Friday, May 29, 2009

Teaching Kids About Basic Business Skills

I just learned about Lemonade Day, a terrific Texas event designed to train young people about entrepreneurship in a fun, enjoyable way. Take a look at this inspiring video about Lemonade Day:

Thursday, May 28, 2009

Nintendo: Cultivating Complements

Peanut butter is to jelly as the Wii is to... well, video games, of course. We are talking complements here. It comes as no surprise that, according to the Wall Street Journal, Nintendo is "pushing to increase the number of Wii videogames made by outside publishers, including combat and sports titles that target serious players." The Wii has been a fabulous success, but some observers have worried that the system will run out of steam if Nintendo is not able to cultivate a more diverse array of titles. Many Wii consumers (includin our family) actually own and play a very limited number of games. The concern is that such users may eventually get bored with these games. The key to long term sustainable success is to continue to build more diverse games, including some that are for use with new hardware attachments. Thus, the push to cultivate more complements (i.e. games from outside publishers) makes a great deal of sense.

One note of concern though... the quote above from the Wall Street Journal suggests a push to create combat games for more serious players. What will these combat games be like? One reason that many families purchased the Wii instead of Sony or Microsoft is the fact that Wii games tended to be more family friendly. A push to move more aggressively into combat games enjoyed by hard-core gamers could turn off the core family casual gamers that Nintendo has had so much success selling to over the past few years.

Wednesday, May 27, 2009

Marketing: Art or Science

Seth Godin has a thought-provoking post over on his blog concerning the distinction between marketing as science vs. marketing as art. He puts forth the cogent argument that sometimes we get confused as to whether we are practicing art or science. As Godin writes, "If you don't know if you're doing a science project or an art project, you'll probably emphasize the wrong elements." I would add that managers often encounter dysfunctional conflict with their peers when they are talking different languages (art vs. science) without being aware of it. They simply talk past one another, and conflicts boil over at some point.

Twitter's Revenue Model

It's still hard for me to believe that a company as ubiquitous as Twitter does not have a revenue model yet. In an interview with the Wall Street Journal, the founders of Twitter discuss their plans to generate revenue in the near future. Click here for a link to the video.

Guest Post: How Relevant is Education to Leadership

From Kat Sanders:

How Relevant is Education to Leadership?

Perhaps the most convincing argument a kid can make against education, the kind of formal learning that’s taught at school today, is to point out that Albert Einstein was not held in too high esteem by his teachers, none of whom expected him to achieve great things in life. Well, in hindsight, we know how wrong an opinion that was! And we also know that academic brilliance is not the only way to achieve a bright future. So does this same principle apply to leadership as well? Are leaders born naturally or are they made through circumstances? While people who do well at school and college (academically) may or may not go on to success in later life, leadership is an aspect that comes to the fore on demand, and this is why, in my book, leaders are born and not made. When we talk of the relationship between education and leadership or of the relevancy that education has in leadership skills, we see that people who assumed leadership in school and college go on to make natural leaders when they are adults. This is because they are familiar with leading from the front and know what leadership involves. I’m not talking of the leadership that is thrust on us, but of that which we take on willingly. For instance, a group may have a designated leader, but he or she is not the one who is actually carrying out all the tasks that a leader should do. Instead, another person in the group, someone who is a born leader, assumes the mantle and sets out to lead the group when the designated leader falters or is found wanting. Consider a sport where each team has a captain, someone who does not necessarily have to be the best in the game, but who is supposed to bring out the best of his/her teammates. Normally, when you’re pretty young, the best player on the team is the captain. But as the games progress and you need to get into the spirit and become more competitive, the team member with a natural flair for leadership takes over and begins directing play and strategy.

Perhaps we could say that situations bring out the true leaders, rather than an education. While you can try to teach people the qualities of leadership, there’s no guarantee that they will become good leaders because of the education. However, if they do have leadership traits in them, no matter how long they remain dormant, they will find a way to break free when the right situation comes. Maybe we could say that a formal education provides us with opportunities for true leaders to show themselves, to understand their skills, and put them to good use all through their lives.

This article is written by Kat Sanders, who regularly blogs on the topic of best online engineering degree at her blog, The Engineering A Better World Blog. She welcomes your comments and questions at her email address:

Tuesday, May 26, 2009

Anne Mulcahy at Xerox

Anne Mulcahy announced last week that she will be retiring as CEO of Xerox, turning over the reins to Ursula Burns in a long-planned succession. Mulcahy, of course, engineered a remarkable turnaround at Xerox, having taken over when the firm seemed on the verge of collapse. I wrote a bit about Mulcahy in my new book, Know What You Don't Know. Here's an excerpt:

Mulcahy has taken some interesting steps to ensure that she and her fellow senior executives receive unfiltered information about customer satisfaction and dissatisfaction. She has chosen to listen directly to them, without a go-between who might alter or muddy the message. Specifically, Mulcahy employs two techniques to circumvent the usual filtering process that shapes the customer service data that reaches senior leaders. Her techniques involve more than simply going out on customer visits, though she does that as well. First, Mulcahy has assigned each of the company’s top 500 customers to a member of the top management team. Interestingly, she has not only assigned accounts to executives in charge of functions such as sales, marketing, and operations. She explains:

“All our executives are involved--including our Chief Accountant, our General Counsel and our head of Human Resources. Each executive is responsible for communicating with at least one of our customers, understanding their concerns and requirements and making sure the appropriate Xerox resources are marshaled to fix problems, address issues and capture opportunities.”

Secondly, Mulcahy has created a program whereby each member of the top management team serves as a “Customer Officer of the Day” at corporate headquarters on a monthly basis. She wants to hear the unvarnished comments of customers who may be having problems with the firm’s products. Moreover, Mulcahy wants each member of the top team, including herself, to be personally accountable for addressing customer concerns. She describes the program:

“There are about 20 of us and we rotate responsibility to be "Customer Officer of the Day." It works out to about a day a month. When you're in the box, you assume personal responsibility for dealing with any and all customer complaints, that come in to headquarters that clay. They are usually from customers who have had a bad experience. They're angry. They're frustrated. And they're calling headquarters as their court of last resort. The Xerox "Officer of the Day" has three responsibilities--listen to the customer, resolve their problem and assume responsibility for fixing the underlying cause. Believe me, it keeps us in touch with the real world. It grounds us. It permeates all our decision making.”

Mulcahy’s initiatives create direct communication between front-line users of her products and senior executives. She does not simply rely on summaries of statistics about customer service. The conversations with customers become valuable raw data that may provide insights not available in reports compiled from reams of customer survey statistics. Mulcahy has learned that customer questionnaires can be deceiving. People may report that they are “satisfied” with a company on a survey, yet still remain quite likely to switch to another firm’s products. Mulcahy describes this phenomenon:

“There has been a norm around for many years that somewhere around 75 per cent of customers who defect say they were "satisfied." Our own research bears this out. When our customers tell us they are “very satisfied," they are six times more likely to continue doing business with us than those who are merely satisfied… If you're just providing your customers with service that's good, they're probably just satisfied. This should set off alarm bells. Take the automotive industry. Satisfaction scores average around 90 per cent. Guess how many people repurchase from the same manufacturer? Only 40 per cent.”

Friday, May 22, 2009

Making Cars Less Safe

We all learned in our introductory economics course in college that "there is no free lunch." Life is full of tradeoffs that cannot be ignored or wished away. In today's Wall Street Journal, former Environmental Defense Fund trustee Robert Grady makes a key point about the push to increase fuel efficiency in U.S. automobiles:

"The Obama fuel efficiency plan may also contribute to a significant increase in highway deaths as vehicles are required to quickly meet the new CAFE standard and will likely become lighter in weight as a result. According to a study completed in 2001 by the National Research Council (NRC), the last major increase in CAFE standards, mandated by the Energy Policy and Conservation Act of 1975, required about a 50% increase in fuel economy (to 27.5 mpg by model year 1985 from an average of 18 mpg in 1978). The NRC study concluded that the subsequent downsizing and down-weighting of vehicles, "while resulting in significant fuel savings, also resulted in a safety penalty." Specifically, the NRC estimated that in 1993 there were between 1,300 and 2,600 motor vehicle crash deaths that would not have occurred if cars were as heavy as they were in 1976.

The president now proposes a fuel economy increase of similar magnitude in an even quicker time frame -- to 39 mpg by model year 2016 from 27.5 mpg now. Given the time it takes for new technologies to be developed, tested and incorporated into new car models, it is likely that down-weighting of cars will be an important means of meeting the new standard. And one result again could be highway deaths that might otherwise not have occurred."

Thursday, May 21, 2009

First Mover Advantage

Many managers and students mistakenly presume that first movers always have an advantage in the marketplace. Of course, that is not the case. This article explores one key variable that may explain why first movers have advantages in some markets, but not others. It seems that the article is simply restating a notion that has been discussed previously in the strategy literature - i.e., if there are large spillover effects, whereby firms can easily capture the benefits of their rivals' learning curve economies, then first mover advantage wanes. Still, the researchers make a good point.

In fact, though, there are a number of reasons why first mover advantage may or may not exist in a particular industry. For instance, all else being equal, the presence of large network effects tends to create a first mover advantage. On the other hand, if scale economies are small and buyer switching costs are minimal, then this tends to favor followers rather than leaders.

Wednesday, May 20, 2009

Larry Lucchino at Bryant Commencement

Boston Red Sox CEO Larry Lucchino gave the commencement address at Bryant University on Saturday. He offered a top ten list of advice to our graduating seniors. Here are two of his excellent bits of advice:

Lucchino quoted Elwood Dowd, a character played by Jimmy Stewart in the movie "Harvey" - “My mother used to say to me, ‘Elwood, in this world you must be oh-so clever, or oh-so pleasant.’ For 40 years I tried clever. I recommend pleasant.”

Lucchino also stressed to the students that they should be courageous enough to say, “I don’t know.” He told them not to guess and not to fake it when they don't have the answer. Lucchino explained, "If you don’t have the answer, say so. These seven words often work out well: 'I don’t know, but I’ll find out.'”

All in all, Lucchino offered a humorous speech with sound advice... and he kept it brief, which is a must in commencement speeches!

Tuesday, May 19, 2009

Time for Perceptions to Change

When companies experience a downturn in quality or customer service, it can take a very long time to recover. The problem is that perceptions are "sticky" - i.e., even when quality and/or service improves, it may take a long time for customers to alter their perceptions. Customers may cling to the old belief that quality and/or service are inadequate long after a firm has corrected the problem.

Home Depot may be a firm experiencing this situation today. The company reported earnings this week. While the firm is making progress financially, it appears to be largely due to expense control, rather than sales gains. Home Depot sales continue to suffer due to the poor economy, as well as the consequences of a damaged customer service reputation. Interestingly, the firm reports that customer service has improved after dismal performance in that area during the later stages of Bob Nardelli's tenure as CEO. It may take time, however, for the general consumer to recognize and believe that service has indeed bounced back from that period of very poor performance.

Companies need to think very carefully about how they can communicate improvements in quality and/or service. They have to be transparent, and show consumers key data that will help convince them of the enhancements. They also must use social media to help drive word of mouth, as traditional advertising may not the best way to change perceptions. What they cannot do is over-reach about their accomplishments, because consumers may become more upset if they perceive that the firm is proclaiming improvements that do not seem real and substantial to the consumer.

Friday, May 15, 2009

Rising Productivity

In Business Week, Michael Mandel points out that labor productivity continues to rise despite the economic downturn. Mandel points out that productivity dropped during two past historically deep downturns - the Great Depression and the steep recession of the early 1980s. Mandel explains that there could be a positive interpretation of this productivity growth today:

So why, today, are we blessed with the unlikely combination of deep recession and rising productivity? The optimistic explanation is that American businesses have gotten religion and are aggressively squeezing out waste and boosting efficiency.

However, Mandel also offers a cautionary note. Perhaps, this productivity increase will be harmful in the long run. He explains that companies have been cutting professionals, which could be worrisome:

In the short term, when a company cuts professionals, output per hour goes up. A pharmaceutical company could, in theory, ax its entire research operation without affecting current sales. And an automaker that laid off its new car designers could still churn out the same number of vehicles, and productivity would rise.

The danger: If the economy is stuck in a slow-growth recovery, companies may not be quick to rehire their professionals—and that would be a disaster. Professionals are the people who do the research, the new-product development, the information-gathering, the training, and even the marketing which moves the economy forward. They are the main source of the "intangible investments" necessary for innovation and future growth. In effect, we could be eating our seed corn to get through the financial crisis—and the official stats would not warn us.

I think it's an interesting issue to consider, and naturally no clear answer exists to this puzzle. In general, though, I'm inclined to favor the optimistic view. Mandel, for instance, does not mention that productivity grew in both of the last two recessions (early 1990s and 2000-2001).

Thursday, May 14, 2009

Auto Dealer Consolidation

While the economy will take another jolt this week with the announcement of large number of dealer closings at Chrysler and General Motors, this move is necessary. Long before this current recession, the American automakers had far too many dealers. Top American brands have 3-5 times as many dealers in the U.S. than Honda and Toyota. The dealer network is incredibly inefficient and has to be rationalized.

One thing to watch... closing dealers has typically been a very expensive proposition for automakers due to state franchise laws. However, GM and Chrysler will avoid those excessive costs this time around due to their conditions of financial distress. However, what will happen to Ford? Can they rationalize their auto dealer network while also avoiding excessive closure costs? If not, then the federal help for GM and Chrysler will provide them an advantage over the healthier Ford.

For some time now, experts have worried that Ford will be disadvantaged in key ways by the fact that they are actually healthier than their domestic rivals and do not need federal assistance. The government has to be mindful of this potential inequity, and take care not to harm Ford through this bailout, bankruptcy and reorganization process... after all, Ford deserves better since they have been the best-managed to date in the domestic auto industry.

Wednesday, May 13, 2009

Hiring an Executive Search Firm at GM

News reports indicate that the federal government pressured new General Motors Chairman of the Board Kent Kresa to hire Spencer Stuart, an executive search firm, to recruit new directors for the firm. Now, I understand and respect the function of executive search firms. However, I'm a bit shocked that we would be spending taxpayer dollars to hire a search firm to find new directors for GM. Why can't the federal government's hand-picked Chairman, Kent Kresa, and those "brains" at the U.S. Treasury find good solid directors on their own? Kresa apparently wanted to do this on his own. I can understand not wanting him to simply hand select them completely on his own, but do we really want to hire a search firm at a company that is bleeding cash at this rate? After all, we didn't hire a search firm when the federal government decided to hire a new CEO. Isn't the CEO position a bit more important than board positions? We have the federal government making strategic decisions about the brands GM should shut down and the kinds of cars that they should build, yet those same federal officials do not feel capable of identifying and selecting board candidates. What sense does that make?

Tuesday, May 12, 2009

Bank Stress Tests

Another gem from Saturday Night Live, featuring SNL's Timothy Geithner impersonator:


The seniors at Bryant University asked me to write the faculty reflection that is published in the commencement edition of the student newspaper. Here is what I wrote to them:

You will fail! Everyone does at various points in their lives. As you leave Bryant, I encourage you not to simply dream of the success you wish to achieve in your lives. I hope that you will dream big dreams and pursue them with invigorating passion. However, you must also consider the role of failure in a successful person’s life. How will you react when you stumble and fall? You will stumble after all. We all do. Great innovators encounter failure numerous times. The most successful people exhibit remarkable persistence and resilience in the face of failure. They pick themselves up, learn from their mistakes, and move forward. Thomas Edison failed many times in his career. Reflecting on his missteps, he said, “I have not failed. I've just found 10,000 ways that won't work.”

Consider the case of James Dyson. Described as a “tireless tinkerer,” he perfected his revolutionary bagless vacuum cleaner after years of trial and error. Today, Dyson ranks as one of the richest men in the world. Despite all that success, Dyson loves talking about the importance of failure in his life. “I made 5,127 prototypes of my vacuum before I got it right,” said Dyson. “There were 5,126 failures, but I learned from each one. That's how I came up with a solution. So I don't mind failure.” He argues that we often fool ourselves into believing that successful products emerge from a moment of “effortless brilliance.” To him, failures provide keen insights that enable invention. Dyson explains, “We're taught to do things the right way. But if you want to discover something that other people haven't, you need to do things the wrong way. Initiate a failure by doing something that's very silly, unthinkable, naughty, dangerous. Watching why that fails can take you on a completely different path. It's exciting, actually.”

Maxine Clark founded and continues to serve as chief executive of Build-a-Bear Workshop. Clark has built an incredibly successful company. 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. 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, 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 we should deem unacceptable.

At Bryant, you have not only learned many ideas and concepts. You have learned to think more critically. You have learned how to learn. The faculty has tried to nurture and develop you, so that you can become effective lifelong learners. We hope that you will not fear failure in your lives. Embrace it and learn from it. Even in his later years, after remarkable accomplishments, the great Renaissance artist and sculptor Michelangelo used to say, “I am still learning.” I hope that you will maintain that attitude throughout your lives, particularly in those moments when you stumble and fail. Pick yourselves up and move forward, with confidence that you have the ability to fulfill your dreams. Remember that failing to learn represents the only true failure in our lives.

Monday, May 11, 2009

The Boss of the Future

Wayne Miller of the Providence Journal wrote an article about the "boss of the future" in which I was interviewed. Click here for the article.

Friday, May 08, 2009

Why ROI is Broken

The Corporate Executive Board has an interesting article on Business Week's website. They argue that ROI is being used incorrectly by many IT organizations. In particular, they argue that the problem is not the difficulty in accurately measuring the benefits of an IT project. Instead, they explain that, "The real reason to actively distrust ROI projections is the other side of the equation: Most IT shops are punting when it comes to capturing the true cost of the investment."

I would argue that there is a much more substantial reason to question ROI calculations by IT departments, even if they are tracking labor time and costs accurately. The fundamental challenge lies in the decision-making process leading up to the launch of a major IT project. What we often see is that the IT managers, the hardware and software vendors, and the consultants who will aid in the implementation all collaborate to build the ROI. What's the problem with that? Well, of course, all three parties are advocates for the project. They want it to be approved. Why would they ever come up with an ROI calculation that suggested that the project should not be done? In short, the advocates are the primarily analysts in many of these situations. We don't have an unbiased perspective. ROI is not a purely objective measure... it's only as good as the assumptions and information that you put into it. If advocates drive the inputs, the output of an ROI calculation is likely to be flawed/biased.

Thursday, May 07, 2009

$300,000 per job saved!

The calculates that the Chrysler bailout costs American taxpayers approximately $300,000 per job saved. Even if we include all other jobs that are "touched" by Chrysler, the number comes to $80,000 per job saved, but surely, not all those jobs would be lost with the demise of Chrysler. Here is an excerpt from

The relevant question is what the U.S. taxpayer is getting in return for its largess. It is hard to argue that what is left of Chrysler is pivotal to the survival of the U.S. industrial base. The automaker's U.S. operations are significantly smaller than that of either General Motors Corp. (NYSE:GM) or Ford Motor Co. (NYSE:F), and unlike Toyota Motor Co., Honda Motor Co. Ltd. (NYSE:HMC), Hyundai Motor Co. or others, Chrysler's manufacturing presence is shrinking and not growing.

Rather, the best way to justify the Chrysler bailout is the jobs saved, but even by that measure the plan appears expensive. Chrysler on its Web site boasts that it "touches" 100,000 jobs in the U.S., costing taxpayers $80,000 per job saved. But that number almost certainly includes dealers, suppliers, mechanics and others who are also touched by other, healthier automakers, and who may not necessarily be out of work had Chrysler failed.

Chrysler is coy on its exact number of U.S. employees, but the company according to United Auto Workers records had about 26,800 union members in the U.S., prior to the last buyout offer. Using that figure, the government is spending almost $300,000 per job saved.

Saturday, May 02, 2009

Monte Carlo Simulations

The Wall Street Journal has an article today about the limitations of using Monte Carlo simulations for retirement portfolio planning. The article properly notes that the real issue is not the simulations, but the fundamental assumptions that these models often make. Most Monte Carlo simulations that were being used by financial planners assumed that market returns adhered to a bell-curve-shaped distribution. Of course, this means very thin tails on the distribution, i.e. an extremely low probability of an "extreme" event such as the 2008-2009 market collapse.

Of course, these planners and the simulations they used were not the only ones improperly assuming a bell-curve-shaped distribution. Most experts also ignored the possibility of "fatter tails" on the distribution. In other words, extreme events might not be as rare as once thought. For a great book on this subject, check out The Black Swan by Nassim Nicholas Taleb.

Friday, May 01, 2009

The Name Says It All

Fast Company has a fun addition to their website; it's short comedy clips from the Rooftop Comedy group. To check out the collection of clips, click here. To sample one funny bit of stand-up, see below.

Disney-Hulu Agreement

Business Week has a good article on the looming battle between Apple and Hulu. Disney now has established an agreement with Hulu to provide content for the site. This means Hulu has become an even more formidable competitor to Apple as a place where consumers can access video content. Hulu, of course, relies on advertising to support its free distribution model. Some question whether this popular site can ever be profitable relying predominantly on advertising for its revenue. Apple charges consumers for video downloads. The two economic models will be tested against one another in the months to come. As the article states, the success of Apple's strategy will be dependent on the further evolution of its hardware technology. Thus, it will be interesting to watch new developments on the product side in the next year. Meanwhile, the article mentions the possibility of a Hulu app for the iPhone... meaning that the two firms will be collaborating as well as competing in this space. To top it all off, Steve Jobs remains Disney's largest shareholder, adding another interesting twist to this latest news about Hulu.