What Can We Learn from Nike's Struggles?

Source: Runners World

Over the past year, the S&P 500 Index has risen by roughly 20%.  Meanwhile, Nike's shares are down by more than 30%.  Revenue growth has stalled. In February, CEO John Donahue announced major layoffs.  What happened to Nike?

The company has made a number of key strategic mistakes in recent years.  I'd like to focus on one key blunder.  Nike focused a bit too much on the allure of driving growth by selling lifestyle-oriented shoes and apparel.  As a result, it didn't invest enough in innovation for the hard-core athlete, particularly runners.  Upstarts such as Hoka and On seized upon this opportunity, brought innovations to market, and grabbed market share.   For years, Nike had led with innovation for the serious athlete, and then used its brand credibility to appeal to more casual athletes and lifestyle customers.  

The Nike story is not a new one.  Many companies begin by appealing to a targeted market segment with innovative products, then expand their reach to the mass market.  However, many firms stumble by failing to protect the core, as well as failing to innovate sufficiently.  They begin to lose their hard-core customers, and ultimately, that damages the brand.   The loss of brand equity ultimately makes it harder to succeed in the mass market.  

How can companies avoid this trap?  First, they need to think about how every move to extend a brand or reach the mass market will affect the hard-core loyalists that were at the core of the initial success?  How will they perceive each particular growth strategy?  Are they diluting the brand, or damaging their reputation for technological preeminence?  Second, they need to invest substantially in customer research that focuses on the pain points and unfulfilled needs of their hard-core customers.   Third, they need to make sure incentives within the firm don't over-emphasize growth at the expense of succeeding with the narrow market niche that formed the heart of the firm's initial success.  Finally, they need to scan the external environment voraciously to examine trends that might lead to a change in consumer preferences among their hard-core brand loyalists.   These steps can help a firm make sure that it doesn't leave itself exposed to innovative upstarts.  

When Team Members Flatter the Leader, Problems May Ensue

Source: https://jonathanbecher.com/

People tend to flatter their leaders at times.  We've all done it on occasion.  At times, we have rolled our eyes when a peer begins to flatter the boss in a less-than-subtle manner.   The flattery might seem harmless, but it risks a problem for both leader and follower.  The leader may become overconfident if he or she lets the flattery go to their head.  Similarly, the follower may lose credibility with their peers if they are seen trying to ingratiate themselves with the boss.  It seems that a bit too much flattery directed at the boss is a surefire way to get yourself marginalized or mocked by your peers on the team.  

New research suggests another potential risk associated with flattery. Benjamin A. Rogers, Ovul Sezer, and Nadav Klein have published a new paper titled "Too naïve to lead: When leaders fall for flattery."  They find that some leaders can bear a cost if they respond ineffectively to flattery by their team members.  The scholars find that leaders who "fall for flattery" can be perceived as rather naive by team members and peers.  Those perceptions, of course, can have negative consequences as they try to persuade and influence subordinates and peers in the future.  If a leader is perceived as unfairly playing favorites based on past flattery, then they will lose the trust of their team members. 

Do New Hires Quickly "Learn" Not To Speak Up?

Source: Inc.com 

Derrick Bransby, Michaela Kerrissey, and Amy Edmondson have published some fascinating new research on psychological safety in the Harvard Business Review. They found an alarming trend regarding new hires and their willingness to speak up. They write, "We studied more than 10,000 employees in a large organization and discovered that new hires’ psychological safety eroded swiftly. On average, newcomers joined the organization with higher psychological safety relative to their more tenured colleagues, then lost it and waited years to reach levels comparable to when they arrived."  Their findings proved consistent across various demographic groups.  

As I read the article, I thought about why new hires might experience a significant drop in psychological safety soon after joining an organization.  One can imagine that new hires might think that leaders welcome pushback and are open to new ideas.  After all, they probably heard a good deal of positive talk during the hiring process about how leaders expect them to contribute during meetings and to bring fresh ideas.   New hires might learn quickly, however, that some leaders react poorly to dissenting perspectives or the sharing of bad news.  In some cases, experienced leaders might not recognize how their reactions to new perspectives have discouraged new hires.  

Three other explanations might exist for this drop in psychological safety though, and it may not involve dysfunctional behavior by team leaders.  First, new hires might not be particularly adept at speaking up.  Perhaps they try to share a concern about a proposed course of action, or express a dissenting opinion, during some early meetings.  If they struggle to present their ideas, they might find that others do not seem receptive.  New hires could conclude that people don't want them to speak up, when in fact, others simply didn't find the arguments well-crafted and persuasive.  Or, others may feel that the pushback was not presented in a constructive fashion.  The remedy for this problem is some effective coaching and development for new hires, so that they can become more effective at presenting their ideas. 

Second, psychological safety may decrease for new hires as a result of their socialization into the organization.  New hires may hear from peers that they should "keep their heads down" and "not rock the boat."  Sometimes, peers are sharing accurate appraisals of the culture, and specifically, of the low level of psychological safety on that particular team.   However, at times, peers may be overly negative.  Take, for instance, a situation in which the leaders themselves are relatively new.  Long-tenured employees may be accustomed to prior leadership that led in a top-down fashion and did not welcome dissenting views.  These experienced team members may not yet have adjusted to new leadership and may not trust that the new leaders genuinely want to hear dissent.  Peers also might be wary of newcomers who question existing practices and challenge the conventional wisdom.  They might even feel threatened.  As a result, they may discourage new hires from speaking up. 

Third, new hires may come to the organization with a "grass is always greener" mentality.  Perhaps they concluded during the hiring process that this organization is clearly superior to their old company.  When their highly optimistic expectations prove not to be accurate, they may become discouraged.  Perhaps the new team does have higher psychological safety than their old team, but the failure to meet lofty expectations may be troublesome.  It's certainly true that it can be very challenging to assess psychological safety during an interview process.  

Harley-Davidson: The Aging Customer Dilemma

John Keilman has written a Wall Street Journal article this week that is titled "Harley Will Ride or Die With the Graybeards." Keilman reports that, "The Milwaukee-based company is selling less than half as many bikes as it did during its 2006 peak. Harley’s portion of the U.S. large motorcycle market recently dropped to its lowest level since the 1980s."  He notes that the average age of the Harley customer has risen substantially in the past two decades.  The company reports that the average age is 49.  UBS analyst Robin Farley disagrees, arguing that it actually has reached the late 50s.  Critics argue that the current CEO has focused on high-priced bikes for older customers, prioritizing profit margins over growth.  In so doing, they say he has made it even harder to attract younger buyers.  

The Harley story illustrates several important lessons in business strategy.   First, the temptation for many executives at mature companies is to focus on high-margin products and opportunities to further increase margins at the expense of growing the customer base.  This focus often leads to better earnings per share in the short run, satisfying investors.  However, it creates a long-term challenge.  Eventually, the focus on the highest-margin products can exacerbate the challenge of bringing new customers to the brand.  In Harley's case, younger buyers find it increasingly difficult to afford the purchase of one of the company's bikes.  

Second, mature companies with an aging customer base always have to balance the desire to attract younger buyers with the worry that such efforts might alienate their most loyal customers.  Harley has to worry that attempts to build products and develop marketing campaigns aimed at millennials and Gen X customers might turn off the Baby Boomers and Gen X customers that comprise its most profitable pool of current customers. 

Third, companies often think that the answer to attracting younger customers is simply about the products they offer and the price point at which they sell those products.  While product and price matter a great deal, the brand image and the customer experience also prove to be very important.  Too often, managers at these mature firms are out of touch with trends, and with the younger potential customers in general.  They have been so laser-focused on their most loyal customers, and they are part of that demographic as well.  They need to find a way to truly step into the shoes of those younger potential buyers, and they need to hire people from that demographic.  Effective empathy-based user research is very important for firms in this predicament. 

Finally, firms have to understand the broader social trends against which they are battling.  In Harley's case, they need to understand that the current generation is not nearly as fascinated with the freedom of the open road as prior generations.  As Jonathan Haidt documents in his book, The Anxious Generation, far fewer young people are rushing to get their motor vehicle license at age 16.    He describes several reasons why young people are less eager to drive.  This broader social trend is clearly affecting Harley.  It needs to understand how the psychology of young people has changed, and how that will affect they way the firm should go to market.  

My sense is that Harley-Davidson executives should reach out to companies that have proven adept at navigating some of these challenges and refreshing brands that have encountered aging customer bases.  For example, the leadership team at LVMH has done a remarkable job of acquiring luxury brands that need a refresh, and then helping that brand attract a new generation of buyers.  

Learning Through Acquisition: Admit What You Don't Know

Source: https://www.thekitchn.com/

I've been reading John Mackey's book, The Whole Story, about his journey as co-founder and long-time CEO of Whole Foods Market.   The book certainly reads quite differently than many other CEO books, as it documents in detail his experimentation with various psychedelic drugs alongside his retelling of the founding and growth of the organic foods retailer.  

One key lesson jumped out at me from Mackey's story of the early years at Whole Foods Market.  He described how Whole Foods grew by acquisition, but the most important part of those deals was not the growth in revenue,  expansion into new geographic regions, or achievement of scale economies.  Instead, many of those early deals involved incredible amounts of learning about key facets of the business.  Mackey seemed to recognize what he did not know, or what he did not do well.  He went searching quite explicitly for those who were better than him at key elements of the business, and he brought them onboard.  Many of the owners of those businesses stayed with the company and became key executives as the retailer grew.  

For example, Whole Foods Market acquired Bread and Circus, an organic foods retailer in the Boston area.  While studying the company closely, Mackey noted that they had strong sales, but weak profitability.  However, he realized that they had mastered the retailing of perishables.  In fact, they did a far better job than his own company.  Similarly, he bought Walter Robbs' business in northern California because he recognized Robbs' talent and passion for creating a truly beautiful retail environment and refining the processes needed to operate those stores efficiently.  Robbs went on to become co-CEO of Whole Foods Market years later.   Mackey acquired Wellspring, a retailer in North Carolina, because its leader, Lex Alexander, brought a different approach to natural foods.  He had expanded beyond the original focus on health and wellness characterized by many firms such as Whole Foods Market.  Lex brought a "foodies" mindset with an emphasis on foods that were delicious, hand-crafted, and beautiful - e.g., specialty coffees, artisan olive oils, handmade pasta, etc.   Each time Whole Foods Market acquired one of these businesses, it expanded its capabilities and added brilliant, talented individuals to the team.  

In some sense, there's nothing new here.  We hear about learning through acquisition all the time.  Yet, in so many cases, it is the intention, but the reality never meets expectations.  Why?  The acquiring CEO has to be open to the new ideas, and open to learning from others at the acquired company.  In my experience, I've found that many executives end up frustrating the leaders from the acquired company. They don't listen effectively, and they emphasize economies of scale and scope, rather than learning and capability enhancement.  They talk a good talk about learning from others, but they ended up concluding that they know better than the managers at the acquired organization.   Knowledge and expertise ends up just walking out the door.  Therefore, to me, the lesson is clear: Take a hard look at your own expertise and capabilities before an acquisition, and admit what you don't know.  It will make that deal so much more fruitful moving forward. 

Being Concise and Interesting During An Interview, or A Networking Event

Source: www.agilitypr.com

Professor Craig Wortmann recently shared some terrific advice in a Kellogg Insights column titled, "How to Talk About What You Do (without Being Boring)."   Wortmann explains two key mistakes that people make either during job interviews or at networking events.  Put simply, many individuals either share too little or too much. Imagine someone asks, "What do you do?"  One person might simply state their occupation (banker, lawyer, professor, doctor, etc.).  Another might offer a lengthy treatise that puts others to sleep.  Both mistakes are commonplace and easily avoidable.  

Wortmann recommends responding to the question in a manner that sparks a lively dialogue.  Provide a concise answer that leaves them wanting more... more information about the work, about the people you serve, about your particular expertise, etc.  Find a way to spark their interest and their curiosity.   If you think you have been concise enough, think again.  Most of us overestimate how tight (and interesting) our responses actually are.  

I would add that it's generally helpful to demonstrate interest in the other party as well.  Be curious as to what they do, what motivates them, and why they are passionate about their work.  In short, don't just make it about you.   Ask questions, rather than just talking at the other person.   A good interview typically involves the interviewee offering some thoughtful, non-typical inquiries that demonstrate strong interest in the role, as well as a true desire to assess the fit.   In a networking event, great questions often make the conversation proceed much more smoothly, and you will learn so much more about the other person through these inquiries.