Friday, May 26, 2017

Why Being #1 Should NOT Be Your Goal

This morning Kathy Chu wrote a Wall Street Journal article titled, "China's Lenovo to Reboot  After Losing PC Crown to HP."   Chu writes:

China’s Lenovo Group is shaking up its operations as it seeks to reclaim the title of global leader in personal computers and shore up its smartphone business.   For the first time in four years, Lenovo—a company that gained acclaim a decade ago for turning around storied U.S. personal-computer maker International Business Machines Corp.—slipped from the top spot this year to No. 2 in the personal-computer market, behind rival HP Inc.  Lenovo has also fallen to No. 8 in the number of smartphones shipped globally, from No. 3 when it acquired another U.S. brand, Motorola, in late 2014.

When I read this article, I asked myself:  Why do firms obsess with being #1 in their market?  Or, perhaps more specifically, why do they obsess with being #1 in market share in their industry?  Yes, Lenovo held the top spot in the personal computer industry for the past four years.  What precisely did that mean for them?  Well, I checked their Annual Report.  Last year, the company reported a net loss.  During the previous year, they generated a slim profit (1.79% profit margin).    Before that, the margins ranged from 1.6% to 2.1% from 2012-2014.  In short, Lenovo has made very little money over the past five years.  Perhaps, you might argue, they generated a decent return on assets despite the low margins.  With strong asset turnover as a low cost producer, they might produce a good return on assets.  Not so much... in 2015, their ROA equaled 3%.   We should not be surprised by these results.  It's not necessarily an indictment of management.  The personal computer industry is one of the lowest profit industries on earth.  If you perform a five forces analysis, you conclude rather quickly that all the elements of the industry structure point to low returns.  It's a very unattractive industry.  

The lesson: Don't obsess over market share.  Don't worry so much about being #1 in volume.  Think instead about the structure of your industry.  If you are in an unattractive industry, you might not want to be #1 in market share. Instead, you may want to find profitable niches and segments within that industry.  By focusing there, you might not lead the industry by volume, but you may produce stronger returns for investors.  

Thursday, May 25, 2017

How To Think About Goals Over Time

Researchers have conducted some interesting new work on goal-setting and achievement.   Insights by Stanford Business summarizes the findings of research conducted by Szu-chi Huang, Liyin Jin,, and Ying Zhang:

New research by Szu-chi Huang, assistant professor of marketing at Stanford Graduate School of Business, finds that while people benefit from concentrating on small “sub-goals” in the early stages of a pursuit, they should focus instead on the larger objective in the late stages. That notion could be important to any business that entices consumers and employees to set goals, whether as part of an incentive program or service offered.

“When you are just starting a pursuit, feeling reassured that it’s actually doable is important, and achieving a sub-goal increases that sense of attainability,” Huang says. But later, people are no longer concerned about attainment and need to feel that their actions continue to be worthwhile in order to maintain motivation.  “At that point, to avoid coasting and becoming distracted, they need to focus on that final goal to see value in their actions,” Huang says. 


The research appears very consistent with the work on small wins.  You need to have those sub-goals, because small wins are important during any transformation process or challenging task.  However, you need to have the broader vision as well.   This work adds nicely to our understanding of how small wins work by describing the important shift that has to happen over time from small sub-goals to broader objective.

Thursday, May 18, 2017

Advice for Graduates (2017)

At this time of year, I've always shared an old blog post with some advice for those young people graduating from college.  This year, I thought that I would share a new post.  Here goes... 

I want to tell you a story about Retired U.S. Navy Captain D. Michael Abrashoff.   Twenty years ago, in June 1997, Captain Abrashoff became the Commander of the USS Benfold, a guided missile destroyer.  Unfortunately, the USS Benfold was a seriously dysfunctional ship.  Morale was quite low, and many sailors could not wait to leave the Navy.   Captain Abrashoff has described how he led a remarkable turnaround on the USS Benfold.  I love the stories that he tells in his book, It's Your Ship: Management Techniques from the Best Damn Ship in the Navy.  

My favorite story centers on the Sunday afternoon cookouts on the aft flight deck of the USS Benfold.    One day Captain Abrashoff noticed the enlisted men waiting in line patiently for their food at one of these cookouts.  Then he watched as the officers cut in line, rather than waiting their turn.  The officers then ate together, separate from the enlisted men.  What did the Commander do?  He went to the back of the line.  One officer approached him, "Captain, you don't understand.  You go to the head of the line."  Abrashoff responded, "That's okay.  If we run out of food, I will be the one to go without."  When the Commander finally received his food, he went to sit with the enlisted men, rather than his officers.   Note that Abrashoff did not chastise his officers or reprimand them for their behavior.  He simply chose to enjoy a quiet lunch with the sailors whose morale had been so low when he took over.   On the following Sunday, the officers waited patiently at the back of the line, and they did not go off and eat by themselves.  How about that?! 

What's the morale of this story for young people beginning their careers after commencement this month?   Be the type of person who understands that leaders don't cut to the front of the line.  Lead by example, not simply by harsh words and reprimands.   Take the time to sit with those doing the real work.  You might learn a new thing or two... no, you WILL learn a thing or two.  Finally, remember that all eyes will be on you when you become a leader.  Your words and actions will have great symbolic importance.  Mind the signals that you send.  Small actions will say a great deal to others about who you are and what you value.  

Wednesday, May 17, 2017

More CEOs Fired for Ethical Lapses

The Wall Street Journal reported this week on new research from Strategy&, the consulting practice of PWC, about CEO dismissals. The researchers found that more CEOs are being fired these days due to ethical transgressions. According to the newspaper, "CEO ousters due to ethical lapses—either their own improper conduct, or their employees’—are climbing. Such forced exits rose to 5.3% of CEO departures in the 2012-to-2016 period, up from 3.9% during the previous five years." 

 The article goes on to quote Per-Ola Karlsson, a Strategy& partner, about the reasons for this uptick in such firings. Karlsson argues that the trend is not the result of an increase in unethical behavior. Instead, Karlsson cites the rise of social media, the loss of trust in institutions as a result of the scandals from the 2007-2009 period, and the enhanced attention from regulators as reasons for the increase in dismissals. The bottom line - for whatever the reason, CEOs are being held accountable for ethical lapses.  That's a good thing.  It shows that they can't escape from responsibility for flawed decisions that due harm to consumers and other stakeholders.   The data suggest that CEOs should have all the more reason to be highly vigilant about uncovering hidden risks in their organizations, welcoming those who wish to share bad news, and demonstrating transparency when problems do surface.  

Tuesday, May 16, 2017

Should You Sit Next to a High Performer at Work?

New research by Michael Housman and Dylan Minor examines the impact of sitting next to a high performer at work.  They discover important "spillover" effects.  In fact, these spillover effects can occur in both a positive and negative direction.  Here's an excerpt from Kellogg Insight about their research:

Researchers looked at the 25-foot radius around high-performers at a large technology firm and found that these workers boosted performance in coworkers by 15 percent. That “positive spillover” translated into an estimated $1 million in additional annual profits, according to new research from Dylan Minor, an assistant professor of managerial economics and decision sciences at the Kellogg School.

Of course, the flipside is that bad eggs impact their neighbors, too. Negative spillover from so-called toxic workers is even more pronounced—sometimes having twice the magnitude of impact on profits as positive spillover. Yet, while this toxic spillover happens very quickly, it also dissipates almost immediately once that worker is either fired or relegated to the far physical reaches of the company.

Friday, May 12, 2017

The Power of a Nudge: Persuading People to Take the Job

Knowledge@Wharton profiles some interesting new research regarding how to persuade people to commit to a new endeavor such as a job. Clayton Featherstone and Judd Kessler have written a paper titled, “Can Social Information Affect What Job You Choose and Keep?"   They studied Teach for America, and they conducted an experiment to see if they could convince more young people to sign up for the program.   Featherstone explains the research:    

Teach for America tries to place teachers in schools. If you’re admitted to the program, you get an email that says something like, “Congratulations, you’ve been admitted to Teach for America. You’ve been assigned to wherever. We hope you’ll join us.” That email is how they communicate that you should join Teach for America. The sentence we added to the email was, “Last year, 84% of people in your position chose to join Teach for America. We hope you will as well.” We found that one sentence was actually pretty powerful in inducing extra people to join. That sentence is a canonical example of social information. Basically, when I’m thinking about doing something, I might be interested in what others in my situation have chosen to do in the same way.

Now you might wonder if these people were convinced to join, but later dropped out as teachers in the program.  In fact, the scholars found that these people stayed on in their positions.  The small inducement via social information had long term positive consequences.  You can begin to see the implications for other situations, not simply letters to candidates who have been offered a job.   Of course, the power of social information has to be used with care.  You would not want to persuade someone to do something which is not ultimately good for them or the organization.  One wonders too whether the effect is pronounced here due to the age of the people in the study.  We are all shaped and affected by social information, but might the effect be larger for younger people?  

Monday, May 08, 2017

Learning Strategies: Is Talking to Yourself Crazy or What?

Ulrich Boser has written an interesting piece for Harvard Business Review regarding learning strategies.  Boser argues that our ability to learn new skills and assimilate large amounts of new information has become very important in today's economy.  We have to be lifelong learners to adapt and grow as our companies and our jobs change.  Boser reviews the work of University of Illinois psychologist Brian Ross, who has conducted some fascinating research on how we learn.   Boser tells the story of how Ross decided to take a computer science course.  Ross chose to employ a learning strategy called self-explaining to try to master the class.  Boser explains the strategy:

The approach revolves around asking oneself explanatory questions like, ”What does this mean? Why does it matter?” It really helps to ask them out loud. One study shows that people who explain ideas to themselves learn almost three times more than those who don’t.  To help him outperform his younger colleagues, Ross asked himself lots of questions. He would constantly query himself as he read through the assigned texts. After each paragraph, after each sentence, he would ask himself: “What did I just read? How does that fit together? Have I come across this idea before?”  By the end of the course, Ross had found that, despite his relative inexperience and unfamiliarity with computers, he could answer many questions that the other students couldn’t and understood programming in ways that they didn’t. “I sometimes had the advantage,” he told me. “I was focused on the bigger picture.”

Far too many of us continue to believe that reading and re-reading a text provides the best mechanism for digesting new material and accumulating new knowledge.  We whip out our highlighter and brighten the pages of those books, thinking that these colorful additions to the text will help us remember key nuggets.  It doesn't work.  Recent advances in learning research show that other strategies are far more effective than reading and highlighting.  These studies show that we must force ourselves to recall what we read.  We have to quiz ourselves.  We have to summarize and synthesize what we have heard and read.  We have to do something with the information that we are trying to digest.   In short, we need to be much more active in our learning strategies, rather than passively reviewing material.   These strategies work well for students, but they also work well for adults on the job, as we try to develop and enhance our skills and as we take on new roles.  

Wednesday, May 03, 2017

Edward Lampert & The Demise of Sears

Earlier this year, Sears acknowledged publicly for the first time that bankruptcy might be a possibility.  The two charts shown here document the financial deterioration over the past decade.  Many people have placed substantial blame at the feet of CEO Edward Lampert.  In Forbes last year, Adam Hartung wrote about the unwillingess of Lampert to welcome and listen to dissenting views.  

Source:  Company 10K Filings

Mr. Lampert had no time for staff who did not see things his way. Mr. Lampert wanted his management team to agree with him - to confirm his Beliefs, Interpretations, Assumptions and Strategies -- to believe his BIAS. By seeking managers who would confirm his views, and execute rather than disagree, Mr. Lampert had no one offering alternative data, interpretations, strategies or tactics. And, as Mr. Lampert's plans kept faltering it led to a revolving door of managers. Leaders came and went in a year or two, blamed for failures that originated at the Chairman's doorstep. By forcing agreement, rather than disagreement and dialogue, Sears lacked options or alternatives, and the company had no chance of turning around.



Source: www.bigcharts.com
Of course, others have argued that Sears' culture had become insular long before Lampert took over.   Fortune writer Geoffrey Colvin wrote about an incident in the early 1990s, when Edward Brennan served as the firm's CEO:


At this same time, shareholder activist Robert A.G. Monks launched a campaign to get elected to the Sears board and to reform its rules; he even ran a full-page ad in the Wall Street Journal headed “The Directors of Sears, Roebuck and Co.: NON-PERFORMING ASSETS.” When he was finally granted an audience with Sears CEO Ed Brennan in his 90th-floor office in the Sears Tower (now the Willis Tower), the functionary escorting Monks in the elevator reportedly said, “This is the first time bad news has made it above the 78th floor.” Star consultant Ram Charan asks CEOs if they’re hearing lots of bad news. Why? Every company has lots of bad news, he tells them, and if you’re not hearing it, something’s wrong.

Tuesday, May 02, 2017

Strategy at McDonald's: Cheaper or More Premium?

Venessa Wong has written an interesting article about McDonald's for Buzzfeed.  Here is an excerpt: 

McDonald's spends a lot of time and money rolling out "premium" products like design-your-own burgers and ambitious, leafy wraps. But time and time again, the chain is rewarded most when it goes cheap.  It's a tough reality for a restaurant giant whose CEO loves to share his vision for "a modern, progressive burger company," and invests in store remodeling, digital technology, and ingredient overhauls like upcoming switch from frozen to fresh beef by 2018.

Yet amidst this much hyped transformation, guest numbers have been declining for years. "When value is customer-focused and locally-relevant, it drives guest counts, period," McDonald's CEO Steve Easterbrook recently said on an investor call. Even as the chain tools around with guacamole and artisan grilled chicken sandwiches, it needs to focus on value, he said, "whether customers have a couple of bucks in their pockets or a few more than that."

It raises questions about how far McDonald's can really innovate. The McDonald's "concept succeeds best when leaning into core competencies," analysts at Cowen and Co. wrote in a report in April, such as selling Egg McMuffins all day long, or offering bigger and smaller versions of the Big Mac. Going upscale was not on that list, and few people think of McDonald's when they're craving guacamole. They think of it when they want ten chicken nuggets for $2.

Consider some recent flops. McDonald's launched Premium McWraps in 2013, and they failed. Mighty Wings — which cost almost $1 per wing — failed in 2013. The chain made a splashy foray into build-your-own burger territory with the Create Your Taste menu in 2014 — and that will be pared down to a smaller menu with fewer choices this May.

McDonald's faces a thorny strategy challenge.  It is a low cost player faced with erosion of customers and revenue, as more premium fast casual players have entered the market (think Five Guys, Smashburger, Panera, etc.).   People have criticized the firm's food as unhealthy and unnatural.  Should it try to enhance quality and offer more premium products in response to this trend?  Some would say yes; they should follow customer and societal trends.  Yet, those trends cut against much of what they do well.  They have been a successful low cost player for decades, emphasizing speed of service and low prices.  Of course, if they just "stick to their knitting," they must end up a dinosaur.  What can a firm in such a predicament do?   

What they certainly don't want to do is straddle... i.e get caught stuck between a low cost position and a more premium, high quality position in the market.  They will have to make tough choices.  If they don't, they'll lose to fast food places offering more value at the bottom end, and fast casual chains offer more quality at the higher end.  One interesting question:  Could a corporate strategy move be the solution?  In other words, what about launching a new business unit that leveraged the company's core strengths, but enabled it to find new growth?  That's a tough move too perhaps.  They did own a large stake in Chipotle after all, and they divested that stake because it was difficult to manage the tensions between the two very different operating models.  Still, a separate chain might enable them to experiment without confusing customers who have a fixed view of the McDonald's brand.  It will be interesting to watch the firm's next moves.    

Sunday, April 30, 2017

Time is Money: Does Thinking This Way Elevate Stress Levels?

Stanford Professor Jeffrey Pfeffer and Berkeley Professor Dana Carney have conducted some interesting new research on stress.  They examined the impact of thinking about the value of your time.   When we think of "time as money," we become significantly more stressed.  That's bad for us as individuals and bad for the organizations in which we work.  Stanford Insights summarizes the findings:  

Pfeffer’s most recent research, coauthored with Dana R. Carney from the Haas School of Business at the University of California, Berkeley, demonstrates the physiological consequences of the economic evaluation of time. Their study concludes that people who are keenly aware of the economic value of their time — people who think of time as money — generally are more psychologically stressed and exhibit higher levels of the stress hormone cortisol that do people for whom the economic value of time is less salient.

Why do stress levels matter?   Clearly, stress is not good for worker's health.  In turn, an individual's  health condition affects his or her productivity.   We don't want employees to experience burnout, both for their sake and for the benefit of the firm as a whole.  

Friday, April 28, 2017

It Pays to Plan

You are an aspiring entrepreneur.  You would like to launch a startup.  You've been hearing that writing a business plan is over-rated.  You just need to do it.  Mistakenly, some have counseled you that adopting a learning by doing approach somehow means not planning at all.    New research by Francis Greene and Christian Hopp explores the question of whether it "pays to plan" as an entrepreneur.  Their paper, published in the Strategic Entrepreneurship Journal, is titled, "Are formal planners more likely to achieve new venture viability?: A counterfactual model and analysis." Greene and Hopp summarize their findings in the abstract of their paper:

Our results, using data on 1,088 founders, identify two key results: selection effects matter in the decision to plan; and it pays to plan. This study assesses if founders that write a formal plan are more likely to achieve new venture viability. This is important because, despite its popularity, there is considerable debate about the value of plans. One root reason for this is that what prompts a founder to plan also impacts on their chances of creating a viable new venture. The study's novelty is to separate out influences on the decision to plan from the plan-venture viability relationship. Our results show that better educated founders, those wanting to grow and innovate, and those needing external finance are more likely to plan. Subsequently, having isolated what prompts planning, we assess if writing a plan actually promotes venture viability. We find that it pays to plan.

Tuesday, April 25, 2017

Connecting People's Work to the Mission and Vision of the Organization

We hear quite often these days that leaders need to instill a sense of purpose in their organizations. People have to believe that they are doing meaningful work.  They have to understand why the organization exists and what beyond profit is the goal of the firm.  In an interview for Knowledge at Wharton, Professor Andrew Carton talks about an important part of this process. He talks about how important it is to connect the broad vision of the firm to the actions of individuals on the front lines.  That connecting process is crucial.  People have to see how their work connects to the bigger picture.  How are they specifically contributing to the mission even if they are not interacting with the customer every day or doing what they perceive to be the glamorous work in the firm?  

What I found is that it’s absolutely critical that leaders do depict a compelling picture of where ultimately we want to go. But just as important — and also more time consuming and requiring even more investment — is that they communicate about how each employee in the organization can get a sense of how their work connects to the organization’s mission or vision. That process of connection-building took more steps and was more time intensive and more complex than the process of just selling somebody about the importance and beauty of this ultimate goal that we’re trying to achieve together. In some sense, that was the easy part. The hard part is helping people see a connection between their work and the organization’s mission.

Monday, April 24, 2017

Positive vs. Negative Feedback

Ayelet Fishbach, Tal Eyal, and Stacey R. Finkelstein have written an interesting research paper titled, "How Positive and Negative Feedback Motivate Goal Pursuit."   They examined the usefulness of positive and negative feedback.  They conclude that timing matters. Moreover, it matters whether you are evaluating your commitment to a particular pursuit (positive feedback more helpful), or whether you are evaluating your progress toward a goal (negative feedback more helpful).  The authors explain: 

We propose that whether people wish to evaluate their commitment or pace of pursuing a goal influences whether positive or negative feedback is more effective. Our theory further predicts that the question people ask themselves (‘am I committed?’ versus ‘am I making sufficient progress?’) shifts over the course of pursuing a goal. People often start by evaluating commitment and then shift to monitoring progress as they gain experience or expertise in a goal domain. They make this shift because novices feel uncertain about their level of commitment, whereas experts are already committed and wish to monitor their rate of progress. One consequence of this shift is that novices should increase their efforts in response to positive feedback on their successes, and experts should increase their efforts in response to negative feedback on their lack of successes.

The authors describe a series of studies on this topic.  As an example, they examined student choice of instructors for French classes.  They found that beginner students preferred instructors who offered positive feedback.   Advanced students preferred instructors who offered more negative feedback.  

What's the lesson here?  If someone is just starting out on a challenging new task, they may want and need encouragement.  They could use more positive reinforcement than negative feedback.  However, as they begin to move toward mastery of that task, they need more negative feedback so that they can continue to improve.  

Friday, April 21, 2017

Are Job Interviews Utterly Useless?

Jason Dana, Assistant Professor of Management at Yale, wrote a thought-provoking piece for the New York Times this past week.  The title of his article: "The Utter Uselessness of Job Interviews."  Dana argues that people draw conclusions from interviews based on a variety of factors, yet in many cases, these conclusions are unwarranted or flat-out wrong.  In his article, Dana explains the findings from his experimental research. He began by conducting an experiment in which people were asked to predict a student's future GPA.   They had an opportunity to review each student's past GPA as well as the student's course schedule.  The research subjects also had an opportunity to interview these students.  The research subjects also tried to predict future GPA for some students who they did not interview.  Amazingly, they predicted GPAs more accurately in the case of the students who did not participate in interviews.  In a second experiment, they instructed half of the interviewees to answer each question posed by the interviewer honesty.  The other half of interviewees were told to answer the questions randomly.   Dana reports a startling finding: "The students who conducted random interviews rated the degree to which they 'got to know' the interviewee slightly higher on average than those who conducted honest interviews."  What's the lesson here? Dana argues, "The key psychological insight here is that people have no trouble turning any information into a coherent narrative....People can't help seeing signals, even in noise."  

Wednesday, April 19, 2017

Identifying High Potentials in Your Organization

Many organizations seek to identify their high potential employees.  They provide them good opportunities for growth and development and interesting work assignments.  Firms typically invest a great deal in their high potential employees.  A recent article in Harvard Business Review suggests that many firms may be going about this process all wrong.  They might not be selecting the right people as their high potential employees.  

Jack Zenger and Joseph Folkman, leaders of the Zenger/Folkman leadership development consulting firm, wrote recently about a study they conducted at three companies.  They studied nearly 2,000 high potential employees at these firms.   Zenger and Folkman used a 360 degree feedback instrument to evaluate the leadership effectiveness of these individuals.  Amazingly, they found that 42% of these high potentials scored below average on leadership effectiveness.  12% of the high potentials ranked in the bottom quartile.  

What's going on?  Zenger and Folkman argue that companies are selecting high potentials using the wrong criteria in many cases.   They maintain that many firms select based on technical and professional expertise.  Moreover, they examine whether people can deliver results, meet commitments, and fit the organizational culture.  Unfortunately, many of these traits might make someone a strong individual performer, but not an effective team leader.  

Tuesday, April 18, 2017

Strong Opinions, Weakly Held

Jessica Stillman writes this week in Inc. about a new research study conducted at Duke University.  Mark Leary and his colleagues conducted a series of studies examining the impact of "intellectual humility." Stillman writes, " In everyday language, it means the willingness to accept that you might be wrong and to not get defensive when arguments or information that's unfavorable to your position comes to light. And according to this new study, those who lack this quality make markedly worse choices that those who have it in abundance."  

Stillman notes that others have written about this concept previously, though this research at Duke provides strong statistical evidence of the impact of intellectual humility.   An article published on Duke's website cites some of the key findings:  "People who displayed intellectual humility also did a better job evaluating the quality of evidence -- even in mundane matters. For instance, when presented with arguments about the benefits of flossing, intellectually humble people correctly distinguished strong, fact-based arguments from weak ones."

Stillman notes that Stanford's Bob Sutton wrote about intellectual humility a decade ago, and he explained using a phrase made famous by people at the Institute for the Future in Palo Alto, California.  I love the phrase as it conveys the essence of intellectual humility.  Sutton explains that people should have "strong opinions, weakly held."  Here is Sutton's full explanation of this phrase:

Perhaps the best description I've ever seen of how wise people act comes from the amazing folks at Palo Alto's Institute for the Future... they advise people to have "strong opinions, which are weakly held." They've been giving this advice for years, and I understand that it was first developed by Institute Director Paul Saffo.

Bob explained that weak opinions are problematic because people aren't inspired to develop the best arguments possible for them, or to put forth the energy required to test them. Bob explained that it was just as important, however, to not be too attached to what you believe because, otherwise, it undermines your ability to "see" and "hear" evidence that clashes with your opinions.

Friday, April 14, 2017

Framing the Question: Improving Your Brainstorming Session

I listened recently to a Stanford Innovation Lab podcast with Professor Tina Seelig. During this episode, she interviews Emily Ma from Alphabet.  They discuss the keys to an effective brainstorming session.  During their discussion, they focused on important it is to frame the question properly at the outset of a brainstorming meeting.  For instance, Seelig and Ma describe the question:  "How might we create an awesome birthday party for our friend?"   Then they talk about how you might reframe the question with a slight change in word choice. What if you used the word "celebration" instead of "party" in your "How Might We" question?  The word "party" might have framed the question too narrowly.  Changing the word to "celebration" could invite a much wider range of ideas.   This example reminds us that we should be careful about our word choices.  However, we also have to consider multiple frames as we pose the question(s) that initiate our brainstorming sessions. 

Thursday, April 06, 2017

Would Anyone Miss Your Company?


Columbia Business School Professor Rita McGrath sent out a terrific tweet several days ago.  She offered a thought about Macy's, the department store struggling to adapt to the new business environment in which find themselves.  Macy's faces multiple threats these days, including e-commerce, as well as more nimble specialty retailers that pursue "fast fashion" strategies.  I have posted McGrath's tweet here.  What an awesome concept!   Who would miss Macy's if they disappeared tomorrow?  What customers find them indispensable? What customers are highly devoted to Macy's and why?  What do people get at Macy's that they cannot get anywhere else?  Every firm should be asking this question.  It truly challenges management to consider what makes their organization truly distinctive.  



Meg Whitman: The Right Approach Early in Your Career

Friday, March 31, 2017

Creating a Culture of Trust

Paul Zak has published an article in Harvard Business Review titled, "The Neuroscience of Trust." Zak opens by stating, 

In my research I’ve found that building a culture of trust is what makes a meaningful difference. Employees in high-trust organizations are more productive, have more energy at work, collaborate better with their colleagues, and stay with their employers longer than people working at low-trust companies. They also suffer less chronic stress and are happier with their lives, and these factors fuel stronger performance.

He goes on to explain how he has conducted research on the neuroscience of trust. Zak has conducted numerous experiments measuring the brain chemical oxytocin to gain a better understanding of "why trust varies across individuals and situations." He's also conducted survey research in numerous organizations. Through his research, Zak has identified eight factors that enhance trust in organizations. 

1. Leaders must recognize excellence publicly. 
2. Leaders should provide people challenging work. 
3. Leaders ought to give people some autonomy with regard to how work gets done. 
4. Leaders should give people some say with regard to which tasks they perform. 
5. Leaders ought to share information about the firm's goals, strategies, and performance. 
6. Leaders have to show people that they care about them. 
7. Leaders should promote the personal and professional development of their employees.
8. Leaders should not be afraid to ask for help when necessary. 

Thursday, March 23, 2017

What's the Best Incentive Compensation Strategy for Salespeople?

Harvard Business School Professors Doug Chung and Das Narayandas have conducted an interesting new study about compensation schemes for salespeople.  They conducted a field experiment with a Swedish electronics retailer.   The firm used a monthly quota system to motivate and reward salespeople.   The scholars tested the effect of shifting to a daily quota system.  What did they find? Overall revenue increased with the installation of a daily quota system. HBS Working Knowledge summarizes their conclusions:


They found that sales productivity increased by 4.9 percent, on aggregate, under the daily quota scheme. But the results were more dramatic among the lowest quartile of salespeople—those with the worst recent sales records in the company. That group saw an 18 percent increase in sales productivity under the daily quota.

Chung explains that low performers are susceptible to falling behind in a monthly quota scheme, becoming less motivated or less capable of meeting their quota the further they fall back. “So they just give up,” he says.

A daily quota, on the other hand, provides “a fresh start every day in which past performance does not affect current payoff and thus does not disturb current motivation,” the researchers write. “For high-performing salespeople, because they are more immune to the disutility of effort, even if they experienced bad luck earlier in the month, they would put in the additional effort necessary later in the month to meet their monthly quotas.”


However, this finding is not the end of the story.  The scholars also examined the type of products that these employees sold before and after the change in quota scheme.  As it turns out, the retailer sold many more low-priced goods with the new quota scheme, but fewer higher-priced, higher margin items.  Why?  The higher-priced items took more time to sell.  Thus, the daily quota system created a powerful incentive to push the items that were easiest to sell (the low-priced goods).  

What's the lesson of this story?  You have to decide what your strategic objectives are.  If you want volume, a more frequent quota makes sense.  If you are interested in being very successful at the high end of the market, then you do not want the quotas to be as short term in nature.  

Wednesday, March 22, 2017

Sears Acknowledges Possibility of Bankruptcy

Many of us have been predicting the demise of Sears for years.  The writing has been on the wall now for quite some time - falling sales, declining customer satisfaction, and many store closings.  Fortune reported this week that Sears is admitting (finally) that bankruptcy is a possibility. Phil Wahba of Fortune writes:

Sears Holdings has recognized for the first time that many people think the retailer is not long for this world.  In its annual report released on Tuesday, the retailer, which owns Sears and Kmart, said that its years-long sales declines, "indicate substantial doubt exists related to the Company's ability to continue as a going concern." In other words, many think Sears will go under.

Amazingly, Sears has lost nearly $10 billion in the last six years.  How long can they continue to sustain such losses?  Could they be headed to liquidation, not simply a restructuring under Chapter 11? Some think that may be the case.  For me, Sears represents what Harvard Business School Professor Jay Lorsch once described as a "gradual crisis."  Lorsch argued that firms struggle mightily when a threat emerges gradually and unfolds over lengthy periods of time.  They can find themselves rationalizing the threat and avoiding the hard truths.  No single event causes them to shake things up and shift direction in a major way.  By the time they begin to truly confront the threat, it's too late. They find themselves far behind the times, or simply unable to transform the organization that is so set in its ways.  

How Does Information Flow & Collaboration Take Place?

Tuesday, March 21, 2017

Becoming More Resilient

Maria Konnikova wrote a terrific article for The New Yorker last year, focusing on the research on resilience over the past few decades.   Konnikova describes the research conducted by developmental psychologist Emmy Werner.  Konnikova summarizes a key finding:

Perhaps most importantly, the resilient children had what psychologists call an “internal locus of control”: they believed that they, and not their circumstances, affected their achievements. The resilient children saw themselves as the orchestrators of their own fates. In fact, on a scale that measured locus of control, they scored more than two standard deviations away from the standardization group.

Then Konnikova turns to the research conducted by George Bonanno, a Columbia University psychologist.  She writes: 

One of the central elements of resilience, Bonanno has found, is perception: Do you conceptualize an event as traumatic, or as an opportunity to learn and grow? “Events are not traumatic until we experience them as traumatic,” Bonanno told me, in December. “To call something a ‘traumatic event’ belies that fact.” He has coined a different term: PTE, or potentially traumatic event, which he argues is more accurate. The theory is straightforward. Every frightening event, no matter how negative it might seem from the sidelines, has the potential to be traumatic or not to the person experiencing it. (Bonanno focusses on acute negative events, where we may be seriously harmed; others who study resilience, including Garmezy and Werner, look more broadly.) Take something as terrible as the surprising death of a close friend: you might be sad, but if you can find a way to construe that event as filled with meaning—perhaps it leads to greater awareness of a certain disease, say, or to closer ties with the community—then it may not be seen as a trauma. (Indeed, Werner found that resilient individuals were far more likely to report having sources of spiritual and religious support than those who weren’t.) The experience isn’t inherent in the event; it resides in the event’s psychological construal.

Konnikova concludes by reporting that scholars believe that people can change the way that they frame events in their lives.  They can be trained to reframe potentially traumatic events as positive ones.  If that is true, then we can actually become more resilient.  We are not destined to always act the way that we have acted in the face of potential adversity.  

Monday, March 20, 2017

Great Interview Question!

On Friday, I moderated a panel discussion at Bryant University's 20th Annual Women's Summit.   One audience member asked the panelists to describe their favorite interview question.  Gerardine Ferlins, founder and CEO of Cirtronics (a contract manufacturer based in New Hampshire), explained her favorite line of inquiry.  She asks job candidates to think of someone that they admire professionally... perhaps a former manager or colleague.  Then she asks the candidates to describe the characteristics and qualities of that person.  Ferlins explained that this question tends to tell you a great deal about the candidate.  In short, they often describe themselves!  They select someone who has the types of qualities that they think are most important.  You learn a great deal about someone's values, beliefs, and priorities when you ask this question.   In short, this interview question builds on the old adage:  You can tell a lot about a person by the friends they keep.   

Thursday, March 16, 2017

Write Your Company's Obituary

James Allen, co-leader of Bain Consulting's global strategy practice, has written a good article for the Wall Street Journal about how firms can avoid the fate of once-proud industry leaders such as Sears, Blockbuster, Circuit City, Research in Motion, and many others.  Allen starts by referring to a personal development exercise that many individuals have been asked to conduct at some point in their careers:  writing your own obituary.   The exercise is meant to clarify your priorities and objectives, and help you rediscover your true purpose and passion.  Allen argues that firms might take a similar approach.  Executives might try to write their company's obituary.  Here is an excerpt from his article: 

The same exercise can help CEOs determine what their organizations need to live a productive life, and what could lead to an untimely death. CEOs should imagine they are business journalists, writing a postmortem on how the company began a slide toward oblivion—how it lost its leadership position, was targeted by an activist investor or acquired by a company with a more successful business model. What were the likely causes? Which factors in the downfall were knowable but not seen or addressed by executives? Which former strengths became fatal weaknesses? What could senior leaders have done differently to position the company for success?  These theoretical obituaries would vary greatly in detail, but I suspect they will include a common thread: The natural life cycle of many companies goes from insurgency to incumbency to struggling bureaucracy to replacement by the next wave of insurgents.

Wednesday, March 15, 2017

Hootsuite's Czar of Bad Systems

Source: Wikipedia
Ryan Holmes, CEO of social media platform Hootsuite, has written a terrific article for Fast Company about the latest management initiative at his firm.   Holmes begins by recounting the story of one employee who became frustrated with the approval process required to send one customer a Hootsuite t-shirt as a gift.   The t-shirt cost $15.  The employee spent hours tracking people down to get the appropriate approvals.  That example may sound a bit crazy, but every organization has cumbersome, bureaucratic procedures that frustrate people who are just trying to get the job done.  These processes may have started out with good intent, but they evolve to the point where they make little sense in many circumstances.  Moreover, these types of processes tend to centralize decision-making authority over time.  They take away autonomy from the people on the front lines trying to get the work done.  Processes never die.  They almost always grow and become more complex.  

Hootsuite set out to change that dynamic.    One individual has taken on the unofficial position of "Czar of Bad Systems."  Holmes writes, "Our employees now have a go-to person who can take an objective look at processes that have outlived their usefulness. If people have a problem they can’t fix, even with help from their manager, they reach out to the Czar. In the past, these processes would’ve fallen through the cracks–they’d be cursed at but ultimately complied with. Now there’s hope that they might actually be corrected."  

Why do bad processes emerge in organizations?  Holmes explains, "Interestingly, most bad processes seem to boil down to a few common failings: needless complexity, unanticipated bottlenecks, or irrational fear of worst-case scenarios."  I would add one significant reason for bad processes: the desire by certain managers and executives to amass power and authority.  Simply put, some managers want the right to approve or reject certain decisions because it gives them power over others, and it helps justify their existence in the organization.  What these managers fail to do is put themselves in the shoes of those trying to do the work.  They don't appreciate the frustrations that they have created.  Moreover, they often do not understand how much they have slowed down the organization.  When approaching these types of processes, managers need to put themselves in the shoes of those on the front lines.  They need to stop thinking about themselves and start thinking about those whom they should be serving.  

Sunday, March 12, 2017

Managerial Career Concerns & Risk Aversion

When we try to understand corporate strategy decisions, we should examine the factors affecting the way executives approach key situations. Specifically, we should seek to comprehend how career concerns might shape strategic choices. Consider the research of Todd Gormley and David Matsa. They conducted an interesting study of over 2,220 firms in which managers learned that government officials had identified something used in their manufacturing process as a carcinogen. The scholars analyzed the strategic choices that followed this discovery.  Here is what they found, according to a summary of the research published by Kellogg Insight. 

“They started buying other firms,” says Matsa. Discovering that their workers had been exposed to a carcinogen was linked to a 6% increase in acquisitions. But critically, acquiring these companies didn’t actually create any value for shareholders. That’s because, rather than making more strategic purchases, the troubled firms overpaid for large and unrelated “cash cows”—firms whose healthy profits might offset any future payouts the company would have to make.

“We likened it to how tobacco firms diversified into food when the health risks of smoking became more pronounced legally,” says Matsa. (Consider, as the most famous example, Phillip Morris’ acquisition of Kraft Foods in 1988.) “The managers were looking for a way to reduce risk.”

Matsa and Gormley argued that that the managers pursued this strategy to reduce their personal exposure. Because their compensation was closely tied to the firm’s performance, their own finances would have been disproportionately hit by the firm’s collapse. And because a catastrophe would likely cost them their jobs, their careers also hung in jeopardy.

Similarly, they studied firms which operated in states that made it difficult for companies to execute hostile takeovers.  They described these firms as "protected" in that managers did not face a high risk of being displaced/terminated by another company undertaking a hostile takeover.   Here is what the research demonstrated about the strategic choices made by these executives in "protected" situations: 

Moreover, just as seen in the previous study, these managers actively reduced risk by pursuing safe, diversification-focused acquisitions. Their firms undertook 27% more acquisitions compared with unprotected businesses—with two-thirds of these transactions diversifying the firms into new industries rather than building on existing strengths. Disproportionately, the firms targeted “cash cows.”  And their caution negatively impacted their companies’ value, investments, and growth. “These incremental acquisitions destroy shareholder value on average,” Matsa says.

Monday, March 06, 2017

Celebrating Failure at Drug Companies

The Wall Street Journal had an interesting article about the pharmaceutical industry on Saturday. In this article, they described a new type of party being held at some firms:

After making the difficult decision to scrap a once-promising drug program, the biotech firm Ironwood Pharmaceuticals in Cambridge, Mass., did something unusual: It gathered to celebrate. With dozens of staffers in attendance, the “drug wake” at Ironwood featured seven-layer dip, homemade cupcakes and a bittersweet send-off. “It’s hard to say goodbye, so I won’t,” said Mark Charest, who works on regulatory affairs at the company. “I’ll say, ‘Thank you—thank you to the peptide.’ ”

The article describes how firms are holding these types of events to prevent researchers from becoming discouraged after lengthy efforts that do not lead to a product that can go to market.  It also describes how companies are conducting extensive after-action reviews to capture the learning from these failed drug discovery efforts.  Finally, they want to avoid excessive risk aversion; they want people to take risks in hopes of discovering the next highly effective drug.  

I would argue that these efforts also de-stigmatize failure and perhaps help people make the tough decision to stop a research effort and cut their losses.   We know that the sunk cost trap can cause researchers and managers to throw good money and effort after bad in the drug discovery process. By minimizing the stigma of failure, perhaps these firms can make it a bit easier for people to cut their losses.  In the end, that will lead to a much more efficient use of resources at these firms.  

Wednesday, March 01, 2017

Whole Foods Inside of Target?

Brian Sozzi of TheStreet.com has reported in recent days rather extensively about Target's disappointing financial results.   Target experienced a 1.5% decline in same store sales in the most recent quarter, while rival Wal-Mart produced a 1.8% gain in same-store sales.  Moreover, Target missed earnings estimates this quarter, and the firm decreased its estimates for 2017 earnings.  Sozzi has some interesting ideas as to how the firm might turn things around.  For instance, he's focused on the grocery part of the business, noting that Target must decide who it wants to be with regard to the food portion of the stores.   Sozzi proposes one solution that might startle some observers:

Food sales represent more than 20% of Target's business, and it's vital it finally gets this business right. Same-store sales were pressured throughout last year, as the company battled with pricing strategies in a competitive backdrop. Further, Target continues to deal with not having a broad enough assortment in fresh categories such as fruit, vegetables and meat and deli (would like it if they sold some fresh fish and more grab-and-go sandwiches at my local Target, for example). 

The retailer has to decide whether it wants to be a grocery store and, if so, how it could do it more effectively. Becoming a successful grocer could lift sales throughout the store. As I have said in the past, Target should consider outsourcing its grocery department to a Whole Foods (using its new 365 value banner) in the same fashion as it outsourced its pharmacy business to CVS Health. Let someone with the expertise in food service handle the business, freeing up Target to focus on what it does best -- higher quality general merchandise vs. Walmart at good prices.

I certainly find the concept intriguing.  By all accounts, Target made a wise decision to outsource its pharmacy business to CVS Health.   It did not have the same capabilities as CVS, and yet, having a strong pharmacy in the store had important benefits in terms of building foot traffic.  CVS made for a perfect partner.  However, the Whole Foods partnership raises some questions.  Yes, Whole Foods offers strong capabilities in the grocery business.  However, Whole Foods has a very premium image, and it is known for high prices ("Whole Paycheck").  Yes, Target hopes to differentiate itself from Wal-Mart and offer a premium shopping experience for guests.  Is Whole Foods a bit too far in that direction though?  Will it turn off shoppers looking for good value (Expect More, Pay Less)?  Sozzi recommends using the new 365 value banner from Whole Foods, but that store concept is not yet proven.   Perhaps more importantly, Whole Foods is facing many struggles of its own right now, both trying to reinvigorate its flagship stores as well as launch the 365 stores.   CVS Health was a strong, high performing partner for Target.  Is it the right moment to partner with a firm such as Whole Foods, given the challenges that the grocer is facing at the moment?   Finally, outsourcing 20% of your business is a far different decision than shifting the small pharmacy unit to CVS Health.  Sozzi certainly raises an interesting idea though, and I'm sure others will press Target's management to consider similar moves if same-stores sales growth does not improve.  

Monday, February 27, 2017

Can Uber Recover?

By now, everyone has read about the serious problems at Uber.  On February 19, former Uber engineer Susan Fowler published a blog post in which she described serious transgressions by managers at the firm, including sexual harassment.  Soon, newspaper accounts documented a culture that appeared to be out of control.   CEO Travis Kalanick has tried to address the situation, though his early moves have been met with criticism.  He appointed a panel to investigate the situation, but people have objected by noting that all three members are essentially "insiders" at the firm.  Kalanick himself has been criticized for comments in the past that have contributed to the dysfunctional culture.   

Can Uber recover from this fiasco?  Will there be lasting damage?  I see several potential long term negative consequences for Uber.  First, Uber will have a challenging time attracting top talent moving forward, particularly highly successful female engineers and managers.   Why would they wish to work for a firm with this reputation?  Talent acquisition and retention will be a problem for Uber, no matter the promise of financial rewards that they may offer.  Second, investors may begin to scrutinize Uber more closely.  Will they tolerate the huge losses and be as patient as they have been while Uber forsakes profits for aggressive growth?  Third, will corporate governance change?  Will the Board members begin to recognize their own vulnerability here, and will they start asking tougher questions?  Management could face a very different environment in future Board meetings.  

How can Uber recover?  They have to address multiple issues very quickly.  First, they have to insure that the outside review truly is objective.  Perception is reality.  If people perceive the current appointees as insiders who cannot be objective, it will be difficult to persuade people that the conclusions of the review are valid.  Second, they must confront and remove employees who engaged in unethical or even illegal behavior immediately.  Now is not the time for second and third chances.  People have to be held accountable.  Third, Uber must address how it evaluates and rewards employees.  Excusing the inappropriate behavior of brilliant jerks must end.  People must be evaluated and rewarded not simply on the results they achieve, but how they go about achieving them.  Fourth, Kalanick must address his own behavior and past comments.  He has to acknowledge his own culpability in molding and shaping this dysfunctional culture.  Moreover, he has to be very transparent as the review is conducted and changes are made.   Next, the company must address various informal rituals (the push-ups, for example) that have evolved over the years at the firm.  Are these rituals productive?  Should they be stopped? What new rituals should emerge?  Finally, Uber has to redefine the core values for which it stands.  The company is known for its 14 cultural values.  The company has to take a hard look at those values.  Are they the right values?  Have the current values enabled some unintended, but dangerous, behaviors and attitudes?   The company needs to think hard about the message that each value sends... and recognize the ways in which it has enabled bad behavior on the part of many managers. 

Saturday, February 25, 2017

Disturbing Finding on Happiness

Knowledge@Wharton reports on the intriguing, but perhaps rather disturbing, findings of Professor Maurice Schweitzer's latest research.   Schweitzer has studied how people perceive others who appear to be very happy people.  He explains the conclusions from the research:

The pursuit of happiness is deeply embedded in our national thinking. Yet sometimes people who are very happy are exactly the kinds of people who are exploited. That’s what we document in our research, where we look at people who are very happy. If they seem more happy than baseline happiness — people who are very happy, always chipper, always upbeat — they strike us as naive. We found that link consistently. One of the most robust findings in our research is that people see very happy individuals as naive, and in our last couple of studies we found that people are more likely to exploit those individuals.

I don't think the implication is that we should be less happy, or stop presenting ourselves as satisfied and content with our lives, jobs, etc.   However, perhaps we need to open our eyes a bit, and recognize that others may perceive us as naive at times.  Unfortunately, some people may try to take advantage of perceived naivete.  

Thursday, February 23, 2017

Why Do We Make Recommendations to Others?

Why do we make recommendations to others?  Are we simply being altruistic?  Are we trying to help our friends, perhaps by sharing information and knowledge that we have acquired so that others can avoid the mistakes we have made?  New research suggests that another key motivation may drive our desire to recommend products and services to others.  Scholars Andrea Bonezzi, Alessandro Peluso, Matteo Deangelis, and Derek Rucker have conducted a series of experimental studies that challenge our assumptions about the motivations behind recommendations.  

In their studies, they examined how people chose the amount and type of automobile insurance to purchase.  This task often proves challenging and difficult for many consumers.  The scholars found that individuals are more likely to offer advice to others if they feel insecure about the decision themselves.  In short, people have a need for control.  When they feel a loss of control or experience a sense of insecurity, they try to regain control by offering recommendations to others.  It bolsters their view of themselves after the task itself has threatened their self-perceptions.   Of course, these findings do not mean that the recommendations provided by these individuals are worthless or counterproductive.  It does, however, suggest that companies should understand what truly drives people's behavior when trying to encourage recommendations and word-of-mouth advertising of their products and services.  It also might mean that we should take recommendations with a grain of salt when the purchasing decision is highly complicated and stressful.  

Wednesday, February 22, 2017

Algorithm Aversion: How Can We Overcome It?

Algorithms can help us make better decisions in a variety of situations.  However, human beings tend to have an aversion to using algorithms.  They trust their gut more than the computer, even though the algorithms may lead to better decisions. Knowledge@Wharton reports on a stream of fascinating research by Cade Massey, Joseph Simmons, and Berkeley J. Dietvorst.  They found that you can persuade people to use algorithms if you give them a choice as to whether to use the algorithm or not.  In other words, don't force them to use it; make them feel a sense of control.  That will help convince them to choose the algorithm.  However, many people stop using the algorithm after some period of time, because they become frustrated with the mistakes that the computer makes.  Of course, the computer might make fewer mistakes than a human using intuition, but people don't recognize that possibility. Instead, they fixate on the mistakes and lose faith in the algorithm. Simmons points out, "People want algorithms to be perfect and expect them to be perfect, even though what we really want is for them to simply be a little better than the humans."

The scholars also found that you could persuade people to use the algorithms if you gave them an ability to adjust the computer's recommendation slightly.   Of course, the algorithm's predictions and recommendations become less accurate when humans intervene in this manner.  However, the researchers found that you only have to give people an ability to adjust the algorithm slightly to enhance adoption.   Providing them an ability to adjust more substantially does not increase adoption more than offering a slight adjustment possibility.  Thus, you might be willing to tolerate a bit of degradation in the algorithm's accuracy simply because giving people some sense of control increases adoption of the computer-assisted decision-making system.  For more on this research, see the video below in which Massey and Simmons are interviewed about the research.  



Tuesday, February 21, 2017

Should I Tell That Joke at Work?

The Wall Street Journal has a nice summary of recent research on humor in the workplace written by scholars Alison Wood Brooks and T. Bradford Bitterly.   The scholars point out some of the positive effects of humor in the workplace.  For instance, they cite one study by Nale Lehmann-Willenbrock.  Here is the summary of those findings:

Research led by Nale Lehmann-Willenbrock at VU University Amsterdam studied how patterns of humor in conversation—such as a joke followed by another joke or a joke followed by laughter—predicted other types of communication, as well as team performance, more broadly. The researchers found that teams that tell more jokes and laugh together also made more supportive and constructive statements to each other, things like “that’s a great idea” or “we could solve this problem by doing X.” That, in turn, led them to perform better on a number of measures, such as hitting goals and improving efficiency. The researchers surmised that humor could improve team interaction by triggering positive forms of communication.

Of course, one always worries about the inappropriate use of humor in the workplace. Will you offend someone?  Could you cross the line and face disciplinary action for something you say?  Could it even get you fired?   The problem, according to researchers, is that we are not very good predictors of what others will find to be funny.  In fact, we aren't good predictors even when we know the person quite well.  Here's one study that examined this situation:

In a recent study led by Michael Yeomans at Harvard University, pairs of museum-goers were asked to predict what their companion would find funny. Many of the pairs included married couples, or people who had known each other for years. Even with the close connection between people, Dr. Yeomans found that they weren’t very good at predicting what their partner would find funny. A statistical prediction model turned out to be much better at rating how funny their companion would rate a joke.

Friday, February 17, 2017

Why People Quit

Why do people quit their jobs?  Fast Company reported this week on a new analysis conducted by Glassdoor.   The firm studied approximately 5,000 workers who switched jobs over the past decade.   They found that three most important reasons for quitting are:
  • Company culture
  • Employee salary
  • Getting stuck in the same job for long periods of time
The firm discovered that, "On average, we find that a 10% higher base pay is associated with a 1.5% higher chance that a worker will stay at the company for their next role."  In addition, the probability of quitting rises by 1% for every 10 extra months someone stays in the same role at a company. 

What didn't matter as much with regard to quitting?  Interestingly, "they found that while work-life balance, liking their senior leadership, and benefits may matter for overall employee satisfaction, they don’t impact turnover."

Tuesday, February 14, 2017

Marketing Your Products as Designed by Users: Benefit or Hindrance?

The Boston Globe reported this weekend on the fascinating new research of Vienna University Professor Martin Schreier.   He studied the marketing of crowdsourced products.  Schreier found that marketing an item as user-designed tended to increase sales more than marketing a product as created by a firm's own designers.  Why this positive effect?  Schreier discovered that, "People believe their peers understand their needs better, and therefore, come up with better solutions."   Moroever, Schreier found that people tend to react more positively if informed that the user-designers had something in common with them.   For instance, female consumers tended to prefer user-designers who were women similar to them.  

Is there a potential downside to marketing a product as "user-designed"?  Schreier found that the effect does not appear to be positive for luxury items or high tech goods.  Why?  For technologically sophisticated products, the consumer trusts experts with high levels of knowledge and expertise more so than fellow users.  As for luxury items, the explanation is quite different.  In those cases, consumers "want to set themselves apart."  Thus, they tend not to prefer something sourced from the crowd.  

Friday, February 10, 2017

Shorter Lines at Starbucks and Dunkin' Donuts

Several weeks ago, The Street reported the following news regarding Starbucks: " Starbucks also seems to be having trouble dealing with the rapid rise and popularity of its mobile order and pay technology.  On a conference call with analysts, executives said there has been significant uptick in the usage of mobile order and pay. The jump created operational challenges, especially at its highest volume stores at peak traffic hours. The congestion at the beverage hand-off counter resulted in some customers who entered stores or considered visiting a location, but decided not to complete a transaction, the company said."  

Meanwhile, this week The Street reported that Dunkin' Donuts would be trimming its menu to improve wait times:  "We have thousands of combinations of drinks and sandwiches on our menu, in some cases more than McDonald's (MCD) and other competitors -- we have perhaps gotten too complex," acknowledged Dunkin' Brands Chairman and CEO Nigel Travis in an interview with TheStreet. Travis believes simplifying the menu will help speed up lines both in stores and via drive-thrus."  

The issues facing both Starbucks and Dunkin' are not unique.  As retail chains mature, they face formidable challenges regarding same-store sales increases.  How can they continue to increase comps year after year, even as their industry and their chain matures?   Many restaurants resort to "menu innovation" as a means of jumpstarting growth.   However, menu innovation inevitably means menu expansion at many restaurant chains.   Therefore, operations become substantially more complex.  Operating efficiencies diminish, and wait times increase.  Customer service begins to suffer.  The best chains prune their menus from time to time, so as to regain efficiencies and reduce wait times.  Of course, some customers will miss certain items that they have grown to love.  Chains need to be prepared for such complaints and train their staff members as to how to handle this pushback appropriately.   The chains that are most successful are ready and able to discuss the changes with customers, and they provide a consistent and effective response to customer questions across all locations.  


Wednesday, February 01, 2017

How Successful Leaders Make Decisions

Lydia Dishman has written a column for Fast Company titled, "How Leaders at Google, Buzzfeed, and More Make Decisions."   She has a number of interesting tidbits from various leaders.   A few key themes emerged:

The Value of Seeking Small Wins:

In a recent report for Fast Company, Harry McCracken asked staffers of Facebook how their leader has pulled off some of the company’s recent major achievements.  "I don’t hear a lot of anecdotes about him swooping in and personally making genius-level decisions that suddenly changed everything. Instead, they praise his inquisitiveness, persistence, ability to deploy resources, and devotion to improving Facebook and himself. He has a knack for carving up grand plans into small, doable victories."  

Ask Good Questions

Mark Parker, CEO of Nike: "You can’t always predict the winners. I end up asking a lot of questions, so the team thinks things through. I don’t say, ‘Do this, do that.’ I’m not a micromanager. I don’t believe in that. My father, when I was growing up, would say to me when I had to make a decision, ‘Well, what do you think?’ And I’d say, ‘Well, I think this.’ And he’d say, ‘That seems like a good idea.’ And over time, I started picking for myself. I didn’t need to go to him. At Nike, we have incredibly strong people. They know what to do."

Step Out of Your Functional Shoes:

Ursula Burns, CEO of Xerox:  We don’t want to compartmentalize people’s expertise based on their internal organization alone. We try to give individuals parity–-equality-–in the discussion. In our leadership team, I expect all of them to check at the door their function as the primary thought process by which they give me input. I expect them to think more about the customer, competitors, employees, and shareholders. So, I give everyone parity to speak about an issue.

Test Your Hypotheses: 
Dao Nguyen, Publisher of Buzzfeed:  Publishing volume is actually really important. It's not that we want to crank stuff out there for no reason at all. The more you publish, the more opportunities you have to look at things that are happening, read comments, have a new hypothesis, test a hypothesis. And if you can do that relatively quickly, then you remember what you were testing.

Wednesday, January 18, 2017

Do Boards Pick the Right Person as CEO?

What happens when the Board of Directors appoints an internal candidate to the position of CEO?  Do they tend to pick the right person, or do they overlook/reject an alternative candidate that would have been a better CEO?  Stanford scholars David Larcker, Stephen Miles, and Brian Tayan examined this issue recently.  They examined 121 transitions at the 100 largest companies over a ten-year period.  They found that roughly 1/3 of executives who were not selected for internal promotion to CEO were, in fact, hired at other companies.  However, the internally promoted CEOs experienced higher shareholder returns than those executives who were not chosen and left to lead other firms.   

Tuesday, January 17, 2017

Don't Try to Imagine the Future! Ask Others Before You Decide

You have to make a decision. Suppose you are trying to decide on whether London or Dublin is a better place to visit with small children. You read the travel guides and try to imagine what it will be like in each city. You envision what your daily experiences will be like. Will you make a decision that your family finds acceptable and enjoyable? Alternatively, you could ask others who have traveled to London and Dublin. What were their experiences like? Which did they prefer for their small children? You might hesitate to use the latter strategy of consulting others. After all, your family is rather unique. What if those other families are very different from yours? 

It turns out that consulting others makes much more sense than trying to envision the future, at least in most cases. Harvard psychologist Daniel Gilbert has studied this type of decision. Gilbert describes the strategy of consulting others as "surrogation" - i.e. you are using others' experiences as a surrogate for your own. Harvard Magazine described one experiment that Gilbert and his colleagues conducted and summarized their findings:

In one experiment to test surrogation, the psychologists asked a sample of women to predict how much they would enjoy a “speed date” with a particular man. Some women saw his personal profile and photograph; others learned nothing about him other than how much another woman (a stranger) had enjoyed her speed date with him. The second group predicted their enjoyment far more accurately than the first. Both groups had expected the reverse, and oddly enough, despite the outcome, both groups preferred to have the profile/photograph for their next date.

This suggests that ideas trump reality. But in predicting your likings, even someone else’s direct experience trumps mental hypotheses—which is why surrogation works. But to be helpful, the surrogate’s experience must be recent. “People are very poor at remembering how happy they were,” Gilbert says. “So it’s not very useful to ask, ‘How much did you like something you experienced last year?’ People get most questions about happiness wrong. But there is one question they get right: how happy are you right now?”

Monday, January 16, 2017

Why Would Abercrombie & Fitch Pay Someone NOT to Wear Its Apparel?

When we think about social influence, we typically think about how and why people tend to feel pressures to conform to the behavior of their peers, colleagues, or teammates. We act a certain way, or make certain decisions, because others have made similar choices or taken similar actions. However, at times, social influence works in the opposite way. We do not want to be like certain people. Therefore, if they act a certain way, we most certainly do not want to behave in a similar fashion. 

Jonah Berger, author of Invisible Influence: The Hidden Forces That Shape Behavior, relates a story about this type of repellent effect of social influence in an episode of the Hidden Brain podcast.   Berger tells a story from the reality show, Jersey Shore, believe it or not!  He explains that Abercrombie & Fitch once paid Mike "The Situation" Sorrentino NOT to wear its apparel.   Similarly, a Gucci competitor sent Nicole "Snooki" Polizzi one of Gucci's handbags.  Why would that Gucci rival do that?  They knew that many luxury handbag customers would be turned off by the fact that Snooki was carrying around a Gucci handbag.  That would hurt the Gucci brand image, and perhaps help the rival's position in the market.   

Berger explained ,"It turns out influence is very much like a magnet...but it just as well repels us.  And the idea here is, well, if Mike 'The Situation' is wearing Abercrombie & Fitch, maybe other people aren't going to want to wear it anymore. Or if Snooki is hanging on to a Gucci handbag, maybe that will help their competitors because no one will want to wear Gucci anymore. So we need to understand how social influence attracts, but also how it repels."

Berger once conducted a study with Stanford's Chip Heath to demonstrate the power of this repellent effect.  Berger and Heath distributed Livestrong wristbands to residents of a particular dorm on the Stanford campus.  One week later, they distributed the wristbands to a nearby residence hall known on the campus as the "geeky" dorm.   The researchers tracked continued usage of the wristbands.  They found a 32% drop in wristband usage by the first group.  They had witnessed the "geeks" wearing the Livestrong wristbands, and a sizeable number of them had abandoned wearing them as a result!  

Friday, January 13, 2017

Put Your Shared Norms on the Wall!

I had lunch with the CEO of a major academic medical center today.  He mentioned a key aspect of the culture of his top management team.  In the conference room they use for weekly meetings, they have a list of shared norms and ground rules up on the wall.  He explained how these norms are very useful to help the team engage in productive dialogue and debate.   Moreover, this leader expressed how important it was that the team members held him and each other accountable for adhering to these rules of engagement.  If someone didn't behave in accordance with these norms, they could be gently, or perhaps not so gently, reminded about their unacceptable behavior.  They could be told that they had violated a particular rule.  This leader concluded by arguing that building the right culture means you have to be specific about the behaviors you expect.   In addition, people have to hold each accountable for adhering to these behavioral norms.  Peer-to-peer accountability is key.  

Thursday, January 12, 2017

Are Your New Hires Fitting In?

Joann Lublin reported yesterday in the Wall Street Journal about new research regarding cultural fit of new employees. Lublin described the research of Sameer B. Srivastava, Amir Goldberg, and their colleagues. The scholars examined 10.2 million emails among 601 full-time staffers at a technology company written between 2009 and 2014. They hypothesized that language is a key element of culture at an organization. Adopting a similar communication style as your colleagues represents one key element of cultural fit. What did they find? According to Lublin,

"The review of 10.2 million internal messages found that new hires who stuck around and thrived used language styles similar to those of their co-workers. Newcomers with high cultural fit had a greater chance of advancing to managerial positions, the study found. Quitters experienced decreased cultural fit roughly midway through their tenure. But individuals with low cultural fit had a four-times-higher risk of getting fired after three years."

In short, newcomers who thrived at the organization either communicated in a similar fashion as existing employees (implying that the hiring process had screened effectively for cultural fit), or the successful newcomers adapted their communication style so as to fit in at the organization. Those that left or did not succeed at the organization failed to adapt to the way people communicated at the tech company.

Wednesday, January 11, 2017

Why Persuading People with Facts Doesn't Work At Times

The British Psychological Society's Research Digest reports on a new study by Gregory Trevors and his colleagues.   They examined why we fail at times to persuade people with factual evidence.  Why don't fact-based arguments change minds?  In the past, researchers have posited that a "backfire" effect can occur when you confront someone with information that challenges their pre-existing views.  Why?  They have argued that people begin to recall all the information supporting their existing position.  An "arms race" occurs in their minds, as they retrieve all the data that rebut the new factual evidence being presented to them.  Trevors takes the research on this backfire effect one step further.   That work hypothesizes that, "When people read information that undermines their identity, this triggers feelings of anger and dismay that make it difficult for them to take the new facts on board."  

Trevors and his colleagues conducted an experiment with regard to genetically modified foods.  120 students participated in the study.  The scholars first tested "how important food purity was to the participants' sense of identity."  Then the researchers provided the students with scientific data contradicting their views in opposition to genetically modified foods. Here is what they found:

"After the researchers gave participants scientific information worded to directly challenge anti-GMO beliefs, those with higher scores in dietary purity rated themselves as experiencing more negative emotions while reading the text, and in a later follow-up task, they more often criticised GMOs. Crucially, at the end of the study these participants were actually more likely to be anti-GMO than a control group who were given scientific information that didn’t challenge beliefs: in other words, the attempt to change minds with factual information had backfired."

What's the lesson here?  You have to understand WHY people hold certain beliefs.  If those views are deeply tied to their identity, then fact-based arguments alone will not prevail.  In fact, they might backfire.  What can you do differently?  Here is the advice offered in the Research Digest article:

If persuasion is most at risk of backfire when identity is threatened, we may wish to frame arguments so they don’t strongly activate that identity concept, but rather others. And if, as this research suggests, the identity threat causes problems through agitating emotion, we may want to put off this disruption until later: Rather than telling someone (to paraphrase the example in the study) “you are wrong to think that GMOs are only made in labs because…”, arguments could firstly describe cross-pollination and other natural processes, giving time for this raw information to be assimilated, before drawing attention to how this is incompatible with the person’s raw belief – a stealth bomber rather than a whizz-bang, so to speak.