Recommended Reading List

At the end of the semester, I often put together a recommended reading list for my students. Typically, I recommend "classics" rather than new releases (though, by classics, I don't necessarily mean only books published decades ago). Here are some classic books that are worth reading if you are interested in the topic of decision-making:

Janis, I.L. 1982. Victims of Groupthink. 2nd Edition. Boston: Houghton Mifflin.

Klein, G.A. 1998. Sources of Power. Cambridge, MA: MIT Press.

James Surowiecki. 2004. The Wisdom of Crowds. New York: Doubleday.

Neustadt, R. and E. May. 1986. Thinking in Time: The Uses of History For Decision Makers. New York: Free Press.

Allison, G. and P. Zelikow. 1999. Essence of Decision: Explaining the Cuban Missile Crisis. 2nd Edition. New York: Addison-Wesley.

Andrew Grove. 1996. Only the Paranoid Survive. New York: Currency.

Peter Drucker. 1954. The Practice of Management. New York, Harper.

Michael Lewis. 2003. Moneyball: The Art of Winning an Unfair Game. New York: W.W. Norton.

George, A. 1980. Presidential Decision Making in Foreign Policy. Boulder, Colorado: Westview Press.

Snook. S. 2000. Friendly Fire: The Accidental Shootdown of U.S. Black Hawks Over Northern Iraq. Princeton, NJ: Princeton University Press.

Strategy in a Structural Break

Richard Rumelt, highly respected strategy professor at UCLA, has written a wonderful article for McKinsey Quarterly in which he discusses how companies can exploit the economic downturn to build and enhance competitive advantage for the long term.

Cost/Benefit Analysis

Companies are facing some interesting choices as they cope with the economic downturn, and these hard decisions call for careful cost/benefit analysis. Some retailers have expanded their hours dramatically, even staying open 24 hours, to attract shoppers just before Christmas. The question, of course, is whether the additional expenses incurred by remaining open those extra hours will pay off in terms of incremental revenues. Similarly, we have some firms engaging in substantial layoffs, while others are eschewing layoffs in favor of four-day workweeks. Clearly, the four-day workweek means you retain talented, well-trained people, and thus, you can scale back up quickly when the economy rebounds. You also avoid paying the severance that might be associated with layoffs. However, you typically have to continue paying all these employees' benefits. Thus, the fully-loaded hourly wage rate for these workers rises substantially under the four-day workweek scenario. If the firm chooses the layoff strategy, they incur some severance expenses, but they save not only the hourly wage rate but also the benefit expenditures. The challenge, however, will be the expenses down the road that will be associated with hiring and training new employees who might have to be hired as the economy comes back. To me, getting these cost-benefit analyses right are essential for any firm hoping to navigate this downturn successfully. The answer won't be the same for every firm; a good cost-benefit analysis will take into consideration the unique aspects of a particular business model. Companies have to think carefully about their specific workforce's characteristics as they make this type of decision. Similarly, retailers have to think about their particular customers as they consider the decision to expand shopping hours substantially in the final days before Christmas.

A Culture of Deference at GM

Alex Taylor wrote an article about the demise of General Motors in a recent issue of Fortune. In that article, he has a wonderful anecdote that suggests a great deal about the culture at GM. Here's the story. I leave it to the reader to draw the obvious conclusions...

Back in 2004, when it was still relatively flush, General Motors invited automotive journalists to the South of France for a three-day "global product seminar." The idea was that writers like me would drive new cars, consume loads of free food and wine, pal around with executives, and develop favorable opinions about GM.

Still a little jet-lagged, I arranged to drive with chairman and CEO Rick Wagoner in a yellow Corvette. Our route would take us from the Four Seasons resort in Provence, where we were staying, through the French countryside and on to the Paul Ricard race circuit near Marseille in time for lunch. My job was to navigate while Wagoner drove, but I used the face time to pepper him with questions rather than pay attention to the route book.

Polite and good-humored as usual, Wagoner mostly ignored my directions and followed the car in front of us. Two hours later we found ourselves back at the hotel. I had been navigating from the wrong map, and the car in front of us, driven by Chinese journalists, was just as lost as we were. Lunch would be delayed while we hurriedly made our way to the track, meaning I had effectively kidnapped the chairman of General Motors for three hours.

Sure, we had been tailed the whole time by Wagoner's security detail, but it remained behind at a respectful distance and never stopped to ask us where we were going. What I learned from the incident were several things. First, never underestimate the ability of a know-it-all journalist to get it wrong. And second, at some point good manners and civility become a liability rather than an asset.

Serial Enterpreneurs: New Research

The Boston Globe reports on a new paper by Paul Gompers of Harvard Business School and his co-authors. The paper focuses on entpreneurship. Gompers finds that enterpreneurs who have started a company and launched an IPO have a higher success rate for their second venture than the usual success rate for first-time entrepeneurs. Here's what Gompers and his co-authors write:

"We show that entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs and those who have previously failed. In particular, they exhibit persistence in selecting the right industry and time to start new ventures. Entrepreneurs with demonstrated market timing skill are also more likely to outperform industry peers in their subsequent ventures."

Globe writer Scott Kirsner also points out his favorite finding from the paper, which is intriguing and makes it worth reading the paper to explore further:

"For instance, one of my favorite conclusions that Gompers compellingly makes is that venture capitalists do not add value to the companies they invest in. How does he know this? Not surprisingly, the top-tier VC firms are better at picking unknown "star entrepreneurs," but once they've been successful in their first ventures (i.e. their "star" qualities are now public information) then the success of subsequent ventures is unaffected by whether the venture backer is a top-tier firm or a bottom-tier one. Ouch!"

To read the entire working paper by Gompers and his colleagues, click here.

John Chambers on Dealing with Economic Downturns

Cisco CEO John Chambers has some interesting comments on how companies should cope with severe economic downturns in this month's issue of Fast Company.

Team of Rivals

A great deal of attention has been paid to President-Elect Obama's desire to build a "team of rivals" where divergent points of view will be represented around the table when he has to make crucial decisions. He was particularly impressed with this concept as it was described by Doris Kearns Goodwin in her fabulous book about President Lincoln, which was called "Team of Rivals."

As many of you now, my research has focused a great deal on how leaders must foster constructive conflict as a means of improving their decision-making processes. In other words, I have tried to write about effective techniques for preventing groupthink. Bringing people with diverse backgrounds and views to the table is certainly a great start. However, it's not sufficient for producing a healthy dialogue and debate. President-Elect Obama, or any other leader, must keep in mind several other things.

First, as soon as Obama becomes the actual President holding meetings in the White House, the atmosphere will naturally change. Many people who may have been very open with him will almost certainly become more deferential out of respect for the office he will hold and because of the atmosphere within the Oval Office.

Second, to stimulate a vigorous debate, one needs specific tools and techniques for generating a healthy give-and-take. Irving Janis wrote about his theory of groupthink by studying the Bay of Pigs fiasco. That's a telling case because Kennedy built a superstart set of advisers which included several Republicans. Thus, he had a diverse set of people around the table, yet groupthink occurred. Later, in the Cuban Missile Crisis, Kennedy employed a number of techniques for helping to force more debate among his advisers.

Finally, President-Elect Obama must remember that debates can easily become counterproductive. One has to be able to manage the interpersonal conflict that often arises in diverse teams. If that does not occur, then group harmony suffers, as will the ability to execute decisions that are made.

The Perfect Storm?

Steven Pearlstein has a phenomenal article in today's Washington Post about the over-use and mis-use of the "perfect storm" excuse being offered by many executives as they try to explain the failures of their organizations. It's a must-read. Here's a brief except from the article:

"... at the heart of any economic or financial mania is an epidemic of self-delusion that infects not only large numbers of unsophisticated investors but also many of the smartest, most experienced and sophisticated executives and bankers. It's not that they don't see the excesses and dangers in front of them -- how could they not? But somehow they convince themselves that the world has changed, that the old rules no longer apply or that, because of competitive pressure, they had no choice but to run with the herd."