Professor Michael Roberto's Blog

Transformation at J.C. Penney

2012-01-30T11:52:00.000-05:00

Laura Heller has written an article about the transformation taking place at J.C. Penney. Heller's article, which can be found at Forbes.com, describes the firm as "the most interesting retailer of 2012." As you probably know, the company recently hired Ron Johnson, the former leader of Apple's retail stores. As CEO, Johnson has set out to remake J.C. Penney, and he's hired some talented folks to help him (including a senior executive from Target, where Johnson worked prior to Apple).

So far, Johnson's team has redesigned the logo, hired a new spokesperson, invested in Martha Stewart's company and launched a design partnership with Nanette Lepore. Perhaps most significantly, the company is overhauling its pricing strategy in a dramatic way, and it's redesigning the in-store experience. The company will be reducing prices significantly on many basics, relying less on weekly sales, and keeping prices at the same level for a month at a time on many items. It's not quite everyday low pricing (EDLP), but it's a shift away from the usual high-low pricing strategy that many retailers employ.   In terms of the in-store experience, the firm will be introducing many "stores within a store" - with each mini-store associated with a key brand. Heller rightfully points out that it will be fun to watch these changes unfold, and to see if they succeed.

What's clear to me is that the department store format is crying out for re-invention. Whether or not these changes all succeed, Johnson is right to try rethinking the department store concept.   In a world of massive discounting, outlet store malls in every state, and rapid e-commerce growth, department stores have to change their approach. It will take more than a new store experience though. The firm will have to offer exclusive products as well, so as to avoid pure head-to-head competition with rivals. Moreover, it will have to define itself clearly vis a vis its rivals. For years, the company's positioning and target market has been a bit murky.   That will have to change too.

Are You Communicating Effectively? - Testing For Understanding

2012-01-27T08:08:00.003-05:00

Former General Electric CEO Jack Welch used to say the following about communication:

“You don’t get anywhere if you keep changing your ideas. The only way to change people’s minds is with consistency. Once you get the ideas, you keep refining and improving them; the more simply your idea is defined, the better it is. You communicate, you communicate, and then you communicate some more. Consistency, simplicity, and repetition is what it’s all about."

I think Welch is correct in emphasizing the need for consistency, simplicity, and repetition in their communications. However, leaders need to take one additional step if they wish to communicate effectively. Put simply, leaders need to test for understanding and alignment. Did the troops understand my message? How did they interpret the meaning of my statements? Did they understand my intent? Is everybody on the same page, or did people "hear" different messages?

In other words, leaders need to construct a strong feedback loop. They have to circle back and make sure that people "heard" the same message that they intended to convey? Many leaders fail to take that additional step. As a result, confusion and misalignment persist despite the fact that leaders believe that they have communicated clearly, simply, and repeatedly.

Research on New Book

2012-01-26T08:49:00.003-05:00

I am working on the research for my next book, and I am seeking my readers' assistance. I'm studying successful or unsuccessful duos, with a particular emphasis on innovators in a variety of fields. For instance, Dwight Eisenhower and George Marshall would be an example of a very successful duo, as would Andy Grove and Gordon Moore at Intel. I'm looking for examples from the military, business, sports, etc. How can you help? Please send me ideas for successful or unsuccessful duos that I can analyze. In addition, if you know of individuals that I could interview for this research, please reach out to me. I appreciate your assistance and recommendations.

The Problem with Competency Models

2012-01-25T11:36:00.003-05:00

Fortune magazine recently published its list of the top firms for developing leaders. The magazine works each year in conjunction with The RBL Group and Aon Hewitt to develop this list. IBM topped this year's list. The report identifies a number of characteristics of these top companies. For instance, it notes that the best firms have clearly defined competency models that identify what the organization expects of its leaders. Specifically, the report indicates that, "Top Companies have a defined competency model that describes a unified theory of what leaders at their organization should know, be, and do. And they use their competency models in all phases of talent and leadership development."

I agree wholeheartedly that firms should construct well-defined competency models, and then use those models to guide talent management and leadership development processes, including performance evaluation, coaching, and succession planning. However, in my experience with many large organizations, I have witnessed many highly flawed competency models. What's the major weakness of these models? Complexity! Too many firms have developed a giant laundry list of competencies. Leaders throughout the organization cannot even remember the list, never mind alter their behavior appropriately. People need to understand clearly the organization's expectations. Senior executives have to boil down their expectations to a simple list of behaviors and capabilities that they value and wish to cultivate in aspiring leaders. Simplicity and brevity will breed behavioral change much more quickly and effectively than complexity and comprehensiveness.

Larry Page Reforms Decision-Making at Google

2012-01-24T11:45:00.001-05:00

Google Vice President of Operations Kristen Gil has written a terrific memo explaining how Larry Page changed decision-making at Google when he took over again last year. Page worried that decision-making had gotten bogged down at Google, that the firm wasn't acting with the same agility as in the past. What did Page do? First, he outlined some new rules for how and when meetings should take place. Here's an expert from Gil's memo:

For starters, we noted that every decision-oriented meeting should have a clear decision-maker, and if it didn’t, the meeting shouldn’t happen. Those meetings should ideally consist of no more than 10 people, and everyone who attends should provide input. If someone has no input to give, then perhaps they shouldn’t be there. That’s okay – attending meetings isn’t a badge of honor – but the people who are attending need to get there on time. Most importantly, decisions should never wait for a meeting. If it’s critical that a meeting take place before a decision is made, then that meeting needs to happen right away.

As I wrote in a recent blog post, Alan Mullaly also changed decision-making at Ford by setting out some new ground rules for his key Thursday morning business review meetings with his senior team. Clearly establishing new ground rules and shared norms can be very important for altering patterns of behavior that have become dysfunctional. Page made a second change that I find even more interesting and potentially quite effective. He recognized that, as a firm grows in size and complexity, senior executives often find themselves disconnected. Senior teams become fragmented. Travel schedules, meetings, and the needs of their particular units take them away from their peers. As a result, members of the senior team do not communicate often enough. They don't share and integrate information effectively. Page set out to change that dynamic. Here's another excerpt from Gil's memo:

Besides fast decisions, another key hallmark of start-ups is their fast-paced, densely populated offices. We’ve always promoted this approach at Google, organizing around small teams and working in close proximity to one another. Even Eric Schmidt shared his office with an engineer when he first joined the company. But as Google grew, the executives spread out to the far reaches of our campuses so they could work side-by-side with their teams. To make sure our key decision-makers could work and make decisions in an environment more reminiscent of a start-up, we created a ‘bullpen’ in one of the buildings on our main campus, which was specially designed as a place for members of our executive team to work and talk in an informal setting. These execs now set aside a number of hours per week to be there. It’s amazing how fast things can get done – even in a large company – when you put so many key people together and don’t give them an agenda.

General Petraeus: Welcoming Dissent

2012-01-23T11:22:00.000-05:00

I've enjoyed reading Tim Harford's excellent book, Adapt: Why Success Always Starts with Failure. I find the overall argument of the book quite compelling, and the I love the stories and examples that Harford uses. Some assertions are maddening, but you have to just push through on the occasional bizarre pronouncement. For instance, he writes that it's wrong to assume the Soviet planned economy failed because it lacked the profit motive or the creativity of private-sector entrepreneurs. Huh? He argues that the failure was due to an inability to experiment. Somehow, in Harford's mind, the inability to experiment didn't have anything to do with a lack of profit motives and private sector entrepreneurship. I don't get it.

The book is excellent overall though. He makes a great case for the importance of experimentation and the willingness to tolerate failure. Harford also makes a strong case for why leaders must embrace conflict and dissent. Take the story of General Petraeus that Harford tells us in the book. Petraeus organized a conference on counterinsurgency in Fort Leavenworth during the Iraq War. He invited many people, inside and outside the Army, who had been quite critical of the Army's strategy to that point. It was a highly unusual meeting for the U.S. Army. Petraeus also often invited lower level officers to email him directly about their observations and insights regarding how things were going in Iraq. He wanted to circumvent the usual gatekeepers and hear directly from those on the front lines.

Apparently, Petraeus learned the importance of inviting dissenting views from Major General Jack Galvin, a man to whom Petraeus reported back in the early 1980s. According to Harford, "Jack Galvin also taught Petraeus that it is not enough to tolerate dissent: sometimes you have to demand it." Music to my ears! I have argued that same point for years. Just telling people you want to hear from them doesn't always surface the full range of divergent views and perspectives that you need to hear. When he's telling these stories, Harford is at his best. I strongly recommend the book.

Who has the D? Does method encourage advocacy over inquiry at times?

2012-01-19T07:01:00.000-05:00

Many people have embraced a terrific HBR article written a few years ago - "Who has the D? How clear decision roles enhance organizational performance". I think the article is excellent. It provides practical advice for enhancing the efficiency and effectiveness of decision-making processes. As they argue, it's so important to figure out who has the decision rights/authority before getting too deep into deliberations on a complex issue.I do think a word of caution is in order though. If we are too quick to frame a crucial meeting(s) as a decision moments, we risk having advocacy crowd out all inquiry. In other words, people may focus so much on winning the argument that the group as a whole stops learning about the problem, or about each other's perspectives and knowledge. Jumping too quickly into decision mode sometimes means that teams frame decisions as go/no go situations, rather than creating and considering multiple options. We sometimes have to remind a team that they may need to do some more collective and collaborative inquiry into the nature of the problem before shifting into individual advocacy mode. I'm not arguing for a go-slow approach. I'm simply recommending that groups remember that focusing too quickly on the "d" can lead to entrenched and polarized camps locked in a dysfunctional conversation without having shared ad integrated all the data and knowledge required to make a sound choice.

Kodak: More Than a Disruption Story?

2012-01-18T08:47:00.000-05:00

Monitor's Larry Keeley has written an article for Fortune titled "The Kodak Lie." In that story, he writes:

"The demise of Kodak isn't merely the classic disruption story that everyone loves to tut tut over. Nor is the company's downfall merely a result of recent bad decisions or the mismanagement of senior executives. It is the more nuanced story of how easy it can be to get things wrong, even when trying with the best of intentions to do everything right."

Keeley points out correctly that Kodak created one of the world's first digital cameras way back in the 1970s. In his mind, that means the Kodak story doesn't fit the classic story of a disruptive technology. Kodak didn't miss the boat completely. He goes on to write:

"The digital photography field not only was slow growing but it actively undermined their largest source of profits: photo and motion picture films. The tiny sideline businesses simply could not scale at a rate that might make up for the loss of film revenues, so those inside the core business were unable or unwilling to do what it took to foster drastic transformation.This exact phenomenon plagues innovation in nearly every large firm. At least once a week, top executives tell me that new growth businesses in their firms are intriguing and potentially important, but they simply "don't move the needle."

Again, Keeley is right on the money. However, this story is PRECISELY the disruptive technology story told by Clayton Christensen. Clay has documented many, many examples of upstarts disrupting incumbents in industry after industry. In many of those cases, the incumbents didn't miss the threat completely. They were not simply blind (Polaroid too invested in digital photography R&D in the early days). Some executives understood the new technology and recognized that it had some promise. However, the core business and the corporation's resource allocation process undermined the firm's ability to shift effectively into new markets. The "move the needle" problem occurs in many firms, as well as a host of other pressures in the resource allocation process that make cannibalizing the core a very difficult thing to do.

The real challenge of "move the needle" thinking is somewhat different than what Keeley has suggested. Many large firms become dismayed when new ideas don't seemingly "move the needle" in terms of revenue growth. However, time and again, we have instances in which executives misjudge the actual revenue potential of new business opportunities. They overestimate some and underestimate others... by a significant amount. Thus, dismissing a new venture because it won't move the needle proves to be a very dangerous move.

Making Cadillac Cool Again

2012-01-17T09:43:00.002-05:00

Source: Michael Edward, Fast Company

Fast Company has an article this month about Cadillac's attempt at reviving the brand and becoming more appealing to young people. The article describes how Cadillac hired the Fallon advertising agency to develop its current campaigns. The agency promptly put 28 year old Veda Partalo in charge of remaking Cadillac's image. Putting someone that young in charge certainly takes guts, but of course, she understands what makes young people tick.

I found one particular element of her strategy quite interesting.   Partalo describes how she chose not to focus on specific models, but instead tried to emphasize the brand as a whole:   "Sometimes you want to communicate to each buyer based on his individual needs. But the luxury buyer is different. He's more concerned with the brand's overall background, its heritage. So we wanted to do two things. First, bring Caddy back to its original standing. Second, do it through a campaign of substance."

In this case, I think the emphasis on the brand, rather than specific models, makes a great deal of sense. First of all, it's a much more efficient way to spend advertising dollars - no more mini-campaigns for each model. More importantly, Partalo has to get Cadillac into the consumer's consideration set. Customers won't examine a particular model if Cadillac isn't even on their radar screen. Therefore, she has to make them willing to be open to the idea of purchasing a Cadillac. Once she achieves that, Partalo can sell consumers on the attributes of particular models.   Many firms make this mistake, thinking that they can sell consumers on a great new product without confronting the reality that the brand as a whole may simply not be a viable option at the moment for many individuals.

Rise of the New Groupthink?

2012-01-16T11:37:00.000-05:00

Susan Cain wrote a very provocative article for the New York Times this weekend. It was titled, "The Rise of the New Groupthink."   Cain explains that, "Most of us now work in teams, in offices without walls, for managers who prize people skills above all. Lone geniuses are out. Collaboration is in." However, Cain argues that many creative people are quite introverted, and they enjoy working independently and privately.   Some creative individuals thrive as "lone geniuses."   Privacy and solitude makes them productive, while constant interruptions can be very problematic.   Cain cites the work of K. Anders Ericsson, a scholar who has examined how people become world class experts in particular fields through deliberate practice. Cain concludes from his research that, "The best way to master a field is to work on the task that’s most demanding for you personally. And often the best way to do this is alone."

Cain also argues that teams often do not achieve their potential; they do not outperform the results that could be achieved by best individual members working alone. Indeed, much research has shown that teams often experience "process losses" - i.e. 1+1 should equal more than 2, but somehow those synergies often don't materialize in teams. 1+1 might even add up to less than 2 at times.   She points specifically to the process of group brainstorming, whose results often do not meet expectations according to many studies.

Cain acknowledges that many of our toughest technical and scientific problems no longer can be solved by the "lone inventor" working in their garage. Collaboration has become necessary to make progress on many complex challenges of our time.   However, she argues that we have to strike a balance in the way we organize ourselves in workplaces, schools, and other institutions. We need to provide the space for collaboration to occur, but not inundate people with meetings.   We have to give people, particularly creative introverts, the opportunity and the venue to work privately and without interruption at times.   At the same time, we want to provide the opportunity for the mixing of ideas to occur and the sharing of knowledge.   It's a delicate balance, but I believe Cain is right in arguing that we must strive to achieve it.

Challenging Conventional Wisdom: Tebow and the NFL

2012-01-13T14:31:00.001-05:00

As my beloved Patriots prepare to play the Denver Broncos this weekend, everyone is focused on Tim Tebow. His fans love him - he's a winner, they argue. His critics deride his unconventional style; he can't throw the way an NFL quarterback must, they argue.

I find the entire issue of conventional wisdom in the NFL fascinating. Allegedly, you have to run the football to win, but then Green Bay won the Super Bowl last year by always passing! Consider even the three best quarterbacks in the game. Each was, in part, rejected at one point by the so-called experts. Brews was deemed too short among other things and discarded by the Chargers. Brady was not picked until the 6th round of the draft - too slow, too weak, etc. Rodgers fell to late in the first round due to various criticisms. How did that work out?!!

In general, NFL general managers have a terrible time selecting quarterbacks in the draft. Many top picks turn out to be busts. Yet, the conventional wisdom remains a powerful thing in the NFL.

The lesson here for other industries is to be cautious about the conventional wisdom. It can lead you astray. Moreover, one can become blind to the weaknesses of that conventional wisdom if you have been part of that industry for years. Always be wary of those who tell you that certain rules of thumb always hold in a particular industry.

I'm not saying Tebow will be a Hall of Famer. I'm just saying that not all quarterbacks must be carbon copies of some mythical prototype.

Establishing Ground Rules for Your Team

2012-01-11T17:40:00.002-05:00

I've finished reading Bill Vlasic's most recent book on the auto industry, and I highly recommend it. As a journalist, Vlasic has covered the industry for decades, and he really understands the key players and the firms. Some of you may remember his terrific book about the Daimler Chrysler merger (Taken for a Ride: How Daimler Drove Off with Chrysler).

In the book, Vlasic writes a fair amount about Alan Mulally's turnaround process at Ford. I found several stories particularly compelling. For instance, Vlasic describes how Mulally changed the culture of the senior management team at Ford. Prior to his arrival, the top team experienced a great deal of infighting and dysfunctional group dynamics. Mulally instituted a new business plan review process centered on a crucial Thursday morning meeting that took place weekly. The new Ford CEO quickly established some new ground rules for how executives would behave during these meetings. He called these shared norms and ground rules the "working together behaviors" of the senior team.

According to Vlasic, these ground rules included no smart phones, no encyclopedic briefing books, no aides, no jokes about colleagues, no side conversations, and most importantly... facts, not opinions, would rule the day. Mulally announced to the team that this code of conduct would be strictly enforced. If someone couldn't comply, Mulally told them bluntly, "You'll just have to work somewhere else." He went on to explain, "The important thing is that we are all accountable to each other. You are accountable to the team, and the rest of the team is here to help you."

What a fantastic leadership moment! Too many teams suffer because leaders don't outline the ground rules and expectations EXPLICITLY. Leaders need to be clear about the shared norms and ground rules which will govern behavior. If leaders are explicit and clear about these "working together behaviors," they will find it much easier to encourage candid dialogue and to keep conflict constructive. Moreover, they will find that explicit ground rules will enhance their odds of achieving alignment and shared commitment among the team members.

Leaders: Can You Transfer Success to a New Organization?

2012-01-10T10:14:00.000-05:00

Glenn Llopsis has written an interesting column at Forbes.com. The article is titled, "7 Reasons Leaders Can't Transfer their Success to Other Organizations." I have always found this topic fascinating. Why is it that highly effective leaders sometimes have trouble repeating their success at their next organizations? First and foremost, I believe that we often over-attribute an organization's success to its chief executive. We assume that he or she should receive most of the credit for the high performance, when in fact, others played a key role. Perhaps even some good fortune played an important part in that success.

Second, executives often try to take the processes and techniques that have made them successful and transplant them completely to their new organizations. They forget that those practices must be adapted and tailored to the new industry, strategy, culture, and people. In other words, there are very few "best practices" that can simply be dropped into any organization. Practices must always be tailored to fit with the other systems, activities, and processes in place at the new organization. Alignment or fit among processes and capabilities produces competitive advantage. That's why tailoring matters so much!

Executives encounter a problem though. In the back of their minds, they often know that tailoring and adapting is necessary. Yet, they have had such success with a particular "formula" that they are reluctant to change. Chuck Knight, the former CEO of Emerson Electric, once visited my class a few years ago. A student asked him if he would have taken the vaunted Emerson strategic planning process to Silicon Valley if he had taken on a CEO role at a firm there after he retired from Emerson. He said that adopting the Emerson process there without significant adaptation would have been a big mistake, but he acknowledged that it would have been very tempting to rely on the winning formula from his past.

Narcissistic CEOs: Impact on Acquisitions?

2012-01-09T10:41:00.001-05:00

Nihat Aktas, Eric de Bodt, Helen Bollaert, and Richard Roll have written a thought-provoking paper that examines how CEO narcissism affects the acquisition process. Here is an excerpt from their abstract, which summarizes their findings:

More narcissistic acquiring CEOs are more likely to be the initiator of the transaction. Compared to their less narcissistic peers, they also tend to negotiate faster during the private part of the process, and they are more likely to complete the transaction. Additional analyses show that target CEO narcissism is associated with higher bid premiums and lower acquirer abnormal returns. Our results make a strong case for the impact of CEO psychological characteristics on many dimensions of the takeover process.

I found these results fascinating. I understand completely how narcissistic acquiring CEOs might be deal happy. After all, one could imagine them enjoying the spotlight associated with making acquisitions, and deriving satisfaction from growing the size of their empire. The more surprising results concern the impact of narcissism on bid premiums and acquirer returns. I would have thought acquiring CEO narcissism would have the significant impact there, but in fact, it's the target CEO's narcissism that creates higher bid premiums and lower abnormal returns. The scholars explain the finding by arguing that, "Manipulative narcissistic acquiring CEOs may be able to browbeat their less narcissistic counterparts during talks." It's an interesting potential explanation. Is the lesson that we shouldn't try to do deals with narcissists? Perhaps it is!

Nice Guys Finish Last - and Don't Become Leaders?

2012-01-06T10:01:00.003-05:00

Nir Halevy, Eileen Chou, Taya Cohen and Robert Livingston have conducted an interesting study regarding the relationship between altruism and status. First, they distinguish between two dimensions of status: prestige and dominance. According to Livingston, “Dominance involves the use of intimidation and coercion to attain a social status based largely on the effective induction of fear.” Prestige derives from being a good person and demonstrating character that people respect and admire.

To begin, they divided participants into groups and created a series of experiments involving the allocation of ten game chips worth a total of $20. Then they examined how people rated fellow group members in terms of prestige and dominance. They also asked people about the types of individuals who should serve as leaders of the groups.   Here is what they found (excerpt from Kellogg Insight):

In the first experiment, selfish participants—free-riders who kept all of the chips and contributed nothing to the group—were rated lower in prestige but higher in dominance than participants who contributed to the group. In subsequent studies, participants who harmed another group were also rated higher in dominance than people who contributed to their own group without harming outsiders. Finally, the most generous individuals—those who contributed to benefit both their group and outsiders—were rated lowest in both dominance and prestige. In sum, individuals were seen as more dominant if they were selfish and discriminated in favor of their own group at the expense of others. When it came time to select leaders, dominance and prestige played distinctly different roles, depending on the type of leadership that was required. In instances where there was no intergroup competition, people preferred individuals with more prestige. But when groups had to compete against each other, dominant individuals rose to the top while benevolent people were least likely to be elected.

Does this mean that "nice guys finish last?" It certainly seems that this might be the case. Livingston argues, "Altruism is a double-edged sword. On the one hand, generous individuals are admired for their kindness, compassion, and willingness to help. On the other hand, they may be perceived as feeble ‘bleeding hearts’ who lack the guts to make tough decisions that might advance the goals of the organization." He goes on to argue that we may not quite have it right when we say "Power corrupts."   In fact, in competitive environments, we may be selecting high dominance leaders who have a natural tendency to exhibit selfish behavior.

Let's be careful about making sweeping generalizations based on this experimental study though. The studies involve judgments made based on one set of actions. Life in organizations represents a repeated game. We interact numerous times with others, and we make determinations based on the patterns of behavior that we observe.   Long term success is not simply about dominance. It clearly involves prestige as well, as the scholars acknowledge in their study.   Moreover, I do believe that leader selection depends on the culture of the organization. Certain organizational cultures do not tolerate selfish behavior. Others enable it.   The values of the firm matter a great deal.

Barnes and Noble: Why Divest the Nook Business?

2012-01-05T11:41:00.001-05:00

I'm puzzled today by the news that Barnes and Noble is considering a spin-off of the Nook business. According to CEO William Lynch, “We see substantial value in what we’ve built with our NOOK business in only two years, and we believe it’s the right time to investigate our options to unlock that value." Apparently, he believes that investors are discounting the value of the Nook business because they are so negative on the brick and mortar retail business model. I'm sure that there's some truth there. However, separation of the Nook business leaves, in my view, two unsustainable entities trying to operate on their own. The brick and mortar model is dying, and it will have no future without an online element. On the other hand, Nook will have a hard time competing as an independent entity. It will lose some of those synergies with the stores. Moreover, Amazon and Apple have broader business strategies in which the Kindle and iPad are embedded. Those products benefit from the synergies associated with the entire ecosystem of those firms. It sounds to me as though the firm is trying to use financial engineering to create value, rather than actually trying to identify a viable business strategy for survival.

Can Best Buy Be Saved?

2012-01-04T08:36:00.001-05:00

After yesterday's post on Sears, a friend recommended that I read Larry Downes' article regarding Best Buy (posted on Forbes.com).   Downes article is titled, 'Why Best Buy is Going out of Business...Gradually." Some may find the article a bit harsh, but sometimes the truth hurts. Downes points out the disturbing numbers that should alarm Best Buy management:

Consider a few key metrics. Despite the disappearance of competitors including Circuit City, the company is losing market share. Its last earnings announcement disappointed investors. In 2011, the company’s stock has lost 40% of its value. Forward P/E is a mere 6.23 (industry average is 10.20). Its market cap down to less than $9 billion. Its average analyst rating, according to The Street.com, is a B-.

Interestingly, Downes does not attribute all the company's problems to the threat from online retailers such as Amazon.   In fact, he focuses a great deal on customer service. One could argue that brick-and-mortar retailers must have superb customer service, because that in-store experience can be one of their key (and perhaps only) advantages over online retailers. However, Downes explains (as others have) that Best Buy employees seem to spend a great deal of their time pushing products and services on customers, rather than trying to offer educated and informed answers to their questions. They aren't offering the best solution so much as they are trying to drive sales of Best Buy's products.

I haven't bought a major item at Best Buy recently, so I cannot confirm this observation by Downes. However, I can describe a recent encounter at the Apple Store, where an associate spent a considerable amount of time explaining to me why I should spend $300 less on a particular item because it would meet my needs more effectively and cost efficiently. I thanked him for the honesty, and he explained that their job wasn't just to sell product but to make sure we had the best solution and best experience possible. Sales would come if they did that part of their job.

Beyond the issue of customer service, I think Best Buy has to answer many of the questions that I posed for Sears in yesterday's post.   In particular, I think it needs to refine the relationship between its online store and its physical locations. That connection should be clean and seamless given the types of products that Best Buy sells. The firm needs to think about the choice of product categories in which to compete, the amount of real estate dedicated to each product category, and the optimal size and layout of the stores. As J. Benjamin Stevens wrote on this terrific blog post, "Apple Retail Stores are many times smaller than Best Buy, Costco and Walmart. However its sales per square foot figures are off the charts. In 2009 an Apple Store in Manhattan had sales of $35,000 per square foot, while Best Buy’s national sales per square foot total was $930 for the same year."

One final point: Downes suggests that Best Buy is facing a gradual demise, not a sudden one. It reminds me of what governance expert Jay Lorsch once wrote in a book about boards of directors. He argued that gradual crises often are more difficult to address than sudden ones. The gradual crisis emerges slowly and in a manner that enables people to downplay the threat or underplay the need for a dramatic response.

Can Sears be Saved?

2012-01-03T15:59:00.000-05:00

The Wall Street Journal reports that Sears has hired Brookstone CEO Ron Boire as its new chief merchandising officer and president of the Sears and Kmart store formats.   Boire told the newspaper, "My focus will really be on creating more and better theater in the stores." He also will attempt to better integrate Sears's stores, website and mobile-phone application. ,He has a major challenge ahead of him. According to the Wall Street Journal, "Sales at stores open at least a year have declined every single year since Mr. Lampert created the Hoffman Estates, Ill., company by merging Sears and Kmart in 2005."

What can and should Boire do to reverse Sears' fortunes?   Rather than proposing a specific answer, I would recommend an approach that might be fruitful. I don't think Sears will turn itself around simply by making changes in the store experience, or in its ability to appeal to cross-channel shoppers more effectively. Sears needs to take a top-to-bottom look at its entire business model. Such an analysis would ask some fundamental questions to begin:

1. Do Sears and Kmart belong together?   Do they help each other? Are they truly more valuable together than apart?

2.   Does Sears belong in all the product categories in which it competes? Which categories are money-makers and which are money-losers?   What products still draw people into Sears stores? (consider tools, appliances, etc.)

3. How many stores does Sears want/need in its network? What's the optimal size of its store network?

4. What's the optimal size/layout of a Sears store?

5. What are the right kinds of locations for Sears stores? Does its mall-based strategy work effectively or not?

These kinds of questions must be addressed if Sears is to survive. The firm has been on a long-term downward trajectory for years. Minor adjustments won't save the company.

Leaders, Go the Back of the Line!

2011-12-23T08:07:00.002-05:00

Several days ago, someone reminded me about a book that I read awhile back - “It’s Your Ship: Management Techniques from the Best Damn Ship in the Navy” by Commander Michael Abrashoff. In the book, the commander describes how he turned around a poor performing ship and helped it become one of the best vessels in the U.S. Navy. My colleague reminded me of one particular story Abrashoff tells about his first week on the ship. The commander went to the weekly cookout on the ship, and he noticed that all the officers jumped to the front of the line (cutting in front of the enlisting personnel waiting patiently for their food). Abrashoff took his tray and went to the back of the line. His officers got their food and sat down to eat on the upper level, while the sailors sat down on the lower level. When they noticed the commander at the back of the line, one individual went down to speak with Abrashoff: "Captain, you don't understand. You go to the head of the line." Abrashoff responded, "That's okay. If we run out of food, I'll be the one to go without." Abrashoff waited patiently for his food and sat down with the sailors on the lower level. He did not scream at his officers or reprimand them for his actions. However, he noticed that the officers did not cut the line the following week, and they chose to sat with the enlisted men.

Every leader at all levels should read that story and consider whether they lead from the front or the back of the line. I would submit that far too many leaders choose to cut the line. Moreover, many leaders who witnessed the cutting in line would choose the verbal reprimand route. They would fail to recognize that actions often speak louder than words.

Corporate Governance and a CEO Search at Avon

2011-12-22T10:29:00.002-05:00

Avon recently announced that CEO Andrea Jung would be stepping down, but remaining at the firm as Executive Chairman. The firm announced that a search for a new CEO would commence immediately. Today the Wall Street Journal reports that two former Avon CEOs (including Jung's mentor and predecessor) have criticized the decision to have Jung remain as Executive Chairman for at least two years. According to the Wall Street Journal,

Former Avon CEO James Preston, once one of Ms. Jung's closest mentors, took the unusual step of writing a letter to the board two days after the shake-up. He criticized Ms. Jung's leadership, stressed that departing CEOs should step aside and called on the board to replace her with someone with deep experience in the direct-selling world. "I have long held the belief that once a CEO leaves that position, he or she should make a 'clean break' and not question or second-guess the actions of his successor," wrote Mr. Preston, who ran Avon from 1989 to 1998, in the letter, dated Dec. 15, that was reviewed by The Wall Street Journal. "I have held true to that belief, even though in recent years I have become increasingly concerned—and saddened—by the declining fortunes of the company."

I found the Avon decision puzzling as well. I wonder whether the decision will make it very difficult for Avon to find a top quality CEO. What executive would want to take the job, knowing that the former CEO would be looking over their shoulder for the next two years? It's particularly problematic, given that Avon has struggled lately. Big changes will have to be made. Will Jung prevent some of that change from occurring as fast as it should?

The Board now has a major problem. The fact that Preston's letter has become public puts pressure on the directors to clarify and justify their rationale for keeping Jung as executive chairman for two years. They cannot ignore this issue. They'll have to address it, or they jeopardize their ability to find a high quality CEO. Moreover, a lack of response will raise more questions about the efficacy of corporate governance at the firm. That could hurt the share price, as investors may be leery of investing in the company if they perceive governance to be weak.

Preventing Analysis Paralysis

2011-12-21T17:42:00.002-05:00

The Corporate Executive Board has posted a useful article on Business Week's website regarding how managers can avoid analysis paralysis. Among their recommendations, they advise the following:

Unclutter dashboards for managers: Even the most relevant and informative survey data won’t get very far in your organization if managers cannot readily access them. Our research shows that managers who transform data into usable information for their teams can increase business performance by 24 percent. So, focus managers on what matters by providing them with personalized views of the data they need to be effective. Streamlined online dashboards provide managers with instant access to aggregate survey results from their team and organization overall. Ideally, they highlight areas of strong performance and opportunities for improvement for each manager, and equip them with the resources to improve.

I agree completely. Many organizations face metric overload these days. Senior leaders need to think carefully about the priorities of the organization and communicate those to all the troops. Then, the dashboards used to run the business must reflect those priorities. How does one rationalize the metrics and reports being generated? It starts with tying the dashboards closely to senior leadership's priorities. One can go further though. I can recall an exercise we undertook when I worked in corporate finance at a major aerospace firm in the early 1990s. We went out and talked the people who received the reports we generated. We asked them whether they used our reports, and if so, how. We also asked them when was the last time that they had examined each report. It sounds so simple, yet many people who put together dashboards and reports don't actually know how their data are being used. By connecting the dashboard creator and user more closely, one can identify which metrics are most useful.

You Gotta Believe - Leaders are Made vs. Born

2011-12-19T08:45:00.000-05:00

Each Sunday, the Boston Globe's Uncommon Knowledge section features interesting research findings from the social sciences. Yesterday, the newspaper described a study by Crystal L. Hoyt, Jeni L. Burnette and Audrey N. Innella. The researchers examined the impact of individual beliefs regarding leadership on actual behavior. They compared people who tend to believe leaders are "born" with those who tend to believe leaders are "made." The scholars conducted two studies. In the first study, they primed individuals to think about a leadership role model. Then, they found that the people who believed that leaders are made tended to show more confidence and less anxiety as they performed a leadership task (delivering a speech). In the second study, they asked some individuals to read an article arguing that leaders are made. They found that those who read the article tended to show more confidence, exhibit less anxiety, and perform better in the delivery of a speech (as measured by independent judges).

Knowing Your Customer - By Channel!

2011-12-19T08:29:00.000-05:00

Knowledge @ Wharton has published an article about a new report produced by Wharton’s Jay H. Baker Retailing Center and The Verde Group, a market research firm. The report emphasizes that companies need to think carefully about the multi-channel shopper. Retailers clearly have been spending time (appropriately) trying to provide some commonality for the customer regardless of how they shop (online, in store, catalog, etc.). However, the report reminds retailers that the shopper in each channel has different wants and needs. Therefore, one has to tailor the experience to suit that customer at that point in time. The same individual may actually want a different experience in store vs. online - and some of those differences may be quite subtle, yet critical. Here is a key excerpt from the article:

"Courtney (Paula Courtney, president of The Verde Group) notes that while the emphasis for many retail businesses has been on creating a seamless experience across multiple channels, the reality is that retailers need to spend more time addressing the specific needs of various channel users. “While it’s important to have consistent policies across channels, policies are different from experiences. This [research] suggests that an overriding emphasis on ‘consistent’ channel experiences is misplaced. Different channels attract different types of customers who demand experiences that are specific to their needs and preferences.”

Lego Tries to Appeal to Girls

2011-12-16T10:24:00.001-05:00

Business Week has a story this week about how Lego is trying to appeal more effectively to girls. I don't know if it will work, given the firm's historical image and positioning. However, I am very impressed with the research methodology that they employed before designing a new line of products specifically targeted at girls. Lego invested significant resources in anthropological research, sending researchers into homes to watch how girls play. They learned a great deal about how girls build, value beauty and color, and engage in role play. Here is one fascinating excerpt:Lego confirmed that girls favor role-play, but they also love to build—just not the same way as boys. Whereas boys tend to be “linear”—building rapidly, even against the clock, to finish a kit so it looks just like what’s on the box—girls prefer “stops along the way,” and to begin storytelling and rearranging. Lego has bagged the pieces in Lego Friends boxes so that girls can begin playing various scenarios without finishing the whole model. Lego Friends also introduces six new Lego colors—including Easter-egg-like shades of azure and lavender. (Bright pink was already in the Lego palette.)

Hasbro Faces Challenging Times in Board Game Business

2011-12-15T10:02:00.000-05:00

The Wall Street Journal reports that Hasbro continues to face challenges in its board game business.   Naturally, mobile and social gaming, as well as other forms of entertainment, have threatened the board game industry for some time. However, the Wall Street Journal reports that, "Sales of Hasbro's games and puzzles dropped 9% over the last three quarters, far more than overall sales of board games, which declined 3% in the same period, according to researcher NPD Group. Hasbro's game sales slid 3% last year, even as industry-wide game sales edged up 1%."   Some observers claim that Hasbro has neglected its board game business as it has tried to become a broader entertainment company.   The company, naturally, rejects such criticisms.

I decided to take a quick look on the Amazon site.   What the are the most popular board games on Amazon right now? The top three games are produced by GameWright, MindWare, and PlaSmart. Each firm appears to be independent (i.e. not owned by a major toy company). I found this fact quite interesting. It appears, then, that the board game business may not have substantial barriers to entry, nor economies of scale that provide incumbent players such as Hasbro a formidable advantage.   In fact, these independent firms often use a form of crowdsourcing to generate new games. That is, in addition to creating games in-house, they solicit game ideas from inventors around the world, and then select the best ideas.   They often build on and expand those ideas to create their games.

Interestingly, the Wall Street Journal suggests that Hasbro has spent a considerable amount of time trying to modernize its classic board games, rather than emphasizing the development of many new titles. These independent firms, of course, focus on bringing totally new ideas to market. Some of Hasbro's modernization attempts have not gone so well, and in fact, have invited some humorous response. Check out Stephen Colbert's take on a new version of Monopoly that Hasbro introduced recently (start watching at the 5 minute mark):

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Starbucks appoints 29 year old board member

2011-12-14T19:19:00.001-05:00

Starbucks has announced that Clara Shih, the twenty-nine year old founder of Hearsay Social,has been appointed to the coffee company's board of directors. Shih's firm, Hearsay Social, provides tools for large companies to manage social media across many local branches and units. I find this appointment very refreshing. Company leaders often fall out of touch with key social and technological trends. Connecting regularly with young people insures that board members and executives will stay attuned to key generational differences and consumer trends. The key to making this move a success, though, will be working diligently to encourage other board members to consider her views seriously.

Amazon's Public Relations Problem

2011-12-13T11:37:00.001-05:00

Amazon caused quite a stir this week with a new promotion.   They introduced a new "Price Check" smartphone app for consumers. Individuals could visit a brick and mortar store, check the item's price on Amazon, and then receive a 5% discount (maximum $5 savings) if they purchase that particular item from Amazon. Now, smartphone apps that enable consumers to check prices elsewhere have existed for quite some time.   Yet, this promotion by Amazon went one step further. It not only enabled price checking, but actually gave a discount to the consumer if they chose Amazon over the brick-and-mortar retailer in which they were shopping at the moment.   That extra step caused a backlash. Small business owners and advocacy groups expressed outrage at the promotion almost immediately. Politicians became upset as well. Maine Senator Olympia Snowe issued a press release in response to the promotion:

"Amazon's promotion - paying consumers to visit small businesses and leave empty-handed - is an attack on Main Street businesses that employ workers in our communities. Small businesses are fighting everyday to compete with giant retailers, such as Amazon, and incentivizing consumers to spy on local shops is a bridge too far... We should remember that our local restaurants, bookshops, and hardware stores are the economic engines in our communities. I urge Amazon to cancel its planned promotion, and look for ways to partner with Main Street, not promote anti-competitive behavior that could shutter the doors of America's small businesses."

What do we make of this situation? At the end of the day, price checking via smartphones will not be stopped.   It has already begun to transform the way people shop, particularly for pricey electronics. The prevalence of such price checking will only increase in the future. Small businesses will not be able to put an end to that phenomenon. On the other hand, Amazon may have underestimated the extent to which the discount would create a public relations mess. While the firm states that they were focused mainly on competing with large retail chains, they ended up becoming portrayed as the enemy of small business. I'm sure that they don't want to be seen in this fashion. Moreover, the timing doesn't serve them well at all, given that they already face a growing controversy over the sales tax issue.   Given the anti-big business mood of many people at the moment, I'm surprised that Amazon didn't think through the way that this move might feed that sentiment. Every large firm needs to consider how they might get caught up in that national mood these days.

In the video below, we hear the other side of the story.    Evan Newmark, a Wall Street Journal writer and former Goldman Sachs executive, defends Amazon and criticizes Senator Snowe.

How Early Career Experiences Shape Future Career Prospects and Decision-Making

2011-12-09T08:06:00.000-05:00

Antoinette Schoar and Luo Zuo have published a new paper titled, "Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Style." They studied how early career experiences shape future career prospects and decision-making. Here is what they found:

"Economic conditions at the beginning of a manager’s career have lasting effects on the career path and the ultimate outcome as a CEO. CEOs who start in recessions take less time to become CEOs, but end up as CEOs in smaller firms, receive lower compensation, and are more likely to rise through the ranks within a given firm rather than moving across firms and industries. Moreover, managers who start in recessions have more conservative management styles once they become CEOs."

I found the last point particularly interesting, namely that a person tends to become a bit more risk averse after experiencing a major recession early in his or her career. Now that could be a good thing. Perhaps we will see less "irrational exuberance" in future years from those currently starting out their careers.

Anxious Negotiators Lose Big Time!

2011-12-08T12:24:00.000-05:00

Wharton Professor Maurice Schweitzer and graduate student Alison Wood Brooks have published an interesting paper titled, "Can Nervous Nelly Negotiate? How Anxiety Causes Negotiators to Make Low First Offers, Exit Early, and Earn Less Profit." The scholars examine the effects of anxiety on business negotiations. Not surprisingly, they find that anxiety can be very harmful in a negotiation. The study goes one step further though. It shows precisely how anxiety harms negotiators. Specifically, the researchers found that more anxious negotiators made lower initial offers, and they responded to others' offers more quickly. Those behaviors contributed to the fact that anxious negotiators ultimately achieved worse outcomes.

Why do anxious negotiators behave in this manner? Schweitzer and Brooks explain that anxiety seems to induce conflict avoidance. Anxiety often brings with it a desire to minimize the likelihood of confrontation with the other party. However, the desire to avoid confrontation often drives a negotiator to compromise prematurely or advocate for their own interests less forcefully. The lesson is clear: If you are feeling anxious, step back for a moment and collect yourself before beginning a negotiation. Your anxiety may not just make you feel sick to your stomach; it may lighten your wallet too!

Decision Quicksand

2011-12-07T16:22:00.000-05:00

The Wall Street Journal reported recently on a new study by Professors Aner Sela and Jonah Berger about what they describe as decision quicksand. These scholars compared the approach individuals took on three types of decisions: hard, important choices; hard, unimportant choices; and easy choices. The scholars found that individuals spent the most time on the difficult, but unimportant decisions! Moreover, happiness declined as the length of the decision-making process increased. it reminds me of what a former dean once said to me: "Academics find a way to argue the most over the decisions that matter the least!" Well, it appears that trivial choices trip up many people, not just hopeless professors.

MITX E-Learning Award

2011-12-06T19:28:00.001-05:00

I am excited to report that last night the Everest Leadership and Team Simulation V 2.0 (released in July) received the 2011 Massachusetts Innovation and Technology Exchange Award for best eLearning solution. We were absolutely thrilled to earn this honor. According to the MITX website, “The MITX Interactive Awards is the largest and most prestigious awards competition in the country for interactive and web innovations and celebrates the best creative and technological accomplishments emerging from New England.” The awards ceremony took place last night at the Sheraton Hotel in Boston.

As you may know, Professor Amy Edmondson (of HBS) and I developed this simulation and released the original version three years ago. We made a series of enhancements for the V 2.0 release this summer. The product was developed by a terrific team from Harvard Business Publishing and Forio Simulations of California.

Under Armour and Target Markets

2011-12-06T19:24:00.001-05:00

I just finished reading an article about Under Armour's remarkable success. The article ended, though, by pointing out that the firm has done much better with men than women. It cites the fact that many women choose Lululemon over Under Armour athletic wear.

When I read this type of article, I wonder whether we sometimes forget the concept of target markets. If we try to sell to every demographic under the sun, we have no focus at all. We might not be the best at serving any particular segment unless we are clear about our target. Of course, Under Armour may find a way to succeed with a particular segment of women. They may have great success eventually with a female demographic. However, their focus on a young male demographic to date is not a weakness, but a sign of a smart focused strategy. Similarly, Lululemon's focus on women has been a great strategy.

The article mentions that Under Armour also is very US-centric. Perhaps expanding their geographic scope before expanding their demographic may make good sense. At some point, you must allocate resources judiciously as you expand.

Another Major Downside to Large CEO Severance Packages

2011-12-05T07:09:00.002-05:00

According to the Wall Street Journal, Tulane Professor of Finance Peggy Huang has conducted a terrific new study regarding CEO severance packages. As you know, many journalists, investors, and analysts have expressed dismay at some of the large severance packages provided to dismissed CEOs in recent years. Huang set out to examine the impact of such packages in more detail. She explored whether such packages may have led to excessive risk-taking (since the cost of failure was substantially reduced by the generous severance). More specifically, she examined whether companies whose CEOs had such packages underperformed the stock market during the CEO's tenure.

Her findings suggest that Boards of Directors should proceed with caution when offering such packages, particularly cash-heavy packages. Huang examined roughly 2,000 CEO severance agreements from S&P 500 companies between 1993 and 2007. She discovered that these firms underperformed the market by 1.6% on average over a three-year period, when compared with firms that did not have CEO severance packages. If the CEO had a cash-only severance package, the firms underperformed the market by 4% on average. Looking at the CEO's actions in more detail, she found some evidence suggesting enhanced risk-taking by the CEOs with severance packages.

Professor Huang offered a comment to the Wall Street Journal about her findings: "With a severance contract, a company is basically saying that even if a CEO fails, there will be no penalty."

How Twitter Generates Revenue

2011-12-02T07:24:00.000-05:00

Business Insider CEO and Editor-in-Chief Henry Blodget conducted this very informative interview the Twitter's Chief Revenue Officer Adam Bain. Check it out to learn more about how advertising and sponsored tweets work on the Twitter platform.

Social Makeover at Electronic Arts

2011-12-01T07:51:00.000-05:00

Fortune reporter Alex Conrad wrote a good article this week on the challenges facing Electronic Arts. EA once stood at the pinnacle of the video game business. Eight years ago, I wrote a case study about the firm. At the time, EA had a stable of high-performing video game franchises, with healthy profits each year. Today, EA faces many challenges. It lost in excess of $1 billion in 2009, and it lost more than $300 million in the second quarter of this year. Social gaming firms such as Zynga have burst onto the scene and disrupted the console-based video game industry.

Interestingly, the signs of trouble stretch back to a time well before Zynga arrived on the scene. EA became increasingly reliant over the years on building franchises, with a series of sequels building off of a popular game. Moreover, those franchises often relied on others' intellectual property (whether it was a movie character or John Madden and the NFL players/teams). Acquisitions played a key role too. Fewer and fewer blockbuster hits emerged organically within EA's studios based solely on its own intellectual property. As EA became more reliant on others, and less successful at creating home-grown hits, the threats to its competitive advantage increased. Then, just as EA became vulnerable due to these trends, social gaming came along to disrupt the business substantially.

Now, EA must decide how to counter the social gaming threat. The article suggests that one way it will do so is by adapting some of its popular titles for the social world. However, one wonders if that is the optimal strategy. Perhaps they will leverage those strong brands to make popular social games. On the other hand, one must acknowledge the significant differences between console-based games and social games such as Farmville. Will a firm trying to adapt titles from the console business end up creating a suboptimal social gaming experience? Will the mindset of creating high quality, graphics intensive console games (which require substantial R&D expenditures) get in the way of producing successful social games (which have simple graphics, much less technological sophistication, and which require much less development investment)? Companies focusing completely on social games, without the history of console game development, may actually have an advantage here. EA itself seems aware of these challenges. That may be why they have acquired several social gaming companies. How they manage those acquisitions will prove critical to their future success.

Nordstrom Innovation Lab

2011-11-30T11:59:00.000-05:00

Eric Ries has written a terrific new book called The Lean Startup. On his blog, he wrote recently about how his lean start-up principles can be applied in large corporations. He profiled Nordstrom, with these two terrific videos about the Nordstrom Innovation Lab. I recommend taking a look at his book and at these two videos.

American Airlines Files Chapter 11

2011-11-29T08:37:00.000-05:00

Perhaps we should not be surprised that American Airlines' parent company has filed for bankruptcy protection. American remained the last of the legacy U.S. carriers not to have filed Chapter 11. All others had done so at one point or another. As a result, the other legacy carriers had been able to use Chapter 11 to restructure their balance sheet and modify their labor contracts significantly. American remained at a disadvantage because it had not been able to reduce labor costs and debt obligations as substantially as its rivals. To some extent, Chapter 11 offers the opportunity to level the playing field. It may seem strange to suggest that a firm may be compelled to file Chapter 11 in part because all its rivals have filed previously. Yet, that dynamic does exist in this industry. One should not come to the conclusion, however, that such a domino effect always exists. Clearly, Ford has managed to be very competitive, despite the fact that it was the only one of the Big Three not to engage in a government-aided bankruptcy restructuring.

The 10,000 Hours Misconception: Practice vs. Talent

2011-11-28T12:05:00.000-05:00

Professors David Z. Hambrick and Elizabeth J. Meinz wrote a good article in the New York Times this weekend about the "10,000 hours" concept popularized by Malcolm Gladwell. Actually, the idea of experts achieving world class status through 10,000 hours of practice comes from the excellent work of Florida State University Professor K. Anders Ericsson and his colleagues. They have studied how world class violinists, chess players, athletes, and the like engage in deliberate practice to enhance their skills. Ericsson has found that top people in these fields tend to engage in at least 10,000 hours of deliberate practice during their formative years.

Some people have interpreted this work to mean that talent doesn't matter much, that somehow one can become world class simply through hard work. Here is how Hambrick and Meinz counter that conventional wisdom:

Research has shown that intellectual ability matters for success in many fields — and not just up to a point. Exhibit A is a landmark study of intellectually precocious youths directed by the Vanderbilt University researchers David Lubinski and Camilla Benbow. They and their colleagues tracked the educational and occupational accomplishments of more than 2,000 people who as part of a youth talent search scored in the top 1 percent on the SAT by the age of 13. (Scores on the SAT correlate so highly with I.Q. that the psychologist Howard Gardner described it as a “thinly disguised” intelligence test.) The remarkable finding of their study is that, compared with the participants who were “only” in the 99.1 percentile for intellectual ability at age 12, those who were in the 99.9 percentile — the profoundly gifted — were between three and five times more likely to go on to earn a doctorate, secure a patent, publish an article in a scientific journal or publish a literary work. A high level of intellectual ability gives you an enormous real-world advantage.

Hambrick and Meinz go on to explain that the high achievers that they studied tend to have a very high level of working memory capacity. That attribute tends to matter, above and beyond how much one practices. For example, when they studied pianists who had practiced the same amount of hours, they found that those with higher working memory capacity tended to perform better. The scholars don't dispute that deliberate practice matters. They simply remind us that talent still matters... a great deal.

Employee engagement: The importance of public recognition

2011-11-23T18:00:00.000-05:00

Many firms expend a great deal of resources on merit review systems these days. Providing employees 360 degree feedback for evaluative and developmental purposes has become standard in large companies. Coaches and mentors provide feedback too. Managers meet one-on-one to provide "constructive feedback" as well. Incentive compensation exists, in some form or another, in most firms. Nevertheless, many company executives fret these days about the low levels of employee engagement in their organizations.

Many reasons exist for the lack of engagement, but let's start with a simple cause. Despite all the "feedback" provided to employees these days, they often feel that they receive little public recognition for their good work. Yes, employees enjoy a bonus or a raise. However, they also value those occasions when a manager or executive praises their efforts and accomplishments publicly. Yet, that public recognition comes very rarely in some firms. Tomorrow's holiday reminds us that a simple "thank you" and "job well done" expressed in front of one's peers can be very motivating.

Ron Johnson and the JC Penney Turnaround

2011-11-22T17:28:00.001-05:00

Ron Johnson, new CEO of JC Penney, has an interesting blog post on the HBR site. He draws on his time as head of Apple stores to offer some thoughts on how to be successful in retail. Johnson explains that some skeptics discounted his success at Apple by saying essentially: "The products sold themselves. Let's see what he can do without iPads to sell!". Johnson counters that customers could have chosen to buy the same products on Amazon, while avoiding the sales tax... Yet they often paid a premium to buy at the store. He explains that they came to the store for the experience, Johnson argues that the associates' focus on solving problems for customers, rather than just trying to sell stuff, proves key to creating a good experience.

I agree that brick and mortar retailers must draw customers by creating a special experience. However, some products are more conducive to this type of strategy. For others, the notion of an experience seems to matter less (do we need a physical experience to rent movies?).

The other issue here is the distinctiveness of the retailers' products. Apple stores sell their own products. Yes, they are available elsewhere, but the stores don't stock other firms' items. The products are clearly distinctive. No discounting occurs anywhere on Apple products. JC Penney sells clothes that are often discounted elsewhere. To succeed, it will have to create a more distinctive product mix. It will also have to change that mix in a nimble way to keep up with current fashions. In so doing, it can minimize costly markdowns that plague many department stores. The challenge will be significant. However, Johnson has a tremendous track record at Target and Apple of finding the right combination of products and experience to prosper.

Where's the Cash at HP?

2011-11-21T13:56:00.001-05:00

The Wall Street Journal reports that some investors have concerns about the balance sheet at HP. Many other tech companies have stockpiled cash, while minimizing debt, during the past few years. For instance, cash net of debt equals $45 billion for Microsoft, $28 billion at Cisco, and $17 billion at Oracle. Apple has more than $80 billion in cash and securities on its balance sheet and no debt at all. Meanwhile, HP has spent a considerable amount of cash on acquisitions in the past year. Moreover, according to the Wall Street Journal, " H-P has leaned more heavily on borrowing than some other tech companies. Its long-term debt has swelled to $19 billion through the first three quarters of 2011 from $7.7 billion in 2008."

I find this investor concern interesting, given how much politicians and journalists have taken to criticizing many firms such as Cisco and Apple for "stockpiling cash" instead of investing it. This Wall Street Journal article reminds us of why investors generally like firms to disburse excess cash, but perhaps hold a different view when it comes to tech companies. In the tech industry, conditions change quickly and dramatically at times. That potential turbulence and volatility means that keeping leverage low and cash balances strong can make a good deal of sense. Acquisitions also have played a major strategic role for firms such as Cisco over the years. Keeping a strong cash position with low debt puts these firms in a position to move with speed and flexibility when an acquisition opportunity emerges.

On the other hand, perhaps the weaker balance sheet at HP will play an important positive role in the short term. The discipline of debt can restrain management from making flawed acquisitions or pursuing value-destroying diversification strategies. Perhaps the balance sheet will constrain HP in a positive way, and keep new CEO Meg Whitman focused on shoring up the core businesses in the near term.

Retailers, Thanksgiving, and Black Friday

2011-11-18T11:11:00.000-05:00

Many retailers have decided to open at midnight this year on Thanksgiving, rather than waiting for the early morning hours of Black Friday. Some controversy has erupted over this decision. News reports indicate that Anthony Hardwick, a part-time Target employee in Omaha, became very upset when he learned that some employees would have to come to work at 11pm on Thanksgiving night to prepare for a midnight opening. He launched an online petition, gathering over 37,000 signatures in protest of the midnight opening. Here in Massachusetts, firms have had to delay their opening to 1am or later because of the "blue laws" prohibiting certain businesses from requiring employees to work on the Thanksgiving holiday.

For me, the controversy around whether employees should work on the holiday obscures a more strategic issue facing these firms. The critical question is: Will opening at midnight actually enhance revenue and profitability? Retailers may find that the earlier opening simply shifts sales from other points in time on the holiday weekend, rather than adding true incremental revenue. Moreover, even if the firms experience incremental sales, they may find that the additional expenses associated with opening at midnight overwhelm the additional revenue. To be successful, these firms must do more than cope with the public relations backlash that they are experiencing. They must generate true incremental revenue, and those sales increases must be sufficient to offset the additional costs that they will incur.

Common Public Speaking Mistakes

2011-11-17T13:56:00.001-05:00

Kathy Caprino has written a good column for Forbes regarding public speaking. In this article, she highlights five common errors that people make when speaking to an audience. I found one of her points particularly compelling. Here is the excerpt:

Show Respect for the Listener

Again, I’ve seen scores of speakers alienate an audience by expressing disdain or criticism for some common behavior or thinking. For example, if you’re speaking to social media novices about what they need to do to get up to speed in the social media arena, you must understand that many folks are afraid and insecure about taking the plunge, and you need to be gentle with them, not judgmental, critical or flip. In the end, If you hate or disrespect your listeners for their lack of savvy in your area of expertise, they’ll hate you back. And if you leave your audience feeling that they are losers, failures or unworthy of your respect, then you’ll achieve the opposite of your desired effect – you’ll bruise their sense of self-worth and create a huge rift between you and your audience.You’ll lose them forever.

I agree wholeheartedly with Caprino's point. Too many speakers forget what it feels like to be a novice in a particular domain. They fail to put themselves in the shoes of someone who knows little about a particular subject, or might even be a bit stressed about trying something new or different. Putting yourself in their shoes proves critical if you wish to be a successful public speaker.

Why women like teams more than men

2011-11-16T10:16:00.000-05:00

The Wall Street Journal reported this weekend on a new study by Peter Kuhn and Marie Claire Villeval regarding teamwork. They created a simple task and asked men and women whether they preferred to work alone or on a team. Women preferred teams much more than men. The researchers discovered one reason why that disparity might exist. They found that men overestimated their abilities much more so than women. Not exactly shocking, eh? Still, the study does a nice job of documenting this phenomenon.

The Simple Decision Test

2011-11-15T19:50:00.003-05:00

I heard a common complaint from a mid-level executive today: "Its really hard to get closure on any decisions around here." I wondered whether the chief executive understood the level of frustration. Was the CEO the problem, or were decisions getting bogged down in the bureaucracy, even before getting to the top? In many cases, decisions get derailed by silo rivalry, dysfunctional team dynamics, and leaders who are conflict averse. As a result, people can't seem to achieve closure on key decisions.

What should a chief executive do to determine if this closure problem is slowing down his or her firm's ability to compete effectively in the marketplace? I believe they should occasionally slice through the organization's layers and ask a simple question of mid-level managers? "Are you waiting excessively for certain decisions to be made by senior executives?" If the answer is yes, then the CEO must trace the flow of a few sidetracked decisions to diagnose the problem. If many mid-level managers express the same frustration, then the CEO knows that the firm has a broader cultural problem; it's not just a few poor leaders here and there.

The "Married Men" Wage Premium

2011-11-12T08:27:00.000-05:00

For years, economists have explored the reasons why married men tend to earn more than single men, holding all else equal. Now we have a fascinating new study that looks at this phenomenon in the context of major league baseball. Exploring this issue in sports proves fruitful, because we can actually measure individual productivity more accurately using an array of statistics. Scholars Francesca Cornaglia and Naomi Feldman recently found that married baseball players also earn more than single players. However, they found that the married players were NOT more productive than their single counterparts. What could explain the premium then? Cornaglia and Feldman discovered two interesting nuggets in their research. First, the married players tended to exhibit a bit more stable and consistent performance. That consistency might be quite valuable. Second, they found that having more married players on the team tended to be associated with higher attendance (and therefore, higher team revenue). The results proved statistically significant. What could be occurring? The authors speculate that the married players and their wives might be engaging in a variety of activities that bolster the team's image, and therefore, increase the popularity of the club. For more on this study, you might wish to listen to this interview with the authors on BBC radio.

What a Job Interviewer Really Wants to Know (or Should Want to Know!)

2011-11-11T08:52:00.000-05:00

From Seth Godin's interesting and thought-provoking blog:

What good interview questions are actually trying to discover :

How long are you willing to keep pushing on a good project until you give up?
How hard is it to get you to change your mind when you're wrong?
How much do you learn from failing?
How long does it take you to learn something new?
How hard is it for you to let someone else take the lead?
How much do you care?

Saturday Night Live's Weekend Update on the European Debt Crisis

2011-11-10T14:24:00.001-05:00

The Milkshake Test

2011-11-10T14:08:00.000-05:00

The Heath brothers, authors of the best-selling book Made to Stick, have now published a new book: The Myth of the Garage and Other Minor Surprises. Slate published an excerpt this week, in which they describe a simple test devised by Clay Christensen to evaluate potentially over-hyped new technologies.Christensen calls it the "milkshake test." Here is a portion of the Heath brothers' article:

Christensen asks us to imagine a group of marketers at a fast-food restaurant who want to sell more shakes. As they comb the customer data for insight, they discover something interesting: Most milkshakes are sold to early-morning commuters who buy a single milkshake and nothing else. Why milkshakes? These commuters, according to Christensen, are “hiring” milkshakes to do a job for them: to supply a breakfast that is filling and nonmessy and cupholder-compatible. So when you evaluate the next big thing, ask the Christensen question: What job is it designed to do? Most successful innovations perform a clear duty. When we craved on-the-go access to our music collections, we hired the iPod. When we needed quick and effective searches, we hired Google. And looking ahead, it’s easy to see the job that Square will perform: giving people an easy, inexpensive way to collect money in the offline world.

The Heath brothers admit that the test is NOT a perfect predictor of which new technologies will thrive and which will turn out to be busts. It is helpful though. The "milkshake test" reminds us to focus on what function the product serves for the customer. Moreover, it reminds us that the same product can do different jobs in different situations. For instance, a Starbucks coffee at 6:00am does a very different "job" for the consumer than a coffee at 4pm in the afternoon.

New Leaders and the Whole Vision Thing

2011-11-08T11:59:00.000-05:00

Barbara DeBuono, CEO of Orbis, sat down recently with Adam Bryant of the New York Times for his Corner Office interview series. Orbis is a global health organization that helps to treat and prevent blindness. DeBuono offered some terrific leadership advice:

Let’s start with leadership. Be very careful that you don’t cut yourself off from everyone, either by hanging out in your office by yourself or hanging out in your office or your suite with three or four key people. I’ve seen that happen a lot — where people are in their bunker with three or four people, and they block everything else out. You lose all touch with your external customers and your internal customers, and nobody has a sense of your vision; nobody has a sense of who you are. I think that’s a huge mistake.

The other thing is to be articulate early on about what you want to do and who you are, but don’t be afraid to actually say, “It’s not all baked.” I think a lot of people go into a job as a leader or C.E.O. and say: “I have to have the whole vision thing. I have to have the whole mission thing down, with all the strategic objectives, all the programs to support that, all the pillars — and if I don’t, they won’t take me seriously.” I would say, “Don’t be afraid that you haven’t figured all of that stuff out, because really you should be spending your first six months to a year just learning the organization.”

How can you articulate a fully baked vision and mission and strategic objectives when you have to learn the business you’re in? Just learn the business, learn the people in your business, learn what they hope and feel, learn what they think the business is. Do they understand the business that you’re in? I’ve always been struck by how often people don’t.

DeBuono offers two critical pieces of advice there. First, I can't tell you how many new leaders fall into the trap of spending far too much of their time talking to just a few other senior folks in the organization. They isolate themselves from the troops, because they feel that they have to have a bunch of stuff figured out first before interacting with the front-line employees. That's a mistake. Being visible early on is key. However, DeBuono also suggests that being visible doesn't require having a fully-baked vision ready to be rolled out on Day 1. New leaders can use that early face time to learn, to soak in as much knowledge as they can about the organization. Moreover, that face time offers powerful symbolic value. It shows a level of transparency and engagement that will be respected and valued by the front-line employees.

Strategy by Rule of Thumb

2011-11-04T11:40:00.000-04:00

UNC's Christopher Bingham and Stanford's Kathy Eisenhardt have produced some fascinating new research on entrepreneurial firms make decisions in turbulent environments (building on a long stream of excellent research Kathy has done in this area). These scholars found that the more successful firms frequently rely on heuristics – simple rules of thumb (example: for international expansion, enter English-speaking countries first). These heuristics become more cognitively sophisticated as managers gain experience and the firm grows. Moreover, managers learn how to eliminate some rules of thumb over time, as they recognize the limitations or flaws of certain heuristics. Bingham and Eisenhardt argue that such simple rules of thumb help guide organizational action more effectively than complex processes and procedures.

Interestingly, this work seems to stand in stark contrast to the psychological research on cognitive biases. That stream of research suggests that many heuristics can be problematic. They can lead to highly flawed decisions. Bingham explains the dichotomy between his work and most of the studies conducted by cognitive psychologists (excerpt from UNC business school's research insights magazine):

He argues that psychologists reached this conclusion by testing people in lab settings and asked binary choice questions that have a definitive correct answer, such as: Which German city has the higher population, Munich or Dusseldorf? Psychologists say that people often base their answer on the city that is most familiar to them, creating a heuristic of answering what first comes to mind, which might not lead to the correct answer. “Yet in real life, strategists rarely face such clear-cut situations,” Bingham said. Lab studies often stack the deck against heuristics by putting people in unrealistic situations. But by viewing heuristics in the context of the unpredictable environments in which firms compete, Bingham argued that heuristics can be rational and even optimal strategy.

Public Speaking in the Social Media Age

2011-11-03T09:18:00.000-04:00

Fast Company's Drew Neisser has a good column on public speaking in the social media age. I thought two of his points are worth emphasizing here, though I recommend reading the whole column.

First, he argues: "Don’t Panic if They Aren’t Looking at You." They might be on a portable device, such as an iPad or iPhone. However, it doesn't mean they are reading email necessarily. They might be taking notes, or tweeting about your presentation in real-time. Both of those behaviors could be very productive and useful for you. If they tweet your message, you could be reaching a much broader audience. Telling them to put away their devices is NOT the answer, according to Neisser.

Second, he explains: "If You Don’t Speak Twitterese, It’s Time to Learn It." In other words, you need to share your Twitter handle up-front. In that way, people can share their thoughts about your presentation, and you will be able to see those statements. Moreover, you need to provide some concise phrases and sound bites that will be amenable to tweeting. Think of capturing your message in a few phrases of 140 characters or less.

Thinking Inside The Box

2011-11-02T13:50:00.001-04:00

Consider this scenario: The CEO decides to hold a special long term strategic planning session. He or she reserves a conference room at an off-site location - perhaps a nice resort. The executive team gets together in a room with a nice oak table, white walls, and leather chairs. The only thing at each seat is a notepad and perhaps a few slides outlining key financial targets. Now the group is commanded to "think outside the box" and create a bold and innovative strategy for the future. Yet, what's really happened is the leader is asking everyone to think inside a rather sterile box! Where is the fuel for innovative thinking? Why not have materials, photos, and videos all over the room to spark dialogue? Why not have rivals' new products on display? Where are the latest prototypes from the firm's R&D labs? To think outside the box, CEOs have to set the stage. They can't just being people to a luxurious, but quite sterile, box!

What's Wrong with a Focus Group?

2011-11-01T08:54:00.000-04:00

The Wall Street Journal ran an interview this weekend with Ira Neimar, former CEO of Bergdorf Goodman (the luxury retailer). Neimar offered several of his core principles for running a successful retailer. Here's one:

"There is no question, in any business, that it is imperative to know as much as possible about your present and potential customer." The backstory: Mr. Neimark is a proponent of earning one's MBWA degree (Management By Walking Around), interacting with actual customers to find out what's working and what's not. He likens using a focus group to the old New England expression: "It is like kissing a girl through the screen door."

Bottom Line: Focus groups have significant limitations. When it comes to learning from focus groups, remember that p often say one thing and do another. Asking individuals questions in focus groups and surveys may yield answers that are not consistent with the way those consumers actually behave in their homes or at retail stores. Moreover, responses may become distorted because market researchers ask leading questions, or simply hear what they want to hear.

Motivation: The Power of Peer Comparison

2011-10-31T11:51:00.000-04:00

Ian Larkin of Harvard Business School has conducted a very interesting field study to examine how comparison to one's peers motivates employees. Larkin conducted a field study at a large enterprise software firm. The company paid its sales people based on commission, naturally. However, employees also could receive a nonmonetary recognition each year if they performed better than 90% of their peers. They could be granted membership into the "President's Club." The award did not come with extra monetary compensation. Instead, employees received a gold star on their name card, company-wide recognition, an e-mail from the CEO, and a weekend trip to a tropical destination with the other club members. Here is what Larkin found:

The software firm uses a "commission accelerator" program over the course of each financial quarter, meaning that a salesperson expecting a high-volume sale at the beginning of a quarter would receive a higher commission on any additional sales in the same quarter. A salesperson expecting a large sale early in the first quarter of the year would rationally want to delay any other potential sales until later in that quarter, so as to take advantage of the accelerating commission schedule. However, making the sale right away, before the end of the year, could help the salesperson achieve special recognition as a member of the club. Thus, the salesperson faces a choice: delay the sale and garner eventual commission boosts, or make the sale right away and improve the chance of attaining club membership. In the paper, Larkin uses actual choices of hundreds of salespeople facing this decision to statistically estimate the average salesperson's "willingness to pay" for club induction—the point at which a salesperson is indifferent to waiting for greater commissions and closing the deal now and getting inducted into the club. The willingness-to-pay statistic at the software firm is calculated to be nearly $30,000, or approximately 5 percent of take-home pay. "My research shows that salespeople who are right on the margin of club induction are actually willing to pay to get over the margin and into the club," Larkin says.

What's the implication of this study? Well, as we have known for some time, social comparison is a very powerful motivator. People don't simply worry about what they earn. They care about what they earn relative to their peers. Designing reward schemes with this in mind can result in a more highly motivated workplace. Disregarding these findings can lead to disenchanted employees. I recall Michael Lewis writing about this phenomenon in Liar's Poker. Bankers would receive huge bonuses, but still be very upset, because they learned that others had received higher bonuses. We might just chalk that up to "banker greed" - but of course, this study and others show that social comparison is a powerful factor across many organizations.

Markkula's Three Principles at Apple

2011-10-27T09:43:00.000-04:00

In Walter Isaacson's terrific new Steve Jobs biography, we find a description of the simple principles Mike Markkula outlined at Apple's inception. As my students know all too well, I love the concept that strategy is all about making trade-offs. As Michael Porter has said, "The essence of strategy is choosing what NOT to do." Take a look at principle #2 at Apple. From the firm's inception, its leaders understood the criticality of making trade-offs to create competitive advantage and build barriers to imitation. Here is an excerpt from the Isaacson's biography:

Markkula wrote his principles in a one-page paper titled “The Apple Marketing Philosophy” that stressed three points. The first was empathy, an intimate connection with the feelings of the customer: “We will truly understand their needs better than any other company.” The second was focus: “In order to do a good job of those things that we decide to do, we must eliminate all of the unimportant opportunities.” The third and equally important principle, awkwardly named, was impute. It emphasized that people form an opinion about a company or product based on the signals that it conveys. “People DO judge a book by its cover,” he wrote. “We may have the best product, the highest quality, the most useful software etc.; if we present them in a slipshod manner, they will be perceived as slipshod; if we present them in a creative, professional manner, we will impute the desired qualities.

What an amazingly simple, but powerful statement of core principles. Every entrepreneur should take note!

TJX: Myths about off-price retailing

2011-10-26T14:02:00.000-04:00

USA Today has an in-depth feature on TJX today. TJX is the off-price retailer that operates the Marshalls, TJ Maxx, and Home Goods retail chains. The firm's CEO tackles some myths about her firm's strategy in this article. Meyrowitz explains that the firm does not sell mostly prior season merchandise purchased from liquidators. Here is an excerpt:

"In a rare interview, TJX CEO Carol Meyrowitz explained how conventional wisdom is wrong when it comes to T.J. Maxx and Marshalls. Meyrowitz, 57, has been with TJX for almost 30 years, rising from a buyer in 1983 to CEO in 2007. During that time, the chain has turned into a retail powerhouse, with more than 1,700 stores — nearly as many as Target. She says 85% of what the stores sell is from the same season and same year it was designed for, and 85% is purchased directly from manufacturers. Much is identical to what the brands sell in department stores, she insists. Less than 5% is irregular."

What's interesting is the brands appear to have perpetuated the myth about off-price retailing. Many branded manufacturers do not want to acknowledge publicly that they are selling the same goods at full price in department stores at the same time that these goods are for sale at Marshall's. It seems to me Meyrowitz runs a risk with this interview. Exposing these myths may attract more shoppers to her stores, but it may not thrill her suppliers. They like the myth. If the truth becomes well-known, and TJX attracts more upscale shoppers, it may decrease willingness to pay and margins for the branded manufacturers' products.

Clutch Performer or Choker?

2011-10-25T11:48:00.000-04:00

Kellogg Insight, a website dedicated to featuring new research by Kellogg school faculty, recently described the work of Julio González-Díaz, Olivier Gossner and Brian W. Rogers. They conducted a study to examine the question:

"In sports, some athletes are known as “clutch players” who consistently perform well under pressure; in the business world, an individual may gain a reputation for maintaining composure and good judgment in the most trying circumstances, ultimately contributing to their organization’s success. Does this ability to “rise to the occasion” differ measurably across individuals?"

Fans of baseball may be aware that sabermetrics experts (such as Bill James) have studied this question for years. Most of them have argued that there is no such thing as "clutch" players in baseball. These statistical experts have argued that most players perceived by fans as "clutch performers" don't necessarily perform better in crucial situations. More recently, some studies have shown that "clutch performers" may exist.

In this research, the authors focused on tennis. They looked at point-level data over a twelve year period. They wanted to know if some players had "high critical ability" - i.e. did they consistently perform well on the most important points?   Here is what they found:

"First, players differed “significantly and substantially” in their critical abilities, and these capabilities were important in explaining point outcomes—that is, players with greater critical ability were more likely to win important points than their opponents. Moreover, critical ability was correlated moderately with serving and returning capabilities. Critical ability was also linked with players’ ratings on the Association of Tennis Professionals (ATP) points system over the 12-year period studied. Critical ability’s correlation with ATP rating was about as strong as the link between returning ability—a crucial skill—and ATP rating. The relationship between critical ability and career success remained even when the researchers accounted for players’ experience levels. For the average professional tennis player, the study found that the impact of improving critical ability on ATP rating is 41 percent that of improving their serve, arguably the most important factor in the sport."

What is the implication for leaders in the business world?   Naturally, if we could identify "high critical ability," that would be of immense value. Unfortunately, management does not lend itself to the kind of quantitative analysis performed by these scholars with regard to tennis players.   Moreover, we know from many baseball studies that our eyes can deceive us. Many players regarded as clutch by fans do not actually perform better statistically in important situations over a lengthy period of time (i.e. a player might perform better in the clutch one year, but not the next in many instances). These celebrated players often simply have had some highly memorable moments where they came through in the clutch... and thereby have been labeled as extraordinary in high stakes situations. For leaders, the lesson is beware of drawing sweeping conclusions based on one or two isolated moments of greatness in the clutch. However, don't dismiss the notion of high critical ability entirely. Apparently, at least in tennis, clutch performers do exist.

Learning from Improv

2011-10-24T11:48:00.000-04:00

Russ Meyer has a great article on the Fast Company website. Meyer offers some solid recommendations for how companies should go about trying to design better customer experiences. For instance, imagine that you are trying to provide a better after-sale service experience for your customer, or you are trying to redesign the check-out process in your retail store. Meyer draws on the lessons of Improv comedy to offer his advice to you in these types of efforts. For starters, he argues:

"In improv, this means don’t disregard premise, no matter how outrageous... In experience design, you can’t start by denying what could be: 'We can’t change the check-in process because...,' for instance. For a great new customer experience to come to life, it will have to break some of the conventions of the current experience. Make sure you’re open, especially at the beginning of a process, to accept what may be an outrageous premise or idea."

Meyer also argues that "thoughtful watching" should be the approach one takes toward discovering a better customer experience. In Improv, people concentrate intensely on what others are saying, and they listen actively. Meyer explains, "Sitting back, watching, listening and concentrating on how people are presently experiencing the brand (while leaving yourself open to the outrageous) can identify moments where the experience could be improved." Similarly, I've argued that systematic observations of customers and front-line employees yield powerful insights regarding your firm's problems and deficiencies, as well as how to improve in the future.

Ben & Jerry's: Schweddy Balls Not Always on a Shelf Near You

2011-10-21T10:34:00.004-04:00

Ben and Jerry's has launched a new flavor called Schweddy Balls, a play on the famous Saturday Night Live skit below. The ice cream, which contains fudge-covered rum balls, has sparked a protest from a conservative group called One Million Moms. Moreover, many supermarket chains apparently have refused to stock the product. Nevertheless, the company reports that it has become one of its best-selling limited edition flavors.

The question is: Did Ben and Jerry's anticipate the controversy, and if so, did they go ahead anyway? I suspect they did know that some retail partners would not stock the product, and that some negative publicity would emerge. In the end, though, you have to ask yourself how you would define the company's target market. I don't know many moms and dads who buy Ben and Jerry's for their small children. It's expensive, after all, even if it is terrific ice cream. If you have a family, you are likely to buy half gallons or gallons of less expensive ice cream. Perhaps you splurge on occasion for Ben and Jerry's, most likely when you stop at one of their shops.

Who is the target market for Ben and Jerry's? I believe it's adults with fairly high disposable income who seek a delightful indulgence, some of whom do not have young children at home. It also includes people who identify with the firm's social mission. Many people in that target market are not likely to be offended by this flavor. In fact, the brand will be quite appealing to them, as they have fond memories of this particular SNL skit.

Katrina Markoff and Vosges Haut-Chocolat

2011-10-20T11:52:00.000-04:00

Katrina Markoff made Fortune's list of 40 under 40 this year (just announced this week). Markoff is the founder of Vosges Haut-Chocolat. Markoff creates exotic truffles using fine ingrediennts which she personally from around the world. She developed her skills at Le Cordon Bleu in Paris, where she began to create her unique chocolates, which involve infusions of rare spices and flowers combined with premium chocolate.

Her growth exploded when she began selling her chocolates at Neiman Marcus. She also has grown her catalog business substantially and operates eight boutique retail locations of her own.

According to Fortune, Markoff now has agreed to develop a lower-priced line of chocolates for Target and Wal-Mart. Naturally, she follows a long list of designers who have gone this route, creating popular lines at affordable prices ("affordable luxury" if you will). The move always comes with some risk though. How does one manage the brand so as not to dilute it? Beyond that, though, "designers" such as Markoff have to think about how they manage their retailer relationships. How does one continue to please Neiman Marcus and maintain that strong relationship, while selling lower-priced items at Target and Wal-Mart? To thrive, designers have to create products of clearly different quality and positioning for the different retailers. They must really understand the differences in the consumer at each retailer to do that effectively. Some cannibalization always will occur, but a designer can avoid that if they continue to innovate and first bring exciting new products to their high-end luxury retailers. Without that "reward", they risk damaging the relationships with those retailers who first helped them build their brand. They also have to think carefully about WHICH mass merchandisers with which to partner. Some would question whether it makes sense, for instance, to sell to both Wal-Mart and Target, given Vosques' positioning.

Why Education Without Creativity Is Not Enough

2011-10-19T11:53:00.000-04:00

Anya Kamenetz has a terrific article about American education and its effect on competitiveness over at Fast Company. Kamenetz argues (rightfully, I believe) that a focus on simply cranking out more and better STEM graduates (science, technology, engineering, and mathematics) is not the way to compete more effectively with China and India. She offers the perspective of one leading executive in the Indian outsourcing industry - Phaneesh Murthy, CEO of iGate Patni. Here is an excerpt from Kamenetz's article:

If we could just tighten standards and lean harder on the STEM disciplines--science, technology, engineering, mathematics--we'd better our rigorous rivals in India and China, and get our economy firing on all cylinders. As with much conventional wisdom, this is conventional in the worst sense of that word. If you want the truth, talk to the competition. Phaneesh Murthy is CEO of iGate Patni, a top-10 Indian outsourcing company. Murthy oversees 26,000 employees--not the ones snapping SIM chips into cell phones or nagging you about your unpaid AmEx bill, but the ones writing iPhone apps, processing mortgage applications, and redesigning supply chains--in jobs that would be handled in the U.S. by highly paid, college-educated workers. In other words, you. Yet Murthy, a regular bogeyman of outsourcing, believes American education is by far the best in the world. "The U.S. education system is much more geared to innovation and practical application," says Murthy. "It's really good from high school onward." To compete long term, we need more brainstorming, not memorization; more individuality, not standardization.

Deepwater Horizon Oil Spill

2011-10-19T09:03:00.000-04:00

The Ivey Business School Case Collection has now published by new case study on the Deepwater Horizon oil spill. This case has three primary learning objectives. First, it provides students an opportunity to examine how and why catastrophic failures occur. Second, the case highlights several factors that drive enhanced risk-taking in organizational decision-making. Finally, the case enables students to learn about the characteristics of an effective versus ineffective safety culture. The case soon will be available through the Harvard Business Publishing website as well.

Does your team trust you?

2011-10-18T10:31:00.000-04:00

Mike Figliuolo, author of One Piece of Paper: The Simple Approach to Powerful, Personal Leadership, has a great blog post over at The Leader Lab. Figliuolo is a graduate of West Point and currently serves on the faculty at Duke. He examines the "real reason your team doesn't trust you." Figliuolo argues that trust in a leader erodes when the team doesn't know what to expect from you. He says, "Trust is about an ability to rely upon or expect a predictable outcome. When you act in ways your team doesn’t expect, it erodes trust and makes them wonder what you’re going to do next."

Figliuolo goes on to argue that every leader should articulate their own personal leadership philosophy. They should share that philosophy with their team members. Finally, they should try to behave in a manner that is consistent with that philosophy on a day-to-day basis. Consistency of action, in line with your personal leadership philosophy, proves critical to building and maintaining trust.

Hire for Excellence... in any field

2011-10-17T14:57:00.000-04:00

Fast Company has a terrific interview with Oren Jacob, former Chief Technical Officer at Pixar. Jacob describes some of the key attributes of the Pixar culture and processes. Among the many great tidbits, Jacob explains a crucial facet of the Pixar hiring process. He calls it "hire for excellence." Here's the explanation:

When Pixar is evaluating potential hires they look for three traits: humor, the ability to tell a story, and an example of excellence. These aren’t unique qualities to assess in applicants, but how excellence is defined is not that common. It doesn’t matter what you are excellent at, just that you have reached a level of excellence. It’s important that you know what excellence feels like and what it takes to achieve it. It could be gardening, jujitsu, or cooking. The main thing is you’ve had a taste of excellence and will know how to get there again.

I really like the concept of hiring for excellence. Developing mastery in a particular field or endeavor demonstrates self-discipline, work ethic, and perseverance. It also means that individuals have probably engaged in the kind of deliberate practice that is required to excel. Familiarity with that process of learning and development will suit them well when they have to develop new skills and capabilities. Finding people who have achieved excellence in a range of endeavors also creates a workforce with incredibly diverse perspectives and experiences that they can bring to bear on any problem.

Struggles at the Gap

2011-10-15T10:31:00.005-04:00

Martha White interviewed me for this story about the Gap's struggles and its decision to close many stores. Some past students will recall doing MBA course projects on the company and recommending significant changes in strategy.

How You Select the Leader Matters

2011-10-14T11:35:00.000-04:00

Stanford's Bob Sutton has a terrific post this week on his Work Matters blog. He reflects on some old research regarding the selection of leaders and its impact on group performance. S. Alexander Haslam and his colleagues published a paper in the Group Dynamics journal in 1998 called, "Inspecting the emperor's clothes: evidence that random selection of leaders can enhance group performance." They examined groups performing an experiential exercise called the survival game. Many MBA students have participated in this exercise during introductory organizational behavior courses. In this Haslam study, the researchers compared group performance under four conditions:

1. Formal selection of a leader (self-ratings by group members)
2. Information selection of a leader (group members picked a leader through a discussion)
3. Random selection of a leader.
4. No leader selected.

The findings demonstrated that the highest performing groups had used the random leader selection process. Naturally, I don't think we want to recommend random selection in real organizations based on the results of this study. However, the research does have important implications regarding the impact that the leader selection process can have on group dynamics. Sutton writes,

"I especially like how it implies that just THE PROCESS of selecting the leader can provoke group dynamics that undermine the performance of the group as a whole. That is worth considerable attention as this is something that selection committees and such often forget -- and consistent with findings from many corners of the behavioral sciences that show 'what you do is as important as how you do it.'"

Cultivating serendipity: the annual reading vacation

2011-10-13T08:59:00.000-04:00

In his terrific book, Where Good Ideas Come From, Steven Johnson writes about the notion that serendipity often plays a key role in innovation. However, he argues we can cultivate serendipity. How? Among his ideas, he argues that we need to consider "deep dives" in which we immerse ourselves in a topic in a condensed period of time. For instance, he recalls Bill Gates' annual reading vacations at Microsoft. Gates would collect tons of reading material during the year and then take a week or so to read as much of it that he could. Why pursue this condensed approach? Johnson explains that the compression enhances the probability that we will make interesting connections and combinations among disparate ideas. If too much time lapses between the time we read these books, the chances increase that we will forget certain things and fail to see the potential for novel combinations of ideas. The concept applies well beyond reading. It applies to any investigation of new ideas. Time compression may seem overwhelming at first, but it cultivates serendipity.

The Facebook - Zynga Relationship

2011-10-12T07:50:00.000-04:00

As the Wall Street Journal notes today, Zynga has embarked on a strategy to become less dependent on Facebook. To date, the firm has ridden the coattails of Facebook, with its social games doing incredibly well on the social network's site. However, as the firm approaches an IPO, investors expressed concern with the dependency on Facebook. Zynga now has begun to pursue a strategy of offering games directly to consumers through its own site as well as through mobile platforms.

The issue of dependency raises an interesting question. To what extent is Facebook dependent on Zynga? To date, the dependency has been mostly one-directional. However, if Zynga does succeed in developing its own route to market, then we may see a bit more of a co-dependent relationship. Why? Well, Zynga certainly helps Facebook a great deal, not only through the direct revenue that Facebook generates from the relationship... but also because heavy Zynga users tend to spend a great deal of time on Facebook. As a result, Facebook has an opportunity to sell more ads. If we end up with a situation of co-dependency, then I would look for rumors to begin to swirl regarding a Facebook acquisition of Zynga. That's what tends to happen when two firms become dependent upon one another. Each side worries about being "held up" by the other, and therefore, a merger often resolves the conflict and enables the two parties to cooperate more effectively. We are far from that point, but we may be headed in that direction with the latest Zynga strategy moves.

Who benefits the most from Yelp?

2011-10-11T13:28:00.000-04:00

HBS professor Michael Luca has conducted some terrific new research on the impact of Yelp. He examined the effect of reviews. He found that a one-star increase in the quality of a review led to a 5-9% increase in sales for a typical restaurant. However, he found that positive Yelp reviews had much more impact for non-chain restaurants than for chain restaurants. That makes sense, of course. Smaller, independent restaurants have less means of reaching potential consumers. The large chains have national advertising to build brand equity, and they develop a reputation over time. I know that I rely on Yelp when I'm traveling to identify independent restaurants of high quality. This research suggests that smaller restaurants should focus on encouraging their loyal and satisfied customers to review on sites such as Yelp. However, the restaurants need to be careful. Many review sites screen for obvious "planted" ratings or other efforts to manipulate ratings. Customers too are quite discerning. They often can determine the authenticity of a review.

Qwikster gone rather quickly

2011-10-10T09:08:00.000-04:00

Netflix has abandoned its plans to separate its DVD by mail service from its streaming business. Qwikster is dead. The stunning twists and turns in Netflix's strategy have left most of us dizzy. The collapse of the stock price in recent months proves that investors don't like uncertainty. While it's ok to change strategy, investors do not want to see constant twists, turns, and reversals.

Beyond the uncertainty, I was never quite clear regarding the notion that Netflix and Qwikster would not share information regarding a customer's queue, movie preferences, recommendations, and rental history. That lack of sharing made me wonder whether Netflix was failing to capitalize on one of its greatest strengths, namely its powerful predictive algorithms that it uses to recommend movies. Would lack of sharing across sites mean that it would not capitalize on the wealth of data that it had accumulated? It wasn't clear based on what I had read. To me, the predictive algorithms lie at the heart of Netflix's success, and no change in strategy should undermine that strength. After all, the algorithms enabled Netflix to take advantage of the "Long Tail Effect" - the idea that a large percentage of Netflix rentals always came from movies that were not new releases. That strategy proved very profitable over the years.

Business is not evil: Lessons from the insanely great life of Steve Jobs

2011-10-06T11:31:00.000-04:00

We live today in a world where many people consider business evil, corruptions corrupt, executives greedy. It has become fashionable to bash Wall Street, lambast every move intended to boost profits, and even condemn capitalism itself. Today, I reminded my students that business can indeed be a noble profession. People can transform the world and make others' lives better through profit-making enterprises. In society these days, we make heroes of those who work for non-profits and those who are great philanthropists. Surely, they are heroes. They do great work. However, I believe business is also a noble profession, a deeply noble profession whereby you can create value, transform people’s lives, and create jobs that give people the opportunity to work and earn money to support their families. Profit-making and social impact need not be mutually exclusive endeavors. One can pursue profit and make the world a better place. One need not only do that through an inherently "social enterprise."

I mentioned this to students today as we reflected on the death of Steve Jobs. He was more than just a successful CEO. He was a man who had a tremendous impact on society, who transformed the world. He did a great deal of good, as a business person who ran firms in pursuit of profit. Every day a doctor uses an iPad, a child with cancer watches a Pixar film and laughes, a person talks with their relative in a distant land via an iPhone, we see the transformational positive impact that he has had on the world. Think about the incredible things that many people are doing to make others' lives better, using the technology that Jobs introduced to us.

I also reminded students today that innovation, creativity, and entrepreneurship cannot happen without capital. Steve Jobs persuaded investors to invest in him and his companies. They believed in his vision. They provided him the funds to pursue his dreams. Many of those investors are now lambasted as "fat cats" from Wall Street. Let's be careful before we paint with such a broad brush. Access to capital is critical to those bold innovators who wish to change the world. Business can indeed be a noble profession.

Steve Jobs' Commencement Speech

2011-10-06T11:21:00.000-04:00

I've posted this speech before, but I felt it was important to post again this morning. If you have not seen this speech, you MUST watch. It proves rather eerie listening to it today, but the message is so powerful.

Henry Stewart Talks: Making Decisions

2011-10-05T16:24:00.000-04:00

Prof. J. Edward Russo, S.C. Johnson Family Professor of Management at Cornell University, has edited a new seminar series on decision-making. Henry Stewart Talks, a publisher of online seminars by leading experts, has published this series. I'm honored to have been asked by Professor Russo to participate in this seminar series, along with accomplished researchers such as MIT's John Carroll, Gary Klein of Macrocognition, and Duke's Robert Clemen. I hope you will take a look!

China, Inflation, and Margins

2011-10-05T14:00:00.000-04:00

The Wall Street Journal reports that Yum Brands (owner of the KFC, Taco Bell, and Pizza Hut restaurant chains) has experienced a substantial decline in profit margins in China. While the company continues to grow sales rapidly in China, inflation has caused its costs to escalate significantly. Meanwhile, Yum Brands has been offering value-priced meals to attract customers. In an inflationary environment, value-priced meals may seem quite attractive. However, if costs rise faster than prices, the firm has a problem. The story reminds us of the risk that inflation brings for firms operating in China. A firm that sources components and raw materials in China may be able to raise prices in developed nations in which it sells the finished products. The problem is more severe for firms making and then selling products in China, given the low incomes of average citizens.

Reasserting your Brand

2011-10-04T09:03:00.000-04:00

Author and consultant Nick Tasler has a good article on Business Week's website regarding how firms can reassert their brand after a rocky period.   He uses Starbucks' turnaround recently to illustrate his points. Starbucks realized it had strayed from its coffee roots and diluted its brand equity.   It had to clarify the brand's positioning. Starbucks did so by trying to reassert itself as the "coffee authority." Tasler argues that firms must take three steps to reassert their brand.

1. Decide what your equivalent is to being “the coffee authority.”   What do you want to be known for in the market? For what do you want to be known as a leader?

2. Decide what you should start doing more of to reassert your authority. What innovations can you bring to market to burnish your reputation as a leader in a particular market space?   Where should you invest to rebuild your competitive advantage?

3. Decide what you should stop doing in order to reassert your authority.   What activities should you stop doing because they dilute your brand, distract management attention, and make you far too similar to other players in the market?

SNL Parody - Netflix

2011-10-04T08:48:00.001-04:00

The Challenge of Evaluating Leaders

2011-10-03T09:49:00.000-04:00

Here in Boston, the Red Sox implosion has dominated the headlines for the past week. Manager Terry Francona has exited. Now attention has turned to General Manager Theo Epstein. How much blame does he deserve? Most people would place significant responsibility on Theo for selecting a series of high-priced players who have under-performed badly. However, observers then note that he has won two World Series during his tenure. Theo typically receives much credit for those championships. However, a closer look reveals that a number of key players from those teams were not selected by Theo. Consider the importance of Manny Ramirez, Johhmy Damon, Kevin Youkilis, Jason Varitek, Jon Lester, and others who were chosen by the prior regime (as well as Josh Beckett and Mike Lowell who came in a trade engineered when Theo briefly quit in 2006).

Consider too the credit given to Bill Belichick for the Patriots' three Super Bowl championships. Clearly, he deserves great credit for coaching those teams. However, what about player selection? Naturally, he chose most of the players. However, a small core of crucial players, particularly on defense, were chosen by Bill Parcells. Belichick has not won a Super Bowl without that core. Those core players include Ted Bruschi, Willie McGinest, Troy Brown, Ty Law, Ted Johnson, and Adam Vinateri. That's a key group not brought to the team by Belichick.

What's the lesson for those in business? Be careful when evaluating leaders at all levels. Performance lags decisions and actions by quite some time in many firms. Thus, today's success or failure often cannot easily be attributed solely to today's leaders. For this reason, firms also need to be careful with rotational programs. Moving folks too quickly can make it very difficult to judge their performance accurately.

Friendlys headed for bankruptcy

2011-09-30T07:04:00.001-04:00

News reports this morning indicate Friendly's restaurants may be headed for Chapter 11. If you have been to one of their locations lately, you know they often exhibit very slow service. Moreover, some locations clearly need a makeover. They have clearly lost share to places such as Panera and Chipotle, as well as other restaurants at which there is table service. Here's a suggestion for survival: why not exit the restaurant business and focus on ice cream? The brand stands for ice cream. They could shift to small locations, reduce fixed costs substantially, and do what they do best.

The Progress Principle

2011-09-29T09:06:00.001-04:00

In their new book, The Progress Principle, Teresa Amabile and Steven Kramer argue that small wins can be a powerful driver of creativity, commitment, and productivity in the workplace. This HBS Working Knowledge feature summarizes the key idea in the book:

Of all the factors that induce creativity, productivity, collegiality, and commitment among employees, the single most important one is a sense of making progress on meaningful work. Seemingly small signs of progress will induce huge positive effects on employees' psyches. On the other hand, seemingly small setbacks will induce huge negative effects.

Amabile and Kramer build on the seminal work of Karl Weick, who wrote a terrific article about the power of small wins back in the mid-1980s. Weick argued that we can make progress on tough problems by breaking them down into smaller segments and adopting a small wins approach. He explained that a small wins approach works because tough, complex, large problems can be cognitively overwhelming as well as stressful. Small wins enable us to build momentum, show proof of concept, and build bridges with others who may have opposed us at the outset.

The Heroic Failure Trophy

2011-09-27T14:14:00.000-04:00

The Wall Street Journal has a terrific article today about Grey New York, an advertising agency.   The firm's leader, Tor Myhren, has created a quarterly "Heroic Failure" award to encourage innovative risk-taking.   It reminded me of the Build-A-Bear award program that I wrote about several years ago. Here is an excerpt from what I wrote about the Build-A-Bear "Red Pencil" award program.

[Build-A-Bear CEO Maxine] Clark has built an incredibly successful company, growing it to over $350 million in sales over the past decade. She has done so by delivering a world-class customer experience in her stores. Clark credits her store associates, who constantly find ways to innovate and improve. How do the associates do it? For starters, they tend not to fear admitting a mistake or surfacing a problem. Clark’s attitude toward mistakes explains her associates’ behavior. She does not punish people for making an error or bringing a problem to light; she encourages it.

Clark credits her first grade teacher, Mrs. Grace, for instilling this attitude toward mistakes in her long ago. As many elementary school teachers do, Mrs. Grace graded papers using a red pencil. However, unlike most of her colleagues, Mrs. Grace gave out a rather unorthodox award at the end of each week. She awarded a red pencil prize to the student who had made the most mistakes! Why? Mrs. Grace wanted her students engaged in the class discussion, trying to answer every question - no matter how challenging. As Clark writes, "She didn't want the fear of being wrong to keep us from taking chances. Her only rule was that we couldn't be rewarded for making the same mistake twice."

Clark has applied her first grade teacher's approach at Build-a-Bear by creating a Red Pencil Award. She gives this prize to people who have made a mistake, but who have discovered a better way of doing business as a result of reflecting upon and learning from that mistake. Clark has it right when she says that managers should encourage their people to "experiment freely, and view every so-called mistake as one step closer to getting things just right." Of course, her first grade teacher had it right as well when she stressed that people would be held accountable if they made the same mistake repeatedly. Failing to learn constitutes the bad behavior that managers should deem unacceptable. Clark makes that point clear to her associates.

Excerpt from Michael A. Roberto, Know What You Don't Know, Wharton School Publishing, 2009.

Quotes are from Maxine Clark's book, The bear necessities of business: Building acompany with heart. John Wiley and Sons. 2006.

The IKEA Effect

2011-09-26T10:14:00.000-04:00

The Neoacademic blog highlighted an interesting new piece of research last week regarding the IKEA effect.    For years, experts have pointed out that consumers love IKEA products in part because they have to exert effort to put the items together. Many experts also have recounted the story of the launch of cake mix products in the 1950s. Originally, the mixes did not require much effort at all on the part of the consumer.   However, when manufacturers changed the mixes to require some effort (adding eggs, vegetable oil, etc.), the mixes began to sell quite well.

In a new study published in the Journal of Consumer Psychology, scholars Michael Norton, Daniel Mochon, and Dan Ariely examined whether they could provide more concrete evidence supporting the IKEA effect. In other words, do people value things that they have created for themselves more highly than if others created it for them?   The scholars conducted a series of experimental studies.   For instance, in one experiment, subjects bid on IKEA items that they had either built themselves or simply examined.   The subjects bid over 60% more for the items that they had constructed themselves.

The results have interesting implications for many brick-and-mortar retailers in my view. Many of these retailers face the serious threat of losing sales to internet firms. Could the brick-and-mortar retailers retain more customers by making their shopping experience more interactive and engaging, including the use of mas customization techniques? Many have argued that they could. Now we have another reason why an interactive shopping experience could yield better results. If that interactivity involves "constructing" one's own product, perhaps through a customization experience, then retailers may increase buyer willingness-to-pay.    Customization, then, may have multiple benefits.   From IKEA to Build-a-Bear, we have plenty of examples that support this notion.

5 Social Media Lessons

2011-09-23T17:48:00.000-04:00

At Business Week's site, Home Depot's Brad Shaw shared the following five social media lessons for business:

1. You can't control the conversation: Companies can't just proclaim; they must engage in a dialogue with consumers.

2. Be authentic. Your online image and approach must match your offline image and culture.

3. It's about people. Don't just communicate about products and services. Share information about the people behind the brand.

4. Your people need hands-on expertise in what customers care about. Use front-line employees in your social media efforts, because they touch the consumers directly.

5. Be patient and flexible. Invest in small increments, gather feedback, adjust over time. Stay agile.

Wharton Profs' Take on the HP Situation

2011-09-23T15:50:00.000-04:00

Here is a good read from Knowledge@Wharton about the HP situation. Several faculty members comment on the CEO switch and what Meg Whitman must do to turn things around at the firm.

Bankruptcy: The Hot New Trend

2011-09-23T15:46:00.001-04:00

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Defining Your Company's "Critical Behaviors"

2011-09-23T11:45:00.000-04:00

Many companies outline a set of values by which they wish to operate, and they define the financial goals they wish to achieve. Senior leaders often spend time describing those values and goals at various company events. Company newsletters, posters, and wallet cards list the organizational values too. However, many firms do not take the extra step to define clearly the individual and team behaviors necessary to live those values AND for the firm to achieve financial success. Great companies take great care to outline the crucial behaviors required for success on both fronts (financial and values). Moreover, they connect those behaviors to the personal development plans and merit assessments of each employee. Goals-Values-Behaviors: Every firm should make sure they have addressed each leg of the stool.

The HP Board: Another CEO Bites the Dust?

2011-09-22T14:29:00.000-04:00

News reports indicate that the HP Board of Directors will fire CEO Leo Apotheker today and replace him with Meg Whitman. Many people have criticized the Board heavily for its actions over the past few years... and rightfully so. They have had their share of public fiascoes. From my perspective, they deserve the most criticism for not having developed a talent pipeline and a succession plan that would have enabled them to promote an insider during at least one of these management changes. From Fiorina to Whitman, the Board keeps going outside the firm to find a new CEO. How can a firm such as HP constantly have to reach for an outsider? That's a flawed talent strategy and poor governance.

On the positive side, I applaud the Board for not falling into the sunk cost trap with Apotheker. They deserve some credit for acknowledging their mistake and cutting their losses. Many Boards would have been reluctant to fire a CEO after such a short period of time, even if it became quite clear that things were not working out.

Netflix and Qwikster: What are they thinking?

2011-09-20T08:21:00.000-04:00

Why did Netflix decide to split itself in half? Why create a new brand called Qwikster? Most people have criticized the move quite heavily. Slate has an interesting article about the decision. Farhad Manjoo writes that Netflix seems to have taken guidance from Clay Christensen's model of disruptive innovation. Manjoo bashes the move in the first few paragraphs of the article, but then writes the following:

I think it's an idiotic strategy.... And yet: It could work. In The Innovator's Dilemma, Christensen argues that the companies that are most vulnerable to disruptive technologies are those that have really good management. The problem with good managers is that they tend to listen to customers. And the problem with customers is that they don't always know what's best for them. If you were a devoted Blockbuster customer in 2001, and if Blockbuster's CEO sent you an email announcing he was closing all the company's stores and switching to a DVD-by-mail service, you would have balked... As Christensen explains, disruptive technologies usually start out as inferior substitutes, proving attractive only to a small fringe of customers. For years, the people who ran Blockbuster saw Netflix as irrelevant. It's easy to call them stupid now, but at the time they were mostly right. Blockbuster's customers considered Blockbuster better than all the alternatives; if they didn't, they wouldn't have been Blockbuster customers. And Blockbuster's managers were doing what good managers do—they were investing in the parts of the business that customers liked (opening more stores) rather than coming up with a whole new business that might alienate their current users. The key advantage of Netflix's new model is that it will give each side of the business—the DVD side and the streaming side—flexibility to manage its service in a way that pleases its own customers. As a combined service, any move to strengthen one side of the company over the other would have been perceived negatively by one group of customers.

For me, the negative reaction to the move has more to do with the seeming inconsistency of management's actions than anything else. Several months ago, Netflix championed an integrated service at a low price. Then, they raised prices dramatically on the integrated service, but allowed customers to opt for a lower priced streaming-only service. Then, after a short period of time, they announced a split into two brands, one for streaming and one for DVD-by-email. The series of changes in strategy over a short period of time give the impression of a management team unsure of how to move forward. That makes investors uneasy (rightfully). Secondly, people have criticized the move because they don't necessarily see the connection between setting up a separate business unit and establishing a second brand. In Christensen's writings, he provides several good examples of companies establishing independent units to pursue an innovation, without necessarily creating a new brand. Take IBM's creation of a unit to launch the personal computer; it existed independent of the mainframe business, but it leveraged the existing IBM brand.

Despite all the questions, I understand Netflix's predicament. They face unchartered waters, as a young growing company facing the inevitable demise of the original business. In the old days, companies may have experienced the disruption of their core business after decades of success. For Netflix, that demise of the core may be occurring just a decade after the firm rose to prominence.

Another Break-up at Tyco

2011-09-19T08:58:00.000-04:00

The recent burst of break-up activity among diversified companies continues. Tyco has announced its intention to break up into three separate firms: security, fire- protection and flow-control. The split follows a 2007 break-up in the wake of the Kozlowski scandals. At that time, Covidien and TE Connectivity became independent companies. With this announcement, the Kozlowski empire has been dismantled completely. I'm not surprised by the move. The firm had become more focused after the 2007 spin-offs, but it still remained a company with limited synergies among these business units. In an era of lower economic growth, firms cannot justify these diversification strategies as easily. They have to show the economic value of diversification. If not, they must try to create shareholder value by freeing the units to operate as independent, focused companies. In the past, economic growth masked some of these sins of diversification at many firms.

Are Gifts Better Bonuses Than Cash?

2011-09-18T09:37:00.000-04:00

The Wall Street Journal reports on a new study published in the American Economic Review. Sebastian Kube, Michel André Maréchal and Clemens Puppe conducted an experiment, in which they compared workers' productivity when given a bonus vs. those in a control group. Actually, they set up two different types of bonuses: a 7 Euro cash bonus and a gift of a thermos worth 7 Euros. They found that the workers promised the gift as a bonus were significantly more productive than those given cash, whether told the value of the thermos or not.

Now, one could conclude that the researchers have shown that gifts might have a better incentive effect in the workplace than cash. However, I think we need to proceed with caution - a great deal of caution! Here we have a simple experiment with the bonus only worth 7 Euros. Would the same effect hold in the workplace if the amount of the bonus were much more substantial? That's not clear to me at all. So, while the experiment may be thought-provoking, I'm not sure it provides us practical guidance as to how to design incentive schemes for the workplace.

Industrial Policy: Jon Stewart's Take

2011-09-18T09:26:00.002-04:00

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Could Sears Become a Product Company?

2011-09-15T15:14:00.001-04:00

The Wall Street Journal reports today about Sears' moves to expand the sales of its Kenmore line of appliances to other retailers, such as Costco. A decision to move in this direction offers peril and promise. On the one hand, Kenmore is a strong brand likely to sell at other retailers. On the other hand, every sale at another retailer diminishes foot traffic and associated sales at a Sears store.

The decision raises a broader long term strategic question though. Sears has struggled mightily in recent years. Some question whether it can ever reverse this slide. If that is true, perhaps Sears could gradually be transforming itself from a retailer into a product company. It already sells Craftsman and Diehard branded products at other retailers. Could Sears one day no longer be a retailer at all, but instead be a home and garden products firm with a stable of strong brands (Kenmore, Diehard, Craftsman, etc)? As the retail business continues to decline, this may not be so far fetched.

Leaders, Explore outside your domain!

2011-09-14T09:12:00.001-04:00

At the very start of my doctoral program, faculty members assigned us to read Thomas Kuhn's great book, The Structure of Scientific Revolutions. I learned that many great scientific discoveries emerged when people from one field tackled a question in a different domain. Why? I think three key reasons exist. First, people in a particular field become entrenched in a certain way of thinking, and that can inhibit innovation. Second, new ideas can emerge when we draw analogies carefully from one domain to another. Third, many social and scientific problems require a fundamentally interdisciplinary problem-solving approach. You simply can't address the issue from one silo.

What's the lesson for leaders? We have to read, scan, and explore ideas from outside our industry and outside the field of business. We have to make the time for this and encourage our peers and subordinates to do the same.

Advertising: The Value of Celebrity Endorsements

2011-09-13T11:38:00.000-04:00

What's the value of a celebrity endorsement for your brand? Harvard's Anita Elberse and and Barclay Capital's Jeroen Verleun examined this question recently. They looked at how a firm's sales change as they sign a star athlete, as well as how revenue changes with major accomplishments by the athlete. Elberse and Verleun found that a firm's sales do rise with the signing of a star athlete - on average by approximately 4%. Moreover, revenue increases with each subsequent major accomplishment by the athlete. In other words, winning helps drive the firm's sales. However, they found decreasing returns to winning. In other words, sales increases tend to diminish in size as the athlete racks up subsequent victories (the first Grand Slam victory by a tennis star yields a bigger jump in firm revenue than the fifth Grand Slam victory). The researchers argue that firms need to keep these decreasing returns in mind as they contract with star athletes. For instance, providing bonuses of equal size for each major victory would not necessarily make sense, since the associated economic benefit for the firm falls over time. Moreover, the decreasing returns might suggest that long term deals should be negotiated with caution.

GameStop: Trying to Counter a Disruptive Threat

2011-09-12T08:23:00.000-04:00

GameStop made news this week by announcing that it will accept trade-ins of Apple iPods and iPhones at its stores throughout the country, after testing the concept in Texas for several months. This article quotes CEO Paul Raines as saying, ""We're selling refurbished iPod Touches like crazy." I find the news interesting for reasons beyond the fact that all things Apple tend to attract attention these days. GameStop clearly faces a serious threat of disruption for two fundamental reasons. First, many people see the future of console-based video games shifting to downloads as opposed to buying CDs at retail stores. Second, console-based games themselves are under attack from the shift toward mobile and social gaming. GameStop clearly will have to evolve its strategy, or face a future that looks more like Blockbuster and Borders than they would like. I'm intrigued by how Raines, who I interviewed years ago when he was at a different firm, has continued to experiment with the business model and evolved the strategy in the face of these threats. They seem much more agile than other brick-and-mortar retailers who have been disrupted, but it remains to be seen whether they can thrive amidst these challenges.

Transformational Leadership Course

2011-09-12T08:02:00.000-04:00

For those with a subscription, you might wish to check out the Providence Business News today. John Larrabee interviewed me about my new leadership series from The Great Courses (The Teaching Company). During the interview, I discuss how faculty members team up with the terrific staff at The Great Courses to build a course. In addition, we talked about the challenges of shifting from case method teaching in the classroom, which relies on the Socratic method, to the lecture format of The Great Courses.

Postal Service Blues: Substitution is Always the Biggest Threat!

2011-09-09T09:10:00.000-04:00

Over the past few weeks, we have heard a great deal about the troubles at the US Postal Service. The USPS experience offers a crucial lesson regarding threats to competitive advantage. Many firms spend enormous amounts of time conducting competitor analysis of various kinds. They worry constantly about how their rivals might overtake them. However, the most dangerous threat to competitive advantage really does not come from direct rivals in your industry. Instead, it often comes from substitutes. In other words, different goods or services emerge that address the same customer need, thereby supplanting your product in the marketplace. Think digital photography undermining instant cameras, NetFlix destroying Blockbuster, tablets eroding the position of traditional PC makers, mobile and social gaming undermining the position of traditional console-based video games, and clearly... email and other electronic forms of communication threatening the sustainability of the USPS business model. In sum, companies should spend much more time scanning the external environment for the rising threat from potential substitutes, as opposed to fixating on their existing direct competitors. Of course, in so many cases, companies fail to acknowledge the threat from a substitute until it's far too late... even though they are aware of the emergence of this alternative good or service. Unfortunately, existing mental frameworks often make it difficult for executives to get their arms around the very different business model associated with the substitute.

Recommender Systems Build Commonality, not Factions

2011-09-08T08:47:00.000-04:00

Wharton Professors Kartik Hosanagar, Andreas Buja and Daniel M. Fleder have conducted a fascinating new study regarding recommender systems (in this case, iTunes recommendations). The authors chose to examine the arguments being made by various folks that, "Increased personalization is creating fragmentation throughout society." For example, Cass Sunstein,law professor and head of the Obama administration's regulatory policy, has made such an argument. The scholars examined how recommendation systems on the Internet affect consumer behavior. They focused on iTunes for their study. Here is what they found, according to the Knowledge@Wharton website:

"An increase in the volume of purchases was anticipated, the authors write, but the increase of roughly 50% was larger than expected. By comparison, the number of purchases made by the control group actually declined by a small amount. "The personalization system exposes you to a lot more items you like, so you consume more than you used to before," says Hosanagar. "As each consumer buys more, it increases the likelihood they have something in common." For the taste effect, the study results also show that once volume is controlled for, consumers buy a more similar mix of products after receiving recommendations. In addition to purchasing more songs, the research showed that consumers who used the service became part of networks that intensified as a result of receiving suggestions about songs. The researchers, who plotted relationships between thousands of users and millions of songs, found a 23% increase in the percent of listeners with an artist in common compared to the control group. The researchers also plotted combinations exploring the "distance" between pairs of users, or the number of people in the network between them. They wanted to determine whether those who initially were close on the network become closer, while others who were farther removed grew farther away, indicating fragmentation. The authors found that all kinds of users -- close as well as far -- became closer to one another on their networks in the treated group relative to the control group. The group that received recommendations showed more user-pairs becoming closer (36%), while fewer pairs (9.2%) moved farther apart. "The increase in similarity appears uniform: All types of users become closer to one another," the paper states. "Users who were close became closer, and users who were initially far became closer, too."

In sum, music recommendation systems tend to broaden consumer interests, rather than narrowing the individual's focus on a particular niche. Hopefully, future studies will examine whether the same result occurs with other types of recommendation engines. For more on the importance of recommendation systems in many markets, I highly recommend reading Chris Anderson's excellent book, The Long Tail. In that book, he explains how companies such as NetFlix and Amazon have a much higher percentage of their sales coming from non-blockbuster hits than brick-and-mortar retailers. They accomplish this through the digital nature of their business, and they drive those sales of less well-known products through things such as their recommendation engines.

Do Narcissists Impede Information Sharing in Groups?

2011-09-07T08:46:00.000-04:00

A lengthy stream of research demonstrates that groups tend to focus their discussion on information commonly possessed by all members, while privately held information tends not to be shared and discussed sufficiently. Team performance often suffers when members fail to disclose privately held information. Some tasks and decisions require the integration of each member’s information and expertise; just one member’s failure to disclose and share privately held information can impair the team’s ability to accomplish its task effectively. Some studies have shown that small changes in a leader's behavior can facilitate or impede information sharing in groups.

Christopher Shea of the Wall Street Journal pointed us to a new study conducted by Barbora Nevicka, Femke Ten Velden, Annebel De Hoogh, and Annelies Van Vianen. Their research examined specifically how narcissistic leaders performed in a setting in which group members needed to share and integrate privately held information to solve a problem. The scholars found that, "The narcissists’ preoccupation with their own brilliance inhibits a crucial element of successful group decision-making and performance: the free and creative exchange of information and ideas." I don't find the conclusion surprising at all, but the research definitely helps shine the spotlight on this important challenge that many leaders and groups face.

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