Two Kinds of Questions: Which Do You Ask?

Stanford's Bill Barnett has a terrific blog post about the two types of questions that people tend to ask.   The "showing off" question aims to demonstrate how much we know about a subject.  It might be a "gotcha" aiming to expose the weakness or mistake in a presenter's argument.  The second type of question aims to learn, not to show off.  This question comes from a willingness to be a bit vulnerable, to acknowledge ignorance or a lack of a complete understanding about a subject.  This "learning" question aims not to demonstrate our existing knowledge to others, but instead to deepen our understanding about a particular topic.  Barnett points out that we often fail to ask these "learning" questions because we don't want to look stupid.  We are afraid to acknowledge in front of our peers, subordinates, or superiors that we do not understand a topic completely.   Unfortunately, we limit ourselves when we hold back in such a fashion.  

What type of questions do you ask as a leader?   Moreover, what type of questions do you encourage your team members to ask?  Here are a few clues that someone might be asking a "showing off" question rather than a learning one.  First, do you hear a long preamble before the actual question (or is there actually no question in there at all!)?  Second, does the person's agenda shine through when they ask the question?  Third, what's the person's body language like?   Are they in attack mode in their posture, as well as their words?   Finally, is it a leading question?  Are they clearly fishing for a particular answer?  

Engaging Your Workers

Business Week interviewed Jim Harter of Gallup about the firm's extensive analysis of worker engagement (or should we say, disengagement) across the United States.  Gallup data show that only 30% of American workers are engaged at their workplaces.  If you think that this problem exists only in the United States, think again.  Harter explained that the global engagement numbers are even lower!  Harter offered some comments based on their analysis of the data:

We see workplaces that have doubled the rate of average engagement, and the variance has a lot to do with the quality of management. Having a manager who really understands the individuals they’re managing and gets them into positions where they can use their talents effectively is really important. And then we’ve also found that individuals knowing what they do best and knowing their talents and being aware of them so that they can then leverage them along with their co-workers is really important.  Another thing that kind of stood out to me in these organizations we studied that grew is they didn’t use the economy and changes in the economy as an excuse. When the economy dropped, they just leaned into it a bit more. 

As for those companies that have moved to open floor plans, well they might want to rethink that design.  Harter reports that people tended to be more engaged if they had "a space that they could call their own."   They enjoy collaborating with others, but they value their own space.   As for telecommuting, it does not harm engagement in general.   In fact, telecommuters tended to report slightly higher engagement on average.  However, the most engaged workers in the Gallup data are actually those who telecommute less than 20% of the time.  

Peter Thiel: Should He Be Encouraging People to Avoid College?

The Wall Street Journal interviews Peter Thiel today.  Thiel, founder of Paypal, has stirred controversy due to a key initiative of his nonprofit foundation.  Thiel's 20 Under 20 Fellowship offers substantial financial support to young people who will forgo college to work on a startup that can have a significant social impact.  Thiel believes that this "learning by doing" can be more valuable than college for some bright young people.  According to the paper, "So far, 64 Thiel Fellows have started 67 for-profit ventures, raised $55.4 million in angel and venture funding, published two books, created 30 apps and 135 full-time jobs, and brought clean water and solar power to 6,000 Kenyans who needed it."  

Thiel has attracted many critics, including Harvard's Larry Summers and Stanford's Vivek Wadhwa.  What do I think about Thiel's initiative and his views about higher education.  To begin, I agree with Thiel's concerns about the amount of debt many families take on so that a young person can attend college.  Moreover, I do agree that many universities do not provide enough "learning by doing" opportunities.  

However, Thiel should be much more careful about discouraging young people from attending college.  Why?  First, Thiel attended Stanford.  He admits that he would do it again if he had the choice today.   It's easy to talk about pursuing other avenues to success, when you have the comfort of the Stanford brand on your resume, as well as the incredible network that comes with being an alumnus of that prestigious school. Moreover, Thiel relies on graduates of top schools to do the legwork for his venture capital and private equity investments.  He isn't hiring college dropouts to manage his money!  There is more than a bit of hypocrisy here, as we compare actions and words. 

Thiel also does not acknowledge that the rate of failure for many startups is quite high, and that students without a college degree then don't have the diploma to fall back on when they fail.  Sure, they could always attend college later, but that can be difficult.  It's not always easy to attend college later in life when you begin to have family obligations and the like. 

The bottom line: Higher education is very expensive, and families are taking on too much debt in some cases. Still, the average college graduate earns far more than the average high school graduate.  A select few can build a startup and become Mark Zuckerberg or Steve Jobs, people who built amazing companies without a college degree.  Are the odds in your favor though if you pursue their path?  I'm afraid not. 

Recommended Reading Around the Web

I thought that I would share a few links today to some of my favorite spots on the web for reading about leadership and strategy:

Drake Baer, writer for Fast Company

Adam Bryant, Corner Office column, New York Times

LDRLB: Leadership, Innovation, and Strategy (David Burkus & colleagues)

Work Matters (Stanford Professor Bob Sutton)

HBS Working Knowledge

Beyoncé and the Power of Surprise

Last week Beyoncé stunned the music world with the surprise release of a new album.   Yes, she released 14 new songs and 17 music videos, with no long marketing and public relations buildup over the course of many prior months.  The album's release set social media on fire.  Mashable reported that the album generated 1.2 million tweets in the first 12 hours after the release.  The Twitter volume peaked at more than 5,000 tweets per minute. Did the surprise release make sense?  Would she have been better off doing the usual public relations ramp-up employed by most recording artists?  

Beyoncé's strategy reminded me of a great HBR blog post from May 2013.  Advertising executive Scott Redick penned a post titled, "Surprise is Still the Most Powerful Marketing Tool."  He made several arguments for why surprises can be so effective.   Here's an excerpt:

Surprise is like crack for your brain. Scientists at Emory and Baylor used MRIs to measure changes in human brain activity in response to a sequence of pleasurable stimuli, using fruit juice and water. The patterns of juice and water squirts were either predictable or completely unpredictable. Contrary to the researchers’ expectations, the reward pathways in the brain responded most strongly to the unpredictable sequence of squirts. “The region lights up like a Christmas tree on the MRI,” said Dr. Read Montague, an associate professor of neuroscience at Baylor. “That suggests people are designed to crave the unexpected.” Birchbox, a subscription service that sends customers a box of mystery beauty products each month, and Phish, the rock band that never performs the same show twice, proves that entire business models can be built around this insight.

Redick also argues that surprise can amplify emotions, and that unexpected events often stimulate changes in behavior.  Moreover, he points out that surprise can be fairly inexpensive at times. 

Is surprise always the right strategy?  Clearly not.  In this case, Beyoncé has a huge following.  Thus, she has the luxury of relying on surprise.  She knows that people will notice her album's release, and that it will generate a great deal of online buzz.  For new or unknown artists, surprise used in this manner will not likely lead to such positive results.  For well-known brands in other industries, though, the lesson is clear:  Perhaps the usual formula of publicity prior to a product launch does not always prove to be the optimal strategy. 

Big Monster Toys: When Vertical Integration Provides Speed

Readers of the blog know that, from time to time, I've discussed the costs and benefits of vertical integration.   In many cases, vertical integration can be problematic.  It can increase fixed costs, reduce flexibility in the supply chain, dull incentives, create dysfunctional political bargaining, etc.  However, vertical integration does make sense in some cases (see Apple owning retail stores).    

Can vertical integration make coordination more effective and actually increase speed?  At times, it can. Witness Zara's fast fashion strategy, enabled by vertical integration.  This week, I ran across another company that achieves speed through vertical integration.  In the American Way magazine on my flight yesterday, I read about Big Monster Toys.  The company invents toys, which are sold by major toy companies such as Hasbro and Mattel.    They created "Polly Pockets" and "Uno Attack!".   They also created Hot Wheels' Criss Cross Crash.  How do they achieve remarkable success in the toy design business?  Here's an excerpt from the article:

The train’s-eye view provides the best vantage point of the work floor and the key to BMT’s success: vertical integration. Every function required to make and promote a prototype is performed in-house, from plastic molding to painting, sound engineering to sewing, computer-aided design to animation. “We control everything,” Rosenwinkel says. “We don’t go outside to hire anyone; we don’t have to get on waiting lists to get work done. We are very nimble. We can immediately say, ‘We like this idea. Let’s pull a team together and work on this.’ ”

Many design forms operate this way.  They have all the tools and functions required to build prototypes in house.  That enables them to prototype rapidly, and to smoothly coordinate the activity of designers and builders.   Moving all those functions in-house means that they can adjust and adapt rapidly.  

Stifling Innovation: The Why vs. How Mindsets

Fast Company's Eric Jaffe reports on some terrific new research by University of San Diego Professor Jennifer Mueller.   The creativity scholar has examined how a person's mindset affects the way that they perceive and evaluate a new idea.  Her work helps explain why large companies often dismiss or reject innovative proposals.   

In one study, Mueller and her colleagues asked subjects to examine four ideas:  two that independent evaluators judged to be creative, and two that were judged to not be creative.  To begin, the researchers tried to establish a certain mindset in the subjects.  Half of the subjects were encouraged to adopt a "why" mindset, while the other half adopted a "how" mindset. A "why" mindset tends examine issues from a broader, conceptual perspective (why might this work?  why might this be a good idea?  why might we want to pursue this approach).  A "how" mindset tends to approach ideas much more narrowly (how could this work? how would we implement this idea?).  

After trying to put people in one or the other mindset, the researchers asked the subjects to evaluate the four ideas.  The scholars found no difference in the evaluation of the non-creative ideas by the subjects in two mindsets.  However, key differences emerged when it came to the ideas judged to be highly creative by independent evaluators.  The people in the "why" mindset found these ideas to be quite creative, much more so than those who had adopted the "how" mindset at the beginning. 

Ask yourself:  Which mindset do you adopt when evaluating bold ideas presented to you?  What mindset is typical of senior executives in your corporation?  Could the mindset that evaluators adopt explain why your firm fails to embrace innovation at times?

New Case Study about Trader Joe's

I am excited to announce that David Ager and I have published a new Harvard Business School case study about Trader Joe's.  David is a senior fellow in Executive Education at HBS and a classmate of mine from graduate school.   We are excited to publish this new case that examines the strategy, organization, and culture at Trader Joe's.   

CEOs: Building Empires and Selling Shares at the Same Time?

Many CEOs like doing deals.  Mergers and acquisitions happen for many reasons.   Typically, CEOs argue that synergies exist between the acquiring firm and the target that is being purchased.  However, we sometimes wonder whether CEOs are just as interested in empire building as they are in creating long term shareholder value.   A splashy merger means that their faces end up on the cover of leading periodicals, and in many cases, their compensation packages rise as they come to run larger enterprises.   Do these deals actually create value?  In many cases, they do not.   

Interestingly, Tulane Professor Cynthia Devers and her colleagues have discovered something interesting about the behavior of CEOs involved in acquisitions.  They examined more than 2,000 companies over a 12 year period. They found that acquiring company CEOs are 28% more likely to exercise stock options and 24% more likely to sell shares within three months following acquisition announcements than they are during other periods in which no acquisitions are taking place.  

Hmm... why would these CEOs be selling shares if they were so confident of the synergies that can be achieved as a result of these deals?  Are CEOs telling Wall Street that the whole is worth more than the sum of the parts, while at the same time, they are selling shares because they know that it will be hard to generate enough synergies to justify the takeover premium that has been paid? 

The study of more than 2,000 companies over a period of 12 years finds that CEOs are 28 percent more likely to exercise stock options and 24 percent more likely to sell company stock within three months following acquisition announcements than they are at times in which no acquisitions are announced. - See more at: http://freemanblog.freeman.tulane.edu/freemannews/index.php/tag/cynthia-devers/#sthash.M2FlaTCO.dpuf

The study of more than 2,000 companies over a period of 12 years finds that CEOs are 28 percent more likely to exercise stock options and 24 percent more likely to sell company stock within three months following acquisition announcements than they are at times in which no acquisitions are announced. - See more at: http://freemanblog.freeman.tulane.edu/freemannews/index.php/tag/cynthia-devers/#sthash.M2FlaTCO.dpuf

The study of more than 2,000 companies over a period of 12 years finds that CEOs are 28 percent more likely to exercise stock options and 24 percent more likely to sell company stock within three months following acquisition announcements than they are at times in which no acquisitions are announced.
“Although executives exercise options and sell shares for all sorts of reasons, it does seem odd that they’re especially likely to do so in the aftermath of acquisitions that they presumably engineer for the future good of the company,” says Devers, an associate professor of management at the Freeman School, who carried out the research with Gerry McNamara of Michigan State University, Michele E. Yoder of the University of Wisconsin, Madison and Jerayr Haleblian of the University of California, Riverside.
In the words of the study, “Our findings show that in the quarters following acquisition announcements, CEOs reduced their equity-based holdings by cashing out stock options and selling firm stock…presumably to reduce the exposure of their equity-based holdings to potential firm stock price decreases. Thus, their behavior is inconsistent with the idea that CEOs are confident that their acquisitions will generate substantial long-term shareholder value.”
- See more at: http://freemanblog.freeman.tulane.edu/freemannews/index.php/tag/cynthia-devers/#sthash.M2FlaTCO.dpuf

The study of more than 2,000 companies over a period of 12 years finds that CEOs are 28 percent more likely to exercise stock options and 24 percent more likely to sell company stock within three months following acquisition announcements than they are at times in which no acquisitions are announced.
“Although executives exercise options and sell shares for all sorts of reasons, it does seem odd that they’re especially likely to do so in the aftermath of acquisitions that they presumably engineer for the future good of the company,” says Devers, an associate professor of management at the Freeman School, who carried out the research with Gerry McNamara of Michigan State University, Michele E. Yoder of the University of Wisconsin, Madison and Jerayr Haleblian of the University of California, Riverside.
In the words of the study, “Our findings show that in the quarters following acquisition announcements, CEOs reduced their equity-based holdings by cashing out stock options and selling firm stock…presumably to reduce the exposure of their equity-based holdings to potential firm stock price decreases. Thus, their behavior is inconsistent with the idea that CEOs are confident that their acquisitions will generate substantial long-term shareholder value.”
- See more at: http://freemanblog.freeman.tulane.edu/freemannews/index.php/tag/cynthia-devers/#sthash.M2FlaTCO.dpuf

The study of more than 2,000 companies over a period of 12 years finds that CEOs are 28 percent more likely to exercise stock options and 24 percent more likely to sell company stock within three months following acquisition announcements than they are at times in which no acquisitions are announced.
“Although executives exercise options and sell shares for all sorts of reasons, it does seem odd that they’re especially likely to do so in the aftermath of acquisitions that they presumably engineer for the future good of the company,” says Devers, an associate professor of management at the Freeman School, who carried out the research with Gerry McNamara of Michigan State University, Michele E. Yoder of the University of Wisconsin, Madison and Jerayr Haleblian of the University of California, Riverside.
In the words of the study, “Our findings show that in the quarters following acquisition announcements, CEOs reduced their equity-based holdings by cashing out stock options and selling firm stock…presumably to reduce the exposure of their equity-based holdings to potential firm stock price decreases. Thus, their behavior is inconsistent with the idea that CEOs are confident that their acquisitions will generate substantial long-term shareholder value.”
- See more at: http://freemanblog.freeman.tulane.edu/freemannews/index.php/tag/cynthia-devers/#sthash.M2FlaTCO.dpuf

Does Creating a Subculture Encourage Innovation or Create Problems?

Alexa Clay has an interesting article at Fast Company titled, "5 Tips for Growing Changemaking Communities in Your Company."   She makes the argument that successful intrapreneurs and change agents build coalitions, develop allies, and foster a community of like-minded folks who can help them enact change.   Here's one of her five tips:

Foster a subculture:  Often social intrapreneurs are adept at creating mini subcultures within their host organizations. But at times, it might feel like the culture you’re trying to create is not reconcilable with the culture of your organization. Ask yourself what is the delta behind the culture that is and the culture that you are trying to create. And the delta should be fairly small. Most people don’t like massive change.

Clay makes a great point here.   Creating a strong sense of team identity for a group of change agents can be a powerful tool for enhancing intrinsic motivation and driving performance.  People love to be part of something unique, and they like feeling as though they are part of something that is going to make a significant impact.   As you build a subculture and foster team identity, you can create a strong in-group vs. out-group dynamic though.   That schism between your group and others can be problematic.   You have to careful not to drive too large a wedge between your subgroup and the broader organization.  If you do, it can be difficult to then build support within or access resources from other parts of the firm to make your change successful.  

Managing Generation Y

Brian Halligan, CEO of HubSpot, has an interesting take on managing Generation Yers in a recent New York Times Corner Office column:

We’re trying to build a culture specifically to attract and retain Gen Y’ers. I just think cultures are stuck in the 1990s and don’t match the way Gen Y’ers work. So we set it up for them in a way that they really like. They want to work wherever they can work. They want a ton of freedom. They want to change jobs every six months, so we’re very aggressive about pushing people around to different jobs. They care less about money and more about learning. We want there to be a certain percentage of the company that moves every three months between departments and does new jobs. One of the things I track is what percentage of the company changed jobs in the last three months. If that’s flattening out, I get worried because I know these Gen Y’ers will leave if they’re not moving around. 

In general, I think Halligan has hit the nail on the head.  However, I would offer one word of caution. The desire to move people around frequently must be considered in the context of the business.  In some companies, we can put people on projects of very limited duration, and within several months, measure the results of that person's work on a particular project.  In those situations, frequent rotations can make a good deal of sense.  However, in other situations, the projects or the nature of the work require a longer period of time to truly evaluate a person's effectiveness.  In those situations, rotations must be managed carefully. You don't want to reward someone for launching initiatives without ever seeing if they can implement effectively.   

The Controversy Sweet Spot in Marketing & Public Relations

Wharton Professor Jonah Berger has conducted some fascinating research on the role of controversy in marketing and public relations.  Berger and his co-author, Zoey Chen, discovered that increasing the level of controversy can increase the volume of online conversation about a company or brand.  However, the relationship is not linear.  A moderate level of controversy increases conversation.  Increasing the controversy even further, though, starts to dampen the level of online conversation.  

In one study, they examined 200 articles posted on a particular online site, and they asked independent evaluators to rank them in terms of level of controversy.  Then they counted the number of online comments posted by readers.  They found that higher levels of controversy increased the number of online comments up to a moderate level of controversy (4.6 on a 7.0 scale).  Beyond 4.6, however, they found that high controversy articles tended to elicit a lower number of online comments.   In a series of experimental studies, Berger and Chen confirm this same curvilinear relationship. 

Berger notes that high controversy diminishes online conversation because people sometimes feel uncomfortable chiming in on a highly explosive topic.  Berger says, "“At the core, the key [question] is … how will talking about an issue affect how people see me?”  

Berger argues that the findings do not suggest that firms should avoid controversy.  However, they should consider the "sweet spot" for their firm.   That sweet spot will differ among firms.  In some cases, controversy quickly creates a great deal of discomfort.  Thus, the controversy doesn't create the online buzz that they seek.  People instead get quiet, for fear of how others will perceive them.  For other companies, it takes quite a bit to reach that level of discomfort where online conversation, buzz, and word-of-mouth actually becomes suppressed.  

Overconfident CFOs

Strategy and Business reports today on a new study by Itzhak Ben-David, John R. Graham and Campbell R. Harvey.   They examined the accuracy of predictions by chief financial officers (CFOs).  They examined over 13,000 surveys of chief financial officers in 2011.  What did they find?  "Instead of hitting the right range 80 percent of the time, the CFOs were correct in only about 36 percent of the cases when predicting the market’s point total a year out, the authors found. Even during the least volatile periods in the sample, CFOs had only a 59 percent success rate."  

Psychologists, of course, have long known that human beings are subject to an overconfidence bias.  Interestingly, this study shows that the overconfidence extends to projections about company performance as well.  According to Strategy and Business, "CFOs who erred on market forecasts also tended to provide unrealistic estimates of returns on investment for their firm’s projects. These hubristic CFOs failed to anticipate volatility and risks, even when they could look to benchmarks like their firm’s return on invested capital as a basis for their predictions."  

What I do take away from this study?   In many companies, the senior management team looks to the CFO to be the "voice of reason" or the "force for restraint" in the face of ambitious executives who want to invest, grow, and expand.  This study shows that many CFOs may not be effective forces of reason and restraint. Instead, their overconfidence may add fuel to the fire when it comes to flawed strategies.  Far from being the cynic or the ultra-conservative person watching the pennies closely, some CFOs may dramatically underestimate the risks associated with certain investments.  Moreover, they may support rosy projections for the future. 

IBM Embraces Crowdfunding Internally

We have all become familiar with popular crowdfunding platforms such as Kickstarter over the past year.  Now IBM provides us with an interesting example of how a company can put the concept to work inside the corporation.  For years, IBM has tried to nurture innovation through various special structures and processes, recognizing that traditional resource allocation processes in large, complex organizations often stifle breakthrough ideas.  For instance, David Garvin and Lynne Levesque wrote a famous Harvard Business School case study about IBM's Emerging Business Opportunities program developed by Bruce Harreld and others about a decade ago. 

Now, IBM has brought crowdfunding inside the firm to nurture innovation.  At this point, they are focusing particularly on ideas that can improve the way work gets done internally.  It will be interesting to see if they apply the concept to product innovation as well.  Here's an except from an article in Fortune about the new program:

As with Kickstarter, IBM employees can get involved by submitting an idea, by critiquing it and suggesting improvements, or by investing in it. Submitters set a funding target to cover the cost of basic coding, architecture, and testing. They can also enlist teams of IBMers who volunteer their expertise to help develop projects that interest them. Employee backers support proposals they like by voting in $100 chunks (up to a maximum of $2,000 per employee) that come out of a $300,000 fund supplied by the CIO Lab.  "Once the total amount of support reaches $25,000, we fund the project and move forward with it," says LeGoues. 

IBM reports that more than one thousand employees have participated, and twenty proposals have been funded to date.  I'm encouraged that a large firm such as IBM would embrace this novel concept and apply it to their work.  Large firms often struggle with innovation for a wide variety of reasons, as we all know.  Leaders at such complex firms must find special ways to surface new ideas, vet them, and fund the best ones.  Perhaps crowdfunding in this way may become a key tool for supporting intrapreneurship in large organizations.  

60 Minutes Apparently Airs Infomercials Now

What was that on Sunday night on the CBS 60 Minutes program?  Charlie Rose interviewed Amazon founder Jeff Bezos in a roughly 15 minute segment on the popular news show.  In the now infamous interview, Bezos unveiled his vision for how drones might someday deliver Amazon products to people's homes.  Rose swooned.   But wait... did anyone at 60 Minutes even bother to think about the timing of the interview?  It ran on the DAY BEFORE CYBER MONDAY!  It amounted to a huge 15 minute infomercial for Amazon on the day before the biggest online shopping day of the year.  Where is the journalistic integrity here?  Did anyone at CBS even question the timing?  Of course, Rose didn't ask much about a tiny little word that somehow conveniently never receives much attention when journalists swoon over Bezos (shhh... let's not talk about profit, or the lack thereof).   I don't blame Bezos or Amazon here.  They had an opportunity to participate in a feature on a highly popular news show.  They took advantage of the opportunity for some great public relations.   The fault here lies entirely with Rose and the 60 Minutes producers.  When do the small independent merchants in every small town in America get there 15 minute infomercials on CBS?