Stephen P. Kaufman

Senior Lecturer of Business Administration

Stephen P. Kaufman has been a Senior Lecturer of Business Administration at the Harvard Business School since 2001. He teaches in both the MBA program and various Executive Education programs. His MBA courses include the first year required course in Technology and Operations Management and the second year elective Building and Sustaining the Successful Enterprise, which was developed by Clay Christensen and focuses on strategy and general management.  This has become one of the most popular elective course in the MBA curriculum with over half the 2nd year student body enrolling.  The Classes of 2008 and 2011 recognized Kaufman with their Faculty Teaching Award and he was named a recipient of the school’s recently established Charles M. Williams Award for Excellence in Teaching.

Kaufman writes, lectures, and consults about board and corporate governance, operations and supply chain management, acquisition strategy and integration, and creating disruptive growth through innovative business models and technologies.

He is the retired Chairman and Chief Executive Officer of Arrow Electronics, Inc. (NYSE), which he joined in 1982.  He was appointed President and Chief Operating Officer of the corporation in1985, added the Chairman’s title in 1994, and retired in 2002.  During his tenure Arrow grew from a $500 million USA centric corporation to a $12 billion global enterprise ranking within the top 200 companies on the Fortune 500 list.  In 2005 Electronics Business magazine named Kaufman one of the ten most influential executives in the electronics industry over the past 25 years.

Prior to joining Arrow, he served in executive capacities with Midland-Ross Corporation and for ten years was with the international management consulting firm, McKinsey and Company, where he was a partner in their Cleveland office focusing on strategy and operations issues for industrial clients.

He currently serves on the Boards of Directors of Harris Corporation (NYSE) andKLA-Tencor (NASDQ).  In addition, he is on the Board of Directors of Tyrian Corporation a privately held company.  He also serves on the Boards of several philanthropic and arts organizations in Boston.

He earned his B.S. degree in economics and engineering from the Massachusetts Institute of Technology in 1963 and an MBA degree from Harvard Business School in 1965. He received an honorary Doctorate Degree from Dowling College in 1995 and was awarded a Distinguished Alumni Achievement Award from the Harvard Business School in 1997.

Journal Articles

  1. Evaluating the CEO

    This article includes a one-page preview that quickly summarizes the key ideas and provides an overview of how the concepts work in practice along with suggestions for further reading. After Kaufman became a CEO, he was struck by how perfunctory the board was in its feedback on his performance. The chair of the compensation committee would pop by his office following the year-end board meeting, congratulate him on the company's making its numbers, and then hand him an envelope containing the details of his comp package before walking out the door. The entire exchange would last no more than 10 minutes. That sort of review was a big contrast from the intense evaluations Kaufman received as a senior executive--assessments based on input from many sources and on multiple dimensions of his performance. As chief executive, all of sudden his total worth was summed up in just three or four financial measures. Although CEOs should have autonomy, reducing performance management to only financial measures makes little sense. All the financial incentives in the world won't transform CEOs into better decision makers. And bad decisions can bring companies down. Boards have an obligation to shareholders to ensure that companies are led well, and the sooner they can spot problems with leaders' performance, the better. With that in mind, Kaufman encouraged Arrow Electronics, where he was CEO for 14 years, to adopt a formal process that obliged independent directors to talk to executives and observe operations firsthand. Directors considered CEO performance in five key areas: leadership, strategy, people management, operating metrics, and relationships with external constituencies. As a result, they picked up on problems Kaufman might not have noticed, provided counsel that made him a stronger leader--and avoided disasters along the way.

    Keywords: Decision Choices and Conditions; Governing and Advisory Boards; Leadership; Managerial Roles; Performance Evaluation; Motivation and Incentives;

    Citation:

    Kaufman, Stephen P. "Evaluating the CEO." Harvard Business Review 86, no. 10 (October 2008). View Details
  2. Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things

    Most companies aren't half as innovative as their senior executives want them to be (or as their marketing claims suggest they are). What's stifling innovation? There are plenty of usual suspects, but the authors finger three financial tools as key accomplices. Discounted cash flow and net present value, as commonly used, underestimate the real returns and benefits of proceeding with an investment. Most executives compare the cash flows from innovation against the default scenario of doing nothing, assuming - incorrectly - that the present health of the company will persist indefinitely if the investment is not made. In most situations, however, competitors' sustaining and disruptive investments over time result in deterioration of financial performance. Fixed- and sunk-cost conventional wisdom confers an unfair advantage on challengers and shackles incumbent firms that attempt to respond to an attack. Executives in established companies, bemoaning the expense of building new brands and developing new sales and distribution channels, seek instead to leverage their existing brands and structures. Entrants, in contrast, simply create new ones. The problem for the incumbent isn't that the challenger can spend more; it's that the challenger is spared the dilemma of having to choose between full-cost and marginal-cost options. The emphasis on short-term earnings per share as the primary driver of share price, and hence shareholder value creation, acts to restrict investments in innovative long-term growth opportunities. These are not bad tools and concepts in and of themselves, but the way they are used to evaluate investments creates a systematic bias against successful innovation. The authors recommend alternative methods that can help managers innovate with a much more astute eye for future value.

    Keywords: Investment; Innovation and Management; Growth and Development Strategy; Business and Shareholder Relations; Prejudice and Bias; Value Creation;

    Citation:

    Christensen, Clayton M., Stephen P. Kaufman, and Willy C. Shih. "Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things." Special Issue on HBS Centennial. Harvard Business Review 86, no. 1 (January 2008). View Details

Cases and Teaching Materials

  1. Drilling Safety at BP: The Deepwater Horizon Accident

    Following the 2010 Gulf of Mexico explosion and oil spill on the Deepwater Horizon, public attention focused on BP's safety record, practices, and management culture as the primary cause of the disaster. Drawing on public sources this case traces the circumstances surrounding the accident, including not only the role of BP, but also of the two principle sub-contractors hired to actually do the drilling and capping of the oil well (Transocean Ltd and Halliburton Energy Services). The case examines BP's safety record and prior accidents at a refinery in Houston in 2005 and along a pipeline in Alaska in 2006, and describes managerial changes imposed by the Board of Directors and safety programs instituted by Tony Hayward, the new CEO installed in 2007.

    Keywords: Non-Renewable Energy; Management Practices and Processes; Managerial Roles; Business Processes; Organizational Culture; Practice; Safety; Energy Industry; Mexico, Gulf of;

    Citation:

    Kaufman, Stephen P., and Laura Winig. "Drilling Safety at BP: The Deepwater Horizon Accident." Harvard Business School Case 611-017, October 2010. (Revised May 2012.) View Details
  2. Dollar General (A)

    Dollar General Corporation (DG) operates one of the leading chains of extreme value retailers in the United States. 2006 revenues reached $9.2 billion, making DG the 6th largest mass retailer in the country. With revenues growing at 9% annually over the five-year period up to 2005, DG had the distinction of being only one of three retailers to outperform Wal-Mart in both revenue and profit growth in that time. Life in a Dollar General store paints a vivid picture of the roots and historical focus of the company. Opportunistic buying has given the stores an eclectic merchandise mix. Analysts often referred to this category as "treasure hunt" SKUs. Offers an opportunity to examine a company's business model, particularly since DG has been so successful competing with Wal-Mart where so many other retailers have not. While it started out as a family business in the five-and-dime tradition, it evolved to a close-out retail model where its unique low-overhead operations were advantageous. As it added highly consumable categories its mix shifted, but it managed to retain its low-overhead model. Interestingly, the mix shift was likely more an emergency strategy driven by store-level operations than by top-down driven strategy. Frames the growth options available to DG's CEO as he grapples with how to maintain growth.

    Keywords: Business Model; Family Business; Disruptive Innovation; Growth and Development Strategy; Competitive Advantage; Retail Industry; United States;

    Citation:

    Shih, Willy C., Stephen P. Kaufman, and Rebecca McKillican. "Dollar General (A)." Harvard Business School Case 607-140, May 2007. (Revised April 2009.) View Details
  3. Netflix

    Reed Hastings founded Netflix with a vision to provide a home movie service that would do a better job satisfying customers than the traditional retail rental model. But as it encouraged challenges it underwent several major strategy shifts, ultimately developing a business model and an operational strategy that were highly disruptive to retail video rental chains. The combination of a large national inventory, a recommendation system that drove viewership across the broad catalog, and a large customer base made Netflix a force to be reckoned with, especially as a distribution channel for lower-profile and independent films. Blockbuster, the nation's largest retail video rental firm, was initially slow to respond, but ultimately rolled out a hybrid retail/online response in the form of Blockbuster Online. Aggressive pricing pulled in subscribers, but at a price to both it and Netflix. But a new challenge was on the horizon: video-on-demand. How should Netflix respond?

    Keywords: Business Model; Film Entertainment; Disruptive Innovation; Growth and Development Strategy; Distribution Channels; Service Delivery; Renting or Rental; Competitive Strategy; Motion Pictures and Video Industry;

    Citation:

    Shih, Willy C., Stephen P. Kaufman, and David Spinola. "Netflix." Harvard Business School Case 607-138, May 2007. (Revised April 2009.) View Details
  4. Opening Pandora's Box

    Pandora.com provided a highly customizable online radio service tailored to listeners' musical preferences and had registered explosive growth since its September 2005 launch. But proposed changes in royalty rates threatened to kill off many Internet radio sites, including Pandora. Explores Pandora's business model and whether it can evolve to remain viable.

    Keywords: Business Model; Entrepreneurship; Disruptive Innovation; Intellectual Property; Growth and Development Strategy; Service Operations; Internet; Media and Broadcasting Industry;

    Citation:

    Shih, Willy C., Stephen P. Kaufman, Melissa Marie Blakeley, and Marissa Wairy Dent. "Opening Pandora's Box." Harvard Business School Case 607-135, June 2007. (Revised April 2009.) View Details
  5. Assessing Your Organization's Capabilities: Resources, Processes and Priorities

    Summarizes a model that helps managers determine what sorts of initiatives an organization is capable and incapable of managing successfully. The factors that affect what an organizational unit can and cannot accomplish can be grouped as resources, processes, and the priorities embedded in the business model. Demonstrates what kinds of changes are required in an organization and team structure for each different type of innovation.

    Keywords: Business Model; Experience and Expertise; Innovation and Management; Business Processes; Organizational Design; Organizational Structure; Mathematical Methods;

    Citation:

    Christensen, Clayton M., and Stephen P. Kaufman. "Assessing Your Organization's Capabilities: Resources, Processes and Priorities." Harvard Business School Module Note 607-014, September 2006. (Revised August 2008.) View Details
  6. Arrow Electronics--The Apollo Acquisition

    Having already made 10 acquisitions of competitors in the last decade, the CEO of Arrow is evaluating the acquisition of another small competitor to boost sales, become #1 in a niche market segment, and achieve economies of scale. He is struggling with whether the deal makes strategic sense given forecasts that this niche segment is declining, whether the price is too high given the competitor's lack of profitability, and how to integrate the company into Arrow to maximize its value if he does the deal. Provides information to permit valuing the acquisition and developing a post-merger integration strategy and plan.

    Keywords: Mergers and Acquisitions; Integration; Valuation; Performance Evaluation; Competitive Strategy; Corporate Strategy; Strategic Planning; Growth and Development Strategy; Electronics Industry; United States;

    Citation:

    Kaufman, Stephen P. "Arrow Electronics--The Apollo Acquisition." Harvard Business School Case 607-007, August 2006. (Revised September 2012.) View Details