researched,en the stability of the government. The authority andand thoughtful analysis of Chinas growing environmen- legitimacy of the Communist Party depend on how welltal crisis and its implications for the countrys future Chinas leaders provide for the basic needs of their peo-development. (Disclosure: Economy endorsed my book,ple and improve their standard of living, EconomyThe Asian Mystique.) writes. Fundamental to the states capacity to meet this The new edition examines the policy transforma- challenge is the environment.... Thus, the environmenttions that have occurred in China over the past two or will be the arena in which many of the crucial battles forthree years in areas such as clean energy, climate change, Chinas future will be waged.and investment in and development of natural resourcesChinas modern approach to environmental protec-abroad. It assesses the impact of several recent definingtion mirrors the approach it embraced for economicevents on Chinas environment and its environmentaldevelopment: Devolve authority to local officials, openpractices: the Beijing Olympics, the global financialthe door to private actors, invite participation from thecrisis, and the Copenhagen climate change conference.international community, and retain only weak centralIt also traces the latest developments in the countryscontrol. But the result is a patchwork of environmental strategy + business issue 61environmental movement: the growing role of environ- protection in which a few wealthy regions with strongmental NGOs as watchdogs of both local governments leaders and international ties improve, while most of theand multinationals, and the appearance of urban-basedcountry continues to deteriorate. Economy, who is theenvironmental unrest beginning C.V. Starr Senior Fellow and director for Asia studies atin 2007. the Council on Foreign Relations, argues that no matter 23. what resources are invested, China will need to funda-mentally reform the local political scene enhancingtransparency, the rule of law, official accountability, andprehensive update, summing up BOOKSUnited States, provides a com- BEST 10the current environment and relating the key tales thatresource pricing to ensure that the environment willare crucial to understanding it. (Disclosure: Booz &not produce a severe drag on economic growth and aCompany publishes strategy+business.)challenge to the political system. Chinas reform process Tse takes an umbrella approach to describinghas brought an extraordinary dynamism and energy to Chinas business milieu. He says that Chinas economyboth the nature of Chinas environmental challenges and has four principal drivers: Open China, with its emerg-its environmental protection efforts, she writes. Yet iting consumer potential that offers short-term retailalso increases the uncertainty in attempting to chart opportunities and longer-term market share challenges;Chinas future environmental path. Competitive China, with its entrepreneurial energy and22 As for the likely outcome, Economy envisions three nascent innovation that is fostering highly competitivepossible scenarios, handicapping none: China goes indigenous companies; Official China, with its stategreen to its own benefit and the benefit of the rest of the capitalism and economic liberalization; and One WorldFour Chinasworld, inertia sets in and the status quo continues, or China, with its myriad business links and interdepen-an environmental meltdown in China (triggered bydencies with the rest of the world.a prolonged economic downturn inTses main thesis is that Chinasbest books 2010 chinawhich the Chinese focus even moreglobal influence has grown to theintently on economic development point where companies can noat the expense of the environment) longer separate their China strategiesshakes the world. The United States, from their global strategies theywith its potential to transfer technol-must be integrated. China is stillogy, and its strong environmental typically viewed as a place outenforcement apparatus and historythere, a stand-alone location isolat-of public participation in environ-ed from other aspects of global busi-mental protection, could play anness, he writes. That will change.important role in a positive out- As China continues to innovate,come, she notes. The environmentit will make a bigger contribution toprovides a natural and nonthreaten-the laboratory of global production,ing vehicle to advance U.S. interestsand its global value chains willnot only in Chinas environmentalincreasingly bring together compa-protection efforts but also in its basic nies from China and other countrieshuman rights practices and trade opportunities, shein unprecedented networks of businesses that crosswrites. At the same time, bold leadership will be re- national lines, Tse writes. He points to Sam Palmisanosquired to put in place the mechanisms to make trueglobalization strategy at IBM, as well as those of KFC,reform and change possible. Microsoft, Procter & Gamble, Coca-Cola, Pepsi, andSwedens Tetra Pak, as examples of the success that suchintegrated strategies can deliver.The business environment for foreign players in ChinaTse delivers the familiar warning against going intohas grown more difficult in recent years as the govern- China with blinders on and stereotypes intact. Instead,ment has endeavored to substitute domestic companieshe says, companies must recognize that they will havefor overseas investors to the consternation of the lat- to deal with the difficult realities of operating there,ter, who are being squeezed out of their present market particularly in terms of the government, and adaptshares. Consequently, much of the old advice aboutaccordingly. Although this may seem obvious, countlessnavigating Chinas difficult business environment has unsuccessful foreign forays into China have proved howbecome outdated. In The China Strategy: Harnessing thedifficult it is to follow the standard advice. Tse providesPower of the Worlds Fastest-Growing Economy, Booz &a useful reminder: The most successful one world com-Companys Chairman of Greater China Edward Tse, panies will be those that negotiate the multilevel intrica-who was born in Hong Kong and educated in the cies of relationships with officials, value-chain partners, 24. 10years best books on China are a good place to start. +Sheridan Prasso ([email protected]) has been writingabout Asia for more than two decades, having been based in China,Hong Kong, Japan, and Cambodia. She is a contributing editor atFortune and was previously Business Weeks Asia editor. An associatefellow at the Asia Society, Prasso is the author of The Asian Mystique:(Public Affairs, 2005).and customers, then integrate these elements into a China as now, Tse concludes. The paradoxical truth,global framework. Bringing these complexities intohowever, is that a China strategy is not a strategy forcoherent focus is the foundation of any China strategy.entering China. It is a strategy for creating a global busi- BEST The way to achieve this difficult goal, Tse main-ness, in a way that prepares for something that may betains, is by mustering the strategic vision, versatility, and happening for the first time in history: the knittingvigilance needed to build new business strategies thattogether of worldwide enterprise into a coherent whole.Rob Goffee and Gareth Jones, Jody Heymann with MagdaClever: Leading Your Barrera, Profit at the Bottomincorporate the four economic drivers. Versatility, forWhether such a rosy scenario will be borne out re-Smartest, Most Creativeof the Ladder: Creating Valueexample, requires mental fluidity and resilience, speed ofmains to be seen. Yet its clear that a changing, growingPeople (Harvard Business by Investing in Youraction and organizational nimbleness, coordinated oper- China is inevitable. The best means of navigating itsPress, 2009) Workforce (Harvard Business Press, 2010)ations among markets, constant monitoring of newchallenges, then, are knowledge and preparation. ThisBoris Groysberg, Chasingdevelopments, managing human capital, establishingStars: The Myth of Talent and23and maintaining relationships in China, running Janus-the Portability ofPerformance (Princetonfaced operations, and having an effective executive inUniversity Press, 2010)China. Again, obvious, but not always heeded by for-eign players. No other country resembles China. No other BOOKScountry has so many opportunities and challenges. Dragon Ladies, Geisha Girls and Our Fantasies of the Exotic Orientbest books 2010 human capitalAnd no other time has been so crucial for entering HUMAN CAPITALTalent Redefinedby Sally HelgesenPeter Drucker famously defined a knowledgeeconomy as one in which the human brainprovides the primary means of production.He then noted the obvious corollary: that an strategy + business issue 61organizations most valuable resource is lodged in theheads of its employees and goes home with them atnight. In the decades since, this disturbing vision of theirassets streaming out of the building every night has ledmany companies to make a reappraisal of the value of 25. their employees and to place a higher premium on tal-ent. But it has also led to a somewhat overexalted viewof the role that star performers play in organizations and operative word here, for Clever isBEST written as a manifesto. It eschews BOOKS footnotes for passionate advocacy that is couched in 10the extent to which enterprise is dependent upon indi- clear and commonsense terms. This approach serves thevidual talents.reader well: Clever is wonderf