Reverse Network Effects

Network effects exist when the value per user rises as the number of users for a particular product or service increase.  Classic examples of firms with network effects include eBay, Uber, Google, and Netflix.  Sangeet Paul Choudary has written extensively about network effects in the past few years.  His recent post examines the concept of reverse network effects.  Is there some point where adding more users decreases value per user?     He explains in this excerpt:  

Reverse Network Effects may sometimes set in with scale i.e. online networks may become less useful as they scale. I do not imply that all online platforms lose value as they grow. However, in the absence of robust curation, online platforms may lose value as they grow.  Under what conditions do online platforms lose value as they scale?  Since the participants on an online platform create value, an online platform loses value with scale when the participants it allows in OR the information/value that they create are not curated appropriately. Poor curation leads to greater noise which makes the platform less useful.

He goes on to give some examples of the ways in which increased noise can become a problem.  For example, he points out that less sophisticated participants may began to use the platform, and that might reduce value per user.   He cites Quora as one platform in which this danger may arise.  Quora worked very well in the beginning as experts answered interesting and challenging questions.   As people with less expertise use the system, however, may create a problem.  As their answers offer less value, some experts may leave the platform.  As experts leave, that can create a downward spiral of value loss and further expert attrition.   His work in this area is interesting, because it stresses the fact that more is not always better in the realm of network effects.  A reverse mechanism can begin to take hold on certain platforms.  

What are the Signs that Employees are Considering Quitting Their Job?

Timothy Gardner and Peter Hom have conducted some useful research about the signs that might emerge before an employee quits his or her job.  They describe these cues as "pre-quitting behaviors."  These include things such as acting less like a team player than usual, or becoming less enthusiastic about the organization's mission.  They also might become less committed to long-term schedules and deadlines, and they may become less interested in working with customers.  In this piece for Harvard Business Review, Gardner and Hom explain one of the most interesting aspects of their research:

The most interesting take-away from this second phase of our research were the behaviors that did not survive our screening process. Note that the 13 key behaviors do not include “wearing dressier clothes to work,” “leaving a resume on the printer,” or “missing work for doctors’ appointments more frequently than usual.” These and many similar behaviors, which have entered into managers’ folklore of key signs of impending departure, were rarely observed or did not statistically hang together with the core behaviors representing a general predilection to quit. Such behaviors may predict future turnover, but not as consistently as the 13 core pre-quitting behaviors across a wide range of jobs, industries, and geographies.

Try Temptation Bundling to Make The Tough Choices

We have all faced certain choices in which we know the right thing to do, but we don't choose the best path.   We should eat the lower calorie item on the menu, yet we opt for the delicious pasta dish.  We should work out daily, but we skip the gym and grab a beer after work with some friends.  We should save for retirement, but we opt to splurge on a vacation instead.  We should work on that term paper due next week, but we head to the party at our friend's apartment instead.   How can we improve our ability to make these tough decisions?  Wharton Professor Katherine Milkman has conducted some fascinating research on this issue.   She describes a self-control technique called temptation bundling.   In short, you bundle together a "want" and a "should" so as to make better overall choices.  This excerpt from a profile of Milkman by Princeton's alumni newsletter explains her findings:  

In 2014, Milkman published a study of a self-control strategy she calls “temptation bundling.” The idea is to link a want (in the study, listening to audio versions of page-turners such as the Hunger Games books) with a popular should (working out at the campus fitness center). If getting on a treadmill were the only way to hear the next chapter in the novel, would you be more likely to get off the couch and go to the gym?   The results were promising: Participants who had access to the audiobooks only at the gym made 51 percent more gym visits than those in the control group. (Another cohort that was encouraged, but not required, to restrict their listening to workout times had 29 percent more visits than the control group.)

What's the Rationale for the AT&T Acquisition of Time Warner?

This week AT&T announced the acquisition of Time Warner in an $85 billion cash-and-stock deal.  Investors did not exactly dance in the streets.  Why the concern from investors about this acquisition, and what's the possible rationale for this deal?  The proposed deal is an example of vertical integration, marrying a content creator (Time Warner) with a distribution system (AT&T).   When we hear about vertical integration, we should ask:  Why will these two entities create value by working together, AND why must they merge to achieve this value creation?  In other words, why can they not achieve certain synergistic benefits through other types of organizational arrangements (e.g., contracts, licensing, strategic alliance)?   AT&T CEO Randall Stephenson certainly understands why investors and analysts will ask if a merger was necessary to capture certain benefits of cooperation between the two entities.  Here is an excerpt from yesterday's Wall Street Journal:

AT&T’s Mr. Stephenson said owning content would make it easier for the carrier to adapt to various platforms quickly in a way that is time-consuming and difficult when it has to negotiate contracts with content partners. “It’s slow, it’s painful, just the contracting itself takes a lot of time whereas when it’s completely owned, you just move a lot faster,” he said Monday.

He might be right, but has he captured the whole story?   Stephenson essentially is arguing that the transaction costs of using market mechanisms (such as contracts) to work with content partners are very high.  He believes that the costs of such coordination are lower if the two entities are part of the same corporation.  Simply put, he believes you can accomplish coordination more easily and more quickly through managerial mechanisms than through market mechanisms.   Is that right?  Well, anyone with experience managing a large vertically integrated firm will tell you that coordination between business units owned by the same parent company is not always so easy or fast.  Bureaucracy, transfer pricing disputes, silo rivalry, and other problems can make life pretty difficult. Moreover, vertical integration reduces flexibility at times to work with desirable outside partners or to change business models, and it puts you in the awkward position of competing with your own customers.   The regulatory landscape also complicates the deal.  As the Wall Street Journal explains, "Analysts note that many of the attractive aspects of owning content—such as keeping it out of the hands of other distributors or giving it free distribution—would be barred by regulators."

In addition to examining AT&T's rationale, I've been considering the perspective of Time Warner in this deal. Time Warner CEO Jeff Bewkes has spent the past decade dismantling a prior failed attempt at vertical integration at his firm. He broke apart the AOL-Time Warner combination, and he divested Time Warner's cable operations. Why then sell yourself to a distribution company now? (ok, the hefty takeover premium is the obvious financial reason!). In particular, it seems odd given that Time Warner has begun to sell its premium content directly to consumers, bypassing the traditional cable operators (e.g., HBO Now). I understand that the content creators have been worried about millennials cutting the cord. Witness ESPN's shrinking subscriber base - clearly a concern at Disney these days. Time Warner surely faces such concerns with some of its content, though perhaps not with a premium network such as HBO. I'm not sure, though, that selling to AT&T solves this fundamental problem. Do we think that innovative new entertainment industry business models will emerge from such a large complex entity, or is it more likely to occur from newer, more nimble players in the industry?

Whom Do We Follow? Choosing Our Leaders Wisely

Stanford Graduate School of Business organizational behavior professor Lindred Greer has conducted some excellent research on team dynamics. In this article on the Stanford website, Luke Stangel describes one interesting class exercise that Greer has conducted. The exercise reveals that we do not always choose our leaders wisely.  Here's an excerpt from that article:

In top-down team structures, the leader holds more influence than others over the eventual decision. That’s dangerous when the team’s leader knows less about the subject than his or her team, Greer says.

She described a class exercise where Stanford undergraduates were asked to choose the smartest person in the room to lead them out of a theoretical desert. Researchers found roughly 50% of students were persuaded to choose a leader based on the person’s attractiveness, height, vocal intonation, facial features, gender and other arbitrary factors.

Students who chose their leader based on relevant knowledge “survived” the exercise; those who chose their leader based on arbitrary factors didn’t.

“When you’re in a meeting and everybody’s speaking up, it’s critical to make sure you’re listening to the right person,” Greer says. “That may not always be the tallest person or the person with the most seniority. It’s the person who knows most about this particular situation. That’s the challenge of teamwork: It’s going to change moment to moment, based on the discussion.”

Combining Intuition and Analysis

We live in an age of big data.  People have become enamored with the use of analytics to solve complex problems and to make better decisions.  I'm a big believer in analytics, but I hope we don't forget that intuition does play an important role in decision-making processes.   In the video below, I explain briefly what intuition is and how it works.  

How can we combine intuition and analysis to help us make better choices?  Here are four ways that the two modes of thinking can complement one another.  

1. Use analysis to check your intuition, but not simply to justify decisions that have already been made 
2. Use intuition to validate and test the assumptions that underlie your analysis 
3. Use analysis to explore and evaluate intuitive doubts that emerge as your prepare to make a decision 
4. Use the intuition of outside experts to probe the validity of your analysis

Lands' End CEO Pushed Out: Culture Eats Strategy For Lunch

The Wall Street Journal reported last week that Federica Marchionni was forced out as CEO of Lands’ End Inc. after only 19 months on the job.   The news did not surprise me given the faltering performance at the firm and the controversy surrounding her leadership.   Six months ago, I wrote a blog post about her effort to turn around Lands' End.   In that post, I referred to some comments by Columbia Professor Rita McGrath, who questioned whether the Lands' End scenario would unfold much like the situation at J.C. Penney when Ron Johnson tried unsuccessfully to engineer a turnaround.  I was particularly taken aback at the time by Marchionni's choice to work out of an office in New York, while only spending one week per month at the firm's headquarters in Wisconsin. At that time, the Wall Street Journal reported, "As part of her contract, the Lands’ End board agreed to let Ms. Marchionni work primarily from an office in New York’s garment district—an arrangement that rubbed some in Dodgeville the wrong way, according to former employees. Her employment agreement says she must be in Wisconsin for holiday parties and other social events that the Lands’ End CEO “historically has attended.” 

To me, the scenario at Lands' End reminded me of the old saying:  Culture eats strategy for lunch.  You can have a bold vision, but you will not succeed as a leader if you can't build buy-in and commitment from people throughout the organization.   How could working from an office halfway across the country have sounded like a sensible way to build support for her turnaround?   There's a bigger issue here though.  Like the J.C. Penney scenario with Ron Johnson, Marchionni did not spend sufficient time understanding the culture, building a coalition of supporters, and making people feel a sense of involvement and ownership with regard to the turnaround plan.   The best turnarounds involve people throughout the organization believing that it's their plan, not simply the CEO's plan.  Sometimes, the CEO has to set the organization on a new course.  Still, the CEO can consult with employees to determine the best way to make that shift, to execute those plans, and to achieve key goals and objectives.   You can tell them what to do differently, but still ask for their input as to how to implement that strategic shift.   

Great Teams: An Interview with Don Yaeger

I had the opportunity recently to interview Don Yaeger, the former Associate Editor of Sports Illustrated and author of twenty-five books, nine of which have become New York Times best-sellers. His newest book is titled, Great Teams: 16 Things High Performing Organizations Do Differently.  Here are his responses to my questions.  As a Patriots fan, I especially loved his answer to my final question! 

1.  You focus in the book on the notion that great sports teams build a strong high-performance culture. You say that matters more than having the right offensive or defensive schemes and strategies. Can you describe the most important elements of a high-performance culture?

Don Yaeger: Culture is a buzzword that is all over the business publications these days, so I think it’s important to define it. In considering how the word specifically applies to a team setting, I came up with two possible definitions: 1) the conditions within the organization that promote either growth or failure and 2) the shared understanding of what to do in adverse situations. The effort to achieve that culture can be broken down to four essential pillars that I believe set a truly Great Team apart from one that simply performs well.

• Targeting Purpose— The team is connected to a greater purpose. Members understand whom they are serving and why that matters.

• Effective Management— The team is able to think creatively and act dynamically in order to stay fresh, effective, and relevant. 

• Activating Efficiency— Each member of the team brings a unique set of talents, experiences, perspectives, work ethic, personality traits, and know- how that melds with and complements those of the other team members. 

• Mutual Direction— There is a strong sense of understanding, appreciation, shared responsibility, and trust that unites and motivates the team to work together.

After studying the subject carefully and discussing it with truly great leaders, I found sixteen defining characteristics that special teams— the ones that are in a class by themselves, that accomplish more than just a winning season or a successful fiscal year, that pack extra punch and bring a degree of excitement to what they do— all share. These traits can be worked on independently by individual team members, but the truly outstanding teams use them to build on one another. Organizations that exhibit real greatness combine talent, relationships, and innovation in a variety of ways for the sake of achieving a shared goal. 

Great Advice For Writing Cover Letters

You are applying for that job you would really love to nab.  You have created a strong resume. Now comes the cover letter. What should it say?  How should you communicate your skills and experiences in a way that the reader will find compelling?  At Fast Company this week, Sara McCord has written an unbelievably good article about the mistakes that people often make when drafting cover letters.  She offers some great tips for how to strengthen your letter, grab a recruiter's attention, and make yourself stand out from the crowd.   

First, McCord argues that you have to get the basics write.  Make sure you proofread carefully.  Typos, spelling errors, and grammatical mistakes are all disqualifying immediately.  Address your letter to a specific person by name.  Don't address it, "Dear Sir or Madam."   Don't just thank the recruiter for considering you; make the case that you are the perfect fit given the requirements of the position and the culture of the company.   

Second, come up with a killer opening sentence that grabs the reader.  Don't start with, "I'm interested in applying for the marketing analyst position at your firm."  Instead, she suggests writing an opening sentence that makes the reader to want to know more about you.  She offers three examples:

• I’ve wanted to work in education ever since my third-grade teacher, Mrs. Dorchester, helped me discover a love of reading.
• My approach to management is simple: I strive to be the kind of leader I’d want to work for.
• In my three years at [prior company], I increased our average quarterly sales by [percentage].

Finally, she argues against compiling a laundry list of your skills in the cover letter.  Instead, focus on what distinguishes you from other applicants.  Don't just talk about skills.  Provide anecdotes, examples, and descriptions of experiences that illustrate the talents and capabilities you would bring to the position.  

McCord's article is a must-read for anyone applying for a job.  I would add one important piece of advice to her suggestions. You must know your audience!  Take some time to learn about the culture of the company.   That research will help you understand the approach you should take.  Can you be light-hearted or humorous?  The answer is simple: it depends.  Doing your homework on the company culture will help you find the right tone and format for that cover letter.  

Etsy Engineers Share Their Failures in Company-Wide Memos

Many organizations exhibit of culture of blame and shame when it comes to failures.  In a case study that I co-wrote with Amy Edmondson years ago, a doctor described the "ABCs of medicine" - in the past, he said, health care practitioners and administrators tended to Accuse, Blame, and Criticize when it came to medical accidents and mistakes.  Yesterday, I read a fascinating article about one firm's attempt to transform its attitude toward failure.  Etsy has tried to create a culture that encourages people to acknowledge, discuss, and learn from failures.   Here is an excerpt from the  article posted on Quartz: 

In a conversation yesterday (Sept. 17) with Quartz editor-in-chief Kevin Delaney, Etsy CEO Chad Dickerson revealed that people at the company are encouraged to document their mistakes and how they happened, in public emails.  “It’s called a PSA and people will send out an email to the company or a list of people saying I made this mistake, here’s how I made that mistake, don’t you make this mistake,” Dickerson said. “So that’s proactive and I think really demonstrates that the culture is self perpetuating.”  He was referring to the company’s efforts at practicing a “just culture,” based on the idea that blamelessness makes people more accountable, and more willing to admit mistakes.As described by Etsy CTO John Allspaw in an Etsy blog post, engineers (and now others at the company) who mess up are given the opportunity to give a detailed account of what they did, the effects they had, their expectations and assumptions, and what they think happened. And, crucially, they can give that account without any fear of punishment or retribution, in what’s called “a blameless post-mortem.”

I love this technique!   Etsy has done something quite remarkable here.  They are not simply demonstrating tolerance for failure.  They are not simply avoiding the tendency to point fingers when failures occur.  Etsy has gone one step further with this practice.  They are encouraging serious self-reflection on the part of their people.   The employees do  more than admit a mistake in these PSA e-mails.  They describe what happened and they analyze why events did not transpire as they had hoped or expected.  The review and analysis provides the opportunity for improvement, not only for themselves, but for others throughout the organization who read these PSAs.