Saturday, May 30, 2015

Questioning Fiat's Push for Auto Industry Consolidation

The Wall Street Journal reports today that Fiat CEO Sergio Marchionne has been pushing hard for auto industry consolidation.  He's approached several other large automakers, and they have rebuffed his inquiries.  Why is Marchionne intent on pursuing mergers in the industry? 

He argues that it will help eliminate excess capacity and raise returns on investment.  According to the Wall Street Journal, Marchionne cited the superior return on capital earned by industries such as aerospace and pharmaceuticals in 2014.  Here we have mistake number one.  Mergers will not eliminate the gap in profitability between automobiles and pharmaceuticals.  Here you have to think about the structure of the two industries.  The pharmaceutical industry simply has a much more attractive industry structure (run through the five forces for the two industries, and you will see the advantages for pharma).  Mergers will not suddenly alter the fundamental attractiveness of autos relative to pharma. 

One also has to question Marchionne's belief that consolidation is inevitable.  NYU Professor Pankaj Ghemawat has argued persuasively that many CEOs mistakenly cling to a belief that industries must consolidate as they globalize, and that eventually a "Rule of Three" will prevail - i.e. three big players will dominate.   He's gathered data showing that many industries have become less consolidated as they have globalized.  That includes the automobile industry.  The Wall Street Journal article actually makes this point.  It quotes Bill Ford, who recalls the pushes for consolidation in the 1980s that did not work out (think Ford acquiring Volvo, Land Rover, and Jaquar, Daimler acquiring Chrysler, etc.).  Ford also notes that the industry has actually become less consolidated since that time.  Ford says, "Everyone thought that's where this industry was clearly headed,.  Of course, then the Koreans came in and now the Chinese are in.  The numbers have proliferated rather than shrunk." 

Wednesday, May 27, 2015

Asking for a Favor: The Power of the Post-It Note

Kevin Hogan has penned a post for HBR about research conducted by Randy Garner at Sam Houston State University.  Garner performed a series of experiments to examine the likelihood that individuals would respond to requests for assistance with a task. Garner asked faculty members to complete a survey for him - a request often made of others when you are conducting research.   He divided the respondents into three groups.   For the first group, he attached a sticky note to the survey, asking them to complete it.   For the second group, he put the same handwritten message on the cover letter, rather than on a separate sticky note.   For the third group, Garner simply provided a typed cover letter.   They received no handwritten message at all.   What happened?  76% of the respondents completed the survey in the first group, far more than the other two groups.   Why such powerful results from a handwritten message on a sticky note?  Hogan outlines the four main reasons:

  1. It doesn’t match the environment—the sticky note takes up space and looks a bit cluttered. The brain, therefore, wants it gone.
  2. It gets attention first because of #1. It’s difficult to ignore.
  3. It’s personalized. (That’s the difference between Group 2 and Group 3 in the experiment.)
  4. Ultimately, the sticky note represents one person communicating with another important person—almost as if it is a favor or special request, which makes the recipient feel important.
What's the lesson here?  In an era of predominantly electronic communication, the power of a personal note should not be underestimated.  Moreover, it's important to put yourselves in the shoes receiving your request.  Ask yourself: How will they feel when they receive this request for assistance?  By stepping in your shoes, you can craft a more effective and persuasive appeal for help. 

Tuesday, May 26, 2015

Defending Meetings: They are not all bad after all!

Creativity expert David Burkus has a published a great blog post in which he defends the dreaded meeting.  He argues that meetings can actually make us more creative.  Really?  Well, he's talking about a particular type of meeting.  He cites some interesting research to make his point.  Here's an excerpt:

Psychologist Kevin Dunbar studied the workings of four prominent microbiology laboratories for insights into the creative work of experimentation. The findings from these field studies defied the conventional image of the lone scientist staring into a microscope to reveal a great discovery. Instead, Dunbar found that the most creative insights and greatest discoveries actually occurred during regularly scheduled lab meetings, where individual researchers revealed their latest findings and shared their most difficult setbacks. The creative discoveries produced by these labs occurred only after these individuals conspired together to find a solution or draw connections between previously unconnected insights.

 What's the key insight here?  At these meetings, people share their ideas, describe the work that they are doing, and they ask others to help them address the obstacles that they have encountered.  People have an opportunity to see the links between different streams of work, and they can provide each other valuable assistance.  To make this type of meeting helpful, you have to be willing to share your work process, not just your outputs.  You have to admit what you do not know, and you have to be willing to ask for help.  In other words, you have to have a very safe climate in which all attendees are comfortable sharing these types of issues with others, and in which they are willing to make themselves a bit vulnerable.  Unfortunately, that's often not the case in many meetings. 

Tuesday, May 19, 2015

Extroverts Earn More Than Introverts

Business Insider reported yesterday on a new research report from Truity Psychometrics.   The firm examined the relationship between personality types and compensation levels.   Not surprisingly, they found that extroverts tend to earn more than introverts.  For example, an ESTJ (one of the Myers-Briggs personality types) earned $77,000 on average, while several of the introverted personality types earned less than $40,000.   Why the major discrepancy between introverts and extroverts.  Truity's research suggests that extroverts tend to have more managerial responsibility.  On average, the extroverts in their study managed 4.5 others, while the introverts only managed 2.8 people on average.  In the Business Insider article, Susan Cain - author of a best-selling book about introverts - argues that extroverts are chosen more often for management positions because their outgoing nature creates a perception of leadership competence.  

Cain argues forcefully for the efficacy of introverted leaders.  Actually, the research does not show that one type of leader is clearly stronger than the other.  As always, it depends.  Adam Grant, Francesca Gino, and David Hofmann published an interesting article several years ago titled, "Reversing the Extraverted Leadership Advantage: The Role of Employee Proactivity." They conducted a field study at a national pizza chain.   They examined 57 locations within that company, and the scholars analyzed the link between personality and performance.  They found that each unit's performance hinged on the match between the leader's personality type and the followers' personalities.  Here's an excerpt from HBS Working Knowledge about the study:

A new study finds that extraverted leaders actually can be a liability for a company's performance, especially if the followers are extraverts, too. In short, new ideas can't blossom into profitable projects if everyone in the room is contributing ideas, and the leader is too busy being outgoing to listen to or act upon them.  An introverted leader, on the other hand, is more likely to listen to and process the ideas of an eager team. But if an introverted leader is managing a bunch of passive followers, then a staff meeting may start to resemble a Quaker meeting: lots of contemplation, but hardly any talk. To that end, a team of passive followers benefits from an extraverted leader... Sure enough, they observed high profits in stores where the employees were relatively passive but the managers were extraverted. On the other hand, when employees were proactive, the stores led by introverted managers earned high profits. Meanwhile, profits were lower in stores where extraverted managers led proactive employees and introverted managers led passive employees.

Monday, May 18, 2015

Where Does Vision Come From?

Dale Buss has written a good article for Chief Executive magazine about nurturing a leader's visionary skills.   Buss argues that compelling visions for an organization don't simply come to someone like a bolt of lightning from the sky.  Leaders can cultivate their ability to chart the right vision for the future.  Mainly, he argues that leaders need to maintain close contact with customers, rather allowing others to tell them what customers want and need.  They have to avoid becoming isolated at the top.  Buss also argues, "Be your own customer. Put yourself in the role of the customer and walk through every touch point, to see what they see. Are there gaps in the relationship? Can some touch points be shortened or made easier?"  

Buss notes that substantial new threats and opportunities often emerge at the periphery of an organization.  Andy Grove of Intel once observed the very same phenomenon.  I wrote about Grove's ideas in this regard in one of the early chapters of my book, Know What You Don't Know.  Buss explains how to see those issues emerging at the periphery, rather than the core, of the organization:

Spot weak signals at the periphery. Attempt to gain early detection of developments that could potentially interrupt or disrupt your business so you can take them into account as early as possible. Introducing “randomness” into your life can be one way to do this. Iconic and visionary architect Buckminster Fuller, for instance, used to pick up a magazine at random from a kiosk when he traveled and force himself to read the entire publication during his trip so that he kept in touch with parts of the world he otherwise knew nothing about, the authors said.

I've heard the Buckminster Fuller practice many times, and it's always struck me as a very effective technique.  It does not take much effort, but it can deliver strong dividends at the unlikeliest of moments.  It also enhances your general knowledge - useful as you network and engage with a variety of external and internal constituencies to the organization.  

Saturday, May 16, 2015

Advice for the Class of 2015!

For the past several years, I have re-run this old post with some advice for new college graduates.  I hope my seniors at Bryant University, and seniors at other institutions, will read and ponder these thoughts.  Congratulations to the Class of 2015!

A few words to those graduating from college this year...

As you leave this place, you will become builders. You will build a career, a home, and hopefully a family. For many of you, life will take on a certain rhythm eventually. Routines and rituals will mark your days. You will experience a measure of comfort with the familiar – familiar people, places, and activities. As you grow older, the unfamiliar will jar you, unsettle you, at times. You will want to retreat to that which is comfortable and familiar.

My advice to you today: Do not become wedded to the old and familiar in your lives. Cherish the past, but always look ahead. Seek out novel experiences. Keep breaking new ground, even as the hairs become gray. When in his 80s, Michelangelo, the great Renaissance painter and sculptor, once said, “Ancora imparo.” – I am still learning. I hope that you will live to such a ripe old age, and that you will utter those same words. Researchers have shown that novelty stimulates the brain. So, I tell you know: Exercise your minds throughout your lives. Memories do not nourish the brain. New challenges do. They say that you cannot teach an old dog new tricks. Do not listen to such rubbish. I’m confident that you have the ability to transform yourselves, to make yourselves new, time and again throughout your lives.

As you experience the new and unfamiliar, you will feel discomfort, even fear, at times. Do not let that apprehension get the best of you. Dr. Peter Carruthers of Los Alamos National Laboratory once said, “There’s a special tension to people who are constantly in the position of making new knowledge. You’re always out of equilibrium. When I was young, I was deeply troubled by this. Finally, I realized that if I understood too clearly what I was doing, where I was going, then I probably wasn’t working on anything very interesting.”

As you learn and grow as individuals, do not keep your new knowledge and skills to yourself. Share your knowledge and insight with others. Do more than that; serve as an exemplar to others. Mentor young colleagues, teach your children well – through actions as well as words. Your impact on the next generation will become your enduring legacy.

Singer and songwriter Ben Folds once wrote to his daughter Gracie, “One day you’re gonna wanna go. I hope we taught you everything you need to know.” I love that song, but I know that we have not taught you everything you need to know. I sincerely hope, though, that we have cultivated your intellectual curiosity and nourished your love of learning. May that spark of youthful curiosity remain with you all the days of your lives.