Beware of Shiny Objects!

Adam Bryant interviewed Sandra Kurtzig, CEO of software management firm Kenandy, in a recent Corner Office column for the New York Times.  Kenandy offers some great advice for leaders regarding the need to stay focused despite some dazzling and attractive distractions that sometimes appear.   Here's an excerpt:

I don’t run after “shiny objects.” That’s a mistake that a lot of people make in running a company, especially in starting one. They tend to get a lot of opportunities from people who want to partner with them. And these are just shiny objects, because there are very few partners that end up being right for your company. So I’m much more selective. If I hear something, I’m very quick to think, ‘Hey, that’s a shiny object; let’s get back to work.’ I think that’s what’s so distracting to a lot of companies — they see a big customer or some other distraction, and they spend too much time on it and they lose their way. 

I agree wholeheartedly.  Leaders get approached all the time with interesting proposals both from potential external partners as well as from internal folks.   They see opportunities for new investments and initiatives emerging all the time.  Opportunities abound in many cases.  The question is how to screen those opportunities and put scarce resources to work on a few key priorities.  The scarcest resource often is not financial capital; it's management time and attention.   Top leaders simply can't focus on a laundry list of new initiatives.  Leaders also can't forget that execution on current initiatives will likely suffer if they turn their attention to new pastures too quickly.   Strong execution requires discipline not just from the troops, but from top leaders as well.    

Anxiety and Advice

Wharton Professor Maurice Schweitzer, PhD student Alison Wood Brooks, and Harvard Business School professor Francesca Gino have examined the impact that anxiety has on a person's receptiveness to advice from others.    The scholars explain that, ""In almost every domain, individuals discount the advice they receive. In contrast to this finding, we identify an important aspect of a decision-maker's internal state that causes individuals to be very receptive to advice: anxiety."    Ok, now here comes the really bad news.  Brooks explains that, "People in an anxious state were really bad at differentiating between good and bad advice."  

Why might that be the case?   They argue that people who exhibit high anxiety may be feeling a lack of confidence at that time.  Therefore, they look to others to help them figure out what to do in a particular situation.  The desire to resolve the anxiety may make it difficult for individuals to distinguish between helpful and harmful advice.  Individuals may move hastily to resolve the anxiety by making a decision and moving forward, even if they are basing that decision on advice that may not be very good.  

The scholars recommend that people step back and reflect a bit before making decisions in an anxious state.  I think that I would go a bit further though. I would argue that we could all benefit by taking more care in discerning what advice to take, from whom, and in what situations.   Getting advice from multiple parties, hopefully with diverse perspectives, can be very helpful.  Building a trusting relationship with an "experienced confidante" can be beneficial as well.   Thinking carefully about whether someone's expertise actually applies to your situation can be very important.  We sometimes rely on others for advice because they are very smart and successful.  However, that can get us in trouble if that person's experience is not very applicable to our situation. 

Staples: Innovating The Multi-Channel Experience

Staples ranks as the second largest online merchant  behind Amazon.  Now it hopes to expand upon its prior success on-line.  The company hopes to provide an improved multi-channel experience for its customers.  In other words, the firm wants to meet the needs of customers no matter how they shop, while providing a seamless experience across multiple platforms and channels.   To move forward in this regard, the company has opened a new Velocity innovation lab in Cambridge, MA.  Senior Vice President Brian Tilzer explains to Boston.com the purpose of the new lab:

"The vision for this center is to create a place where we can test, learn and iterate as rapidly as possible around new technologies," says Tilzer. As examples, he cited "thinking about how to leverage big data to deliver personalized experiences" and "helping consumers understand what services are available related to a particular product, like a laptop." But there will also be some blue-sky brainstorming, too, to "produce really cool stuff that's meaningful to our customers."

 The lab concept sounds very interesting, particularly when you note the location.  Staples is headquartered in Framingham, MA - in the suburbs about 15 miles west of Boston.  The lab is located in Cambridge, MA - right near where innovative partners have chosen to set up shop, including Endeca, Akamai, and Google.   The location is key to the concept in my view, because Staples understands that the cross-fertilization of ideas skyrockets when you put folks in close proximity to a number of other firms working on related issues and concepts.  It also moves these employees away from the "mother ship" so that they can think more freely, and not be trapped by the conventional wisdom and ingrained processes of the corporate center. 

Does GM Lose Car Sales Because of the Bailout?

Joseph White of the Wall Street Journal reports today that the Obama administration and General Motors have announced plans for the firm to buy 200 million of the Treasury’s GM shares at $27.50 a piece.   That move will begin the process of unwinding the government's stake in the firm.  White explains that the move to eliminate the "Government Motors" stigma from the company may be quite beneficial:


Once the last government share is sold, GM also can get to work unloading the pejorative “Government Motors” image that has weighed on the company in the U.S. market. It’s not clear how many potential GM customers have turned to Ford Motor Co. or other rivals out of distaste for the federal bailout. But they’re out there.

Call me skeptical, but I wonder how much removing the "Government Motors" label will really help GM sell more cars.  Are customers unhappy with the government bailout, particularly given that taxpayers will not come close to breaking even on their "investment" in the firm?   Sure, the bailout has many opponents.  Does that mean the company was losing significant sales as a result of the bailout?  I'm not so sure.  As White acknowledges, no one really knows how many customers have turned to rival car companies as a result of distaste for the bailout?  One could argue that the firm hasn't delivered the kind of attractive, high quality vehicles that it needs to produce in order to generate stronger revenue growth.   At the end of the day, the bailout may have improved the balance sheet and cost structure.  However, GM will only survive and thrive if it makes products that customers want.  I don't see a ton of evidence that the firm has become significantly better at doing that since the bailout.   

Leadership Development is for Top Executives Too!

Building on the last post, I think it's important to address one other problem with leadership development programs.  In many firms, high potentials and mid-level executives attend leadership development programs, receive 360 degree feedback, work with mentors, and receive coaching.   Companies invest a great deal at times to groom these mid-level executives for more senior positions.  However, they do not make a similar investment in members of the top management team. 

What's the problem with that approach?  First, it presumes that people do not need further learning and development once they reach the top level of the organization.  It suggests that they "know it all" at that point.   In fact, members of the top team often can use a break from their day-to-day work to think about broader strategic and leadership issues.  Investing in their development may not only improve their skills and capabilities, but it may help shake the conventional wisdom and groupthink that can emerge from an intact and cohesive team that has worked together for a long time in a particular company.  

Second, mid-level executives receive the wrong message.  They see top executives as not "walking the talk" regarding leadership development.   Somehow, what's good for the troops is not good for the top team.  That can't be the right message to send to future leaders of the organization.  

Retaining Top Talent by Making People More Attractive to Outside Firms

Elizabeth Craig, John Kimberly, and Peter Cheese have written a good column for the Wall Street Journal about how to retain your top executive talent.   They argue that we ought to be investing in leadership development, even if it means that our people become more attractive to other companies.  We might lose some people because we've made them more employable by outside firms.  However, in many cases, that type of investment in our people will actually increase retention.  Here's an excerpt:

That's why it's crucial that companies get serious about retention now. And that means giving executives opportunities to take on greater responsibility, broaden their skills and cultivate a network of relationships with their peers. These are the things that executives we have surveyed consistently say they want most from their jobs.  Of course, executives want these opportunities largely because the skills, experience and relationships they acquire make them more valuable on the job market. So there is always the risk that a company may invest in building its executives' talents only to see some of them take those talents elsewhere.  But our research shows that executives intend to stay longest with those companies that offer the greatest opportunities to enhance their employability. On balance, a company will keep more talent by helping its executives grow than it would by denying them these opportunities. And as a bonus, its executives will be more valuable to the company itself.

I agree wholeheartedly. I would simply stress that companies cannot simply put efforts into leadership development without actually delivering exciting opportunities that come with increased responsibility.  If someone gets mentored, sent to executive education programs, and assigned a coach... but has to wait and wait for that chance to take on new responsibility... well, then they are likely to leave.   People want to know that their efforts at self-improvement are going to yield opportunities to practice their new skills and capabilities.   They want to learn by doing.   Moreover, employees don't just want more responsibility.  Promotions alone won't do the trick. They want exciting opportunities.  They want to tackle new challenges and explore new aspects of the business or of their discipline.  Meaningful work is key, not just a new title and more direct reports. 

Struggles at Build-a-Bear

The Wall Street Journal reports that Build-A-Bear, the once high-growth retailer, has begun a search for a successor to founder and CEO Maxine Clark.  The company has struggled recently, even closing some locations.   What happened to this retailer, which had been growing rapidly and profitably several years ago?

Build-A-Bear offered a unique retail concept.  It truly provided an "experience" for the customer, not just a set of products.  In that sense, it should have been insulated a bit from the pressures that other children's toy retailers faced from internet retailers such as Amazon.  However, I think Build-A-Bear's growth strategy had some weaknesses that are not uncommon in retail.  First, it grew very rapidly, opening stores in malls throughout the nation.  However, the appeal of Build-A-Bear was, in part, because it was a destination.  You don't go to such a store on numerous repeat occasions.  You go rather infrequently - special occasions mostly, like birthdays and holidays.  When you have so many stores, it's hard to support them all given that you don't have customers coming back again and again each month.

Second, Build-A-Bear didn't innovate enough with regard to the store experience.  Children did not see or do unique things over the years; they were doing precisely what they had been doing on prior occasions.  That inability to innovate the experience meant that repeat visits were increasingly unlikely.

Third, the tie-ins to movies such as Smurfs are great; they produce a surge in sales.  However, you have to pay royalties on those products, and then you face the challenge of continuing to grow revenues after those movie promotions have ended. 

Finally, the company didn't generate enough of a powerful razor-and-blades business model to truly drive the type of profitability that they hoped to achieve. Compare them to American Girl.  In that case, young girls play with those dolls often, and they come back to the stores, catalog, or online store to buy new accessories, clothing, and other products that can be used with the dolls.   Build-A-Bear did not have that type of powerful razor-and-blades model.  Yes, kids bought outfits for the bears when they made the bear.  However, children didn't tend to come back often to buy other accessories.  Bears aren't like dolls, after all, in that they aren't played with repeatedly in the same way.  

Associational Thinking & Creativity

Entreprenuer Kevon Saber has written a good column on creativity for Fast Company.  He focuses on the notion that we should expose our people to ideas from different industries and disciplines to help stimulate creativity.   Saber points that many new ideas come from "associational thinking" - the ability to draw unique connections among seemingly unrelated concepts from different fields.  His column offers some ideas for stimulating associational thinking, drawing on the practices of various innovative companies.   I liked this particular technique quite a bit:

The event website Eventbrite hosts “Brite Camps,” internal training events led by different team members. Held during company hours, team members lead how-to sessions on varied topics from photo editing to options trading to poker. These interactive sessions not only strengthen company culture, they also build dexterity in team members to better conceptualize new ideas. It’s another case of diverse stimuli boosting the creative potential of a team.

While I do love these types of activities, I think that they cannot replace the most important method for stimulating associational thinking - READING.  Individuals can derive tremendous value from making a habit of reading voraciously about what is going on in other industries and disciplines.  We should not trap ourselves by only reading in our own specialized domain. 

Rules are made to be broken

You have all heard the phrase, "rules are made to be broken." Of course, the phrase makes compliance professionals cringe! The bottom line, though, is that it is very difficult to count on rules and procedures alone to govern behavior. If we want to insure that people do the right thing, we need to inculcate a strong set of values throughout the organization. We need people to understand the criteria they ought to use to make key decisions. We need to establish a framework that guides decision making, because we will never anticipate all situations, and we can never design "perfect" rules.

Overcoming Our Rigidity, Opening Our Minds

Ben Weinlick has a terrific article over at The Creativity Post blog.  The post is titled, "Defeating Rigid Habits to Spark Creativity."  He has some good suggestions including:

• Defeat habits by being curious about interesting ideas and interesting people
• Defeat habits by engaging lots of interests and hobbies
• Defeat habits by consciously shaking up routines
• Defeat habits by asking the “dumb questions”
• Defeat habits by hanging out with weird
• Defeat habits by focusing on a problem and then letting go; do something totally different
• Defeat habits by including people in your projects who are from outside your domain
• Defeat habits by developing a culture of serious play.  

Do we really care about internet privacy?

Why do people disclose so much personal information on Facebook?  Harvard Business School Professor Leslie John and her colleagues have conducted several fascinating experiments regarding internet privacy.   For instance, they developed a set of provocative questions regarding activities such as the use of drugs, viewing of pornography, etc. - creepy questions according to Professor John!   Then they examined whether the form in which they asked the questions might impact the extent to which people disclosed private behavior.  In one experiment, they established three conditions - all with the same questions - with data collected from respondents passing by a set of laptops set up on the Carnegie Mellon campus.   HBS Working Knowledge describes the three conditions as follows:


In some cases, they took an online survey titled "How BAD Are U???" - deliberately designed to look unprofessional, it featured red font and a pixelated cartoon devil.  Other participants received a deliberately professional-looking survey titled "Carnegie Mellon University Executive Council Survey on Ethical Behaviors," which sported the school's official crest. A third set, the control group, received the relatively neutral "Survey of Student Behaviors." 

What did the scholars find?   Students taking the purposely unprofessional-looking survey tended to admit to many more of these private behaviors than the students in the control group or the professional condition.  It seems odd, in a way, because you would think folks would be more hesitant and concerned about privacy on a site with a very unprofessional appearance.  Instead, it makes them less inhibited!   According to John, "When you're on a very official-looking site, it sort of cues you in to think about the concept of privacy.  We argue that oftentimes, privacy isn't something that's at the forefront of people's minds until you cue it." In fact, further experiments showed that privacy cues embedded in the surveys tended to make people more hesitant to disclose certain private behaviors. 

When Should Corporate Governance Become More Vigilant?

Dalida Kadyrzhanova and Matthew Rhodes-Kropf have written a new working paper that I found intriguing.  They examined how corporate governance changes as firms enter periods of high performance, even perhaps periods of equity over-valuation (they use some interesting measures to examine potential over-valuation of equity).  They found that, "Firm performance seems most impacted by governance when firm and industry deviations are high."  

The scholars argue that, during periods of equity over-valuation, executives are most likely to pursue investments and other decisions that may maximize personal utility at the expense of shareholders.  They do so because they essentially have some slack - plenty of resources at their disposal, and presumably some credibility with investors given the high performance.  During these times, then, corporate governance should become more vigilant so as to protect shareholders from "misbehavior" by executives.  The paper has important implications for boards of directors.  We typically think that the board role is most important during a crisis, when performance is poor.   That is probably correct. However, this paper reminds us that the board also has to be careful during periods of abundance.  That may be the time when the seeds of future crises are planted, as managers make flawed decisions - putting excess cash flow to work in ways that are not in the best interests of shareholders.  

Beware! We Overvalue Growth

Earlier this year, Michael J. Schill, Associate Professor of business administration at the University of Virginia Darden School of Business, wrote a terrific column for the Washington Post.  He offered a simple example of two mining companies. One had embarked on a growth strategy that involved expanding its balance sheet through major asset investments.  The other had embarked on a contraction strategy, spinning off certain parts of its business and shrinking its balance sheet.  Schill asked the question:   In which firm are people likely to invest?

Schill explains that many investors tend to flock toward the growth company.  They are attracted by the prospects of expansion and the new opportunities that those recent investments may bring.  However, that tendency to prefer the growth company may be a mistake.  Here's Schill explaining the potential bias that may be hampering investors' efforts to maximize returns:

Do investors have a good track record in pricing rapidly expanding or contracting companies? History tells us that investors tend to overprice expanding firms and underprice contracting firms. As an example, take a person who systematically invested over 35 years an equal amount of money in the stocks of firms whose balance sheet growth put them in the top 10 percent each year of U.S. public firms. That investor would find that the average annual performance of that portfolio would barely match the returns achieved by U.S. Treasury bills over the same period: about 4 percent. On the other hand, an investor who systematically bought the stocks each year of firms in the bottom 10 percent of balance sheet growth would be delighted to find average portfolio performance over the same period to be more than 22 percentage points above the returns achieved by Treasury bills: about 26 percent. The pattern suggests that expanding firms tend to be overpriced and contracting firms are systematically underpriced.

Your Front-Line Employees are Your Brand!

Companies spend a great deal of time and money building advertising campaigns, social media strategies, and other promotional vehicles to build brand equity.   For many firms, though, their front-line employees represent the most significant way that customers experience the brand.  Those employees become crucial ambassadors for the brand.  

Starbucks understands the crucial role that front-line employees (the baristas) play.  It has invested heavily in a program to inspire and motivate the baristas, and to help them bring the brand's values to life in each Starbucks location.   The company has created the "Starbucks Leadership Lab" to inculcate the core values of the brand in its workforce.  Here's an excerpt from a Fast Company article about this program:

Starbucks’s Leadership Lab is, as its name implies, part leadership training, with a station that walks store managers through a problem-solving framework. It’s also part trade show, with demonstrations of new products and signs with helpful sales suggestions, such as “tea has the highest profit margins.” The majority of experiences are meant to be educational, including several that give store managers access to top managers of the company’s roasting process, blend development, and customer service.  

But what makes the Leadership Lab different than a typical corporate trade show is the production surrounding all of this. The lights, the music, and the dramatic big screens all help Starbucks marinate its store managers in its brand and culture. It’s theater--a concept that Starbucks itself is built on.  “The merchant’s success depends on his or her ability to tell a story,” writes Schultz. “What people see or hear or smell or do when they enter a space guides their feelings, enticing them to celebrate whatever the seller has to offer.”

In this case, Starbucks is selling its employees the Starbucks brand. And it has given the Leadership Lab the same attention to detail as its store ambiance.  As Valerie O’Neil, Starbucks’ VP of global communications, puts it: “[The experiences] are wrapped in a very inspirational journey, so partners can walk away not only understanding and informed, but feeling it.”

Note that such programs cannot be efforts to simply dictate practices and policies to employees.  It cannot be an attempt to brainwash them regarding the company's goals and values.  It has to be a forum for two-way communication.   The messages and the values conveyed to employees must be authentic.  Store managers must "walk the talk" each and every day.  If not, then such programs will do more harm than good. Associates will feel that they have been misled.  They have to be part of the process, and there must be opportunities for them to express their ideas to management.  The photograph above demonstrates one of the ways in which the associates' ideas and thoughts are captured at the Starbucks Leadership Lab.

 

User-Generated Content: Engaging Customers, Enhancing Brand Authenticity

Leading edge companies leverage user-generated content to bring their brands alive, engage some of their biggest fans, and emphasize the authenticity of their brand.  They don't just solicit customer reviews, collect likes on Facebook, or ask customers to vote on items that they should sell.  They actually encourage customers to help them tell their brand story.  Paige Beaumont, Assistant Editor of the Post Advertising blog, writes about the impact of user-generated content:  

Great user-generated content (UGC) should not exist in a vacuum—it should be reused, when and where appropriate, to bring color and authenticity to a brand’s marketing.  As brands expand their social-media footprints, many have also (smartly) placed more emphasis on engaging with their fans. As a result, they’ve begun proudly featuring selected consumer contributions in print, TV and online advertising. Dedicated fans often create a gold mine of content that’s just waiting to be explored, and in due course, brands have begun to dip into this resource. It’s the easiest and most direct way to build relationships with customers, because their passion for their favorite brands makes them happy to respond and share their stories—messages that are infinitely more compelling than what the brand might say.

Paige offers some terrific examples in this blog post.   For instance, she highlights an advertisement by Target that features real home videos of high school students opening their college acceptance letters.  The ad clearly evokes an emotional reaction, and Target appropriately makes a connection to their own efforts to donate a portion of revenues to schools throughout the country.  

Cheaters vs. Cheating: Words Matter When It Comes to Crossing The Ethical Line

Christopher Bryan and Gabrielle Adams have conducted a neat new study regarding ethical transgressions.  They examined whether wording mattered when it came to the rate of unethical behavior in which people might engage.  Specifically, they examined whether people might cheat to win $5. They asked subjects to think of number between one and ten; they could win $5 if their number was even.  Much prior research suggests that people are much more likely to think of an odd number.  Therefore, a high rate of even numbers would indicate that quite a few folks were likely to be cheating.  Now, here's the interesting twist.  They broke the subjects into two experimental conditions.  One group was told that they were playing a game that "tests how common 'cheating' is on college campuses."  The other group did not use the word 'cheating' - instead, it used the word 'cheaters' to describe the purpose of the research. In addition, subjects were being told that it would impossible for the researchers to know if subjects were "cheating" vs. were a "cheater." 

What did Bryan and Adams find?  Approximately 20% of the subjects in the "cheater" group reported an even number.  That's what we would expect if people are being honest (given the tendency of most folks to pick an odd number in prior studies).  Roughly one-half of the folks in the "cheating" group reported an even number!   Therefore, the slight alteration of wording seemed to matter a great deal.   No one wants to be called a cheater!  People worry very much about how they think of themselves, not just how others think of them.  The word "cheater" moves people to honesty! 

One Step Toward Attacking The College Tuition Bubble

Source: Business Week

As a college professor, I understand that we are part of the problem when it comes to the college tuition bubble.   At far too many universities, particularly large research institutions, a significant number of faculty members don't teach enough or teach well enough.  Moreover, tuition dollars support research agendas that aren't always relevant to practitioners.   However, I think a significant share of the blame for the tuition bubble also must rest at the feet of administrators.  Take a look at this excerpt from a current Business Week column by John Hechinger:

At universities nationwide, employment of administrators jumped 60 percent from 1993 to 2009, 10 times the growth rate for tenured faculty. “Administrative bloat is clearly contributing to the overall cost of higher education,” says Jay Greene, an education professor at the University of Arkansas. In a 2010 study, Greene found that from 1993 to 2007, spending on administration rose almost twice as fast as funding for research and teaching at 198 leading U.S. universities.

How can students and parents tolerate these types of statistics?  How can faculty members tolerate it?   I think that several factors contribute to the administrative bloat.  If we don't address these factors, then we will have a hard time reducing the administrator-faculty ratio. 

• First, accreditation agencies serve a useful function, but they have placed increasing burdens on universities.  Efforts to achieve and/or preserve accreditation soak up enormous amounts of time, and they require a lot of administrative work.   I don't think the return on investment is justified in many cases. Could we streamline accreditation processes?  Absolutely.  Will we?  Well, these accreditation bodies are big businesses. They aren't likely to streamline unless enormous collective pressure is put upon them.  
• Second, we do a terrible of preparing people for senior academic administration jobs.  We name professors to senior administrative posts with virtually no leadership development efforts to enable them to succeed.  We all know that a great teacher or researcher may not have the skills required to lead an organization.  Companies spend significant amounts of time and effort on leadership development; universities throw people into the ocean and expect them to swim.  When they start drowning, we appoint a few more associates or assistants to help them stay afloat!  
• Third, many universities offer a wide variety of additional services to students today as compared to several decades ago.  Those services cost money, and they require administrators to oversee these efforts.  There is no free lunch.  If we want to reduce administrative bloat, we have to take a close look at the services we are demanding from our universities. 
• Fourth, universities have faced an increasing regulatory burden, particularly when it comes to federal regulations that affect large research institutions.  Satisfying the regulatory requirements has taken increasing amounts of administrative work.  
• Fifth, too many universities operate in a very top-down fashion.  Faculty and staff members do not feel empowered to make many decisions.   That centralized organizational structure is a remnant of the past.  Many companies have changed in recent years, adopting leaner and flatter structures.  Universities continue to operate in a much more command-and-control environment in many instances, despite the talk about being faculty-led, consensus-oriented, and the like. 

Retailers, Black Friday, & A Prisoner's Dilemma

We've certainly heard a great deal over the past few days about the controversy surrounding the decision by many retailers to open on Thanksgiving evening.   Regardless of where you stand on that issue, you should ask yourself:  Are these retailers actually generating incremental sales and profits by opening at 8pm on Thanksgiving or at midnight, as opposed to early on the morning of Black Friday?   Perhaps they are, but I suspect that they are simply shifting sales which otherwise would have occurred on Black Friday or thereafter.   People aren't buying more items overall this Christmas; they are simply buying them a bit sooner as a result of the Thanksgiving day openings. 

Why are firms pursuing these policies if they are unlikely to drive incremental sales and profit?  I think it's because the retailers are caught in a prisoner's dilemma.  If they all chose to wait and open on Black Friday at 6:00am, they would be better off as a whole.  However, each retailer is worried that it will lose out if it remains closed while rivals open on Thanksgiving night.  Therefore, each retailer opens up earlier and earlier, for fear of ceding sales to rivals. 

How can firms extricate themselves from this losing proposition?  Well, the retailers cannot legally collude to shift openings back to Black Friday morning.  However, they can try to achieve some form of tacit collusion, or they can try to influence and signal to one another in a way that leads to cooperative behavior for the greater good.  Typically, such cooperation emerges if you have a strong market leader who can influence the behavior of smaller rivals.  Could Wal-Mart serve that function?   It seems unlikely, because even though they are enormous, rivals would probably jump at the opportunity to steal sales from them.  That's why we probably will see this trend of early openings continue, though it may not be enlarging retailer profits by much at all. 

Peer Comparisons & Compensation: Law of Unintended Consequences

Claudine Gartenberg and Julie Wulf have written a paper on executive compensation that you may find interesting.  They examined the effects of the 1992 SEC Proxy Disclosure Rule, which increased the transparency of executive compensation at publicly traded firms.  While transparency is generally a good thing, they found a somewhat unfortunate unintended consequence.   After the ruling, executives became more aware of the compensation received by their peers, and they engaged in more comparison to those peers.  Those comparisons resulted in a convergence and ratcheting up of executive compensation.  The effects proved to most pronounced among geographically dispersed firms.  The scholars argue that those executives had a harder time knowing the pay of their peers before the SEC disclosure ruling.  Executives in firms of close geographic proximity already could compare compensation to one another through other means besides the company proxies. 

This study only confirms what I have felt for a long time, namely that compensation isn't just about the absolute level of pay.  It's about how you stack up against your peers. That is true within firms, as well as across firms.  You might recall Michael Lewis describing how traders compared their bonuses in his book, Liar's Poker.  A giant bonus could still be disappointing if surpassed by one's colleagues.  It may sound insane, but it's human nature. 

The real problem, though, lies with boards of directors.  It's one thing for executives to want to "win the compensation game" against their peers.  It's quite another for boards to escalate this competition.   Boards need to recognize the market dynamics, but they must guard against a "compare and ratchet up" phenomenon that has taken hold in many boardrooms. 

Johnnie Walker: The Man Who Walked Around The World

My good friend, John Crosby, sent me a link to this video this morning.  The brilliant and creative short film features Scottish actor Robert Carlyle telling us the history of the iconic whiskey brand Johnnie Walker.   The short film offers some fun facts about the company's history, such as the rationale for the square bottle and the slanted label.   Moreover, the constant walking, use of props, and beautiful scenery truly are captivating.

To me, the short film demonstrates the creative way in which companies can use lengthier web videos, on platforms such as YouTube, to do things that you cannot do in a brief 60 second television advertisement.  Sharing the history of a brand in a creative manner can be a wonderful way to reinforce its authenticity.

The genius of this "Keep Walking" brand campaign by Johnnie Walker is that it is wrapping the brand in history and nostalgia while simultaneously offering a message of progress and hope for the future.  That can prove to be a tricky proposition.  No brand wants to be "your father's Oldsmobile" when it comes to categories such as whiskey.  Yet, the history and the roots of the brand are a key part of the image and positioning that make it iconic.   This short film threads the needle beautifully, bringing together past, present, and future in an authentic way.

Retailers, Showrooming, and Mobile Apps

Keith Anderson of RetailNet, a leading retail market research firm, tweeted an interesting story today about Wal-Mart's mobile app.   We all know that brick-and-mortar retailers have been fighting a growing "showrooming" trend - the notion that consumers visit stores to see, touch, and interact with a product, but then purchase on-line from an e-commerce company such as Amazon.   Retailers have been working hard on strategies to counter that threat.  Wal-Mart recently updated its app to improve the "Store Mode" element.   That aspect of the mobile app tries to help consumers navigate the store to find what they desire.  The "Store Mode" includes the local advertising circular, a shopping list function, maps of the store layout, and a QR code scanner.   What is interesting about the results to date for this updated app?  According to this article, Wal-Mart reports  that, "12% of its m-commerce sales occur while customers are in stores, showing that consumers are using their smartphones to buy from Wal-Mart what Wal-Mart does not have in stock, or perhaps purchase an item they don’t feel like carrying home, like a big-screen TV."   In sum, a strong mobile app may help protect against the tendency for consumers to drift toward Amazon or another online player for their purchases.

We all know that many retailer apps left a great deal to be desired over the past few years.  However, they have been improving.  Retailers have added functionality that does help consumers navigate the stores more easily and much, much more.  For instance, take this initiative at Nieman Marcus, described in this article on springwise.com:

The US luxury retail store is now trialling its NM Service app, which provides sales associates with consumer data they can act upon in real time. Developed by Signature Labs Inc, the app can be downloaded for free from the App Store. Customers can then select to “opt-in” to participate in the service, and a sensor at a Neiman Marcus store will detect when they walk through the door and launch the app. NM Service will provide information on new products and future events taking place at the outlet, as well as listing the sales staff currently instore. Those sales assistants can also have a version of the app tailored to them, alerting them when a participating customer enters the store. Sales assistants will also be presented with information on the customer’s previous purchases at Neiman Marcus outlets and their online shopping history, and the app will display an image from the customer’s Facebook page so that they can be easily identified. Both customers and sales associates are able to send messages to each other.

These two examples stand at opposite ends of the spectrum: Wal-mart is the classic low-cost player, while Nieman Marcus is a highly differentiated luxury retailer.  However, these examples demonstrate that mobile strategies can be used not only to protect against the disruptive threat of online commerce, but also to enhance the in-store shopping experience.  People still enjoy visiting brick-and-mortar stores to see, feel, and try on items.  If retailers can enhance that visit and provide customers the information they want when they want it, they can compete more effectively not only against online players, but also against their direct brick and mortar rivals. 

The Power of Grit

Paul Tough has written a thought-provoking new book titled, How Children Succeed: Grit, Curiosity, and the Hidden Power of Character.  Tough reviews and examines the extensive academic research which has demonstrated that attributes such as perseverance, conscientiousness, and self-control matter a great deal when it comes to explaining why some people succeed and others do not (ok, his last name fits the subject matter, does it not?).  In fact, researchers have questioned why two children with the same cognitive ability end up achieving very different results in school, work, and beyond.  They have come to conclude that grit matters... and it matters a great deal.  Perhaps most people won't find those results surprising... I certainly do not.   Work ethic, persistence, and resilience have always been known as important attributes that we admire.  What Tough argues, though, is that perhaps we aren't fostering these attributes sufficiently in children today.  In my view, the argument holds for teens and adults as well.  I am enjoying the book and encourage others to take a look - not just parents, but anyone who leads people. 

What is Strategy? A Very Helpful Reminder

Averting a Social Media Crisis

Perhaps you have heard this story of how the American Red Cross averted a social media crisis some time ago.  I heard about this incident from one of our accomplished Bryant alumna with expertise in social media.  I felt that the lesson was worth sharing for those who have not heard about it.  The story can be told by three tweets.  First, an employee at the Red Cross mistakenly used the Red Cross official account, rather than her personal Twitter account, to write about her personal (drinking) behavior:

Ok, so now we have a problem.  It's not a major crisis.  The Red Cross could simply have issued a standard apology.  However, they added a creative twist.  They used a bit of humor to spice up their apology.  Here's the tweet:

The story gets better.  Then Michael Hayek of Dogfish Head Brewery noticed the events transpiring on Twitter.  He chimed in with a third tweet.

Shazam!  The Red Cross managed to turn a mini-crisis into a positive moment.  For me, it shows the value of using a bit of humor appropriately to handle problems that sometimes emerge on social media.  Moreover, it shows how you can turn negative moments into positive ones with some creativity.   For Dogfish, it was a good moment to connect with fans and encourage them to do something positive for a worthwhile charity.  Talk about a win-win scenario. 

JC Penney vs. Zara: How to Reduce Markdowns

Frequent markdowns can eat into a retailer's margins quite substantially.  No wonder, then, that Ron Johnson - the CEO of JC Penney has tried to wean the department store off of its reliance on discounts and sales.  We all know, however, that he has had limited success to date.  In fact, sales have plummeted as customers have revolted at the dramatic reduction in sales and markdowns. 

Let's compare JC Penney to Zara for a moment.  Zara is a Spanish apparel retailer that has done remarkably well over the past decade or so.   Zara manages to offer fewer markdowns than many rivals, and when it does discount its clothing, they price reductions are smaller than those offered by competitors.  How does Zara do it?  They pursue a "fast fashion" strategy, whereby they make smaller batches of fashion items - a substantial percentage of which they make in their own factories.  They change their product mix often, and they react quickly to changing trends and consumer tastes.  Customers know that many lines of clothing will have limited numbers of items, and that those items may not be on the shelf one month later.  As a result of this nimble strategy, Zara minimizes the downside of "fashion misses" in their product line.  Because they don't produce huge runs of some of these items, they have much less inventory left over if a new product is not a hit with consumers.  Therefore, they have less of a need to mark down those clothes.  

In short, Zara has reduced its dependency on markdowns, but they have not done it simply by declaring that there will be less discounts.  They have built an entire strategy that makes it much less likely that they will need to discount items.  JC Penney hasn't yet built that comprehensive strategy to support its  new pricing policy.  As a result, JC Penney has struggled. 

Making Customers Wait Can Be a Costly Problem

Gad Allon, Awi Federgruen, and Margaret Pierson have conducted an interesting piece of applied research regarding the fast-food business, with implications for a wider range of industries.  They examined the fast-food drive-thru industry and took a look at the relationship between willingness-to-pay and wait time.   They found that, "Both the price and waiting time parameters have a significant impact on the consumer’s decision.  These results confirm … that in the fast-food drive-thru industry customers trade off price and waiting time. In particular, to overcome an additional second of waiting time, an outlet will need to compensate an average customer by as much as $0.05 in a meal whose typical price ranges from $2.25 to $6. This corresponds with an hourly cost rate of approximately ten times the (pre-tax) average wage of $18/hour and nearly 30 times the (pre-tax) minimum wage in Illinois in 2005.”

Most importantly, the scholars did not just show that people value their time, but that they value their time waiting in line VERY highly.  The research shows that people strongly dislike wait time while at the restaurant, and they value that time more heavily than they do the travel time to the restaurant.   As Allon notes, "The waiting time once in line is considered pure waste.”

Some firms should pay special attention to this study.  In particular, firms that do a fair bit of customization for customer orders need to be wary of wait time effects.  Take Starbucks, for instance.  They offer customers the opportunity to customize their drinks in many different ways.  One such customer with a highly specialized order can really lengthen wait times at their drive-thrus.  I always kid my wife about her tendency to use the Starbucks drive-thru. On numerous occasions, I've hopped out of the car, walked into the Starbucks, and come back into the car while she is still in line.   You might argue that a customer faces the same risk of being held up inside the Starbucks.  However, we have to remember that the customers inside the store are different in their wants and needs.  They have chosen to enter the store rather than go to the drive-thru. That decision suggests that they may not value speed as highly.  They may intend to sit down for a few moments, or they wish to use the restroom.  Therefore, the delay in wait time is not as problematic inside the store as it is in the drive-thru.  

The Value of a University

Bob Sutton has an amazing post on his blog this week.  He writes about what struck him as he read an article from about a decade ago by the great organizational behavior scholar Karl Weick.  Sutton writes:

Karl started out his 2002 British Journal of Management on "Puzzles in Organizational Learning: An Exercise in Disciplined Imagination" this way: 

It is sometimes possible to explore basic questions in the university that are tough to raise in other settings. John Gardner (1968, p. 90) put it well when he said that the university stands for:

• things that are forgotten in the heat of battle

•values that get pushed aside in the rough and tumble of everyday living

• the goals we ought to be thinking about and never do

• the facts we don’t like to face

• the questions we lack the courage to ask

What an important reminder for us all... The thoughts of John Gardner don't just help a professor like me try to justify the existence (or cost) of universities. These thoughts remind me of what we are obligated to do as faculty members.  Sutton points out one small example, a Stanford study that finds "there is little or no documented health advantage to organic food."  Sutton argues that this study made him uncomfortable.  Frankly, it bums me out too... so much for spending all that money at Whole Foods!  Yet, who will make these types of contributions if not a professor? 

It is our obligation to ask these tough questions.  I would argue that it's also our obligation to train our students to ask these types of tough questions, and to teach them how to explore these questions.   That practice will help them not just in the scholarly arena, but also as leaders in various private enterprises or other organizations.  

How Do Sexy Ads Affect Consumers' Desire for Immediate Rewards?

Wharton marketing professor Gal Zauberman and USC Professor B. Kyu Kim, have written a working paper called "Can Victoria's Secret Change the Future? A Subjective Time Perception Account of Sexual-cue Effects on Impatience."   The scholars conducted a series of experiments in which they showed "sexually suggestive and non-suggestive photographs to self-identified heterosexual male students."  The suggestive photos came from the Victoria's Secret catalog.  Geesh... I imagine that students flocked to sign up for this study!  

After seeing the images, subjects had to assess the value of items, such as a $65 Amazon gift card, that were received immediately versus a year later.  The research found that viewing the suggestive photos tended to enhance the value of the immediate reward and diminish the value of rewards provided a year later.  In other words, the subjects' discount rate rose substantially. 

Zauberman argues that, "Part of the reason why people discount future events, more or less, is their perception of duration [of time]."  The suggestive photos may "lengthen the perceived temporal distance to delayed rewards. That is, sexual cues make the wait seem subjectively longer, resulting in greater impatience."  In other words, consumers may not only be compelled to buy an item, but they may be much more likely to buy NOW even if it is not the most prudent financial decision. 

The scholars conducted other experiments as well.   They also showed subjects photos "designed to elicit physical symptoms similar to arousal -- increased heartbeat and respiration, for example -- that weren't actually sexual in nature."  Interestingly, people showed the same impatience that occurred when they had viewed the suggestive photographs.   In sum, "Sex may not be the only driver of this temporal response."

Are Network Effects Over-rated?

Nir Eyal and Sangeet Paul Choudary have written an absolutely terrific column for TechCrunch about network effects.  The essay is titled, "The Network Effect Isn't Good Enough."  Network effects, of course, exist when the value per user rises as the number of users of a particular good or service rises.  When network effects are strong, one firm can become the standard in a market - think eBay in auctions, for instance.  In these situations, firms tend to try to "get big fast" so as to move up the curve and achieve a high value per user.  Then they hope that switching costs will lock users into their good or service.    Eyal and Choudary point out that many startups in Silicon Valley bank heavily on the notion of network effects.  They willingly run up huge losses in the early years, hoping to cover those losses with venture money.  Then they hope to reap the rewards when they have become the dominant player in their particular market. 

The authors point out, however, that network effects may not be the elixir that many startups believe they will be.  Why?  The authors make several key points.  Here is an excerpt from their argument:

For one, in the old days, consumers paid to access the network through their upfront investment in hardware. These upfront costs locked users into the network and once they were in, they were in for good, thus erecting barriers to entry for would-be competitors. However, the cost of providing access to the network has fallen precipitously. The days of customers buying expensive hardware to use a network are gone as is the correlating lock-in effect. In addition to access costs falling to zero, another key component of what once kept users locked into a network has vanished. Once, porting contacts onto a new network, like switching instant messaging services from Yahoo! to AIM, was a non-trivial task. Today however, customers use their Facebook, Twitter or Google profiles to join a new service in seconds. A burgeoning network, take Instagram or Pinterest, can leverage the single sign-on enabled by the social graph to reach critical mass faster than ever before.

In other words, switching costs may not be nearly as high as many startups believe them to be.  Thus, the lock-in effect doesn't materialize as hoped.  Consumers flock to a platform, but then they may just as quickly move on to a different product or service.   Think MySpace relative to Facebook.   This limitation on switching costs may explain why many startups have a hard time "monetizing" their eyeballs.  If they try to extract more value from their consumer, they face the startling possibility that people will simply switch to another product or service. 

Iger's Long Term Strategy at Disney

As you know by now, Disney acquired Lucas Films last week. With that, Disney now owns the Star Wars and Indiana Jones franchises. I'm not surprised by the move. In fact, you can see a pattern emerging to Bob Iger's strategy at Disney, which is quite in contrast to the strategy during the second half of Eisner's tenure at the company. In Eisner's later years, he moved away from simply focusing on the characters as the central driver of synergy among Disney's businesses. He acquired ABC and Miramax, and he owned a baseball and hockey team for some time - among other moves. Now we see Iger refocusing on characters as the heart of Disney's corporate strategy. We see three major moves (Pixar, Marvel, and now Lucas) during his tenure that all involve expanding the universe of characters which Disney can leverage across its many businesses. I think the focus on characters makes a great deal of sense. Here's why...

When thinking about the characters at Disney, we should note those resources are quite valuable because they are highly durable and inimitable. Moreover, Disney can appropriate the value associated with those resources (as Buffett says, "the mouse has no agent"). How then can one think about leveraging such a valuable resource across multiple businesses? A strategist needs to think about how specialized vs. fungible/general the resource is. A highly fungible resource/capability would be something like “brand management expertise” or “innovation” or “risk management.” A highly specialized capability might be patented product formulas or engineering expertise in a very narrow discipline. Fungible capabilities can be easily transferred across lines of business. However, they are often too general/not unique enough to convey a substantial competitive advantage. On the other hand, highly specialized capabilities tend to provide powerful competitive advantage in a particular business, but they lose value very quickly when a firm tries to transfer them to a wide array of businesses. In other words, there are only so many areas in which you can grow based on a highly specialized set of capabilities.

In the 1980s, Disney’s core capabilities revolved around animated character development and deployment. Those tended to be highly specialized capabilities; Disney was able to leverage those capabilities to enter the hotel and cable television business, but ultimately, growth was constrained by the specialized nature of that capability. To move into even more diverse businesses, Disney had to be able to make the case that it had a broader/more general/more fungible capability such as “managing creativity.” That's the argument that Eisner used to move into a variety of businesses that did not have to do with characters (ABC, Miramax, etc.) There are two challenges associated with defining a firm’s capabilities so broadly. First, it is more difficult to make the case that the firm is truly unique and superior to all rivals in that set of capabilities. Second, it becomes rather difficult to discriminate among various options for diversification, i.e., how many businesses have something to do with managing creativity vs. developing and deploying unique characters?

Sharing Bad News Uncovers Creative Solutions

Several weeks ago, I spoke with a group of senior executives about the importance of cultivating a climate of candor within their senior management team.  I argued that leaders need to encourage people to share bad news.  Put simply, bad news is not like cream; it often does not rise to the top.  Instead it remains quite hidden, often until problems mushroom and grow to a much riskier size and scope.  One executive noted that encouraging people to share bad news doesn't simply help the leader understand the key risks for the business.  Opening sharing among top team members also helps uncover creative solutions to tough problems.  Why?  The other top team members may never hear about a key problem in another division or functional area if that bad news is not shared openly.  If they do hear about it, they may be able to offer some ideas as to how to fix the problems.  Perhaps they have even experienced a similar problem in their own division.  In that way, a candid discussion of bad news isn't just about keeping the chief executive aware of key risks; it also provides an opportunity to get these problems fixed more quickly. 

Marketing Promotions, Optimism, and Uncertainty

Kellogg Professor Kelly Goldsmith and UC-San Diego Professor On Amir have conducting a fascinating new study about marketing promotions such as the McDonald's Monopoly game or the MyCoke campaign.  They examine whether people act rationally when considering their odds of winning in these types of situations. 

The researchers distinguish between two forms of consumer optimism:  innate and conscious.  In the case of these types of marketing promotions, the scholars argue that innate optimism rules.   This form of optimism is both innate and intuitive.  It tends to drive our behavior in low-stakes situations such as these marketing promotions.  We enjoy the game, and we know the stakes are low.  Therefore, we don't worry about the low probability of winning.  We don't even both calculating the odds.  We overestimate the likelihood of winning something during the promotion, and we engage in it as a consumer. 

Conscious optimism takes hold when the stakes are higher.  Suppose we are considering opening a restaurant. We will have heard all the statistics about the low probability of success.  Nevertheless, we convince ourselves that we can succeed where others have failed.  We become overconfident and plunge in head first to this rather risky endeavor.

The scholars focused on innate optimism situations in their experiments.  They evaluated whether an individual would purchase a six-pack of soda under three "prize" scenarios:  Godiva truffles (more expensive, valued prize), two Hershey's kisses (less expensive, lower value prize), and an uncertain outcome (not sure which prize would be awarded).   Naturally, individuals respond to the high-value prize more than the low-value prize.  However, they responded to the uncertain outcome almost as much as the high-value prize!  The uncertain nature of the outcome seemed to trigger innate optimism and make consumers happy to participate. 

If, however, the researchers primed the respondents to think carefully about the odds in the game, then people are much less likely to purchase the soda!  In other words, when we move them out  of an innate optimism state, then their likelihood of responding to these types of promotions falls!

The Launch of the New Wii U Gaming Console

In November, Nintendo will launch its new Wii U gaming console.  The company hopes to revive lackluster gaming revenues that have resulted from the maturation of the original Wii product line, as well  as the shift to mobile gaming that has hurt the console business overall.  Kyle Orland writes in this article about Nintendo's pricing strategy.  The firm will be pricing at below cost at launch.   In some ways, we should not find that fact surprising; after all, most gaming companies price below cost at launch. However, Orland notes that Nintendo did not have to do that when it launched the original Wii.  It actually turned a profit at the start.  That proved rather unusual though, running contrary to most product launches in the gaming industry's history.

Source: Nintendo

Why do most gaming consoles sell below cost at launch?  Three major reasons exist. First, companies hope to capitalize on network effects.  They want to build the installed base quickly.  As they do so, the value to each customer grows, and the attractiveness of the console to software developers increases as well. Second, the companies hope to use a "razor and blades" model to make money.   A higher installed base of consoles brings with it higher software sales, which can be very profitable.   Third, the cost of producing a console decreases significantly over time.  Those cost decreases occur for two reasons:  economies of scale and learning curve effects.  

For these reasons, Nintendo rightfully can expect to improve console profitability over time.   Still, they will need strong launch sales to kick off this virtuous cycle.  With the explosing of mobile gaming, the question remains:  Can consoles bounce back?  Have their struggles in recent years simply been due to the usual cyclical downturn in the later years of a technological generation, or are they experiencing a permanent disruption to their business due to the emergence of attractive substitutes?

Taking the Bus Together?

Adam Bryant of the New York Times recently interviewed Jarrod Moses, chief executive of the marketing agency United Entertainment Group.   Moses talked about a very unique aspect of his company's culture.  Here's an excerpt:

One of the first things we bought was a tour bus. We use it instead of flying. We take it at least 25 times a year to different meetings throughout the country. There’s an amazing culture that develops on the bus. You learn so much about one another, and you develop this candor and trust that you don’t get in the office. The creative juices just flow, and they flow 24 hours. They could come from a joke; they could come because someone is just overtired. You never know.  The point is that there’s no barrier to entry for the idea. People are wearing T-shirts and shorts. No one is the C.E.O. on the bus. It’s like a band. There’s a magic to it. 

Now I know what many of you are thinking... this silly stuff is for creatives, but not for us.  Well, the point really isn't about whether you should run out and buy a tour bus.  Here's the major lesson from this story:  Environment matters.  When we think about creativity and innovation, we should think about more than just finding highly creative people.  We should think about creating environments where many people can be candid, exhibit creativity, and drive innovation.  Sometimes that means taking people out of their normal work routines.  It means creating a situation where people can engage in divergent thinking and be more candid... where we are diminishing status differences and flattening the hierarchy. 

Avoid the Water Cooler Gripe Sessions!

Source:  WSJ from AFC Enterprises

Cheryl Bachelder, CEO of AFC Enterprises (they own Popeye's Chicken), sat down recently for an interview with Leslie Kwoh of the Wall Street Journal.  She offers some terrific advice to young professionals striving to achieve a successful career.  Here's an excerpt:

My career strategy was to work like a dog. If there was water-cooler stuff going on, I didn’t participate. When the company [RJR Nabisco] was being acquired, I said, ‘I’ll worry about that when it’s done.’ So I became a VP at 30; while everyone else was wondering what was going to happen next, I actually did work, produced results and developed people.  You can’t be a ‘Negative Nancy’ and create great things. I’ve watched mergers, acquisitions, breakups, sales, and all the lost productivity that comes with hallway conversation that does absolutely nothing for the company or your career. It’s just pointless.

Spot-on advice, if you ask me!  Executives should take a lesson from this interview as well. Major strategic events such as mergers and acquisitions, create a ton of water cooler conversation.   Firms experience a significant drop in productivity during these occasions.  It's no wonder that many integration efforts prove problematic.   Why does so much water cooler activity take place?  Often people gripe and complain because of fear, uncertainty, and doubt.  In the absence of information, they gossip, wonder, and worry. If there's an information vacuum, employees fill it! As a result, leaders need to share information proactively during these moments of uncertainty. They need to alleviate fear quickly, promote transparency, and get people focused on the key priorities ahead. If not, productivity will suffer.

The Art of Persuasion

Yesterday, I taught a group of executives a case study about a friendly fire accident in the military that took place in 1994 (based on Scott Snook's incredible book).  Interestingly, many people have a caricature in mind when they think about the military.   They think that commanders can simply give orders and expect everyone to follow them.   In their minds, executives think, "We have it much harder in the business world.  We can't just order folks around."   However, executives would be wrong to think in this manner.  Even military commanders have to persuade.

Stephen Ambrose wrote the following about General Dwight D. Eisenhower:

“Although none of his immediate superiors or subordinates seemed to realize it, Eisenhower could not afford to be a table-thumper. With Montgomery’s prestige, power, and personality, for example, had Eisenhower stormed into his headquarters, banged his fist on the table, and shouted out a series of demands, his actions could have been disastrous.” 

Interestingly, Eisenhower reflected in his writings about where he had learned about the necessity of persuasion. He described what he had learned from General Fox Conner, one of his mentors, under whom he first served in the early 1920s. Eisenhower wrote:

“He (Conner) laid great stress in his instruction to me on what he called the ‘art of persuasion.’ Since no foreigner could be given outright administrative command of troops of another nation, they would have to be coordinated very closely, and this needed persuasion. He would get out a book of applied psychology and we would talk it over.” (Source: Jean Edward Smith)

Helping the Other Party in a Negotiation

Jim Sebenius has written an interesting new working paper.  Sebenius is a negotiations professor at Harvard Business School.   Sebenius argues that a good negotiator thinks about the other party's "behind-the-table" barriers.   In other words, what challenges may the other party face within their own organization?  What pressures are they feeling?  How will they be judged by their organization?  We can succeed in achieving a successful outcome if we seek to understand the other party's "internal negotiation problem." Why?  The other party will be more likely to agree to a negotiated solution if it helps them achieve certain internal goals and overcome certain internal obstacles that they face.   What then should a person be doing in the early stages a negotiation process?  Learning!  You should be trying to understand the other party's internal predicament, constraints, and pressures.  Put yourself in their shoes.  Try to appreciate the ways in which they will be judged, rewarded, and perhaps punished based on the outcome of this negotiation.   Moreover, you should seek to understand how you might help the other side "save face" if the solution involves certain "bitter medicine" for his or her organization. 

Google, Motorola, and Android

When Google purchased Motorola's cellphone business, it became vertically integrated.  In other words, it now owns produces the mobile phone hardware and the software, much like Apple.   We all know that Steve Jobs extolled the benefits of vertical integration in the various businesses in which Apple competes.  He believed fervently that one could only produce a "magical" device if you made both the operating system and the hardware.  

Vertical integration has many benefits, but it also comes with certain challenges.  In particular, it can be quite challenging when you start out competing in one portion of the value chain and then enter a downstream business.  Google did so when it began by making Android and then acquired a cellphone maker.  In so doing, Google now has entered into competition with its customers.  After Google's customers for its Android software include Motorola's competitors: Samsung, HTC, and the like.  That competition with customers can be a tricky thing to navigate at times. 

According to this article in Fast Company by Farhad Manjoo, Google has chosen to deal this sticky situation by "erecting a firewall between Android and its new Motorola division. The new rules ensure that Motorola's hardware teams get no more access to Android's engineering teams than any other device maker would."   Surely, the firewall helps allay customer concerns that Google may be favoring its internal Motorola division over other cellphone makers.  On the other hand, such a firewall clearly diminishes the very benefits of vertical integration that presumably drove Google to make the deal in the first place!   What's the explanation here?  Could Google have underestimated the push-back from customers when they made the acquisition?  Or has Google chosen this firewall strategy as a temporary transition mechanism as they work through customer relationship issues?  Surely they won't leave the firewall in place forever, will they?  If so, then why buy Motorola at all?  What value does owning the hardware business bring if you don't make the software and the mobile device work together harmoniously?

The Promise and Peril of HR Software

Michal Lev-Ram wrote an interesting article this week in Fortune magazine.   Lev-Ram examines new HR software systems being sold by the likes of IBM, Oracle, and SAP.   These systems, among other things, attempt to improve the performance review process.   The systems attempt to make goal-setting and performance review a year-round process, as opposed to an event that occurs once or twice per year.  The software includes virtual rewards, as well as methods for distributing real rewards.  The systems also enable employees to set goals throughout the year and track progress, as well as to solicit feedback throughout the year. 

The key question:  Will employees actually USE these types of systems to enhance performance evaluation and constructive feedback?  Or, will employees view these tools as cumbersome, time-consuming, and distracting?  Such systems only create value if employees invest the time to use them.  Moreover, they only help drive talent development if they become more than an evaluative tool.  They have to be formative/developmental tools as well.   If employees view them as strictly evaluative, they aren't likely to enjoy using the systems.  Moreover, they may simply not take the time necessary to obtain optimal value from them. 

In the end, talent development and performance evaluation only will improve if such systems are implemented along with a broader systemic change in processes, norms, and leadership behaviors.  Without such systemic change, new software alone won't have the desired effect.

Insiders vs. Outsiders: Sweeping Generalizations Don't Make Sense

I read an interesting blog post this week on the HBR site.  The post consists of an interview with Harvard Professor Gautum Mukunda.   Here is an excerpt (video posted below as well):

The finding: The best leaders tend to be outsiders who don’t have a great deal of experience.
 
The research: Gautam Mukunda studied political, business, and military leaders, categorizing them into two groups: “filtered leaders,” insiders whose careers followed a normal progression; and “unfiltered leaders,” who either were outsiders with little experience or got their jobs through fluke circumstances. He then compared the groups’ effectiveness; for instance, with U.S. presidents, he looked at historians’ rankings from the past 60 years. He discovered that the unfiltered leaders were the most effective—and also the least effective—while highly filtered leaders landed in the middle of the pack. 
 
The challenge: Is searching for a leader with a long, impressive résumé a waste of time? Is experience a predictor of mediocre performance? Professor Mukunda, defend your research.
 
Mukunda: I was surprised by how unambiguous the data were, but they confirmed what I suspected: If you choose an insider who you know can do the job well, most of the time that person won’t perform any differently from any other top candidate with lots of experience. Such insiders—I call them “filtered leaders”—might be good, but they probably won’t be brilliant. It’s the unfiltered leaders, the outsiders without lots of experience, who perform the very best.

I'm highly skeptical of such a sweeping generalization.  I don't think we can argue that outsiders are ALWAYS preferable to insiders, that unfiltered folks are always preferable to experienced individuals.    The bottom line is: It depends!  Certain circumstances call for an outsider or a person with fresh perspective, while others lend themselves to an insider or someone with deep experience in an industry or company. Each company needs to assess its situation and make the right choice for that organization, given its strategy and culture, AT THAT POINT IN TIME.  The right solution for Company XYZ in 2012 may not make sense in 2018, as conditions change.   Moreover, the search for that superstar outsider can be a futile one, as I've written about in earlier blog posts.  We sometimes become enamored with the outside "star" hire... and then feel very underwhelmed a few years later.  

Struggles at Zynga

As many of this blog's readers know, Zynga - the social gaming company - has suffered recently.  According to this Fortune magazine article, "Shares are down nearly 74% since its stock market debut. User engagement has dropped 53% in less than three years according to social game analytics firm dystillr."  What has happened to the firm?

Several factors explain Zynga's struggles.  First, the company's games lack the depth of some traditional console-based video games.  Therefore, the games appear to have a limited life span.  Many users seem to tire of the games fairly quickly. Here we see a catch-22.  Zynga's games don't require the kind of upfront investment to develop that console-based games need.  However, the payoff down the road may be more limited - less risk, less return.  Second, the company depends upon Facebook a great deal.  As Facebook users have shifted toward accessing the social networking site via mobile technology, Zynga user engagement has declined.  Zynga appears to make less profit on its mobile games, as opposed to games that users accessed via Facebook on their laptop or desktop.  

Beyond that, I think Zynga's difficulties point to a bigger trend in the video game industry.   The shift toward mobile and social gaming clearly has disrupted the console-based gaming business.  Most of these mobile and social games require much less money to develop.  However, they also appear to have a limited lifespan in many cases.  Therefore, we have moved to a situation where gaming companies may need to innovate much more quickly.   Users appear to require new versions and new experiences much more often now.  They enjoy mobile games, but they "consume" them very quickly.   The new winners in the video game business will be those firms that can churn out streams of hits.  

The question remains:  Will those winners be able to develop franchises (a big hit followed by a stream of sequels and spinoffs), or will they have to develop unique new games much more often than in the past?   In the movie business, sequels generally make less money than original films.  Video games defied that logic for many years.  In console-based gaming, sequels proved to be an engine of profitability.   Can that happen long term in mobile gaming, or will consumers demand variety and newness to a much higher degree?

How Big Companies Act Like Startups

Soren Kaplan wrote a terrific article recently for Fast Company.   Kaplan explained how some large companies try to act more like startups in an effort to jumpstart innovation.  He outlines four key practices/principles that invigorate innovation:

1. Follow customers home:  In other words, conduct anthropological research.  Go into customer homes and observe them in their natural settings using various products and services.

2.  Tap outside collaborators:  Bring in experts and innovators from outside the firm to bring fresh perspectives, explain their research, and educate folks about how things are done elsewhere.

3.  Stay small:  Don't think in terms of bet-the-company type projects.  Think instead in terms of low cost, rapid experimentation.

4.  Use the best, invent the rest:  Creating a new product or service doesn't mean inventing the entire thing from scratch.  Often, you can combine off-the-shelf components with proprietary innovations to develop a unique new product.

Do We Grow More Creative As We Age?

The conventional wisdom suggests that we generate fewer breakthrough ideas as we grow older.  An article in Psychology Today challenges that notion.   In the short essay, Dr. Gary Small, Director of the UCLA Center on Aging, offers an interesting perspective.  He says,  "There are neuro-circuitry factors that can favor age in terms of innovation".  Small emphasizes that empathy plays a major role in creativity, and we tend to become more empathetic later in life.   I found that point quite fascinating, given that design thinking stresses the importance of observing users in their natural setting and then empathizing with users - their problems, struggles, and needs.  

In addition, Dr. Small argues that we become better at pattern recognition as we age.  That makes some sense too.  After all, intuition does play a major role in the creative process.  Intuition essentially is the ability to recognize patterns based on deep expertise in a particular domain.  We refine our pattern recognition ability through a breadth and depth of experiences over time.

Having said all that, I have written previously on this blog about research showing that scholarly productivity in many fields does decline with age, though the peak performance differs based on the field of research.   Thus, we want to take this particular article with a bit of grain of salt.   The argument, though, that empathy and pattern recognition improve with age, makes a good deal of sense.  It suggests that innovation teams may want a good balance of young and old members, rather than simply stacking the groups with "the best and brightest young minds."