New Year Brings Choice: More Distinctive or More Conventional?

Image Source: Wikipedia

As we approach the new year, we have a choice as individuals and as organizations: Will we become more distinctive or more conventional in our work?  Are we open to experimenting, testing new ideas, and learning by doing?  Or, will we play it safe because we fear negative feedback, criticism, and perhaps failure?  Leaders too need to think about the message they send to their team members.  Are they creating a climate where people are more likely to fall in line with the conventional wisdom, or are they establishing a culture where people are willing to try new things?  Moreover, leaders need to consider how team members interpret certain results and feedback that they receive.  Will that feedback encourage them to continue to push boundaries, or will it stifle their creativity instead?

Interestingly, new research by Giacomo Negro, Balázs Kovács, and Glenn Carroll explores this very question. The scholars published their work in the American Sociological Review earlier this year.  These scholars studied professional musicians. In fact, they collected data on more than 125,000 albums by a wide variety of musical artists. Negro and his colleagues examined how artists' work evolved after either winning a Grammy award vs. earning a nomination but not winning an award. The researchers discovered that Grammy winners tend to "release albums that are more likely to stand out stylistically from other artists." In contrast, the nominees who did not win awards tended to produce subsequent music that was more similar to the work of fellow artists.  

Negro and his colleagues argue that winning an award inspires musicians to take a chance and produce new music that is original and adventurous.  They try different styles and even explore new genres.  The scholars use the Irish rock band U2 as an example.  The band earned  Grammy awards for its groundbreaking Joshua Tree album in the late 1980s, yet Bono and his bandmates chose to try on a very different style with the subsequent album, Achtung Baby.  They went on to earn a Grammy award for that music as well.  

What happens when artists simply get nominated, but fail to win an award? They appear to become more conventional.   Why?  Negro argues, "One possible interpretation is that the nominees interpret the feedback on their artistic choices as essentially negative feedback or a negative signal that what they tried to do did not win them the award."

Unlocking Creativity in One Amazing Graphic

Thank you to reader Amelia Crabtree, a geriatrician from Melbourne, Australia, for creating this amazing infographic about my book, Unlocking Creativity.  I'm so grateful! 

Eight Good Books I Read in 2022

 As I look back on the past year, I wanted to recommend eight interesting books that I read in 2022.  

The Right Connections to Make in Your Job Search

Source: www.reliantsproject.com/

Imagine that you are searching for a new job, and you are leveraging LinkedIn as a resource in your search.  You are trying to make the right connections to facilitate the process.  What types of connections are most useful?  First and foremost, you should be building that network LONG BEFORE you are actively in need of new employment.  Don't wait.   Second, you need to consider the types of connections that are most impactful.   For a long time, scholars have argued that connecting with others with whom you have "weak ties" can be more useful than leveraging those with whom you have "strong" ties.   Why?  People with whom you have weak ties enable you to access opportunities, information, and resources that are not readily available to you already.  They help you discover options not known to your close friends and immediate co-workers.  Branching out can be powerful and effective.  

Professors Iavor Bojinov, Erik Brynjolfsson, and Sinan Aral collaborated with two researchers at LinkedIn to test the theory of weak vs. strong ties.  They examined two experiments conducted in 2015 and 2019 involving millions of LinkedIn members and the "People You May Know" algorithm on the social media site.  They discovered that connections with "moderately weak ties" tended to be most effective in the job search process.  These folks tend to be a bit more junior or senior than you, but not extremely distant in terms of stage of their careers.  

Moderately weak ties tend to be most useful for those working in fast-moving industries, or fields such as research and development.  Staying on top of new trends and discoveries outside your narrow domain turn out to be critical in those fields.  Finally, people engaged in remote work tend to benefit a great deal from moderately weak ties, in part because they need those connections to discover novel information they might not otherwise uncover due to the sometimes socially isolating aspects of working from home.  In sum, don't just focus on people you know well when building your network, but consider the diminishing returns of making connections with folks very distant from you.  Finally, the researchers stress that hiring managers need to think about building moderately weak ties as well, because those connections can help them discover talented candidates outside of their smaller group of people with whom they have collaborated closely in the past.  

What Gap Inc. Can Learn From Signet Jewelers CEO Gina Drosos

Source: CNBC

For years, Gap has struggled with a muddled corporate strategy.  Three of the company's four major brands (Old Navy, Gap, and Banana Republic) have blurred competitive positions.  Thus, they focus on overlapping target markets with product offerings that are not clearly distinguishable at times.  They cannibalize each other's sales far too often.  Moreover, while Old Navy has a clear low-cost positioning, and Banana Republic tries to be a differentiator, Gap has remained "stuck in the middle" for years... not clear about whether it's trying to compete on price or achieve higher willingness to pay, and not clear about whether it's a basics brand or a fashion retailer. 

I think Gap could learn a great deal from the turnaround led by CEO Gina Drosos at Signet Jewelers.  Her company owns several major jewelry chain brands (Zales, Kay, Jared).   Fortune recently profiled Drosos and her work improving performance at Signet.  Here's an excerpt from the article by Phil Wahba:

The Signet empire may not always be trendy, but it has considerably more momentum these days than it did when Drosos, the company’s first female CEO, took the helm. Not so long ago, it was not nearly as clear cut what purpose each of Signet’s three biggest chains were most suitable for. Indeed, as Signet fell into a rut during the 2010s, its biggest banners cannibalized each other and started to become almost indistinguishable. Drosos recalls a time when any sales event at Zales would mean a corresponding drop in business at Kay, a problem made all the worse given that the chains often operated rival stores within yards of each other at the same tired malls. “We had all of our banners pretty much on top of each other in the middle tier,” says Drosos.

Now each of the three major brands focuses on different occasions, customer needs, and price points.  The company still faces major challenges given its reliance on brick-and-mortar retailing with a heavy dependence on mall customers.   However, Signet has made some moves to enhance its online presence, including the acquisition of Blue Nile.  More work remains to be done if Signet will survive and thrive given the decline of malls in the United States. 

Of course, to make all this happen, Drosos had to change a toxic culture and address the fallout from a sexual harassment scandal involving a prior CEO.  Here's another excerpt: 

Drosos has also begun to change Signet’s culture—by making sure shell-shocked employees, primarily women, feel heard and included and are willing to buy into management’s vision, and dramatically overhauling the board... The toxic culture went beyond rampant misbehavior: It also took the form of a quasi-autocratic approach to business in which the bosses, disproportionately men, didn’t listen to what people in the field, the predominantly female frontline Signet workers, were seeing. Drosos, says that as a board member from 2012, she had always pushed for Signet to diversify its workforce and culture. When she became CEO, she says, the board told her to accelerate that effort.

The transformation of the culture, naturally, is key to this turnaround.  You cannot design and execute a new strategy without great ideas from people at all levels.  If you don't create an environment where people feel safe speaking up and sharing their ideas, you can't develop a winning strategy in a very challenging competitive landscape. 

One Key to Staying Motivated: Don't Expect Steady Progress

When you start a new project, do you expecct to achieve steady progress toward your goal, week after week?  If so, you might be fooling yourself.  Progress on a challenging initiative is rarely that steady over time.   Expect bumpiness!  Perhaps even more importantly, you might find it difficult to stay as motivated during your work if you have these misguided expectations.  

Check out this new experimental research by Gráinne Fitzsimons and Jessica Paek of Duke University.  They conducted an experimental study in which people were asked to complete tasks for compensation.  Research subjects earned a small amount of incentive pay if they achieved the goal of performing more than 50% of the tasks correctly.   In the experiment, one half of the research subjects achieved steady progress toward their goal, while the others encountered a much more uneven set of results over time.   These scholars found that the latter became less motivated as they worked.  However, if people recognized at the outset that the progress toward the objective would be uneven, they did not have the same type of demotivating experience.  Fitzsimons explains, “Being unrealistic and expecting steady progress is going to make it harder to stay motivated when you meet those inevitable bumps in the road."  

For me, this research reminds me of the work of cognitive scientist and learning specialist Daniel Willingham of the University of Virginia.  Willingham argues that teachers need to assign work that is "desirably difficult" if they wish to maximize learning by their students.  The challenge is very much a Goldilocks story.  If the work is too difficult, students become easily frustrated and demotivated.  If it's too easy, then they don't learn very much.  The sweet spot is when students are challenged, but they can see themselves making progress toward the goal.  Of course, for many students, that progress is uneven.  Some expect a smooth learning process, and that can be problematic.  Learning a new skill is rarely free of obstacles, frustrations, and even dead-ends.  If we expect to see those challenges along the way, we have prepared ourselves for some frustrations.  If we expect smooth sailing, we are setting ourselves up to fail.   As this research by Fitzsimons and Paek demonstrates, the same type of dynamic applies to all of us in our work, not just students.  We have to set the appropriate expectations for ourselves and our team members BEFORE we begin a challenging task.  The key is to frame the work appropriately.  If we frame the project as a learning/development opportunity that will involve challenges, then we are preparing ourselves to succeed.  If we frame it as a routine endeavor that should proceed smoothy, we are setting ourselves up to fail.

Why Your Company Should Build a Volunteering Program

Stanford Professors Jeffrey Pfeffer and Sara Singer have published new research on the subject of company-sponsored volunteering programs.  They studied survey data from more than 53,000 employees in the UK.   They found that company-sponsored volunteering programs can improve job satisfaction and employee commitment.  Perhaps that result does not surprise you.  However, this research also identifies two key reasons why these programs have beneficial effects.  According to Pfeffer and Singer's findings, these programs enhance social bonding among employees, and they enhance the extent to which employees identify with their employers.  What do these scholars mean by "identifying" with employers?  They define it as feeling a sense of belonging, being willing to recommend the company to peers, and sharing the values and goals of the enterprise.   Singer commented on the research implications:

Employer-sponsored volunteer programs are pretty widespread; it’s just that the uptake isn’t very high. The challenge is really in creating programs that encourage people to participate. You’ve got to make opportunities for things that employees want to participate in because they provide meaning and purpose. You have to provide the flexibility that allows them the time to do it. Creating the conditions that allow employees to participate in company-sponsored volunteering programs is key.

The scholars emphasize one very important point.  You won't get the full benefits if people are off volunteering on their own.  They need to be conducting this service work in collaboration with their fellow employees.  Especially in a time of remote or hybrid work, this time together in person can be vitally important for building commitment to the organization and to one another.   

How Leaders Avoid Hero Syndrome

This week Kellogg Insight features a conversation with Colonel Fred Maddox, an assistant professor at the U.S. Army War College and Chief of Staff of the Army senior fellow at the Kellogg School.  Maddox discusses how leaders should react when the execution of a very important project falters badly.   He suggests that many leaders enjoy being the heroes, swooping into the situation and trying to solve the problem personally.   Maddox cautions against this approach, "When leaders act like they’re the only ones who can solve something, it can become an issue for the whole organization because they’re not focused on strategy and they’re doing someone else’s job.”  Moreover, he argues that such "heroic" action can demoralize team members, because they feel as though their skills and voice are not respected.   

Why don't leaders trust their team members in these spots?   Maddox argues that leaders often don't believe in the skills and expertise of their team members.  However, leaders do believe in themselves, yet sometimes that confidence is not well-grounded.  The situation may be far more complex and/or novel than the leader would like to admit.  They need help from their team members; they cannot solve it alone.  However, they somehow convince themselves that they can rectify the situation without assistance.   It's hero complex 101.  

Maddox explains how the military uses various simulations and training exercises to develop the skills of team members.  An investment in training and development does not only help the team members hone their skills; it builds the leaders' confidence in their team members.  Leaders need to find time to see their team members in action in a lower-risk, safer space.  

He explains that a good leader doesn't simply issue orders in these training scenarios.  Instead, the effective leader inquires as to how various people on the team would try to solve a specific probelm.  He calls this Socratic approach "walking in autonomy."  It's essentially a conversation in which the leader coaches and mentors, rather than solving the problem directly. Then, Maddox advocates using the "after-action review" to analyze the decisions that have been made and the impact those choices had on the results - good or bad. Providing time for reflection, feedback, and learning proves crucial for employee development, and these activities help build the leader's confidence in the people throughout the organization.

Is it time to fire yourself?

Source: Intel

This week, author and leadership development consultant Adam Bryant wrote a thought-provoking article titled, "Is it time to fire yourself?" for Strategy+Business. Bryant tells the story of Bracken Darrell, CEO of Logitech International.  After five years leading the firm, Darrell asked himself the question, "Am I the right person for the next five years?"  He pondered stepping down.   Instead, though, he chose to continue as the CEO, while adopting a fresh perspective.  Darrell explains, “I have to rehire myself but have no sacred cows. It was super exciting and fun, and I started changing things that I had put in place. Fortunately, I didn’t have to change things radically, but I felt new again.”  

Bryant also recounts the legendary story of former Intel CEO Andy Grove contemplating how his replacement might adopt a very different strategy facing the specific circumstances challenging the firm in the early 1980s: 

"Grove asked Gordon Moore, Intel’s cofounder, 'If we got kicked out and the board brought in a new CEO, what would he do?'  Moore responded by saying that a new CEO would take Intel out of the memory-chip business. 'Why shouldn’t you and I walk out the door, come back and do it ourselves?' Grove responded. And that’s what they did. They shifted Intel from memory chips to microprocessors, a crucial pivot that led to decades of prosperity for the company." 

Bryant offers a compelling argument for why leaders should consider what might happen if they were replaced.  How might a new person look at the situation?  What other perspectives might be helpful to me now?  Am I stuck in a certain mindset or beholden to certain assumptions that may no longer be valid?  Leaders at all levels absolutely should ask themselves these questions from time time.  

Bob Iger Returns to Disney: How Do Boomerang CEOs Work Out?

The Wall Street Journal reports shocking news from Disney this morning.   CEO Bob Chapek, recently signed to a contract extension by the board, has stepped down effective immediately.  Former CEO Bob Iger will return to take the reins.  Iger, of course, presided over a long period of strong performance at the company.  However, Disney has struggled along multiple dimensions since his departure.   Iger's return prompted me to consider how "boomerang" CEOs have performed.   We all know about the high-profile success stories, such as Steve Jobs returning to Apple long after he was dismissed.   Is that strong return the norm or the exception?

Christopher Bingham, Bradley Hendricks, Travis Howell, and Kalin Kolev studied this question and published their findings in the MIT Sloan Management Review two years ago.  They found that, "Boomerang CEOs indeed performed significantly worse than other types of CEOs. On average, the annual stock performance of companies led by boomerang CEOs was 10.1% lower than their first-stint counterparts. These results held true even when we compared them with other (non-boomerang) CEOs who were hired in times of crisis."

Why might boomerang CEOs struggle, on average, during their return?  First, they might be trying to apply a tried-and-true formula for success, yet conditions and circumstances may have fundamentally changed since their initial departure.   Second, decisions late in their initial tenure actually may have caused some of the downturn in performance after their departure.  Owning up to that fact may be challenging for many leaders.  Third, the team at the top may have changed significantly since their first tenure.  Their earlier success may have had as much, if not more, to do with those talented team members as it did with their own capabilities.   Fourth, the new skills required to thrive in the current environment may not match the leaders' strengths.  Finally, perhaps the returning leader may not be as open to divergent perspestives as he or she once was.  As Iger himself noted in his book, 

"It’s not good to have power for too long. You don’t realize the way your voice seems to boom louder than every other voice in the room. You get used to people withholding their opinions until they hear what you have to say. People are afraid to bring ideas to you, afraid to dissent, afraid to engage. This can happen even to the most well-intentioned leaders. You have to work consciously and actively to fend off its corrosive effects.

Boards and returning leaders must, of course, also acknowledge the fact that they did not manage the succession well.  In essence, the boomerang CEO has some responsibility for having failed in one of the last crucial tasks faced during his or her initial tenure: a smooth transition for the successor.  Now, the boomerang CEO has to not only right the ship, but find a way to improve the succession and transition the next time he or she steps down.  Again, it's interesting to read Iger's own words:

We all want to believe we’re indispensable. You have to be self-aware enough that you don’t cling to the notion that you are the only person who can do this job. At its essence, good leadership isn’t about being indispensable; it’s about helping others be prepared to step into your shoes—giving them access to your own decision-making, identifying the skills they need to develop and helping them improve, and sometimes being honest with them about why they’re not ready for the next step up.

Rethinking The Way You Hire

If you have a job opening in your organization, are you trying to find a superhero that, in all likelihood, does not exist.  Or, is your desperation to fill a position distorting your recruiting and selection process?   Recently, I read an interview with Patty McCord, former CHRO at Netflix.  McCord described the challenges that many managers face when trying to hire people.  Then, she provided a different approach to recruitment.  I found it be a fascinating perspective and process.  She calls it "reverse thinking."  Here's an excerpt:

First you start with the timeframe. I usually say six months to a year, depending on the level of the role. If we hire the right person in that role and things were amazing, what would be occurring then, that’s not occurring now? Then I tell people to list out all of their metrics to measure success. Everyone has numerals. Spit them all out.

Then I say to make a movie of it. If I’m walking around, are there more meetings or are there less meetings? Are people’s heads down? Are they working collaboratively? What does it look like?

That gives you the behaviors and the drive and the motivation. What somebody wants to get engaged with in purposeful work.

Now that I have my movie and I have my metrics, now I say okay, in order for those things to happen that aren’t happening now, what does somebody need to know how to do?

Now you get to the skill set that’s never on the job description. Then you look at the skills and experiences that would lead someone to know how to do that.

I like this reverse thinking because most people write job openings to describe (a) the person who left that they didn’t want to leave (b) the fantasy person who doesn’t exist (c) whatever it will take to get the req approved.

How to Encourage People to Offer Suggestions & Ideas

Why do some front-line workers keep their best ideas to themselves?  How might we encourage them to bring their suggestions forward to their managers in a proactive fashion?  Jieun Pai, Jennifer Whitson, Junha Kim and Sujin Lee have published an interesting paper addressing these questions.  They conducted a field experiment at a large manufacturing company with several thousand technicians.  

Before the experiment, the firm had instituted an initiative to collect ideas for improvement from their technicians.  Of the 3,800 workers, 55 of them proposed suggestions in the first six months of the effort.   Then, the scholars began their field experiment.  They designed two sets of posters for the manufacturing company.   One set of posters featured technicians talking about how they were willing to offer an improvement suggestion because they worked for a supportive manager.  Morever, the posters encouraged people to think about a supportive manager at the firm.  A second set of posters also featured workers talking about submitting suggestions. However, the quotes described how the workers' own knowledge and expertise led them to propose an idea.  

Workers who viewed the first set of posters submitted 71 ideas in four days.   The technicians who viewed the second set of posters offered just 45 ideas in four days.  In both cases, the number of suggestions rose substantially from that prior six-month period.  However, the posters featuring discussion of supportive managers had a much more positive impact.  

These researchers argue that we need to act supportively as managers and to create what they call a secure relationship with employees.  Front-line workers need to trust their managers, and they need to have a relationship that makes them comfortable bringing ideas forward.  Moreover, the experiment shows that how we encourage workers matters.  We can't just ask for their ideas.  We have to design our call to action in a way that reminds them of how we really do want to hear their ideas.  

To me, those posters helped because they featured the voices of their peers.  They showed that fellow workers felt that their voices were heard, and that their suggestions actually made a positive impact on the organization.  People want to know that someone genuinely considers their views and actually takes action based on their recommendations.  

Uncovering Hidden Risks: Three Challenges

I've argued that leaders need to become more proactive problem finders if they wish to avert surprising failures in their organization.   They need to seek out and uncover hidden risks.  Unfortunately, as humans, we struggle with regard to how we cope with risk.   Three patterns of behavior prove particularly problematic when it comes to risk.  

1.  We actively downplay and discount ambiguous risks.

As Amy Edmondson, Richard Bohmer, and I have argued, individuals and organizations are predisposed to downplay ambiguous threats.   Think the foam strike on the Columbia shuttle or the early news reports of a deadly virus in Wuhan, China.  

2.  We normalize riskier actions over time.

As Diane Vaughan has argued, we engage in a gradual acceptance of higher and higher risk over time.  We deviate from a standard, and if nothing bad happens, we set a "new normal" for ourselves. That makes a further deviation from standard seem quite small, when in fact, we are drifting further and further from what was initially deemed to be the appropriate benchmark.  Consider how we can incrementally make our way to driving 30 miles over the speed limit.  

3.  We take more risk when we know that safety protocols, back-up systems, and redundancies are in place. 

Consider how we drive once we know our car has a number of technological innovations that help us stay safe (lane assist, back-up cameras, object detection, assisted braking, etc.)   We sometimes take more risk because we think that those systems will protect us.  

As a Leader, Are you Trying to Impress or Connect?

I recently listened to an interview with Jon Levin, Dean of the Stanford Graduate School of Business.  The podcast focused on communication.   Levin offered a great take on how his thinking about communciation has changed over time, as he has taken on leadership roles.  

My thinking about communication has evolved over my career. I started as a professor teaching. And when you’re giving research talks, it’s just everything is about presenting ideas and information clearly, and maybe even impressing people a little bit and getting them to change the way they think about a problem.

In a leadership role, so much more of communication is about connecting with people, establishing shared humanity, motivating them, inspiring them, sometimes challenging them. So, going through my career, that has really reinforced to me the different purposes that communication serves: to inform people, to connect with people, to motivate and inspire them.

I really love this distinction between IMPRESSING PEOPLE and CONNECTING WITH PEOPLE.   The former, of course, often involves talking AT people.  The latter means that leaders listen to others, engage them in dialogue, and collaborate WITH team members.   Every leader should think about how they build connection so as to motivate, inspire, and build commitment in their organization.  

How Leaders Can Build Trust

Source: openaccessgovernment.org

In far too many organizations, employees indicate that they do not trust senior leaders.   Why is trust so important?  It helps leaders build buy-in and commitment, particularly when they have to make difficult decisions.  It drives engagement and helps increase employee retention.   Heightened trust increases intrinsic motivation, leading to higher productivity and organizational effectiveness.

How can leaders build trust?  Here are five strategies that prove quite effective:

1. Be transparent.  That doesn't just mean providing more information about the performance of the organization.  It means helping others understand how you think.  What are the criteria you use to make big decisions?  What is the rationale for particular actions?  What are the values guiding your behavior?
2. Walk the walk.  If you articulate a certain set of values and norms, then be sure that you are acting in ways consistent with those principles.  Root out any instances of misalignment between words and actions. 
3. Lead fairer decision-making processes.  Fair process doesn't mean giving people their way. It means giving people voice and genuinely considering their views before making key decisions.  As noted leadership scholar Michael Watkins says, it means avoiding the "charade of consultation." By that, he means not asking for input AFTER you have already made up your mind.  Employees see right through the charade when you ask for advice, yet simply act in the way you always intended from the start. 
4. Own your mistakes. If you fail, acknowledge it.  Explain what happened and why, and be clear about how you plan to fix the problem. Don't throw others under the bus.  Instead, describe what you learned from the failure. 
5. Listen early, often, and actively.  When you speak to large groups of employees, make sure that at least half the time is reserved for questions.  Don't force people to submit questions in advance.  Be willing to show some vulnerability and address questions in the moment.  If you don't know the answer, say so.  Tell people how and when you will get them the answer.  

Case Companion: A New Tool from Harvard Business Publishing

 

In the past few months, Harvard Business Publishing has begun distributing a new online tool that I developed with a terrific team from Torrance Learning and HBP.  

The tool - Case Companion - helps students learn how to analyze a case study.   To date, we have received some very positive feedback from students and faculty.  We look forward to using this tool to help our students improve their performance in case-based classes.  

CFOs, Leadership Development, and the Cost of Losing Talent

Source: Forbes.com

Michael Pickrum has written a good article for CFO magazine titled, "The CFO's Role in Leadership Development."   He argues that talent is crucial to achieving an organization's strategic and financial goals, and that the job of leadership development does not rest only with the chief human resource officer.  The CFO can and should play a vital role.  Among other things, Pickrum argues that the CFO can help the organization recognize the value of leadership development efforts.  He writes,

Use data and more holistic analysis to aid better decision-making. What are the costs for contracting or recruiting externally versus upskilling internal high performers? Apply your visionary eye to this analysis. What are those costs over the long-term, given the value of in-house knowledge and retaining those who possess both the expertise and the experience with your organization’s way of working?

In short, Pickrum makes the case that CFOs can help organizations identify and quantify the costs and risks of losing key talent.  What precisely is the damage done by high employee turnover?  What benefits will we acheive if our development efforts improve the retention of highly talented employees?  Many CFOs (and other top executives) question the ROI of leadership development efforts.   Yet, CFOs should do more than ask the question in a theoretical way.  They should help the organization develop an accurate and thorough understanding of the potential benefits of leadership development efforts as well as the risks and costs of NOT investing in leadership development.   The connection between development and retention is crucial, and understanding the true cost of employee turnover is essential.  

Flaws in the Rationale for the Direct-to-Consumer Business Model

Alexandra Sternlicht has written an article this week for Fortune titled "How Silicon Valley’s retail revolution withered. Eight years after Allbirds and Glossier were born, VC investors say direct-to-consumer is dead."  She quotes several investors, including Nicole Johnson, a partner at venture capital firm Forerunner.  

“We’re a whole decade past where pursuing the DTC model was at the forefront of innovation and retail, or was interesting on its own,” Johnson says. A direct-to-consumer sales channel is just “table stakes” today, she says—a useful feature for a young consumer brand, but not a business model in its own right.

It’s a sentiment echoed by numerous VC investors that Fortune spoke to, reflecting significant changes that have altered the internet landscape, as well as the shifting mindset among private company investors at a time of economic uncertainty. If direct-to-consumer startups were once touted as the harbingers of a retail revolution, today they are viewed by VCs as relics of a different era.

I found the article quite thought-provoking, but I'm particularly interested in reflecting on the rationale that many executives and entrepreneurs use to support a DTC business model.   Often, you will hear people say that the DTC model enables the startup to "capture the margin" otherwise obtained by the brick-and-mortar or e-commerce retailer.  Of course, that thinking is DEEPLY flawed.   Yes, you aren't giving away the "mark-up" to the retailer.  However, you ARE spending a considerable amount of money on your own marketing to build brand awareness, since you don't have the assistance of the retailer.  You have to find a way to distribute the product, and that "last mile" to the consumer's home can be quite expensive.  Moreover, if you end up opening some of your own brick-and-mortar stores, as some of these startups have done, then you are investing heavily in assets and will have to generate sufficient additional profit to maintain a healthy return on those expensive assets.  In short, the retailer does serve a very useful function for a nascent brand.  This is not to say that I believe DTC business models are not viable.  I'm simply arguing that entrepreneurs should not fool themselves into thinking there's easy money to capture by cutting out the retailer.   

Why Does Our Firm Exist? Lesson from the Collapse of Bed, Bath, and Beyond

Source: CNBC

Phil Wahba has written a detailed and highly informative account of the collapse of Bed Bath and Beyond for Fortune.  He points out that the retailer will generate about half as much revenue this year as they did just four years ago.  Tragically, CFO Gustavo Arnal took his own life earlier this month, in part due to the stress of the situation at the retailer.

Wahba chronicles the many reasons for the declining revenue and huge losses at the retailer.  They include executive turnover, supply chain systems failures and deficiencies, and a poorly designed effort to promote new store brands while reducing the reliance on coupons and discounts.   

Wahba closes the article by writing, "During the August investor presentation, a Baird analyst said to Gove (interim CEO): 'Just trying to understand how you really differentiate the business by selling product that is widely available at other retailers.' That is exactly what Gove has to figure out, and fast."

At another point in the article, Wahba writes, "Bed Bath & Beyond has to figure out why it needs to exist in consumers’ eyes."  Indeed, that is the ultimate question for any company.  Why do we exist? What value do we bring to the table for our customers that others cannot provide?  If you can't answer that question, you don't have a viable strategy at all.   Every CEO should be asking themselves that question, but especially if you are leading a brick-and-mortar retailer these days. 

How Important Are Face-to-Face Interactions for Innovation?

Source: www.lifesize.com

Much has been written about the impact of remote work on collaboration and innovation in the workplace. Yet, few rigorous studies have attempted to document the actual impact on innovation. Now comes a fascinating new paper from David Atkin, M. Keith Chen & Anton Popov.  They used an enormous amount of smartphone geolocation data to track face-to-face interactions.   Their research sample includes over 51,000 employees in Silicon Valley in 2016 and 2017 (pre-pandemic).   Here's an excerpt from their paper:

Our rich data on interactions allow us to open the black box of knowledge spillovers and isolate a particular channel: face-to-face meetings. To do so, we first link worker interactions—measured by the probability that a worker from one establishment “meets” a worker of another establishment by being in the same place at the same time with patent citations between their employers, an observable proxy for knowledge flows. 

To calculate these meeting probabilities, we combine smartphone geolocation data with maps of building rooftops for all patenting firms in Silicon Valley, assigning workers to establishments based on where they spend a large fraction of their waking hours. To assign firm-level citations to establishments, we scrape citation data from recent patent applications and use the inventors’ hometowns coupled with the housing locations of workers to probabilistically assign citations across multi-establishment firms. The resulting dataset of establishment-to-establishment worker meetings and citations reveals a strong positive relationship between face-to-face interactions and knowledge flows, even after conditioning on rich controls for the physical distance between establishments.

Note the final sentence.  Face-to-face interactions enhanced knowledge flows. They documented a strong positive effect of face-to-face interactions on patent citations.  Here's more from the authors:

Implementing this approach, we find that face-to-face meetings significantly increase citations between establishments, with the strength of the effect twice the impact of physical distance on citations. Eliminating a quarter of face-to-face meetings in Silicon Valley would reduce the number of citations by approximately 8 percent..." 

Naturally, some will argue that we have learned how to collaborate remotely during the pandemic, and have we have mastered a batch of technologies that promote virtual collaboration.   Certainly, we have  become much more effective at communicating and collaborating with others spread across remote geographic locations.  Yet, remember that this study documents many informal, serendipitous face-to-face interactions among employees.   Those interactions are much harder to replicate virtually.   While many leaders are concerned about losing employees if they try to mandate a return to the office, they do have to consider this study's implications regarding remote work and innovation.  Hopefully, more researech will follow, enabling us to gain a deeper understanding of the value of face-to-face interaction in the new product and new process development process. 

How Employees Perceive Those Who Undercommunicate vs. Overcommunicate

Some leaders communicate early, often, and quite effectively.   Others overshare.  They send out a constant stream of messages, perhaps risking information overload for their organization members.  Finally, perhaps most often, we find that leaders undercommunicate.  They fail to offer transparency, and they fail to keep employees abreast of the latest developments at the firm.   Scholars Francis Flynn and Chelsea Lide conducted a great new study to examine the perceptions of employees in the cases of overcommunication vs. undercommunication.   They found that employees clearly prefer more communication to less, even if the risk of information overload exists.   Unsurprisingly, the scholars find that most leaders believe that they are communicating sufficiently, when in fact, they are not.  Here's more on the specific perceptions employees have and their implications for leaders, from Stanford Leadership Insights: 

Flynn and Lide’s research shows that employees’ preference for too many versus too few messages stems from the perception that even if an overcommunicating leader can’t communicate the ideal amount, at least they mean well. Overcommunicators “may be given the benefit of the doubt by their employees, who might view them as trying to meet their needs, even if they are not necessarily succeeding,” Lide says. Making an effort can give the impression of empathy, whereas undercommunicators are “not really seen as trying at all. Instead, they tend to be seen as really missing the mark in terms of meeting the needs of their employees.”

Flynn says that these results contrast with prior research that found that information overload hurts employee performance. “Overcommunication may be seen as annoying and a nuisance, but it’s not seen as a damning flaw for a leader, partly because a leader’s overcommunication is seen as an attempt to benefit you, even if it is misguided, as opposed to an attempt to undermine you or simply ignore you.”

Failing to Prepare for a CEO Succession

Source:  CNBC

Yesterday, Starbucks announced the hiring of a new CEO -  Laxman Narasimhan.  His former organization's stock (Reckitt Benckiser) dropped by 5% upon release of the news, suggesting investors believe its a significant loss for that firm.

As most readers know, former CEO Howard Schultz had to step in as interim leader of Starbucks several months ago, after the departure of Kevin Johnson.   The move represented Schultz's second return to the firm after his long tenure as CEO. On two occasions, Schultz had to step in when the firm was underperforming, and in both cases, it appeared that Starbucks did not have a successor ready to take over.  Why was Starbucks not prepared for these two transitions?  Moreover, given the problems Schultz has unearthed and encountered during his few months as interim CEO, one wonders if the Board didn't act quickly enough to move on from Kevin Johnson.  

These changes at Starbucks came to mind when I thought about a recent paper published by qresearchers David Larcker, Brian Tayan, and Edward Watts. They found that, "many companies are slow to terminate underperforming bosses, get caught flat-footed when a CEO suddenly departs, and often fail to appoint a viable or permanent successor."  Here's an excerpt from the Stanford Insights article profiling this research:

Succession planning is a taboo subject that tends to be neglected in many companies, Larcker says. One reason is that directors may feel awkward about broaching the subject with CEOs, as it suggests dissatisfaction with their performance. “It’s like coming home from school with a bad report card and explaining it to your parents,” Larcker says. “It’s not a fun thing to do.” And personal ties can make directors go easier on the CEO.

One of the most striking findings unearthed by the paper was that 4 out of 10 CEOs retain their jobs despite five years of worst-in-class performance based on return on assets.  Larcker puts this down to risk aversion. A CEO search can be time-consuming and expensive, and the stakes are high. One study estimates the cost of appointing the wrong leader at more than $100 billion. Bad picks can cause stock price drops along with stalled momentum, lost customer goodwill, and diminished trust within the organization. “There’s a reluctance to do it,” Larcker says.

The "Quiet Quitting" Debate

Source: The Street

Several weeks ago, Lindsay Ellis and Angela Wang wrote an article for the Wall Street Journal on the "quiet quitting" phenomenon in the workplace.   Here's an excerpt:

Zaid Khan, a 24-year-old engineer in New York, posted a quiet quitting video that has racked up three million views in two weeks. In his viral TikTok, Mr. Khan explained the concept this way: “You’re quitting the idea of going above and beyond. You’re no longer subscribing to the hustle-culture mentality that work has to be your life,” he said. Mr. Khan says he and many of his peers reject the idea that productivity trumps all; they don’t see the payoff.

Naturally, the concept of quiet quitting has sparked a ferocious debate about work ethic, employee engagement, and organizational culture. Today, Kathryn Dill and Angela Wang wrote an article for the Wall Street Journal about the "backlash" against the quiet quitting movement. They present several people pushing back:

• Arianna Huffington: “Quiet quitting isn’t just about quitting on a job, it’s a step toward quitting on life."
• Kevin O'Leary: “You have to go beyond because you want to. That’s how you achieve success."
• Amy Mosher: “It’s not about the quiet quitters. It’s about everybody else and the unfairness that occurs there."

For me, the discussion certainly creates a fair amount of concern.  I do worry about work ethic among a segment of the workforce.  I'm someone who loves my work and has always tried to go above and beyond for my students and my institution.  I would have a very hard time even contemplating quiet quitting.  However, I do understand why some employees have disengaged.  Moreover, I think the quiet quitting phenomenon should cause business leaders to seriously rethink four key issues.  They have to address these organizational weaknesses if they want to prevent people from disengaging in this manner:

1.  Why are people disengaged? Is it really because they are overworked and trying to dial back their workload, or is it because you have not provided them meaningful, purposeful work and some voice in the organization?  Would they work much harder if they were passionate about a project or believed that their work could have a substantial impact on customers and other constituents of the organization?  The job here is to rethink the roles people have and the way that work gets done.  
2. How are we measuring performance and providing feedback?  Is it possible for someone to coast unnoticed?  If so, that's deeply problematic.  Managers need to have a firm grasp on the way that work gets done, as well as how the workload is shared (equally or unequally) among their team members.  Providing feedback often is critical, but so is listening to hear people's concerns about their role and the organization's processes and systems.  
3. Are we investing appropriately in developing our people?  How can we improve their skills and capabilities?  Workers will invest in their organizations if the leaders demonstrate a willingness to invest in them.  Yes, you might invest in their training and development and then they might leave.  The investment is worth the risk.   They will disengage or perhaps leave anyway if they are not growing and developing on the job.  
4. Have our highest performers developed a perception of unfairness about how the workload is shared?   Perceptions of fairness have a substantial impact on organizational commitment and buy-in.  You will lose your best people if they think others are not carrying their fair share of the workload.  

Becoming Vigilant & Detecting Early Warning Signs

Source: Flaticon

Wharton decision-making experts George Day and Paul Schoemaker have identified four strategies for becoming vigilant leaders who can detect early warning signs effectively.  They recognize that the best companies overcome tunnel vision, avoid complacency, and scan the environment successfully to identify opportunities and threats.  Here are their four strategies:

1. Assemble a diverse team of independent thinkers: "One way to scope is by assembling a diverse team of independent thinkers from both inside and outside the company who can, as one of our clients phrased it, 'tap into the organization’s paranoia' and invite everyone to voice hunches, concerns, doubts, or intuitions that would otherwise remain dormant."

2.  Ask questions that acknowledge the limits of existing knowledge:  Effective leaders admit what they personally don't know and where key gaps exist in the organization's expertise.  Day and Schoemaker advocate asking three types of questions: learning from the past, interrogating the present, and anticipating the future.  They write, 

One method for learning from the past is to use past successes to create watching and listening outposts in other markets by asking, “Who there has a consistent record of seeing sooner and acting faster?” and “What is their secret?” Many companies interrogate the present by monitoring blogs, social media sites, and chat rooms for signs of brewing trouble with customers, with an eye toward timely remedial action. Vigilant organizations pay special attention to customers’ evolving behaviors and needs. One way to do this is by studying “edge cases” that could suggest opportunities or threats. (In engineering, the term edge is used to describe situations that purposefully push the limits.) To prepare for what’s ahead, leaders can develop different scenarios that reflect how today’s uncertainties might play out in years to come. To stimulate scenario planning, leaders should pose guiding questions about the future such as “What surprises could really hurt us (or help us)?” and “What might be some future surprises as big as those that we saw in recent decades?”

3.  Use active environmental scanning techniques:  By that, the scholars mean that you should develop hypotheses and then use scanning to try to test those hypotheses.

4.  Employ the wisdom of crowds to choose which signals to amplify and clarify:  Scanning can identify many opportunities and threats.  The challenge, then, is to determine which issues on which to focus attention more closely.  One way to choose is to employ the wisdom of crowds - let a broader group of people voice their opinions as to which issues warrant further scrutiny. 

Should Disney Divest ESPN?

Dan Loeb, (Source: CNBC)

News reports this week indicate that activist investor Dan Loeb has written a letter to Disney's leadership team, calling on the firm to make a series of strategic changes. Specifically, Loeb recommended a divestiture of ESPN. He also recommended that Disney accelerate the planned acquisition of Comcast's 33% stake in Hulu, and then for Disney to integrate Hulu into its Disney+ streaming service.  Disney's leadership has rebuffed Loeb's attempts to push for change.  

The ESPN recommendation certainly has triggered a lively debate.  Students will find this question an interesting one that goes directly to the heart of many core corporate strategy concepts. On the one hand, ESPN has been a cash cow for Disney for years. According to CNBC, "Disney is making more money from cable subscribers than any other company solely because of ESPN. ESPN and sister network ESPN2 charge nearly $10 per month combined, while Disney requires pay TV providers to include ESPN as part of their most popular cable packages."  Moreover, ESPN+ has become an important part of Disney's efforts to offering streaming options for customers.  ESPN+ has had limited content to date, but perhaps, Disney will eventually offer customers an opportunity to stream all Disney and ESPN content in a true over-the-top option for those wishing to cut the cord.   

Imagine having all Disney cable channel content, all ESPN cable channel content, and all Disney/Hulu streaming content available directly to customers who don't want to purchase cable.  Disney has been reluctant to make this type of aggressive move, in part because the firm continues to generate a ton of cash from fees secured through cable TV subscriptions.  Moreover, Disney would anger cable television partners greatly if it circumvented them completely and went directly to customers.  Still, as more and more people cut the cord, the calculus there may change, and Disney may pursue a complete over-the-top solution for customers.  

On the other hand, in corporate strategy, we typically argue that multiple businesses should only be owned and operated under one roof if they pass two tests:  the better-off test and the ownership test.  The better-off test asks whether significant economies of scope exist, such that ESPN has a stronger competitive advantage because it is owned by Disney.   Loeb argues that it is not obvious ESPN has a more powerful advantage because it is part of the Disney corporate family.  For example, in his letter, he writes, "“ESPN would have greater flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting."  Moreover, the synergies between ESPN and other parts of Disney do exist, but they are not nearly as substantial as, for example, the synergies between the theme parks and the movie studio.  

The ownership test asks whether the corporate parent needs to own a particular subsidiary to actually achieve key benefits of collaboration.  Could another organizational arrangement (ranging from market contracts through strategic alliances or joint ventures) be more efficient and effective than full ownership?  Here too Loeb argues that ESPN may not pass the ownership test.  He writes, "We believe that most arrangements between the two companies can be replicated contractually, in the way eBay spun PayPal while continuing to utilize the product to process payments.”  In other words, ESPN could still work with Disney and its portfolio of companies without being fully owned by the corporate parent.   This argument reminds me of one criticism back when Disney purchased ABC in the mid-1990s.  Some analysts pointed out that Disney already collaborated closely with ABC on events such as the Disney Sunday night movie of the week on ABC (which Michael Eisner would introduce).  The analysts then argued that Disney could pursue more of those types of partnerships and collaborations without having to spend billions to acquire ABC. 

The debate will be fascinating to watch.  The key point here is that Disney should not necessarily own ESPN simply because the subsidiary is profitable.  It also should not necessarily divest ESPN simply because cord-cutting is reducing subscribers at the sports network.  The longer strategic view should be driving this decision with a focus on these two critical corporate strategy tests.  

Rationalizing a Splurge: Not Just An Individual Decision-Making Error

Source: Tripadvisor

University of Chicago Professor Abigail Sussman has conducted some interesting research on how and why individuals tend to rationalize splurging.  She has studied this behavior in both the context of financial decisions and eating/dieting behavior.  Sussman finds that people tend to view decisions in isolation, and they view a particular consumption decision as a special one-time event.  Oh, it's a wedding, and it's a special celebration... so I can splurge on the giant piece of wedding cake.  Or, I have an event to attend, so it's ok to splurge on a nice new suit.  Examining events in isolation, as one-time events, enables us to deviate from disciplined decision making.  

People don't tend to look at categories of decisions.  For instance, there most likely are a series of opportunities to splurge on various delicious food and spoil our diet.  The wedding cake is not likely the only chance to splurge.  We have to stop looking at decisions in isolation, according to Sussman. 

The same logic holds for business decisions, in my view.  Company leaders sometimes can perceive opportunities or threats as one-time special events, and thereby justify an investment that might otherwise seem inadvisable.  For example, executives might convince themselves that this acquisition opportunity is unique, and that they simply can't let it pass them by.   They have to overpay, or they will never have a similar chance in the future.  Of course, the opportunity often is not that unique, and overpaying often leads to disaster.  Exercising some discipline and restraint is essential in these situations.  Ask yourself: Is this situation as unique as we are portraying it?

Not-so-Hidden Costs of Employee Turnover

Source:  Workstyle 

We all know that employee turnover can be very expensive.  Searching for, hiring, onboarding, and training new employees proves to be a costly endeavor for most firms.  If turnover increases, these costs can become quite burdensome.  A new study documents another significant cost of employee turnover - the decrease in product quality that can result from that loss of experienced and knowledgeable employees.  The paper is titled, "The Hidden Cost of Worker Turnover: Attributing Product Reliability to the Turnover of Factory Workers" by Ken Moon, Prashant Loyalka, Patrick Bergemann, and Joshua Cohen.  

The scholars studied the failure rates of 50 million cellphones produced by a major Chinese manufacturer and tracked the performance of those phones over four years of customer use.   Here's an excerpt from Knowledge@Wharton documenting the findings: 

• Each percentage-point increase in the weekly turnover rate for workers increased product failure by 0.74% to 0.79%.
• Failure was 10.2% more common for devices produced in the high-turnover weeks following payday, which was once a month, than for devices produced during the lowest-turnover weeks immediately before payday.
• In other weeks, the assembly lines experiencing higher turnover produced an estimated 2% to 3% more field failures on average.
• The associated costs amounted to hundreds of millions of dollars.

JetBlue Acquires Spirit Airlines: Will Straddling Work?

Source: Getty Images

The bidding war for Spirit Airlines has ended.  JetBlue and Frontier both sought to acquire Spirit.  Today, we learn that JetBlue has completed the deal at a price of $3.8 billion.  Alison Sider of the Wall Street Journal reported on the deal, quoting JetBlue CEO Robin Hayes: 

Buying Spirit would supercharge JetBlue’s growth, accelerating its plans by years, Mr. Hayes has said. The combined airline will have 458 planes—up from JetBlue’s fleet of just over 280 jets now—and will have over 300 more on order. Spirit’s pilots are a big part of the allure as well, at a time when airlines are struggling to replace the thousands who retired during the pandemic and are facing a growing shortfall.

Will the deal create value in the long term for JetBlue?  It's a fascinating question.  Historically, firms in the airline industry has struggled to be consistently profitable.  Richard Branson once joked that the easiest way to become a millionaire is to start as a billionaire and then open an airline.  Airlines have had even more trouble being profitable when they have tried to straddle two contrasting business models.  For instance, when Delta launched Song to compete with the likes of Southwest, they struggled mightily.  The same goes for United with Ted, and British Airways with its Go! subsidiary - which aimed to compete with EasyJet and Ryanair in Europe.  In each case, the full-service legacy carrier tried to also run a low-cost subsidiary, and the two business models did not co-exist successfully in the same corporation.  

Joanna Bailey wrote about this deal several months ago for the Simple Flying website. She noted,

 

"The offer of $3.6 billion, or $33 per share, represented a premium of around 30% over the price Frontier had agreed. Clearly, JetBlue sees a value in the carrier, but why?  On the surface, they aren’t exactly a match made in heaven. Spirit is a true ULCC (ultra low cost carrier), lightweight, efficient and no-frills; JetBlue is very much a hybrid airline, offering better services at affordable price points, but not truly low-cost. At first glance, Frontier looks to be the better option, but how does that pan out when we consider routes, fleet, and what’s best for the passengers?"  

Bailey concludes that Frontier seemed a better fit as you consider competitive positioning, fleet configuration, and route network.  She explained, "The Frontier-Spirit tie-up would have created the largest ULCC in the country, with a fleet of almost 500 aircraft targeted by 2026."  

Perhaps, though, JetBlue doesn't plan on operating two contrasting business models moving forward.  A quote from CEO Robin Hayes in the Wall Street Journal today seems to suggest a shift away from the ULCC strategy at Spirit:

“This is about creating a larger JetBlue,” Mr. Hayes said Thursday. JetBlue has said it plans to retrofit Spirit’s distinctive bright yellow planes to match its own fleet, including tearing seats out of Spirit’s more crowded cabins. The combined airline would be based in New York, with Mr. Hayes at the helm, the airlines said Thursday.

Ok, so perhaps we won't see an attempt to straddle.  This quote though suggests a different question: If JetBlue plans on transforming Spirit to match the existing JetBlue strategic positioning, then what's the rationale for the merger?  Why acquire the airline rather than just contining to add planes and routes to the existing JetBlue network?  It will be interesting to hear and see why acquisition might create more value than organic growth in this case.  Many people have their doubts about this deal... understandably.