Monday, July 15, 2024

Do New Hires Quickly "Learn" Not To Speak Up?


Derrick Bransby, Michaela Kerrissey, and Amy Edmondson have published some fascinating new research on psychological safety in the Harvard Business Review. They found an alarming trend regarding new hires and their willingness to speak up. They write, "We studied more than 10,000 employees in a large organization and discovered that new hires’ psychological safety eroded swiftly. On average, newcomers joined the organization with higher psychological safety relative to their more tenured colleagues, then lost it and waited years to reach levels comparable to when they arrived."  Their findings proved consistent across various demographic groups.  

As I read the article, I thought about why new hires might experience a significant drop in psychological safety soon after joining an organization.  One can imagine that new hires might think that leaders welcome pushback and are open to new ideas.  After all, they probably heard a good deal of positive talk during the hiring process about how leaders expect them to contribute during meetings and to bring fresh ideas.   New hires might learn quickly, however, that some leaders react poorly to dissenting perspectives or the sharing of bad news.  In some cases, experienced leaders might not recognize how their reactions to new perspectives have discouraged new hires.  

Three other explanations might exist for this drop in psychological safety though, and it may not involve dysfunctional behavior by team leaders.  First, new hires might not be particularly adept at speaking up.  Perhaps they try to share a concern about a proposed course of action, or express a dissenting opinion, during some early meetings.  If they struggle to present their ideas, they might find that others do not seem receptive.  New hires could conclude that people don't want them to speak up, when in fact, others simply didn't find the arguments well-crafted and persuasive.  Or, others may feel that the pushback was not presented in a constructive fashion.  The remedy for this problem is some effective coaching and development for new hires, so that they can become more effective at presenting their ideas. 

Second, psychological safety may decrease for new hires as a result of their socialization into the organization.  New hires may hear from peers that they should "keep their heads down" and "not rock the boat."  Sometimes, peers are sharing accurate appraisals of the culture, and specifically, of the low level of psychological safety on that particular team.   However, at times, peers may be overly negative.  Take, for instance, a situation in which the leaders themselves are relatively new.  Long-tenured employees may be accustomed to prior leadership that led in a top-down fashion and did not welcome dissenting views.  These experienced team members may not yet have adjusted to new leadership and may not trust that the new leaders genuinely want to hear dissent.  Peers also might be wary of newcomers who question existing practices and challenge the conventional wisdom.  They might even feel threatened.  As a result, they may discourage new hires from speaking up. 

Third, new hires may come to the organization with a "grass is always greener" mentality.  Perhaps they concluded during the hiring process that this organization is clearly superior to their old company.  When their highly optimistic expectations prove not to be accurate, they may become discouraged.  Perhaps the new team does have higher psychological safety than their old team, but the failure to meet lofty expectations may be troublesome.  It's certainly true that it can be very challenging to assess psychological safety during an interview process.  

Friday, July 12, 2024

Harley-Davidson: The Aging Customer Dilemma

John Keilman has written a Wall Street Journal article this week that is titled "Harley Will Ride or Die With the Graybeards." Keilman reports that, "The Milwaukee-based company is selling less than half as many bikes as it did during its 2006 peak. Harley’s portion of the U.S. large motorcycle market recently dropped to its lowest level since the 1980s."  He notes that the average age of the Harley customer has risen substantially in the past two decades.  The company reports that the average age is 49.  UBS analyst Robin Farley disagrees, arguing that it actually has reached the late 50s.  Critics argue that the current CEO has focused on high-priced bikes for older customers, prioritizing profit margins over growth.  In so doing, they say he has made it even harder to attract younger buyers.  

The Harley story illustrates several important lessons in business strategy.   First, the temptation for many executives at mature companies is to focus on high-margin products and opportunities to further increase margins at the expense of growing the customer base.  This focus often leads to better earnings per share in the short run, satisfying investors.  However, it creates a long-term challenge.  Eventually, the focus on the highest-margin products can exacerbate the challenge of bringing new customers to the brand.  In Harley's case, younger buyers find it increasingly difficult to afford the purchase of one of the company's bikes.  

Second, mature companies with an aging customer base always have to balance the desire to attract younger buyers with the worry that such efforts might alienate their most loyal customers.  Harley has to worry that attempts to build products and develop marketing campaigns aimed at millennials and Gen X customers might turn off the Baby Boomers and Gen X customers that comprise its most profitable pool of current customers. 

Third, companies often think that the answer to attracting younger customers is simply about the products they offer and the price point at which they sell those products.  While product and price matter a great deal, the brand image and the customer experience also prove to be very important.  Too often, managers at these mature firms are out of touch with trends, and with the younger potential customers in general.  They have been so laser-focused on their most loyal customers, and they are part of that demographic as well.  They need to find a way to truly step into the shoes of those younger potential buyers, and they need to hire people from that demographic.  Effective empathy-based user research is very important for firms in this predicament. 

Finally, firms have to understand the broader social trends against which they are battling.  In Harley's case, they need to understand that the current generation is not nearly as fascinated with the freedom of the open road as prior generations.  As Jonathan Haidt documents in his book, The Anxious Generation, far fewer young people are rushing to get their motor vehicle license at age 16.    He describes several reasons why young people are less eager to drive.  This broader social trend is clearly affecting Harley.  It needs to understand how the psychology of young people has changed, and how that will affect they way the firm should go to market.  

My sense is that Harley-Davidson executives should reach out to companies that have proven adept at navigating some of these challenges and refreshing brands that have encountered aging customer bases.  For example, the leadership team at LVMH has done a remarkable job of acquiring luxury brands that need a refresh, and then helping that brand attract a new generation of buyers.  

Monday, July 08, 2024

Learning Through Acquisition: Admit What You Don't Know


I've been reading John Mackey's book, The Whole Story, about his journey as co-founder and long-time CEO of Whole Foods Market.   The book certainly reads quite differently than many other CEO books, as it documents in detail his experimentation with various psychedelic drugs alongside his retelling of the founding and growth of the organic foods retailer.  

One key lesson jumped out at me from Mackey's story of the early years at Whole Foods Market.  He described how Whole Foods grew by acquisition, but the most important part of those deals was not the growth in revenue,  expansion into new geographic regions, or achievement of scale economies.  Instead, many of those early deals involved incredible amounts of learning about key facets of the business.  Mackey seemed to recognize what he did not know, or what he did not do well.  He went searching quite explicitly for those who were better than him at key elements of the business, and he brought them onboard.  Many of the owners of those businesses stayed with the company and became key executives as the retailer grew.  

For example, Whole Foods Market acquired Bread and Circus, an organic foods retailer in the Boston area.  While studying the company closely, Mackey noted that they had strong sales, but weak profitability.  However, he realized that they had mastered the retailing of perishables.  In fact, they did a far better job than his own company.  Similarly, he bought Walter Robbs' business in northern California because he recognized Robbs' talent and passion for creating a truly beautiful retail environment and refining the processes needed to operate those stores efficiently.  Robbs went on to become co-CEO of Whole Foods Market years later.   Mackey acquired Wellspring, a retailer in North Carolina, because its leader, Lex Alexander, brought a different approach to natural foods.  He had expanded beyond the original focus on health and wellness characterized by many firms such as Whole Foods Market.  Lex brought a "foodies" mindset with an emphasis on foods that were delicious, hand-crafted, and beautiful - e.g., specialty coffees, artisan olive oils, handmade pasta, etc.   Each time Whole Foods Market acquired one of these businesses, it expanded its capabilities and added brilliant, talented individuals to the team.  

In some sense, there's nothing new here.  We hear about learning through acquisition all the time.  Yet, in so many cases, it is the intention, but the reality never meets expectations.  Why?  The acquiring CEO has to be open to the new ideas, and open to learning from others at the acquired company.  In my experience, I've found that many executives end up frustrating the leaders from the acquired company. They don't listen effectively, and they emphasize economies of scale and scope, rather than learning and capability enhancement.  They talk a good talk about learning from others, but they ended up concluding that they know better than the managers at the acquired organization.   Knowledge and expertise ends up just walking out the door.  Therefore, to me, the lesson is clear: Take a hard look at your own expertise and capabilities before an acquisition, and admit what you don't know.  It will make that deal so much more fruitful moving forward. 

Monday, July 01, 2024

Being Concise and Interesting During An Interview, or A Networking Event


Professor Craig Wortmann recently shared some terrific advice in a Kellogg Insights column titled, "How to Talk About What You Do (without Being Boring)."   Wortmann explains two key mistakes that people make either during job interviews or at networking events.  Put simply, many individuals either share too little or too much. Imagine someone asks, "What do you do?"  One person might simply state their occupation (banker, lawyer, professor, doctor, etc.).  Another might offer a lengthy treatise that puts others to sleep.  Both mistakes are commonplace and easily avoidable.  

Wortmann recommends responding to the question in a manner that sparks a lively dialogue.  Provide a concise answer that leaves them wanting more... more information about the work, about the people you serve, about your particular expertise, etc.  Find a way to spark their interest and their curiosity.   If you think you have been concise enough, think again.  Most of us overestimate how tight (and interesting) our responses actually are.  

I would add that it's generally helpful to demonstrate interest in the other party as well.  Be curious as to what they do, what motivates them, and why they are passionate about their work.  In short, don't just make it about you.   Ask questions, rather than just talking at the other person.   A good interview typically involves the interviewee offering some thoughtful, non-typical inquiries that demonstrate strong interest in the role, as well as a true desire to assess the fit.   In a networking event, great questions often make the conversation proceed much more smoothly, and you will learn so much more about the other person through these inquiries.  

Thursday, June 20, 2024

Should Southwest Airlines Change?

Source: TripAdvisor

The Wall Street Journal published an interesting article this week titled "Meet the Southwest Superfans Who Don’t Want the Airline to Change." Dawn Gilbertson writes that some very loyal customers do not want the airline to make some of the dramatic changes being considered by management in the face of a push from an activist investor, Elliott Investment Management.  The hedge fund and some other investors would like to see Southwest offer a series of additional benefits and collect fees for those amenities as other airlines do.  Many other airlines generate substantial revenue from those additional charges.  Some of these huge fans of the airline don't want to see these changes.  These loyal customers would like to see Southwest remain committed to its original model.   The hedge fund thinks that Southwest runs the risk of being stuck in the past, tied to an outdated business model.

The situation represents a classic strategy conundrum.  Southwest Airlines became highly successful because it made a series of critical tradeoffs, exemplifying Michael Porter's concept that, "The essence of strategy is choosing what NOT to do."  They didn't offer assigned seats, first class sections, etc.  These tradeoffs not only made Southwest distinctive, but they made the airline difficult to imitate.  When incumbents tried to create new brands to compete with Southwest, they struggled mightily (think Delta with Song and United with Ted).   Southwest used its unique business model to establish a successful low-cost position in the airline industry.  While most others struggled, it produced profits year after year, even during recessions.  Southwest's challenge now is that they no longer have a clear cost advantage in the industry.   Ultra low-cost carriers have lower costs per available seat mile in some cases.  Thus, the problem is not simply that they are missing out on revenue streams others have developed.  They may not have the cost edge that enables lower pricing than rivals and creates a competitive advantage.  

When companies experience slowing growth or other financial challenges, they often feel the pressure to abandon some of the tradeoffs that made them so distinctive.   The thinking goes like this: these tradeoffs limit potential set of customers we can attract, and if we want to thrive, we have to update our strategy to meet changing consumer trends.  All of that makes a great deal of sense.  However, as firms abandon the tradeoffs they have made, they became more and more like other competitors in their industry.   In short, they might just juice revenue and profits in the near term by changing the strategy, but ultimately, the firm becomes less and less distinctive.  Strategy convergence takes place within the industry, and when that happens, industry profits tend to fall.  

Interestingly, Jost Daft and Sascha Albers conducted a study of the European airline industry a decade ago. They studied 26 European airlines from 2004-2012.  They measured the average "distance" between company business models.  They found that the average distance declined by 19% during this time period.  However, they note one exception in the industry:  

"In 2012, a low-cost carrier (Ryanair) again featured the highest average distance (0.4468) to all other airlines. Moreover, Ryanair was the only airline in the sample to increase its average distance and to become more differentiated from all other competitors, while all other airlines were becoming more similar." 

What's interesting about this finding?  Well, Ryanair produced very high profits throughout this time period.  They remained true to a no-frills strategy, refusing to compromise on the bedrock principles of their low-cost strategy.  Many other airlines struggled as their strategies converged with rivals. 

This finding offers a word of caution as Southwest navigates this period during which they are considering changes to the core business model.  They need to cope with changing consumer trends and preferences, as well as new threats from competitors who have changed their strategies in recent years.  At the same time, they don't want to just follow the crowd.  Activist investors should not simply be looking at revenue and profit enhancements in the very near term, but thinking carefully about how the strategy should evolve so as to remain distinct from competitors.  

Monday, June 17, 2024

Customer Experience Hits Rock Bottom

Forrester Research recently released its annual Customer Experience Index (CX Index™) rankings. The results are dismal.   The chart below shows that the index has reached a new low.  

The scores probably do not surprise shoppers who have had some poor experiences lately.  On the other hand, you might be puzzled a bit given that many company leaders talk obsessively about customer obsession.   They appear to be talking the talk, but not walking the walk.  

Why might it be so difficult to elevate customer experience?  Here are a few hypotheses:

1.  Senior executives are extremely detached from the experiences of their everyday customers.  In fact, many of these executives live very different lifestyles than their average customers.  In short, they are out of touch.

2.  High employee turnover makes it difficult to maintain consistent customer service. 

3.  Company resource allocation processes are distorted.  It's often rather simple to quantify the return on investment from initiatives intended to reduce labor costs.  It's much more difficult to quantify the ROI when it comes to projects aimed at improving the customer experience.  Thus, programs aimed at cutting expenses get funded more easily.   

4.  Metrics drive behaviors in ways that harm customer experience. For example, one of my daughters once worked at a large national coffee shop chain.  One key metric focused on the time required to serve customers in the drive-thru lane.  The manager's focus on that metric caused employees to de-emphasize service to customers who came into the shop.   Frustration ensued for customers walking up to the counter. 

5.  Young people working in many retail locations have weak interpersonal skills, in large part due to the rise of the smartphone and social media platforms. During their childhoods, as Jonathan Haidt has eloquently argued, we have seen the smartphone cause a substantial decline in vitally important in-person interaction.  They never developed key skills that come from free play, in person, with other children.  

Wednesday, June 12, 2024

What Happens When Your Team Adds an AI Teammate?

Source: Getty Images

Bruce Kogut, Fabrizio Dell’Acqua, and Patryk Perkowski have conducted a study to examine how team performance changes when we replace a human member with an AI agent.  In their research project, more than 100 two-person teams played 12 rounds of a video game. For the first six rounds, only humans played the game. For the next six rounds, the researchers replaced one human on each team with an AI agent. Interestingly, they found that performance in the game initially declined when an AI agent replaced a human team member, though performance ultimately bounced back after several rounds of game play. This effect occurred even though the AI agents were actually superior to humans when playing the game individually.  Kogut explained why team performance declined at first:

Despite the AI’s superior individual performance and the fact that bonuses were paid to the entire team if it performed well, 84% of respondents preferred to play with their human teammates. From surveys conducted at the midpoint and end of the experiment, we learned that AI causes team sociability to fall, and that lessens members’ motivation, effort, and trust.

Perhaps most surprisingly, the scholars found that all-human teams adjacent to a team with an AI agent also experienced a decline in performance.  The scholars described this phenomenon as a spillover effect.  What's going on there?  Kogut explained that the AI agent disrupted the environment, perhaps affecting the routines and processes within the all-human teams.  He likened to the impact that losing an employee, or hiring an inexperienced one, can sometimes have on adjacent teams in an organization because of the disruption of usual work routines.