Monday, August 31, 2009

Disney Buys Marvel

Big news in the entertainment industry today: Disney announced that it is acquiring Marvel Entertainment, known for such popular characters Spider-Man and the X-Men. Here are a few of my initial reactions to this deal:

1. Disney's last two major acquisitions (Pixar and Marvel) fit much more closely to its core strategy than some of the diversification attempts in the second half of Eisner's tenure (Cap Cities/ABC, hockey and baseball teams, etc.). Why do I say that? These last two major deals bring a stable of popular characters to Disney. When Disney has been very successful, it has been developing and leveraging characters across an array of businesses (films, TV, theme parks, consumer products, etc.). Some of the deals during the latter half of Eisner's tenure had very little to do with animated characters, and they stretched Disney well beyond its traditional core.

2. The price tag seems high according to some observers and analysts. However, I thought this comment by Disney's CFO was interesting: "You can't expect to pay a bargain price for premium assets," said Disney Chief Financial Officer Tom Staggs. "Marvel is worth more inside Disney than outside Disney." Of course, that final sentence proves key. Anytime a firm diversifies, particularly via acquisition, you have to ask yourself: Is this business worth more within Disney than outside of the firm? Why might Marvel be worth more within Disney than elsewhere (either independent or as part of another conglomerate)? First and foremost, Disney has the ability to unlock a tremendous amount of value from Marvel's characters, because it can leverage the characters across a wide platform of related businesses. Expect theme park attractions based on Marvel characters, new films, new consumer products, new television shows, etc.

3. We should watch how Marvel's relationships with other entertainment firms unfold in future months. One complicating factor with any deal such as this one - how will existing relationships between Marvel and some of Disney's competitors (such as Sony and Viacom) fare in the future?

AT&T and the iPhone

Martin Peers, in the Wall Street Journal's Heard on the Street column, has a thought-provoking story about AT&T's relationship with Apple. The article questions whether AT&T has actually benefited financially from its exclusive iPhone service relationship. The article rightfully points out that it's not a no-brainer; it's unclear as to whether the costs outweigh the benefits. More importantly, though, this example provides a good lesson in the dynamics of strategic partnerships. Here are two questions to consider:

First, you must ask: Why did Apple negotiate an exclusive arrangement? One key reason is control. They understand that the service providers had a lot of power in the traditional relationship with phone manufacturers, particularly here in the U.S. Apple did not want to cede that power to the service providers; they wanted to very carefully control the customer experience, particularly as people bought and/or serviced their phones. Apple rightfully wanted to protect their brand equity.

Second, you might ask: Who has the power in this new partnership? Whenever firms enter into a partnership, alliance, or joint venture, you can and should assess the extent to which one party has the ability to appropriate more of the returns generated by this collaborative effort. It's not hard to see that Apple has the upper hand here, and therefore, it's not surprising that AT&T would realize less of the financial benefit. Apple, after all, could select from among multiple options as it chose its partner; therefore, that provided the firm leverage in negotiating this relationship. Moreover, Apple had the scarce asset going into this partnership. Scarcity provides value.

Friday, August 28, 2009

Starbucks' Growth

I disagree with this article by John Jannarone in the Wall Street Journal's Heard on the Street column. While it may be true that licensed Starbucks locations are more favorable financially than company-owned locations, there are dangers to relying heavily on licensed locations. From a strategic standpoint, Starbucks loses some control when going the licensing route, and that loss of control may diminish the brand. As I've argued before on this blog, Starbucks has already allowed dilution of its brand equity to occur; it has to take great care not to generate further dilution.

Cash for Crib Clunkers

Toys R Us has launched a trade-in campaign, whereby consumers can bring back their old unsafe cribs, car seats, high chairs, and the like and receive a 20% discount off their purchase of a new replacement for that old item. The marketing campaign appears to be a great example of "doing well by doing good." After all, getting all those older items out of households and automobiles certainly enhances the safety of our children. Far too many old cribs, for instance, have wide spaces between their rails - too wide by current safety standards. On the other hand, the campaign may create new demand for Toys R Us products, since it may encourage new purchases by some people who would otherwise have simply kept their old items for many more years. Toys R Us may generate new sales and profits, even with the 20% discount offer, while enhancing safety for its customers.

Gripping Statistics

In Fast Company magazine, Dan and Chip Heath (authors of Made to Stick) explain how to make your statistics more persuasive to others. It's definitely worth reading.

Thursday, August 27, 2009

Spotting Problems Before It's Too Late

Stacy Blackman of BNET's Back To School Blog posts the second part of her interview with me. The interview focused on my work on how leaders can become better problem-finders.

Work vs. Pleasure

My copy of the Harvard alumni magazine came in the mail yesterday, and it included a story about some interesting new research by Harvard Business School Professor Anat Keinan. Keinan and Columbia Business School professor Ran Kivetz have coined a new term - "hyperopia." They describe it as the habit of overestimating the benefits one will receive in the future from making responsible decisions now. Here's what the scholars found:

"Time after time, when subjects were asked to recall situations in which they had to choose between work and pleasure...More of the subjects who’d chosen play over work recently expressed regret, but those numbers reversed for choices made in the distant past. For instance, college students said they’d spent too much time relaxing during a recent winter break, but when they considered the previous year’s break, they said they’d spent too much time studying and working."

Keinan suggests that we could be happier if we took a long term perspective and anticipated our future regrets as we make current choices. She also highlights the fact that companies can retool their marketing to take advantage of this new understanding of how people judge their decisions about work vs. pleasure.

Wednesday, August 26, 2009

Hospital Errors

In yesterday's Wall Street Journal, Laura Landro has an excellent column titled "Hospitals Own Up to Errors." She explains how many hospitals have begun to acknowledge their medical errors more openly, rather than "retreating behind a wall of silence to guard against potential lawsuits." Hospitals not only have encouraged their staff members to be more open about mistakes, but they have become more candid with patients and families as well. Amy Edmondson, Anita Tucker, and I wrote a case study several years ago about one hospital's efforts to improve patient safety by becoming more transparent about medical accidents. We wrote about Children's Hospital and Clinics in Minneapolis/St. Paul. At the time, their Chief Operating Officer, Julie Morath, was leading a major initiative to improve patient safety. She strove to create an environment where people felt safe coming forward about medical accidents and near-misses, on the theory that a hospital cannot improve safety if it doesn't know where the problems are. The lesson here is very clear... Organizations must create an environment where individuals feel safe acknowledging mistakes and discussing failures. If not, then the published error rates may seem low, but they may be disguising an ugly truth, while preventing the organization from discovering where improvement opportunities exist.

Tuesday, August 25, 2009

GM Board and Opel

At first, one might react with dismay at the drawn-out process by which GM has tried to sell Opel - its European division. However, recent reports indicate that the new GM Board has rejected management's proposal to sell Opel to Canadian auto-parts manufacturer Magna. The board apparently has pushed management to consider other options, including raising new financing so that the company could retain and restructure Opel. While it's not at all clear whether or not retaining Opel makes sense, one may be heartened to hear that the new GM Board is being vigilant in its governance duties, and not simply rubber stamping management's proposal to sell Opel to Magna. It seems that the board has asked some tough questions and been willing to push back on a key management decision about which board members had serious doubts and concerns.

Sample Lab

Marketers will be particularly interested in this Wall Street Journal article about a first-of-its-kind "marketing cafe" that has opened in Japan. Sample Lab Ltd. operates this cafe in Tokyo, targeting women in their 20s and 30s. The women have an opportunity to earn tokens based on the amount of food or drink they purchase. Then, they can redeem those tokens for samples of new products about which marketers would like to garner customer feedback and launch effectively into the marketplace. It will be interesting to see if this concept succeeds in Japan, and if it spreads to other countries.

Monday, August 24, 2009


As leaders, we should strive for a deep understanding of what makes our employees happy. I'm not suggesting that we should always aim to please; our goal is not for our employees to necessarily like us. However, we should strive to garner their respect and their commitment to a common goal(s). Having said that, if we are to motivate our employees effectively, we do need to understand what makes them happy. The Boston Globe had a great article yesterday about recent research on the relationship between happiness and money that is must reading for any leader. The article explains that many studies have affirmed the conventional wisdom that money does not buy happiness. However, more recent research has challenged this notion a bit. These studies show that how we spend our money matters. Here's an excerpt:

"A few researchers are looking again at whether happiness can be bought, and they are discovering that quite possibly it can - it’s just that some strategies are a lot better than others. Taking a friend to lunch, it turns out, makes us happier than buying a new outfit. Splurging on a vacation makes us happy in a way that splurging on a car may not... The problem isn’t money, it’s us. For deep-seated psychological reasons, when it comes to spending money, we tend to value goods over experiences, ourselves over others, things over people."

The articles goes into considerable depth on these issues, drawing on a stream of research by Elizabeth Dunn, Michael Norton, and Sonja Lyubomirsky. I highly recommend this piece by Boston Globe writer Drake Bennett.

Saturday, August 22, 2009

Price Changes at Starbucks

Starbucks announced yesterday that it will be raising prices on some drinks, while cutting prices on others. Which prices will be raised? Apparently, they have chosen to increase price on more complicated drinks such as Frapuccinos, while dropping prices slightly on items that are easier for the baristas to make/serve (such as drip coffee and tall lattes). Why has Starbucks made this move? They may have come to a better understanding of their true costs for each product on their menu and realized that the time required to make certain complicated drinks had driven up costs and eaten into their margins on those items. They may also want to encourage slightly higher volumes of easy-to-make drinks as opposed to complicated ones so as to speed up overall service. One complaint many customers have had is the slow service, particularly due to people in line who are ordering complicated, customized drinks. On both the cost and speed fronts, Starbucks seems to be making progress. It's always effective for firms to have a good understanding of the cost of each activity in their production and selling process, as well as to comprehend how to speed up service to the consumer.

Friday, August 21, 2009

Team-Color Bud Cans?

Anheuser Busch, now owned by international beer company Inbev, has launched a new marketing campaign featuring Bud Light cans that come in the team colors of various universities. As you might expect, this new packaging has raised the ire of many college administrators. Is Bud encouraging underage drinking with this campaign? Have they gone one step too far in their efforts to make the brand appealing to young adults? Of course, many college students drink a great deal of beer regardless of the color of the can. Is this campaign actually going to increase beer consumption on campus, or is it likely to simply convert some consumption from other brands to Bud Light? While I'm not sure I approve of the marketing campaign, I'm not convinced it is going to increase consumption overall. I do think that it may help Bud Light capture share from its rivals though.

Thursday, August 20, 2009

Blog of the Week

Thank you to the Weekly Leader for naming me their "blog of the week". The Weekly Leader site has an incredible amount of interesting information about leadership. I recommend checking it out.

Leaders Who Won't Leave

This week Brett Favre announced his return to the National Football League. Over the past few years, Favre has retired and then unretired several times. He just won't go away! Of course, many business leaders find a hard time saying goodbye as well. They remain at organizations for too long, and eventually, they become less innovative, more complacent, and too stuck in their ways.

In Favre's case, the Minnesota Vikings have awarded him a contract worth more than $10 million. They are counting on him to be something akin to the star quarterback he was in his prime, when he won multiple MVP awards and a Super Bowl. However, his skills have clearly eroded. Over the past four years, his average quarterback rating (a key measure of performance for NFL passers) is slightly below the NFL average during that period. However, people still remember his past performance, and they haven't fully come to grips with how far that performance has declined.

The same phenomenon often holds with business leaders. Put simply, we often take too long to adjust our evaluations of a manager's performance. Past success is "sticky" in the sense that it remains embedded in our minds, and we don't adjust our evaluations downward in a timely manner when performance does decline. We have to wary of this "stickiness" because it may lead us to overpay for past performance, or to hold onto managers for too long even if their recent performance does not justify it.

Wednesday, August 19, 2009

Using Pilots: What Government Can Learn From Business

As I observe the cash for clunkers program, as well as the debate about health care reform, I continue to be perplexed by the failure of our government to employ small pilots as a mechanism for experimenting with new ideas. Would a well-run private sector firm have ever conducted a national rollout of something as complex as cash-for-clunkers without first conducting a pilot?

Why use a pilot? Let me count the ways. First, you could have tested out the technology and the process for reimbursing auto dealers. Second, you could have examined the unintended consequences. Third, you could have come to a better estimate of how much volume to expect from a national rollout of the program. Fourth, you could have gathered all sorts of improvement ideas from dealers and end customers. I'm sure there are other benefits as well from a pilot. In short, a well-run business would have captured a great deal of learning from a pilot, and then decided whether to roll out nationally. If they chose to roll out, they would have a much stronger process as a result of the learning from the pilot.

Amidst all the health care reform debate, one wonders why we aren't talking about piloting some of the reform ideas on the table rather than trying to change the whole elephant all at once. A pilot may not be the right political choice, but it seems like the sensible thing to do for the good of the country.

Tuesday, August 18, 2009

Aging Customer Base

Reader's Digest has announced that it will file for bankruptcy protection. The magazine failed, in part, because of the advertising downturn in this recession and the high amount of debt on its books. However, Reader's Digest also failed because of a more significant long term decline in its business, as its customer base aged over the years. The magazine's demise provides a lesson for many firms who face a similar risk.

Companies need to be acutely aware of trends that may be leading to a substantial long term increase in the average age of its customers. It's one thing to target older consumers specifically; it's quite another to see your average customer age rise because you become less and less attractive to younger consumers who used to be part of your target market. Talbots has faced this problem in recent years, as it became less relevant to younger women. Harley Davidson must have some concern too as its average customer age has risen from the mid-30s to the late 40s.

Becoming relevant to young consumers again has its risks though, as Talbots learned a few years back. Attempts to attract younger consumers can, at times, turn off the older customers who have become a firm's core market. Thus, radical attempts to reshape a brand can backfire. Firms must be vigilant in monitoring long term trends regarding the age of their customers, so that they can gradually adapt, rather than waiting until a huge problem exists and then trying to dramatically overhaul the brand and target market.

BNET Back to School Blog

Thank you to Stacy Blackman for this first of a two-part blog post about my latest book.

Monday, August 17, 2009

My Op-Ed Published in Washington Times

In today's Washington Times, my friend Brian Gaspardo and I have published an op-ed titled, "A Mid-Summers Dream." The op-ed focuses on what we learned from Professor Larry Summers twenty years ago as Harvard undergraduates, and how those principles stack up against the economic policy choices that are being made today in Washington. We ask the question: What would Professor Summers think of Economic Adviser Summers?

CEO Compensation: Gaming the System

This article describes new academic research examining a key factor that influences executive compensation at many firms. The studies analyze how companies select their "peers" when evaluating what they should pay top executives. Typically, firms compare their compensation packages to peer companies. However, a key question remains: "Who are the relevant peers?" The new academic research shows that firms often select larger rivals, who have higher compensation, when putting together these peer comparison analyses. Therefore, firms find it easier to justify high compensation packages for top executives.

Immediately, I began to think about how effective boards and corporate governance practices should be able to monitor such analyses and force more reasonable comparisons. Weak boards and weak governance would seem more likely to allow such biased analyses to slip by. Indeed, the research shows just that... According to this same article in the Wall Street Journal:

"Companies with what experts consider weak corporate governance -- where the CEO is chairman of the board or where directors serve on multiple boards, for example -- are more likely to choose highly paid peers, the study found."

Smart Discounting

Here's a good article by Steve McKee on how to discount without doing lasting damage to your brand.

Friday, August 14, 2009

Preemptive Competitive Action

In many cases, competitors learn about a new entrant into their market, but they wait to see if the entrant gains traction before offering a competitive response. However, successful companies should think about how, when, and why they might engage in preemptive action to ward off the threat from a new entrant. Such preemptive action need not always entail price cuts, nor do they even have to cost a great deal of money.

Let's take a look at an example from the Boston radio market. Here in Boston, WEEI has reigned supreme for many years as the dominant sports radio station. Several rivals have tried to compete with them, but they have not fared well at all. However, a new entrant has emerged this summer. This station - The Sports Hub 98.5 - appears to have the potential to be a more substantial threat for a variety of reasons. WEEI has made some interesting preemptive moves. First, about one week prior to the entrant's debut, they came to an agreement to allow Boston Globe sportswriters onto WEEI for the first time in years (the station and the paper had been at odds for years). This enabled WEEI to insure that they would have a substantial infusion of on-air talent, before the entrant snapped up these famous writers. Secondly, WEEI changed its format a bit. One thing that always annoyed listeners were the very long commercial breaks. Now, they have broken up the commercials into shorter chunks - breaking more often, but for a shorter period of time. The shift is also significant for another reason. By changing the regular rhythm of their breaks, and making them shorter, they are trying to discourage listeners from switching the dial over to try out The Sports Hub.

Such preemptive strikes may or may not work in this case, but as you can see, they are low cost maneuvers that are trying to defend a competitive position. I would argue that incumbents need to think hard about using such preemptive action, while trying to avoid the price wars that can damage profit margins so badly.

Monday, August 10, 2009

Women Underrate Bosses' Opinions of Them

The Boston Globe reports on a fascinating study presented at the Academy of Management conference this week. Here's the basic finding:

"A new study shows female managers are more than three times as likely as their male counterparts to underrate their bosses' opinions of their job performance. The discrepancy increases with women older than 50, the study states. 'Women have imposed their own glass ceiling, and the question is why,' said Scott Taylor, an assistant professor at the University of New Mexico Anderson School of Management who conducted the study."

Do you have a view as to why women, particularly older women, come to these conclusions?

Friday, August 07, 2009

Cash For Clunkers

Several days ago, the administration reported on the cash for clunkers program. They indicated that many small, energy efficient cars made the list of the top-selling cars in this program. Today, however, I read a surprising story on CNN's website. Peter Valdes-Dapena writes about an analysis conducted by, which challenged the results communicated by the administration. Edmunds found that pick-up trucks such as the Chevy Silverado and Ford F-150 actually made their version of the top 10 list. How could that be? What explains the discrepancy between Edmunds' findings and the goverment's reporting? discovered that the government "subdivides models according to engine and transmission types, counting them as separate models." Edmunds counted all variations of a particular car as one automobile in their analysis. As it turns out, trucks and SUVs tend to come in many more variations. Therefore, by counting each variation as a separate vehicle, the government found that no truck or SUV made their top 10 list.

What's the lesson from this story? First and foremost, we have to be careful how we measure the outcomes of any program or initiative. One always has to question the means by which a program has been evaluated or measured. Secondly, these results demonstrate once again the law of unintended consequences. The administration hoped that the program would mean that consumers would trade in their clunkers for small, energy efficient cars. Now, what has happened is that people have improved the energy efficiency of the cars they own, but perhaps not by as much as the administration had hoped. They may have traded an old gas guzzler for a reasonably efficient truck, but it's still a truck, not a Prius! The real question is: Did the administration and the Congress anticipate the results that have been achieved? If not, why did they miss seeing these unintended consequences?

In your own companies, you always have to ask: Are we seeing unintended consequences of a particular initiative? If so, why didn't we anticipate these results? Could we have enhanced our decision-making process so as to better anticipate unintended consequences?

Thursday, August 06, 2009

Academy of Management Conference

Management professors from around the world converge on Chicago this week for the annual Academy of Management Conference. I'll be involved in two professional development workshops on Friday. I'm the organizer of a session on how academics and practitioners can collaborate effectively to develop leadership development programs for corporations. I'm also a panelist in a day-long workshop on blogging for management professors. I look forward to the discussions at both sessions.

P&G Introduces Tide Basic

The Wall Street Journal ran a front-page story about P&G's intense internal deliberations over whether to launch a less expensive, simplified version of Tide. In the end, facing pressure from consumers buying less of P&G's premium products during the recession, P&G decided to introduce Tide Basic. This debate highlights a crucial issue for many firms during this downturn. How does one cope with changing consumer habits while trying to not damage their brand equity? At the heart of this debate lies a critical question: Is the change in consumer habits temporary or perhaps more long lasting? It seems as though P&G believes they are facing a longer term challenge, driven both by the broader economy as well as the increasing pressures from higher quality private label products in many of their product categories.

Wednesday, August 05, 2009

GM: Is Market Share the Goal?

I read with some consternation the comments in today's Wall Street Journal from GM's new Board Chairman, Edward Whitacre. He explains that he wants GM to aim for being #1 in market share in the US. He clearly acknowledges that profitability is also a key goal, but I worry about the tension between those two objectives. Market share and profitability are not necessarily fully compatible. In the end, the company's goal should be to return to profitability, even if it may mean ceding the #1 market share position in the US. Too many firms become obsessed with market share, and their efforts to maximize share lead to suboptimal profits. GM needs to be wary of this trap.

Whole Foods: Becoming Healthier

I read with great interest the article in today's Wall Street Journal about Whole Foods Market. The company has announced that it is launching a healthy eating initiative. Apparently, CEO John Mackey has adopted healthier eating in his personal life and recognized the amount of unhealthy food at Whole Foods. His goal is to return the company to its natural foods origins and to focus on foods that are good for you. As a customer of Whole Foods, as well as an observer of company strategies, I applaud the strategic shift. I've noticed over the past few years that Whole Foods was not at all a store filled with healthy foods. While it did have wonderful fruits and vegetables, and plenty of organic foods, it also had many, many foods that were very high in saturated fat. This always seemed to me to conflict with the "healthy" image that Whole Foods hoped to portray. Thus, it seems to me that Whole Foods is trying to clarify its brand image and insure that its product selection reinforces that brand image. That seems like the right move for a company that faces intensifying competition, particularly from lower-priced rivals.

Tuesday, August 04, 2009

Innovation Process at Whirlpool

Here's an interesting article about the innovation process at Whirlpool. Such processes always raise a series of interesting questions. Perhaps most importantly, one must ask whether a process such as this one strikes the right balance between promoting incremental innovations versus breakthrough/radical innovations. If the process focuses too much on short term financial targets, then it will drive out breakthrough ideas. On the other hand, without the discipline of metrics and targets, management may find itself wasting a great deal of money on ideas that cannot be executed profitably. It's always a delicate balancing act. I'd like to know more about how Whirlpool deals with this tension in their innovation process.

Monday, August 03, 2009

Advice for New GM Chairman

The new GM Board of Directors meets today for the first time. Here are three pieces of advice for new GM Board Chairman, Edward Whitacre, Jr.

First, Whitacre needs to have a frank discussion with the Board, as well as senior management at GM, about the role of the Board relative to management. The Board needs to exercise good governance and control, but it can't be meddling in numerous operational decisions at GM. Whitacre needs to lead an open conversation about how they will delineate the boundaries between management versus Board responsibilities.

Second, Whitacre must discuss Board process with his team of directors. How will he run the Board meetings? What is expected of each director? What role(s) will each director play? What information will be made available to the directors, and at what time? How will Whitacre encourage candid dialogue and the expression of dissenting views?

Third, Whitacre must establish a process for evaluating CEO Fritz Henderson over the coming months. What criteria will be used to evaluate Henderson? Whitacre should establish those criteria clearly, as well as marking out clear milestones for Henderson to strive to achieve. He should also establish the timing of the CEO review process. In other words, how often will the Board formally review Henderson's performance? Given the situation at GM, an annual review seems inadequate. Establishing quarterly milestones and reviews seems more appropriate given the depth of the crisis.