Wednesday, November 22, 2017

The Benefits of Gratitude

We should all be thankful for the many blessings that we have received. We should express our gratitude to others more often. As leaders, saying thank you more often will help us engage our employees and enhance their satisfaction and productivity. Who could quibble with these assertions. They represent common sense to most of us. Does research back up our attitudes regarding the benefits of gratitude? An impactful series of experimental studies by Robert Emmons and Michael McCullough demonstrated some of the key benefits associated with counting our blessings on a regular basis. 

The two scholars conducted several studies regarding gratitude. In each experiment, they directed some subjects to list their blessings on a regular basis. Meanwhile, they directed others to list the hassles that they had experienced. A control condition existed as well. What did they find? Counting your blessings had substantial emotional and interpersonal benefits. For instance, in one study, they found that people who counted their blessings on a weekly basis "felt better about their lives as a whole, and were more optimistic regarding their expectations for the upcoming week" relative to those who listed the hassles that had affected them during that week. The researchers also found that the people in the "blessings' condition felt better physically and exercised more often during that week. 

In a second study, they asked people to count their blessings on a daily, rather than weekly, basis. They found that people in the blessings condition experienced higher levels of positive affect. Moreover, these individuals were more likely to have helped others as compared to those in the "hassles" condition.  In a third study, the scholars found that, "The gratitude intervention also appears to have improved people’s amount of sleep and the quality of that sleep. Furthermore, the effects on well-being (positive affect and life satisfaction) were apparent to the participants’ spouse or significant other." 

In sum, counting our blessings can have real benefits for us and for those around us. We should express our gratitude on this Thanksgiving, but more importantly, we should pledge to be more grateful on a weekly, and even daily, basis moving forward.  Happy Thanksgiving everyone! 

Tuesday, November 21, 2017

Framing the Problem: The Decline of Campbell Soup & Other Packaged Food Companies

The Wall Street Journal reports today that Campbell Soup reported a disappointing quarter of financial performance yesterday, causing the company's shares to fall by 8%. The firm has now experienced 12 straight quarters of declining revenues. The newspaper explains the decreases in sales as follows:

Campbell and other packaged-food companies are facing difficulties in attracting consumers who increasingly want foods that they see as healthier, more natural and more environmentally sustainable. Companies also face a changing food-retail environment, with the rise of meal-kit providers, the growth of deep-discount chains in the U.S. and the food-selling ambitions of Amazon.com Inc. and its Whole Foods Market.

The article goes on talk about some of the company's recent moves intended to address these competitive threats:

Campbell executives have said they intend to use acquisitions and investments in new products to help lift the company’s fortunes and expand from its mainstay soups. In July, the company said it would buy organic-soup maker Pacific Foods for $700 million, as part of its natural-food push. It now expects to complete that acquisition by the end of the year. It has also invested in some food-related startups.

There's a lesson here about how you frame a problem. To me, the challenge facing Campbell Soup is much broader and deeper than simply the rise of organics or the margin pressures from Amazon and Wal-Mart. Campbell Soup faces a problem with respect to how people shop the grocery store these days. Increasingly, people are spending more time on the perimeter of the store and less time in the center. They are buying fresh fruit and produce, fresh meats and fish, and frozen foods and dairy items. They aren't buying as many packaged foods. Campbell Soup is in the center of the store. Adding a line of organics won't solve that problem. The issue is broader than organic soup displacing conventional soup. The broader challenge is that people are purchasing fewer packaged food items, period. There's a lesson here for all firms. Always make sure you think carefully about how you frame the competitive problem you face. How you frame a problem will, of course, shape the nature of the options you generate for future strategic action.





Thursday, November 16, 2017

Four Principles of Values-Based Leadership

Several weeks ago, I had the privilege (for the second time) of hearing former Baxter CEO and current Kellogg Professor Harry Kraemer discuss values-based leadership.  Kraemer offers four principles for leaders to consider, as they try to lead with purpose, conviction, and integrity.  This short video introduces you to the four principles.  For a more in-depth discussion by Kraemer, you can click here.

Wednesday, November 15, 2017

Competitive Rivalry Increases Risk-Taking Behavior

Intuitively, many of us probably believe that heated competition with a rival increases our propensity to take risks.   That type of behavior occurs in sports, at school, and in the business world as well.   Several scholars chose to examine whether the data support this conventional wisdom.  Here is what they found, as summarized in this NYU Stern Research Highlight:

In this first-of-its-kind study, the authors (NYU Stern PhD student Christopher To , NYU Professor Gavin Kilduff, University of Arizona Professor Lisa Ordóñez, and Wharton Professor Maurice Schweitzer) examined archival data from more than 2,000 regular season NFL games, totaling almost 500,000 unique plays, and found that teams, when competing against a rival team, were 37% more likely to forgo kicking an extra point to instead attempt a two-point conversion and 17% more likely to “go for it” on fourth-down by running a play instead of punting or attempting a field goal. A related behavioral study with more than 140 University of Arizona students confirmed their results and showed perceived rivals took 17% more risks than non-rivals, which was partly explained by a 11% greater increase in their heart rate.

As a New England Patriots fan, I immediately think of Bill Belichick's ill-fated decision to go for it on Fourth and 2 yards to go from the Patriots' own 28 yard line against the Colts in 2009.  In fact, the legendary coach has made some of his riskiest decisions against heated rivals in big games.  Belichick didn't have much confidence that his defense could stop Peyton Manning on that night in 2009.  Manning and the Colts, of course, were huge rivals of the Patriots in those years.   The coach made a very risky decision, hoping to keep the ball and run out the clock rather than give Manning another opportunity on offense.  It didn't work. The Patriots did not make a first down, and Manning promptly marched the Colts into the endzone for the victory.    Sometimes, rivalry might indeed cause us to make ill-fated risky choices.  You make a bold decision, and if it doesn't work, you take a great deal of heat.  That's what happened to Belichick on that night.  I'm not sure it was a bad decision actually, but it certainly was highly risky. 

On the other hand, sometimes heated rivalries can cause us to take innovative risks.   Not all risk-taking is bad. Sometimes, it involves creative choices spurred by competitive rivalry.   Consider another very famous Belichick decision.  In 2003, the Patriots trailed the Denver Broncos (another key rival) by 1 point with just over 3 minutes left in the game.  The Patriots faced a fourth down and ten yards to go from their own 1 yard line.  A punt from there would be difficult to execute, and it would probably give the Broncos the ball with tremendous field position.  Instead, Belichick made the very bold decision to take a safety intentionally, causing the Patriots to fall further behind (26-23 at that point).  However, the Patriots could now kick off from the 20 yard line, and a good kick sent the Broncos all the way back to their own 15 yard line.  The Patriots defense stopped them in three downs, received the ball back with decent field position, and then Brady worked his usual magic.  A short time later, he threw a touchdown pass to David Givens to win the game.   In this case, competitive rivalry may have led to innovation, to a beneficial form of risk-taking behavior.  

In sum, the study confirms that competitive rivalry increases our propensity to take risk. However, the scholars make an important point.  Such behavior may not always be detrimental to the organization.  Sometimes, rivalry sparks innovation.  

Tuesday, November 14, 2017

Law of Unintended Consequences

Organizations and people within them respond to incentives.  They just don't always respond the way that we would like them to do so.   We might have a policy designed with the best of intentions, but it may have serious uintended consequences.   Take, for example, this article from yesterday's Wall Street Journal.  It reports on a new study published in the JAMA: Cardiology.  Melanie Evans reports: 

The Affordable Care Act required Medicare to penalize hospitals with high numbers of heart failure patients who returned for treatment shortly after discharge. New research shows that penalty was associated with fewer readmissions, but also higher rates of death among that patient group.

The researchers said the study results, being published in JAMA Cardiology, can’t show cause and effect, but “support the possibility that the [penalty] has had the unintended consequence of increased mortality in patients hospitalized with heart failure.”

The article goes on to report some disagreement among researchers about the impact of this policy.  Nevertheless, it notes concerns by some physicians about the possibility of unintended consequences and the desire by many to see further research on this matter.

More broadly, this article reminded me that managers need to consider the law of unintended consequences as they establish policies, metrics, and procedures.  For instance, managers may have great intentions when they create a new incentive compensation scheme.  However, the reward system may cause behaviors that they did not foresee or intend to stimulate.  In fact, they may see some adverse effects because of the ways in which their scheme distorted behavior.   One can blame individuals for unethical behavior that emerges as people try to achieve ambitious targets and garner bonuses, for example.  Or, one could ask:  Did we create policies that unintentionally encouraged people to act in unethical ways?  I'm not excusing bad behavior, but I am encouraging to think carefully about the systemic reasons for unethical action within firms.  

Friday, November 10, 2017

Kobe Steel, Middle Managers, and Unethical Behavior

The Wall Street Journal reports today about the results of an interim investigation into the product quality scandal at Japan's Kobe Steel. According to the newspaper, "Kobe Steel Ltd. released a report Friday that blamed lax management and overworked employees for a product-quality scandal, saying the company has to restore trust to survive." The report reminded me of research by Linda Treviño of Penn State University.  She and her colleagues have conducted research on unethical behavior that emerges from middle manager's attempts to cope with unrealistic targets set by top executives at firms.  She has found that middle managers sometimes react to highly ambitious and difficult-to-achieve goals by finding ways to deceive top executives as to the actual performance of the organization.  She describes the results from a study of a large telecommunications company: 

"What we found in this particular case — but I think it happens a lot — is that there were obstacles in the way of achieving these goals set by top management," said Treviño. "For a variety of reasons, the goals were unrealistic and unachievable. The workers didn't have enough training. They didn't feel competent. They didn't know the products well enough. There weren't enough customers and there wasn't even enough time to get all the work done."

Facing these obstacles, middle management enacted a series of moves designed to deceive top management into believing that teams were actually meeting their goals, according to Treviño, who worked with Niki A. den Nieuwenboer, assistant professor of organizational behavior and business ethics, University of Kansas; and Joa᷃o Viera da Cunha, associate professor, IESEG School of Management.

The researchers also discovered that middle managers took concerted actions to coerce individuals to comply with the deceit campaign.  They pressured people to go along with the efforts to fool top executives into believing that the organization was reaching its targets.  The most interesting finding, though, pertains to what the researchers did NOT find in their study.  They did not see managers trying to argue for a revision of unrealistic goals.  They were afraid to challenge top management.  Treviño explains: 

"Interestingly, what we didn't see is managers speaking up, we didn't see them pushing back against the unrealistic goals," said Treviño. "We know a lot about what we refer to as 'voice' in an organization and people are fearful and they tend to keep quiet for the most part."

Tuesday, November 07, 2017

The Dangers of Benchmarking

Freek Vermeulen of the London Business School recently penned an insightful blog post titled "Don't Be Fooled By Success."   He explains three key downsides associated with benchmarking the top firms in your industry.   First, he explains that managers often confuse cause and effect.  The "best practices" that they observe might not be the driver of high performance, but instead the result of success.  Second, managers forget that good fortune and the right timing might have had a lot to do with another company's success in the marketplace.  Finally, some efforts to adopt others' best practices might lead to a short term gain at the expense of long run performance.  

I would add a few other thoughts with regard to benchmarking.  First, you should seek to understand what others do well and how you might learn from them.  However, imitation alone will not lead to sustainable competitive advantage.  You have to do things differently, or do different things, if you wish to stand out in the marketplace.  Second, benchmarking can lead to strategy convergence within an industry, which ultimately shrinks the total profit pool.   Why?  Each company can spend too much time "catching up" in areas with they are behind their rivals and insufficient time and attention on how to expand their lead in key domains.  Third, managers forget that competitive advantage does not come from "best practices" but rather "tailored practices."  Managers must adapt processes, techniques, and systems to fit their organizational culture, structure, capabilities, and target market.   Finally, competitive advantage comes from organizational fit/alignment.  You won't necessarily achieve comparable success by copying parts of another firm's system of activities and capabilities.  The whole is greater than the sum of the parts at great firms.   In her book, The Strategist, Cynthia Montgomery makes this point quite clearly with a terrific quote from IKEA's former president:

“Many competitors could try to copy one or two of these things. The difficulty is when you try to create the totality of what we have. You might be able to copy our low prices, but you need our volumes and global presence. You have to be able to copy our Scandinavian design, which is not easy without a Scandinavian heritage. You have to be able to copy our distribution concept with the flat pack. And you have to be able to copy our interior competence – the way we set our stores and catalogues.” - Anders Dahlvig, Former President of IKEA