Questioning Fiat's Push for Auto Industry Consolidation

The Wall Street Journal reports today that Fiat CEO Sergio Marchionne has been pushing hard for auto industry consolidation.  He's approached several other large automakers, and they have rebuffed his inquiries.  Why is Marchionne intent on pursuing mergers in the industry? 

He argues that it will help eliminate excess capacity and raise returns on investment.  According to the Wall Street Journal, Marchionne cited the superior return on capital earned by industries such as aerospace and pharmaceuticals in 2014.  Here we have mistake number one.  Mergers will not eliminate the gap in profitability between automobiles and pharmaceuticals.  Here you have to think about the structure of the two industries.  The pharmaceutical industry simply has a much more attractive industry structure (run through the five forces for the two industries, and you will see the advantages for pharma).  Mergers will not suddenly alter the fundamental attractiveness of autos relative to pharma. 

One also has to question Marchionne's belief that consolidation is inevitable.  NYU Professor Pankaj Ghemawat has argued persuasively that many CEOs mistakenly cling to a belief that industries must consolidate as they globalize, and that eventually a "Rule of Three" will prevail - i.e. three big players will dominate.   He's gathered data showing that many industries have become less consolidated as they have globalized.  That includes the automobile industry.  The Wall Street Journal article actually makes this point.  It quotes Bill Ford, who recalls the pushes for consolidation in the 1980s that did not work out (think Ford acquiring Volvo, Land Rover, and Jaquar, Daimler acquiring Chrysler, etc.).  Ford also notes that the industry has actually become less consolidated since that time.  Ford says, "Everyone thought that's where this industry was clearly headed,.  Of course, then the Koreans came in and now the Chinese are in.  The numbers have proliferated rather than shrunk." 

Asking for a Favor: The Power of the Post-It Note

Kevin Hogan has penned a post for HBR about research conducted by Randy Garner at Sam Houston State University.  Garner performed a series of experiments to examine the likelihood that individuals would respond to requests for assistance with a task. Garner asked faculty members to complete a survey for him - a request often made of others when you are conducting research.   He divided the respondents into three groups.   For the first group, he attached a sticky note to the survey, asking them to complete it.   For the second group, he put the same handwritten message on the cover letter, rather than on a separate sticky note.   For the third group, Garner simply provided a typed cover letter.   They received no handwritten message at all.   What happened?  76% of the respondents completed the survey in the first group, far more than the other two groups.   Why such powerful results from a handwritten message on a sticky note?  Hogan outlines the four main reasons:

1. It doesn’t match the environment—the sticky note takes up space and looks a bit cluttered. The brain, therefore, wants it gone.
2. It gets attention first because of #1. It’s difficult to ignore.
3. It’s personalized. (That’s the difference between Group 2 and Group 3 in the experiment.)
4. Ultimately, the sticky note represents one person communicating with another important person—almost as if it is a favor or special request, which makes the recipient feel important.

What's the lesson here?  In an era of predominantly electronic communication, the power of a personal note should not be underestimated.  Moreover, it's important to put yourselves in the shoes receiving your request.  Ask yourself: How will they feel when they receive this request for assistance?  By stepping in your shoes, you can craft a more effective and persuasive appeal for help. 

Defending Meetings: They are not all bad after all!

Creativity expert David Burkus has a published a great blog post in which he defends the dreaded meeting.  He argues that meetings can actually make us more creative.  Really?  Well, he's talking about a particular type of meeting.  He cites some interesting research to make his point.  Here's an excerpt:

Psychologist Kevin Dunbar studied the workings of four prominent microbiology laboratories for insights into the creative work of experimentation. The findings from these field studies defied the conventional image of the lone scientist staring into a microscope to reveal a great discovery. Instead, Dunbar found that the most creative insights and greatest discoveries actually occurred during regularly scheduled lab meetings, where individual researchers revealed their latest findings and shared their most difficult setbacks. The creative discoveries produced by these labs occurred only after these individuals conspired together to find a solution or draw connections between previously unconnected insights.

 What's the key insight here?  At these meetings, people share their ideas, describe the work that they are doing, and they ask others to help them address the obstacles that they have encountered.  People have an opportunity to see the links between different streams of work, and they can provide each other valuable assistance.  To make this type of meeting helpful, you have to be willing to share your work process, not just your outputs.  You have to admit what you do not know, and you have to be willing to ask for help.  In other words, you have to have a very safe climate in which all attendees are comfortable sharing these types of issues with others, and in which they are willing to make themselves a bit vulnerable.  Unfortunately, that's often not the case in many meetings. 

My Favorite Letterman Moment: When GE Acquired NBC

Extroverts Earn More Than Introverts

Business Insider reported yesterday on a new research report from Truity Psychometrics.   The firm examined the relationship between personality types and compensation levels.   Not surprisingly, they found that extroverts tend to earn more than introverts.  For example, an ESTJ (one of the Myers-Briggs personality types) earned $77,000 on average, while several of the introverted personality types earned less than $40,000.   Why the major discrepancy between introverts and extroverts.  Truity's research suggests that extroverts tend to have more managerial responsibility.  On average, the extroverts in their study managed 4.5 others, while the introverts only managed 2.8 people on average.  In the Business Insider article, Susan Cain - author of a best-selling book about introverts - argues that extroverts are chosen more often for management positions because their outgoing nature creates a perception of leadership competence.  

Cain argues forcefully for the efficacy of introverted leaders.  Actually, the research does not show that one type of leader is clearly stronger than the other.  As always, it depends.  Adam Grant, Francesca Gino, and David Hofmann published an interesting article several years ago titled, "Reversing the Extraverted Leadership Advantage: The Role of Employee Proactivity." They conducted a field study at a national pizza chain.   They examined 57 locations within that company, and the scholars analyzed the link between personality and performance.  They found that each unit's performance hinged on the match between the leader's personality type and the followers' personalities.  Here's an excerpt from HBS Working Knowledge about the study:

A new study finds that extraverted leaders actually can be a liability for a company's performance, especially if the followers are extraverts, too. In short, new ideas can't blossom into profitable projects if everyone in the room is contributing ideas, and the leader is too busy being outgoing to listen to or act upon them.  An introverted leader, on the other hand, is more likely to listen to and process the ideas of an eager team. But if an introverted leader is managing a bunch of passive followers, then a staff meeting may start to resemble a Quaker meeting: lots of contemplation, but hardly any talk. To that end, a team of passive followers benefits from an extraverted leader... Sure enough, they observed high profits in stores where the employees were relatively passive but the managers were extraverted. On the other hand, when employees were proactive, the stores led by introverted managers earned high profits. Meanwhile, profits were lower in stores where extraverted managers led proactive employees and introverted managers led passive employees.

Where Does Vision Come From?

Dale Buss has written a good article for Chief Executive magazine about nurturing a leader's visionary skills.   Buss argues that compelling visions for an organization don't simply come to someone like a bolt of lightning from the sky.  Leaders can cultivate their ability to chart the right vision for the future.  Mainly, he argues that leaders need to maintain close contact with customers, rather allowing others to tell them what customers want and need.  They have to avoid becoming isolated at the top.  Buss also argues, "Be your own customer. Put yourself in the role of the customer and walk through every touch point, to see what they see. Are there gaps in the relationship? Can some touch points be shortened or made easier?"  

Buss notes that substantial new threats and opportunities often emerge at the periphery of an organization.  Andy Grove of Intel once observed the very same phenomenon.  I wrote about Grove's ideas in this regard in one of the early chapters of my book, Know What You Don't Know.  Buss explains how to see those issues emerging at the periphery, rather than the core, of the organization:

Spot weak signals at the periphery. Attempt to gain early detection of developments that could potentially interrupt or disrupt your business so you can take them into account as early as possible. Introducing “randomness” into your life can be one way to do this. Iconic and visionary architect Buckminster Fuller, for instance, used to pick up a magazine at random from a kiosk when he traveled and force himself to read the entire publication during his trip so that he kept in touch with parts of the world he otherwise knew nothing about, the authors said.

I've heard the Buckminster Fuller practice many times, and it's always struck me as a very effective technique.  It does not take much effort, but it can deliver strong dividends at the unlikeliest of moments.  It also enhances your general knowledge - useful as you network and engage with a variety of external and internal constituencies to the organization.  

Advice for the Class of 2015!

For the past several years, I have re-run this old post with some advice for new college graduates.  I hope my seniors at Bryant University, and seniors at other institutions, will read and ponder these thoughts.  Congratulations to the Class of 2015!

A few words to those graduating from college this year...

As you leave this place, you will become builders. You will build a career, a home, and hopefully a family. For many of you, life will take on a certain rhythm eventually. Routines and rituals will mark your days. You will experience a measure of comfort with the familiar – familiar people, places, and activities. As you grow older, the unfamiliar will jar you, unsettle you, at times. You will want to retreat to that which is comfortable and familiar.

My advice to you today: Do not become wedded to the old and familiar in your lives. Cherish the past, but always look ahead. Seek out novel experiences. Keep breaking new ground, even as the hairs become gray. When in his 80s, Michelangelo, the great Renaissance painter and sculptor, once said, “Ancora imparo.” – I am still learning. I hope that you will live to such a ripe old age, and that you will utter those same words. Researchers have shown that novelty stimulates the brain. So, I tell you know: Exercise your minds throughout your lives. Memories do not nourish the brain. New challenges do. They say that you cannot teach an old dog new tricks. Do not listen to such rubbish. I’m confident that you have the ability to transform yourselves, to make yourselves new, time and again throughout your lives.

As you experience the new and unfamiliar, you will feel discomfort, even fear, at times. Do not let that apprehension get the best of you. Dr. Peter Carruthers of Los Alamos National Laboratory once said, “There’s a special tension to people who are constantly in the position of making new knowledge. You’re always out of equilibrium. When I was young, I was deeply troubled by this. Finally, I realized that if I understood too clearly what I was doing, where I was going, then I probably wasn’t working on anything very interesting.”

As you learn and grow as individuals, do not keep your new knowledge and skills to yourself. Share your knowledge and insight with others. Do more than that; serve as an exemplar to others. Mentor young colleagues, teach your children well – through actions as well as words. Your impact on the next generation will become your enduring legacy.

Singer and songwriter Ben Folds once wrote to his daughter Gracie, “One day you’re gonna wanna go. I hope we taught you everything you need to know.” I love that song, but I know that we have not taught you everything you need to know. I sincerely hope, though, that we have cultivated your intellectual curiosity and nourished your love of learning. May that spark of youthful curiosity remain with you all the days of your lives.

Improving Your Predictions

A great deal of research shows that experts are often not very accurate in their predictions.  In this video, Wharton marketing professor Barbara Meller discusses how we can improve our forecasting abilities.  It's worth taking a look. 

Negotiation Tips

Inc. magazine has a great new article about how to negotiate effectively.  The article features six tips from Professor Linda E. Ginzel of the University of Chicago Booth School of Business.  Several tips will be quite familiar to many people (focus on interests, not positions, enlarge the pie before dividing).  Her final two tips warrant mentioning because they are the hardest to employ, but they are critical to negotiation success.

Adapt your strategy to your counterpart's style.

"Be aware that different problem-solving modes are available to you: competition, collaboration, accommodation, cooperation, compromise and avoidance. Remember to switch strategies when lacking progress."

Practice conditional cooperation.

"Be nice (don't be the first to defect). Be provokable (reciprocate defection). Be forgiving (reciprocate cooperation). Don't be envious (don't compare your success relative to other players). Be clear (don't be too clever)."

Does Collaboration Actually Hurt Organizations At Times?

We all want more collaboration in our organizations, right?  Of course, we do!  Well, you might want to rethink your answer in light of new research by Jesse Shore, Ethan Bernstein, and David Lazer.  They conducted a fascinating experiment using a game created by the Defense Department.  This game asks people to try to determine the location and timing of a potential terrorist attack, as well as to determine the perpetrators.  HBS Working Knowledge describes the set-up of the experiment:

For the study, the researchers hired 417 participants to play the game. Players received two clues at the start of each round and were allowed to search for more clues once per minute; they had 25 minutes to solve the problem. (The experiment took place at Harvard Business School's Computer Lab for Experimental Research.)  Participants were randomly assigned to one of 70 16-person networks, some of which were more interconnected—or "clustered," in academic parlance—in terms of who could share information with whom during the game. "In the most-clustered conditions, people were connected in a clear team structure," Shore explains. "In the least clustered, nobody's partners were also partners with each other."

Interestingly, the most-clustered groups tended to engage in more extensive information gathering.  However, the least-clustered groups developed more hypotheses regarding the potential terrorist attack (17.5% higher).   The least-clustered groups also had tended to be more likely to arrive at a correct solution.  What happened in the high-collaboration groups that led to inferior problem-solving?  According to the scholars, "Those in very clustered positions were more likely to copy an incorrect theory from a neighbor than their less-clustered counterparts."   In short, these "high collaboration" groups have a tendency to prematurely converge on a particular alternative.   If you step back for a moment, you should not be surprised at all by these findings.  We have known for decades that pressures for conformity arise in groups at times.  Premature consensus is a classic outcome in a cohesive group where conformity pressures arise. 

How Long Should a CEO Serve?

Many people have pointed to data suggesting that average CEO tenure has dropped in the past two decades.   They argue that Boards of Directors are more likely to dismiss CEOs for poor performance than they were in the past.  In this post, though, I want to address a different question:  Can a CEO stay in office too long?  As I considered this question, I discovered this very good article by Jena McGregor in the Washington Post.  She examines the research on CEO tenure.  

McGregor cites a Fortune study from 2012 regarding CEO tenure.  The research demonstrated that CEO performance tends to be strongest for those who serve 10-15 years.  Of course, we do have to be careful about causation here.  Does performance lead to longer tenures or vice versa? She also cites a Booz Allen study that found, "In the second half of the tenures of long-serving CEOs, returns for shareholders sank. Those who served more than 10 years had median annual returns of 5.9 percent in the first half of their tenure, compared to -0.9 percent in the second half." Finally, she describes a study by researchers Xueming Luo, Vamsi K. Kanuri, and Michelle Andrews.  They found: "As CEOs accumulate knowledge and become entrenched, they rely more on their internal networks for information, growing less attuned to market conditions. And, because they have more invested in the firm, they favor avoiding losses over pursuing gains. Their attachment to the status quo makes them less responsive to vacillating consumer preferences."

Why might performance drop eventually if CEOs stay in power for too long?   They can become insular and risk averse, as described above.  They can become far less open to dissenting views.  They can believe their own press and become overconfident.  Meanwhile, people in the organization may become less willing to challenge the CEO if he or she has been highly successful.  The Board can defer to the CEO for the same reason.  The sunk cost effect can shape decisions too.  The CEO may not be willing to undo decisions from the past, because he or she has invested so much in those courses of action.  Finally, they can begin to surround themselves with like-minded people.  For all these reasons and more, it does seem that CEOs can stay too long at times. 

Does Potential Matter More Than Achievement?

Research by scholars Zakary Tormala, Jayson Jia, and Michael Norton has examined how people perceive those with high promise/potential.   Tormala explained their findings in an article on "Insights by Stanford Business."  

In a series of experiments set in different contexts, we found that high potential can be more appealing than equally high achievement. Our studies uncovered this in situations ranging from basketball player evaluations to hiring decisions, to salary offers, to grad school admissions recommendations... In general, potential seems to engender greater interest than achievement. It was counterintuitive to us too at first. It seems objectively more impressive to actually achieve something great than to have mere potential to do so. But there is a fairly robust finding in the psychological literature that uncertain events and outcomes can stimulate greater interest and information processing — more thought — than more certain ones. So when potential is being compared with achievement, the uncertainty surrounding potential can make it more engaging, or maybe even pleasurable, to think about. It's as if people engage more as they try to work through the uncertainty and figure out what the truth will be... In most of our studies we tried to equate the level of potential and achievement. For example, in one study we showed the exact same (impressive) stats for a hypothetical NBA basketball player and merely described those stats as predictions or as actual performance records. We found that participants thought the player was more likely to end up an All-Star one day when they'd seen predicted rather than actual stats.

The authors argue that these findings have substantial implications with regard to talent management decisions. I strongly agree.  They also contend that small changes in wording can matter a great deal, perhaps in a recommendation letter that you provide for someone.  Talking about their potential can be even more impactful than rattling off their past achievements.  

Human Resource Lessons from the NFL Draft

The NFL draft began yesterday, as each team made its first round selection.   My favorite team, the New England Patriots, drafted Malcolm Brown, a defensive tackle from the University of Texas.  You can imagine that fans often do not get excited about the drafting of an interior lineman.  They do not have a flashy highlight video or come out of college with gaudy statistics.  They are in the trenches.  Of course, solid line play is crucial to success in professional football.  

Interestingly, I noticed that six NFL teams chose wide receivers in the first round last night.  Wide receivers, naturally, tend to have highlight reels full of fantastic catches, long runs after the catch, and dazzling touchdowns.  They have plenty of attractive statistics such as receptions, yards, and touchdowns.  However, I know that the New England Patriots have not drafted a wide receiver in the first round in the entire Bill Belichick era.  He's been head coach since 2000, and of course, they have amassed the most victories and most Super Bowl championships in the league during that time.  

I took a quick look at the data from the past decade of NFL drafts (2005-2014).  During that time, 36 wide receivers were chosen in the first round.  By my quick count, just 2 (5.6%) of those WRs won a Super Bowl championship for the team that selected them in the draft.   In contrast, 8 of 68 (11.8%) defensive linemen chosen in the first round won a Super Bowl with their original team.  I dug deeper, and I found this article by Jeff Howe about this very topic.  He conducted a much more in-depth analysis, and he concluded that choosing a wide receiver at the top of the draft is a "waste" of precious resources. 

What's the lesson here?   As we select talent for our organizations, we have to be careful about the attributes/criteria that we employ.   Do the people who are flashy and charismatic tend to get more consideration than those who put their heads down working in the "trenches" of an organization?   Are we wowed by certain "gaudy personal statistics" that may not actually correlate with "winning" by the organization as a whole?  Finally, do we worry too much about what others think?  Coach Belichick could care less what others think.  He knows that others think the selection of a defensive lineman is boring.  Fans want flashy receivers.  He doesn't cave to outside pressure.  Of course, that's easy to do with his track record.  For managers, it might be more challenging.  However, we have to focus on doing what's right, not what's popular.