Showing Some Empathy to Your Customers

Sometimes, customers experience a problem, and companies simply cannot do anything to rectify the problem. In fact, the customer may have made a mistake, not the firm, and that led to a deeply dissatisfying experience. Let's take our family's own experience over the holiday weekend. We traveled by plane to Chicago for the weekend, and for the most part, we had an incredibly smooth trip. However, one of our children managed to leave an entire folder of schoolwork on the plane, including a project on which she had been working diligently for weeks. You can imagine the tears when she realized her error. I rushed back to the airport terminal from the rental car location to try to retrieve the folder. Unfortunately, the cleaning crew had already emptied all the seat pockets and thrown away all the contents.

Now, we clearly made the mistake. It was not the airline's fault that we left all this material in the seat pocket. The airline did nothing wrong. However, when I returned to the gate, the agent showed ZERO empathy toward us. She had checked the plane, having been alerted by the folks at the ticket counter to do so. She had found that the trash had been thrown away. When I arrived at the gate, she said, "The material is not there. The trash has all been thrown away." That was it. She showed no emotion. She didn't express how she understood the emotion that my daughter must have been feeling. It was Thanksgiving day, and you might expect a bit of warmth in the exchange, but we felt none. It left me upset. I didn't expect anything from the airline. I knew that we had made a big error. However, the lack of empathy troubled me.

What I learned from this experience is that good customer service requires empathetic front-line employees. Companies need to teach their employees how to handle these emotional moments. In some cases, the firm has made an error, and an apology is in order. In other cases, the firm has done nothing wrong, but it can still show that it understands the customer's pain. That may seem trivial, but to the customer in that very moment, it may have a lasting impact.

How to Avoid Becoming the Next Genzyme, Toyota, or BP

I recommend this article by Forbes columnist Saj-nicole Joni and appreciate very much her suggestion that folks take a look at my book on preventing large-scale failures.

Signs You are a 21st Century Teacher

I love this post, found on the SimpleK12: Changing Education Through Technology blog. The post is titled "21 Signs You are a 21st Century Teacher." Thank you to Bryant student Kevin Mandeville for alerting me to this terrific read.

Worker-Manager Huddles: Problem-Finding

Business Week has an article about the corporate actions that are driving productivity gains across the economy. Many firms are finding ways to do more with less, and they're avoiding the need to hire as a result. At Campbell's Soup, each shift at a North Carolina factory starts with a worker-manager huddle where the front-line employees discuss ways to reduce waste, cut costs, and streamline processes. Here's an excerpt:

"The daily worker-manager huddles are about "getting everybody involved," says "Big John" Filmore, a 28-year plant veteran. "Instead of being told what to do, we get to tell people about our problems." He helped streamline production to better fit with the plant's cleaning schedules. Now operators such as Filmore review all line schedules."

To me, this quote shows how much employees appreciate being given voice and being empowered to discuss the problems that occur each day on the front lines. In my work, I talk about how leaders must become better problem-finders. It starts with going directly to the people doing the work, listening to the issues and obstacles they deal with every day, and collaborating to define the problem that must be resolved.

Black Friday and Markdowns

As Black Friday approaches, we should consider how retailers are affected both in the short term and the long term by a deep discount strategy. If retailers offer steep markdowns on occasion, such as on Black Friday, that may drive foot traffic to the store. While shoppers are there, they will buy other full price items. Thus, the store generates a good return on the "investment" of offering a steep discount on a popular item.

However, retailers also have to consider the long term effects of offering steep markdowns. If a retailer finds itself offering these markdowns rather frequently, then customers will begin to wait to make purchases until the sale occurs. Thus, we may see customers cherry picking items when they go on sale, leading to sharply lower profitability for the retailer.

What's a retailer to do though if its competitors are all offering huge sales, particularly on a day such as Black Friday? One thing retailers must consider is how to increase the number of customer visits. How can we get customers to come back more frequently? Offering items that consumers must purchase more often, which might even be necessities, can drive traffic. That's one reason, for instance, that Target has expanded its food offering. The Target P-Fresh initiative helps drive more frequent consumer visits. For apparel retailers, they might consider offering certain items on a limited basis or in smaller batches. That scarcity effect may drive consumers to want to visit more often, lest they miss an opportunity to see a unique new item. So, as retailers enter Black Friday, they must think about how to use this opportunity not just to cross-sell full price items on that particular day, but also to encourage customers to visit more often in the days and weeks ahead. That increased frequency of visits will make those steep markdowns much more palatable for the retailer.

Probing Your Assumptions

Often, leaders and organizations make flawed decisions because they do NOT make key assumptions explicit and then scrutinize those assumptions carefully. Here are seven questions that I proposed in my last book for helping leaders evaluate the validity of key assumptions being made by decision-makers:

1. What are the facts in this situation?

2. What issues remain ambiguous or uncertain?

3. What explicit and implicit assumptions have we made?

4. Have we confused facts with assumptions?

5. How would an outsider with an unbiased perspective evaluate each of our assumptions?

6. How would our conclusions change if each of our key assumptions proves incorrect?

7. Can we collect data, conduct a simple experiment, or perform certain analysis to validate or disprove crucial assumptions?

Losing Your Overqualified Employees

The Wall Street Journal reports that many recruiters have begun to warn that firms risk losing certain overqualified employees if the economic rebound picks up speed. What's happening? They argue that many people took jobs for which they were overqualified, or at a pay rate substantially below their previous job, during the recession. They chose that perhaps suboptimal employment opportunity because they faced limited options during the downturn. Now, they want promotion opportunities and/or better pay, or they may look elsewhere as the economy recovers.

What can firms do about these overqualified employees who may bolt for the doors in the next year or so? Naturally, it would be great to promote them immediately or pay them more, but these may not be economically feasible options for some firms. What else can these companies do to retain this talent? First, the companies might think about lateral transfers for that employee. No, it's not a promotion, but it could be a great developmental opportunity and a substantial challenge for the employee. They might be tasked with taking on a new role in a different business unit, and they may find that stimulating and interesting. Second, the companies might sit with these employees and chart out a future career path with milestones in the months and years ahead, showing them how they can achieve promotions in the future provided the firm improves its performance and the employee achieves certain objectives. Third, the company can think about investing in other educational and development opportunities for the employee. Employees may be more willing to stay if the firm is giving them opportunities to participate in various leadership development programs that the firm offers. Finally, the firm might consider giving the employee more autonomy over how they do their work. Research shows that employees value autonomy, and that it increases intrinsic motivation. Providing more autonomy might also improve retention for these overqualified workers.

Ten Myths about Job Interviews

Annie Fisher has a terrific column at Fortune about the top ten myths regarding job interviews. Here is Fisher's top 10 list:

Myth #10: The interviewer is prepared.

Myth #9: Most interviewers have been trained to conduct thorough job interviews.

Myth #8: It's only polite to accept an interviewer's offer of refreshment.

Myth #7: Interviewers expect you to hand over references' contact information right away.

Myth #6: There's a right answer to every question an interviewer asks.

Myth #5: You should always keep your answers short.

Myth #4: If you've got great qualifications, your appearance doesn't matter.

Myth #3: When asked where you see yourself in five years, you should show tremendous ambition.

Myth #2: If the company invites you to an interview, that means the job is still open.

Myth #1: The most qualified person gets the job.

I especially like Myths #10 and #6. I think it's a serious mistake to assume that the interviewer is well-prepared and has spent a lengthy amount of time reviewing your cover letter and resume. A smart interviewee makes sure to highlight key aspects of their record, rather than simply presuming that the interviewer knows that already. As for Myth #6, interviewers clearly ask questions to probe the thought process of an applicant. The case interview represents the best example of that approach. In a case interview, no single right answer exists in most instances. Instead, the purpose of the case question is to develop an understanding of how an applicant approaches the problem. Moreover, many interviewees forget that they can ask questions in return during a case interview. Those questions can help to clarify the situation, access additional information, and show the type of problem-solving skills that a firm often seeks.

Executive Education: Beyond High Potentials?

Tim Westerbeck, President of Management Education Enterprises, has a thought-provoking article over at Business Week's site about executive education. He argues correctly that companies increasingly want more customization in the leadership development offerings provided by business schools, consultants, and other management education entities. Despite all the talk about customization, many business schools offer very limited amounts of it. The "off-the-shelf" nature of executive education continues to frustrate many companies.

Beyond that, Westerbeck argues that companies should not only focus on high potentials in their development programs. They have to think about the whole enterprise, including senior leaders. He argues that you can, in fact, teach an old dog new tricks.

I would take his argument one step further. Many firms do have multiple programs, with each development program tailored to a different segment of the employee population (i.e. each program focuses on a different level in the organization). I would argue that firms should consider programs designed at mixed populations. Get senior leaders in a room with more junior executives. Connecting people across levels of the hierarchy has great potential for improving collaboration, communication, and innovation in organizations. Moreover, connecting senior folks with promising young people can help executives understand better social and technological trends, as well as frustrations that young people feel in large, complex organizations.

Breaking up Microsoft?

At today's shareholders' meeting for Microsoft, Steve Ballmer responded to a question about whether Microsoft should be broken up. The question did not just out of the blue. In fact, Goldman Sachs asked a similar question recently. Ballmer argued that the whole is worth more than the sum of the parts. He and Gates explained that value would actually be destroyed by trying to pull things apart that were closely linked together. In short, they argued that diseconomies of scope would result.

I think the "whole vs. sum of parts" issue is very interesting for a firm such as Microsoft. The company is not a conglomerate with distinct business units that have few scope economies. Clearly, synergies do exist, and the businesses do have strong linkages. That doesn't mean that the firm should be kept together, but it does mean that one has to be careful when analyzing the "sum of the parts." Determining the value of a part in a related diversifier can be very, very difficult. I would be cautious about any banking analyst's calculations, and I would want to really understand the extent to which a break-up would disrupt scope economies.

Customers vs. Tasks: Stop Ignoring Me!

How many times have we waited in line at a retail establishment, while one or more employees perform some task rather than helping out a customer? The "focus on tasks, not customers" problem proves pervasive. On Sunday morning, I watched in amazement as an employee stood, with their head down buried in some paperwork, while a long line built at an allegedly "fast casual" restaurant. Her poor co-worker tried to handle the onslaught of customers, but she surely could have used some help from her colleague.

Now, retailers and restaurants clearly need employees to perform crucial tasks in order to ultimately provide customers the products and services that they desire. However, all too often, employees prioritize the task ahead of customers when they need not do so. Sometimes, the task simply must be performed before the associate can help out any more customers. What should happen then? A simple acknowledgment of the waiting customers would be helpful. That did not happen on Sunday morning. The associate simply should say: "Good morning, folks. I will be right with you. I have to complete this task in order to provide you the exceptional service that you expect. I promise that it won't be more than a few moments." Alternatively, the associate could call on one of their other co-workers to come assist with the waiting customers.

Firms should take notice. For a variety of reasons, associates seem to fixate on prioritizing tasks ahead of customers at times. Firms need to train associates more effectively in how to handle these situations, when conflicting demands fall upon them.

Abbott and Costello Job Interview

For all my students headed to job interviews, as well as all my faculty colleagues who struggle teaching quantitative analysis to their students...

Deficit Panel's Recommendations

I may not agree with all of their recommendations, but I must give Erskine Bowles and Alan Simpson a ton of credit for their bold recommendations for curtailing the federal budget deficit. Already, we hear folks railing against the notion of eliminating popular tax deductions such as the home mortgage interest deduction. However, Bowles and Simpson have also recommended lowering marginal tax rates substantially. The plan to lower rates but broaden the tax base through the elimination of many deductions makes good economic sense. A lower rate/broader base system is not only much simpler, but also more conducive to promoting economic growth. High rates coupled with many deductions yield many distortions and inefficiencies in the economy. Now, we need to educate Americans on why this type of tax reform is pro-growth. Again, I'm not suggesting that I understand or agree with all their recommendations yet, but I like the general direction in which they are heading.

Google's 10% Pay Raise

Google has announced a 10% across-the-board pay raise for all employees. CEO Eric Schmidt explained that the firm is concerned about retention as the labor market begins to heat up in Silicon Valley. Moreover, we have been reading numerous reports of defections to Facebook, whose COO Sheryl Sanberg is ex-Google.

I'm intrigued by this move given that it's not clear if this raise will improve retention substantially. Job satisfaction, motivation, and retention are driven by many intrinsic factors, not just extrinsic factors such as salary and bonus. In fact, Google has attracted incredible talent over the years because it has created a work environment that enhances intrinsic motivation. Could things have changed? As Google has grown and matured, could the challenges and excitement and potential for growth and development at other firms now exceed those at Google? If so, a 10% pay raise won't have a long term substantial impact. Clearly,a pay raise can be very helpful if coupled with a series of other moves designed to motivate talented young folks.

Danone Selling Evian, Other Bottled Water Brands?

The Wall Street Journal reports today that Danone is exploring the potential sale of its bottled water business to a Japanese beverage firm. Danone markets a variety of bottled water brands around the world, including 2 of the world's top 5 brands: Evian and Volvic. Why might Danone be considering exiting the business? The paper indicates that Danone has become less enamored with the business because of slowing growth, associated in part with short term recessionary pressures coupled with longer term environment concerns about bottled water. Of course, the paper also indicates that the French government may be concerned about losing national control of a iconic brand such as Evian.

A broader lesson exists here though. Consider bottled water relative to the soda business. Why is the bottled water business not as attractive as the soda business (think carbonated cola)? Clearly, the carbonated cola business has a much higher degree of product differentiation than bottled water, not in tangible terms but in the all-important intangibles. As a result, we see much more price competition in the bottled water business. Moreover, the cola business has much more substantial barriers to entry, particularly with regard to distribution. Bottled water also has a much closer substitute, namely tap water! We could go on. The point is simple: while these two businesses might appear quite similar at first glance, a closer look reveals stark differences in industry structure between carbonated cola and bottled water.

What Apple and IBM Have in Common

The New York Times has an interesting story today comparing Apple with IBM. In that article, my former colleague at Harvard Business School, David Yoffie, argues that the two companies actually have a great deal in common... despite the many superficial differences that seem quite stark. Here's an excerpt from that article:

I.B.M. and Apple pursue different markets, but there is a similarity in their strategies, according to David B. Yoffie, a professor at the Harvard Business School. The big shift at I.B.M., he notes, came about 15 years ago, when the company tilted increasingly toward technology services and software and relied less on hardware. (The change began under the former chief executive Louis V. Gerstner Jr. and accelerated under the current chief, Samuel J. Palmisano.)

The goal, Mr. Yoffie adds, was to build a profitable business with a lot of recurring revenue, based on service contracts and software licenses, and to attract industry partners and software developers to use its technology.

Over the last 10 years, Apple has embraced much of the same strategy — in broad strokes. The company’s partners and developers build on its iPhone and iTunes software and share with Apple their revenue for music and software applications sold on the iStore. These complementary offerings encourage more sales of Apple’s hardware, and have become money makers on their own.

“Each company has created an ecosystem of partners and developers around its core products,” Mr. Yoffie says. “And both depend on ongoing innovation.”

Brand Deposits and Brand Withdrawals

I found this exchange between a Wall Street Journal interviewer and Disney CEO Bob Iger to be quite interesting:

WSJ: You're spending $1 billion to overhaul Disney California Adventure, Disneyland's less-famous neighbor. Why?

Mr. Iger: [Apple CEO] Steve Jobs is fond of talking about brand deposits and brand withdrawals. Any time you do something mediocre with your brand, that's a withdrawal. California Adventure was a brand withdrawal.

We debated, "Should we make it one park?" Raise the price at Disneyland, and suddenly one ticket buys you the whole thing. I even had Imagineers design that.

[But] we would have had to put in transportation systems. It would have cost us so much money to put the monorail in. And to do other things to create one park. That didn't make sense.

We all concluded that the only way we would improve returns on that park is if we made it better and we made it bigger. And we decided to put what is now [around] $1 billion into that.

The exchange proves interesting, because it stresses that few moves by a successful differentiated brand are "neutral" - you are either adding to brand equity or you are diluting it. If you are accustomed to providing "wow" experiences, and charging premium prices for it, then you can't just settle for providing an "ok" experience. That can detract from the brand overall, and it can affect customers' willingness to pay for a wide range of your products.

Taxpayer Funding of Stadiums

According to the Wall Street Journal, taxpayers across the US are pushing back at funding new sports stadiums. Surely, that trend is not surprising given the economy and the concerns over excessive government spending and debt. However, perhaps there is more to the story. Perhaps taxpayers are getting more savvy with regard to the costs and benefits of these projects. When these proposals emerge, we always see studies arguing for a huge stimulus effect to the local economy. However, many of these studies have a fatal flaw, namely that they don't consider the fact that much of the new spending by consumers on tickets, parking, and concessions is not really "new.". It's really just a shift in consumers' spending patterns, with these new purchases displacing other forms of entertainment consumption. Thus, the economy isn't really seeing a net positive. Moreover, these estimates always must be taken with a grain of salt, since the consultants performing the studies are often paid by team owners. Finally, cost estimates foe these big projects are notoriously optimistic; costs can easily exceed original estimates, as with many large public projects.

Fortune's Businessperson of the Year

Fortune has been running an on-line election for its Businessperson of the Year. Here is how Fortune describes the contest:

On Nov. 18, Fortune magazine will name its Businessperson of the Year, an honor that goes to the leader who made the biggest mark in business in 2010... We start with 32 contenders, seeded and matched-up by the editors of Fortune. Go through each contest and pick which leader you think made a bigger impact in 2010. You must select a winner in each bracket to submit your results. At the end of the week, we'll close voting, find the winners, and return Monday with a new round, repeating until the winner is revealed on Monday, November 8th.

Of course, I find the contest fun and interesting. I'm particularly intrigued by the two finalists: Alan Mulally, Ford's CEO, and Steve Jobs, Apple's iCEO. While it's fun to take a look at this matchup, as well as the entire bracket, the entire premise of the contest should not cause us to miss a key point about leadership. The vote is supposed to be about who made the biggest impact. However, the situations faced by these leaders are quite different. In 2010, Mulally was in the midst of engineering a massive turnaround. At the same time, Jobs led an already very successful company who was trying to bring the next big breakthrough innovation to market. It's like comparing apples to oranges. They both made a huge impact, but in a quite different way. Let's take it one step further.

As we assess all these folks as leaders, we ought to ask: Are their leadership capabilities well-suited to the current situation they face, and would they be less appropriate for a very different context? We love comparing people, but we have to remember that some leaders' skills are particularly amenable to certain kinds of situations. Some folks are great turnaround artists, but might not be the right fit for a young start-up trying to get off the ground. Others may be great at launching a new business, but not so effective at scaling a business. Of course, some leaders are incredibly adept at adapting their approach to different situations and contexts. However, not all leaders can do that; some simply have an approach that works better in particular contexts.

Hayek vs. Keynes: The Sequel

Are you a strategic leader?

On Forbes' website, Kate Beatty, from The Center for Creative Leadership, has a terrific article that seeks to define the key attributes of an effective "strategic leader." By that, she means someone who isn't just delivering short-term operational results, but who is a good strategist positioning the firm effectively against its rivals for the long term. She identifies three key characteristics, which she describes as strategic thinking, acting, and influencing:

1. "First, strategic thinking is grounded in a strong understanding of the complex relationship between the organization and its environment. It requires taking a broad view, involving the right people, with important information and perspectives, asking probing questions and facilitating conversations. Strategic thinkers then identify connections, patterns and key issues."

2. "Next, strategic acting involves taking decisive action that is consistent with the strategic direction of the organization--despite all ambiguity, complexity and chaos. A strategic plan is only a plan; an organization's actual strategies lie in the decisions and choices people make."

3. "Finally, strategic influencing is about building commitment to the organization's strategic direction by inviting others into the strategic process, forging relationships inside and outside the organization, and navigating the political landscape."

Cultural Differences in Decision Making

I'm reading Sheena Iyengar's book, The Art of Choosing, which I'm enjoying a great deal. In the book, Iyengar describes some critical cultural differences in how individuals make decisions. She talks about one broad distinction in cultures around world: individualism vs. collectivism. Some cultures, such as the U.S., are much individualistic, while other cultures, such as Japan, are much more collectivist. These cultures differ in a number of ways. For instance, individualistic cultures tend to emphasize choice, while collectivist cultures tend to emphasize one's duty.

Iyengar describes some fascinating studies she has done on cultural differences in decision-making. Take one study with 7-9 year old students, half of whom were Asian American and half of whom were Anglo-American. She assigned the students randomly to one of three groups. One group looked at some anagrams and colored markers and told, "Here are six piles of word puzzles you can choose from. Which one would you like to do? It's your choice." Children could choose which category of anagrams to work on and which color marker to use. A second group of children were told by the person running the study to work on a particular category of anagrams and to use the blue marker. A third group was told that their mother wanted them to work on a particular category of anagrams and use a particular color marker.

Interestingly, the Anglo-American children did best when given total personal choice, while the Asian American children did best when they felt that their mothers had chosen for them. The Asian-American children who thought their moms had chosen for them "solved 30 percent more anagrams than those who were allowed to choose their materials themselves." These children also spent much more time playing with the anagrams than those children who had chosen for themselves. Anglo-American children, in contrast, reacted with embarrassment when told their moms had been consulted about the exercise!

The point is that people raised in individualistic cultures tend to value autonomy and choice very highly, while the collectivist culture emphasizes shared goals and objectives. Consequently, we see individuals taking a very different perspective with regard to how decisions are made, and how they feel that they should be made.