Thursday, May 30, 2024

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).  

Friday, May 24, 2024

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.

Wednesday, May 22, 2024

Being on Time: An Underrated Skill


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.  

Friday, May 17, 2024

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?

Wednesday, May 08, 2024

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.