News Corp Split

This week, we heard the news that Rupert Murdoch will be splitting News Corp. into two separate entities: a publishing company and an entertainment firm.   I have several reactions:

1.  The News Corp split follows a familiar pattern.  In the 1990s, we saw a number of media companies engaging a great deal of both horizontal and vertical integration (Viacom merges with CBS, AOL mergers with Time Warner, Disney buys ABC, etc)   Now, we have seen the reversal of many of these strategies.  I'm not surprised.   Disney always had the strongest case for horizontal integration, because they leverage a highly valuable resource (the characters) across many business units.   Other entertainment firms had far less synergy across their businesses. 

2.  One might argue that the media conglomerate phase of the past was a case of herd behavior.  They all imitated one another in strategies of horizontal and vertical integration, without necessarily questioning the merits closely enough.

3.  News Corp may not have a great deal of difficulty breaking up into two firms because of how they manage the business units.  Murdoch always ran the units in a fairly decentralized manner.  That always puzzled me, because it meant that they really weren't pursuing major synergies.  On the other hand, that unit autonomy makes breaking up much easier, given the lack of strong interconnections. 

4.  One wonders how much cross-subsidization occurred in the past, with cash flow from the profitable, but mature publishing businesses to the higher growth entertainment businesses that needed cash to grow.  If a great deal occurred, then it will be interesting to see how the entertainment business funds its growth moving forward.  Meanwhile, investors may be very happy to see the cash flow from the publishing business returned directly to them (perhaps via strong dividends), for people to invest as they choose.

Microsoft Surface: What's the Strategy?

Microsoft's decision to build its own tablet computer (called Surface) has raised some interesting questions about the firm's strategic intent.   Has the firm finally acknowledged that Steve Jobs was correct when he said that you had to be vertically integrated to produce something as terrific as the iPad?  In other words, did the same firm have to make the hardware and the software, because complex integration was needed to deliver a exceptional customer experience?   Jobs, of course, believed that Android devices could not match the iPad experience because they lacked such sophisticated integration (since the hardware makers were simply licensing the Android system). 

A recent New York Times story suggests an alternative hypothesis:  Has Microsoft decided to move temporarily into the tablet hardware business so as to drive the type of innovation that could lead to lucrative tablet operating system and software sales down the road?   Toward the end this New York Times article, MIT Professor Michael Cusumano offers his take on Microsoft's latest move.  Here is the excerpt from the article:

Some who study the technology industry still believe Microsoft will get out of the business of selling its own tablet computer as soon as it can persuade other hardware companies to build compelling devices of their own. “I think once they jump-start it, they plan to make money the way they always have — from licensing software,” said Michael A. Cusumano, a management professor at M.I.T. 

I found this hypothesis quite intriguing.  I can think of at least one other example of a company choosing to vertically integrate on a "temporary" basis.   Coke and Pepsi both chose to forward integrate into bottling and distribution some years ago, and then they divested those units.  Why the back-and-forth?  Some (including HBS Prof. David Yoffie) would argue that Coke and Pepsi forward integrated  so that they could acquire and consolidate their distribution network, driving economies of scale throughout the channel.  They also wanted control of the channel at times as their product strategies shifted.   However, the firms didn't want to have all those assets on their books for the long haul, given the returns in bottling and distribution are much lower than in concentrate production.   Of course, both chose to forward integrate once again more recently, and now we hear rumblings (particularly at Pepsi) of the possibility of another divestiture down the road.  Again, forward integration may have served a distinct strategic purpose, but the firms may find themselves questioning the returns on the distribution businesses. 

Similarly, Microsoft may not want to be in the hardware business long term, as the returns are likely to be lower than in the software business (at least if the tablet market operates in a manner consistent with returns in the personal computer market).   However, "temporary" vertical integration may be their way of shaping the industry in the way that will be positive for them in the long term.   We'll see which hypothesis turns out to be correct.  It should be fascinating, and of course, it will depend on how well customers receive the Surface product. 

Defeating Boredom in Long Meetings

Claire Suddath has a funny column at Business Week on how to cope with boredom at long management meetings.   Among the best coping strategies listed, she provides this story from Marcy, a former employee of the federal government:

“The M&M game is designed for a large-scale, all-hands-on-deck type meeting where you’re not expected to participate,” she explains. She and her friend would each get a packet of peanut M&M’s and then sit on opposite ends of the conference room, but within eye contact of each other. “We’d pick a set of buzzwords ahead of time—like ‘mission-driven,’ ‘nonproliferation,’ ‘efficiency,’ or ‘the president’—and then whenever one was used, we’d eat an M&M. If you finished your bag of M&M’s, you won.” This, my friends, is the American government in action.

I think that I'll try this strategy with a few colleagues here at the university.  I'm sure that we can come up with some terrific academic buzzwords to fuel our M&M appetites!  

Struggles at P&G

Apparently, the heat is on Proctor and Gamble CEO Bob McDonald.  McDonald reported some disappointing sales and profit news this week.  According to the Wall Street Journal, "He said the company's sales likely fell by 1% to 2% in the current quarter from a year earlier, compared with a previous forecast of 1% to 2% growth, and said core earnings would come in at 75 to 79 cents a share, down from a previously expected range of 79 cents to 85 cents."  Investors are becoming restless and asking increasingly tough questions.

P&G clearly needs to find a way to jump start organic growth.  However, I believe investors also will begin asking questions regarding the corporate portfolio.  Does the firm need to trim some operations that appear outside the core?  For instance, Iams is a billion dollar brand for P&G, yet pet food does not represent one of the company's main product lines.   P&G focuses primarily on health and beauty as well as household care.   The US pet food market is not as consolidated as the European market.  Therefore, perhaps there may be an opportunity to find a buyer for the business.   Investors may begin asking questions about other brands too, such as the Duracell battery brand.  Does it fit well with P&G's portfolio.  Whenever a company begins to struggle and investors become restless, these types of questions will begin to be asked.

How Analytics Can Help You Improve Quality and Reduce Costs

I found a terrific example of the use of "Big Data" in Fast Company magazine this month.   The article by Farhad Manjoo describes a situation at Washington Hospital Center.   ER doctors became concerned that many patients returned to the hospital just a short time after being discharged.  A computer scientist at Microsoft Research began to investigate.  He wanted to identify some triggers that would predict whether a patient would be readmitted.  Specifically, he was looking to help doctors identify some predictors that might not otherwise receive much attention by ER physicians and nurses.  He analyzed more than 300,000 ER visits.    Among other things, he discovered that the length of a patient's stay in ER tended to be a good predictor of readmission.  If a patient stayed in the ER for more than 14 hours, they were likely to return to the hospital within a few weeks.  Similarly, if the patient's chart mentioned the word "fluid" at some point, that seemed to predict readmission quite well too.  

This story illustrates how companies can use analytics to help them understand how to improve the quality of customer service, as well as to reduce costs.  Take an automobile dealer.   They conduct repair and maintenance on thousands of cars per year.  A fair number of those cars return shortly after a repair or maintenance appointment, because something is not working correctly or hasn't been done to the customer's satisfaction.   An automobile dealer could analyze the data from thousands of those cases, and it could try to identify the predictors of return visits.  If they could identify a few solid predictors, then they could try to intervene to reduce those return visits.  Those interventions could improve quality and customer satisfaction, while reduce costs (since every return visit is costly).   Many service businesses could apply a similar logic and use analytics to achieve positive results.   Can your company benefit from such an approach?  

Innovation: Working at the Boundaries

For years, we have known that successful innovations often come from people working in other disciplines. They bring deep knowledge in a related field, and just enough outside perspective, to solve a tough problem that individuals with years of experience in a particular field could not solve. Harvard Professor Karim Lakhani has studied crowdsourcing efforts and confirmed this result. He found that, "successful solvers solved problems at the boundary or outside of their fields of expertise, indicating a transfer of knowledge."

What does that mean for people trying to drive innovation within firms? I think it means finding ways to expose tough issues to people in different functional areas and silos. It means finding people working at those crucial boundaries. It means giving problem solvers access to the social networks of people working in related fields, thus expanding their perspectives.

Is YouTube An Oppportunity For Terrific Advertising Experiments?

Alex Konrad has written an article for Fortune titled, "Pepsi, Brewing up viral magic."   The article describes how Pepsi debuted a new "Uncle Drew" ad for Pepsi Max on YouTube.   According to the article, "In the five-minute clip, 'Uncle Drew' amuses, then mesmerizes, a pick-up basketball game and its fans with crossovers and dunks unbecoming of a white-bearded, paunch-carrying old man, and only possible because the true identity of 'Uncle Drew' was a carefully disguised young basketball star, the clip's writer-director Kyrie Irving."  (Irving is the former Duke player and current NBA Rookie of the Year who plays for the Cleveland Cavaliers).   What's interesting is where the ad went next... it is now appearing on television as a 30-second spot during the first few games of the NBA Finals between the Miami Heat and the Oklahoma City Thunder (go Thunder!). 

That progression is somewhat unique, going from YouTube to television.   I find it very interesting though, and I think more firms should emulate this strategy.  This story proves that firms can and should use YouTube not just as part of a social media marketing strategy... They should think of YouTube as a land of experimentation.   YouTube offers an inexpensive way to experiment with new ad strategies.  The cost of failure is minimal, and even the ads that don't become viral sensations can be "useful failures" in that they may provide powerful learning opportunities.  

If firms are to use YouTube as a powerful mechanism for low cost, low risk, fast experimentation, then they need to have clear methods of evaluating these experiments.  Konrad's article explains that Pepsi had just such a method of evaluation:

"Pepsi Max brand team member Sam Duboff, who led creation and development of the piece, says 'Uncle Drew' had to satisfy three major metrics in order to justify its adaptation into a television segment. 'Uncle Drew' had to keep viewers engaged, hit the brand's target demographic, and generate its own legs through word of mouth. With 80% of viewers watching through the 4-minute mark, a 82.1% male viewer group that skewed towards the brand's core 25-44 age group, and over 5 million views from embedded YouTube players suggesting the viewer watched over a media site or Facebook, Duboff and his team hit all three." 

The Protege Effect: Lessons for Leadership Development?

You often hear the adage, "The best way to learn something is to teach someone else... If you can teach someone about a subject, you really have to understand the material."  New research, described by Annie Murphy Paul in Time magazine, reinforces the accuracy of this nugget of wisdom.  Scholars have used a "teachable agent" - a computerized animated figure named "Betty's Brain" to examine what they call the "protege effect."   Betty's Brain behaves like a real-world student.  Children are encouraged to "tutor" Betty's Brain.  The studies find that, "Student teachers are motivated to help Betty master the material, so they study it more conscientiously. As they prepare to teach, they organize their knowledge, improving their own understanding and recall. And as they explain the information to her, they identify knots and gaps in their own thinking."  Moreover, scholars have found that, "The agent’s questions compel users to think and explain the material in different ways, and watching the agent solve problems allows users to see their knowledge put into action." 

Is there a lesson here for leadership development?  I believe so.   Leadership development professionals, professors, and consultants always struggle with how to get managers to actually change their behavior based on what they might learn in a classroom-type environment.   We might think about putting high-potentials in the role of teacher, not just the role of student.  If we put high-potentials in the role of mentoring and teaching new hires and other junior employees, then perhaps the high-potentials will learn new skills and capabilities more effectively.  Perhaps behavior will change more significantly and more quickly. 

Small Groups of Smart People: Rethinking Our Meetings

Ken Segall wrote a good column for Fast Company about his experiences working with Steve Jobs.  Segall argues for bringing together "small groups of smart people" - avoid having a huge group of people attend key meetings.   He tells an anecdote about Steve Jobs:

One particular day, there appeared in our midst a woman from Apple with whom I was unfamiliar. I don’t recall her name, as she never appeared in our world again, so for the purposes of this tale, I’ll call her Lorrie. She took her seat with the rest of us as Steve breezed into the boardroom, right on time. Steve was in a sociable mood, so we chatted it up for a few minutes, and then the meeting began. “Before we start, let me just update you on a few things,” said Steve, his eyes surveying the room. “First off, let’s talk about iMac--" He stopped cold. His eyes locked on to the one thing in the room that didn’t look right. Pointing to Lorrie, he said, “Who are you?”

Lorrie was a bit stunned to be called out like that, but she calmly explained that she’d been asked to attend because she was involved with some of the marketing projects we’d be discussing. Steve heard it. Processed it. Then he hit her with the Simple Stick. “I don’t think we need you in this meeting, Lorrie. Thanks,” he said. Then, as if that diversion had never occurred--and as if Lorrie never existed--he continued with his update. So, just as the meeting started, in front of eight or so people whom Steve did want to see at the table, poor Lorrie had to pack up her belongings, rise from her chair, and take the long walk across the room toward the door. Her crime: She had nothing to add.

Ok, so the anecdote is powerful, but probably should not be emulated.  We don't want to run around throwing people out of meetings in this fashion.   However, the principle deserves our attention.  Keep those meetings streamlined.  We get much more done if we keep our teams small and focused.  As Segall writes, "Most people know from experience that the fastest way to lose focus, squander valuable time, and water down great ideas is to entrust them to a larger group."

I can hear the pushback already.  "But shouldn't we strive to be inclusive? Isn't that required to build buy-in?"  Sure... we have to worry about including people so as to build buy-in. However, that doesn't mean that everyone needs to be at all these meetings.  We can solicit input and advice in many ways, and still have a small group focusing on the key collaborative problem-solving task in a meeting.  

PowerPoint Abuse

Megan Hustad has a good article at Fortune.com about PowerPoint abuse.   In the article, Warren Berger, design expert and author of Glimmer, argues that speakers use Powerpoint as a crutch.  It deflects the audience's attention away from the speaker, which is something many presenters actually prefer.  Berger argues that PowerPoint isn't the problem; the way people use it is the issue.  Speakers talk to the slides, rather than engaging interactively with the audience.  That lack of audience engagement harms a speaker's ability to persuade, influence, and impact.

Terri Sjodin,  author of Small Message, Big Impact, makes the argument that bullet points don't help the audience understand cause and effect.  A persuasive argument draws connections; it explains how and why one factor influences another.  Hustad ends the article with a story from the creators of South Park.  The story reinforces the notion that we have to draw connections when making a presentation.   The creators explain how they put "story beats" together: "We can take these beats, which are basically the beats of your outline, and if the words 'and then' belong between those beats, you're fucked, basically. You've got something pretty boring. What should happen between every beat that you've written down is either the word 'therefore' or 'but.' So it's not this happens and then this happens. Instead, it's this happens therefore this happens. Or this happens but this happens also, therefore something else happens."

Pixar Storytelling Rules: One Rule Could Help You Make Better Decisions?

I found this terrific list of Pixar storytelling rules the other day.  I encourage all my readers to take a look.  The lessons apply to all storytelling, not just the development of animated movies.  Since great leaders tell stories to communicate key messages, the rules are a must-read for business executives. 

I'm particularly interested in Rule #9: When you’re stuck, make a list of what WOULDN’T happen next. Lots of times the material to get you unstuck will show up.

Think of a tough decision you have had to make recently, one characterized by high stakes and a great deal of ambiguity.   Were you stuck at some point, unsure of how to proceed?  If so, you might try applying this rule.  Make a list of the options you would clearly NOT pursue.  Ask yourself why.   Developing the options that are clearly not plausible or attractive may help you generate alternatives that do make sense.  

Tony Fadell: Why Self-Doubt Isn't Always A Bad Thing and Ignoring Experts Can Be a Good Thing

Thank you to the StrategyProfs.net blog for pointing me to this terrific video from iPod inventor Tony Fadell.

What Happens When The Former CEO Sticks Around?

Professors Tim Quigley (Lehigh) and Don Hambrick (Penn St.) have published a new study in Strategic Management Journal on the impact when a former CEO stays on as chair of the Board of Directors.  Their results prove quite interesting.  Quigley and Hambrick examined 181 successions in high technology firms.  What did they find?  When a predecessor sticks around as board chair, the firm tends to experience less strategic change.  Resources don't get re-allocated as much to new initiatives or sectors, divestitures are less likely to occur, and executive team members are not replaced as often.   The scholars also found that company financial performance doesn't change much.  As they wrote, "New CEOs who are restricted in their actions are correspondingly restricted in the degree to which they can alter performance."  When the predecessor finally does step down as chair of the board, then strategic and personnel changes begin to occur.  Moreover, performance begins to deviate from the earlier levels. 

Many people advocate separating the chair and the CEO roles in corporations.  These results suggest that we have to think carefully about who occupies those roles.  If the chair position is held by the current CEO's predecessor, we may have a chair who does more than monitor and control the CEO's actions.  That chair may actually restrict the CEO's actions so as to preserve the strategy, structure, and executive team that already had been in place prior to the succession.  In these cases, the governance process may actually inhibit very necessary strategic change at times.

Design thinking: You must observe well!

The Wall Street Journal has several good articles about design thinking today. The article notes that anthropological observation of customers in their natural setting is a key phase of the design thinking process. What the article doesn't say is that firms have to distinguish between effective and ineffective observation. What must you worry about when conducting observations? First and foremost, you have to protect against confirmation bias. You have to avoid allowing predispositions to cloud your interpretations of what you are seeing. That is why you should not observe alone. Always go in pairs or trios. Then compare notes. In addition, take lots of photos and videos if possible. Then you can show your colleagues back at the office what you saw. They don't see through your filter. They see the raw data. Finally, pick your observation sites carefully. Watch for selection bias. Are you seeing something typical or not. Of course, sometimes we learn from extreme cases, but we must acknowledge and understand that it is an extreme case!

Are CEOs Spending Too Much Time Outside the Firm?

A new study suggests that some CEOs may be spending far too much time outside the firm.  Oriana Bandiera, Luigi Guiso, Andrea Prat, and Raaella Sadun have written a paper titled, "What Do CEOs Do?"  They examined how 94 CEOs of top-600 Italian firms spent their time.  According to these scholars, "The patterns we observe are consistent with the hypothesis that time spent with outsiders is on average less beneficial to the firm and more beneficial to the CEO and that the CEO spends more time with outsiders when
governance is poor."   The research findings suggest that CEOs perhaps spend too much time dealing with external constituencies at times, and they may overdo their role as the "public face of the firm."   Now one must ask, "Won't it hurt the firm if the CEO isn't out there interfacing with these constituents?"  Perhaps one answer is that the CEO doesn't need to take on this role by himself or herself.   CEOs might consider sharing the responsibility for this outreach more broadly, thereby preserving their time so as to focus appropriately on internal activities. 

Shouldn't Our Best & Brightest Be Doing Something More Substantial?

Leadership Development: Why Not Across Levels?

I'm always struck by the fact that most leadership development programs consist of people who work at the same level of the organizational structure.   I understand the rationale for this structure, but I think it has some limitations.  After all, to get work done, people need to lead and work on teams consisting of people from multiple levels of the organization.  To be effective, people must manage up and down.  Nevertheless, formal leadership development programs typically select a cross-section of high performers from one particular level.  I understand why, of course.  The programs seek to foster a cohort of peers who can learn from and network with one another.  Moreover, putting more senior folks in the room can stifle dialogue at times. 

Many programs bring senior executives in to speak to the group, conduct question and answer sessions, and the like.  This senior executive involvement is very important and should definitely take place.  However, I believe a more substantive involvement in the actual programs can be beneficial.   Such cross-level involvement would enable development on key issues such as communication, teamwork, project management, giving and receiving feedback, and the like.   Mentoring becomes a hands-on activity that becomes embedded in such a program too.  Not only can senior folks mentor more junior managers, but reverse mentorship can take place as well.  Younger, talented high potentials can educate and inform senior executives on key social, technological, and market trends.   In sum, leadership development shouldn't be taking place in isolation.  Leaders need to engaging in some development work along with the subordinates and superiors with whom they must cooperate and collaborate to get things done.

Do Some Global Firms Exhibit Excessive Localization?

Experts frequently criticize large multinationals for failing to customize their products adequately for local markets.  We hear about the fabulous flops, in which firms try to export a popular product developed in the United States or Western Europe, only to experience a huge failure in an emerging market.  I'm quite sure that multinationals do make these mistakes often.  However, I think we hear far less about an equally serious mistake that many firms make.   Some companies have far too many local variations of essentially the same product.  They adapt their goods for every local market around the world, yet perhaps they don't quite need that level of localization. 

These firms don't encounter the same level of criticism. Why?  The economic damage is not as apparent.  After all, these goods may sell very well in each local market.  However, the localization strategy comes with some costs.   By constantly adapting their products for each country, the firms fail to take advantage of potential economies of scale and learning.  As a result, their costs are much higher than they should be.  Moreover, they spend excessive amounts of money building multiple brands in the same product category, rather than investing in the growth of fewer truly global brands.   I'm not saying such a global strategy is ALWAYS better than localization.  Naturally, localization is essential in some products and markets.  However, I do think we fail to levy the same amount of criticism at firms that miss out on key cost savings because of the constant adaptation that they engage in from country to country.

Why does this excessive localization take place in some multinationals?  I would argue that the explanation lies in the organizational structure, not in the minds of those senior executives plotting global strategy.   In many firms, country managers and regional presidents push for localization because it gives them more control and power.  It justifies the existence of larger brand management staffs at the local level, and in general, the country managers control more financial, physical, and human resources.  All else equal, country managers have some personal incentives to push a level of localization that may be higher than optimal.   We often don't hear experts discuss this failure; instead, we hear often about the firm that failed to adapt to a local market.  Yet, both types of mistakes can be equally costly.