Monday, August 31, 2015

Can Exercise Enhance Creativity?

In this video, NYU Professor Wendy Suzuki explains her research that explores the link between physical exercise and creativity. 

Friday, August 28, 2015

Google and Alphabet: What are the risks?

Should we have been shocked by the Google/Alphabet news?  Actually, I don't think so.  Let's step back for a moment and think about Google's collection of businesses.  The company is incredibly creative and innovative, but in the end, one major business generated most of the profits: search.   That business is certainly as mature as a steel company, but it's much further along in the life cycle than many of the new ventures that Google has launched (such as driver-less cars).   How do investors look at companies with a big business generating lots of cash, and a set of smaller more speculative ventures that are users of cash.  Well, they become skeptical of too much cross-subsidization, particularly if the synergies among the businesses are limited.  We have seen the pressure on Google in recent quarters, as investors demand returns from the high-profit search business.  They don't want to see too much of that cash diverted to unprofitable and speculative ventures.  On the other hand, we know that new ventures often struggle when embedded in larger organizations.   They need a certain level of autonomy to flourish.  Therefore, it makes sense to separate out the new ventures.  It gives them a better chance to grow with some independence, and it enables the main search business to focus on optimizing returns.  

Are there some risks though of this new structure?  A discussion on the Knowledge@Wharton site has highlighted some of those key risks very well.  Here's an excerpt:

According to Wharton emeritus management professor Lawrence Hrebiniak, “transparency … is good, [but] I don’t know if transparency translates into profits.” Trouble could follow if Google’s investments in projects like driverless cars and drones don’t make money, he adds. “The transparency could cause some investors to rethink whether they want to be invested in these other businesses and prefer to put their money in Google,” he says. “There might be some pressure, in time, to divest some of these bad businesses on the non-Google side.”

Thursday, August 27, 2015

The Impact of Inauthentic Behavior: How Does It Feel to be a Phony?

Kellogg Insights reports on the latest research by Francesca Gino, Maryam Kouchaki, and Adam Galinsky.   They examine the impact of inauthentic behavior - or "phoniness" to put it simply.  What happens we were act like phonies, perhaps to stay in the good graces of a boss at work?   These scholars demonstrate that inauthentic behavior actually makes us feel immoral.  Moreover, it makes us want to engage in some moral behavior (e.g. helping or serving others) to compensate for that bad feeling about ourselves.   The scholars suggest that low employee engagement in many workplaces may result, in part, from the fact that people feel immoral about phony behavior that they have engaged in at work.  What's the implication for business leaders.  Here's an excerpt from Kellogg Insights summarizing the scholars' conclusions:

For business leaders, these consequences are worth keeping in mind. If employee dissatisfaction is based on a violation of moral values—even at a subconscious level—it might be worth considering how authentic employees are allowed to be in their particular role. “It seems to be true that to act in accordance with one’s own self, emotions, and values is a fundamental aspect of well-being,” Kouchaki says. “Leaders might want to factor that in. The knowledge that inauthentic behavior has costs and that prosocial behavior”—like assisting or mentoring a colleague—“increases moral self-regard—this is something leaders might consider when designing their organizations.”

Wednesday, August 26, 2015

Live Chat: Tonight (Wednesday, 8/26) at 7pm!

What questions about business do you have? Join me and The Great Courses for a live online chat tonight from 7-8pm.  As you many of you know, The Great Courses offers wonderful opportunities for lifelong learning by providing audio/video courses by professors from universities throughout the country.  I've enjoyed creating three courses for the company (topics: decision-making, leadership, and strategy).   Here's the link to join the discussion.  Hope to interact with many of you this evening!   

Wal-Mart, Sam's Club, and Costco: A Key Strategy Lesson

The Wall Street Journal published an article today (by Sarah Nassauer) titled "Sam's Club Aims to be Less Like Wal-Mart."   The article quotes the Rosalind Brewer, chief executive of Sam's Club:  "“We want to be less of a Wal-Mart."  The article goes on to explain Brewer's thinking:

The new strategy means carrying fewer products that appeal to households that earn $45,000 a year—Wal-Mart’s sweet spot—in favor of targeting wealthier shoppers with more organic food, brand-name clothes and 1,000-thread count Egyptian cotton sheets, she said during a recent interview.  Sam’s struggle to shake an early focus on mainstream consumers has become a liability as club stores have evolved into a favorite among more affluent shoppers who are able to pay a membership fee for access to discounts on items from large screen TVs to bulk boxes of peaches. At the same time, big- box retailers and grocery stores have embraced discounted bulk sizes, without a membership fee. Rival Costco Wholesale Corp. has thrived, building stores in wealthy enclaves and delivering strong annual sales gains.

The story of Costco and Sam's Club offers a key strategy lesson for all managers.   Think about the wholesale club business for a moment.  Who is the typical consumer?  The data show that they have a substantially higher income than the usual Wal-Mart customer.  Does that surprise you?  Consider the wholesale club business for a moment.   You have to pay an annual membership fee.   You buy in bulk.  Therefore, while you may save on a per unit basis, the total cash outlay on a typical shopping trip is quite high.  You need an SUV to get the goods home, because they are bulky.  Moreover, you need a good-sized house with an ample pantry space to store the goods.  In short, the wholesale club model is more attractive to customers with a higher level of disposable income than many Wal-Mart shoppers.

Consider Costco's success.  They figured out who the customer was in this business, and they tailored their entire business model to this consumer.   For that reason, Costco locates in wealthier suburbs, and they offer premium goods in many categories.  They have become the largest retailer of wine in the country.  They know their customer.   Why has Sam's Club stumbled a bit in the past?  Wal-Mart built Sam's Club and tried to leverage all that was successful and effective about their value chain in the discount retailing business.  However, the activities and choices that were well-suited for discount retail were not necessarily tailored effectively to the wholesale club  business.  You see the temptation though.  Successful firms want to leverage their existing capabilities, choices, and activities when they move into a new market segment.  Yet, that effort to leverage what they do well may become a stumbling block if the new segment has some crucial differences for which they should account. Costco could build a business model well-suited to the more affluent customer because they were building from scratch. 

Tuesday, August 25, 2015

Should You Pursue Market Share in Fast-Growing Industries?

Mark Chussil of Advanced Competitive Strategies has an interesting post on Harvard Business Review this month.  He questions several myths about competitive strategy.   He writes, "Say you are competing in a fast-growing industry. How much do you care about profits versus market share?  It’s a common rule of thumb that businesses should go for market share in fast-growing in­dustries. It’s conventional wisdom, though, not a law of physics; you don’t have to go for share."  

Chussil examines the wisdom of pursuing growth vs. profits using a complex computer simulation.  He finds the majority of people tend to pursue growth in fast-growing industries (55% vs. 45%).  What happens when people aim for market share gains.  Chussil writes, "And yet in over 173 million tournament simulations – every unique combination of the 700+ strategies for the three competitors in the fast-growth industry – the quest for market share led to price wars 90% of the time, subtracting value from the industry. In other words, following the “rule” produced results worse than if the participants had taken naps and done nothing at all." 

Chussil does not argue that you should always prefer profits to growth.  Instead, he simply makes the point that we should not blindly follow conventional wisdom.   For instance, he points out that the conventional wisdom suggests we should keep our strategies secret from our rivals. Yet he describes the situations in which revealing our strategies can actually be value-enhancing.  He offers good advice.  Beware the conventional wisdom when it comes to formulating competitive strategy.  You simply cannot boil strategy down to a formula or a few rules of thumb. 

Brief Clip from The Great Courses lecture series on Competitive Strategy

Back to the Blog!

I'm sorry for the lengthy period since my last blog post.  I enjoyed several weeks away with my family, and now I'm back on campus preparing for the start of the semester.  I'll be posting regularly starting today.  I hope you enjoy the blog.