Nordstrom Innovation Lab

Eric Ries has written a terrific new book called The Lean Startup.  On his blog, he wrote recently about how his lean start-up principles can be applied in large corporations.  He profiled Nordstrom, with these two terrific videos about the Nordstrom Innovation Lab.  I recommend taking a look at his book and at these two videos.

American Airlines Files Chapter 11

Perhaps we should not be surprised that American Airlines' parent company has filed for bankruptcy protection.  American remained the last of the legacy U.S. carriers not to have filed Chapter 11.  All others had done so at one point or another.  As a result, the other legacy carriers had been able to use Chapter 11 to restructure their balance sheet and modify their labor contracts significantly.  American remained at a disadvantage because it had not been able to reduce labor costs and debt obligations as substantially as its rivals.  To some extent, Chapter 11 offers the opportunity to level the playing field.  It may seem strange to suggest that a firm may be compelled to file Chapter 11 in part because all its rivals have filed previously.   Yet, that dynamic does exist in this industry.  One should not come to the conclusion, however, that such a domino effect always exists.  Clearly, Ford has managed to be very competitive, despite the fact that it was the only one of the Big Three not to engage in a government-aided bankruptcy restructuring. 

The 10,000 Hours Misconception: Practice vs. Talent

Professors David Z. Hambrick and Elizabeth J. Meinz wrote a good article in the New York Times this weekend about the "10,000 hours" concept popularized by Malcolm Gladwell.   Actually, the idea of experts achieving world class status through 10,000 hours of practice comes from the excellent work of Florida State University Professor K. Anders Ericsson and his colleagues.  They have studied how world class violinists, chess players, athletes, and the like engage in deliberate practice to enhance their skills.  Ericsson has found that top people in these fields tend to engage in at least 10,000 hours of deliberate practice during their formative years.

Some people have interpreted this work to mean that talent doesn't matter much, that somehow one can become world class simply through hard work.   Here is how Hambrick and Meinz counter that conventional wisdom:

Research has shown that intellectual ability matters for success in many fields — and not just up to a point.  Exhibit A is a landmark study of intellectually precocious youths directed by the Vanderbilt University researchers David Lubinski and Camilla Benbow. They and their colleagues tracked the educational and occupational accomplishments of more than 2,000 people who as part of a youth talent search scored in the top 1 percent on the SAT by the age of 13. (Scores on the SAT correlate so highly with I.Q. that the psychologist Howard Gardner described it as a “thinly disguised” intelligence test.) The remarkable finding of their study is that, compared with the participants who were “only” in the 99.1 percentile for intellectual ability at age 12, those who were in the 99.9 percentile — the profoundly gifted — were between three and five times more likely to go on to earn a doctorate, secure a patent, publish an article in a scientific journal or publish a literary work. A high level of intellectual ability gives you an enormous real-world advantage. 

Hambrick and Meinz go on to explain that the high achievers that they studied tend to have a very high level of working memory capacity.   That attribute tends to matter, above and beyond how much one practices.  For example, when they studied pianists who had practiced the same amount of hours, they found that those with higher working memory capacity tended to perform better.   The scholars don't dispute that deliberate practice matters.  They simply remind us that talent still matters... a great deal. 
 

Employee engagement: The importance of public recognition

Many firms expend a great deal of resources on merit review systems these days. Providing employees 360 degree feedback for evaluative and developmental purposes has become standard in large companies. Coaches and mentors provide feedback too. Managers meet one-on-one to provide "constructive feedback" as well. Incentive compensation exists, in some form or another, in most firms. Nevertheless, many company executives fret these days about the low levels of employee engagement in their organizations.

Many reasons exist for the lack of engagement, but let's start with a simple cause. Despite all the "feedback" provided to employees these days, they often feel that they receive little public recognition for their good work. Yes, employees enjoy a bonus or a raise. However, they also value those occasions when a manager or executive praises their efforts and accomplishments publicly. Yet, that public recognition comes very rarely in some firms. Tomorrow's holiday reminds us that a simple "thank you" and "job well done" expressed in front of one's peers can be very motivating.

Ron Johnson and the JC Penney Turnaround

Ron Johnson, new CEO of JC Penney, has an interesting blog post on the HBR site. He draws on his time as head of Apple stores to offer some thoughts on how to be successful in retail. Johnson explains that some skeptics discounted his success at Apple by saying essentially: "The products sold themselves. Let's see what he can do without iPads to sell!". Johnson counters that customers could have chosen to buy the same products on Amazon, while avoiding the sales tax... Yet they often paid a premium to buy at the store. He explains that they came to the store for the experience, Johnson argues that the associates' focus on solving problems for customers, rather than just trying to sell stuff, proves key to creating a good experience.

I agree that brick and mortar retailers must draw customers by creating a special experience. However, some products are more conducive to this type of strategy. For others, the notion of an experience seems to matter less (do we need a physical experience to rent movies?).

The other issue here is the distinctiveness of the retailers' products. Apple stores sell their own products. Yes, they are available elsewhere, but the stores don't stock other firms' items. The products are clearly distinctive. No discounting occurs anywhere on Apple products. JC Penney sells clothes that are often discounted elsewhere. To succeed, it will have to create a more distinctive product mix. It will also have to change that mix in a nimble way to keep up with current fashions. In so doing, it can minimize costly markdowns that plague many department stores. The challenge will be significant. However, Johnson has a tremendous track record at Target and Apple of finding the right combination of products and experience to prosper.

Where's the Cash at HP?

The Wall Street Journal reports that some investors have concerns about the balance sheet at HP.   Many other tech companies have stockpiled cash, while minimizing debt, during the past few years.  For instance,  cash net of debt equals $45 billion for Microsoft, $28 billion at Cisco, and $17 billion at Oracle.  Apple has more than $80 billion in cash and securities on its balance sheet and no debt at all.  Meanwhile, HP has spent a considerable amount of cash on acquisitions in the past year.  Moreover, according to the Wall Street Journal, " H-P has leaned more heavily on borrowing than some other tech companies. Its long-term debt has swelled to $19 billion through the first three quarters of 2011 from $7.7 billion in 2008."

I find this investor concern interesting, given how much politicians and journalists have taken to criticizing many firms such as Cisco and Apple for "stockpiling cash" instead of investing it.   This Wall Street Journal article reminds us of why investors generally like firms to disburse excess cash, but perhaps hold a different view when it comes to tech companies.  In the tech industry, conditions change quickly and dramatically at times.  That potential turbulence and volatility means that keeping leverage low and cash balances strong can make a good deal of sense.   Acquisitions also have played a major strategic role for firms such as Cisco over the years.  Keeping a strong cash position with low debt puts these firms in a position to move with speed and flexibility when an acquisition opportunity emerges.  

On the other hand, perhaps the weaker balance sheet at HP will play an important positive role in the short term.  The discipline of debt can restrain management from making flawed acquisitions or pursuing value-destroying diversification strategies.  Perhaps the balance sheet will constrain HP in a positive way, and keep new CEO Meg Whitman focused on shoring up the core businesses in the near term.

Retailers, Thanksgiving, and Black Friday

Many retailers have decided to open at midnight this year on Thanksgiving, rather than waiting for the early morning hours of Black Friday.   Some controversy has erupted over this decision.  News reports indicate that Anthony Hardwick, a part-time Target employee in Omaha, became very upset when he learned that some employees would have to come to work at 11pm on Thanksgiving night to prepare for a midnight opening.  He launched an online petition, gathering over 37,000 signatures in protest of the midnight opening. Here in Massachusetts, firms have had to delay their opening to 1am or later because of the "blue laws" prohibiting certain businesses from requiring employees to work on the Thanksgiving holiday. 

For me, the controversy around whether employees should work on the holiday obscures a more strategic issue facing these firms.  The critical question is:  Will opening at midnight actually enhance revenue and profitability?  Retailers may find that the earlier opening simply shifts sales from other points in time on the holiday weekend, rather than adding true incremental revenue.   Moreover, even if the firms experience incremental sales, they may find that the additional expenses associated with opening at midnight overwhelm the additional revenue.   To be successful, these firms must do more than cope with the public relations backlash that they are experiencing.  They must generate true incremental revenue, and those sales increases must be sufficient to offset the additional costs that they will incur. 

Common Public Speaking Mistakes

Kathy Caprino has written a good column for Forbes regarding public speaking.  In this article, she highlights five common errors that people make when speaking to an audience.  I found one of her points particularly compelling.  Here is the excerpt:

Show Respect for the Listener

Again, I’ve seen scores of speakers alienate an audience by expressing disdain or criticism for some common behavior or thinking. For example, if you’re speaking to social media novices about what they need to do to get up to speed in the social media arena, you must understand that many folks are afraid and insecure about taking the plunge, and you need to be gentle with them, not judgmental, critical or flip. In the end, If you hate or disrespect your listeners for their lack of savvy in your area of expertise, they’ll hate you back. And if you leave your audience feeling that they are losers, failures or unworthy of your respect, then you’ll achieve the opposite of your desired effect – you’ll bruise their sense of self-worth and create a huge rift between you and your audience.You’ll lose them forever.

I agree wholeheartedly with Caprino's point. Too many speakers forget what it feels like to be a novice in a particular domain. They fail to put themselves in the shoes of someone who knows little about a particular subject, or might even be a bit stressed about trying something new or different.  Putting yourself in their shoes proves critical if you wish to be a successful public speaker.

Why women like teams more than men

The Wall Street Journal reported this weekend on a new study by Peter Kuhn and Marie Claire Villeval regarding teamwork. They created a simple task and asked men and women whether they preferred to work alone or on a team. Women preferred teams much more than men. The researchers discovered one reason why that disparity might exist. They found that men overestimated their abilities much more so than women. Not exactly shocking, eh? Still, the study does a nice job of documenting this phenomenon.

The Simple Decision Test

I heard a common complaint from a mid-level executive today: "Its really hard to get closure on any decisions around here." I wondered whether the chief executive understood the level of frustration. Was the CEO the problem, or were decisions getting bogged down in the bureaucracy, even before getting to the top? In many cases, decisions get derailed by silo rivalry, dysfunctional team dynamics, and leaders who are conflict averse. As a result, people can't seem to achieve closure on key decisions.

What should a chief executive do to determine if this closure problem is slowing down his or her firm's ability to compete effectively in the marketplace? I believe they should occasionally slice through the organization's layers and ask a simple question of mid-level managers? "Are you waiting excessively for certain decisions to be made by senior executives?" If the answer is yes, then the CEO must trace the flow of a few sidetracked decisions to diagnose the problem. If many mid-level managers express the same frustration, then the CEO knows that the firm has a broader cultural problem; it's not just a few poor leaders here and there.

The "Married Men" Wage Premium

For years, economists have explored the reasons why married men tend to earn more than single men, holding all else equal.  Now we have a fascinating new study that looks at this phenomenon in the context of major league baseball.  Exploring this issue in sports proves fruitful, because we can actually measure individual productivity more accurately using an array of statistics.  Scholars Francesca Cornaglia and Naomi Feldman recently found  that married baseball players also earn more than single players.  However, they found that the married players were NOT more productive than their single counterparts. What could explain the premium then?  Cornaglia and Feldman discovered two interesting nuggets in their research.  First, the married players tended to exhibit a bit more stable and consistent performance.  That consistency might be quite valuable.  Second, they found that having more married players on the team tended to be associated with higher attendance (and therefore, higher team revenue).  The results proved statistically significant.  What could be occurring?  The authors speculate that the married players and their wives might be engaging in a variety of activities that bolster the team's image, and therefore, increase the popularity of the club.  For more on this study, you might wish to listen to this interview with the authors on BBC radio.

What a Job Interviewer Really Wants to Know (or Should Want to Know!)

From Seth Godin's interesting and thought-provoking blog:


What good interview questions are actually trying to discover :

• How long are you willing to keep pushing on a good project until you give up?
• How hard is it to get you to change your mind when you're wrong?
• How much do you learn from failing?
• How long does it take you to learn something new?
• How hard is it for you to let someone else take the lead?
• How much do you care?

Saturday Night Live's Weekend Update on the European Debt Crisis

The Milkshake Test

The Heath brothers, authors of the best-selling book Made to Stick, have now published a new book: The Myth of the Garage and Other Minor Surprises.  Slate published an excerpt this week, in which they describe a simple test devised by Clay Christensen to evaluate potentially over-hyped new technologies.Christensen calls it the "milkshake test."   Here is a portion of the Heath brothers' article:

Christensen asks us to imagine a group of marketers at a fast-food restaurant who want to sell more shakes. As they comb the customer data for insight, they discover something interesting: Most milkshakes are sold to early-morning commuters who buy a single milkshake and nothing else. Why milkshakes? These commuters, according to Christensen, are “hiring” milkshakes to do a job for them: to supply a breakfast that is filling and nonmessy and cupholder-compatible. So when you evaluate the next big thing, ask the Christensen question: What job is it designed to do? Most successful innovations perform a clear duty. When we craved on-the-go access to our music collections, we hired the iPod. When we needed quick and effective searches, we hired Google. And looking ahead, it’s easy to see the job that Square will perform: giving people an easy, inexpensive way to collect money in the offline world.

The Heath brothers admit that the test is NOT a perfect predictor of which new technologies will thrive and which will turn out to be busts.  It is helpful though.  The "milkshake test" reminds us to focus on what function the product serves for the customer.  Moreover, it reminds us that the same product can do different jobs in different situations.  For instance, a Starbucks coffee at 6:00am does a very different "job" for the consumer than a coffee at 4pm in the afternoon. 

New Leaders and the Whole Vision Thing

Barbara DeBuono, CEO of Orbis, sat down recently with Adam Bryant of the New York Times for his Corner Office interview series.   Orbis is a global health organization that helps to treat and prevent blindness.  DeBuono offered some terrific leadership advice:

Let’s start with leadership.  Be very careful that you don’t cut yourself off from everyone, either by hanging out in your office by yourself or hanging out in your office or your suite with three or four key people.  I’ve seen that happen a lot — where people are in their bunker with three or four people, and they block everything else out.  You lose all touch with your external customers and your internal customers, and nobody has a sense of your vision; nobody has a sense of who you are.  I think that’s a huge mistake.  

The other thing is to be articulate early on about what you want to do and who you are, but don’t be afraid to actually say, “It’s not all baked.”  I think a lot of people go into a job as a leader or C.E.O. and say: “I have to have the whole vision thing. I have to have the whole mission thing down, with all the strategic objectives, all the programs to support that, all the pillars — and if I don’t, they won’t take me seriously.” I would say, “Don’t be afraid that you haven’t figured all of that stuff out, because really you should be spending your first six months to a year just learning the organization.” 

How can you articulate a fully baked vision and mission and strategic objectives when you have to learn the business you’re in?  Just learn the business, learn the people in your business, learn what they hope and feel, learn what they think the business is.  Do they understand the business that you’re in?  I’ve always been struck by how often people don’t. 

DeBuono offers two critical pieces of advice there.  First, I can't tell you how many new leaders fall into the trap of spending far too much of their time talking to just a few other senior folks in the organization. They isolate themselves from the troops, because they feel that they have to have a bunch of stuff figured out first before interacting with the front-line employees. That's a mistake. Being visible early on is key. However, DeBuono also suggests that being visible doesn't require having a fully-baked vision ready to be rolled out on Day 1. New leaders can use that early face time to learn, to soak in as much knowledge as they can about the organization. Moreover, that face time offers powerful symbolic value. It shows a level of transparency and engagement that will be respected and valued by the front-line employees. 

Strategy by Rule of Thumb

UNC's Christopher Bingham and Stanford's Kathy Eisenhardt have produced some fascinating new research on entrepreneurial firms make decisions in turbulent environments (building on a long stream of excellent research Kathy has done in this area).  These scholars found that the more successful firms frequently rely on heuristics – simple rules of thumb (example: for international expansion, enter English-speaking countries first).   These heuristics become more cognitively sophisticated as managers gain experience and the firm grows.  Moreover, managers learn how to eliminate some rules of thumb over time, as they recognize the limitations or flaws of certain heuristics.   Bingham and Eisenhardt argue that such simple rules of thumb help guide organizational action more effectively than complex processes and procedures. 

Interestingly, this work seems to stand in stark contrast to the psychological research on cognitive biases.  That stream of research suggests that many heuristics can be problematic.  They can lead to highly flawed decisions.   Bingham explains the dichotomy between his work and most of the studies conducted by cognitive psychologists (excerpt from UNC business school's research insights magazine):

He argues that psychologists reached this conclusion by testing people in lab settings and asked binary choice questions that have a definitive correct answer, such as: Which German city has the higher population, Munich or Dusseldorf? Psychologists say that people often base their answer on the city that is most familiar to them, creating a heuristic of answering what first comes to mind, which might not lead to the correct answer.  “Yet in real life, strategists rarely face such clear-cut situations,” Bingham said. Lab studies often stack the deck against heuristics by putting people in unrealistic situations. But by viewing heuristics in the context of the unpredictable environments in which firms compete, Bingham argued that heuristics can be rational and even optimal strategy.

Public Speaking in the Social Media Age

Fast Company's Drew Neisser has a good column on public speaking in the social media age.  I thought two of his points are worth emphasizing here, though I recommend reading the whole column.  

First, he argues: "Don’t Panic if They Aren’t Looking at You."   They might be on a portable device, such as an iPad or iPhone.  However, it doesn't mean they are reading email necessarily.  They might be taking notes, or tweeting about your presentation in real-time.  Both of those behaviors could be very productive and useful for you.  If they tweet your message, you could be reaching a much broader audience.  Telling them to put away their devices is NOT the answer, according to Neisser.

Second, he explains: "If You Don’t Speak Twitterese, It’s Time to Learn It."  In other words, you need to share your Twitter handle up-front. In that way, people can share their thoughts about your presentation, and you will be able to see those statements. Moreover, you need to provide some concise phrases and sound bites that will be amenable to tweeting. Think of capturing your message in a few phrases of 140 characters or less.

Thinking Inside The Box

Consider this scenario: The CEO decides to hold a special long term strategic planning session. He or she reserves a conference room at an off-site location - perhaps a nice resort. The executive team gets together in a room with a nice oak table, white walls, and leather chairs. The only thing at each seat is a notepad and perhaps a few slides outlining key financial targets. Now the group is commanded to "think outside the box" and create a bold and innovative strategy for the future. Yet, what's really happened is the leader is asking everyone to think inside a rather sterile box! Where is the fuel for innovative thinking? Why not have materials, photos, and videos all over the room to spark dialogue? Why not have rivals' new products on display? Where are the latest prototypes from the firm's R&D labs? To think outside the box, CEOs have to set the stage. They can't just being people to a luxurious, but quite sterile, box!

What's Wrong with a Focus Group?

The Wall Street Journal ran an interview this weekend with Ira Neimar, former CEO of Bergdorf Goodman (the luxury retailer).  Neimar offered several of his core principles for running a successful retailer.  Here's one:

"There is no question, in any business, that it is imperative to know as much as possible about your present and potential customer."   The backstory: Mr. Neimark is a proponent of earning one's MBWA degree (Management By Walking Around), interacting with actual customers to find out what's working and what's not. He likens using a focus group to the old New England expression: "It is like kissing a girl through the screen door."

Bottom Line:   Focus groups have significant limitations.  When it comes to learning from focus groups, remember that p often say one thing and do another. Asking individuals questions in focus groups and surveys may yield answers that are not consistent with the way those consumers actually behave in their homes or at retail stores. Moreover, responses may become distorted because market researchers ask leading questions, or simply hear what they want to hear.