Saturday, October 03, 2015

Sbarro: In Strategy, You Have to Choose

The Wall Street Journal reports today on yet another reorganization at Sbarro, the operator of Italian eateries in malls throughout the US.  Sbarro has already experienced two bankruptcies in its history.  What's the new plan for turning around the company?  They will open neighborhood pizza shops with dine-in, take-out, and delivery options for consumers.  They will focus on pizza.  The firm argues it has suffered in recent years due to substantial declines in mall traffic.  Ok, the strategy sounds readonable so far.  However, then you read that the CEO believes that there is still an opportunity to add mall food court locations.  Huh?  He says, "There are 900 malls in the US with food courts, and we're in a third of them.  But instead of them representing 90% of our sites, I'd like them to represent less than half."

The question, though, is whether a company with limited resources and a history of financial troubles can do multiple things at once. Are the two business models (malls vs stand-alone) fundamentally different? Can you optimize both?  Many companies fail because they simply cannot make tough choices about what to do and what not to do. Sbarro may succeed, but it might increasing its odds by making a choice about what it really wants to be.  Instead, it appears to be falling into the trap of seeing a large market (malls) and not being willing to walk away.  However, it shouldn't fixate simply on the size of that market.  It should consider whether it can run mall and stand-alone businesses efficiently together.  

Wednesday, September 30, 2015

Why We Might Want to Meet Face-to-Face

Laura Vanderkam has written a good article for Fast Company about the value of face-to-face communication.  She examines the science behind why in-person communication may be more beneficial than virtual meetings at times. 
Vanderkam points to one particularly interesting study by Juliana Schroeder, Jane Risen, Francesca Gino, and Michael Norton. They found that, "Handshakes are particularly consequential nonverbal gestures in negotiations because people feel comfortable initiating negotiations with them and believe they signal cooperation." The scholars discovered that handshakes lead to more cooperation in a negotiation. That collaboration helps people grow the pie, i.e. achieve potential win-win outcomes. Moreover, the handshake led to more honest behavior. People were less likely to lie about their interests after exchanging a handshake with another party. 

Vanderkam points out several other benefits of face-to-face communication.  You can read nonverbal cues more easily, and frankly, you are more attentive as it becomes much more socially awkward/inappropriate to multitask in person.  In other words, you are simply less likely to look at your laptop, tablet, or phone if you are in a face-to-face meeting than in a virtual setting. 

Tuesday, September 29, 2015

The Personal Invitation

You would like people to attend your meeting, conference, reception, or other event.  You prepare a written invitation, and you distribute in electronic form and perhaps in hard copy as well.  You don't get the type of response you would like.  Why not?  Here are three reasons:

1.  The invite was not personal.  Consider reaching out personally to some key people and ask them to invite others personally.  That direct touch still matters, even in this electronic age. 

2.  You didn't answer the question: What's in it for me?  You have to demonstrate or explain why there's value for them in attending. 

3.  You failed to focus enough on who else will be there.  People want to know if key peers will attend as well.  They want to be able to connect, communicate, and learn from them.  Yes, we all still act like high school students.  We want to know who else is going before we join the party. 

Friday, September 25, 2015

The Final Interview Question

We've all faced that final job interview question: Do you have any questions for me?  We've heard the advice.  Be sure to ask questions that show you have done your homework about the organization.  I agree completely.  I think another question is equally crucial: If I joined the firm, what do you think a successful first year would look like?  What would we have accomplished?  That question can really help you determine whether their expectations are reasonable, and whether you have the capabilities to meet those expectations.  You can also get a sense of the culture.  Did they respond by simply citing some metrics you must achieve, or did they talk about building relationships, developing a team, etc.?  If different interviewers give you radically different answers to this question, it tells you the organization is not on the same page about this role.  That's not good news.  

Thursday, September 24, 2015

How Could the Volkswagen CEO Not Know About the Emissions Issue?

Martin Winterkorn resigned as chief executive of Volkswagen yesterday, after a major scandal rocked the company.   The company has admitted to manipulating technology to dodge emissions regulations.  Winterkorn continues to insist that he didn't know anything about the impropriety, though he did take responsibility and step down as chief executive.  Could it be possible that he didn't know?  Some would say that he must have known.   Naturally, we have no idea whether he's telling the truth.  We will have to wait for a full investigation to be completed.  However, I would like to suggest that it is possible that Winterkorn did not know.   Why?  Volkswagen, like many companies, may have had a culture where people were afraid to share bad news with senior executives, and afraid to speak up when they disagreed with key decisions being made.   Of course, Winterkorn is responsible for the culture.  If people didn't share the bad news with him, we have to ask whether he cultivated a climate in which people were afraid to speak up.  Did he do enough to reach out and invite people to share bad news, express dissenting opinions, and disclose risks?   The leaders of any organization ultimately are responsible for creating that safe space and for encouraging people to speak up.  Leaders need to do more than have an open door policy.  They have to reach out and try to uncover hidden risks. They have to become problem finders. 

Wednesday, September 23, 2015

The Volkswagen Scandal: The Perils of Trying to be #1

Yesterday we learned that Volkswagen employed software specifically designed to circumvent emissions regulations.  When I heard the news, I began to think about several recent scandals in the automotive industry.   GM had the ignition switch scandal.  Toyota had the acceleration problems.  Now Volkswagen has acknowledged to tampering with technology to make it appear as though emissions were lower than they actually were.  What do all three firms have in common besides these unfortunate failures?   At one point or another over the past fifteen years, each firm has aspired to be the largest automotive company in the world.   Each company aimed to achieve the number one position in terms of market share.  I cannot help but think that such aspirations contributed to the problems that have surfaced.   Becoming number one in market share should never be the goal of a firm.  They should be striving to achieve solid returns for their shareholders, exceed the expectations of their customers, become a responsible corporate citizen, etc.   Market share should not be the ultimate goal.   What's the downside of trying to be number one in market share?  It means that you may grow faster than you are capable of growing.  You may create an organization that is too large and complex to manage effectively.   You may overlook issues and problems in an effort to grow.  I'm not saying that aspiring to have leading market share is the only cause of these scandals.  Of course, many other factors contributed to this behavior.  However, I do think these scandals illustrate how trying to be the biggest can have pernicious unintended consequences. 

Tuesday, September 22, 2015

Overestimating Barriers to Entry: The Rise of Craft Distillers

The alcoholic beverage industry has experienced a significant change in the past few years, as a wave of new entrants has emerged.  A large number of "craft distillers" have exploded onto the scene.  According to the American Distilling Institute, the number of small distilleries has risen tenfold over the past ten years.  According to a recent article in the Wall Street Journal, the large players are taking notice. They don't want to get caught unprepared, as they were to some extent when craft beer began to disrupt their business.  

The rise of craft beer and craft distilleries raises an important strategy point.  For years, people argued that the barriers to entry in markets such as beer and distilled spirits were high because of economies of scale, brand equity, route to market advantages, and the extensive advertising and marketing required to launch a new product.  What's happened?  How have startups cracked these markets?  It's become easier to enter these days for a variety of reasons.  Perhaps most importantly, one can launch a new brand more easily today than in the past.  You don't need traditional marketing and advertising approaches, which can be very expensive.  You can use guerrilla marketing and social media to introduce a new product.  Authenticity has become a key product attribute for consumers, and entrants can play on that trend.  Retailers are looking for new, high margin, premium products to add to their portfolio.  Deregulation has occurred, with some laws restricting the sale of alcohol at certain days, times, and locations coming off the books.  Moreover, some rules restricting production have changed as well.  

What's the broader lesson here?  Economies of scale might be significant, but we can't overestimate their ability to prevent entry.   Niche players can still emerge.  Other entry barriers can decline, precipitating entry despite scale disadvantages.   Moreover, some advantages of being small often are overlooked.  While no one niche player may take substantial share, as a group they may create a significant disruption in the marketplace.  The strategic threat is not from one particular entry, but from a class of entrants.  That's a concept that incumbent players in many industries should keep top of mind.