Musings about Leadership, Decision Making, and Competitive Strategy
Thursday, December 23, 2010
Creating Google's Doodles
Now, I happen to find the Google Doodles highly creative. They definitely enhance the company's brand image as an innovative, creative, and fun company. How much value do they have though? Does the company really need to put this much time and effort into something as simple as their holiday doodle? What do shareholders think of these types of uses of their resources? While I don't think there's a clear-cut answer to these questions, I do think that even firms with huge profits and plentiful resources have to be careful about how they choose to use resources. One has to at least question the value of these types of efforts. When the questioning stops, then you know that a firm has become undisciplined about its creative efforts.
Of course, the Google Doodle represents a relatively small use of resources. I'm asking these questions, drawing on this example, to really point to the much larger resource allocation decisions firms often make during times of plenty. These resource decisions involve things such as shiny new corporate offices and putting the corporate name on a sports stadium. As one CEO once told me, "If you see a company building a very expensive new corporate office and putting its name on a ballpark, you might want to think about shorting the stock."
Analysts Hit the Mall
On the one hand, I find the "feet on the street" approach by these analysts to be quite useful and interesting. They should be out there examining what's actually happening in the stores. On the other hand, the approach worries me a bit. One could easily jump to the wrong conclusions based on the unscientific observation of a few stores in selected locations. For example, do empty shelves mean that the store has some hot-selling items, or that its inventory management system has key flaws which left it stocked out of items which should be on the shelf? Do long lines suggest brisk sales or poor customer service?
I find myself thinking and analyzing as I walk through retailers as well. I'm always watching, for instance, for signs of exceptional or poor customer service. I tell my students that they can internalize many of the lessons from their business education by becoming more observant and analytical as they shop. The key, however, is to look for patterns over time and across locations, not to draw sweeping generalizations based on one instance in one particular place. Moreover, one has to consider multiple explanations for the same observed phenomenon, i.e. what precisely does an empty shelf mean?
Wednesday, December 22, 2010
The Powerful Manage Time Poorly
Heidi Grant Halvorson, blogger and author, has published a list of the top 10 psychology studies of 2010. She cites one interesting study about how we manage our time, published by Mario Weick and Ana Guinote. Halvorson points out that the new study extends our understanding of what psychologists call the "planning fallacy" - i.e., the tendency during a planning phase to under-estimate how long it will take to complete a project. Halvorson writes:
"New research by Mario Weick and Ana Guinote shows that, somewhat ironically, people in positions of power are particularly poor planners. That’s because feeling powerful tends to focus us on getting what we want, ignoring the potential obstacles that stand in our way. The future plans of powerful people often involve “best-case scenarios,” which lead to far shorter time estimates than more realistic plans that take into account what might go wrong."
I find the study particularly fascinating, given that the planning fallacy seems most evident, and most problematic, to me in the case of corporate acquisitions and large public works projects. In acquisitions, executives often under-estimate how long it will take to integrate two firms. In public works projects, politicians almost always get it wrong on both schedule and budget. What do these two situations have in common? You guessed it - the decision-makers are very powerful folks!
Tuesday, December 21, 2010
Interesting New Research on Pay For Performance
First, the authors argue that people naturally compare themselves to others in the workplace, and perceived inequity through wage comparison can have negative effects. Second, they note that overconfidence bias affects many individuals, and that may exacerbate perceived inequity. Moreover, people may choose jobs for which they lack the appropriate skills due to overconfidence bias. Finally, psychological theory suggests that individuals tend to engage in more risk-taking behavior if they perceive themselves to be in a "loss position" as opposed to a "gain position." Thus, the authors argue that if some outside factor has made it quite difficult for them to reach their personal income target that they have set for themselves (put them in a loss frame relative to their original goals) , they may start taking excessive risks in an effort to recoup their losses.
What should be done about these biases? Among other things, the authors argue for more use of team-based compensation systems. Of course, team-based systems have their own handicap, namely that we have the potential for free-riding to occur. In the end, I don't think we can ever find the perfect compensation system, but we do have to have a thorough understanding of the limitations and unintended consequences of our compensation systems, which this paper does help us comprehend. Beyond that, we have to consider the non-financial elements of motivation that are critical to having a productive workforce.
The 50 Best Business Professor Blogs
Monday, December 20, 2010
Michael Dell on Where to Launch a New Firm
The Slow Dismantling of Sara Lee
Friday, December 17, 2010
Principles for Effective Observation
Principles for Effective Observation
Try to wipe away preconceived notions before starting your observations
Begin with a strong expectation of what you expect to see
Collect observations under different circumstances and from varied perspectives
Draw major conclusions from a very small and/or biased sample of observations
Seek informants wisely
Rely on the lone voice of a so-called expert
Take good notes, including quotes from key conversations, and collect important artifacts
Try to commit everything strictly to memory
Engage in active listening
Ask leading questions
Keep systematic track of observations that surprise you or contradict your prior beliefs
Seek and record data primarily to prove a pre-existing hypothesis
Thursday, December 16, 2010
When New Execs Disappear
What can new executives do to avoid falling into this trap, where their people lose faith because they feel the new leader has disappeared? First, one must schedule informal conversation time; in other words, allot time in your schedule for walking around a bit. Second, remind your administrative assistant not to become too overprotective about your calendar. Third, use email to solicit and invite ideas, input, and feedback, as well as to provide frequent updates on key initiatives. Fourth, make sure you stay in touch throughout your travels. Finally, hold "office hours" like a professor, where folks can just drop in without an appointment.
Wednesday, December 15, 2010
Complaints about Google
The spat represents a classic example of the conflicts that emerge from vertical integration. Hmmm... you might wonder how I could use the term vertical integration to describe a "virtual" firm such as Google, that has no manufacturing plants or brick-and-mortar retail stores. Well, vertical integration involves any strategy in which a firm chooses to bring multiple steps of the value chain in-house. In this case, Google has in some sense "vertically integrated" by launching its own local sites, which it then "markets and distributes" to the world through its search business. As a result, Google now finds itself competing with its own customers, and when that occurs, accusations of favoritism are not all that rare. Many vertically integrated firms have to navigate these types of conflicts; some do it more effectively than others. It will be interesting to see how Google handles this situation.
Tuesday, December 14, 2010
Does Economic Growth Increase Life Satisfaction?
The question of whether economic growth increases life satisfaction has been the subject of debate in some circles for many years. In fact, the issue came to the forefront back in the early 1970s, when Richard Easterlin published a paper arguing that no relationship existed between growth and life satisfaction. The finding became known as the Easterlin paradox. He has published more recent papers re-emphasizing this point. Justin Wolfers, writing on the Freakonomics blog over at the New York Times, offers a strong and very persuasive rebuttal. Here's an excerpt from Wolfers' column:
Easterlin’s Paradox is a non-finding. His paradox simply describes the failure of some researchers (not us!) to isolate a clear relationship between GDP and life satisfaction. But you should never confuse absence of evidence with evidence of absence. Easterlin’s mistake is to conclude that when a correlation is statistically insignificant, it must be zero. But if you put together a dataset with only a few countries in it — or in Easterlin’s analysis, take a dataset with lots of countries, but throw away a bunch of it, and discard inconvenient observations — then you’ll typically find statistically insignificant results. This is even more problematic when you employ statistical techniques that don’t extract all of the information from your data. Think about it this way: if you flip a coin three times, and it comes up heads all three times, you still don’t have much reason to think that the coin is biased. But it would be silly to say, “there’s no compelling evidence that the coin is biased, so it must be fair.” Yet that’s Easterlin’s logic.
Wolfers makes a compelling case. Moreover, he ends his column by displaying a graph from data generated by the Gallup World Poll. This chart, shown at the top of this blog post, looks at levels of satisfaction and GDP, as opposed to rates of change/growth - which are the measures used in the Easterlin studies. As Wolfers points out, "If rich countries are happier countries, this begs the question: How did they get that way? We think it’s because as their economies developed, their people got more satisfied. While we don’t have centuries’ worth of well-being data to test our conjecture, it’s hard to think of a compelling alternative."
Surowiecki on Groupon
Friday, December 10, 2010
The Perfect Brand Name
What I find most fascinating about the Lexicon process is the fact that they often have multiple small teams working in parallel on a project, rather than getting a large team together in a room to brainstorm. Here's an excerpt from the Fast Company article:
Notice what's missing from the Lexicon process: the part when everyone sits around a conference table, staring at the toothbrush and brainstorming names together. ("Hey, how about ToofBrutch -- the URL is available!") Instead, Lexicon's leaders often create three teams of two, with each group pursuing a different angle. Some of the teams, blind to the client and the product, chase analogies from related domains. For instance, in naming Levi's new Curve ID jeans, which offer different fits for different body types, the excursion team dug into references on surveying and engineering.
Here are a couple of lessons that I draw from this example. First, too many firms form very large, unwieldy teams when trying to perform creative work. Yes, adding members adds to the cognitive diversity, but the size of the group eventually gets too large for the dialogue to be productive. Second, the parallel work of multiple subgroups may seem inefficient, but in fact, it offers a wonderful mechanism for stimulating divergent thinking. Finally, the use of analogies from different domains opens up people's minds to new, creative possibilities. While reasoning by analogy can be dangerous at times, in this case, the analogies are useful because they aren't being used simply to imitate what has occurred in some other domain. Instead, the analogies provide fuel for creative thinking, for the invention of a new idea based on examining what has happened in another domain.
Thursday, December 09, 2010
How Budgets Distort Spending Behavior
Not only does information technology spending across the federal government jump by a factor of seven in the last week of the fiscal year, but those end-of-year projects are much more likely to earn lower quality scores, based on cost overruns, delays, and management evaluations. The authors recommend allowing the rollover of unused funds.
Businesses and other organizations should be cautious about this same phenomenon. Draining unused budgets at year-end is a universal phenomenon, unless other controls are put in place (including policies such as the rollover of unused funds).
The Grinch Teaches Economics
Wednesday, December 08, 2010
Southwest Expands and Slips
Tuesday, December 07, 2010
Chasing Stars: Should You Hire Away Stars From Your Rivals?
The Myth of Talent and the Portability of Performance." Groysberg's work over the years has examined what occurs when "star performers" are hired away by another firm. His work shows that, in many cases, those stars experience a performance decline in their new organization. Why? Many reasons exist for that drop-off. Groysberg focuses on the notion that, often, exceptional performance is a function of not just the individual's capability, but also the support structure in their previous organization. What talent surrounded them? What systems supported them? What culture enabled their high performance?
Other reasons exist for this drop-off as well. For instance, sometimes star performers fall in love with the way they did their work at their prior organization so much so that they try to replicate that approach exactly in their new firm. They don't recognize the need to adapt certain practices and approaches to the new culture and context.
One might jump to the conclusion that home-grown talent is the way to go, given Groysberg's findings. One note of caution though... these same reasons for star performer drop-off can pertain to internal promotions as well. People can move from one team or one unit of an organization to another and experience the same type of decline for the same reasons cited above.
Friday, December 03, 2010
Do You Need an MBA to Become a CEO?
1. Less than 50% of those CEOs had earned MBA degrees.
2. Only 9 of the top 25 highest-paid CEOs received MBAs from schools ranked in the top 10 by Business Week in 2010.
3. 7 of the top 25 received MBAs from schools ranked outside the top 30 by Business Week, or they did not receive an MBA at all.
Am I surprised? Not really. We've always known that many of the most successful CEOs lack MBAs. Jack Welch and Andy Grove had PhDs. Steve Jobs and Bill Gates dropped out of college.
Having said that, what else might explain the findings, particularly given the growth in MBA programs over the past few decades? First, the magazine does note that many of today's CEOs went to school during a time when the MBA degree was not as widespread as it is today. Perhaps the percentage of chief executives with MBAs will rise if we conduct the analysis ten years from now.
Second, Business Week points to another interesting study by two scholars that highlights the value, or lack thereof, associated with an MBA. Professors Aron Gottesman and Matthew More of Pace University's Lubin School of Business published a study in the Journal of Applied Finance in which they report no relationship between company performance and a CEO's educational background. The authors explain that executives who have not earned degrees from top schools may make up for that by simply outworking others on their way to the top. Gottesman also explains, "Business schools tend to focus on technical skills, while success at the executive level is a function of broader, more subtle skills such as communication skills, interpersonal skills, and the ability to make bold decisions quickly."
Thursday, December 02, 2010
Introvert vs. Extravert Leaders
A new study finds that extraverted leaders actually can be a liability for a company's performance, especially if the followers are extraverts, too. In short, new ideas can't blossom into profitable projects if everyone in the room is contributing ideas, and the leader is too busy being outgoing to listen to or act upon them.
An introverted leader, on the other hand, is more likely to listen to and process the ideas of an eager team. But if an introverted leader is managing a bunch of passive followers, then a staff meeting may start to resemble a Quaker meeting: lots of contemplation, but hardly any talk. To that end, a team of passive followers benefits from an extraverted leader.
The authors present interesting data from a study of managers and employees at a large national pizza delivery chain. Their work will be published in the Academy of Management Journal in 2011. I find the work fascinating, though I think one needs to consider whether the appropriateness of extraverted vs. introverted leaders may not only be dependent on the profile of the followers, but also on the external context of the firm as well as the firm's competitive strategy. For instance, if a start-up enters a highly relationship-oriented business, where the founder/CEO must be highly engaged in selling to potential new customers, it may be difficult to achieve high performance with an introverted leader, regardless of who the followers are. Simply sending an extraverted follower to close the deal with a key client may not be effective at all. Those situations may require the leader to make the sale. In sum, the study is fascinating, but I do wonder about the contextual factors that may impact the extent to which we can generalize the findings.
Wednesday, December 01, 2010
Neglecting the Core
I find, however, that an equally challenging issue emerges for many companies with regard to what I call "neglect of the core." In this circumstance, so much attention gets paid to the promising, but not yet profitable, new venture that the core business fails to get the attention and resources it needs to continue to thrive. Cross-subsidization from the "cash cow" helps the new venture, but it stifles innovation efforts at the core. It also becomes harder, as a result, to attract young talent to the core. Over time, the core business falters, and it brings down the entire organization.