Mayor Tom Menino: Leadership is about more than making speeches

Tom Menino, long-time mayor of the city of Boston, died yesterday at age 71.  He served as Boston's mayor for two decades.   He enjoyed widespread popularity and respect.   Menino accomplished a great deal during his time as the city's leader.   I think we can take an important lesson away from Menino's incredible success.   Was Tom Menino a terrific speaker?  Not at all.  People made fun of how inarticulate he could be at times.  They referred to him as "Mumbles Menino."    However, Menino had tremendous leadership skills.   Too often, we became enamored with political candidates who deliver a wonderful speech.   That does not make them a leader.   They have to be able to execute.   Menino could do just that.   He understand how to get things done, and he knew how to stay incredibly connected with his constituents.  

Source:  Boston's official website

What is Critical Thinking?

The Wall Street Journal published a terrific article by Melissa Korn this week.   The article focuses on the fact that many executives say that they want to hire people with "critical thinking" skills. However, the definition of that term seems elusive.  In fact, some people don't have a clear definition of the term. Others disagree over the meaning of critical thinking skills.   Perhaps, the article suggests, you simply know them when you see them.   The article does offer a few intriguing definitions of the term:

• “The ability to cross-examine evidence and logical argument. To sift through all the noise.”
  -Richard Arum, New York University sociology professor
• “Thinking about your thinking, while you’re thinking, in order to improve your thinking.”
  -Linda Elder, educational psychologist; president, Foundation for Critical Thinking
• “Do they make use of information that’s available in their journey to arrive at a conclusion or decision? How do they make use of that?”
  -Michael Desmarais, global head of recruiting, Goldman Sachs Group

Breaking Up Isn't Always the Optimal Solution: The Curious Case of Dan Loeb and Amgen

Corporate breakups seem to happening every other day.   I blogged last week about some of the reasons for the recent surge in breakup activity.   In general, I think many of these breakups make sense, as firms tend to prosper when they are more focused.  Moreover, many of these firms are experiencing significant diseconomies of scale and scope.   However, I think we may be taking it too far in some cases.

Let's take the case of hedge fund investor Dan Loeb pushing Amgen to break into two independent firms.   Loeb proposes that Amgen split into one business focused on its mature products and another focused on its high growth products.   Typically, when investors propose such splits, they want the mature business to generate lots of cash and return much of it to shareholders.  They want the growth business to reinvest profits to stimulate even more growth.   

Here's the problem with proposals such as the Amgen deal though.   In the old BCG model of corporate strategy, firms were supposed to milk the cash cow and use those proceeds to fund promising growth businesses.   That model has since been completely debunked.  Cross-subsidization amongst unrelated business units makes no sense if external markets are reasonably efficient.  Chas cows should return excess cash to shareholders, and growth businesses should find their own sources of funds from private equity, venture capital, or public equity and bond markets.  Note the word "unrelated" though.  The BCG model is faulty if we are talking about using it to justify an unrelated diversification strategy.  However, a firm such as Amgen is clearly not an unrelated diversifier.  It has a set of highly related businesses.  Strong synergies exist among its lines of business.  In fact, some would say that it's a focused firm, not even a related diversifier.  Thus, Amgen is not in any way inappropriately using funds from a cash cow to fund a growth business. They are managing multiple products that each have stronger competitive advantage because they co-exist together in the same firm.  I don't see how you create real value by splitting a firm such as Amgen in two.  In fact, you may destroy value by doing so, because synergies are lost.  You create real value if you split an unrelated diversifier in two. 

Attracting and Retaining Better Workers: Higher Wages Alone Won't Do the Trick

We have heard a great deal of commentary about the low wages paid to front-line employees in some industries, particularly the retail and restaurant sectors.   While politicians debate the merits of raising the minimum wage, some people point to the companies paying higher wages as a model.  They argue that these companies attract and retain more productive workers because they pay higher-than-usual wages.   For instance, people point to firms such as Costco, Trader Joe's, and Whole Foods as examples.   I think that we have to be very careful about these arguments though.  These firms attract and retain highly productive, engaged employees for reasons well beyond the wages that they pay.  Yes, they pay their employees more than some of their rivals.  However, these firms also have built an entire organizational system that supports an engaged, productive, and collaborative workforce.  They have developed a culture that attracts talented people.  They have embraced certain values and principles.  They have articulated a sense of purpose that people find compelling.  They have developed managers and supervisors who know how to engage employees.   I could go on.  The point is simple: they have built an entire system that attracts and retains these workers, and helps them produce great value for the firm.   Paying someone a few bucks more without doing these other things won't have any significant effect on engagement, customer satisfaction, employee retention, or profits. 

How PWC Engages Millennials

Bob Moritz, the U.S. Chairman of PWC, has written an article for Harvard Business Review regarding his firm's efforts to attract, engage, and retain millennials.  Moritz and his firm collaborated with researchers from USC and LBS to understand key generational differences.  From that work, PWC began to develop initiatives to foster higher levels of engagement and retention among millennials.  They have tracked the effectiveness of various efforts.  Moritz cites four major areas of emphasis:

1. Give them voice. Millennials want to have input regarding the future direction of the organization.  Therefore, PWC gave them voice in several powerful ways.  They asked millennials to offer ideas regarding the most effective methods for talent development in the firm.  In addition, they asked people for suggestions regarding the next $100 million opportunity for PWC.  More than 70% of the employees offered suggestions.  
2. Provide flexible career paths.   Millennials do not want to stay in the same role for a lengthy period of time.  They want to shift positions and roles, try new things, and embrace different opportunities.  Moreover, they want greater flexibility in their careers.  PWC has created several programs that enable talented employees to take time off or to work part-time for the firm while pursuing other opportunities (such as graduate school). 
3. Recognize them often and in multiple ways.  Millennials want to be recognized, and that does not mean only monetary awards.  PWC implemented more frequent recognition, and they began to offer a host of non-monetary rewards.   For instance, PWC created a sabbatical program as a reward for millennials who perform well and stay at the firm for a certain period of time.
4. Give them a chance to give back.  Millennials want to make a broader impact, and they want to work for a firm that has that same aspiration.  PWC found that employees who participate in a corporate responsibility initiative tend to stay at the firm for a longer period of time.  For example, participants in one program to enhance students' financial literacy tended to exhibit much less turnover than those who did not participate (only 8% of participants had left PWC a year later, while 16% of non-participants had left the firm). 

Jimmy Kimmel, the Uber Driver

Uber has to love this free publicity.   Jimmy Kimmel became an Uber driver for one afternoon.  Check it out!

HBO's Big Decision and the Disruption of the Cable Business

HBO made a major announcement yesterday.  They informed investors that they would be offering a stand-alone digital subscription to customers outside of the usual cable distribution model.  Time Warner (parent company of HBO) indicated that the firm would be targeting customers (typically millennials) who have chosen to "cut the cord" - i.e., to go without a cable television subscription. 

Today's Wall Street Journal article about the move has quotes from several experts. Some indicate that the move is revolutionary, while others downplay its potential to disrupt the cable business.  One expert (USC's Jeff Cole) regards the announcement as a "seismic event."  On the other hand, Tom Larsen, an executive at Mediacom Communications, states, "I don't view it as overly disruptive."  Some cable companies regard the move as not disruptive so long as HBO does not undercut the price which the cable firms charge customers for HBO.

Where do I come down on this move?  In and of itself, I don't think it's hugely disruptive.  However, the strategic decision by HBO may have a large ripple effect.  We have already heard that CBS will follow suit and offer a streaming subscription service.  The next big shoe to drop could be Disney.  If that firm offered its networks (children's programming, ESPN networks) directly to consumers, that would be a major jolt to the cable business.  If consumers can package together subscriptions to Netflix, Disney/ESPN, and HBO, would they still purchase an expensive cable package? Many consumers would not.   Yes, the cable companies also make money selling broadband service.  However, that cannot make up for the loss of significant numbers of cable subscriptions.  The price that HBO charges for its standalone service may not be the key factor.  Why?  People are not thinking about HBO in isolation.  The key is whether other firms follow, and consumers can begin to patch together a whole set of desirable entertainment options for less than the total price of their cable package. 

The entertainment industry has been known for herd behavior in the past.   Consider the moves by many large players to vertically integrate in the 1990s (CBS/Viacom, AOL/Time Warner, Disney/ABC).  They watch each other closely.   Herd behavior can sometimes occur in an industry because managers are risk averse.  In this case, perhaps managers at other entertainment companies will view a move to sell directly to consumers as less risky if a few leaders, such as HBO and Disney, make the move first.  Bob Iger, the industry... and the consumer is watching... 

Playing Catch Up Can Be Very Problematic

You have worked for months on the planning of a new initiative or project.  You have been meticulous.  You have identified the key phases in the implementation process, built a budget and schedule, and marked milestones that need to be achieved at each stage.  You have assembled a terrific team with talented individuals who possess complementary skill sets.  Unfortunately, as you begin to execute the plan, unexpected obstacles arise.  You begin to fall behind schedule, and the results do not match expectations.  As you approach the first major milestone meeting, you realize that you also have exceeded your budget to date.  

What do many managers do?  They try to get back on plan.  They work harder.  They implore their team members to work harder.   They throw more resources at the project.  They try to catch up.  That strategy can be very problematic though. Doing more of what got you into trouble in the first place does not constitute an effective strategy.   Yet, that is the initial tactic often chosen when execution does not match our plan.  Even worse, playing catch up can burn our people out and expend precious organizational resources.   To be effective, we have to be willing to modify that original plan, or perhaps move to Plan B.  However, managers often become overly committed to their original plans.  They don't want to be accused of having put together a "bad plan" for the project.  Instead, though, they may find themselves conducting a very "bad implementation" in part because they are trying to save face. 

Bryant Collegiate Entrepreneurs Organization (CEO) Video

I'm very proud to serve as the CEO club adviser here on campus.   In this video, the club makes its case for National CEO chapter of the year in advance of the national conference in Orlando, Florida later this month.

Amazon Opens Brick-and-Mortar Store

The Wall Street Journal reports today that Amazon will open its first brick-and-mortar store in Manhattan.  Here's the description of the first site:

Amazon’s space at 7 West 34th St., across from the Empire State Building in Midtown, would function as a mini warehouse, with limited inventory for same-day delivery within New York, product returns and exchanges, and pickups of online orders. The Manhattan location is meant primarily to be a place for customers to pick up orders they’ve made online, but will also serve as a distribution center for couriers and likely one day will feature Amazon devices like Kindle e-readers, Fire smartphones and Fire TV set-top boxes, according to people familiar with the company’s thinking.

What do we make of this move?  As an experiment, it may serve a very useful purpose.  Innovative companies test ideas and conduct well-designed experiments frequently.  They recognize that such experiments may fail, in the sense that they do not achieve desired business results.  However, they view them as successful if tons of learning emerges from these tests.  Could this site in Manhattan drive a great deal of learning and innovation at Amazon?  Definitely.   However, the logic of a major brick-and-mortar expansion at Amazon escapes me.  Leasing incredibly expensive space in the middle of Manhattan to serve as a place for customers to pick up online orders does not seem to make economic sense.   If the store is meant to be a flagship, focused on providing a fun and engaging retail experience for showcasing the firm's digital products, then one might be able to make a case for it.  Of course, a "flagship" strategy would entail a very limited number of brick-and-mortar locations. Does Amazon need such flagship locations to build the brand and sell more digital devices?  It does not seem so; they already have a strong brand and have achieved great success with the Kindle.   Is the brick-and-mortar location all about same-day delivery?  Well, one could achieve that without leasing high-priced retail space on 34th Street in Manhattan.  It will be interesting to see how this experiment evolves, and to understand precisely what Amazon's aims are with this brick-and-mortar strategy.   

Tim Cook: Intuition's Role in Decision-Making Processes

The Dangers of Multitasking

Travis Bradberry, author of the bestselling book Emotional Intelligence 2.0, has a great post over at the Forbes website about multitasking.  Bradberry reviews the research on multitasking and concludes that it can very detrimental.   He notes that Stanford's Clifford Nass, Eyal Ophir, and Anthony Wagner conducted research showing that, "Multitasking is less productive than doing a single thing at a time."  Moreover, the notion that some people are simply great at multitasking appears to be false.  Bradberry explains, "They found that heavy multitaskers—those who multitask a lot and feel that it boosts their performance—were actually worse at multitasking than those who like to do a single thing at a time."  The article also cites recent research showing differences in the brain for those people who engage in a great deal of multitasking.   Bradberry suggests that those changes in the brain may even reduce an individual's emotional intelligence.   That last point is purely speculation, but the overall point is clear:  multitasking may be having an adverse effect on employee performance in many organizations. 

Breaking Up Isn't So Hard to Do

HP announced yesterday that it would be splitting into two companies.  One will focus on personal computers and printers, while the other will focus on computer hardware, software, and services.  Interestingly, this breakup represents the second split for HP in its history.  In 1999, HP spun off its measurement instruments business as Agilent Technologies.  Could the deal increase shareholder value?  Perhaps, as it has become increasingly difficult to argue that the synergies between the two sides of HP are significant enough to outweigh the costs associated with managing and integrating such a large, bureaucratic, and highly complex organization.  Of course, the deal also opens up the possibility that one or both of the new entities could be takeover targets.  Here in Massachusetts, we have been reading rumors about EMC exploring talks with HP about a merger.  The breakup at HP probably makes such a deal more likely.   Of course, it's not entirely clear why or how a merger would be beneficial.  While some synergies might exist, again the key question is whether the benefits outweigh the costs associated with integrating such large, complex organizations. 

Beyond this particular deal, the Wall Street Journal reports that, "Corporations around the world have sold or spun off $1.6 trillion worth of subsidiaries and business lines so far this year, just behind 2007’s record-setting pace, according to data provider Dealogic."   We have seen some high-profile moves by diversified firms to become more focused.    GE sold its appliance business.   Gannett announced  a split into two entities, one focused on newspaper publishing and the other on television broadcasting.  Other firms, such as Pepsi, face pressure from activist investors to break up.  What's behind these moves?  The Wall Street Journal cites research showing that U.S. conglomerates tend to under-perform more focused firms:  "Shares of North American conglomerates underperformed their more focused rivals by 11.4% on average from 2000 to 2010, according to a study from Anil Shivdasani, a finance professor at the University of North Carolina Kenan-Flagler Business School... Professor Shivdasani said Monday the data remained similar through the end of last year."

This research has been well known for many years though. Why the pickup in breakups lately?  I think several reasons may exist.  First, economic growth has been very low in this "recovery."  As a result, many firms have businesses in mature markets that are struggling to find ways to grow revenue.   Without sales growth to help drive share prices upward, they are looking for other ways to create value for investors.  Second, a new class of activist investors has become very vocal and has challenged the diversification strategies of many of these large firms.   Third, more investors have begun to question the economies of scale and scope rationale behind these large firms.  They are wondering if, in fact, these organizations are experiencing significant diseconomies of scale and scope. Finally, investors have become quite concerned that CEOs are cross-subsidizing extensively, milking cash cows to fund other initiatives.  Such practices used to be quite commonplace and accepted, but increasingly, they are being challenged.  These investors would rather see the CEOs return cash to shareholders from mature units, and let the newer, higher growth entities seek capital directly from the markets. 

Maximize vs. Satisfice: How Do You Decide?

What type of decision-maker are you? Do you examine all the options exhaustively, hoping to find the absolutely best alternative?  Do you carefully compare the pros and cons of a wide range of options before making a decision?  Or, do you search until you find an option that is satisfactory, and then choose that one even if it is not perfect or completely optimal?    Nobel winner Herbert Simon described these two patterns of decision-making decades ago.  He called them "maximizing" vs. "satisficing" behaviors.  

In today's Wall Street Journal, Elizabeth Bernstein examines these two strategies.  She describes the research of Swarthmore Professor Barry Schwartz.  Here's an excerpt:

In a study published in 2006 in the journal Psychological Science, Dr. Schwartz and colleagues followed 548 job-seeking college seniors at 11 schools from October through their graduation in June.  Across the board, they found that the maximizers landed better jobs. Their starting salaries were, on average, 20% higher than those of the satisficers, but they felt worse about their jobs.

Bernstein describes how maximizers often find themselves less content than satisficers.  Why might that be?  The exhaustive search and comparison of many alternatives often opens the door for feelings of regret once a decision has been made.  Did I make the right call?  Should I have chosen another option?  Did I consider the right variables and attributes?   Satisficers may not experience those feelings to the same extent.  Does this mean that we should not examine options carefully? I don't think so, but it does mean that we have to watch out for feelings of discontent in the immediate aftermath of a tough decision.  Moreover, we have to be cognizant of the fact that we might be on a team with people how tend to have the opposite decision-making pattern.  

Leaders, Power, and Perspective-Taking

Adam Galinksy, Joe Magee, Diana Rus, Naomi Rothman, and Andrew Todd have published a new paper titled “Acceleration With Steering: The Synergistic Benefits of Combining Power and Perspective-Taking.”   Leaders need a certain amount of power to get things done.  However, the research shows that leaders can be more effective if they have both power AND what they call perspective-taking.  In other words, can leaders put themselves in others' shoes so that they can see how those individuals view particular issues and situations?  

Of course, as many leaders accumulate power, sometimes it's difficult for them see the world as others do.  You "forget" what it was like when you were in their position.  You become isolated from the day-to-day work.   You interact most frequently with other senior executives, who often see the world much as you do.  Some leaders simply hire folks who think just like they do. 

Generate Multiple Frames to Make Better Decisions

How you frame a situation helps to determine the types of options you consider and the ultimate decision that you make.   By frame, I mean the way that you characterize a situation.  We face a complex and messy reality.  We simplify those situations by adopting mental models and frameworks.  Those frames can be powerful in helping us make sense of that messy reality.  However, how you frame a situation can constrict the range of alternative solutions that you generate and analyze.  To broaden the range of alternatives generated, managers should seek to frame situations in multiple ways.  For example, suppose that a firm has experienced high employee turnover.   A leader may frame the situation as an incentive problem.  However, that framing would focus his or her team on potential solutions such as changes in compensation.   A better approach would be for the leader to offer multiple frames of the situation.  He or she might ask: We might say that we have a turnover problem, or perhaps we might cast the issue as a talent management problem.  In other words, we don't simply have a talent retention issue... perhaps we have a recruitment challenge, a development problem, etc.   Framing the problem in a broader way might lead to a very different type of discussion.  If you are in a situation where you feel that the range of options being considered is particularly narrow, consider reframing the problem.