Wednesday, November 25, 2015

Count Your Blessings

Arthur Brooks' article in this weekend's New York Times pointed me to a fascinating study about giving thanks.   In 2003, Robert Emmons and Michael McCullough published a paper titled, "Counting Blessings vs. Burdens:  An Experimental Investigation of Gratitude and Subjective Well-Being in Daily Life."  The authors begin their paper by quoting Charles Dickens:  "Reflect on your present blessings, on which every man has many, not on your past misfortunes, of which all men have some."   The scholars asked some research subjects to list things for which they were grateful over a period of several weeks.  Other subjects kept lists of "hassles" - and a third control group listed neutral events.   The researchers also asked all subjects to keep records of their moods, health behaviors, physical symptoms, and overall life appraisals during this time.  The people who kept lists of things for which they were grateful "felt better about their lives as a whole, and were optimistic regarding their expectations for the upcoming week.  They reported fewer physical complaints and reported spending significantly more time exercising."   In short, focusing on gratitude and thanksgiving can be good for you.  So, try to put aside the hassles and the worries for the next few days at least, and attempt to focus on those things for which we should be thankful.   Then let's all try to make it a routine practice to spend more time being grateful and less time being annoyed.    Happy Thanksgiving, everyone! 

Tuesday, November 24, 2015

EDLP vs Promotional Pricing in Supermarkets

New research at Stanford examines the pros and cons of Everyday Low Pricing (EDLP) vs Promotional Pricing.  The research examines how grocers reacted when Walmart entered the supermarket industry with an EDLP strategy.  Walmart used EDLP to achieve major cost efficiencies throughout the value chain.    They wondered why many firms didn't switch to EDLP despite Walmart's success.  

They found that promotional pricing generates more revenue.  Moreover, it's hard to switch from promotions to EDLP.  One author, Harikesh Nair, explains the findings: 

“Now we have empirical evidence to show why most stores chose PROMO pricing and stuck with it during a competitive shock — it earns more revenues and is too expensive to change."  

I think the research seems framed in terms of whether EDLP is better or worse than promotional pricing. That's the absolute wrong way to frame the question.  EDLP worked for Walmart because it fit well with the other choices and activities in its value chain.  Other grocers had very different activity systems. EDLP couldn't just be dropped into those systems.  Everything they did fit with promotions.    Change to EDLP naturally was costly because it required many other changes to maintain organizational alignment.  The lesson is clear:  There is no one best pricing strategy.  It's all about fit.  Competitive advantage comes from an aligned system of activities throughout the value chain.  

Monday, November 23, 2015

Are CEOs Smarter Than the Rest of Us?

Renee Adams, Matti Keloharju, and Samuli Knupfer have written a new working paper that attempts to examine the role of intellectual ability in reaching the executive suite. The scholars studied one million men in Sweden who served in the military over several decades. They had access to aptitude test results from the military for these men.   These tests measured inductive reasoning, technical comprehension, spatial ability, and verbal comprehension.  The CEOs were smarter than the average person. People who became CEOs of large companies in Sweden scored in the top 17% on these aptitude tests. However, they were not significantly "smarter" than many other professionals such as doctors, lawyers, and the like. Amazingly they find that CEOs in their sample tended to be taller than the others who had served in the military with them.   Height matters... what does that say about how we select our leaders?  Interestingly, past studies have found that American Presidents have tended to be taller than the average American citizen.   The scholars summarize their findings as follows:

There are more than 100 times as many men in managerial roles in the corporate sector who have better trait combinations than the median large-company CEO and who do not become a large company CEO during our 7-year sample period. Being born with a favorable mix of traits may be necessary but is far from a sufficient condition for making it to the executive suite.

Friday, November 20, 2015

Market Share Does Not Equal Profitability

Over the years, I have stressed to students and executives that market share does not equal profitability in many cases.   Often firms set market share targets, and they become obsessed with being number one in share.  They forget that share is not always highly correlated with profitability.  My colleague, Lou Mazzucchelli, shared with me this incredible chart about smartphone sales that makes this point in a memorable and impactful way.  

Source:  Canaccord Research

Thursday, November 19, 2015

Great Commercial: Using Cliches to Your Advantage

Fast Company's Jeff Beer has a short piece about a new commercial from Bobble, maker of reusable water bottles.  The advertisement features a fake brand (Once), and it ridicules those who drink bottled water from disposable plastic bottles.  Beer writes,

If you watch enough advertising aimed at anyone aged 14 to 30, certain patterns of tone, image, and style emerge. Young people, just livin' the good life, embracing the moment, seizing the day and all that. To draw attention to the huge amount of waste created by single-use plastic water bottles, reusable bottle brand Bobble has tapped all these well-tread commercial cliches to reach the exact same audience.

The advertisement is fascinating precisely because it highlights another side to these cliches about how millennials should live their lives.   Moreover, as the advertising agency managing director, James Townsend noted, "It's more effective to make something look uncool than it is to say it's bad for you."  

Wednesday, November 18, 2015

Starbucks vs. Dunkin - The Challenge of Strategy Convergence

Bloomberg reports today that Dunkin' Donuts has launched a mobile ordering and delivery initiative.  In Maine, they are testing a service that enables customers to order drinks and food through a smartphone app.  Meanwhile, in Texas, they are testing a delivery service.  Dunkin's move follows the launch of mobile ordering several months ago by rival Starbucks.  

The competitive dynamic between these two coffee chains reminds us of the perils of strategy convergence.  Think about these two chains twenty years ago.  They were quite different.  Each had a very unique competitive position.  Today, their positions are more similar (though clearly not alike).   Twenty years ago, Starbucks did not offer drive-thru service, while Dunkin' did.   Starbucks offered wi-fi many years ago, while Dunkin' added that service later.  Starbucks has offered lattes from the start, while Dunkin' added that product more recently.  Dunkin' has had a lucrative food business to go along with its coffee from the start, while Starbucks has struggled with its food lineup and made changes numerous times to improve it.  For many years, Starbucks has sold its packaged coffee in supermarkets for customers to brew at home.  Dunkin' started doing that as well in recent years.  

What's my point?  Well, the strategies of these two firms have converged in recent years.  Yes, they are still quite distinct, but not as different as they once were.  As markets become more mature, strategy convergence tends to occur.  However, the worry is when strategies converge to the point where company positions begin to blur.   The challenge is to remain distinctive even as markets mature.  Gary Hamel put it best when he wrote, 

In nearly every industry, strategies tend to cluster around some central tendency of industry orthodoxy.  Strategies converge because success recipes get lavishly imitated…Aiding and abetting strategy convergence is an ever-growing army of eager young consultants transferring best practice from leaders to laggards…  The challenge of maintaining any sort of competitive differentiation goes up proportionately with the number of consultants moving management wisdom around the world.

Tuesday, November 17, 2015

Internal Promotions vs. Switching Companies

Wharton Professors Matthew Bidwell and Ethan Mollick have conducted research on external vs. internal mobility of employees during their careers.   Here's what they have found (excerpt from interview with Professor Bidwell by Knowledge@Wharton):  

We found quite big differences between the moves that took place inside the firms, and the moves that took place across the firms. When people are moving inside firms, we saw that they got a pay raise. They also got quite a big increase in responsibility — they tended to rise up, in terms of their title. And they pretty much doubled the number of people that they were managing.

When people moved jobs across firms, they also got a pay raise, but it didn’t tend to come with an increase in responsibilities. Instead, they were moving to a job with often a similar title, and usually with the same number of subordinates — managing the same number of people. And so they weren’t necessarily getting a promotion in the same way.

This speaks to the different reasons for moving. When people are moving inside [the firm], they’re moving up the ladder. When people are moving to jobs in other firms, they’re getting a pay raise. They get paid to move. But they’re not making the same kind of move up the ladder. They’re moving to a similar rung, albeit in a different organization.

The authors offer several cautionary notes for firms and employees alike.  For companies, beware that you are often going to have to pay a premium when relying on external talent to fill key positions.   You pay that premium even though you often are not providing that person with additional responsibilities relative to what they had at their previous firm.   For employees, beware that hopping from one firm to another may get you an immediate pay raise, but it may delay future promotions and pay increases, costing you money down the road.   The authors do not suggest that one should stay at the same firm forever.  However, they do caution against taking a job at a firm where career advancement seems unlikely.   Being able to land a few promotions before moving to another company can be the better long term strategy for career advancement, development, and compensation.