Tuesday, September 30, 2014

Think Your Idea is Great? Go for a Walk!

University of Texas Professor Art Markman has a great article on idea generation over at Fast Company's website this week.   Markman describes the "high" that people often feel at the end of an idea generation session.   He argues that we should be careful about that positive emotional rush that we feel in that moment.  Markman explains:

Unfortunately, some amount of the strong positive feeling you are having in that moment is a result of the idea generation process itself. Completing a goal makes you feel good, and coming up with a potential solution to a hard problem makes you feel good. In addition, positive social interactions make you feel good, and group idea generation fits that bill. Finally, research demonstrates that fast thinking makes you feel good. When the ideas are flying around the room, there is a lot of fast thinking going on.So, the entire setting of idea generation creates lots of positive feeling. Then, everyone looks around the room for the source of that feeling. And they settle on the idea you just created as a team. In that moment, that idea is not just good, it is the best idea ever. 

 How do you avoid a rush to judgment?  How can you protect yourself against falling head over heels for your idea a bit too quickly?  Markman argues that it's a good idea to step back for a bit.  Go for a walk, he says.  Take some time to go do something else, and then return to your idea.  See how it looks after you have slept on it.  Don't let yourself get caught up in the emotions of the idea generation process itself.  That seems like terrific advice to me!

Monday, September 29, 2014

Trustworthy Leaders

What do trustworthy leaders do? How do they build trust?  Stanford's Roderick Kramer has been studying this topic for many years.  Here are a few of his key findings, described in more depth in this article from the Stanford Business School research website:

1. They project confidence, competence, and benevolence.  In other words, they have the experience and the capabilities required to do the job.  Moreover, they are trying to do what's best for the firm as a whole rather than pursuing their own self-interest at the expense of others.

2.  They define roles and responsibilities clearly.   Kramer says, "“When people know what they’re supposed to do, and they know what other people are supposed to do, then they trust that system of roles to work.”

3.  They share the credit and take the blame.   Taking responsibility proves to be very important.  Trustworthy leaders do not throw others under the bus.  They also talk in terms of "we" when discussing major accomplishments, rather than "I did this" or "I achieved that."

4.  They tell it straight, particularly when a crisis occurs. They do not try to cover things up.  Instead, they acknowledge mistakes, and they commit to preventing problems from happening again.  

Wednesday, September 24, 2014

The Downside of Strategy Agility

Words and concepts such as "strategic agility" or "adaptive strategy" have become all the rage in recent years.  People argue that strategies must be dynamic given the turbulent world in which firms must compete.  A recent article on Kellogg Insights offers a word of caution for those focused on adaptation and dynamism in their competitive strategy.  The article focuses on the research of Kellogg Professor Tom Hubbard, Paul Leinwand - a senior partner with Strategy&, and Cesare Mainardi - CEO of Strategy&. 

Mainardi explains, "“Everybody’s talking about dynamic strategy, agility, and chasing opportunity.  That’s all well and good. But if you aren’t operating from a base of who you are, you will likely not realize what the real risks you’re facing are because you aren’t focused on your core strengths, and therefore you will be less clear-minded about how best to respond.”

Hubbard argues that many company growth strategies follow the "let a thousand flowers bloom" philosophy.  In other words, plant a bunch of seeds, and hope that few of them flourish.  Hubbard explains that this type of growth initiative can lead to a highly incoherent strategy.  Firms need to understand who they are, as well as what their distinctive, scalable capabilities are.

Finally, Hubbard emphasizes that profits alone do not justify the existence of a business within a corporate portfolio.  You have to ask the question:  Does it fit given the capabilities that you have?  Can you sell the business at a higher value than the present value of future profits that you can generate from that unit?  

I could not agree more with this article's main message.   Too many firms, starved for growth, simply plant a wide variety of seeds without focusing on coherence.  They focus on the size of the market opportunity rather than thinking about fit.  They see profits, and they use those to justify having a new venture in the portfolio, rather than thinking about whether that unit could generate higher returns as part of some other firm's portfolio.   

Friday, September 19, 2014

Grade Inflation

Economist Justin Wolfers tweeted out this chart yesterday regarding grade inflation at Ivy League colleges.  What a wonderful world in which everyone is exceptional!

Thursday, September 18, 2014

Résumé Mistakes

What are some the classic mistakes that job hunters make on résumés?  Laszlo Bock, SVP of People Operations at Google, has posted a good article on LinkedIn with the top five common mistakes that he has seen.  It's a good list.  Here are Bock's top five, with some commentary from me:

1. Typos

I would expand his point to include grammatical errors, particularly on the cover letters that accompany résumés.  Poor writing plagues many cover letters.   Examples of writing deficiencies include:  overly complex sentences, improper use of commas and conjunctions, far too much use of the passive voice, and poor paragraph construction.  The list could go on! 

2.  Length

As Bock says, you should be aiming to land a first round interview, not to tell your life story.  You can expand the story during the interviews.  Focus on getting your foot in the door.

3.  Formatting

Bock recommends saving the document as a PDF since other formats can become troublesome as they are passed electronically across various platforms and devices.  Good advice!  He also argues that it should be a clean, easy-to-read document.  I would emphasize the need for plenty of white space.    You do not to jam every inch of the page with words.

4.  Confidential Information

Bock uses the example of a consultant who clearly reveals the names of clients.   Many consulting firms have confidentiality policies.  If an applicant breaks their current or past employer's confidentiality policy, that's a major problem.  

5.  Lying

Lying on résumés appears to occur quite often.  We have just seen a senior executive at Wal-Mart who lost his job due to a lie about his educational background.  We've seen CEOs lose their jobs over these types of lies.  I think the harder-to-detect lies are even more common, specifically exaggerating job responsibilities and accomplishments.  I also think that résumés sometimes fail to give proper credit to those who helped an individual achieve certain goals at a prior employer.  Was it a team effort?  Does the résumé reflect the fact that a team achieved the goal, not just that individual?  Not giving others proper credit seems to be a major issue in the job application process. 

Wednesday, September 17, 2014

When is grit beneficial, and when is it not?

Angela Duckworth has been of the leading researchers on the topic of "grit" - something she defines as "perseverance and passion for long-term goals.”  She has found that grit can be a powerful predictor of academic achievement.   In short, she argues that academic achievement is not just a matter of raw intellect; grit matters a great deal. 

Now Magdalena Grohman, a faculty member at the University of Texas at Dallas, has questioned whether grit may be as powerful a predictor of creative achievement.   According to Grohman, "These are 'no results' that we are actually excited about. Creative achievement and grit, intellectual creativity and grit, everyday creativity and grit: no effects whatsoever."   She found that "openness to new experiences" did help creativity, but grit apparently did not.  Similarly, Yale's Zorana Pringle conducted a study in which she asked students to evaluate their peers in terms of the generation of creative and original ideas.  Grit scores did not correlate with high peer evaluations on creativity.  Grohman speculates that grit may be very useful in structured environments and tasks, but perhaps is less useful to individuals when they are embarking on ill-structured, creative endeavors.  More research certainly will be done in this area to explore this rather interesting set of new findings.

Tuesday, September 16, 2014

Experts Buy Private Label

Bart J. Bronnenberg, Jean-Pierre Dubé, Matthew Gentzkow, and Jesse M. Shapiro recently published a working paper titled, "Do Pharmacists Buy Bayer?  Informed Shoppers and the Brand Premium?"  Here's an excerpt from the abstract of their paper:

In a detailed case study of headache remedies we find that more informed consumers are less likely to pay extra to buy national brands, with pharmacists choosing them over store brands only 9 percent of the time, compared to 26 percent of the time for the average consumer. In a similar case study of pantry staples such as salt and sugar, we show that chefs devote 12 percentage points less of their purchases to national brands than demographically similar non-chefs.

Private label products certainly have taken a much larger share in many categories over the past decade.  Nevertheless, the scholars still found this "brand premium" effect, particularly for non-experts.  As private label products continue to rise in quality and availability though, we should expect more people to act like the informed consumers in this study.  Consider, for instance, the success of firms such as Trader Joe's and Aldi, both able to persuade consumers that private label products can deliver solid quality.  

Friday, September 12, 2014

Five Classic Competitive Strategy Mistakes

Based on my experience, here are five business strategy mistakes that organizations often make:

1.  Focusing on market share extensively, while not thinking enough about how to drive product category growth - as a result, they miss chances to grow the pie for all

 2.  Paying too little attention to a maturing core business while focusing effort on growth into new markets, resulting in further erosion of the core

3.  Overestimating economies of scale and scope - and forgetting that diseconomies of scale and scope can become substantial

4.  Benchmarking rivals and then imitating one particular activity or capability, while not realizing that the rival's competitive advantage comes from how that activity fits tightly into a broader, integrated system of activities

5.  Resorting prematurely to price as a competitive weapon - not being creative enough to think about other ways to attract customers, deepen their relationship with existing customers, and grow an entire category

Thursday, September 11, 2014

Does Apple Spend Enough on R&D?

Matt Kramer published an article in USA Today this week titled, "7 Companies Outspend Apple on Innovation."  Kramer noted that Apple ranked behind seven other prominent technology companies in terms of R&D spending.  Moreover, Apple ranked 95th  among the S&P 500 in terms of R&D as a percentage of sales.  He found that quite surprising.  Kramer ends the article by saying, "But with the iPad getting stale, and competition in the smartphone arena kicking up, investors might wonder if Apple might need to pick up its R&D game."  The article caught my eye because a great deal of academic research shows that R&D spending is not strongly correlated with successful new product development.  It's not just how much you spend; it's how you spend it!   Kramer's article is thought-provoking, but it would have made for a much stronger piece if he included the research findings about the connection between R&D spending and firm performance.  

Monday, September 08, 2014

Fast Company article: Embracing Failure

Rachel Gillett has written an article for Fast Company titled, "What The Hype Behind Embracing Failure Is Really All About."  She has included several of my comments. The article examines the popularity of the concept of "tolerating failure" - is it overdone? Is it a fad?  What's the true meaning of the concept of embracing failure?  Here is the link to the article. 

Are Smaller Boards More Effective?

The Wall Street Journal reported last week on a new study conducted by GMI Ratings for the newspaper.  The study examined boards of directions, and it took a look at the link between board size and performance.  Here is a summary of the findings:

Among companies with a market capitalization of at least $10 billion, typically those with the smallest boards produced substantially better shareholder returns over a three-year period between the spring of 2011 and 2014 when compared with companies with the biggest boards, the GMI analysis of nearly 400 companies showed.  Companies with small boards outperformed their peers by 8.5 percentage points, while those with large boards underperformed peers by 10.85 percentage points. The smallest board averaged 9.5 members, compared with 14 for the biggest. The average size was 11.2 directors for all companies studied, GMI said.

What are the advantages of smaller boards? Why might they perform more effectively? Here are a few potential reasons cited in the Wall Street Journal article:
  • Decisions can be made more quickly with a smaller team. It can be more nimble.
  • Each person is more likely to be fully committed, prepared, and engaged. There's less likelihood of free riders on a small board.
  • People are more likely to be candid in a more intimate atmosphere than on a large board.
  • A small board can dig into an issue in much more depth. On a large board, you may have a tendency to deal superficially with issues rather than really "getting your hands dirty."
I would add one other reason. We already know that teams tend to focus their discussion on information commonly held by all participants, and they don't spend enough time on information held privately by one or a few members. That challenge becomes even more pronounced as a team becomes larger. Therefore, a smaller board benefits from a higher likelihood that information and expertise from all members will be shared and discussed.

Friday, September 05, 2014

Stihl: Making Tradeoffs

Great firms make tradeoffs; they choose what not to do.   One key tradeoff that firms make is about the channels through which they decide to sell their products.  Premium brands often make an explicit choice to restrict distribution of their products, so as to maintain service quality and preserve the reputation of their brand.  As an example, consider Stihl.  They are quite blunt about their strategic choice to only sell their products through licensed dealers and not through big box retailers such as Home Depot, Lowe's, or Wal-Mart.  Here's an except from their Canadian website:

We can give you over 1,000 reasons - our legion of independent STIHL Dealers nationwide. We count on them every day and so can you. To give you product demonstrations, straight talk and genuine advice about STIHL products. To offer fast and expert on-site service. And to stand behind every product we carry, always fully assembled. You see, we won't sell you a STIHL in a box, not even a big one.

In addition, here's an advertisement that they ran several years ago.  

Thursday, September 04, 2014

First Movers Don't Always Have the Advantage

Many entrepreneurs fall into the trap of believing that being the first mover always conveys a formidable advantage.  The first mover myth trips up many business people. Who was the first player in social media?  Not Facebook.  It was Friendster.  Who was the first mover in the browser market?  Netscape.  Who was first in search?  Not Google.   According to Kellogg Insights, “One study showed, in fact, that pioneers were more successful than late movers in just 15 of 50 product categories.”  

What are the key sources of first mover advantage?  If substantial economies of scale, network effects, and a powerful learning curve exist, then first movers have an advantage.  However, there's downside to being the first mover.   Being the pioneer in a new market can be expensive and challenging.  You make all the mistakes that a pioneer is likely to make.  Others watch and learn from your errors, and then they leapfrog past you.  At the same time, entrepreneurs who move first can then get stuck in the sunk cost trap.  They can become resistant to adapting their strategy that enabled them to gain some initial traction.  Fast followers then pass them by.   Entrepreneurs need to look carefully at a particular market and understand that simply being the first mover may not convey substantial advantage and protect them from competitive threats.

The Everything Store: Interesting Read

Several weeks ago I finished reading Brad Stone's book, The Everything Store: Jeff Bezos and the Age of Amazon.   The book generated some controversy when MacKenzie Bezos (Jeff's wife) posted a scathing review on the Amazon site.  She claims that the book contains a number of factual inaccuracies.  Her real concern, though, is that the book does not always paint a very flattering picture of Jeff Bezos.  Nevertheless, I found the book to be interesting, and I read it with the understanding that it may not be a completely accurate picture (as is true of many of these types of books).  Here's an interview with the author on CBS: 

Tuesday, September 02, 2014

A Few Nuggets of Advice for College Students at the Start of the New Year

As students arrive on college campuses throughout the country this time of year, I would like to share a few words of advice.  I hope that students, particularly first-year students, find these comments useful.
  1. Ideas don't sink in through the process of re-reading the book and your notes.  You need to actively work with the material.  Writing is much more useful than reading in this regard.  When studying, try writing a synthesis of your notes.  Boil the extensive notes down to a 5-10 page outline of the course, and then to a 1 page outline.   This process will enable you to synthesize and integrate what you have learned.  If applicable, do practice problems as a means of studying.  Practice beats reading notes any day of the week. 
  2. Go to class!  It's so easy to skip class when you are tired.  However, going to class is more than half the battle. You will find it so much easier to excel if you aren't trying to make up for absences. 
  3. Find a mentor.  I'm not talking about going to office hours just to try to improve your grade.  I'm talking about a true mentor, someone can offer you guidance about your studies as well as your career.  Use that person as a sounding board.   In your early days at college, you should begin trying to identify who that mentor might be.
  4. Explore topics beyond your area of specialization.  Take courses in multiple domains, and broaden your knowledge.  Many creative ideas come from the process of reaching outside one's area of expertise.   Thus, building a broad knowledge base is important.  Moreover, you will be much more interesting at dinner if you can have a conversation that spans many topics.  You'll find that ability to be an important life skill!
  5. Find opportunities to develop as a leader.  Those opportunities typically come outside the classroom. The primary way to become a better leader is to practice.  Thus, seeking out opportunities to lead groups, student organizations, and the like is crucial.