Norwegian Airlines: Are They Built to Last?

Travelers in my area have been enjoying incredibly low fare trips to Europe on Norwegian Airlines. Right now, you can book a one-way flight for next week from Providence, Rhode Island to Shannon, Ireland for $169. With these low fares, Norwegian has been growing rapidly here in the northeast. The question is: Can they succeed in this highly competitive space? Have they replicated the Southwest and Ryanair low-cost operating models and applied it successfully to intercontinental travel? The Wall Street Journal's Heard on the Street column has some doubts:

The airline operates a very different growth model to tried and tested low-cost carriers such as Southwest Airlines Co. in the U.S. and Ryanair in Europe. These combine a disruptive approach to operations with a conservative one to finances. Crucially, strong balance sheets and fat margins have given them the muscle to expand through downturns, when rivals are in retreat and customers hungry for bargains.

With its slim margins and leveraged balance sheet, taking advantage of a downturn will be much harder for Norwegian. Frequent fliers may hope its ambitious project to disrupt the North Atlantic oligopoly thrives. History suggests they shouldn’t get their hopes up.

The Wall Street Journal has expressed skepticism about the airline in the past as well.  In July, the Heard on the Street column noted that Norwegian's costs have been rising over the past four years. Columnist Stephen Wilmot wrote, "You can’t build a low-cost airline without low costs."

The combination of slim or negative profit margins and high debt does indeed pose a serious challenge.  A cyclical downturn will occur at some time in the not-so-distant future.  At that point, the company may struggle to service its debt.   Even if they can make their interest payments, the high debt load relative to rivals may put Norwegian at a serious strategic disadvantage.  Traditional low cost carriers have maintained low debt loads as a competitive weapon, using the flexibility that a conservative capital structure provides to bludgeon higher-cost rivals.   Will competitors take advantage of Norwegian's debt load and launch a price war at a very inopportune time, during a cyclical downturn perhaps?  

Disney Revamps Its Stores... Again

Disney has once again tried to overhaul its retail strategy. The New York Times reports today that Disney has opened a new prototype store in California. Reporter Brooks Barnes explains the changes in the store format:

Quietly, like a mouse on tiptoe, Disney overhauled its retail store at the Northridge Fashion Center mall in late July. Out went the twisty Pixie Path aisles, the ornate displays, the green walls and the color-changing fiberglass trees. In came a movie-theater-size screen, a simplified floor plan, white walls and more items for fashion-conscious adults... The redesign makes Disney’s stores a bit more like Disney’s theme parks. For instance, daily parades at Disneyland in California and Walt Disney World in Florida will be streamed live to those colossal video screens. During the parades, store personnel will put out mats for shoppers to sit on and roll out souvenir carts stocked with cotton candy and light-up Mickey Mouse ears.

Of course, Disney tried to overhaul its retail stores seven years ago.   Now they are trying again to reshape their retail strategy in the face of intense competition from online retailers, as well as major players such as Target and Wal-Mart.  As with the prior revamp, I think Disney has to ask itself two fundamental questions:

1.  Do the stores represent a sufficient experience that justifies customers making a special trip to the store, as opposed to buying elsewhere?  Does that experience enhance customer's willingness to pay for its products?  If they can't answer yes to those two questions, then they should reconsider this vertical integration strategy.  

2.  Should Disney have 300+ stores across the country, mostly in shopping malls?  Or, should Disney consider slimming down the store count considerably, and opting for a "flagship store" strategy in major cities around the world?  

Is Regret a Bad Thing?

Do you have some decisions or actions that you regret? Perhaps it's an action taken yesterday that you wish could be taken back. Or, perhaps you regret something you wished that you had done in the past. Is regret clearly a bad thing? Research by Colleen Saffrey, Amy Summerville, and Neal Roese suggests that people may actually have a favorable view of regret, and that it might serve a useful purpose for us. They write,

"People value their regret experience. They value it in both an absolute sense (the favorable aspects outweigh the unfavorable aspects) and in a relative sense (as compared to other commonly experienced negative emotions). This is a surprising finding given the assumption of the aversiveness of regret..."

Why might regret be a positive thing? The scholars argue that regret can be a mechanism for self-improvement. Experiencing regret might be part of the self-reflection process that leads to learning. As a result, we may come to avoid past behaviors that were not good for us or for others. Similarly, we might come to realize why certain actions should be taken, though we may have failed to take those actions in the past.  

Consider for a moment the occasions during which you may have regretted an action or decision at work.  Are you using those moments of regret to reflect, learn, and change?  

Pressure for Directors to Sit on Fewer Boards

The Wall Street Journal's Sarah Krouse and Joann S. Lublin report today that several major institutional investors have been pressuring companies to reduce the number of directors that simultaneously sit on a number of other boards of directors.  The writers report that, "The number of directors on five or more corporate boards has declined in recent years."   Why the pressure?  Investors argue that these directors cannot possibly provide adequate attention to their monitoring and oversight duties at a company if they sit on many other boards at the same time.  That makes good sense to me.   In fact, a study by research firm Equilar "suggests that leaders with multiple outside corporate board seats and their employers make more money, but their shareholders see lower returns than those with one or zero outside directorships."   Still, more than 60 directors of firms on the S&P 500 serve on five or more boards of directors at this time.   That should change.  Shareholders and other constituents deserve directors who are not only highly capable, but also who have the proper amount of time to devote to understanding a firm and its industry and engaging in effective oversight and control.  

How Specific Should a Worker's Contract Be?

A set of studies by Eileen Chou, Nir Halevy, Adam Galinsky, and the late J. Keith Murnighan have examined how specific labor contracts should be. They conducted experiments on an online labor market. They wanted to know whether specifying work duties and responsibilities increased or decreased employee motivation. Here is what they found, according to Stanford Leadership Insights:

Across nine different experiments, the researchers found that workers whose contracts contained more general language spent more time on their tasks, generated more original ideas, and were more likely to cooperate with others. They were also more likely to return for future work with the same employer, underscoring the durable and long-lasting nature of the effect. But why? The researchers found that the more general contracts increased people’s sense of autonomy over their work. Those findings dovetail with previous psychological research showing that increased autonomy boosts motivation, which leads to a ripple effect of other desirable outcomes.

Indeed, this research proves consistent with the work decades ago of Richard Hackman and Greg Oldham.  Those scholars argued that one could enhance intrinsic motivation by, among other things, designing jobs that provided workers with a substantial dose of autonomy.  Of course, one has to have some guidelines and policies.   You can't provide no direction at all.   In my view, you have to be more specific with regard to WHAT needs to be done, but less specific with regard to HOW it should be done.  In short, you have to establish goals and objectives, but you should empower your employees to discover the best ways to achieve those goals (provided they uphold ethical and legal rules and responsibilities).  

IDEO's Tim Brown: How to Solve Problems Like a Designer

Selling the Problem vs. Selling the Solution

Entrepreneur and investor Dave Bailey has written an outstanding column for Medium.   Bailey addresses the importance of focusing as an entrepreneur on the problem you are trying to solve.   He argues that startups often become enamored with their solution or their technology in particular, but they don't explain adequately the customer need that they are addressing.  What pain point are you alleviating?  What problem are you solving for the user?   How will take away a roadblock, inefficiency, or frustration that users are experiencing?   Bailey explains:

As Steve Jobs said: you have to start with the customer experience and work backwards to the technology. Jobs understood that when you try to reverse-engineer the need statement from the product, it’s too easy to lose touch with reality.

After 6 months of intense product development — this happened to me. My product was my baby and I wanted to talk about with everybody.  When I didn’t lead with the need, it was often greeted with confused looks. I was giving people the ‘answer’ without telling them the question — like a weird game of ‘Jeopardy’.

Even when I did start with the need, I only afforded it a sentence or two. I’d describe the need to perfectly frame my product. In other words, I did the exact opposite to Steve Jobs. At when the confused looks continued, I got defensive. ‘Trust me, it’s a problem — ok?

Bailey recommends writing a customer need narrative.  He argues that it's more than one sentence.  It's a clear and compelling paragraph that "outlines a thesis on how to make peoples’ lives better."  Certainly, many entrepreneurs fall in love with their idea.  They get excited about the technological innovation.   Unfortunately, many forget that the product is simply a means to an end.  Keep the end in sight, with the end being a better experience for the user.   Sell your problem first, not your idea.  

Herb Kelleher on Market Share

Entrepreneur Joel Gascoigne tweeted a quote from Southwest Airlines co-founder Herb Kelleher yesterday. The quote describes Kelleher's views on the pursuit of market share vs. profitability. I think he's hit the nail right on the head.

The Dark Side of Board of Director Mentoring Relationships

Joann Lublin wrote a Wall Street Journal article this week titled, "Boards Try Buddy System to Get Newcomers Up to Speed."   Lublin describes how some boards have assigned mentors to new directors, so that experienced board members can help newcomers assimilate to the culture of the group.   Lublin offers the example of Carol Martz mentoring new director Amy Chang at Cisco Systems.  She explains, 

More boards are pairing new members like Ms. Chang with seasoned mentors like Ms. Bartz as they scramble to improve their oversight of management in the face of intensified investor scrutiny. Board buddies can help newcomers figure out the boardroom’s cultural norms, power brokers—and even the right place to sit.  Mentors make sure “you don’t come in as a bull in a china shop,” observes Steven R. Walker, managing director of the board services group at the National Association of Corporate Directors.

I certainly understand the importance of helping new directors learn the ropes when joining a board.  These mentoring relationships certainly appear to have a good intent.  However, I do have some worries about such systems.  What if the mentors provide the wrong message?  What if they encourage newcomers to refrain from challenging the status quo, expressing dissent, or asking the tough questions.  In the article, Martz acutally encourages Chang not to apologize for asking a challenging question.  However, some directors might provide very different advice.  They might promote norms that include conflict avoidance and deference to management.   Long-time directors might protect the harmony of the group, and in doing, send a signal that speaking up is not welcome.  Rocking the boat might not be the right strategy during your first board meeting. However, discouraging people from ever rocking the boat might also be a very dysfunctional dimension of some of these mentoring conversations.  

Curiosity Affects the Brain, Enhances Learning

Several years ago, Daisy Yuhas wrote an interesting article about new neuroscience research regarding curiosity and leanring. I came across the article today, and I thought it was worth sharing the key lessons. Yuhas explains the findings from a study about how intellectual curiosity affects the brain and shapes learning.

Neuroscientist Charan Ranganath and his fellow researchers asked 19 participants to review more than 100 questions, rating each in terms of how curious they were about the answer. Next, each subject revisited 112 of the questions—half of which strongly intrigued them whereas the rest they found uninteresting—while the researchers scanned their brain activity using functional magnetic resonance imaging (fMRI).

During the scanning session participants would view a question then wait 14 seconds and view a photograph of a face totally unrelated to the trivia before seeing the answer. Afterward the researchers tested participants to see how well they could recall and retain both the trivia answers and the faces they had seen.

Ranganath and his colleagues discovered that greater interest in a question would predict not only better memory for the answer but also for the unrelated face that had preceded it. A follow-up test one day later found the same results—people could better remember a face if it had been preceded by an intriguing question. Somehow curiosity could prepare the brain for learning and long-term memory more broadly.

To me personally, the implications are quite profound.  As a professor, I should strive to tap into and stimulate a person's intellectual curiosity about a particular subject.  If I can do that successfully, they may learn more effectively.   Similarly, we can leverage these findings as we think about how we train workers in our organizations.  If workers approach a new task with curiosity, then perhaps they will learn the required skills more effectively.   

Scott Galloway's "Amazon Clinic"

For those intrigued by my post yesterday regarding Amazon and possible future acquisition targets, you should take a look at NYU Professor Scott Galloway's talk titled "Amazon Clinic."  He presents some fascinating and startling data on the state of retail in the United States, including the dramatic overbuilding of malls in past decades and the steep decline in foot traffic over the past few years.  

Bryant Alumni Reception in Minneapolis

Several days prior to running the Twin Cities Marathon, I'll be hosting a reception for Bryant alumni in Minneapolis along with Robin Warde, Director of Alumni Engagement at Bryant.  The event will take place at 4 Bells in Minneapolis on Thursday, September 28th.  Hope to see many alumni, including former students, at this event.  For more information, click here.  

Andrew Curtis Podcast

If you are interested, Andrew Curtis interviewed me for a recent episode of his podcast.  You can access it via iTunes here.

Will Amazon Buy Nordstrom Next?

Back on May 11th, NYU Professor Scott Galloway appeared on Kara Swisher's Recode Decode podcast. During that conversation, he predicted that Amazon would acquire Whole Foods. One month later, Jeff Bezos made his move. Amazon purchased the organic supermarket retailer for $14 billion. Yesterday, Professor Galloway appeared on Swisher's podcast again. This time, he predicted that luxury retailer Nordstrom might be Amazon's next big acquisition target. He explained, "It would be cheap, it’s in Seattle, they’re operationally very sound, it’s a great company and they’re [Amazon is] trying to establish relationships with high-end brands, which they have been unable to do. Nordstrom has those and a lot of credibility, and a lot of wealthy households have a Nordstrom credit card."

Like many brick and mortar retailers, Nordstrom has experienced a sales slowdown as mall traffic has declined. In fact, news reports in June indicated that the Nordstrom family was considering taking the company private. Earlier this week, the company announced that it was opening a test store next month called Nordstrom Local. The Wall Street Journal explained the concept: 

Nordstrom Local, scheduled to open Oct. 3 in West Hollywood, Calif., will span 3,000 square feet, far less than the 140,000 square feet of one of Nordstrom’s standard department stores. It will contain eight dressing rooms, where shoppers can try on clothes and accessories, though the store won’t stock them. Instead, personal stylists will retrieve goods from nine Nordstrom locations in Los Angeles, or through its website. The stylists can also pull together looks for shoppers through a “style board” app.

Is this acquisition a real possibility? I can certainly see Professor Galloway's logic. However, as he notes in the podcast, the company is led by the Nordstrom family. Indeed, the firm's ownership structure could be a formidable obstacle. The Nordstrom family owns roughly 1/3 of the company, and family members continue to lead the retailer. Amazon would find it very difficult to acquire the company without the family's consent. However, Galloway's comments do make you wonder whether other retailers might be acquisition targets. As Amazon contemplates opening a second headquarters with up to potentially 50,000 employees, it's clear that Bezos' ambitions know no limits. Could a luxury apparel retailer be next? Nieman Marcus, anyone? They have been struggling. They announced an exploration of strategic alternatives several months ago. Perhaps they might be a target. They are not as operationally sound as Nordstrom's, and they have considerably more debt, but perhaps it's a more attainable target.

Three Ways Leaders Can Build Trust

I was asked a very important question today during a presentation to a group of senior finance executives from a wide array of Fortune 500 companies.   One person asked, "How does a leader build trust?  What are the most important and effective ways to do so?"  I offered three suggestions. 

1.  Acknowledge your own mistakes.  Be transparent about those situations in which you stumbled, and talk about how you learned from those incidents.  They will come to trust you and be willing to come forward to talk about their concerns and failures if you acknowledge ways in which you struggled during your career.  

2.  Avoid engaging in the charade of consultation (a phrase coined by my friend and best-selling author Michael Watkins).   In other words, if you have already made up your mind about a decision, don't engage the team in a lengthy analysis and dialogue, all the while steering them to your preordained decision. You're wasting their time and insulting their intelligence.  They recognize that the decision has already been made, and their trust in you will erode if you engage in this charade. 

3.  As Teddy Roosevelt once said, "“People don't care how much you know until they know how much you care."  In other words, they won't trust you simply because of your competence.  You have to show them that you care about them as individuals.   If they believe that, then they will trust and follow you.  

Picking the Right Job for You Based on an Interesting Interview Question

Christa Quarles, CEO of OpenTable, described her favorite job interview question recently in an interview with CNBC. She likes to ask candidates: "What part of this role do you love and you can't stop doing? And what part do you hate doing?" Quarles knows the most important facets of the role she is trying to fill. If someone loves those critical facets of the job, then Quarles feels comfortable with that candidate. In short, she wants to make sure that the candidate's passion matches the needs and demands of this particular role.

However, the second part of the question is important as well. What do you hate? As she says, everyone has certain work that is less desirable to them. Quarles goes on to ask the candidates how they will manage those aspects of the job... work that must be done, but understandably, may not be the type of activity about which the candidate is passionate. 

I'm struck by this question, because I think every job seeker should ask themselves this question during the search process. The candidate should be trying to understand the job description and the demands of the role, and they should be asking themselves if they will be excited about enough of that activity to make the work meaningful and fulfilling to them. The candidate also has to think about the negative aspects of the job and whether they can handle that work without becoming frustrated or disengaged. No one wants to work diligently to land a job that they will, for the most part, hate doing.

Do You Find Your Calling or Craft It?

I listened to an episode of the Hidden Brain podcast in which Shankar Vedantam interviewed Yale Professor Amy Wrzesniewski.  The episode focuses on the notion of finding your calling.  When it comes to choosing a job or profession, many people advocate finding your passion.  According to this line of thinking, if you search long and hard, you can discover your vocation or calling, and as a result, you will find your work meaningful.   If you do meaningful work, then you will be happier, more engaged, and more productive. What's the problem with that line of thinking?  Well, what if you spend a great deal of time pondering your future, and you cannot discern your calling?  What if you simply aren't sure?  Many young people become incredibly frustrated because they simply aren't sure what their calling is.  They don't know how to find it.  

Professor Wrzesniewski has a different point of view, one that bears serious consideration.  She has studied how people find meaning in their work.  Wrzesniewski argues that some people engage in a practice she calls "job crafting."  On the podcast, she explains her study of workers who cleaned the halls and rooms at a hospital.  When asked to describe their job, some workers talked strictly about the responsibilities listed in the job description.  In contrast, others defined their job differently.  They talked about how they engaged with doctors, nurses, patients, and the patients' families.  They viewed their job as involving responsibilities beyond those mandated by their supervisors.  According to Wrzesniewski, these workers had "crafted" their job in a way that felt much more meaningful to them. They were part of the process of caring for these patients, not simply the person responsible for washing the floors or taking out the trash.   

Wrzesniewski argues that we can all engage in the job crafting process.  In so doing, we can make meaning in our work.  We don't necessary find meaning only by searching our soul to discover our calling.  We can also find meaning by shaping how we define the job we do, the roles we play in an organization, and the constituents with whom we interact.  Wrzesniewski argues that job crafting often involves thinking how we interact with others at our organization.  We often find meaning in those relationships and in how we serve various constituents.  

We Dwell on the Negative

New research from Stanford Professor Zakary Tormala and graduate student Aaron Snyder examines how individuals weigh the pros and cons when making a decision. They found that people tend to dwell on the negative. According to their research, "People feel more conflicted when faced with many positives and a few negatives than they do when faced with many negatives and a few positives."   Tormala explains: "“Suppose you are evaluating a person — for example, a job candidate — and you make a list of his or her positive and negative qualities. Even assuming you come up with positives and negatives that are equally relevant and compelling, the negatives tend to carry more weight.”   Adding just one or two negatives to a list of many positives can cause people to feel conflicted, uncertain, and ambivalent about a decision.   Put simply, we dwell on those negatives, even if they are few in number.  

Is there something inherently wrong with this bias toward negativity?  I worry that it may lead to much indecision, and that inability to take action can be a problem in many situations.   Moreover, it may cause us to lose confidence in our ability to make the right call in tough circumstances.  We might exhibit far too much risk aversion in certain situations because of this negativity bias.  On the other hand, perhaps the mind has found a way to prevent us from making rash decisions.  It might just be pumping the brakes for us a bit, so that we don't simply look at the world through rose-colored glasses, as we are want to do in many circumstances.  How do we find the right balance?  Often, the team around us can help us.   Some people are inherently more positive than others.  They can push back when some are dwelling on the negative.  Similarly, some members can challenge those who are exhibiting overconfidence or excessive optimism.  

A Strategy for Solving Problems Creatively

Theodore Scaltsas wrote a Harvard Business Review article last year in which he outlined an interesting strategy for solving problems creatively. Scaltsas explains that the brain mines our past experience for possible solutions when it faces a problem. Yet we think of creativity as inventing entirely new solutions to perplexing challenges. Are we really inventing something new each time we come up with an ingenious solution to a vexing problem? Perhaps not. Scaltsas explains: 

So how do new solutions emerge? The answer to that question is rooted in how one approaches the problem. Although the brain’s solution-generating mechanism is inherently predictive (bringing familiar solutions to a given problem) you can also address an intractable problem by reinventing the problem itself. Doing so coaxes the brain into proposing old solutions for types of problem these old solutions have not solved before.

One way of triggering these solutions is to imagine ways out of the fix you’re in by imagining that the circumstances blocking your progress are being lifted one by one. This produces different versions of the challenge. One of these new hypothetical versions may well resemble a type of problem that you have solved in the past. Your mind will then fire out a whole new set of solutions, one or more of which may work. If the solution you select for the new version of the challenge is untypical for the original version, it can certainly qualify as a creative solution to the new one.

What Scaltsas has proposed is essentially a strategy for helping people reframe complex problems. By reframing in this manner, one triggers the mind to search for solutions embedded in our past experience. To make this concept more concrete, Scaltsas uses a famous historical example. He recounts the story of Odysseus and the Trojan Horse. He explains how Odysseus reframed the problem, and thereby came up with a deceit-based strategy rather than a combat-based plan for defeating the enemy: 

The lesson is not that the Trojan Horse was a new solution per se. Misdirection of that kind is the staple of any con artist. The creativity lies in the fact that Odysseus was able to transform the 10-year-old problem of overpowering the Trojans into a problem of deceiving them, which opened up a whole new set of ready-made solutions that he was already master of. And given the 10 years the Greeks had spent failing to win the war, Odysseus was able to make a convincing case that his treating the core problem not as one of combat but as one of deceit offered an unexplored path to success.

Homes for our Troops

Exactly one month from today, I'll be running the Twin Cities Marathon (October 1st).  The marathon represents one of my goals during this sabbatical year from Bryant University.  I'm running to raise funds for an organization called Homes for our Troops, an amazing and well-managed charity that helps build specially adapted homes for severely disabled veterans.  I hope you will join me in support of this incredible organization, rated four out of four stars by Charity Navigator.   You can donate by clicking here.  Thanks so much for your support!  

Avoiding Analysis Paralysis

University of Chicago Professor Sanjog Misra commented to the business school's magazine about the problem of analysis paralysis.  Professor Misra offered an interesting perspective on how to avoid this classic decision trap.  He teaches a class focused on the use of algorithms and data analysis in marketing.  Misra argued that you have to be very clear about the question you are trying to answer BEFORE you begin your analysis.   Moreover, he advocated for more clarity about the answer you are trying to achieve.  Misra recommended trying to sketch out the parameters of an idea answer before you start evaluating the data.  He explained:

This isn’t a totally new idea, just new to analytics. In the business world, one wouldn’t want to put out a call for proposals with no details about what he or she is looking for. We wouldn’t want to wade through a million proposals to decide what suits our needs. That would be silly. Instead, when you put out a call for proposals or a purchase order, you typically outline a very detailed specification of what you want. Similarly, it’s worthwhile speccing out the “answer” you are looking to find. You don’t go around aimlessly.  One of my interpretations of Peter Kennedy’s 10 commandments about data analysis is, “Thou Shall Not Fish.” That’s something I emphasize in my classes. Of course, sometimes mining for data is actually what’s required. So if the objective is to fish, then you should be fishing. If it isn’t, the commandment applies.