Monday, October 31, 2011

Motivation: The Power of Peer Comparison

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. 

Thursday, October 27, 2011

Markkula's Three Principles at Apple

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!

Wednesday, October 26, 2011

TJX: Myths about off-price retailing

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.

Tuesday, October 25, 2011

Clutch Performer or Choker?

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. 

Monday, October 24, 2011

Learning from Improv

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. 

Friday, October 21, 2011

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

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.

Thursday, October 20, 2011

Katrina Markoff and Vosges Haut-Chocolat

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.
Katrina Markoff
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. 

Wednesday, October 19, 2011

Why Education Without Creativity Is Not Enough

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

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. 

Tuesday, October 18, 2011

Does your team trust you?

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. 

Monday, October 17, 2011

Hire for Excellence... in any field

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.  

Saturday, October 15, 2011

Struggles at the Gap

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.

Friday, October 14, 2011

How You Select the Leader Matters

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.'"  

Thursday, October 13, 2011

Cultivating serendipity: the annual reading vacation

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.

Wednesday, October 12, 2011

The Facebook - Zynga Relationship

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. 

Tuesday, October 11, 2011

Who benefits the most from Yelp?

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. 

Monday, October 10, 2011

Qwikster gone rather quickly

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.

Thursday, October 06, 2011

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

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

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.

Wednesday, October 05, 2011

Henry Stewart Talks: Making Decisions

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

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. 

Tuesday, October 04, 2011

Reasserting your Brand

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

Monday, October 03, 2011

The Challenge of Evaluating Leaders

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.