When Team Members Flatter the Leader, Problems May Ensue

Source: https://jonathanbecher.com/

People tend to flatter their leaders at times.  We've all done it on occasion.  At times, we have rolled our eyes when a peer begins to flatter the boss in a less-than-subtle manner.   The flattery might seem harmless, but it risks a problem for both leader and follower.  The leader may become overconfident if he or she lets the flattery go to their head.  Similarly, the follower may lose credibility with their peers if they are seen trying to ingratiate themselves with the boss.  It seems that a bit too much flattery directed at the boss is a surefire way to get yourself marginalized or mocked by your peers on the team.  

New research suggests another potential risk associated with flattery. Benjamin A. Rogers, Ovul Sezer, and Nadav Klein have published a new paper titled "Too naïve to lead: When leaders fall for flattery."  They find that some leaders can bear a cost if they respond ineffectively to flattery by their team members.  The scholars find that leaders who "fall for flattery" can be perceived as rather naive by team members and peers.  Those perceptions, of course, can have negative consequences as they try to persuade and influence subordinates and peers in the future.  If a leader is perceived as unfairly playing favorites based on past flattery, then they will lose the trust of their team members. 

Do New Hires Quickly "Learn" Not To Speak Up?

Source: Inc.com 

Derrick Bransby, Michaela Kerrissey, and Amy Edmondson have published some fascinating new research on psychological safety in the Harvard Business Review. They found an alarming trend regarding new hires and their willingness to speak up. They write, "We studied more than 10,000 employees in a large organization and discovered that new hires’ psychological safety eroded swiftly. On average, newcomers joined the organization with higher psychological safety relative to their more tenured colleagues, then lost it and waited years to reach levels comparable to when they arrived."  Their findings proved consistent across various demographic groups.  

As I read the article, I thought about why new hires might experience a significant drop in psychological safety soon after joining an organization.  One can imagine that new hires might think that leaders welcome pushback and are open to new ideas.  After all, they probably heard a good deal of positive talk during the hiring process about how leaders expect them to contribute during meetings and to bring fresh ideas.   New hires might learn quickly, however, that some leaders react poorly to dissenting perspectives or the sharing of bad news.  In some cases, experienced leaders might not recognize how their reactions to new perspectives have discouraged new hires.  

Three other explanations might exist for this drop in psychological safety though, and it may not involve dysfunctional behavior by team leaders.  First, new hires might not be particularly adept at speaking up.  Perhaps they try to share a concern about a proposed course of action, or express a dissenting opinion, during some early meetings.  If they struggle to present their ideas, they might find that others do not seem receptive.  New hires could conclude that people don't want them to speak up, when in fact, others simply didn't find the arguments well-crafted and persuasive.  Or, others may feel that the pushback was not presented in a constructive fashion.  The remedy for this problem is some effective coaching and development for new hires, so that they can become more effective at presenting their ideas. 

Second, psychological safety may decrease for new hires as a result of their socialization into the organization.  New hires may hear from peers that they should "keep their heads down" and "not rock the boat."  Sometimes, peers are sharing accurate appraisals of the culture, and specifically, of the low level of psychological safety on that particular team.   However, at times, peers may be overly negative.  Take, for instance, a situation in which the leaders themselves are relatively new.  Long-tenured employees may be accustomed to prior leadership that led in a top-down fashion and did not welcome dissenting views.  These experienced team members may not yet have adjusted to new leadership and may not trust that the new leaders genuinely want to hear dissent.  Peers also might be wary of newcomers who question existing practices and challenge the conventional wisdom.  They might even feel threatened.  As a result, they may discourage new hires from speaking up. 

Third, new hires may come to the organization with a "grass is always greener" mentality.  Perhaps they concluded during the hiring process that this organization is clearly superior to their old company.  When their highly optimistic expectations prove not to be accurate, they may become discouraged.  Perhaps the new team does have higher psychological safety than their old team, but the failure to meet lofty expectations may be troublesome.  It's certainly true that it can be very challenging to assess psychological safety during an interview process.  

Harley-Davidson: The Aging Customer Dilemma

John Keilman has written a Wall Street Journal article this week that is titled "Harley Will Ride or Die With the Graybeards." Keilman reports that, "The Milwaukee-based company is selling less than half as many bikes as it did during its 2006 peak. Harley’s portion of the U.S. large motorcycle market recently dropped to its lowest level since the 1980s."  He notes that the average age of the Harley customer has risen substantially in the past two decades.  The company reports that the average age is 49.  UBS analyst Robin Farley disagrees, arguing that it actually has reached the late 50s.  Critics argue that the current CEO has focused on high-priced bikes for older customers, prioritizing profit margins over growth.  In so doing, they say he has made it even harder to attract younger buyers.  

The Harley story illustrates several important lessons in business strategy.   First, the temptation for many executives at mature companies is to focus on high-margin products and opportunities to further increase margins at the expense of growing the customer base.  This focus often leads to better earnings per share in the short run, satisfying investors.  However, it creates a long-term challenge.  Eventually, the focus on the highest-margin products can exacerbate the challenge of bringing new customers to the brand.  In Harley's case, younger buyers find it increasingly difficult to afford the purchase of one of the company's bikes.  

Second, mature companies with an aging customer base always have to balance the desire to attract younger buyers with the worry that such efforts might alienate their most loyal customers.  Harley has to worry that attempts to build products and develop marketing campaigns aimed at millennials and Gen X customers might turn off the Baby Boomers and Gen X customers that comprise its most profitable pool of current customers. 

Third, companies often think that the answer to attracting younger customers is simply about the products they offer and the price point at which they sell those products.  While product and price matter a great deal, the brand image and the customer experience also prove to be very important.  Too often, managers at these mature firms are out of touch with trends, and with the younger potential customers in general.  They have been so laser-focused on their most loyal customers, and they are part of that demographic as well.  They need to find a way to truly step into the shoes of those younger potential buyers, and they need to hire people from that demographic.  Effective empathy-based user research is very important for firms in this predicament. 

Finally, firms have to understand the broader social trends against which they are battling.  In Harley's case, they need to understand that the current generation is not nearly as fascinated with the freedom of the open road as prior generations.  As Jonathan Haidt documents in his book, The Anxious Generation, far fewer young people are rushing to get their motor vehicle license at age 16.    He describes several reasons why young people are less eager to drive.  This broader social trend is clearly affecting Harley.  It needs to understand how the psychology of young people has changed, and how that will affect they way the firm should go to market.  

My sense is that Harley-Davidson executives should reach out to companies that have proven adept at navigating some of these challenges and refreshing brands that have encountered aging customer bases.  For example, the leadership team at LVMH has done a remarkable job of acquiring luxury brands that need a refresh, and then helping that brand attract a new generation of buyers.  

Learning Through Acquisition: Admit What You Don't Know

Source: https://www.thekitchn.com/

I've been reading John Mackey's book, The Whole Story, about his journey as co-founder and long-time CEO of Whole Foods Market.   The book certainly reads quite differently than many other CEO books, as it documents in detail his experimentation with various psychedelic drugs alongside his retelling of the founding and growth of the organic foods retailer.  

One key lesson jumped out at me from Mackey's story of the early years at Whole Foods Market.  He described how Whole Foods grew by acquisition, but the most important part of those deals was not the growth in revenue,  expansion into new geographic regions, or achievement of scale economies.  Instead, many of those early deals involved incredible amounts of learning about key facets of the business.  Mackey seemed to recognize what he did not know, or what he did not do well.  He went searching quite explicitly for those who were better than him at key elements of the business, and he brought them onboard.  Many of the owners of those businesses stayed with the company and became key executives as the retailer grew.  

For example, Whole Foods Market acquired Bread and Circus, an organic foods retailer in the Boston area.  While studying the company closely, Mackey noted that they had strong sales, but weak profitability.  However, he realized that they had mastered the retailing of perishables.  In fact, they did a far better job than his own company.  Similarly, he bought Walter Robbs' business in northern California because he recognized Robbs' talent and passion for creating a truly beautiful retail environment and refining the processes needed to operate those stores efficiently.  Robbs went on to become co-CEO of Whole Foods Market years later.   Mackey acquired Wellspring, a retailer in North Carolina, because its leader, Lex Alexander, brought a different approach to natural foods.  He had expanded beyond the original focus on health and wellness characterized by many firms such as Whole Foods Market.  Lex brought a "foodies" mindset with an emphasis on foods that were delicious, hand-crafted, and beautiful - e.g., specialty coffees, artisan olive oils, handmade pasta, etc.   Each time Whole Foods Market acquired one of these businesses, it expanded its capabilities and added brilliant, talented individuals to the team.  

In some sense, there's nothing new here.  We hear about learning through acquisition all the time.  Yet, in so many cases, it is the intention, but the reality never meets expectations.  Why?  The acquiring CEO has to be open to the new ideas, and open to learning from others at the acquired company.  In my experience, I've found that many executives end up frustrating the leaders from the acquired company. They don't listen effectively, and they emphasize economies of scale and scope, rather than learning and capability enhancement.  They talk a good talk about learning from others, but they ended up concluding that they know better than the managers at the acquired organization.   Knowledge and expertise ends up just walking out the door.  Therefore, to me, the lesson is clear: Take a hard look at your own expertise and capabilities before an acquisition, and admit what you don't know.  It will make that deal so much more fruitful moving forward. 

Being Concise and Interesting During An Interview, or A Networking Event

Source: www.agilitypr.com

Professor Craig Wortmann recently shared some terrific advice in a Kellogg Insights column titled, "How to Talk About What You Do (without Being Boring)."   Wortmann explains two key mistakes that people make either during job interviews or at networking events.  Put simply, many individuals either share too little or too much. Imagine someone asks, "What do you do?"  One person might simply state their occupation (banker, lawyer, professor, doctor, etc.).  Another might offer a lengthy treatise that puts others to sleep.  Both mistakes are commonplace and easily avoidable.  

Wortmann recommends responding to the question in a manner that sparks a lively dialogue.  Provide a concise answer that leaves them wanting more... more information about the work, about the people you serve, about your particular expertise, etc.  Find a way to spark their interest and their curiosity.   If you think you have been concise enough, think again.  Most of us overestimate how tight (and interesting) our responses actually are.  

I would add that it's generally helpful to demonstrate interest in the other party as well.  Be curious as to what they do, what motivates them, and why they are passionate about their work.  In short, don't just make it about you.   Ask questions, rather than just talking at the other person.   A good interview typically involves the interviewee offering some thoughtful, non-typical inquiries that demonstrate strong interest in the role, as well as a true desire to assess the fit.   In a networking event, great questions often make the conversation proceed much more smoothly, and you will learn so much more about the other person through these inquiries.  

Should Southwest Airlines Change?

Source: TripAdvisor

The Wall Street Journal published an interesting article this week titled "Meet the Southwest Superfans Who Don’t Want the Airline to Change." Dawn Gilbertson writes that some very loyal customers do not want the airline to make some of the dramatic changes being considered by management in the face of a push from an activist investor, Elliott Investment Management.  The hedge fund and some other investors would like to see Southwest offer a series of additional benefits and collect fees for those amenities as other airlines do.  Many other airlines generate substantial revenue from those additional charges.  Some of these huge fans of the airline don't want to see these changes.  These loyal customers would like to see Southwest remain committed to its original model.   The hedge fund thinks that Southwest runs the risk of being stuck in the past, tied to an outdated business model.

The situation represents a classic strategy conundrum.  Southwest Airlines became highly successful because it made a series of critical tradeoffs, exemplifying Michael Porter's concept that, "The essence of strategy is choosing what NOT to do."  They didn't offer assigned seats, first class sections, etc.  These tradeoffs not only made Southwest distinctive, but they made the airline difficult to imitate.  When incumbents tried to create new brands to compete with Southwest, they struggled mightily (think Delta with Song and United with Ted).   Southwest used its unique business model to establish a successful low-cost position in the airline industry.  While most others struggled, it produced profits year after year, even during recessions.  Southwest's challenge now is that they no longer have a clear cost advantage in the industry.   Ultra low-cost carriers have lower costs per available seat mile in some cases.  Thus, the problem is not simply that they are missing out on revenue streams others have developed.  They may not have the cost edge that enables lower pricing than rivals and creates a competitive advantage.  

When companies experience slowing growth or other financial challenges, they often feel the pressure to abandon some of the tradeoffs that made them so distinctive.   The thinking goes like this: these tradeoffs limit potential set of customers we can attract, and if we want to thrive, we have to update our strategy to meet changing consumer trends.  All of that makes a great deal of sense.  However, as firms abandon the tradeoffs they have made, they became more and more like other competitors in their industry.   In short, they might just juice revenue and profits in the near term by changing the strategy, but ultimately, the firm becomes less and less distinctive.  Strategy convergence takes place within the industry, and when that happens, industry profits tend to fall.  

Interestingly, Jost Daft and Sascha Albers conducted a study of the European airline industry a decade ago. They studied 26 European airlines from 2004-2012.  They measured the average "distance" between company business models.  They found that the average distance declined by 19% during this time period.  However, they note one exception in the industry:  

"In 2012, a low-cost carrier (Ryanair) again featured the highest average distance (0.4468) to all other airlines. Moreover, Ryanair was the only airline in the sample to increase its average distance and to become more differentiated from all other competitors, while all other airlines were becoming more similar." 

What's interesting about this finding?  Well, Ryanair produced very high profits throughout this time period.  They remained true to a no-frills strategy, refusing to compromise on the bedrock principles of their low-cost strategy.  Many other airlines struggled as their strategies converged with rivals. 

This finding offers a word of caution as Southwest navigates this period during which they are considering changes to the core business model.  They need to cope with changing consumer trends and preferences, as well as new threats from competitors who have changed their strategies in recent years.  At the same time, they don't want to just follow the crowd.  Activist investors should not simply be looking at revenue and profit enhancements in the very near term, but thinking carefully about how the strategy should evolve so as to remain distinct from competitors.  

Customer Experience Hits Rock Bottom

Forrester Research recently released its annual Customer Experience Index (CX Index™) rankings. The results are dismal.   The chart below shows that the index has reached a new low.  

The scores probably do not surprise shoppers who have had some poor experiences lately.  On the other hand, you might be puzzled a bit given that many company leaders talk obsessively about customer obsession.   They appear to be talking the talk, but not walking the walk.  

Why might it be so difficult to elevate customer experience?  Here are a few hypotheses:

1.  Senior executives are extremely detached from the experiences of their everyday customers.  In fact, many of these executives live very different lifestyles than their average customers.  In short, they are out of touch.

2.  High employee turnover makes it difficult to maintain consistent customer service. 

3.  Company resource allocation processes are distorted.  It's often rather simple to quantify the return on investment from initiatives intended to reduce labor costs.  It's much more difficult to quantify the ROI when it comes to projects aimed at improving the customer experience.  Thus, programs aimed at cutting expenses get funded more easily.   

4.  Metrics drive behaviors in ways that harm customer experience. For example, one of my daughters once worked at a large national coffee shop chain.  One key metric focused on the time required to serve customers in the drive-thru lane.  The manager's focus on that metric caused employees to de-emphasize service to customers who came into the shop.   Frustration ensued for customers walking up to the counter. 

5.  Young people working in many retail locations have weak interpersonal skills, in large part due to the rise of the smartphone and social media platforms. During their childhoods, as Jonathan Haidt has eloquently argued, we have seen the smartphone cause a substantial decline in vitally important in-person interaction.  They never developed key skills that come from free play, in person, with other children.  

What Happens When Your Team Adds an AI Teammate?

Source: Getty Images

Bruce Kogut, Fabrizio Dell’Acqua, and Patryk Perkowski have conducted a study to examine how team performance changes when we replace a human member with an AI agent.  In their research project, more than 100 two-person teams played 12 rounds of a video game. For the first six rounds, only humans played the game. For the next six rounds, the researchers replaced one human on each team with an AI agent. Interestingly, they found that performance in the game initially declined when an AI agent replaced a human team member, though performance ultimately bounced back after several rounds of game play. This effect occurred even though the AI agents were actually superior to humans when playing the game individually.  Kogut explained why team performance declined at first:

Despite the AI’s superior individual performance and the fact that bonuses were paid to the entire team if it performed well, 84% of respondents preferred to play with their human teammates. From surveys conducted at the midpoint and end of the experiment, we learned that AI causes team sociability to fall, and that lessens members’ motivation, effort, and trust.

Perhaps most surprisingly, the scholars found that all-human teams adjacent to a team with an AI agent also experienced a decline in performance.  The scholars described this phenomenon as a spillover effect.  What's going on there?  Kogut explained that the AI agent disrupted the environment, perhaps affecting the routines and processes within the all-human teams.  He likened to the impact that losing an employee, or hiring an inexperienced one, can sometimes have on adjacent teams in an organization because of the disruption of usual work routines.  

Companies Learning from Their Histories

Fortune's Phil Wahba has written an excellent article titled "From Tide Pods to Coach bags, how Fortune 500 companies use museums of their hits and misses to drive success."  He documents how business leaders have developed company museums and assigned individuals to serve as corporate historians.  Many firms derive great benefit from these efforts to preserve and highlight important facets of their histories.  What are some of the key uses of these company museums?

1.  The museums keep track of substantial failures, enabling the the firms to heed the lessons of those setbacks in the future.  Moreover, sometimes companies can resurrect failed projects, find new uses for old technology, and simply find that the time is now right for something that may have been ahead of its time.  Documenting and highlighting failures, and not just successes, also sends an important message regarding the culture.  Employees come to understand that intelligent failures are acceptable, and even encouraged, because they represent the type of experimentation that can lead to breakthrough innovation. 

2.  The museums enable product developers to tap into past designs for inspiration, as the Wahba article illustrates by pointing out that designers at Coach enjoy looking back at the bags that were fashion hits in previous decades.  

3.  Executives can dig into the artifacts and records to examine how leaders addressed similar challenges in the past.  Wahba writes that Coca-Cola executives dug into records from the 1918 pandemic when the COVID-19 virus swept across the globe in 2020.  They sought to understand how the company responded then, and what lessons might be applicable in the 21st century.  

4.  Perhaps most importantly, these museums enable companies to highlight the values that they hope will endure at the company.  What aspects of the company culture do they want to highlight for current employees?  How can they demonstrate the company's commitment to making life better for customers, and not just producing profits?  The museums have a role in telling the story of the founders and giving employees a sense of the impact that the organization has made on people's lives.  

In short, history matters.  Companies have much to learn from their past, and investing in telling the story of past success and failure can be incredibly valuable.   It's so important to examine the good and the bad, because people learn very effectively when they can compare and contrast success and failure.  

Why Do We Miss Deadlines and Overrun Budgets?

Source: USA Today

We all have experienced projects that miss key deadlines and exceed budgets.  It's not a fun experience.  In retrospect, it seems obvious that we were overly optimistic in our estimates.  Yet, at the start, we thought we had been reasonable, even conservative, in our projections.  Why do we make these crucial errors?  One study offers an interesting explanation.  Bradley Staats, Katherine Milkman, and Craig Fox once published a paper titled "The Team Scaling Fallacy: Underestimating the Declining Efficiency of Larger Teams" (Organizational Behavior and Human Processes, 2012). 

Staats, Milkman, and Fox found that people tend to overestimate the benefits and underestimate the costs of increasing team size on a project.  Adding more people can enhance expertise and skills available on the project.  However, the challenges of coordination and collaboration grow as well.  By not acknowledging those costs sufficiently, many people generate overly optimistic estimates regarding budget and schedule on important projects.  

The study confirms the intuition of leaders such as Jeff Bezos at Amazon, Steve Jobs at Apple, and Brad Smith at Intuit.  Each of those leaders advocated keeping critical work teams small and nimble.   For example, the "two-pizza rule" maintained that you should be able to feed the entire team with two large pizzas (meaning the team should probably not exceed 6-7 members).  

Why We Might Keep Hunting for More Data Despite The Costs

Michalis Mamakos and Galen Bodenhausen have published an interesting new paper in the journal Cognition titled “Motivational Drivers of Costly Information Search.” These two scholars examined whether our search for additional information may hinge on how we frame a problem. They hypothesize that our tendency to gather more data and conduct additional analysis may depend on whether we frame the issue in terms of gains vs. losses. Kellogg Insight's Emily Stone summarizes the key concept:

The idea is that people have one of two different types of motivations for reaching a goal. Broadly speaking, those with a promotion focus are eager to achieve a goal because it offers a chance for self-advancement—a gain—while those with a prevention focus are vigilant about the need to fulfill their obligations, and thus they’re more occupied with what they might lose if they make a bad decision. Prior research has shown that people with a promotion focus are more likely to take risks in their decisions, while prevention-oriented people are more deliberate.

While prior studies have compared this promotion vs. prevention focus, this study went further by examining whether people in a prevention mindset will seek to gather more information even when aware of the costs of acquiring more data. Moreover, they examined whether those in a prevention mindset might be willing to gather more information even if it disconfirmed existing beliefs. Indeed, the scholars found that, "prevention-framed messages can motivate the search for decision-relevant information, even when this search is costly and could lead to disagreeable data."

Of course, this search for an additional information can be a double-edged sword. On the other hand, the additional comprehensiveness may lead to higher decision quality. On the other hand, perhaps being worried about downside risks and potential losses may lead people to engage in highly costly search and time-consuming analysis that ultimately leads to untimely decisions. Companies may see opportunities pass them by, or competitors gain the upper hand, because leaders engage in costly and time-consuming search for that elusive "perfect" information to make a tough decision.

Weighing the costs and benefits of additional information search is critical. In particular, we must consider that the marginal benefits of additional data may decline over time, while the marginal costs of searching for more data may escalate over time.

Being on Time: An Underrated Skill

Source:  www.makemebetter.net

In far too many university settings, being on time has become undervalued.  Professors don't establish strong norms for arriving to class on time.  They don't establish and enforce clear guidelines for attendance.  They don't enforce deadlines for key assignments.  In a recent Wall Street Journal article, we read about a school district's policy that limits teachers' ability to penalize late work (not an isolated incident... now common in many districts). An administrator defends the policy: "A piece of work that is penalized because of the timing of the work no longer represents what the student knows about that content."   That statement is pure nonsense. Unfortunately, many educators have embraced this nonsense.  

Showing up and being on time is a critical life skill.   Being chronically late at work will lead to poor performance reviews and perhaps even dismissal for an employee.  The same goes for absenteeism or failure to meet deadlines.  The most talented employee will not succeed if they cannot be present, show up on time, and meet critical due dates.  

Why does punctuality matter?   Certainly, others will evaluate your dependability and trustworthiness based on your ability to be on time.  However, keep in mind that it's also a matter of serving others effectively.  You are wasting others' time if you are late for a meeting, and you cannot serve your customers well if you are not present when they need assistance.  Bottom line: it's inconsiderate to make others wait for you on a consistent basis.  

There are many reasons why people struggle to be on time.  I will focus on two problems that students seem to experience regularly.   First, they succumb to the planning fallacy.  This cognitive bias means that human beings often underestimate how long it will take to complete a task.   Why do we succumb to this fallacy?  Well, we often picture the most optimistic scenario when estimating time to complete a task.  Moreover, we often remember fondly and proudly those times when we finished a task ahead of schedule, and we give ourselves credit.  However, we blame external factors for those past occasions when we failed to complete a task on time. 

Second, students often struggle to compartmentalize.  Something happens that disrupts their routine or causes some delay.  Sometimes, that is a very serious issue that warrants immediate attention.  It is a justifiable reason for being late.  All too often, however, the disruption could be compartmentalized.  One could say, "Ok, I have this problem, but right now, I have to get to class on time.  I will address that situation in two hours."  Yet, many students struggle to prioritize, and they cannot set aside one problem to address the work that needs to be done.   Employees struggle with the same challenges.  

What strategies help you improve your punctuality?  What can we do as teachers and as organizational leaders to help people value punctuality and consistently meet expectations in this regard?   To me, these questions deserve more attention.   It starts in school.  As faculty, we need to make sure that we cultivate this critical life skill, rather than enabling unproductive behavior.  

The Unfounded Premium for Being Performatively Atypical

All too often, companies pursue me-too strategies.  They blindly imitate industry leaders, and they pay far too little attention to how they might differentiate themselves from the competition.  In some cases, however, company leaders make a point of trying to stand out. Perhaps a very loud statement. Often, these eccentric and iconoclastic business leaders attract a great deal of attention from journalists and investors alike.  These leaders make the case that they are doing business in an entirely different way than more conventional firms in their industries.  They "perform" for the world in ways that attract free publicity and persuade others that they are visionary and groundbreaking. Is it real though? Is all that theater a sign of true differentiation, or is it just smoke and mirrors? Think about the hype generated by Adam Neumann at WeWork. Was that strategy really anything new or revolutionary? Far too many people bought the hype for far too long. 

Now Amir Goldberg, Paul Gouvard, and Sameer Srivastava have conducted a fascinating new study examining this leadership theater that takes place in some companies.  They used machine learning methods to examine the transcripts for more than 60,000 quarterly earnings calls over an eight-year period.  They noticed that some companies used language that clearly tried to articulate how much different they were than their competitors.   You would think that making a case for distinctiveness would be a good thing.  Well, stock analysts apparently thought so.  These companies experienced what the researchers called a "performative atypicality premium."  In other words, equity analysts tended to believe earnings for these "distinctive" firms would be higher than other more "conventional" companies in their industries.  Did actual performance meet analyst expectations?  No.   The premiums were not justified by later performance.  In fact, these companies missed earnings estimates in later quarters.  Analysts believed the hype, and they turned out to be mistaken.  

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What's the lesson here?  Well, being distinctive is important.  However, we need to look for fundamental sources of differentiation, not eccentric leadership styles or vague talk about vision.  We have to ask ourselves repeatedly:  What is really different here? Moreover, we have ask whether there's a true moat around that castle. In other words, even if there is something distinctive about the strategy, the issue of imitability is critical.  Will that source of differentiation and competitive advantage endure, or can others easily emulate it?

Succession Troubles at Starbucks

Source: zeebiz

Last week, Starbucks announced disappointing financial results.  The stock dropped 12% in after-hours trading on Tuesday, April 30th when Starbucks announced a 2% decline in sales and a 15% decrease in earnings relative the second quarter last year. 

Former CEO Howard Schultz decided to comment on the subpar performance through a LinkedIn post.  He wrote:

At any company that misses badly, there must be contrition and renewed focus and discipline on the core. Own the shortcoming without the slightest semblance of an excuse...

Over the past five days, I have been asked by people inside and outside the company for my thoughts on what should be done. I have emphasized that the company’s fix needs to begin at home: U.S. operations are the primary reason for the company’s fall from grace. The stores require a maniacal focus on the customer experience, through the eyes of a merchant. The answer does not lie in data, but in the stores.

Senior leaders—including board members—need to spend more time with those who wear the green apron. One of their first actions should be to reinvent the mobile ordering and payment platform—which Starbucks pioneered—to once again make it the uplifting experience it was designed to be. The go-to-market strategy needs to be overhauled and elevated with coffee-forward innovation that inspires partners, and creates differentiation in the marketplace, reinforcing the company’s premium position. Through it all, focus on being experiential, not transactional.

Now, Schultz may be exactly right in his diagnosis and recommendations for the company.  However, one has to wonder about whether he should have publicly articulated these points.  After all, Schultz has twice returned to the CEO role after stepping down.  Each time, he has resumed leadership of the company after a successor stumbled.  In this case, Laxman Narasimhan has only been CEO for a short time (he formally assumed the role in March 2023).  Shouldn't Schultz give him a chance to put his stamp on the company before criticizing the firm so publicly?  What benefit is there for the company, its employees, and its shareholders if he publishes this commentary on LinkedIn, rather than simply talking privately with fellow shareholders and/or directors and executives of the company?   Knowing when and how to leave is a critical part of any succession.  Starbucks has struggled mightily in this regard.  The Board needs to navigate this situation carefully, lest they find themselves searching for a new CEO again far too soon. 

The NFL Draft: Are Teams Getting Better at Selecting Talent?

On Thursday, we will have the NFL Draft in which each team selects college players.   The draft has become a major television event, and an entire industry of analysts, scouts, and analytics gurus has emerged to flood the airwaves with "expert" commentary.  Teams have invested heavily in their scouting departments, and the assessment tools and analytics they use to select players are allegedly far more advanced than they were decades ago.  With that in mind, I decided to analyze the selection of quarterbacks in the first round over the decades.  I chose to analyze quarterbacks since that is the most important position on the field today.   You can see some interesting trends, although the 1990s appear to be a bit of an aberration (fewer stars and more busts than other decades).  Thus, I decided to compare the 1970s and 1980s to the two most recent complete decades (2000s and 2010s).  Here are a few observations:

• Teams are selecting more quarterbacks in the first round now than they did years ago.  We shouldn't be surprised at this fact, given that the passing game is much more important today.   Teams are clearly investing in a position which has much more value and contributes more to winning today than 50 years ago.  In the period from 1970-1989, teams selected 1.9 quarterbacks per year in the first round.  That number rose to 2.8 quarterbacks per year in the period from 2000-2019.  
• Despite the advanced scouting and analytics, and the tremendous investment in talent evaluation today, teams are not any better at identifying stars than they were in the past.  50% of the quarterbacks selected in the first round from 1970-1989 made at least one Pro Bowl.   Did the NFL general managers improve their hit rate in more recent years?  Not one iota.  50% of the quarterbacks picked in the first round from 2000-2019 made the Pro Bowl at least once.  No improvement despite all that work to allegedly improve talent evaluation!  
• How many champions did the teams identify in these years?  From 1970-1989, 8 of the 38 quarterbacks selected in the first round were the starting quarterbacks on Super Bowl championship teams.  That equates to 21% of the players selected.  From 2000-2019, only 5 of the 56 quarterbacks chosen in the first round have won a Super Bowl (just 9%).  Now, that number is lower, in part, because some of these players have many years left in their career.  Others will surely win Super Bowls.  It is also lower because a certain quarterback drafted in the 6th round, who played here in New England, won so many championships since 2000.  Having said that, the fact is that many of the most elite quarterbacks in NFL history win multiple championships. Thus, a small set of quarterbacks end up champions.  Consider that 5 players have won 36% of the Super Bowls ever played (Brady, Bradshaw, Montana, Aikman, and Mahomes).   12 players have won 60% of the Super Bowls ever played! Thus, the chances of selecting a future champion remain very low, despite all the investment in talent evaluation.  

What are the lessons from this analysis?  Can business leaders learn anything from the NFL draft?  First, if a certain type of talent becomes more valuable, don't count on simply improving your ability to identify future stars when recruiting and hiring.   You may need to simply recruit more people, knowing that your hit rate might not improve much despite new analytics tools.  Second, in some businesses, a few truly elite talents can have an unusually large impact on organizational success.  Yes, we like to emphasize that business is a team sport, much like football.  Yet, there is no way we can simply ignore that 60% of the championships in this sport have been won by 12 quarterbacks over nearly 6 decades.   Of course, they had tremendous talent around them, and great coaching, but still the impact of these individuals at this most important position is quite extraordinary.  Third, beware of the hype around various talent evaluation tools.  Yes, analytics can be helpful, as can other new tools for evaluating talent.  However, we should be skeptical of those who claim that these new tools and methods can dramatically improve our ability to identify top talent.  Beware the hype! 

When We Hire, Should We Consider How Well-Connected Candidates Are?

Does an organization benefit when its employees are highly connected to workers in other firms and industries? Or does the benefit simply flow to the employees themselves, as they perhaps are building better future job prospects through these connections. Shelley Li, Frank Nagle, and Aner Zhou set out to examine this question. They built an enormous dataset comprised of approximately 9 million employees with 2 billion individual employee relationships at more than 7,000 publicly held companies in the United States. The scholars discovered that companies whose workforces are more connected tend to produce more valuable innovations. The authors summarized their conclusions as follows:

Although employees do not necessarily make connections for the company’s benefit, we find that companies’ centrality in the employee network positively predicts company value. This effect is largely driven by mid-level employees. Furthermore, company centrality in the employee network predicts company innovation inputs (R&D spending), and controlling for these inputs, predicts the quantity, scientific impact, and economic value of companies’ patented innovation outcomes.

Nagle commented to HBS Working Knowledge about their findings: "What we’re trying to say is there are many more jobs than you might imagine where having the right connections can be helpful to your company.”  He also notes the implications for managers as they search for job candidates. 

“Managers, when they hire somebody, know to look for many different qualities. How well-educated are you? How much job experience do you have?  Today, in some jobs, such as sales or higher-level management, managers may think about how well-connected you are, but our work shows that might be a consideration for a broader set of jobs.”

I'm quite interested to know more about the particular jobs where these connections matter most.  Beyond science, engineering, and sales roles, are there other positions where these networks are important?  Moreover, rather than simply thinking about hiring people who are quite connected, I'm curious to know how organizations can help their employees build more relationships with workers in other organizations.  What can business leaders do to help foster these connections for their middle managers?  

Be a Loud Listener

I'm looking forward to hearing David Brooks speak at my daughter's graduation from Vanderbilt University next month.   Brooks, a writer for the New York Times, has written a new book titled, " How to Know a Person: The Art of Seeing Others Deeply and Being Deeply Seen.  I'm reading the book now, and it has some terrific insights on how we can connect, empathize, and communicate with others more effectively.  Brooks appeared recently on Matt Abraham's podcast from Stanford.  Brooks introduces a very interesting concept.  He describes the value of being a "loud listener" when communicating with others:  

First, regarding attention, treat attention as an on off switch, not a dimmer. So, when you’re talking to somebody, it should be a hundred percent or zero percent. Don’t try to 60 percent it and have 40 percent of your attention on your phone. Be a loud listener, I have a buddy when you’re talking to him, it’s like talking to a Pentecostal charismatic church, he’s like, uh huh, yes, yeah, uh huh, amen, I preach, preach. I love talking to that guy. And some people are loud with their voices, some people are loud with their faces, they’re emotionally reacting. And so, I love talking to those people.

Brooks is emphasizing an important part of active listening.  It involves really showing the other person that you are paying attention.  You are truly leaning into the conversation when you are a loud listener.  Brooks also reminds us that we aren't very good at multitasking.  We have to give others 100% of our attention in a conversation, rather than trying to do two other things at the same time (which we all do, of course). 

Three Voices Every Leader Needs

Fortune's Michal Lev-Ram and Alan Murray recently interviewed Otis Elevator CEO Judy Marks at Deloitte University. Marks offered some great insights to the assembled group of leaders from a variety of companies.  In the interview, Marks offered a great comment about the types of voices that a leader needs to hear now and again.  She specifically mentioned three voices:

You need a group of very trusted people who are going to tell you truth because things get filtered and they really do. So you need to call one of them a loyal irritant as long as it doesn’t really bother them. You need someone who’s going to kick you under the table every now and then and say, “Okay, enough, Jude.” Right? They got your point. Okay, it’s enough. Let go. You need someone who’s going to say, I think be really good if this got on your calendar because you can’t be everywhere.

We often hear about the need for that first voice - the devil's advocate, the trusted confidante and truth-teller.  However, the other two voices are interesting and important too.  First, you have to have someone willing to tell you when you've made your point, and perhaps you need to back off.  Sometimes leaders need to give people time and space to digest tough feedback and to determine how they want to adjust their actions moving forward.  In the moment, people can be defensive when the leader is pushing back, and just pushing some more won't cause them to listen more effectively.  They might just put up a bigger shield.  Second, you do need people who can help you determine where your intervention is needed, and when you need to make time to attend to an issue(s) that might not otherwise be on your radar.   Marks offers some good advice here.  Having these three voices and listening to them attentively can be very helpful for leaders at all levels. 

Eliminate the Bosses? Organizational Transformation or Corporate Fad?

Source: https://www.organimi.com/

The Wall Street Journal's Chip Cutter has written about the transformation underway at Bayer, led by its new CEO, Bill Anderson. The article is titled, "One CEO’s Radical Fix for Corporate Troubles: Purge the Bosses." The 160-year-old company has struggled mightily in recent years, particularly after a problematic acquisition of Monsanto. Anderson's transformation plan calls for the establishment of 5,000 to 6,000 self-directed teams, as well as the elimination of many middle management roles.  He has taken aim at the pile of rules and regulations that govern employee conduct and decision making, hoping to streamline many processes.   

While the ambitious plan has many attractive features, it raises some concerning questions in my mind.  First, as I read the article, I'm reminded of the quote by the American writer and former State Department official Charlton Ogburn, Jr. He once said, "We tend to meet any new situation by reorganization, and a wonderful method it is for creating the illusion of progress at a mere cost of confusion, inefficiency and demoralization."  In many companies, attempts to redesign the organizational structure occur frequently.  Yet, CEOs are fooling themselves if they think that they will find an optimal organizational structure.  No such thing exists.  Each structure has its weaknesses.  Moreover, many transformation attempts create confusion and anxiety, as employees struggle to determine who has the decision rights on key issues.  

The WSJ article mentions that Anderson's transformation plan has introduced a whole new vocabulary regarding titles and processes.  Employees need to attend training to understand their new roles and responsibilities.  While a common language can be helpful, sometimes we are simply replacing one set of acronyms with another, without effecting profound cultural change.  Anderson will have to watch for signs of confusion in his workforce.  Moreover, there will always be some employees who think to themselves, "This too shall pass," having seen what they consider other corporate fads come and go.  Anderson will have to persuade them that this organizational transformation is not another fad.

One final thought from Wharton’s Peter Cappelli: he has compared serial reorganizing to the common tendency for doctors to administer antibiotics for minor illnesses.   He has argued that such prescriptions might address the pain and discomfort of the moment, but have adverse effects over the long run.   Why?  He argues that employees may lose faith in their senior leaders if they don't understand the rationale for yet another restructuring, if they are unclear about their roles and responsibilities, or if they think that it is yet another "flavor of the month."  

Anderson's plan has the potential to eliminate or streamline inefficient processes, while empowering employees closer to the actual work to make important decisions.  His goal is admirable and well-intentioned.  He just needs to make sure that he focuses on changing the culture and behavior, and not get too caught up in the boxes and arrows on organization charts.   

Action vs. State Orientation: Who is More Vulnerable to the Sunk Cost Trap?

Source: The MSLs' Liaison Newsletter

Some individuals have a strong action orientation.  Others have what is described as a state orientation. What's the difference?  According to James Diefendorff and his colleagues, 

"Individuals with a strong action orientation are able to devote their cognitive resources to the task at hand, thus enabling them to expediently move from a present goal state to some desired future goal state. These individuals flexibly allocate their attention for the purpose of task execution and goal attainment. Persons who are more action oriented are characterized by enhanced performance efficiency and the ability to complete tasks after minor failures or setbacks."

On the other hand, Diefendorff and his colleagues describe a state orientation as follows:

Alternatively, individuals with more of a state orientation tend to have persistent, ruminative thoughts about alternative goals or affective states, which reduces the cognitive resources available for goal-striving. This reduction of available resources impairs state-oriented individuals' ability to initiate activities and to follow tasks through to completion, especially when the activities are difficult, nonroutine, or both.

How do these contrasting orientations affect our decision making?   Are individuals with one of these orientations more vulnerable to certain cognitive biases when making critical choices?  Marijke van Putten and his co-authors examined this question with specific focus on the sunk cost trap.  In other words, they asked the question:  Are individuals with a strong state orientation more susceptible to throwing good money after bad than individuals with a strong action orientation?   They posited that state-oriented people would ruminate about past events and dwell on past failure. Consequently, they might try to recoup past losses and escalate commitment to failing courses of action.  Action-oriented people would, according to their hypothesis, focus on the future.  That forward focus would enable them to cut their losses and de-escalate commitment to an ineffective course of action.  

The findings from an experiment confirmed their hypothesis.  The sample size was rather small, and more work certainly needs to be done in this area.  However, the initial exploratory results are quite intriguing to me.   It speaks to a broader set of psychological research suggesting that people's well-being and decision-making abilities may suffer if we them to dwell or ruminate on their emotional state. Encouraging people to shift toward an action orientation may be beneficial.  

What are Your REAL Values?

Lila Maclellan has written an important story for Fortune titled "The recent debacles at Boeing and Meta highlight the dangers of shrugging off employee concerns."  Boeing, of course, has been saddled with product quality and safety troubles for several years, including two fatal crashes of the Boeing 737 MAX, about which I wrote a case study.   Meta has had repeated instances of internet safety and privacy issues, for which senior leaders dismissed or downplayed employee concerns.  

In this article, Maclellan cites Ann Skeet, senior director at the Markkula Center for Applied Ethics at Santa Clara University.  Skeet says, “When people bring things to your attention, it’s an opportunity to reset expectations and to clarify culture.  But if the leadership says that we can continue even when people are surfacing things they feel are inconsistent with the organization’s espoused values, it suggests there is another set of values that are actually being applied.”  

Skeet makes an important distinction here between an organization's espoused values and its values-in-use (a concept first articulated by Chris Argyris).  The espoused values are those that we find on the placard posted on the wall, or articulated by senior leaders when addressing employees and other stakeholders.  The values-in-use are the REAL values as identified by the ACTIONS of the leaders in the organization.   When employees perceive a serious disconnect between the espoused values and the values-in-use, then disenchantment and disengagement rise.    Some people stay silent in the face of serious problems.  Others simply exit the organization.  Leaders at all levels need to constantly ask themselves: Are we walking the talk?  Are we living up to our espoused values?  Or, are employees perceiving us as disingenuous?  If so, why has that perception arisen?

Does Money Serve as an Effective Motivator for Certain Types of Work, But Not Others?

(Shutterstock.com/retrorocket)

Does money serve as a more effective motivator for certain types of work, but not others? That is the fundamental question explored by scholars in a recent working paper. Pamela Osborn Popp, Ben Newell, Daniel Bartels, and Todd Gureckis have written a paper titled, "Can Cognitive Discovery Be Incentivized With Money?" They conducted six experiments. In the first five experiments, they asked research subjects to examine a set of items. The participants had to determine how the items might be categorized sensibly into groups and then assign them appropriately. The scholars describe this task as "rule discovery" work. In the sixth experiment, the subjects engaged in "rule implementation" work. In that study, the scholars told the subjects what the categorization process should be, and the participants simply had to apply that criteria. 

The scholars found that money proved to be an effective motivator in the sixth experiment, but not in the previous five studies. The scholars conclude that tasks requiring creativity, insight, and discovery are quite cognitively challenging, and they depend on both attention and working memory.   They write  that "the results suggest that performance in tasks which require novel inductive insights are relatively immune to financial incentive, while tasks that require rote perseverance of a fixed strategy are more malleable."  

The researchers note that tasks in the workplace don't fall simply into these two categories though.  There's most likely a spectrum that stretches from the highly rote work to the extremely cognitively challenging tasks require high degrees of creativity.   Moreover, our work often involves some combination of these types of tasks.  Finally, the scholars remind us that this study focused strictly on one form of monetary incentive.  Non-monetary incentives may have different effects. 

Why Do We Miss Key Opportunities?

Why do we miss key opportunities at times in our careers?  Sometimes, it may have to do with the type of opportunity we encounter.  Suppose we have to decide whether to pursue a course of action which could have a positive outcome, but it has a very low probability of a successful result.  Harvard's Emily Prinsloo and her co-authors have published an interesting new paper exploring what they call "opportunity neglect."   Through a series of studies, they show that individuals  systematically fail to take advantage of low-probability opportunities, even when the costs of an unsuccessful outcome are quite low.   In fact, they demonstrate that, "people are even willing to incur costs to opt out of low-probability opportunities."   

Why do people fail to take advantage of these opportunities?   Perhaps, we anticipate the emotions that we will experience if we fail, and we are trying to avoid those negative feelings.  We might not only worry about how we are going to feel, but about how others will perceive us if we don't achieve a successful outcome.  

The question is:  Are we over-estimating the negative repercussions of an unsuccessful outcome?  Do we anticipate the negative emotions lasting much longer than they actually will?  Are we exaggerating the reputational hit we might take if we don't succeed?  

In writing about this research for BPS Digest, Emma Young recalls the famous Wayne Gretzky quote: ”You miss 100% of the shots you don’t take.”   Perhaps we need to remind ourselves that pursuing stretch goals is worthwhile.  In fact, there may be a great deal of fulfillment associated with taking on big challenges.  Moreover, we should recall what Daniel Pink wrote about in his excellent book, The Power of Regret.  Pink notes that people tend to experience more regret in life about paths they did not pursue than actions they undertook.   

Learning on the Job: Do We Learn and Develop Faster with In-Person Collaboration?

Source:  https://www.myworldofwork.co.uk

Do we learn more from in-person collaborators than remote teammates?  That question has been top of mind for many people over the past few years.   Much of the dialogue about this question has not been evidence-based though.  It's been highly anecdotal.   Recently, however, I read about some fascinating research on the topic. 

Frank van der Wouden and Hyejin Youn analyzed more than 17 million academic publications over decades to address the question of whether local collaboration generates more learning than remote collaboration.  The scholars wanted to identify each researcher who collaborated with someone outside their discipline and later published a sole-authored paper in that new domain.  That later publication would indicate that the researcher had learned a great deal from this collaborator outside his or her original field of expertise.  Youn and van der Wouden compared the learning rate for those who collaborated locally vs. at a distance.   They found that the learning rate of local collaborators exceeded that of distant collaborators, with a particularly substantial impact in areas such as chemistry and engineering.  

Moreover, Youn explained why the impact of local collaboration was greater for people early in their careers: “That’s understandable, because early in your career, you still need to acquire knowledge, and you have to be present to do that when knowledge isn’t yet codified. It’s like riding a bicycle. You can’t learn how to ride a bicycle by reading a paper.”

The study covered the period from 1975-2018. Therefore, some will argue that we have much better tools for virtual collaboration today, and we have become more adept at remote interaction.  As a result, they will conclude that we cannot draw far-reaching conclusions from this study.  That may be true, but it still warrants consideration and certainly indicates that we need further study of the topic for the more recent period of time.  The finding about young people is of particular interest to me.  What do these findings mean for how we bring new workers into the fold early in their career? What should onboarding and apprenticeship look like in those early years?  How will they learn and develop most effectively?  We've been thinking a great deal about what type of work can be done best remotely vs. in-person.  We should also be thinking carefully about the stage of each person's career and how that impacts our decisions about in-person vs. remote collaboration.  

Fighting Back Against Becoming Insular & Isolated

Source: www.cleartouch.com

Leaders love to talk about customer obsession.  They often highlight it as a value they cherish.  They encourage others to put the customer first.   Yet, all too often, they don't walk the talk.   Far too many organizations are quite insular in their thinking.  People focus an overwhelming amount of their time and attention on internal processes and procedures.   Executives become buried in staff meetings, and they become isolated from customers, markets, front-line employees, and external partners.    How can we fight back against becoming too insular in our thinking?  It's about more than just building in some scheduled time to visit with customers.  Here are a few tips:

1.  Walk a mile in the customer's shoes from time to time.   Don't just ask customers what they think; actually put yourself into their situation.  What is it like to purchase your product or service?  What are the pain points and frustrations of your customers? 

2.  Open your eyes when you travel and look for the unexpected.  When we drive to work each day, traveling the same route, we are usually on auto pilot.  We don't have to think much, and we often don't notice much along our path.  When we travel, our minds are more alert, and we have to think a bit more about where we are going and how to get there.   Use these travel opportunities to notice the differences between your home city or country and the place you are visiting.  What is different about consumer preferences?  What cultural differences stand out to you?  What local competitors are behaving in interesting new ways?  How might these factors influence your business?

3.  Study organizations outside your industry.   Don't just remain laser focused on the 3-5 major rivals with whom you compete each day.  Find interesting companies, far and wide, from which you can learn.   What interesting practices are they employing?   How have they overcome challenges similar to those you face? 

4.  Go out and recruit new talent on college campuses.  Don't just send your front-line human resources staff members, or your young workers who are alumni from those schools.   Send some more senior leaders to those colleges.  Encourage them to interact with the young people and ask them questions, rather than just providing information about your company. Find out what they care about, how they view your organization, and what they think about your products and services. 

5.  Encourage a few people on your team to role play the competition when you are making a big decision.  Ask them to really study how your rivals think and act, and then encourage them to propose how your rivals will react to your decision.  

6.  Read voraciously, but don't just read the business news and a few books relevant to your industry.  Read more broadly, and keep a journal reflecting on what you have learned.