New Case Study: Planet Fitness

I've published my latest case study, Planet Fitness: No Judgements, No Lunks, through the William Davidson Institute at the University of Michigan.  The case is available now by clicking here, and it will be available through Harvard Business Publishing very soon.   The Planet Fitness case study addresses issues of competitive strategy including the topics of industry analysis, competitive positioning, and the sustainability of competitive advantage as well as franchising vs. vertical integration.  

Running for Homes for Our Troops

On October 13th, my wife Kristin and I are running the Newport Half Marathon to support Homes for our Troops (HFOT). This organization builds and donates specially adapted custom homes nationwide for severely injured Post-9/11 veterans, to enable them to rebuild their lives. We are honored to be running to support these men and women who have sacrificed so much to defend our nation and protect our freedom. Two years ago, I ran the Twin Cities Marathon and raised over $7,000 for this terrific organization. We hope to build on that total with this race effort.

Most of these veterans assisted by HFOT have sustained injuries including multiple limb amputations, partial or full paralysis, and/or severe traumatic brain injury (TBI). These homes restore some of the freedom and independence our veterans sacrificed while defending our country, and enable them to focus on their family, recovery, and rebuilding their lives.

Homes for our Troops is a privately funded 501(c)(3) nonprofit organization rated four out of four stars by Charity Navigator. Since its inception in 2004, nearly 90 cents of every dollar donated to Homes for Our Troops has gone directly to their program services for veterans.

We understand that you may receive many of these types of requests, and that you may not be able to fulfill all of them. However, if you can help, we would appreciate it very much.

Thanks for considering this special request!   Click here to navigate to our donation page! 

Does Birth Order Affect a Leader's Propensity to Take Risks?

Source: Psychology Today

In our own families, we probably have all talked anecdotally about the differences in behavior and personality among our children and perhaps attributed some of those differences to birth order.  Researchers, of course, have been studying birth order effects for some time.   This year, Robert Campbell, Seung-Hwan Jeong, and Scott Graffin have published a study on CEO birth order.  They examined whether birth order affected a CEO's propensity to take risk.   Campbell and his co-authors write: 

We theorize that CEO birth order is positively associated with strategic risk taking; that is, earlier-born CEOs will take less risk than later-born CEOs. As evolutionary theory proposes that birth order effects are driven by sibling rivalry, we also argue that this relationship is moderated by three factors related to sibling rivalry: age gap between a CEO and the closest born sibling, CEO age, and the presence of a sibling CEO. Our results provide support for our theorizing and suggest that birth order may have important implications for organizations.

I found this result quite interesting and somewhat intuitive.  However, I then ran across a different study that reviewed many studies of different types that looked at birth order's impact on adult risk taking generally (not exclusive to CEOs or business).  Tomás Lejarraga, Renato Frey, Daniel D. Schnitzlein, and Ralph Hertwig published this analysis in the Proceedings of the National Academy of Sciences in March 2019.   Here is what they conclude: 

Does birth order shape people’s propensity to take risks? For decades, personality psychologists have believed that birth order influences personality, but recent evidence has accumulated to indicate that this is not the case. The effect of birth order on risk taking is less clear. We searched for evidence in survey, experimental, and real-world data, analyzing self-reports, incentivized risky decisions, and consequential life choices. The findings point unanimously in the same direction: We found no birth-order effects on risk taking in adulthood.

What do I make of these conflicting results?   Honestly, I'm not quite sure.   Are CEOs somehow different than typical adults?  (Surely they are!) Does sibling rivalry play a major role in CEO's lives, perhaps more so than in other's lives?  That's plausible.  More study needs to be done on this matter, as we clearly don't have a full picture.  

I do think it's interesting to try to understand what might shape an executive's propensity to take risk though. For instance, Matthew Cain and Stephen B. McKeon looked at chief executives who had pilot licenses. Flying small planes is viewed as thrill-seeking behavior. Professors Cain and McKeon found that chief executives with pilot licenses were more prone to engage in acquisitions, with the theory that takeovers are risky, yet exciting ventures.   Should Boards think about a person's propensity for taking risks when hiring a chief executive?  Certainly.   They have to recognize when a person might be incredibly risk averse or risk-seeking, and how their attitudes may or may not fit the needs and circumstances of the organization at that time.  They also need to understand the type of questions that they should be asking about risky choices, and the type of monitoring and control in which they should engage.  

How CFOs Can Help Foster Innovation & Creativity In Their Enterprises

Source:  Pixabay

Deloitte recently featured my work in their CFO Insights newsletter. The article is titled, "Unlocking creativity: How CFOs can help cultivate a creative mindset."   CFO Insights draws upon my book, Unlocking Creativity, to examine what Chief Financial Officers can do to help break down the barriers to innovation and creativity in organizations.  Why should CFOs focus on the task of breaking down these barriers?   Deloitte argues:

The case for creativity seems more apparent than ever. One reason may be the current growth shortfalls at some companies. A recent analysis of Fortune 500 companies found that more than one-third (38 percent) experienced a decline of revenue between 2014 and 2016. Another driver may be the looming prospect of an economic downturn, which may force CFOs to look for original ways to boost efficiencies at their already-lean organizations. In Deloitte’s North American CFO Signals™ survey for the second quarter of 2019, nearly all 159 respondents said they anticipated an economic slowdown by the end of 2020. However, a prospective downturn may also be an opportune time to invest in innovation, calculating tradeoffs that need to be made to emerge from any decline—which 80 percent of CFOs expect to be mild, according to the Q2 2019 CFO Signals survey—with a competitive edge over their creativity-challenged peers.

Check out this edition of Deloitte's CFO Insights to learn more about this topic.  In addition, take a look at the tips provided in the article for how to improve competitive benchmarking practices in your organization.  

Forever 21's Possible Bankruptcy: Why Copying Zara is Difficult

Source: USA Today

CNBC reported yesterday that apparel retailer Forever 21 is preparing for a bankruptcy filing.  News reports emphasize the challenges that brick and mortar retailers are facing these days.  Moreover, they note that Forever 21 made a huge bet on building very large stores in recent years.  Both arguments are valid.  Others note that perhaps "fast fashion" is going out of style.   On that last point, I beg to differ.  I don't think the problem is the concept of fast fashion.  I do think that emulating the Zara business model is far more difficult than many competitors recognized.

Zara pioneered the fast fashion strategy many years ago, and it has excelled for many years. Zara has a unique strategy and business model though. For starters, they are vertically integrated, unlike almost any other apparel retailer with whom they compete.  Their unique supply chain strategy is key to their fast fashion positioning, and instrumental to their ability to avoid the deep discounting that has harmed so many apparel retailers. 

Years ago, James Surowiecki wrote a terrific column for The New Yorker about Zara.  He titled the article, "The Most Devastating Retailer in the World."  Toward the end of the article, he explains why it's so difficult to imitate Zara's strategy.  His argument echoes the familiar strategy lessons offered by Michael Porter and Jan Rivkin of Harvard Business School, who have argued for years that imitating a complex, integrated and self-reinforcing system of activities is often very difficult.  Often, competitors don't recognize the need to copy the whole; instead, they identify parts of the model that they try to imitate.  Moreover, rivals often do not understand the "secret sauce" by observing from afar... they only see the observable elements of the model, and they don't see how it all fits together, as well as how the organizational culture and values support the model.   Copying the intangibles often proves incredibly challenging.  How do you even understand the intangible elements of a successful business model?

Here's Surowiecki on the challenge of trying to copy Zara:

"So why doesn't everyone just copy Zara?  They would if they could... Zara is an integrated system, not just a collection of parts.  You can't simply copy elements of the system and expect the same results... After all, it's a lot harder to knock off a two-billion-dollar business model than to knock off two-hundred -dollar pair of pants."  

Of course, Zara too has had to adapt to a changing world that makes life difficult on retailers heavily reliant on brick-and-mortar stores.  Sometimes, modifying or adapting a highly successful, integrated system of activities to a changing environment can be just as difficult as emulating a top competitor.  We shall see how Zara fares moving forward as e-commerce becomes a much more important part of their business.  

Optimistic CEO, Pessimistic CFO: Optimal Pairing?

Source: maxpixet.net

Insead Professor Guoli Chen and University of Miami Professor Wei Shi have conducted some fascinating new research on mergers and acquisitions.  They examined the nature of the relationship between the CEO and CFO, and how that affects merger performance.   They studied 2,356 companies between 2002 and 2013.  They discovered, not surprisingly, that the optimal pairing includes an optimistic CEO and a pessimistic CFO.  Here's their description of the research: 

We culled transcripts of conference calls between 2002 and 2013 involving both the CEOs and CFOs, and measured the executives’ optimism and pessimism by analysing their use of positive and negative words. Positive words included “achieve”, “assure” and “successful”; negative ones covered “flaw”, “penalise” and “unavoidable”. CEO optimism was calculated as the difference between a CEO’s use of positive words and negative words, and CFO pessimism was calculated as the difference between a CFO’s use of negative words and positive words.

Our data showed that CEOs generally used more positive words and were more optimistic than CFOs. CFOs used more negative words and were more pessimistic than CEOs. We then used the ratio of CEO optimism to CFO pessimism to derive what we call the CEO-CFO relative optimism. This value is then matched with the firm’s number of M&As and operating performance, assessed in our study as return on assets (ROA) a year later.

We found that the more optimistic a firm’s CEO-CFO pair was (high-optimism CEO with low-pessimism CFO), the more M&As it undertook. High CEO-CFO optimism also correlated with lower ROA a year after M&As. Conversely, low CEO-CFO relative optimism was associated with fewer M&As but higher ROA.

Does this mean that a pessimistic CFO is always a positive for organizations?  Not necessarily.  I often speak to audiences of finance executives about playing the role of the devil's advocate on the top management team.  CFOs often embrace this role, seeking to poke holes in proposals and find the potential flaws and risks in any course of action.  Such critical thinking can be quite helpful at times.  However, CFOs can take such behavior too far, and then devil's advocacy no longer proves constructive.   The CFO can become "Dr. No" - always finding reasons not to try new things, and always arguing why a new idea won't work.   CFOs need to maintain a healthy balance when they look at the downside of new ideas.  They should be critical, but they should also ask:  How might we make this proposal work?  What other options could help us achieve the same goal?  How could we move forward in a less risky manner?   They can't simply say no to everything.  They have to help find other ways to move forward if the proposed course of action seems inadvisable.  For more on how to play the devil's advocate constructively, you can read my article here.   I also have a chapter dedicated to this topic in Unlocking Creativity.  

Are You Willing to "Fire Yourself" to Gain Fresh Perspective?

Source: Logitech

Adam Bryant of Merryck and Co. recently published a terrific interview with Bracken Darrell, CEO of Logitech. I especially liked this exchange. We all should think about this reflection exercise. Darrell "fired himself" and started anew in the very same role, but with fresh perspective. Here's an excerpt: 

How do you set the tone for constant change given that people crave a certain amount of sameness?

I’m very explicit about it. I’ve shared a story from last year, after I’d been on the job for five years. One Sunday night, I asked myself, “Am I the right person for the next five years?” I had made tons of change, and the stock was up about 500 percent.

I knew that, on paper, I probably was the right person for the next five years, and that it’s risky to change if you don’t have to. On the other hand, I had been involved in every single personnel and strategic decision. My disadvantage was that I knew too much, and that I was too embedded in everything we were doing.

So I decided that I was going to fire myself, and that I would sleep on the decision. I didn’t share it with anybody, including my wife or kids. I just thought to myself that I might be done. I woke up the next morning, and felt that I knew exactly what I needed to do: I have to rehire myself but have no sacred cows. It was super exciting and fun, and I started changing things that I had put in place. Fortunately, I didn’t have to change things radically, but I felt new again.

Then I realized that the real opportunity is to compress that timeframe from five years to a year and then to a month and then into every day. And if you can get yourself to the point where you can really come in unbiased every day, then you’re there. That’s my ultimate goal, which I think is impossible, but that’s the goal.

3 Ways to Spark Creative Ideas

Check out my recent guest post for the Institute for Management Studies blog.  The short piece is titled:  "Getting Unstruck: Three Ways to Spark Creative Ideas."   The Institute for Management Studies provides leadership development for member organizations throughout the country.