Are Algorithms Hurting Netflix?

This week, Netflix announced substantial layoffs. Moreover, content chief Bela Bajaria and film head Dan Lin have been pushed out this week too. What's wrong at Netflix? According to the Wall Street Journal, "Co-Chief Executive Ted Sarandos had complained internally for months that Americans were spending less time watching Netflix and that the service was short on new hit shows, people familiar with the matter said. He also has told colleagues that he wants the company, which has experimented with everything from videogames to podcasts, to strengthen its core TV and movie offerings."  

Netflix continues to have the lowest churn rate of any streaming service.   However, the Wall Street Journal reports that Netflix leaders are worried about audience engagement, and in particular, the tendency for young people choosing to watch videos on YouTube and TikTok rather than shows and movies on the streaming service.  

The key questions: Has Netflix's algorithm-driven approach to content creation harmed creativity?  The data may help the company reduce the failure rate of new shows, but does it also reduce the likelihood of finding that next big breakout hit?  Do the algorithms create "comfort" shows that are formulaic in nature?  Netflix has been somewhat vague about the extent to which the algorithms drive content creation, as well as the extent to which humans intervene to override the algorithms at times.  Still, the questions deserve to be asked.  Finding the right balance between data analytics and human creativity is a tricky task.  The same challenge applies to many businesses today.  

Obsessed with Sequels? Stuck with Incremental Innovation?

In the movie business, sequels and remakes have proliferated.  How many reboots of Spiderman, Superman, or Batman have been produced?   How many sequels of The Fast and the Furious?  Of course, some of these franchises have been enormously successful.  Pursuing sequels and reboots may be the profit-maximizing move in the short run. However, we might ask the question: Is the "safer" pursuit of sequels and reboots limiting breakthrough innovation?  The same type of question might be asked about other types of businesses.  

In a new study, Wesley Cohen and his co-authors examined the R&D and product launch strategies at pharmaceutical companies.  They studied roughly 60 companies over a 12-year period. They found evidence that companies can get "stuck" pursuing incremental innovation.  A Duke Fuqua insights feature story explains:

“If a company pursues clinical studies or trials for a drug in the same narrowly defined therapeutic class as their blockbuster drug, this may signal the company is strategically pursuing the same customer segment with a sequel of the blockbuster drug,” Cohen said. They found a significant blockbuster effect: one billion dollars of additional sales of individual products are associated, on average, with 17% more drug development projects in the same narrowly defined therapeutic class as the original drug. Moreover, one billion dollars of additional sales are associated with 30-80% more drug development projects that employ similar technology as the original drug.

The decision to pursue "sequels" in the pharmaceutical industry may be very logical, much as it may be in the movie business. The question, though, is whether there may be a harmful impact on breakthrough innovation in the long run. Cohen's co-author, Yoko Shibuya says, “In the short term, the optimal strategy might be to focus on your guaranteed customers. But this may mean investing less in new R&D with greater potential upside. Someday, you may regret not having invested in other product lines.”

Remote Job Postings Require More Skills

Do managers expect more when they advertise for remote jobs? Do remote job postings list more required skills and capabilities? Yes! In a new study, Shinan Wang and her co-authors studied more than 50 million job postings in Europe. Their analysis suggests that the remote work postings featured 25% more skill requirements than the non-remote job listings.

Why do managers want more skilled employees when advertising for remote work positions? The authors offer several reasons. For instance, remote positions attract a much larger number of candidates. Thus, firms need tougher screening criteria. Moreover, managers may find it more difficult to train remote employees. Thus, they need employees who can hit the ground running much more quickly.

In addition, I wonder if managers worry about the productivity of these remote employees. Applying tougher screening criteria may be one strategy for trying to insure that they have self-motivated and self-disciplined workers who will be highly productive in a remote work environment.

The authors offer a word of caution for young employees looking for work. Co-author Letian Zhang explains, “This may hurt the entry-level workers who need training. Those are the workers who might be left out because organizations, after becoming remote, may have a stronger preference for more-experienced workers.” Put another way, younger employees may be able to increase their odds of landing a job if they apply for non-remote work opportunities. Beyond that, I would argue that younger workers should be focusing on non-remote work because it offers better opportunities to receive on-the-job training, learn from mentors, build relationships, and extend their professional networks.

Kelly Johnson & Lockheed Martin's Skunkworks

 

I'm reading a terrific book by Josh Dean.  The title is The Impossible Factory: The Remarkable True Story of Kelly Johnson and the Lockheed Skunk Works, America's Innovation Machine.   The book chronicles the history of this famous highly secretive research and development organization at Lockheed.  Moreover, it explores the principles of organization and leadership that Kelly Johnson developed to manage the Skunk Works.  I found one particular passage about Kelly Johnson illuminating, since it highlighted how a powerful, often intimidating leader could accept bad news and change his mind.  The story focuses on a young engineer, Dick Heppe, challenging Johnson's view on the design of a plane's tail.  

"Heppe was in awe of Kelly, who was already, by this point, 'a legend' to young engineers like him.  And suddenly he had to sit in front of the man himself and tell him that he needed to make his plane's tail much larger. 'I was, frankly, trembling in my boots,' Heppe recalled.  Kelly did not dismiss the young engineer or get angry at him for bearing bad news.  He listened, asked questions - prodding for mistakes - and then accepted Heppe's conclusion.  

'It's a bitter pill,' Kelly said, 'but you're right.' 

He assigned an engineer, on the spot, to go redesign the tail. 'So that taught me the first lesson about Kelly,' Heppe recalled, 'which was that, if you knew what you were doing and you can satisfy his probing to a reasonable degree, he would trust you.' 

This trait - that a confident, intimidating, often intractable genius could accept bad news, even from underlings - instilled great confidence in his workers. Which only made them want to work more, and harder. 

The story speaks for itself.  Johnson did not dismiss Heppe.  He listened, asked questions, and remained open-minded despite his strong convictions.  He let the evidence speak.   Most of all, he demonstrated the type of curiosity that great leaders must exhibit.  

Costco Case Study

My newest case study is now available through the Harvard Business Publishing catalog. The case is titled Costco Wholesale Club: The Gas Station Strategy. The case examines the company's competitive strategy, and then it dives deeply into the rationale behind this year's grand opening of the first Costco standalone gas station.

Fumbling Customer Service Handoffs

Source: NY Times

In healthcare, practitioners have been paying attention to "handoffs" for quite some time in an effort to improve patient safety.  An handoff is when a patient is transferred from one clinical team to another, or when critical information about a patient is transferred from clinician to clinician.  Fumbling a handoff can lead to a serious medical error.

Now, KPMG's Scott Lieberman argues that similar fumbled handoffs lead to many customer service problems at companies.  In Fast Company, Lieberman writes:

Ask your department heads how things are going, and you’ll hear good news. Leads and engagement are up, sales hit quota, and customer service is chipping away at response time. Every dashboard is green.

But ask your customer, the one that’s been passed along three times in five minutes between chatbots and agents and intervention specialists, and you’ll get a different report. Because she’s explaining her story for a fourth time: This company knows my birthday, my shopping history, and my shoe size. But they can’t remember the conversation they had with me 60 seconds ago.

And yet both things are true. Your dashboard is green, and your customer is on a hamster wheel. That’s the trap. Companies grade their performance one department at a time. But your customer is grading based on her experience of one company, start to finish, and the whole operation’s getting a D-plus.

The gap between those two scorecards lives in the handoffs—the moments a customer passes from one team to another—and that’s precisely where most companies are struggling.

Lieberman's description rings true for those of us who have called a customer service center recently.  The process can be maddening, particularly when you are transferred from one department to another.  Understanding how customers live through an entire process is critical.  How often must they be transferred? For what reasons?  How often do they get frustrated and hang up?  What information must be constantly repeated because it is not transferred effectively?   Solving these pain points requires understanding the ENTIRE customer journey, and that often can be very complicated.  

Too Many Meetings? But Are They The "Broccoli of Work?"

Source: Getty Images

Day after day, I read articles in which employees complain about too many meetings and writers offer advice for eliminating the unnecessary meetings that clog our schedules.  Yet, a new study offers strong empirical evidence of the value of meetings.  David Deming and his colleagues have authored a National Bureau of Economic Research working paper that describes meetings as "the broccoli of work – widely disliked, but probably good for us anyway."  

Deming and his colleagues used a unique Norwegian dataset to study the value of meetings.  They collected data from administrative registers compiled by Statistics Norway.  This dataset contained information about employee careers, mobility, and wage growth from 2022-2024.  They also compiled survey data from approximately 10,000 individuals.  

The study finds that meetings do account for a substantial chunk of worker time.   Meetings most often involve planning, coordination, problem solving, and project updates.  While meetings are time consuming and come with opportunity costs, they provide critical value.  The scholars find that, 

"Meeting frequency and intensity are positively related to worker wage growth. Workers in meeting-intensive firms report greater on-the-job learning, and interactions with more senior colleagues are associated with stronger wage growth, suggesting that knowledge transmission within firms is an important mechanism."

Thus, the scholars conclude that meetings are similar to eating broccoli.  We may not enjoy them, but perhaps they are quite good for us.  Why?  They are critical sources of organizational and personal learning.  The human connection matters.  We learn when we interact with others, ask questions, listen to them, and share our ideas.  We cannot replace that source of learning with brief exchanges via technological platforms such as email, text, Slack, etc.   Therefore, perhaps we should complain less about how many meetings we must attend, and focus more on how to make them more productive.  

Overreliance on our Willpower

Getty Images

How can we break a bad habit at work or in our personal lives?  Well, we just have to muster enough willpower.  That's what many of us tell ourselves.  The old cliche is clear:  When there's a will, there's a way.  Of course, an alternative strategy exists.  We could employ commitment strategies, or put another way, some external form of assistance.  For example, we might team up with a friend who helps us be accountable for achieving certain results (such as going to the gym on a regular basis). Or, we might commit to a negative repercussion if we fall back into a bad habit (such as forcing ourselves to refrain from watching our favorite Netflix show).

New research by Ariella Kristal and Julian Zlatev suggests that many people may be relying far too much on willpower rather than employing an effective commitment strategy.  HBS Working Knowledge recently published a feature story about their research and identified three main conclusions that may explain why we rely far too heavily on willpower when we try to break a bad habit:

1. "People trust others who use willpower more than commitment strategies. "

2. "People question the integrity of those who choose commitment strategies."

3. "People worry that using a commitment strategy makes them look bad."

In short, our worries about others' perceptions and judgments cause us to rely too heavily on our own willpower when trying to break a bad habit.  We think that we are signaling virtue, but in so doing, we are choosing a far less effective strategy.  Consider that finding the next time you think that willpower alone will help you avoid unproductive patterns of behavior. 

New Apple CEO John Ternus on Confidence & Humility

Source: NBC News

Fortune's Emma Burleigh has a short feature on new Apple CEO John Ternus. This week, he takes over as chief executive at Apple, succeeding long-time leader Tim Cook. Burleigh writes,

“Always assume you’re as smart as anyone else in the room, but never assume that you know as much as they do,” Ternus told University of Pennsylvania’s engineering graduates in 2024. “With this mindset, you’ll find the confidence you need to push forward, but more importantly, the humility to ask questions and learn.”

“I’ll always be grateful that I wasn’t afraid to ask for help when I needed it,” Ternus said. “Because being around people that care that deeply, it won’t just make you want to stretch your limits and see how far you can go, but they’re also the best people to help you understand how to get there."

I love the distinction that Ternus has made here.  He's arguing that we should be confident in our abilities - our intelligence and our potential.  At the same time, he's advocating for humility.  He's arguing that we should recognize that, in any given situation, there are others who know things that we do not know.  We need to acknowledge the limits of our knowledge, be curious, and ask questions.  By seeking to uncover what others know, we can make better decisions.  In short, we should be confident in our capacity to solve problems and make good choices, but humble about the knowledge that we possess before we have begun to engage with, and learn from, others around us.   

Overcoming Success Theater at Meetings

Source: CNBC

Do you focus only on success at your team’s weekly meetings?  When Larry Culp took over at GE, the company was in big trouble.  Some thought the company could not be rescued. Yet, Culp noticed that meetings often devolved into “success theater.”  They only talked about what was going well.  Culp notes, “In the old GE, messengers got shot.  I wanted to create a market for problems.”  Larry Arduini, President and CEO of GE Healthcare explains, “Larry made airing problems not something to be feared, but a goal.  He called it ‘Embracing Red’.”  You can read more about the GE turnaround under Culp in Fortune this week. 

The description of success theater reminds me of the culture at Ford Motor Company when Alan Mulally took over two decades ago.  He too tried to make it ok to identify the projects and initiatives that were blinking red.  Famously, he noticed that “all the charts were green” in his first few months at Ford, despite billions in operating losses.  When a brave executive first presented a red chart, he applauded vigorously and then asked, “Is there anything we can do to help you?” As the culture of these meetings changed, the charts became a rainbow of green, yellow, and red. 

Success theater afflicts many companies. People use staff meetings to talk about what’s going well. By the time people finish bragging about the key performance indicators that are green, there’s very little time left to surface and discuss the problems and concerns within the organization. Therefore, I suggest that leaders not only “embrace the red” but rethink their meeting agendas as well. They need to make space for open discussion of new problems, challenges, and obstacles. Otherwise, all the talk of success crowds out any opportunity to surface concerns. Make it a regular practice to put “surfacing the reds” on the agenda for each key meeting. Then, take great care regarding how you react when people share bad news. Be curious and open-minded, and don’t punish the messenger. Ask questions, listen attentively, and don’t jump to conclusions.

Eliminating Friction at OpenAI

Fidji Simo, CEO of Applications, recently said, “Companies rarely become bureaucratic all of a sudden. It happens one unnecessary meeting, one extra approval, one small frustration at a time. Each makes it only 1 or 2% harder to do your job, which is why they’re easy to ignore, but those frictions compound.” She offered this quote in the context of an article about OpenAI's process for identifying "friction" within the company and cutting through the bureaucracy to eliminate these pain points. Fortune's Emily Forlini explains:

At OpenAI, a special process—and a magic word—helps employees instantly cut through layers of bureaucracy and clear bottlenecks slowing things down.  It’s called “friction.” And it has the power to supersede just about anything a team is doing, often carrying the force of CEO Sam Altman or President Greg Brockman with it.  The process starts when someone emails a special friction@ address to report an internal bottleneck. The issues range from a technical system that isn’t working, a process that’s not having the intended result, or office-related frustrations, such as there not being enough IT vending machines. OpenAI’s leadership team triages the emails sent to friction@, moving forward with ones they deem worthy. To help alleviate full parking lots, for example, the company started a pilot to prioritize spots for those with long commutes. Another time, employees asked for a better process to grant API credits reliably and at scale. If the matter is considered important enough, Altman or Brockman will get involved to ensure it’s resolved.

A former OpenAI employee who spoke to Fortune praised the friction system as an effective way for leadership to get ground-level feedback. The process helps teams keep moving forward, tackling issues before they can fester, the person said. That’s especially important as OpenAI’s headcount grows to more than 8,000 employees expected by the end of this year, with offices across the U.S. and the globe. “It’s a good thing—literally anybody can complain about big company bullsh*t directly to Sam and they can act on it,” the former employee said. “If you want to ruthlessly cut through bureaucracy, you have to be ruthless about it.”

The process reminded me of the fantastic book, The Friction Project: How Smart Leaders Make the Right Things Easier and the Wrong Things Harder, by Stanford Professors Bob Sutton and Huggy Rao.  Perhaps Altman and Simo read the book and built this process in light of those insights about eliminating friction.  One word of caution though - Forlini writes in the article that some employees have complained about the tremendous burden and pressure it puts on people to drop everything and address an issue that has suddenly been escalated to Altman and Simo.  As always, balance and moderation is critical.  You want a process for cutting through bureaucracy, but you don't want it to become abused by those annoyed at small inconveniences, or by those trying to reallocate resources to their pet projects or ideas.  

Career Advice: Run to the Mess

Several years ago, former Market Leader and Likewise CEO Ian Morris spoke to my students at Bryant University (where Ian graduated with a Bachelor's degree in the early 1990s before completing his MBA at HBS).  Ian offered a few wonderful pieces of career advice.  First, he always told the students to "leave well" when changing jobs.  Give extra notice, help train your successor, and preserve relationships.  You never know when you will cross paths with those people again. Second, Ian suggested that they "run to the mess" if they want to build new skills and accelerate their career progression. Ian mentioned that many people avoid difficult situations because they fear failure. Yet, he described these tough circumstances as the best opportunities to truly shine, to make your mark.

A recent Stanford interview with Jane Fraser, CEO of Citibank, reminded me of Ian's advice. Fraser also commented on the value of taking on the tough jobs during her career, even if they were not the ones that others found attractive and interesting. Fraser said,

Interviewer:  Why did you pick these tough jobs?

Jane Fraser: Yeah. I mean, because someone once asked, “Is it because none of the men wanted to take them?” There might be a bit of truth in some of that. I think one of the things, I’m not a tweaker so I never wanted a job where you’d just be tweaking things to make it better. I think I’d be awful at it. I think a lot of people in this room would be awful at tweaking jobs too. It’s more fun to be bold in making changes. And then if something’s not in great shape, it’s amazing how you get left alone to fix it. Whereas if something is actually going well, you have everybody giving you helpful advice and opinions on what you can be doing better. So one of the fun things about turnarounds or changing things more radically, quite often you’re left a little bit more on your own.

Then when it starts getting successful, then everyone jumps onto the train and heads that way. But I’ve always quite enjoyed transforming things a bit more and then you learn a playbook of what you need to do and you can repeat a lot of it in different situations like get the team in place that you need as a first step because otherwise you’re going to be doing everybody else’s job and be really lousy at the one you’ve actually been put in to do. So there’s just different steps that I put in place each time now and they’ve been helpful so far.

Why We Love It When Customer Service Professionals Remember Us & What We Like

This summer, my wife and I have traveled quite a bit.  We have had the privilege of some amazing customer service experiences.  One thing, in particular, has stood out.  Some customer service professionals got to know us, remembered our names and our preferences, and anticipated our needs and desires before we articulated them.  Sometimes, they remembered our favorite drink order.  In other cases, they asked us how we enjoyed our previous day's adventure.  We loved it.  Why?  Well, of course, humans love to feel valued.  We enjoy being seen and heard.  These professionals clearly had listened to us, gotten to know us, and had made the effort to make a connection with us.  In turn, we learned their names, and we got to know them.  When our breakfast waiter at the hotel had a day off, we asked him about the day when he returned.  He appreciated the chance to share what he had done.  These professionals were not in a hurry to simply fulfill our order.  They took that extra time to interact with us.  They made a human connection.   

Sometimes, these professionals made mistakes. Honestly, we didn't care much at all. We were very forgiving because we felt valued, and they were clearly trying to help us.  They apologized. We let it go.  Companies cannot prevent all mistakes.  However, they can create a customer experience in which most people will be quite forgiving.  

The lesson for companies is clear: Don't just value efficiency in customer service.  Make sure that you emphasize the value of building human connection.  Encourage your people to listen actively, learn customers' names, and get to know them.  Don't penalize them for taking an extra minute to fulfill an order.  Weigh the long run benefits against that tiny drop in "productivity" that you might experience.  Moreover, companies should consider helping their employees build their active listening and empathy skills.  Some people are naturals at making human connections. Others will need some training.  Invest in building those capabilities; the payoff will be great. 

Interpersonal Coordination on High Performance Teams

What's the key ingredient to high performance when teams function in demanding, high-stress environments? Mary Waller and her co-authors have studied this question in the context of airplane cockpit crews. They published a paper recently titled "More than a feeling: rapport and complex task performance in teams."  They examined three elements of rapport within these teams while they worked in flight simulators:

1. Interpersonal liking: how positively did the individuals engage with one another
2. Emotional positivity: how optimistic and positive was the emotional tone of their conversations
3. Interpersonal coordination:  How well synchronized was their verbal communication and action

Sally Blount summarized their key finding: “Positivity and liking are great. But unless you can translate that positivity and liking into improved collaboration, it doesn’t have a significant impact on team performance.”  After analyzing video recordings of the teams in the simulator, the researchers observed how the coordination among the high-performing teams tended to be more complex, nuanced, and synergistic.  Kellogg Insight summarized the findings:

Overall, the researchers found that, on average, the teams with the highest levels of interpersonal coordination communicated more often, especially with commands, observations, suggestions, and laughter. The interactions between these pilots also were “significantly more complex” than the interactions between pilots with lower interpersonal coordination.

“In the low-interpersonal-coordination groups, you had less communication and also less encouragement and building off of each other,” Blount says. “So, if things aren’t going well, you might be saying, ‘This guy isn’t helping me, so I’m going to hunker down,’ versus ‘Okay, we got this,’ and ‘I see that. What do you see?’”

Not surprisingly, the pilots themselves did not always perceive the link between rapport and performance correctly.  

Interestingly, when liking and positivity were high, the pilots themselves thought they performed better, but that perception did not always translate into better expert evaluations. The tendency to associate more-positive interactions with better performance is common within teams, but it can be misleading and is a well-known contributor to groupthink, Blount says.

Constraints Are Good For Us

Do constraints and limits enhance creativity and innovation?  Yes, David Epstein argues that they can, bringing together several strands of research, coupled with some amazing stories, in his terrific book titled Inside the Box: How Constraints Make Us Better.  

For example, Epstein tells the story of the terrific young pianist, Keith Jarrett, who was scheduled to play a concert in Cologne, Germany.  Unfortunately, the organizers brought the wrong piano to the venue, and it was woefully out of tune.  A rushed effort to remedy the situation provided only a partial fix.  Forced to improvise with a far-from-optimal piano, Jarrett produced an incredible concert performance.  Epstein writes, "That recording, of the undersized, partly tuned, sticky-pedaled piano, eventually became the bestselling solo piano album of all time."

Epstein grounds his argument in solid research studies, as well as terrific stories. For example, he describes the work of Catrinel Tromp.  She wrote an article titled "The Green Eggs and Ham Hypothesis: How Constraints Facilitate Creativity."  Tromp asked research subjects to develop two-line rhymes for greeting cards.  She found that her subjects were more creative when she imposed significant constraints on them.  She likened this effect to Dr. Seuss writing his famous story after making a bet that he could write an entire children's book using just fifty words.  

I highly recommend the book.  It is an easy read, and his arguments are compelling.  He shows what humans can do when faced with limits.  They improvise, innovate, and create amazing things under certain conditions.  

Staying Grounded: Find the Right Sounding Board

Former Baxter International CEO and current Kellogg Professor Harry Kraemer has written a terrific column titled, "What Every New CEO Should Do In Their First 30 Days."  His lessons apply to people who take on new leadership roles at all levels. My favorite piece of advice focuses on finding the right sounding board.  You need to keep a few truth-tellers close to you.  These are the people who will give you the unvarnished perspective.  They will help you stay grounded too.  Kraemer writes,

The higher you rise, the more essential it becomes to have people who will tell you the truth. For me, that person is my wife, Julie. Whenever I was promoted—including when I became CEO of Baxter International, a $12 billion healthcare company—she would always say how proud she was of me. In the next breath she would remind me, “Harry, we’re not going to change the way we live, right?”

In the same way, you need a sounding board composed of a variety of people, such as a spouse or partner or close friend, a board member (or two), a former colleague now leading another company, or a professional coach. Each of these people has a unique perspective on you, your leadership, and the kind of support and honesty to remind you of who you are, as a person, not just as a leader.

Are You Listening to Me? How Can I Tell?

Are you listening to me? This thought comes to mind for many of us during conversations. How can we tell that someone is listening? Conventional wisdom is that body language and non-verbal cues indicate attentiveness. Is the counterparty nodding in agreement, making good eye contact, and leaning forward into the conversation? If so, they must care about what I'm saying. If not, then they are clearly disengaged.

New research suggests that this conventional wisdom may not be right though. In an article from UCLA's Anderson Review, Carla Fried reviews a stream of research by Hanne Collins and several co-authors. This research finds that people systematically overestimate the extent to which others are listening closely to them. They overestimate because they misread utterances or nonverbal cues... they think that the quiet "mm-hmm" or the nod of agreement signal close listening, when they may not represent that at all. Listeners may be using these conversational devices to "fake" close listening.

Collins and her co-authors instead suggest "conversational listening" as the remedy. Much like a stream of other work, including a great book by Charles Duhigg, they suggest that listeners paraphrase what they have heard and ask for confirmation, ask clarifying questions, and refer back to points made earlier in the conversation as ways to engage more effectively in a conversation.  In short, you must speak, not remain silent, to listen effectively.   Of course, you can not speak too much.  Interrupting without the intention of understanding more effectively can be highly counterproductive. Collins and her co-authors write, "“Conversational listening is a key building block of human social functioning. Information transmission, interpersonal connection, conflict management, happiness — the key foundations of human flourishing — hinge critically on our ability to hear, understand and respond to others.”

Is Hosting the World Cup an Economic Windfall?

CHARLY TRIBALLEAU/AFP via Getty Images

This year, the United States, Mexico, and Canada will host the World Cup to much fanfare.  Soccer enthusiasts are excited about the competition. They look forward to some thrilling games and the prospect of their country coming out on top.  Off the field, an economic issue bears examination: Does hosting the World Cup make financial sense?  Holy Cross Professor Victor Matheson has taken a hard-nosed look at the pros and cons of serving as the host country.  While Matheson acknowledges the benefits, he does not conclude that hosting is an obvious positive from an economic standpoint.  Naturally, Matheson cites some of the significant costs that accrue to the host country.  More interestingly, he describes how the benefits are often overstated for three key reasons:

1. The substitution effect:  For the local citizens attending World Cup games, the spending may not be "new" or "incremental" in any real sense. This spending may simply displace other leisure activities. If so, the country's economy does not grow as a result of the locals' spending on World Cup games, apparel, etc. 

2. The crowding out effect: The hoopla around the event may cause tourists who may otherwise visit the host country or host cities to avoid traveling to those locations.  Matheson cites the example of Orlando, Florida.  The city lost tourists who otherwise would have visited area theme parks, but avoided the area because of the soccer fans filling up area hotels, restaurants, and the like.  He cites a similar study that found that France did not gain international tourists during the 1998 World Cup. 

3. Leakages.  Matheson argues that FIFA collects much of the ticket revenue, and most of that money does not remain in the host country.  Moreover, most of the increased hotel profits typically do not remain in the local economy.  

Matheson concludes that these three effects cause the economic gains often to be far lower than those projected before the event takes place.  In fact, he writes, "The results generally show that the observed impact of the World Cup has been a fraction that touted by the event boosters, and frequently the observed impact has actually been negative."  

By describing these issues, I don't mean to put a damper on what should be a very exciting event.  However, the analysis put forth by Matheson should cause us to examine "economic impact" studies with a very critical eye.  That does not just hold for World Cup events.  The same type of critical evaluation should be applied to any of these types of studies, whether it be for hosting an Olympics, building a new sports stadium, or constructing a new concert venue. 

Espoused Strategy vs. Strategy-in-Use: Watch How The Resources Are Allocated

I recently encountered an organization with two main business units: the large core business and a smaller adjacent unit.  The enterprise as a whole was doing quite well, though it competed in a market that was becoming increasingly challenging.  Senior executives and board members lamented that the core business, while quite healthy, lagged behind several industry-leading competitors.  They pointed to  analysis by outside parties as evidence of the core business' secondary position in the industry.  Executives and board members had bold aspirations for elevating the core business to a more prominent competitive position. They wondered why managers and employees could not improve performance.  The stated strategy was clear: make the core business a top-ranked competitor in its industry.  

A close examination of resource allocation at the enterprise revealed a quite different story.  Competitors also had a similar structure: a large core business and a smaller adjacent unit.  Yet, the top competitors in the industry invested much more heavily in their core businesses and allocated far fewer resources in their adjacent units.  In fact, this organization invested three times as much on its adjacent business as the top-ranked competitors did.  Yet, executives and board members were shocked that the enterprise's core business lagged behind these rivals.  Company leaders loved to talk a good talk about being #1 in the industry in which the core business competed, but they loved to invest in the adjacency that was a pet project of some enterprise leaders.  

The story illustrates a powerful distinction between espoused strategy and strategy-in-use.  The great scholar Chris Argyris coined the terms espoused values and values-in-use to describe the distinction between what companies say their values are and how people in those organizations actually behave.  The same distinction can apply to strategy.  Don't pay attention to what executives and board members say that their strategy is.  Instead, pay close attention to how they allocate resources.   In so doing, you will see the actual strategy-in-use.  Pay even closer attention when you see resource allocation fundamentally divorced from the stated vision and strategy.  In the end, don't focus too much on executive speeches, strategic plans, and slick promotional materials.  Focus on where the dollars flow.  That will tell you about the actual strategy.  If you discover a mismatch, ask yourself: Why is there a divide between the espoused strategy and the strategy-in-use?  Uncovering the reason for that divide will help you think about how that enterprise has undermined the competitive position of its core business, as well as how a successful transformation can be unleashed.   

Achieving Your Goals by Talking about Time Differently

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I didn't have time.  I was too busy.  My schedule became too hectic.  We have all made these excuses when we didn't achieve our goals.  Of course, these explanations included more than a bit of truth.  Competing priorities and packed schedules do, in part, become an obstacle to achieving our goals.  However, new research suggests that how we talk about time might really matter when it comes to getting back on track and meeting our original objectives.  Luis Abreu and his colleagues have co-authored a new paper titled "Didn’t Have Time or Didn’t Make Time? How Language Shapes Perceived Control over Time and Motivation."   The authors explain what they found through a series of experiments:

Consumers often purchase products, subscribe to services, and download apps in support of valued goals, yet fail to use these tools as much as intended. But might the language consumers use to describe such goal failures affect how they subsequently pursue those goals? Nine experiments demonstrate that, compared with saying “didn’t have time,” saying “didn’t make time” increases subsequent motivation. This is driven by perceived control over time. Specifically, saying “didn’t make” (vs. “didn’t have”) time makes consumers feel more in control of their time, which increases their subsequent motivation to reengage with the goal.

Jordan Etkin, one of the authors, explains, "“The experiment shows how a simple linguistic cue can shift people’s sense of agency."  Of course, this shift requires being honest with ourselves, and that can be difficult at times. It means attributing our failure to achieve our goals to an internal cause (or own behavior) rather than external circumstances (factors outside our control).  When we feel, we tend to look externally.  We have to overcome that tendency to engage in this type of productive reframing that Abreu and his co-authors recommend.  

Does the NFL Risk Oversaturation? The Pursuit of Growth vs. the Value of Scarcity & Exclusivity

Source: Fox Sports

Great luxury brands such as Brunello Cucinelli, Patek Philippe, Hermes, and Ferrari use deliberate scarcity and exclusivity to optimize brand equity, enhance willingness-to-pay, and distinguish themselves from the competition.  

Most people would not consider the National Football League (NFL) a luxury brand.  Yet, the NFL traditionally benefited from scarcity and exclusivity.  While Major League Baseball played 162 games per year, and the NBA teams competed 82 times per season, the NFL played only 14 games per season when I was a child.  All but one of the games took place on Sunday afternoon in a six-hour window, making that day an event that was highly anticipated each week.  One very special game took place on Monday night, with Howard Cosell, Frank Gifford, and Don Meredith serving as the star-studded announcing team.  Two networks split the games, and another (ABC) broadcast the very special Monday night event. 

Today, the NFL has expanded in numerous ways.  Revenues and profits have skyrocketed over the years.  Yesterday, the NFL announced the 2026 schedule.  The NFL now plays 17 games per season, with an 18th game anticipated soon.  Games will be played on Wednesday, Thursday, Friday, Saturday, and Sunday at different points during the season.  Games will be broadcast on streaming services, as well as major broadcast and cable networks.  Games will be played around the globe, meaning that on some Sundays, there will be games from early in the morning until nearly midnight on the east coast.  The growth is astonishing.  I love the sport. Yet, I keep asking myself: Is there a point at which the NFL will have gone too far in pursuit of growth?  Will the NFL lose some of the scarcity and exclusivity it enjoyed relative to other sports, and in so doing, erode its brand equity?  Perhaps not.  Americans cannot seem to get enough of football.  Still, it bears asking the question. 

Many successful companies face this challenge.  They want to grow, but they find themselves risking oversaturation and brand dilution. At various points, luxury brands such as Coach and Gucci severely harmed their brands because of their expansion strategies.  The best brands practice restraint. They grow with some caution and discipline.  Ferrari, for example, has grown its production volumes in recent years. Still, it makes less than 14,000 cars per year.  By comparison, Porsche produces roughly 300,000 vehicles per year.  Ferrari has expanded by producing ever-more-expensive vehicles, rather than moving down market to cater to a broader audience.  Hermes is very careful about the distribution of the famous Birkin bag.   Customers cannot just stroll into a store and purchase one.  You have to earn the right to purchase the bag!  

Will the NFL show any restraint in the years to come, or will they continue to expand aggressively?  How much football is too much, or are fans' appetites simply insatiable?  These are the questions the owners and their broadcast partners must grapple with in the years to come. 

Reframing the Purpose & Value of an Education

When we were young students, we often remarked to our teachers: "This subject is useless to me. When am I ever going to use this knowledge in the real world?"  Teachers everywhere cringe at this comment.  Today, many people are questioning the value of higher education as a whole.  Schools are scrambling to demonstrate their graduates' return on investment.  Institutions should be focused on helping students prepare for a successful career.  Developing practical skills and capabilities is important.  Yet, the value of higher education extends well beyond learning concrete skills that are easily transferable to the first job after graduation.  

As a faculty member, I believe that I'm helping to form the whole person, to contribute to the personal development of young people.   As part of that formation, I believe that I'm responsible for shaping the minds of my students, not by teaching them what to think, but how to think.  We sharpen their minds not by giving them all the answers, but asking tough questions. We push them, challenge them, and ask them to do something perhaps they did not think they could accomplish.  Sometimes, it means making them uncomfortable.  

Employers need to be focused on understanding the quality of the minds they hire, not just the batch of immediately applicable skills that person brings to the table.  By that, I don't mean focusing on GPA or test scores alone.  I mean that employers need to assess how applicants think through tough problems.  How do they frame an issue, explore alternatives, analyze ambiguous data, and draw conclusions backed by strong supporting logic?

As I think about these issues at the end of this academic year, I'm reminded of one of my favorite movie scenes about teaching and education.  The movie is The Paper Chase, starring John Houseman as a professor teaching first-year students at Harvard Law School.  He offers a beautiful soliloquy about his approach to teaching during an early scene in the movie.   My favorite quote: "We do brain surgery here. You teach yourselves the law, but I train your minds. You come in here with a skull full of mush, and you leave thinking like a lawyer." 

Perseverance & Focus When Work is Hectic

As I teach college students, I notice that some cope with adversity with a steady hand, demonstrating calm and resilience.  They ask for help when needed, but they don't make excuses.  They push through difficult situations.  Others become overwhelmed when something goes wrong in one facet of their life, and they allow those challenges to disrupt other aspects of their life.  They struggle to compartmentalize and push through when their usual routines are disrupted.  They often make things worse by falling further behind on key commitments, and then becoming increasingly anxious about how behind they have gotten. Of course, many of us have found ourselves in both situations in life, sometimes coping well with adversity, and in other cases, becoming overwhelmed.  

Karina Mangu-Ward wrote a great column recently for Fast Company.   She examined how high-performing teams remain steady and composed during crises.  Specifically, I thought her point about tradeoffs bears emphasis. She writes, 

One reason teams get frantic is that they try to optimize for everything at once: speed and perfection, quality and scale, consensus and velocity, innovation and risk. In calm periods that fantasy is inefficient. In turbulent periods it becomes fatal. Strong teams make explicit trade-offs early. They decide what matters most when good values collide.

I believe the same can be said for individuals.  Identifying our priorities and making tough tradeoffs can help us when things get a bit hectic.  Think back to my example with students.  Sometimes, submitting the assignment that is less than perfect is better than repeatedly missing deadlines in a course. Coming to class on time each day can pay huge dividends during a crisis, even if you are perhaps missing some assignments.  Communicating clearly with your faculty members is critical, perhaps more important than the work you do.  After all, if you ghost your professor, they will be far less likely to exercise leniency or offer extra support.  In short, you have to pick your spots when times get a bit hectic.  Too many students simply stop everything when they become overwhelmed, and then they begin a vicious downward spiral in which it becomes more and more difficult to bounce back.   The lesson is clear: Choose how to spend your time wisely, prioritize well, and then focus on those priorities.  Communicate clearly to those to whom you are accountable. Show up even if you can't always complete every task.  If students learn these habits in school, they will be far more successful in the workplace.  

Asking AI Chatbots to Adopt an Expert Persona Doesn't Work

Conventional wisdom suggests that we should ask AI chatbots to adopt an expert persona to elicit better answers. According to this advice, prompts will yield better responses if they include statements such as "Imagine that you are a world class statistician" or "Think like an expert engineer." Some of the major models (such as Claude and ChatGPT) advise users to engage in this type of prompt engineering. Yet, new research suggests that asking the models to behave as an expert does not work.

Savir Basil, Ina Shapiro, Dan Shapiro, Ethan Mollick, Lilach Mollick, and Lennart Meincke have published a report at Wharton titled "Playing Pretend: Expert Personas Don’t Improve Factual Accuracy."  Knowledge@Wharton summarized their findings:

The researchers tested several ways of instructing AI to answer nearly 200 PhD-level questions in one test and a further 300 similarly demanding ones in another. Some prompts framed the model as a subject matter expert, others as a different kind of expert, or as a child or layperson. But the results were consistent.  Expert personas did not lift performance and in most cases were no better than a simple baseline with no persona at all, while less knowledgeable roles often hurt accuracy.  Any gains were small and tied to specific models, not a general pattern, and even matching the persona to the task — using a “physics expert” for physics questions, for example — made little difference.

New Case Study - Costco Wholesale Club: The Gas Station Strategy

I'm pleased to announce the publication of newest strategic management case study, Costco Wholesale Club: The Gas Station Strategy.  The case explores the company's business model and the decision to open its first standalone gas station in the nation.  The case study also examines the psychological principles at play when people shop at Costco.  The case study was published by the William Davidson Institute at the University of Michigan.  

How to Make Small Talk Effectively

Some people dread small talk. They just want to get on with the business at hand.  Why bother with the chit-chat about the weekend, the kids, or last night's episode of Rooster?  Research, however, demonstrates that small talk has value, helping us build relationships that facilitate more effective collaboration.  Moreover, small talk can enhance well-being.  

In a recent Inc. article, Henna Pryor speaks with writer Amaya Nichole about how to engage in small talk effectively.  Pryor offers three important and useful tips:

1. Focus on a specific detail.  It might be the photo on their desk, the screensaver on their computer, or the recent family celebration you know they attended.  Direct their attention, show them that you noticed, and inquire to learn more about that particular topic.

2.  Ask specific questions, rather than general ones.  Don't just ask how they are doing. Ask about a specific book, podcast, or TV show that they are enjoying.  Don't just ask how the family is doing, but inquire about a particular individual and a recent important event (birthday, graduation, wedding, etc.).  

3.  Finally, Pryor recommends that we "learn to leave a conversational thread."   Pryor offers an example of how to do this effectively: "This is less about the question asked and more about the response. Instead of answering 'how was your weekend?' with 'good,' try: 'It was good. It was really good. I finally checked out that new bookstore downtown and ended up staying for two hours. I did not need that many books.'"  

Why Movie Production Teams Do Not Learn From Failure

We love those wonderful stories about how people learn from failure. We champion the practices in certain industries (such as healthcare, the military, and commercial aviation) in which organizations improve based on systematic reflection. Yet, in a new study, Suresh Muthulingam and Kumar Rajaram find that Hollywood production teams do not seem to learn from failure effectively.  Perhaps we should not be surprised, as we have all witnessed highly publicized films, with top actors, flop spectacularly at the box office. 

Why is learning from failure difficult in the movie business?  The UCLA Anderson Review summarizes these scholars' findings: 

So why does failure appear to stick rather than teach? The researchers point to three structural barriers. First, fluid teams disband before the financial verdict arrives, so there is no collective moment of reckoning. Second, individuals tend to blame losses on external factors or other team members rather than examining their own contributions. Third, movie production lacks the kind of systematic post-failure review that exists in aviation or medicine.

The implications stretch beyond Hollywood. Any industry that relies on project-based teams assembled for a single engagement — teams that are dissolved afterward — may face similar dynamics. The research suggests that managers assembling such teams should pay close attention to the collective financial track record of members, particularly those in coordinating roles like producers who bring the group together.

These three points are right on point and consistent with my work and the research of other scholars about learning from failure.  First, stable teams have an opportunity to iterate, to reflect and learn.  Harvard's Richard Hackman once demonstrated the importance of stability, and the perils of instability, in his research on airplane cockpit crews.   Second, the fundamental attribution error is very real.  People tend to blame the person when others fail, but they blame external circumstances when failing themselves.  Finally, you learn effectively if you have a systematic process for evaluating, reflecting, and putting new techniques into practice.  The After Action Review used by the U.S. military is one such successful systematic practice, now employed by many companies, such as Royal Dutch Shell, as well as by many healthcare organizations.   

Why Might a Leader Fail in One Situation, But Succeed in Another?

Several months ago, I wrote about how many professional sports coaches do not win a championship in their first gig as a head coach.  Instead, they win in their second tenure, or even later.  I suggested that we don't see many CEOs in business get a second chance if they fail during their first tenure as a chief executive.  Today, however, I read about one leader who is thriving during her second opportunity to serve as a CEO.  Fortune's Phil Wahba wrote about Michelle Gass.  She served as CEO of Kohl's, which struggled during her time there.  Now, she's serving as chief executive at Levi's, and the company has been growing profitably with strong shareholder returns so far during her tenure.  

Why might Gass be succeeding after stumbling at Kohl's? Wahba offers two key reasons. First, he writes that the Levi's role "plays to all the strengths she's developed over her long career." In short, we have a better match between Gass' skillset and the demands of the job at Levi's than at Kohl's. Gass' background at Starbucks gave her a set of brand management skills that match well with the Levi's brand positioning work that needed to be done. Second, some chief executives may be more suited to growth scenarios than turnaround situations. The skillsets required in each situation are quite different. I certainly agree with both points, and I would add that the Kohl's situation was a tough one for any leader. Brick-and-mortar retailers of that type simply face a tough road with any leader at the helm; the economic and strategic headwinds are strong. I would also add that some leaders may learn from experience very effectively. Gass may have reflected on her first tenure and made key changes that helped her thrive in her second role.

Wahba makes one other key point though. He writes, "some might be in the right place at the right time and get too much credit for success, or, conversely, get blamed for being unable to fix an unfixable company." I think he hits the nail on the head. We often have a severe case of attribution error when it comes to chief executives. We typically give them too much credit when their companies succeed, and too much blame when their companies fail. The same goes for head coaches in sports. We need to consider all the factors that contribute to the performance of a company: the management team surrounding the CEO, the efficacy of corporate governance, the attractiveness of the industry structure, the macroeconomic conditions, and frankly, the good or bad fortune they may encounter during their tenure (to name just a few key factors).

The Downfall of Allbirds

Remember when Allbirds became the "cool" shoe that offered comfort and plenty of virtue signaling about sustainability.  People such as Larry Page and Barack Obama wore the sneakers.  The company went public in 2021, reaching a valuation at one point of more than $4 billion. Now, the Wall Street Journal reports that the company sold its intellectual property and other assets and liabilities to American Exchange Group for $39 million.   What happened to this once-popular brand, and what can we learn from its downfall?

1.  Allbirds expanded too aggressively and did not define their target market clearly as they grew.  After its initial success, the company moved into a variety of other product categories.  They developed other types of sneakers, as well as leggings, jackets, underwear, and golf shoes.  The company seemed to be trying to both offer performance shoes and comfort shoes, without the technological capabilities and advantages required to sell to more serious athletes.  Moreover, it invested heavily in retail stores, building out brick-and-mortar locations around the country.  Through it all, it became unclear who Allbirds' target market was.  Were they selling to athletes, "tech bros", or wealthy people who cared deeply about the planet?  Were they selling to millennials, or a much broader audience?  Trying to be all things to all people turned out to be a key factor in their downfall.  

2.  Allbirds' value proposition did not have sufficient breadth and depth.  The company positioned its distinctive wool sneakers as highly sustainable footwear.  The question becomes: Is sustainability sufficient enough to drive very high willingness to pay on the part of consumers?  In most successful cases, companies pair a sustainability dimension of their value proposition with other key features. For example, On running shoes offer high performance for athletes and comfort for walkers, not just eco-friendly materials and the opportunity to recycle used sneakers.  Tesla offers speed, luxury, and status, not just the opportunity to drive a car that does not use fossil fuels.  Patagonia offers very high quality, durable, and stylish outdoor wear alongside its eco-friendly credentials.  Allbirds trumpeted the shoes as comfortable, but many companies were innovating to offer incredible comfort.  I bought a pair of Allbirds; while I liked the shoes, they were not durable, and other shoes offered superior comfort.  In short, Allbirds failed to optimize other aspects of its value proposition, relying too heavily on sustainability alone to drive willingness to pay. The Wall Street Journal's Suzanne Kapner writes,

The premise that consumers would pay a premium for sustainably made products turned out to be flawed. “Sustainability comes way down the batting order behind factors like style, price and comfort,” said Neil Saunders, a managing director of research firm GlobalData. “Allbirds could have leaned in to any of these things alongside its green credentials but largely chose not to do so.”

3. Quality and durability concerns undermined the company's brand image.  The shoes didn't last long enough for many customers, or they became damaged too easily.   In the end, people were not willing to sacrifice quality for the sake of sustainability.  

4.  Finally, competitors offered a more compelling value proposition.  Let's take On, for example.  They began by offering a distinctive, high performance running shoe.  They layered on eco-friendly components to their value proposition. Then, they expanded their target market by attracting customers who found the shoes very comfortable for walking.  Elderly individuals loved them too for this reason.  They almost didn't need to market to this broader audience.  Word-of-mouth spread, and the distinctive look of the shoe attracted attention.   Yet, On didn't lose sight of the athlete.  They continue to innovate with the serious runner in mind.  In many ways, starting with the athlete and then selling to the masses is an easier transition than the one that Allbirds tried to execute (i.e., going from a casual shoe to trying to compete with performance sneakers).