Friday, December 23, 2011

Leaders, Go the Back of the Line!

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

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

Thursday, December 22, 2011

Corporate Governance and a CEO Search at Avon

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

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

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

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

Wednesday, December 21, 2011

Preventing Analysis Paralysis

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

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

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

Monday, December 19, 2011

You Gotta Believe - Leaders are Made vs. Born

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

Knowing Your Customer - By Channel!

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

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

Friday, December 16, 2011

Lego Tries to Appeal to Girls

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

Thursday, December 15, 2011

Hasbro Faces Challenging Times in Board Game Business

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

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

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

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Wednesday, December 14, 2011

Starbucks appoints 29 year old board member

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

Tuesday, December 13, 2011

Amazon's Public Relations Problem

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

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

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

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

Friday, December 09, 2011

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

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

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

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

Thursday, December 08, 2011

Anxious Negotiators Lose Big Time!

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

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

Wednesday, December 07, 2011

Decision Quicksand

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

Tuesday, December 06, 2011

MITX E-Learning Award

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

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

Under Armour and Target Markets

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

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

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

Monday, December 05, 2011

Another Major Downside to Large CEO Severance Packages

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

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

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

Friday, December 02, 2011

How Twitter Generates Revenue

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

Thursday, December 01, 2011

Social Makeover at Electronic Arts

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

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

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