Friday, October 31, 2014

Mayor Tom Menino: Leadership is about more than making speeches

Tom Menino, long-time mayor of the city of Boston, died yesterday at age 71.  He served as Boston's mayor for two decades.   He enjoyed widespread popularity and respect.   Menino accomplished a great deal during his time as the city's leader.   I think we can take an important lesson away from Menino's incredible success.   Was Tom Menino a terrific speaker?  Not at all.  People made fun of how inarticulate he could be at times.  They referred to him as "Mumbles Menino."    However, Menino had tremendous leadership skills.   Too often, we became enamored with political candidates who deliver a wonderful speech.   That does not make them a leader.   They have to be able to execute.   Menino could do just that.   He understand how to get things done, and he knew how to stay incredibly connected with his constituents.  

Thank You Mayor Menino (440)
Source:  Boston's official website

Wednesday, October 29, 2014

What is Critical Thinking?

The Wall Street Journal published a terrific article by Melissa Korn this week.   The article focuses on the fact that many executives say that they want to hire people with "critical thinking" skills. However, the definition of that term seems elusive.  In fact, some people don't have a clear definition of the term. Others disagree over the meaning of critical thinking skills.   Perhaps, the article suggests, you simply know them when you see them.   The article does offer a few intriguing definitions of the term:

  • “The ability to cross-examine evidence and logical argument. To sift through all the noise.”
    -Richard Arum, New York University sociology professor
  • “Thinking about your thinking, while you’re thinking, in order to improve your thinking.”
    -Linda Elder, educational psychologist; president, Foundation for Critical Thinking
  • “Do they make use of information that’s available in their journey to arrive at a conclusion or decision? How do they make use of that?”
    -Michael Desmarais, global head of recruiting, Goldman Sachs Group

Thursday, October 23, 2014

Breaking Up Isn't Always the Optimal Solution: The Curious Case of Dan Loeb and Amgen

Corporate breakups seem to happening every other day.   I blogged last week about some of the reasons for the recent surge in breakup activity.   In general, I think many of these breakups make sense, as firms tend to prosper when they are more focused.  Moreover, many of these firms are experiencing significant diseconomies of scale and scope.   However, I think we may be taking it too far in some cases.

Let's take the case of hedge fund investor Dan Loeb pushing Amgen to break into two independent firms.   Loeb proposes that Amgen split into one business focused on its mature products and another focused on its high growth products.   Typically, when investors propose such splits, they want the mature business to generate lots of cash and return much of it to shareholders.  They want the growth business to reinvest profits to stimulate even more growth.   

Here's the problem with proposals such as the Amgen deal though.   In the old BCG model of corporate strategy, firms were supposed to milk the cash cow and use those proceeds to fund promising growth businesses.   That model has since been completely debunked.  Cross-subsidization amongst unrelated business units makes no sense if external markets are reasonably efficient.  Chas cows should return excess cash to shareholders, and growth businesses should find their own sources of funds from private equity, venture capital, or public equity and bond markets.  Note the word "unrelated" though.  The BCG model is faulty if we are talking about using it to justify an unrelated diversification strategy.  However, a firm such as Amgen is clearly not an unrelated diversifier.  It has a set of highly related businesses.  Strong synergies exist among its lines of business.  In fact, some would say that it's a focused firm, not even a related diversifier.  Thus, Amgen is not in any way inappropriately using funds from a cash cow to fund a growth business. They are managing multiple products that each have stronger competitive advantage because they co-exist together in the same firm.  I don't see how you create real value by splitting a firm such as Amgen in two.  In fact, you may destroy value by doing so, because synergies are lost.  You create real value if you split an unrelated diversifier in two. 

Monday, October 20, 2014

Attracting and Retaining Better Workers: Higher Wages Alone Won't Do the Trick

We have heard a great deal of commentary about the low wages paid to front-line employees in some industries, particularly the retail and restaurant sectors.   While politicians debate the merits of raising the minimum wage, some people point to the companies paying higher wages as a model.  They argue that these companies attract and retain more productive workers because they pay higher-than-usual wages.   For instance, people point to firms such as Costco, Trader Joe's, and Whole Foods as examples.   I think that we have to be very careful about these arguments though.  These firms attract and retain highly productive, engaged employees for reasons well beyond the wages that they pay.  Yes, they pay their employees more than some of their rivals.  However, these firms also have built an entire organizational system that supports an engaged, productive, and collaborative workforce.  They have developed a culture that attracts talented people.  They have embraced certain values and principles.  They have articulated a sense of purpose that people find compelling.  They have developed managers and supervisors who know how to engage employees.   I could go on.  The point is simple: they have built an entire system that attracts and retains these workers, and helps them produce great value for the firm.   Paying someone a few bucks more without doing these other things won't have any significant effect on engagement, customer satisfaction, employee retention, or profits. 

Saturday, October 18, 2014

How PWC Engages Millennials

Bob Moritz, the U.S. Chairman of PWC, has written an article for Harvard Business Review regarding his firm's efforts to attract, engage, and retain millennials.  Moritz and his firm collaborated with researchers from USC and LBS to understand key generational differences.  From that work, PWC began to develop initiatives to foster higher levels of engagement and retention among millennials.  They have tracked the effectiveness of various efforts.  Moritz cites four major areas of emphasis:

  1. Give them voice. Millennials want to have input regarding the future direction of the organization.  Therefore, PWC gave them voice in several powerful ways.  They asked millennials to offer ideas regarding the most effective methods for talent development in the firm.  In addition, they asked people for suggestions regarding the next $100 million opportunity for PWC.  More than 70% of the employees offered suggestions.  
  2. Provide flexible career paths.   Millennials do not want to stay in the same role for a lengthy period of time.  They want to shift positions and roles, try new things, and embrace different opportunities.  Moreover, they want greater flexibility in their careers.  PWC has created several programs that enable talented employees to take time off or to work part-time for the firm while pursuing other opportunities (such as graduate school). 
  3. Recognize them often and in multiple ways.  Millennials want to be recognized, and that does not mean only monetary awards.  PWC implemented more frequent recognition, and they began to offer a host of non-monetary rewards.   For instance, PWC created a sabbatical program as a reward for millennials who perform well and stay at the firm for a certain period of time.
  4. Give them a chance to give back.  Millennials want to make a broader impact, and they want to work for a firm that has that same aspiration.  PWC found that employees who participate in a corporate responsibility initiative tend to stay at the firm for a longer period of time.  For example, participants in one program to enhance students' financial literacy tended to exhibit much less turnover than those who did not participate (only 8% of participants had left PWC a year later, while 16% of non-participants had left the firm). 

Jimmy Kimmel, the Uber Driver

Uber has to love this free publicity.   Jimmy Kimmel became an Uber driver for one afternoon.  Check it out!

Thursday, October 16, 2014

HBO's Big Decision and the Disruption of the Cable Business

HBO made a major announcement yesterday.  They informed investors that they would be offering a stand-alone digital subscription to customers outside of the usual cable distribution model.  Time Warner (parent company of HBO) indicated that the firm would be targeting customers (typically millennials) who have chosen to "cut the cord" - i.e., to go without a cable television subscription. 

Today's Wall Street Journal article about the move has quotes from several experts. Some indicate that the move is revolutionary, while others downplay its potential to disrupt the cable business.  One expert (USC's Jeff Cole) regards the announcement as a "seismic event."  On the other hand, Tom Larsen, an executive at Mediacom Communications, states, "I don't view it as overly disruptive."  Some cable companies regard the move as not disruptive so long as HBO does not undercut the price which the cable firms charge customers for HBO.

Where do I come down on this move?  In and of itself, I don't think it's hugely disruptive.  However, the strategic decision by HBO may have a large ripple effect.  We have already heard that CBS will follow suit and offer a streaming subscription service.  The next big shoe to drop could be Disney.  If that firm offered its networks (children's programming, ESPN networks) directly to consumers, that would be a major jolt to the cable business.  If consumers can package together subscriptions to Netflix, Disney/ESPN, and HBO, would they still purchase an expensive cable package? Many consumers would not.   Yes, the cable companies also make money selling broadband service.  However, that cannot make up for the loss of significant numbers of cable subscriptions.  The price that HBO charges for its standalone service may not be the key factor.  Why?  People are not thinking about HBO in isolation.  The key is whether other firms follow, and consumers can begin to patch together a whole set of desirable entertainment options for less than the total price of their cable package. 

The entertainment industry has been known for herd behavior in the past.   Consider the moves by many large players to vertically integrate in the 1990s (CBS/Viacom, AOL/Time Warner, Disney/ABC).  They watch each other closely.   Herd behavior can sometimes occur in an industry because managers are risk averse.  In this case, perhaps managers at other entertainment companies will view a move to sell directly to consumers as less risky if a few leaders, such as HBO and Disney, make the move first.  Bob Iger, the industry... and the consumer is watching... 

Monday, October 13, 2014

Playing Catch Up Can Be Very Problematic

You have worked for months on the planning of a new initiative or project.  You have been meticulous.  You have identified the key phases in the implementation process, built a budget and schedule, and marked milestones that need to be achieved at each stage.  You have assembled a terrific team with talented individuals who possess complementary skill sets.  Unfortunately, as you begin to execute the plan, unexpected obstacles arise.  You begin to fall behind schedule, and the results do not match expectations.  As you approach the first major milestone meeting, you realize that you also have exceeded your budget to date.  

What do many managers do?  They try to get back on plan.  They work harder.  They implore their team members to work harder.   They throw more resources at the project.  They try to catch up.  That strategy can be very problematic though. Doing more of what got you into trouble in the first place does not constitute an effective strategy.   Yet, that is the initial tactic often chosen when execution does not match our plan.  Even worse, playing catch up can burn our people out and expend precious organizational resources.   To be effective, we have to be willing to modify that original plan, or perhaps move to Plan B.  However, managers often become overly committed to their original plans.  They don't want to be accused of having put together a "bad plan" for the project.  Instead, though, they may find themselves conducting a very "bad implementation" in part because they are trying to save face.