High Status Firms: Hiring Advantage but Retention Challenge

Scholars Matthew Bidwell, Ethan Mollick, Roxana Barbulescu, and Shinjae Won have written a new paper titled, “I Used to Work at Goldman Sachs! How Firms Benefit From Organizational Status in the Market for Human Capital.” The scholars discover, unsurprisingly, that high status firms have a powerful hiring advantage. Knowledge@Wharton summarizes the key finding: 

If a firm is high status, it possesses a hiring advantage (“preferential labor market access” in the paper’s language), but the advantage is not what one might think. It isn’t better pay or more interesting or challenging work: It’s the belief that having worked for such an employer can help you get a better job later on.  “You essentially can pay people in reputation,” says Mollick. “They will take less salary early on because the reputation will result in a higher salary later.” 

How substantial was the impact of status in the employment choices made by MBA graduates in the study? According to the authors, the impact was especially critical in investment banking (shocker!), "where respondents’ odds of accepting a job offer nearly doubled with a one-unit increase in their perception of the firm’s reputation."

Interestingly, though, the hiring advantage that high-status firms possess turns into a retention disadvantage later on in people's careers.   These workers may value status over pay when they are looking for a job right out of school, but eventually, they want firms to show them the money!   The scholars found that, "Workers’ pay rises faster with seniority in high-status firms than lower-status firms."    What's going on?  Now these workers have the high-status firm on their resume.  They view themselves as highly attractive candidates on the job market.  Indeed, they probably do have many outside opportunities that are quite lucrative. Thus, they demand high wages if the firm wishes to retain them.  Of course, many of these high-status firms that recruit at top business schools understand that retention will be difficult.  They don't even mind as people leave in many cases.  They cultivate their alumni network, much as a university would.  Why?  After all, these former employees who leave a banking or consulting firm become potential clients for the firm when they move to a different company.  

Failure Has Become Fashionable

Everyone is talking about becoming more tolerant of failure these days.  You read it everywhere.  Failures are really learning opportunities.   You learn more from failure than success.  You have to be willing to fail if you wish to innovate.  Experimentation entails some failures; without them, you won't create anything truly bold.  You have to make it ok to fail.  

Is it really true? Should failure be acceptable in your organization?  HBS Professor Amy Edmondson has noted that there is a spectrum of reasons for failure.  Some failures are truly preventable.  They result from people knowingly deviating from procedures or not paying close enough attention to specifications.  These types of failures are blameworthy events.  They are not acceptable.  At the other end of the spectrum are intelligent failures.  These failures result from the experimentation process.   In these situations, people are trying to learn through hypothesis testing or exploratory experiments.   These types of failures, according to Edmondson, are praiseworthy events.  

Are all experiments praiseworthy?  Of course not.  Some experiments are well-designed and carefully  implemented.  Others are hastily arranged and not well-designed.  You want to encourage people to make smart bets.  They should be engaging in enlightened, disciplined trial and error in the iterative process.  They shouldn't just be haphazardly trying new things.  Failures that emerge from a well-designed experiment are praiseworthy events.  We should not send the message, though, that all testing is good testing.  We should encourage people to put some thought into how they execute tests, experiments, and prototypes.  Are they designed in such a way to elicit highly useful user feedback?  Was data collected in an unbiased way, or were people simply trying to confirm what they already believed?  Did people pick the right sample, and were appropriate controls chosen if a hypothesis was  being tested?  These types of questions need to be asked when people fail during the iterative process.   We want to tolerate certain types of failure because we want to maximize learning. However, poorly designed tests and experiments do not lead to effective learning.  

Supporting Homes for our Troops

Thank you so much to all my readers who have contributed to my campaign to support Homes for our Troops.  I'm running the Twin Cities Marathon on October 1st to support this amazing organization that builds specially adapted homes for severely disabled veterans.  I'm very grateful for your contributions to date.  If anyone would still like to contribute or learn more about my effort, you can visit my campaign page here.  Thanks!  

Is It a Curse to Be Labeled a Star?

Jennifer and Gianpiero Petriglieri have written a terrific Harvard Business Review article titled, "The Talent Curse."   In this essay, they argue that being labeled as a "high potential" or "future leader" can be detrimental to many talented employees.   The label changes their behavior and mindset, and as a result, their stress level increases, performance suffers, and attitude toward the organization sours.  They explain:

In an age when companies wage wars for talent, it is hard to acknowledge that for some people, being recognized as talented turns out to be a curse. But it does. Aspiring leaders work hard to live up to others’ expectations, and so the qualities that made them special to begin with—those that helped them excel and feel engaged—tend to get buried. They behave more like everyone else, which saps their energy and ambition. They may start simply going through the motions at work—or, like Thomas, look for an escape hatch. This curse strikes the talented even in companies that invest heavily in their development—places where executives are sincerely dedicated to helping people thrive.

What are the signs that being labeled as a star may actually be a curse for you?  They cite three symptoms of trouble. First, are you determined to prove that you are worthy of your label as a star, rather than focused on simply using your talents effectively to achieve personal and organizational goals?  Do you stress short term performance at the expense of continuing to learn and grow?  Second, have you become very focused on your image?  Do you want to be your authentic self, but find yourself trying to be someone else?  Third, are you going through the motions now, with aspirations of eventually doing meaningful work down the road?  Have you convinced yourself that it's okay that you aren't passionate about your work at this point, because you will have a chance to find passion and purpose in the future?  

In sum, you have to ask the question: Has the star, high potential, or future leader label fundamentally changed my behavior?  If so, you have to take a hard look at your mindset, attitude, and behavior.  

The Irrational Desire to Complete a Set of Tasks, Purchases, etc.

Kate Barasz, Leslie John, Elizabeth Keenan, and Michael Norton have completed a new study demonstrating that people have an irrational desire/need to complete sets of tasks, purchases, assignments, etc. Barasz says, "People really don't like to leave things incomplete." HBS Working Knowledge describes the implications of their research: 

  

Do you want customers to refer more of their friends to your company’s website? Ask them to refer friends in arbitrary “batches” of five at a time. Looking to increase charitable giving to your nonprofit organization? Ask potential donors to contribute a set of six gifts. Are you and your fiancé struggling to write thank-you cards for all those wedding shower gifts? Try batching the unwritten cards into sets of eight. Rather than feeling overwhelmed by the prospect of writing one note at a time, you’ll feel oddly motivated to finish a whole set at a time.

In one study, the scholars conducted a field experiment with the Canadian Red Cross.  They tested three types of donation request with more than 7,000 donors during the Christmas season in 2016.  One group of donors received a request for cash donations.   A second group received a request to donate so as to fund the giving of particular items to people in different spots around the globe.  A location marker on a visual of the globe indicated where their money was funding a particular item. The third group of donors received a request to donate funds for a "Global Survival Kit" of six items. As they donated each item, a line stretched further around the globe, going around the entire earth if all six items were funded. The prospective donors did not have to donate all six items.  They could choose to donate a single item if they wished.  Barasz notes, “Who wants to donate six blankets, when you can donate one blanket and feel just as good? But, if you frame it as a set, then there is a reason to want to complete the set and to donate all six of the items.”

What did they find? 21% of the people in the third group chose to donate all six items. That was more than 4 times as many people donating as compared to the second group, and 7 times as many people donating as compared to the first group.  In short, framing the decision as a set to be completed has a substantial impact on donor behavior.  Presumably, the same type of framing may have a significant impact on customer or employee behavior.   It may not seem rational to be compelled to complete a set, but that's the way many individuals feel.  

Bud Light's Decline: What's the Brand Promise?

The Wall Street Journal reports today that Budweiser and Bud Light continue to experience market share declines in the United States.   The chart shown here documents the eroding share over the past six years for the Bud Light brand.  The main Budweiser brand also has experienced share decreases over this time.  The article attributes the declines to the growing appeal of craft beers and imports.   The article makes me wonder about Budweiser and Bud Light's brand promise.  What is it, and has it been updated effectively for the current market environment. What is Bud selling these days, and has it positioned itself appropriately amidst the heightened competition from craft brews and imports?

Consider the concept of a brand promise.  What is a brand promise?   Hinge Marketing describes it as "the tangible benefit that makes a product or service desirable." Workfront defines it as " a value or experience a company’s customers can expect to receive every single time they interact with that company." Workfront argues that a highly effective brand promise has five attributes: simple, memorable, credible, different, and inspiring.  

Does Bud Light have a brand promise that meets these five criteria? Has it updated that brand promise for the current competitive situation and to meet today's customer needs and desires?  It's not clear to me that they have figured out how they should position themselves in this current environment.  

What's an example of a brand promise that does meet these five criteria?  How about Ritz Carlton?  Their brand promise is quite compelling:  "Ladies and gentlemen serving ladies and gentlemen."  

LEGO Boost: Continuing to Renew & Extend the Core

Great firms don't simply diversify into new businesses when their core business appears to be maturing.  Diversification attempts sometimes have two deleterious effects.  First, companies find themselves extending into areas in which they do not have distinctive capabilities that can lead to competitive advantage.  Second, the attention focused on the new businesses can accelerate deterioration of the core, as management becomes distracted and resources stretched thin.   Top performing firms search for ways to deepen their competitive position, to reinvigorate their core business.  Great firms don't simply accept the apparent decline of their core business.  

LEGO went through some substantial challenges in the early 2000s. Jargon Vig Knudstorp became CEO in 2004, and he engineered a remarkable turnaround.   He focused on what made the firm successful for decades - the LEGO bricks and the play associated with those iconic bricks.   Over time, LEGO has reinvigorated the brand and the famous LEGO bricks.  Moreover, the firm has deepened its competitive position with new product offerings and brand building efforts such as the LEGO movie.  

Now the Wall Street Journal reports on the introduction of a new line of products called LEGO Boost.  The products seek to capitalize on the movement to teach kids how to code.   Geoffrey Fowler reports:

Learning programming is awesome when you’re making Lego robots fart. “Usually Legos cannot fart, so we made these Legos fart a lot,” says Eleanor, 9 years old, who helped me code dance moves, jokes and simulated bodily functions into Lego Boost, a new take on the iconic bricks. “Also burp. Don’t forget the burping,” she adds.  Making Lego bricks come to life is a big deal for children aged 7 to 12—as well as for parents who want to teach them the basics of programming.

This new product line appears to build nicely off of the success of the company's Mindstorms products.  Mindstorms is used to teach older kids about robotics.  The Boost product line aims to introduce coding to younger children (ages 7-12).   The product line is consistent with the brand positioning, and it leverages what the company is already good at doing.  LEGO Boost appears to be another way in which LEGO continues to reinvigorate the core business and deepen its competitive position, rather than trying to do new things for which LEGO does not have a distinctive capability.  

The Dangers of Sleep Deprivation

We've all heard the stories of the startup team working late into the night, day after day, as they try to build their business, or the bankers sleeping in the office while they try to close a big deal.  Research suggests that sleep deprivation can have some significant costs though, and not just in terms of personal health. Michael Christian and Aleksander Ellis wrote a paper titled, "Examining the Effects of Sleep Deprivation on Workplace Deviance: A Self-Regulatory Perspective."  By deviance, they mean "a wide spectrum of behaviors that violate organizational norms and threaten the success of a company, ranging from rudeness and withheld effort to theft and violence."

The authors conducted a series of studies on sleep deprivation.  In some cases, they conducted field research, and in other instances, they performed experimental studies in the laboratory.  They found that sleep deprivation does indeed increase deviant behavior in organizations.   For instance, in one experimental study, they split their research subjects into two groups.  one group was able to get a normal night's sleep, while the other did not sleep for 24 hours.  Then the students had to mentor fellow business school students and answer inquiries from business school applicants.  The sleep-deprived students were more likely to provide "inappropriate, negative, or hurtful responses" to questions from fellow students or applicants.  Similarly, in a field study, they found that nurses were more likely to engage in deviant behavior if they were sleep deprived.