Driving Change: How the Best Companies Are Preparing for the 21st Century

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Based on eight years of in-depth, worldwide research at the SEI Center for Advanced Studies in Management at the Wharton School, Driving Change presents an integrated real-world framework of the qualities that the 21st-century corporation must possess to succeed. The authors focus on how these ideas actually work in practice, showing how any corporation can be dynamic, effective, and prosperous. Chapter by chapter, they relate the experience of these companies that have put the new ideas into action - what went ...
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1998 Hard cover New in very good dust jacket. Sewn binding. Cloth over boards. 368 p. Audience: General/trade. book is new no dust jacket

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Overview

Based on eight years of in-depth, worldwide research at the SEI Center for Advanced Studies in Management at the Wharton School, Driving Change presents an integrated real-world framework of the qualities that the 21st-century corporation must possess to succeed. The authors focus on how these ideas actually work in practice, showing how any corporation can be dynamic, effective, and prosperous. Chapter by chapter, they relate the experience of these companies that have put the new ideas into action - what went wrong, what went right, and the lessons they learned. Each chapter concludes with highlights of pointers, cautions, and links - the links that connect one series of actions with others to make for integrated change.
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Product Details

  • ISBN-13: 9780684827445
  • Publisher: Free Press
  • Publication date: 1/22/1998
  • Pages: 368
  • Product dimensions: 6.46 (w) x 9.58 (h) x 1.26 (d)

Table of Contents

Introduction 1
1 Why Change? 7
2 The Computer's Reign 21
3 The Market's Impact 32
4 Society's Claims 46
5 The Customer's Demands 62
6 Absorbing the Customer 77
7 Reinventing the Leader 94
8 The Dispensable Employee 111
9 The Indispensable Employee 129
10 Mastering Information 157
11 Spurring Innovation 175
12 Stepping Up the Pace 193
13 Redefining Quality 210
14 The Global Reach 227
15 The Extended Corporation 247
16 The Learning Loop 267
17 The Civic Enterprise 285
18 An Integrated Architecture 301
Conclusion 319
Appendix An Achievement Gap 325
Acknowledgments 327
Notes 331
Index 347
About the Authors 359
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First Chapter

Chapter 1 WHY CHANGE?

MOONING THE CUSTOMER

Unflattering descriptions of the corporation abound. It is called authoritarian, control obsessed, feudal, hierarchical, mechanical, militaristic, rigid, shortsighted, secretive, slow, and unenterprising, to single out just a few of the epithets. It has even been described as the only remaining totalitarian institution in the world, now that Communism is dead. How could it ever have survived, much less succeeded? Perhaps it succeeded only too well. Inevitably it became complacent and closed its eyes to change around it. It really does need to be reinvented, and many of the epithets are true. Jack Welch, probably the most famous of America's modern reforming executives, puts the problem in his pungent way. Today's hierarchical structure, giving the CEO control over strategy, organization, and information, says General Electric's chairman, creates an organization with "its face toward the CEO and its ass toward the customer" (according to the Harvard Business Review). Over the years, he says, GE had created "a management approach that was right for its time, the toast of the business schools. Divisions, strategic business units, groups, sectors -- all were assigned to make meticulous, calculated decisions, and move them smoothly forward and upward. The system produced highly polished work. It was right for the 1970s, a growing handicap in the 1980s, and it would have been a ticket to the boneyard in the 1990s."

The modern corporation has a lot of history and legacies to overcome. Human organization has always been hierarchical, in churches, in armies, in feudal monarchies, and in modern bureaucracies. Business was no exception. The modern corporation grew, logically enough, out of the coming of the railroads and the telegraph beginning in the mid19th century. Before then, companies had been relatively small and localized, with modest needs for controls, information, and capital. But the railroads created the first large, dispersed organizations and required firm controls and rapidly delivered information when the small local lines merged into big regional and national lines.

The business historian Alfred D. Chandler Jr. describes how the railroads, especially the Erie under its general superintendent, David C. McCallum, produced the first large, modern corporation. He created a structure for the administration of a complex organization, enunciated the principles of administration that would govern it, and created a flow of information to track and evaluate the operations of a far-flung enterprise. McCallum believed in the strict adherence to hierarchy so that subordinates dealt only with immediate superiors. He was the first to use information technology, in this case the telegraph, not only to transmit urgent news but to gather information to help management monitor the railroad.

It is interesting that Chandler's history, The Visible Hand: The Management Revolution in American Business, attributes to that 19th century revolution two of the same drivers that we today think especially important in our management revolution: information and speed. Then it was the telegraph that created new information technology; today it is the computer and all its electronic links. Then it was the railroads that made business move faster; today it is automation, TV, the jet, the telephone, the fax, e-mail, and the rest of our electronic paraphernalia, and a whole array of management devices to make business act and react faster.

THE IAZY IDIOT THEORY

The completion of the classic corporation required three more elements: the detailed ordering of human activity, the invention of the assembly line, and the perfection of the corporation as an organization. The first came with "scientific management," the invention of Frederick Winslow Taylor, a mechanical engineer, who laid the basis at the turn of the century for dividing work into minute, repetitive components and then telling the worker just how to do it, with no deviation. Scientific management assumed the worker was ignorant, stupid, and would spend as much time "soldiering" as he could get away with. The worker did exactly what the foreman told him to do, and management planned the work. Taylorism did greatly raise factory output but it also dehumanized work.

New manufacturing machinery, plus the huge demand for Model T Fords around the world, pushed Henry Ford into making the next major advance in industrial organization, the invention of the moving assembly line. After experimenting with moving lines to produce auto components, Ford started making the entire Model T on an assembly line at Highland Park, Michigan, in October 1913. The labor needed to assemble a car dropped immediately from 12 hours, eight minutes to two hours, 35 minutes. By the following spring the time spent assembling a car fell to one hour, 35 minutes.

The finished model of the classic 20th century corporation emerged after World War I out of the near-ruin of General Motors caused partly by the postwar recession and partly by the loose if inspired management of its founder, Will Durant. Alfred P. Sloan Jr. became president in 1923 and set about organizing, in his carefully analytical and intellectual way, the large modern corporation. GM survived pretty much as he created it until the 1990s, and was enormously successful most of that time. Sloan believed a big company had to be decentralized, so that the divisions would have operational autonomy. But they would be guided, helped, coordinated, and above all held accountable by a corporate staff, especially by a finance committee. Management relied heavily on what soon became a huge staff. Sloan saw his own role as "selling ideas, rather than simply giving orders," demonstrating more wisdom than many CEOs have shown since. As early as the 1940s, Peter Drucker saw that GM needed to begin changing, but that piece of wisdom escaped GM until the 1990s.

In human terms, the 20th century corporation created "the organization man," the title of William H. Whyte's famous book about corporate life in the 1950s. The young corporate manager then believed that his goals and the corporation's were the same. He (at the time there was no question of "she") cherished "the idea that his relationship with The Organization is for keeps." He was optimistic, not cynical, about the system. He did not think his bland fellowship needed to recruit any geniuses, but if any eccentrics were recruited by mistake the organization could iron out their rough spots. The organization man wanted to rise, but not so high that his neck would stick out. In the view of executives and personnel officers of the 1950s the leader in those stable times should be an administrator. If the organization needed a new idea from time to time, let it come from the staff. The corporation did not want people with drive and imagination.

HIERARCHY LIVES

The corporate culture after World War II may have been hypocritical and deadening, but before dismissing it as a hopeless anachronism, we should point out that it worked well. Loyalty gave managers security and the many tiers of hierarchy promised them a lifetime of possible promotions. If the old AT&T had 100 levels of hierarchy, as sometimes seemed the case to those dealing with the company, and promotions came on the average once every two years, then AT&T could promise an ambitious trainee a satisfying career path for 200 years. The corporation was something solid to hold on to. It replaced some of the social context and ties that were disappearing elsewhere, in the school, the church, the community, and the family. The classic corporation was, in fact, a huge success. It excelled at mass production. It worked well too where control was especially important, in the airlines, for example. With its intricate division of labor, it created functional excellence. People could get very good at their jobs. In a stable, predictable environment, the classic corporation could do what it was supposed to do very well. It made possible the American manufacturing revolution, which raised standards of living to a level unimaginable a century ago. And it still does most of the work of sustaining our economy. Hierarchy has not disappeared. Jobs have not disappeared. Mass production has not become superfluous.

However, the classic corporation had inherent weaknesses that became more of a handicap as time passed. The hierarchies designed to control work became so cumbersome they were an obstacle to getting work done. The staffs meant to think for the organization and help the operational people became oppressive burdens that drove out innovation and entrepreneurship. The people doing the work had no real power; the people with the power did little real work. The classic corporation may have bred functional excellence, but it did not encourage coordination. Staffs and divisions feuded among each other; Chevrolet viewed Pontiac as being as much of a competitor as Ford. Mass production pushed products out on the market, but was not sensitive to what the market might want to pull out of the factory. In fact, the corporation grew more and more distant from the customer. Instead of spreading to the people who needed it to do their work, information got bottled up in the hierarchy. Ideas and conflicts got suppressed by a form of "teamwork" that meant playing along and not rocking the boat rather than working as a team to generate the best possible results.

THE IMMEDIATE THREAT

In short, corporations worked much as organizations of all kinds have worked through history. Catholics who strayed from Church doctrine by a hair confronted the Holy Inquisition. Medieval guilds would expel a member who dared to experiment with the way things were made traditionally (just as today unions seem to be the defenders of the status quo). In ancient Egypt physicians were trained to perform exactly 128 procedures, each in only one way. Egyptian artists learned there was only one way to paint a crocodile or a person. Even in our lifetimes, armies prepared, as they always have, to fight the last war. Human nature seems to dislike change, whether it be in the way we kill, cure, worship, or work.

It takes a war to shake up an army and it took something like a war to shake up the American corporation. Its faults suddenly magnified and multiplied in 1979 and 1980 when a superior competitor strode onto the world market. America discovered that Japanese copying machines were better and cheaper than our own, that Japanese integrated circuits were far more reliable, and their exports of excellent cars brought Chrysler and Ford to the edge of ruin. The postwar complacency of the American corporation came to an end, although not all at once. The most immediately threatened companies, such as Xerox and Ford, began to change quickly. Companies cushioned for a while from competition by their size and success, such as General Motors and IBM, did not understand the new reality until more than a decade later.

Even the virtues of the classic corporation became a handicap. Skill at mass production is less of an advantage when new technology and organization allow you to meet the market by changing the product frequently and quickly, and by mass customizing. Big staffs and hierarchies become even more of a burden because they slow decisions and smother initiative. A rigidly functional structure stands in the way of the kind of teamwork that can produce rapid and innovative responses to competition. A company that insists rigidly on a chain of command cannot take advantage of new information technology.

The old corporation no longer made a good fit with the people that ran it, the people that worked for it, or the people that bought from it. The assumption that lay behind Taylorism -- that the worker was stupid, ignorant, and lazy -- is certainly not true now, if it ever was. Until 1910, when the great expansion of secondary school education began in the United States, barely 10% of young Americans were high school graduates. In the mid-1990s, 70% of the students who entered ninth grade graduated, and 62% of them went on to college. As well as being better educated, people are more independent-minded today. Americans raised in the 1960s and later question authority and are not about to do just what they are told. They can make their own decisions. Customers are also more demanding. In the following chapters we will describe in more detail the drivers of change -- new information technology, tougher competition, and the demands of society and the customer -- all of which contribute to the obsolescence of the classic corporation.

JERKING HONDA'S WHEEL

The same need to change exists in Europe and Asia as well as in the United States, of course, but it is muffled if not suppressed by other, different, and even contrary pressures. Perhaps only in Britain is the corporation as free to experiment and innovate as it is in the United States. On the Continent and in Japan a whole set of social, economic, and political constraints forces executives to react differently from the way American executives react to the same problems. Cozy relationships between politicians and executives, between banks and corporations have inhibited independent behavior. The stockholders who might rebel against incompetent managers in the United States have been generally too insignificant or well-behaved to revolt in Europe or Japan. In France and Germany, especially, labor unions have a power they have lost elsewhere. In Germany some of the very features of the economy that made it such a success after World War II have inhibited change. The "social market economy" is a market economy with a social side meant to limit the pain the market can inflict on workers. Germany's "industrial democracy" puts the workers in positions of power on corporate supervisory boards. When confronted with the need to change, European executives have one overwhelming fact to consider -- that the unemployment rate in Europe is double what it is in the United States. Ironically, the very changes that might create jobs in Europe are inhibited by the high rate of unemployment.

Jobs are also a major inhibitor of change in Japan. The 1990s recession in Japan forced corporations there to take another look at the guaranty of lifetime employment so that they might be freer to change and raise productivity. But they backed off the thought of dropping lifetime employment contracts, although they have done some tinkering. Ryuzaburo Kaku, CEO of Canon Inc., says that the restructuring of Canon does not include an end to the lifetime employment system. Only business, not government, can offer employment, he says, therefore "companies have a responsibility to maintain the existing social system." Kaku believes that only companies that come up with ways of maintaining employment will survive in the 21st century, and those that pursue only profits will not survive.

Japan, which only a decade or two ago had so much to teach Americans about improving management, now finds itself hobbled from keeping up with American management. However, global competition is forcing Japan to change. The cartels that keep prices high are eroding, companies such as Matsushita and Canon and Honda are restructuring, with the constraint of not laying off large numbers of employees. The Japanese feel the need to change. When Nobuhiko Kawamoto became CEO of Honda in 1990 he "sensed something had to be done quickly to prepare Honda for the future....As a result, I made a decision to jerk Honda's steering wheel." Beyond what his own company should do, Kawamoto believes Japan should move to share common standards, values, and perceptions with the rest of the world. In the last 50 years, he says, Japan has "forced or coerced" its own way in the world. The country has changed twice radically in the last century, after the Meiji Restoration and after World War II, but the Japanese psyche is still back in the Tokugawa period of isolation and rule by shoguns. That has to change, says Kawamoto.

FED UP AT DAIMLER

In Europe, in spite of regulations, restrictive trade practices, old boy networks, strong unions, and high unemployment, business has started to respond to the urgent need to change. The privatization of major companies, such as British Telecom, Deutsche Telekom, Pechiney, SaintGobain, and scores of others has forced them to become more efficient. Being competitive in international markets is at least as important to European firms as it is to the Japanese, and more so than to Americans. Much of German business has always been export-oriented. In the cases of big companies based in small countries, such as Electrolux in Sweden, Nestle, Roché Holdings, and Sandoz in Switzerland, Philips in the Netherlands, and Solvay in Belgium, domestic sales are a very small fraction of total sales.

European executives and investors are rebelling against the comfortable, established ways of doing business in Europe. When Deutsche Bank got fed up with huge losses and poor acquisitions at Daimler-Benz AG it used its position as majority stockholder to force out CEO Edzard Reuter in 1994. What a shock to the German business establishment! His successor, Juergen Schrempp, set about doing other shocking things, mainly abandoning the money-losing Dutch aircraft subsidiary, Fokker N.V., in 1996. A cozy collective bargaining system that sets industry-wide agreements has produced labor peace but has also given German workers the shortest work-week and the highest pay in the industrialized world. But when the metals industry federation, Gesamtmetall, agreed in 1995 to a pay increase well above the rate of inflation and a one-hour cut in the work-week to 35 hours, rebellious companies forced the head of Gesamtmetall to resign. Some companies quit the federation; others just negotiated their own deals with labor.

In France, graduates of the "grandes écoles" at the summit of business and government have looked after each other nicely. They formed a tight network which pretty well has run the country. When a small bank, Banque Pallas-Stern, got into trouble in 1995 it naturally turned for help to France's biggest company, Elf Aquitaine SA, a depositor and shareholder. Instead of helping, Philippe Jaffre, the Elf chairman, pulled his $200-million deposit out of the bank and said, "This bank is not my problem." The bank sank. The network is losing its solidarity.

Europe offers one example of what may be a model of the corporate form of the future. ABB Asea Brown Boveri Ltd., a $36-billion-a-year electrical engineering company, is an obsessively decentralized organization with a minimal staff at corporate headquarters in Zurich. Percy Barnevik, the Swede who pulled together the Swiss-Swedish giant in 1987, cut the combined headquarters staff of 6,000 people to 171. They supervise 1,300 operating companies with 5,000 profit centers in 140 countries. The difference between ABB and earlier decentralized large organizations, such as GM, is that the entrepreneurs are out in the field, at the fingertips of the company, and not in the home office. Just one layer of managers separates the top of the company from managers in the field. A proprietary automated information system ties the company together.

A QUANTUM WORLD

ABB may be the model of the next enterprise, or one model, or it might even become irrelevant. In the United States there does not yet exist a model for the 21st century company and maybe there never will be. What emerges may come in many different shapes and styles. Perhaps it is even wrong to think of the next enterprise in terms of the organization. John Sculley has mutated from being the formal head of a formal organization (PepsiCo) to the formal head of a somewhat informal organization (Apple Computer) to the informal head of an informal organization: he runs a network of interests and companies which are themselves networks rather than organizations. He says, "I don't think that it makes too much difference how you organize companies anymore." What really matters, he argues, is being able to reach your customers and serve them in a manner that is going to be satisfactory to them and competitive in the marketplace. "As long as you have set up the processes that allow you to implement successfully, I do not think it makes much difference which particular organization design you end up choosing."

Rather than looking at themselves as pyramids or structures defined by hierarchical tables, companies are more inclined today to look at themselves as a series of related processes. What matters is how you do things, not how you design the organization chart.

Our concepts of organization may be changing fundamentally, paralleling fundamental changes in our ideas about physics and the environment. We can look to our understanding of science for guidance in our understanding of organizations. Newtonian physics sees a mechanical world which can be explained by studying each of its parts separately in increasing detail. But 20th century quantum physics explains the world not in terms of stable pieces of matter, but in terms of electrons, neutrons, photons, protons, and other particles of energy that are constantly responding to and changing each other. Likewise, the organization may be seen not as a stable, mechanical arrangement of parts, but as a network of relationships. In a Newtonian world you manage by control, by linear thought, by reduction, by mechanical means, by specializing. In a quantum world you manage -- if you can manage at all -- by being adaptable, open, conscious of relationships and of the whole. In the first, things predominate; in the second, people.

The complexity of corporations has to be recognized and, once recognized, demands a different view of how to run a business. Corporations can be included among the "complex adaptive systems," a concept developed by the Santa Fe Institute, a think tank that has attracted many scholars and businessmen dissatisfied with the way things are. Complex systems can be found in many places in the natural wodd -- the ecology, an ant colony, the human brain -- and in our society -- political parties, cultural and social groups, the economy, companies. Each system is a network of agents (nerve cells, in the case of the human brain) constantly acting and reacting to each other. "There is no master neuron in the brain, for example, nor is there any master cell within a developing embryo," explains Mitchell Waldrop, a Science magazine writer who has pursued ideas about complexity at length. "If there is to be any coherent behavior in the system, it has to arise from competition and cooperation among the agents themselves." Without the benefit of human boss or biological control center, these complex systems do indeed behave coherently. They are especially good at adapting to change. Because their world is so complex, they could not adapt successfully under unified control. If the corporation is viewed as one of these complex systems, then the old command-and-control model becomes inadequate.

A similar view of organization emerges from chaos theory, which sees chaos not as a total lack of order, but as turbulence, movement, change that is unpredictable but that actually has rules of its own. The founder of VISA International, Dee Hock, who warns of "massive institutional failure" in our future, talks of the "chaordic" organization. Like VISA or the Internet, the chaordic organization has no head, but is selforganizing, self-regulating, organic, adaptable, and complex. Perhaps what makes the chaordic idea appealing is the complexity of modern organizations; the parts can't know the whole, and the whole can't know all the parts.

Our social organization suggests another way of looking at business organization that has been developed by Russell Ackoff, a management consultant who used to be a professor of unorthodox leanings at the Wharton School. Ackoff traces the evolution of the corporation from the bad old mechanical model to the better biological model (after World War I) to the even better social model (after World War II). He describes a "democratic hierarchy" in which there is no ultimate authority. Rather, each individual can participate directly or through a representative in decisions that affect him or her. Ackoff describes such power as "circular" because anyone with authority over others in a democracy is subject to the collective authority of those others? Some companies have actually organized themselves by Ackoff's principles (see Chapter 9), although his ideas have so far had wider appeal than application. But they need to be considered in the creation of the next enterprise.

Before we let ourselves be carried off into a chaordic or chaotic future, let's not lose our heads. We haven't seen the organization of the future, we don't know what the model looks like. We aren't about to discard hierarchies, functions, controls, and linear thinking. We do know, however, that corporations have no choice but to respond to certain irresistible drivers: information technology, new levels of competition, new standards and expectations of consumers and society. These are discussed in the next four chapters. The response by corporations to these drivers is discussed in the subsequent chapters.

Pointers

It would be hard to find a corporation that can do business as it did at the beginning of the 1980s. Many have attempted to respond to the massive changes that have washed through business since then. Few have responded effectively. One reason for the ineffectual response is that business leaders simply have not appreciated how different their world has become. Here are some of the questions that should signal to a company how much it needs to change:

* Have the organization, leadership, and style of management remained pretty much the same for the last two decades?
* Has the idea of change, frequent if not constant, been accepted?
* Has the company's culture become innovative, open, and receptive?
* Has the company embraced information technology?
* Have competitors, foreign or domestic, changed the nature of the market?
* Has deregulation or privatization affected the business?
* Has new technology changed the products and services?
* Have the customer's total needs been fully understood?
* Has the company opened itself up to alliances and partnerships?

Copyright © 1998 by Yoram Wind and Jeremy Main

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