turn costumer input into innovation
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Turn Costumer Input Into InnovationTRANSCRIPT
BEST PRACTICE
Turn
Lots of companies ask customers what
they'd like to see in new products and
services-but they go about it ali wrong
A new methodology for capturing
customer input promises to galvanize
the innovation process.
Customer Inputinto Innovation
by Anthony W. Ulwick
EVERY COMPANY PRIDES ITSELF
on giving customers what theyask for. Healthier fast-f(X)d prod-ucts. Nicotine-free cigarettes.Bigger engines in cars. After all,giving people what they wantwill guarantee success - or so youwould think. Customers often de-scribe the solutions they want in end-less focus groups and surveys and thensit back and wait while R&D rolls upits collective sleeves and gets to workon materializing their ideas. How sad itis, then, when the product or service isfinally introduced-and the only reac-tion in the marketplace is a resoundingker-flop.
Why does this happen? Because com-panies go about listening to customersall wrong-so wrong, in fact, that theyundermine innovation and, ultimately,the bottom line.
My company has spent the past 12years watching organizations get mar-ket research and product developmentwrong-and right. The problem, whenthere is one, is simple: Companies asktheir customers what they want. Cus-tomers offer solutions in the form ofproducts or services. "I'd like a pictureor video phone," they say, or, "I want tohuy groceries on-line." Companies thendeliver these tangibles, and customers,
JANUARY 2002 91
BEST PRACTICE • Turn Customer Input into Innovation
very often and much to every-one's chagrin, just don't buy.
The reason is also quitesimple. Customers should notbe trusted to come up withsolutions; they aren't expertor informed enough for thatpart of the innovation pro-cess. That's what your R&Dteam is for. Rather, customersshould be asked only for out-comes-that is, what theywant a new product or serviceto do for them. Mayhe theywant to feel a closer bond topeople when talking on thephone or to spend less timetraveling to and from the gro-cery store. What form the so-lutions take should be up toyou, and you alone.
Over the years, my col-leagues and I have developeda methodology for capturingcustomer input that focuseson outcomes, not solutions.The methodology gathers data in a waythat reveals what the customer is reallytrying to achieve in using a product orservice. Any company can execute thismethodology on its own, following fivesteps. First, develop a different style ofcustomer interview. Then conduct theinterviews, organize the data, and ratethe outcomes. Finally, use the informa-tion to spur in-house innovation. In thefollowing pages, we'll look at each stepin turn.
Before that, however, let's confrontone of the essential implications ofadopting this methodology. Using itmeans a company must admit to itselfthat it is not entirely customer-driven. Itis informed by customer input, yes, butit must also accept the heavy responsi-bility for coming up with new productsand services on its own. That may not
Anthony W. Ulwick is the CEO ofStrat-egyn, an innovation management con-sultancy and enterprise software firmbased in Lantana, Florida. Be Is the author(^Business Strategy Formulation (Quo-rum Books, 1999). ffe can be contacted [email protected].
sound like a serious shift at first reading,but for many companies, it constitutes aradically different approach to marketresearch and product development. Inshort, it marks a radical shift in strategy.
The Problem withListening to CustomersPeople in your organization may resistthis new approach. But the fact is, thetraditional approach of asking cus-tomers for solutions tends to underminethe innovation process. That's becausemost customers have a very limitedframe of reference. (To learn moreabout the psychology of customers'needs, see the sidebar "The Limitationsof Listening," by Harvard BusinessSchool professor Dorothy Leonard.)Customers only know what they haveexperienced. They cannot imagine whatthey don't know about emergent tech-nologies, new materials, and the like.What customer, for example, wouldhave asked for the microwave oven, Vel-cro, or Post-It Notes? At the time thetransistor was being developed, radioand television manufacturers were stillrequesting improved vacuum tubes.
By asking your customers for solu-tions, then, your company tums into acounter clerk at a fast-food restaurant.You take orders and rush to fill them.Compare that with the waiters at asmall caf̂ . They can listen to cus-tomers - "Do you have anything withfruit and chocolate for dessert?" and"The cod was too salty, but the saucewas wonderful"-and use this informa-tion to help the chef come up with newand inventive menu items that cus-tomers could only dream of.
There are several concrete dangers oflistening to customers too closely. Oneof these is the tendency to make incre-mental, rather than bold, improvementsthat leave the field open for competi-tors. Kawasaki leamed this lesson whenit introduced its )et Ski. At the time, thecompany dominated the market forrecreational watercraft. When it askedusers what could be done to improvethe jet Ski's ride, customers requested
92 HARVARD BUSINESS REVIEW
Turn Customer Input into Innovation • BEST PRACTICE
extra padding on the vehicle's sides tomake the standing position more com-foitabie. It never occtirred to them to re-quest a seated watercraft. The companyfocused on giving customers what theyasked for, while other manufacturersbegan to develop seated models thatsince have bumped Kawasaki-famedfor its motorcycles, which are never rid-den standing-from its leading marketposition.
Meeting customer demands to theletter also tends to result in "me-too"products. Customers merely ask for
missing features that other manufac-turers already offer. In the mid-1980s,for example, market studies conductedby U.S. automakers Ford, Chrysler, andGM revealed that customers wantedcup holders in their vehicles. BecauseJapanese manufacturers had providedthis feature for years, when Americancompanies finally added the frequentlyrequested cup holders, none gained anadvantage; customers merely said, "it'sabout time."
Another danger arises in the commonpractice of listening to the recommen-
dations of a narrow group of customerscalled "lead users"-customers who havean advanced tinderstanding of a productand are experts in its use. Lead users canoffer product ideas, but since they arenot average users, the products thatspring from their recommendationsmay have limited appeal. Consider whathappened to U.S. Surgical, a medical in-strumetit manufacturer now owned byTVco. Acting on recommendations fromlead-user surgeons, U.S. Surgical intri>duced a set of instruments that couldrotate and move in many directions. The
The L imi tat ions o f Listening by Dorothy Leonard
O /̂er the last decade, much has been
written about the importance of
listening to customers, and companies
have spent millions of dollars trying to
get inside the heads oftheir users. Yet
the question of how to listen to "the
voice of the customer" remains a mat-
ter of debate. Why? Because what re-
searchers hear depends upon the degree
to which customers know what they are
talking about.
Generally speaking, customers can
say what they want if they are asked to
make selections within a familiar prod-
uct category. For example, Nissan De-
sign managed to figure out-through
questioning and using leather samples-
how U.S. customers wanted their new
cars to smell. Harley-Davidson's devoted
customers can talk about how their mo-
torcycles sound. They are able to express
what they want because oftheir exten-
sive experience with the product cate-
gory and their educated, sophisticated
tastes.
But when customers are asked to
make new product recommendations or
to venture into territory about which they
have limited or no knowledge, they tend
to run into at least two kinds of blocks.
The first is what psychologists call "func-
tional fixedness"-the human tendency
to fixate on the way products or services
are normally used, making people un-
able to imagine alternative functions.
For example, people asked to perform a
task requiring the use of a wire are strik-
ingly less likely to think of unbending
a paperclip ifthey are given the clip
attached to papers than ifthey see the
clip loose. Another problem is that peo-
ple may not be able to conceive of a solu-
tion because they have apparently contra-
dictory needs. Kimberiy-Clark wrestled
with this problem when it developed
Huggies diapers. Parents told researchers
theydidn'twanttheirtoddlersto wear
diapers any more; at the same time,
theydidn'twanttheirchi ldrentowet
the bed. The solution, the pull-up
diaper, dealt with this contradiction.
Asking customers to focus on desired
outcomes is an effective way to deal with
both of these psychological blocks. More-
over, the further into the future or the
unknown one goes, the more one has to
eschew direct inquiry for open-ended
questions or other techniques. A focus
Dorothy Leonard is the William J. Abernathy Professor of Business Administration atHarvard Business School in Boston.
on desired outcomes can help compa-
nies identify difficult-to~articulate needs.
After all, asking someone what he wants
to drill a holefor is likely to yield better
information than asking about the
desired size of the drill bit. Another tech-
nique, behavioral observation, is also
useful in determining what customers
are trying to achieve. In "Spark Innova-
tion Through Empathic Design"(HBR
November-December 1997),' advanced
the notion that especially when cus-
tomers are unaware oftheir behavior,
observation can help uncover their
unarticulated needs. When Nightline
challenged product development com-
pany IDEO to redesign the lowly
shopping cart, anthropologists took
note of unsafe and inefficient-but
unconscious-usage in grocery stores.
As a result, the redesigned cart had such
features as small removable baskets that
customers could take to sections of the
store, fill, and then replace in the cart
that they had left centrally parked.
How important is the voice of the
customer? Very. But discerning the
difference between what customers are
able to say and what they want, and
then acting on those unspoken desires,
demands that companies learn to go
well beyond listening.
JANUARY 2002 93
BEST PRACTICE • Turn Customer Input into Innovation
instruments were unveiled with greatfanfare at a national medical show m1991. Although the initial excitement ledto some orders at the show, reordersamounted to less than 5%- The reason:The lead users were simply too sophis-ticated. While most surgeons applaudedthe improvements, they found the newinstruments too difficult to use.
Finally, a company may be disap-pointed to discover that customers don'twant "new and improved" features andfunctions. If they are forced to pay forsuch new features, customers can evenbegin to resent the company. Softwarecompanies, for example, operate so-phisticated user laboratories and em-ploy keystroke-tracking technology inan effort to build incremental improve-ments into their products. Yet mostusers avail themselves of less than 10% ofthe software's overall capability - andgrumble when they feel forced to payfor upgrades.
The irony is that most organizationstruly believe that they excel at listeningto customers and delivering on theirwishes. In a 1996 survey of 270 compa-nies, we found that 71% were very satis-fied with their ability to decipher whattheir customers want. Yet when compa-nies give customers what they ask forand fail to see the results they hopedfor, executives scratch their heads andconclude that customers don't reallyknow what they want.
How to Focus on OutcomesLet's look at our outcome-based meth-odology in detail, using as an exampleCordis Corporation, a medical devicemanufacturer in Florida. In 1993. thecompany's annual sales were $223 mil-lion, and its stock was valued at around$20 a share. At the time, Cordis had lessthan a 1% share of the market for angio-plasty balloons, which are used to openthe blocked arteries of cardiac patients.Cordis's goal was to deploy a new prod-uct strategy to achieve at least a 5% gainin market share.
Using our methodology, Cordis con-ducted outcome-based customer inter-views with cardiologists, nurses, andother laboratory personnel. The inter-
views focused not on what featuresthese professionals would like to see inan angioplasty balloon but rather on theresults they wanted to achieve in doingtheir jobs-before, during, and after thesurgery. Cordis used the data from in-terviews to formulate a completely newproduct strategy that addressed impor-tant, unsatisfied needs in new marketsegments. The data also led Cordis toconclude that some of its products thenin development were likely to fail, andso it suspended costly further work onthem. As a result, Cordis's revenuesnearly doubled within two years, reach-ing $443 million by June 1995.
Cordis gained a market leadership po-sition in angioplasty balloons, but thatwas just the beginning. With the dataobtained from the outcome-based mar-ket studies, it quickly recognized the po-tential value of a device that could beplaced in a treated artery to prevent ablockage from recurring. The companywent on to develop the stent, which be-came the fastest-growing product inmedical device history, producing nearly$1 billion in revenue in its first year. In1996, Johnson & Johnson acquired Cor-dis at $109 a share.
Here's the process Cordis used toachieve this remarkable growth.
Step i :Plan outcome-based customerinterviews.
To be successful, outcome-based cus-tomer interviews must deconstruct, stepby step, the underlying process or activ-ity associated with the product or ser-vice. In our example, Cordis began bydefining each aspect of the angioplastyprocess. Simply stated, this included in-serting the catheter into an artery, plac-ing the balloon at the lesion or block-age, opening the artery by inflating theballoon, and then removing the catheterfrom the patient.
Once you define the process, care-fully select which customers will par-ticipate. It's important to narrow inter-viewees to specific groups of peopledirectly involved with the product. Openthe interviews to too wide a group - dis-
tributors, retailers, stakeholders, sales-people, and so on - and you end up withextraneous information that can com-plicate the research effort and lead yotircompany astray. Cordis, for example,chose to interview customers who cotildjudge the value of its product from auser standpoint and from a cost per-spective-cardiologists (who performthe procedure), nurses (who assist in theprocedure), and hospital administrators(who focus on financial issues).
It's also important to select the mostdiverse set of individuals within eachcustomer type. The more diverse thegroup, the more complete the set ofunique outcomes that is captured. InCordis's case, interviewees includedboth cardiologists that performed manyangioplasty procedures each month andthose who performed only a few. Thecompany also sought to include cardi-ologists in varying age groups and fromdifferent parts of the country, as well asdoctors who belonged to HMOs andthose who did not.
Step 2:Capture desired outcomes.
Capturing desired outcomes requiresa moderator who can distinguish be-tween outcomes and solutions and canweed out vague statements, anecdotes,and other irrelevant comments. Themoderator digs beneath the surface ofcustomers' words-clarifying and vali-dating the statements-and makes sureparticipants consider every aspect ofthe process or activity they go throughwhen using a product or service. When-ever a customer comes up with some-thing that sounds like a solution, themoderator redirects the question toforce him or her to think about the un-derlying process. For example, Cordis'smoderator asked the participants to dis-cuss what difficulties they typically en-countered when performing the angio-plasty procedure. The moderator alsoasked them to describe how the proce-dure would ideally be performed, bar-ring any technological limitations. Theparticipants then talked freely abouteach step in the angioplasty process; the
94 HARVARD BUSINESS REVIEW
Turn Customer Input into Innovation • BEST PRACTICE
moderator made sure all the steps werecovered in detail.
Most interviews begin with partici-pants rattling off statements or adjec-tives in the form of loosely stated ideasor solutions. Such statements offer astarting point for capturing outcomes.During the Cordis interviews, for exam-ple, cardiologists told the moderatorthey wanted a balloon that was "easy tomaneuver" "smooth," and "stiff." Theyalso requested several solutions such asa "thinner balloon" and a "coated guidewire." Nurses said they wanted the de-vice to be "brightly packaged" and "easyto open."
After the moderator captures a hand-ful of these statements and adjectives,he or she translates each one into a de-sired outcome. A well-formatted out-come contains both the type of improve-ment required {minimize, increase) anda unit of measure (time, number, fre-quency) so that the outcome statementcan be used later in benchmarking, com-petitive analysis, and concept evalua-
tion. The moderator addresses one state-ment at a time, rephrasing it to be freefrom solutions-words that inherentlydescribe specifications or constraints -or ambiguities (words such as "easy,""reliable," and"comfortable"). Then themoderator confirms the translationswith the participants to eliminate guess-work after the interview ends.
The Cordis moderator, for instance,asked cardiologists why they wantedthe device to be "easy to maneuver."Cardiologists replied that they wantedto move quickly through tortuous ves-sels; the moderator then documentedthe outcome as "minimize the time ittakes to maneuver through a windingvessel." The moderator then asked thecardiologists to confirm that this word-ing accurately represented the desiredoutcome. Similarly, when asked to de-scribe why they wanted a balloon to be"smooth," cardiologists explained thatthey wanted to prevent it from inadver-tently dissecting the vessel or from en-tering side vessels. The moderator then
translated the desired outcomes as "min-imize the risk of dissecting a vesseP'and"reduce the number of side vessels thatare inadvertently entered." Again, thecardiologists confirmed these desiredoutcomes.
Like most companies we've workedwith, Cordis found that about 75% ofthe customers' desired outcomes werecaptured in the first two-hour session.The second session yielded another15% to 20% of the desired outcomes; inthe third session, 5% to io% more cameto the surface. Upon completing the in-terviews with 30 or so participants,Cordis was confident it had capturedmore than 96% ofthe customers'desiredoutcomes.
Step 3:Organize the outcomes.
Once the interviews are complete, re-searchers make a comprehensive list ofthe collected outcomes, removing du-plicates and categorizing the outcomes
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into groups that correspond to each stepin the process.
Cordis categorized its outcomes intothe four groups that comprise the an-gioplasty process: making an insertion,placing the device at the lesion, openingthe artery, and removing the devicefrom the patient. The final lists for car-diologists, nurses, and administratorseach contained between 30 and 45 out-comes. After reviewing the lists, oneCordis manager commented that thiswas the first time he had seen such use-ful customer information documentedin one location, finally making it possi-ble for the company to understand howits customers measure value.
Step 4:Rate outcomes for importanceand satisfaction.
Once you have a categorized list of out-comes, you must conduct a quantitativesurvey in which the desired outcomesare rated by different types of cus-tomers. Survey participants are askedto rate each outcome in terms of its im-portance and the degree to which theoutcome is currently satisfied. The rat-ings are fed into a mathematical for-mula, revealing the relative attractive-ness of each opportunity. (To learn moreabout the rating system and how to rec-ognize new market possibilities, see thesidebar "The Opportunity Algorithm.")
Step 5:Use the outcomes to jump-startinnovation.
The final step entails using the data touncover opportunity areas for productdevelopment, market segmentation,and better competitive analysis. Thedata are also used to formulate conceptsand to evaluate the potential of alter-native concepts.
Using the survey results from Step 4,Cordis identified several new productopportunity areas. The outcomes thatcustomers deemed most important andwere least satisfied with-such as "min-imize the recurrence of a blockage"-represented the greatest opportunity
96
areas. Those of lesser importance andthat were reasonably well satisfied by ex-isting products weren't worth pursuing.
The survey results also allowed Cor-dis's engineers to understand the "nat-ural order" of segmentation in the an-gioplasty balloon market. For example,the company discovered that one groupof surgeons valued precision and accu-racy in balloon placement; anothergroup valued the speed at which they
could complete the procedure. Recog-nizing these differences, Cordis createda set of products that satisfied the de-sired outcomes of each group. The newproducts helped the company to domi-nate each of those segments - segmentsthat its competitors never knew existed,having divided their own markets ac-cording to artificial, less relevant classi-fications such as price point, businesssize, or geography.
The Opportunity Algorithm
How can a company uncover and
prioritize the most promising new
product and service opportunities?
Executives struggle with this question
every day-and outcome-based research
offers a surprisingly simple answer. The
best opportunities spring from those
desired outcomes that are important to
customers but are not satisfied by exist-
ing products and services.
Selecting the richest areas of oppor-
tunity from a long list of desired out-
comes is critical, since chasing after less
promising ones drains resources. Fortu-
nately, a simple mathematical formula
that we call the "opportunity calcula-
tion" makes it possible to discover the
most promising areas. The formula
[Importance + (Importance-Satisfaction)
= Opportunity] yields highly accurate
results. Companies ask their customers
to quantify on a scale ofone to ten the
importance of each desired outcome
and the degree to which it is currently
satisfied. Those rankings are inserted
into the formula, resulting in an overall
opportunity score. To see how this
works, take a look at the accompanying
chart, which lists some ofthe many out-
comes Cordis culled from cardiologists
who use balloon angioplasly devices.
In Outcome l,usersgavea very high
rating (9,5) to the importance of "mini-
mizing restenosis (or the recurrence of
a blockage)." They gave a much lower
score (3.2) when asked to rate the de-
gree to which this need was currently
being satisfied. Those rankings were in-
serted into the formula, [9.5 + (9.5 - 3.2)],
yielding an opportunity score of 15.8.
Outcome 3,"minimize the amount of
damage caused to any vessel," was
equally important with a rating of 9.5
but was satisfied to a much greater
degree (7.5 versus 3.2). As a result,
Outcome 3 represents a much lesser
opportunity, as indicated by its
opportunity score of 11.5.
This algorithm also lets companies
overcome the limitations associated
with traditional gap analysis, an ap-
proach that considers only the differ-
ence between importance and satisfac-
tion. Using gap analysis, for example.
Outcomes 2 and 5-both with a "gap"
of4-i-would represent equal opportu-
nities. Using the opportunity calcula-
tion, the opportunity associated with
Outcome 2 is 36% higher (12.4 versus
9.2) because of Its greater importance.
It is also important to note that in
the formula [Importance + (Importance
- Satisfaction) = Opportunity], the
amount in parentheses can never be
less than zero. In other words, high
levels of satisfaction do not detract
from importance. An outcome with an
importance rating of 6.5 and a satisfac-
HARVARD BUSINESS REVIEW
Turn Customer Input into Innovation • BEST PRACTICE
Before brainstorming new productideas, Cordis used the interview data todefine its desired competitive position.For example, Cordis could see fi-om theresearch data that the frequency ofrestenosis was a competitive weaknessthroughout the industry. The companyset itself a target of reducing restenosisto 20%. It conducted a similar analysison several other areas of opportunity,defining aggressive target values that
would give Cordis a competitive posi-tion that was unique from its competi-tors and valued by its customers.
With the target values in place, Cordishad a framework for concept genera-tion. The R&D team went to work, sys-tematically formulating more than adozen product concepts. Engineers de-vised stiffer distal tips for quicker entry,added markings for better tracking, anddeveloped new materials that improved
tion rating of 8.5 would be put in the
formula as: [6.5 + (6.5 - 8.5)] or [6.5 + 0],
yielding an opportunity score of 6.5
rather than 4-5. This helps to maintain
the integrity ofthe formula.
Not surprisingly, users indifferent
segments ofthe market rate outcomes
with varying levelsof importance and
satisfaction, resulting in a different
opportunity prioritization for each
segment These differences can form
an important foundation for product
strategy. Cordis, for example, was able
to identify and prioritize opportunities
across the total market and within
various segments. The outcomes
received a unique opportunity score
in each segment. Cordis successfully
focused its research and development
efforts on the opportunities with the
highest opportunity scores in each
segment,
Cordis's Angioplasty Balloon Market-Opportunity Scores
Desired OutcomeSegment 1: Interventional Cardiologists
1. Minimize restenosis (or therecurrence of a blockage)
2. Minimize the amount of forcerequired to cross the lesion withthe balloon
3. Minimize the amount of damage(dissection) that is inadvertentlycaused to any vessel when putting theguide wire in place
4. Minimize the time it takes toplace the balloon across the lesion
5. Minimize the time it takes tocomplete the procedure
6. Minimize the time it takes tomove the balloon through a windingvessel
Importance
9.5
8.3
95
9-1
5-1
7.7
Satis^ction
3-2
4.2
75
8.4
1.0
6.6
Opportunity
15.8
12.4
11.5
9-8
9.2
8.8
When companies use this algorithm to identify and prioritize market opportuni-ties, they eliminate not only the hazards of solution-based research but also theguesswork.
lANUARY 2002
maneuverability. Cordis also devised astent that was successful in achievingthe goal of reducing restenosis to 20%.
Lastly, Cordis managers evaluatedeach product concept to determine thedegree to which it satisfied each out-come. They found that the improve-ment over competitive offerings wouldbe 30% or more in most products. Cordisalso abandoned development on certainproducts as it was clear from the datathat they would be of minimal value tocustomers. For example, one angio-plasty product that focused on maxi-mizing blood fiow while the balloonwas inflated was dropped because thatoutcome was already satisfied and nearthe bottom of the prioritized opportu-nity list. Confident that they were on theright track, Cordis moved forward witha new product portfolio-and achievedmarket gains that far exceeded the com-pany's expectations.
The results of using the outcome-based methodology speak for them-selves. Between 1994 and 1995, Cordisintroduced 12 new angioplasty cathetersand saw its market share in interven-tional cardiology grow from less than1% to nearly io% in the United States;market share approached i8% in Japan,20% in Europe, and 30% in Canada. Netsales shot up 30%, and the company's$50 million cash position allowed it toreach into new markets.
As the Cordis story shows, coming to anunderstanding of what customers valueis a far more fruitful exercise thanmerely asking them to submit their ownsolutions. The process of innovation be-gins with identifying the outcomes cus-tomers want to achieve; it ends in thecreation of items they will buy. Whendesired outcomes become the focus ofcustomer research, innovation is nolonger a matter of wish fulfillment orserendipity; it is instead a manageable,predictable discipline. ^
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