Friday, March 28, 2014

Lessons on the Anniversary of the Three Mile Island Accident

Today marks the anniversary of the infamous Three Mile Island nuclear accident.  It occurred on March 28, 1979.  Given the date, I thought that I would share a few lessons from that catastrophic failure.  Here are a couple short excerpts from a book chapter that I wrote several years ago about catastrophic failures. 

Research on catastrophic failures traces its roots to a groundbreaking study of the Three Mile Island nuclear power plant accident and the development of normal accident theory.  In his 1984 book, Normal Accidents, Charles Perrow examined the structural characteristics of organizational systems that involve high-risk technologies such as nuclear power.  Perrow’s conceptual framework classifies all high-risk systems along two dimensions: interactive complexity and coupling.  Interactions within a system may be simple/linear or complex/nonlinear.  Coupling may be either loose or tight.  Perrow argues that systems with high levels of interactive complexity and tight coupling are especially vulnerable to catastrophic failures.  In fact, he argues that accidents are inevitable in these situations; certain failures constitute “normal accidents.”  Perrow concludes that, “Normal accidents emerge from the characteristics of the systems themselves.  They cannot be prevented.” 

Later in the chapter, I talk about more recent research that has examined "high reliability organizations" - that is, entities that operate complex systems with a high degree of safety.  

 As researchers began to gain a better understanding of why catastrophic failures occurred, a group of scholars started to work concurrently to study complex organizations that have operated with very, very few major safety incidents for many years.   Scholars coined the term “high reliability organizations” (HRO) to describe these entities... They have studied organizations such as aircraft carriers and air traffic control centers.   The error rates for these organizations are remarkably low, given the hazardous conditions in which they operate... In 2001, after roughly a decade of HRO research, Weick and Sutcliffe wrote a book, titled Managing the Unexpected, in which they tried to synthesize and integrate what they and others such as Karlene Roberts had learned about these complex organizations that performed very reliably in hazardous conditions.  They coined the term mindfulness to describe the simultaneous existence of five key characteristics of HROs.   

What are these five key characteristics of high reliability organizations?
  1. Preoccupation with failure - "They did not dismiss small deviations, or settle on narrow, localized explanations of these problems. Instead, they treated each small failure as a potential indication of a much larger problem." 
  2. A reluctance to simplify interpretations - "HROs try to maintain a healthy diversity of perspectives within the organization, and they constantly test their simplified models of reality."
  3. Sensitivity to operations. - "They do not allow the emphasis on the big picture – strategic plans, vision statements, etc. – to minimize the importance of front-line operations, where the real work gets done."
  4. Commitment to resilience - "They develop mechanisms for catching and recovery from small failures before they cascade through multiple subsystems of an organization." 
  5. Deference to expertise -  "HROs ensure that expertise is tapped into at all levels of the organization. They push decision-making authority down, and they migrate decisions in real-time to the location in the organization where the most relevant expertise lies."

Thursday, March 27, 2014

Entering Foreign Markets: Coping with Political Instability

The events in Ukraine have reminded us of the risks that firms face as they expand internationally.   Political instability can take a significant toll on a firm's performance.  More importantly, it can create unsafe conditions for employees and lead to high levels of stress and anxiety.   As firms consider the lessons from the events of the past month, they ought to:

1.  Revisit their entry strategies as they move into other geographic regions.   Should they enter via wholly owned subsidiary (if legally possible), or should they enter via joint venture or franchising?  Retailers and restaurant chains may choose franchising, for instance, not simply because it enables a firm to expand faster.  Franchising also may be advantageous because it minimizes the capital that you put at risk in a potentially unstable environment.  Moreover, franchising, alliances, and joint ventures enable a firm to access the specific local knowledge of people who understand the region, culture, politics, etc.  

2.  Reconsider the reliance that they may have on ex-pats.   Should the organization recruit more local citizens, so as to gain more knowledge of the region and so as to build relationships with local officials?   It's a tricky balancing act.   If you use fewer ex-pats, you may be relying initially on more inexperienced people without deep knowledge of the company operations and culture.   However, in a politically unstable situation, having locals involved could be advantageous.

3.  Reexamine the risk assessment that they have done with regard to each country in which they operate.  Does the organization have an accurate, updated assessment of the risk of political instability?  Is there someone monitoring geopolitical events closely?   Are these risk assessments factoring into the capital investment decisions that they company is making?  

Wednesday, March 26, 2014

Three Classic Team Design Mistakes

When we create teams in the workplace, we often find ourselves frustrated with the results.  We anticipate that the whole will be greater than the sum of the parts, yet the team does not achieve this potential.  When a team falters, we should examine several potential causes:  bad leadership, poor team design, flawed team process, and a climate in which people not feel safe speaking up.  Leadership, design, process, and climate are key enablers of high team performance.  

Let's take a look at team design for a moment.  What are some of the classic design mistakes that organizations make?  

1.  Leaders build teams that are too big.   In this story in today's Wall Street Journal, Apple engineer Greg Christie describes how the original iPhone development team was "shockingly small."   In this great blog post by Stanford Professor Bob Sutton, he explains that the optimal number for most teams is seven, plus or minus two.   In my latest book, I talk about Intuit's "two-pizza" rule - build teams that can be fed with two large pizzas.  The "two-pizza" rule fits pretty nicely with Sutton's guidance, which is based on research by scholars such as the late Richard Hackman. 

2.  Leaders create teams with "invisible" homogeneity.  Many leaders focus on gender, racial, and ethnic diversity when building a team.  Can a "diverse" team along these dimensions still be considered quite homogenous along other important dimensions?  YES!   Many teams with "visible" diversity have "invisible" homogeneity.  In other words, many members come from the same educational institutions, have the same functional backgrounds, and have worked in the same company or industry for years.    Homogeneity along these teams mean that the team members think alike in many ways and do not bring fresh alternative perspectives to the table. 

3.  Leaders build teams in which members do not have a clear commitment to making the team's work a high priority.  In many cases, people serve on multiple committees or task forces at work.  They are serving on a team in their "spare time" at work.   The team's task is not a focus of their attention.  If too many members fall into this camp, the result will not be successful.  Leaders need to think carefully about how team members are selected, as well as how many teams a particular individual is serving on simultaneously.   In an odd way, the star performers in an organization can become the problem here.  They are often assigned to many teams and task forces because they are so smart and effective.  However, they can easily find themselves spread too thin.  As such, they become a liability to certain teams on which they serve, because they cannot provide the group enough attention and effort. 

Tuesday, March 25, 2014

When Should You Respond to a Negative Review or Online Complaint?

A customer has had a negative experience.   He or she takes to social media to register a complaint.  Does your company have a fast response capability?   How do you decide when to respond to a poor review?   If you think that you move quickly, check out this amazing story from a recent Fast Company article by Stephanie Vozza:

While dining at the Mexican fast food chain Boloco, a customer sent out a tweet complaining that the music was too loud. Boloco, which operates 22 locations in New England, prides itself on responding to all feedback within 24 hours. This time, they set a record. “We saw the tweet right away, called the restaurant and told the staff to turn down the music,” says Allison Doyle, director of marketing for Boloco. “We also described what the woman looked like from her Twitter picture and had the staff deliver a cookie to her. Then we retweeted her tweet, adding the word ‘done.’ She was floored.”

As the article rightly points out, not every complaint or negative review warrants an immediate response.  Sometimes, people are simply expressing a preference, and that person may not be in your target market.   Most customers in your target market may, in fact, like a particular attribute of your product or service that is the subject of a negative comment.  You do not want to overreact in that case.   Some situations may require a bit more time to study and evaluate.   In those instances, you may wish to let the customer know that you are investigating, without offering a particular remedy.   You need to do your due diligence first before offering a knee-jerk reaction via social media to a negative comment.  

Interviewed by Robert Morris

Robert Morris is a prolific business book reviewer and the author of a popular management blog.  He interviewed me recently about my background, the books that I have written, and my thoughts about leadership.   Here is the link to that interview. 

Monday, March 24, 2014

Choosing Our Leaders Wisely

At Bryant University, our Hassenfeld Institute for Public Leadership focuses on providing leadership development opportunities for individuals, teams, and organizations in the public and non-profit sectors.   Gary Sasse serves as the Director of the Hassenfeld Institute.  In yesterday's Providence Journal, we authored a column pertaining to the mistakes organizations (and voters) often make when choosing leaders.   Here is the link the column.

Friday, March 21, 2014

What do you want to learn next?

Adam Bryant of the New York Times recently interviewed Jeff Lawson, CEO of Twilio.  Here's a great exchange from that interview:

How do you hire?
I look for a certain spark. It’s almost like having a chip on their shoulder — there’s something they want to get done in life, and they’ve got something to prove. If I can help them do that, they will be massively contributing to the company. That’s where you get the passion and drive and energy to do great things.  One of my favorite questions is, “What do you want to learn next?” Another way to ask that is, “What are the properties of the next role you want?” Some people say, “I want to join a start-up,” or they give some attributes of a company. Then I’ll say, “What I’m really trying to understand is, what is it that you are going to find interesting?” I’m trying to find if they have a clear sense of what makes them tick.

What do you want to learn next?  Now that is a terrific question.  We want people who are eager to develop and improve.  We want people in our organizations who have not, or are less likely to, grow stale in their development.  This question focuses them not on the company that they are joining, or the specific title that they will hold. Instead, it focuses  them on how they will grow by taking on a new challenge.  The answer undoubtedly tells the interviewer a great deal about the person's drive and capacity to grow and adapt over time. 

Planet Fitness Does it Again!

Planet Fitness does it again. Here's a new TV commercial from the company.   As you can see, they continue to make it clear that they have no intention of being all things to all people (unlike many of their competitors).   This ad makes it clear who is NOT their target customer.  In so doing, they make it clear who they are trying to serve successfully. 

Thursday, March 20, 2014

Social Media Strategy

My former colleague MikoĊ‚aj Jan Piskorski of Harvard Business School has written a new book titled "A Social Strategy: How We Profit from Social Media. In this interview excerpt from, Piskorski offers two important pieces of advice for companies as they engage customers via social media platforms. I highly recommend reading the book.

Brands often are too eager to inject themselves into conversations about their product. Despite a brand’s best efforts, most consumers are not going to identify with or trust a brand the way they would a friend. To alleviate this problem I recommend that companies focus on facilitating interactions between their customers.

The second issue is that companies often engage socially without clear business goals. Instead, they focus on getting the highest number of likes or followers, or getting highest rates of engagement. At the end of the day, none of these metrics matter if they do not lead to higher sales or lower costs. Companies that have mastered the social space start with their business objectives and ask: “What is the source of my competitive advantage, and how can I use social platforms to strengthen it further?” Without asking this question first, many efforts in this sphere end up having no business results, even if they create a lot of engagement with their customers.

Wednesday, March 19, 2014

The Braintrust at Pixar

In this Fast Company excerpt from his book, Creativity, Inc., Pixar President Ed Catmull describes the company's "Braintrust."   Catmull explains the concept of the Braintrust: 

"The Braintrust meets every few months or so to assess each movie we're making. Its premise is simple: Put smart, passionate people in a room together, charge them with identifying and solving problems, and encourage them to be candid. The Braintrust is not foolproof, but when we get it right, the results are phenomenal."

The Braintrust includes some of the best and brightest folks at Pixar.   The core value at the heart of this feedback process is candor.  As Catmull explains, "Believe me, you don't want to be at a company where there is more candor in the hallways than in the rooms where fundamental ideas or policy are being hashed out."

What's interesting about the Braintrust, however, is that these people do not seek to dictate to a movie director what to do.    They share ideas with the director so as to "bring true causes of problems to the surface."   They do not advocate particular solutions.   Their feedback is designed to stimulate the director's thinking, and perhaps to encourage him or her to think differently about an aspect of the film.   The director must then take that feedback and find a way to address to the issues that have been raised. 

Too often, I think that people who are offering feedback and criticism do not follow this path.  They advocate their preferred solution.   Recipients of the feedback become defensive, and the entire conversation takes on a very negative tone.  The Pixar process tries to avoid that fate.

Monday, March 17, 2014

Do CEOs Matter More Today Than In Decades Past?

Do CEOs matter more today than in decades past?  A new paper by Timothy Quigley and Donald Hambrick suggests that they do.  According to this HBR blog post by Walter Frick, "The new paper confirms a pattern discovered by previous research: the CEO effect seems to be increasing over time. In other words, the CEO of a company is a more significant predictor of that company’s performance than at any time since the question has been measured, starting in the mid-twentieth century."  The scholars argue that perhaps the big strategic choices made by CEOs matter more as industries, and the economy as a whole, have become much more dynamic.   However, the paper cannot identify the main cause of this enhanced CEO effect, nor can it rule out any particular explanations.  It simply has documented this substantial increase in CEO impact. 


Friday, March 14, 2014

Price Hike for Amazon Prime

Amazon announced a $20 price increase for its Amazon Prime service.  Does it make sense?  It appears so, based on a quick-and-dirty financial analysis.   First, analysts estimate that 20 million people subscribe to Amazon Prime at the present time.  If they all pay the $20 price increase, that would generate $400 million in increased revenue.  The key question is:  How many people will drop their Amazon Prime membership because of the price increase?  Does the additional revenue from the increase more than offset any lost revenue from cancelled memberships?  

Here's the simple math.  The increase in revenue from the price increase equals $20 * (20 million subscribers - the number of cancelled memberships).  The lost revenue from cancelled subscriptions equals $79 * the number of cancelled memberships.  What's the break-even point here?  If the company has less than 4 million cancelled memberships, then the price increase is a net revenue generator.  Do we think Amazon Prime will lose 20% of its members due to this price increase?  That does not seem likely.   Analysts told the Wall Street Journal that they expect no more than 10% of Prime members to drop their subscriptions.  

One final note - Amazon probably is losing money on some Prime memberships, because those folks take frequent advantage of free delivery.  Those heavy Prime users are not likely to cancel.  They are getting a great deal.   Who is likely to drop their Prime memberships?  That would be the folks who are probably not using the free delivery feature very often.  In other words, the lightest shoppers are the ones who may be most likely to cancel.   That's good news and bad news for Amazon.  It's great to retain the loyal customers who buy tons of stuff from Amazon.   However, those folks also incur a great deal of delivery expenses.   That leads to an intriguing question:  At $99, does Amazon still lose money on a substantial number of Prime memberships due to heavy delivery expenses?  It would be interesting to know!

Thursday, March 13, 2014

Effective Crisis Management

Given the unfolding mess at General Motors, you might want to take a look at this excellent video from Kellogg Professor Daniel Diermeier.   In this clip, he talks about building an organization's crisis management capabilities.

Video highlight: Diermeier on Crisis & Reputation Management

Wednesday, March 12, 2014

Chasing Stars: Lessons from NFL Free Agency

In New England this morning, the gnashing of teeth and cries of agony can be heard in the streets.  The Patriots have let another star player leave via free agency.   Why can't the Patriots just pay the money!?!  Belichick and Kraft are too cheap.   You hear all these complaints.   However, several NFL writers have commented that signing high-priced free agents has been fool's gold for the most part in past years.  The Patriots fans do not want to hear that evidence. They want stars. 

Is there a lesson here for all business leaders?  Boris Groysberg has done fascinating research on the mobility of star performers.   He began his work by focusing on superstar Wall Street analysts.  He found that many firms pay top dollar to recruit away superstar analysts from competing firms.  In the end, many of those superstars experience a performance decline at their new firm.  Why?  Groysberg argues that we underestimate the extent to which that high performance was driven by the team around that superstar, the supporting organizational context, etc.   In other words, we attribute too much of their high performance to their internal abilities.  We underestimate external factors.  We also discount the difficulty of adapting to a new organizational system and structure.  Groysberg has argued that the same trap of chasing stars occurs in many fields.

Several years ago, he studied punters and wide receivers in the NFL.   He found that wide receivers experienced a decline in performance when they switched teams (above and beyond the normal decline associated with age).  Punters, on the other hand, did not suffer a performance decrease after switching teams. What's going on?  Groysberg and his colleagues argued that some positions involve much more interaction with fellow players.   A wide receiver's performance depends on the knowledge of a particular offensive system, experience within that system, time spent working with a particular quarterback, etc.  A punter's performance is not dependent on those around him to nearly the same degree.  Now think about other NFL positions.  Many of them are much more like the wide receiver than the punter.  Therefore, many players often have a hard time sustaining their high performance after switching teams via free agency.  Still, some positions may have less dependence on interaction with teammates, knowledge of a particular system, etc.  Coaches and general managers should be thinking about the "portability" of each position.

For business leaders, the question is:  Which stars in your firm have talent and skills that are more portable than others?  Think carefully about the work that these stars do.  Think about their position/role, not just their individual ability.  In which cases will one experience a performance decline when switching organizations?  For what types of positions will people be able to maintain high performance in a new system and with new colleagues? 

Tuesday, March 11, 2014

Saying No at Work

How to Encourage Persistence

Wharton Professor Rom Y. Schrift and Georgia State Professor Jeffrey R. Parker have written a new paper titled, "Staying the Course: The Option of Doing Nothing and Its Impact on on Postchoice Persistence."   They discovered that people are more likely to persist in pursuit of their objectives if they originally had an option of doing nothing.  In other words, imagine that someone had the option of choosing a membership at Gym A or Gym B.   Now imagine that they were explicitly presented the option of not joining any gym at all.   In the case where this third option of doing nothing is explicitly presented to them, people are more likely to stick to their original goals.  Parker explains, "The intuition is we don’t want to give them the option.  ‘Not doing whatever’ may sound like giving up. But what people decide for themselves is, ‘I didn’t have to do it and I decided to do it, so I’ll stick with it for a longer period of time.'"  The authors explain their conclusions in the paper:

“Sticking to a diet, completing drug regimens, regularly visiting the gym and working through personal or professional challenges are all instances in which persisting is beneficial and important,” the authors write. “Using the right incentive structures, one can drastically reduce or eliminate the tendency of opting out, while maintaining the positive impact that affording no-choice options has on persistence.”

"Annie" Parody - It's a Freelance Life!

Monday, March 10, 2014

Does Owning a Corporate Jet Make Sense?

The company owns a corporate jet to fly the CEO and other top executives to meetings around the globe.  Does it make sense financially, or is it one of those corporate perks that should be abolished?  New research by NYU Professor David Yermack suggests that shareholders should think twice about investing in a company with its own jet, or even worse, its own fleet of jets.   Yermack's latest study, published in the Journal of Financial Economics shows that, "Average shareholder returns underperform market benchmarks by more than 4% annually, a severe gap far exceeding the costs of resources consumed."   4% is a significant number.   What's going on there?  Of course, many explanations exist for why this underperformance might exist.   One interesting tidbit in the study... companies with jets also tend to have CEOs with long-distance golf club memberships.   I'll let my readers noodle over that interesting finding for a moment. 

Friday, March 07, 2014

Briefing Your People Effectively

How do you brief your people when you make a decision?  Do you communicate your decision rationale effectively?   Are you helping them identify potholes that they may encounter in the road ahead?  Are you checking to see if they understand what their roles and responsibilities are?  To help you brief your people more effectively, I advocate a methodology described by Gary Klein, Karl Weick, and Kathleen Sutcliffe.  It's a simple five-step process:

1.  Situation:  Here's what I think we face.
2.  Task: Here's what I think we should do.
3.  Intent:  Here's why I think that is what we should do.
4.  Concern:  Here's what we should keep our eye on, because if that changes, we are in a whole new situation.
5.  Calibrate:  Now talk to me.  Tell me if you don't understand, cannot do it, or see something I do not. 

Thursday, March 06, 2014

Abercrombie to Reposition Hollister Stores: Will it Work?

The Wall Street Journal reports today that Abercrombie and Fitch plans to reposition its Hollister chain of apparel stores.    Abercrombie has been struggling lately, after many years of success.   The flagship brand has seen a substantial drop in sales, and Hollister has experienced problems as well.  Hollister same stores sales decreased by 14% last year.  Now Abercrombie apparently plans to reposition Hollister as a "fast fashion" brand in the mold of Zara and Forever 21.  Fast fashion retailers do not place big bets on bold new cutting edge fashions.  Instead, they assess fashion trends, and they move very quickly to "follow" the hottest apparel industry developments.   Fast fashion firms do not place huge bets.  Instead, they build an agile supply chain, and as a result, they are able to cut their losses quickly on fashion misses and move to pursue trends that are more promising.  

Can Abercrombie reposition Hollister successfully?  They might be able to do so, but it will require rethinking the ENTIRE VALUE CHAIN for the company.   They will need to rethink how store operations work, the structure of the supply chain, the merchandising strategy, the way they market and price their products, etc.   Changing only one, or even just a few, of these items will not enable a successful transition to a "fast fashion" model.   Companies that have succeeded in fast fashion have rethought the entire way of doing business in the apparel retailing industry.  Abercrombie will have to do the same. 

Tuesday, March 04, 2014

Does Busywork Actually Make Us Happier?

Rachel Emma Silverman of the Wall Street Journal reported this week on a new study by University of California-Irvine's Gloria Mark and co-authors from Microsoft Research.   Mark and her colleagues tracked 32 workers at Microsoft for more than 1,500 hours.  They found that people's moods brightened when they performed busywork (i.e. rote activities), and they were less happy when they tackled challenging tasks.   The article quotes Mark:  “Focus involves a kind of stress and people aren’t generally happy when they are stressed,” says Dr. Mark. By contrast, “rote work is effortless, so you can get gratification for getting things done.”

What do I make of these findings?  I think we have to take them with a large grain of salt.  Years of research on intrinsic motivation shows that people value work in which:
  • they have autonomy
  • they feel that they are making a contribution to a greater goal
  • they find challenging and rewarding
  • there is some variety in the tasks being performed over time
What accounts for the difference in the findings?  Well, if you evaluate people in the moment, I think you get different answers.  In other words, the Microsoft study appears to examine people who are performing challenging work, and then from time to time, they perform some busywork.   Of course, the busywork may be a great relief, a nice break from their tough duties.  However, that's not the same as saying busywork is always mood brightening.  If all you did was rote work, you might not be so happy.   So, busywork can lighten the mood, but perhaps only when it comes in small doses amidst a stream of work that has the characteristics I listed above in bullet points.