Work vs. Pleasure

My copy of the Harvard alumni magazine came in the mail yesterday, and it included a story about some interesting new research by Harvard Business School Professor Anat Keinan. Keinan and Columbia Business School professor Ran Kivetz have coined a new term - "hyperopia." They describe it as the habit of overestimating the benefits one will receive in the future from making responsible decisions now. Here's what the scholars found:

"Time after time, when subjects were asked to recall situations in which they had to choose between work and pleasure...More of the subjects who’d chosen play over work recently expressed regret, but those numbers reversed for choices made in the distant past. For instance, college students said they’d spent too much time relaxing during a recent winter break, but when they considered the previous year’s break, they said they’d spent too much time studying and working."

Keinan suggests that we could be happier if we took a long term perspective and anticipated our future regrets as we make current choices. She also highlights the fact that companies can retool their marketing to take advantage of this new understanding of how people judge their decisions about work vs. pleasure.

Hospital Errors

In yesterday's Wall Street Journal, Laura Landro has an excellent column titled "Hospitals Own Up to Errors." She explains how many hospitals have begun to acknowledge their medical errors more openly, rather than "retreating behind a wall of silence to guard against potential lawsuits." Hospitals not only have encouraged their staff members to be more open about mistakes, but they have become more candid with patients and families as well. Amy Edmondson, Anita Tucker, and I wrote a case study several years ago about one hospital's efforts to improve patient safety by becoming more transparent about medical accidents. We wrote about Children's Hospital and Clinics in Minneapolis/St. Paul. At the time, their Chief Operating Officer, Julie Morath, was leading a major initiative to improve patient safety. She strove to create an environment where people felt safe coming forward about medical accidents and near-misses, on the theory that a hospital cannot improve safety if it doesn't know where the problems are. The lesson here is very clear... Organizations must create an environment where individuals feel safe acknowledging mistakes and discussing failures. If not, then the published error rates may seem low, but they may be disguising an ugly truth, while preventing the organization from discovering where improvement opportunities exist.

GM Board and Opel

At first, one might react with dismay at the drawn-out process by which GM has tried to sell Opel - its European division. However, recent reports indicate that the new GM Board has rejected management's proposal to sell Opel to Canadian auto-parts manufacturer Magna. The board apparently has pushed management to consider other options, including raising new financing so that the company could retain and restructure Opel. While it's not at all clear whether or not retaining Opel makes sense, one may be heartened to hear that the new GM Board is being vigilant in its governance duties, and not simply rubber stamping management's proposal to sell Opel to Magna. It seems that the board has asked some tough questions and been willing to push back on a key management decision about which board members had serious doubts and concerns.

Sample Lab

Marketers will be particularly interested in this Wall Street Journal article about a first-of-its-kind "marketing cafe" that has opened in Japan. Sample Lab Ltd. operates this cafe in Tokyo, targeting women in their 20s and 30s. The women have an opportunity to earn tokens based on the amount of food or drink they purchase. Then, they can redeem those tokens for samples of new products about which marketers would like to garner customer feedback and launch effectively into the marketplace. It will be interesting to see if this concept succeeds in Japan, and if it spreads to other countries.

Happiness

As leaders, we should strive for a deep understanding of what makes our employees happy. I'm not suggesting that we should always aim to please; our goal is not for our employees to necessarily like us. However, we should strive to garner their respect and their commitment to a common goal(s). Having said that, if we are to motivate our employees effectively, we do need to understand what makes them happy. The Boston Globe had a great article yesterday about recent research on the relationship between happiness and money that is must reading for any leader. The article explains that many studies have affirmed the conventional wisdom that money does not buy happiness. However, more recent research has challenged this notion a bit. These studies show that how we spend our money matters. Here's an excerpt:

"A few researchers are looking again at whether happiness can be bought, and they are discovering that quite possibly it can - it’s just that some strategies are a lot better than others. Taking a friend to lunch, it turns out, makes us happier than buying a new outfit. Splurging on a vacation makes us happy in a way that splurging on a car may not... The problem isn’t money, it’s us. For deep-seated psychological reasons, when it comes to spending money, we tend to value goods over experiences, ourselves over others, things over people."

The articles goes into considerable depth on these issues, drawing on a stream of research by Elizabeth Dunn, Michael Norton, and Sonja Lyubomirsky. I highly recommend this piece by Boston Globe writer Drake Bennett.

Price Changes at Starbucks

Starbucks announced yesterday that it will be raising prices on some drinks, while cutting prices on others. Which prices will be raised? Apparently, they have chosen to increase price on more complicated drinks such as Frapuccinos, while dropping prices slightly on items that are easier for the baristas to make/serve (such as drip coffee and tall lattes). Why has Starbucks made this move? They may have come to a better understanding of their true costs for each product on their menu and realized that the time required to make certain complicated drinks had driven up costs and eaten into their margins on those items. They may also want to encourage slightly higher volumes of easy-to-make drinks as opposed to complicated ones so as to speed up overall service. One complaint many customers have had is the slow service, particularly due to people in line who are ordering complicated, customized drinks. On both the cost and speed fronts, Starbucks seems to be making progress. It's always effective for firms to have a good understanding of the cost of each activity in their production and selling process, as well as to comprehend how to speed up service to the consumer.

Team-Color Bud Cans?

Anheuser Busch, now owned by international beer company Inbev, has launched a new marketing campaign featuring Bud Light cans that come in the team colors of various universities. As you might expect, this new packaging has raised the ire of many college administrators. Is Bud encouraging underage drinking with this campaign? Have they gone one step too far in their efforts to make the brand appealing to young adults? Of course, many college students drink a great deal of beer regardless of the color of the can. Is this campaign actually going to increase beer consumption on campus, or is it likely to simply convert some consumption from other brands to Bud Light? While I'm not sure I approve of the marketing campaign, I'm not convinced it is going to increase consumption overall. I do think that it may help Bud Light capture share from its rivals though.

Blog of the Week

Thank you to the Weekly Leader for naming me their "blog of the week". The Weekly Leader site has an incredible amount of interesting information about leadership. I recommend checking it out.

Leaders Who Won't Leave

This week Brett Favre announced his return to the National Football League. Over the past few years, Favre has retired and then unretired several times. He just won't go away! Of course, many business leaders find a hard time saying goodbye as well. They remain at organizations for too long, and eventually, they become less innovative, more complacent, and too stuck in their ways.

In Favre's case, the Minnesota Vikings have awarded him a contract worth more than $10 million. They are counting on him to be something akin to the star quarterback he was in his prime, when he won multiple MVP awards and a Super Bowl. However, his skills have clearly eroded. Over the past four years, his average quarterback rating (a key measure of performance for NFL passers) is slightly below the NFL average during that period. However, people still remember his past performance, and they haven't fully come to grips with how far that performance has declined.

The same phenomenon often holds with business leaders. Put simply, we often take too long to adjust our evaluations of a manager's performance. Past success is "sticky" in the sense that it remains embedded in our minds, and we don't adjust our evaluations downward in a timely manner when performance does decline. We have to wary of this "stickiness" because it may lead us to overpay for past performance, or to hold onto managers for too long even if their recent performance does not justify it.

Using Pilots: What Government Can Learn From Business

As I observe the cash for clunkers program, as well as the debate about health care reform, I continue to be perplexed by the failure of our government to employ small pilots as a mechanism for experimenting with new ideas. Would a well-run private sector firm have ever conducted a national rollout of something as complex as cash-for-clunkers without first conducting a pilot?

Why use a pilot? Let me count the ways. First, you could have tested out the technology and the process for reimbursing auto dealers. Second, you could have examined the unintended consequences. Third, you could have come to a better estimate of how much volume to expect from a national rollout of the program. Fourth, you could have gathered all sorts of improvement ideas from dealers and end customers. I'm sure there are other benefits as well from a pilot. In short, a well-run business would have captured a great deal of learning from a pilot, and then decided whether to roll out nationally. If they chose to roll out, they would have a much stronger process as a result of the learning from the pilot.

Amidst all the health care reform debate, one wonders why we aren't talking about piloting some of the reform ideas on the table rather than trying to change the whole elephant all at once. A pilot may not be the right political choice, but it seems like the sensible thing to do for the good of the country.

Aging Customer Base

Reader's Digest has announced that it will file for bankruptcy protection. The magazine failed, in part, because of the advertising downturn in this recession and the high amount of debt on its books. However, Reader's Digest also failed because of a more significant long term decline in its business, as its customer base aged over the years. The magazine's demise provides a lesson for many firms who face a similar risk.

Companies need to be acutely aware of trends that may be leading to a substantial long term increase in the average age of its customers. It's one thing to target older consumers specifically; it's quite another to see your average customer age rise because you become less and less attractive to younger consumers who used to be part of your target market. Talbots has faced this problem in recent years, as it became less relevant to younger women. Harley Davidson must have some concern too as its average customer age has risen from the mid-30s to the late 40s.

Becoming relevant to young consumers again has its risks though, as Talbots learned a few years back. Attempts to attract younger consumers can, at times, turn off the older customers who have become a firm's core market. Thus, radical attempts to reshape a brand can backfire. Firms must be vigilant in monitoring long term trends regarding the age of their customers, so that they can gradually adapt, rather than waiting until a huge problem exists and then trying to dramatically overhaul the brand and target market.

BNET Back to School Blog

Thank you to Stacy Blackman for this first of a two-part blog post about my latest book.

My Op-Ed Published in Washington Times

In today's Washington Times, my friend Brian Gaspardo and I have published an op-ed titled, "A Mid-Summers Dream." The op-ed focuses on what we learned from Professor Larry Summers twenty years ago as Harvard undergraduates, and how those principles stack up against the economic policy choices that are being made today in Washington. We ask the question: What would Professor Summers think of Economic Adviser Summers?

CEO Compensation: Gaming the System

This article describes new academic research examining a key factor that influences executive compensation at many firms. The studies analyze how companies select their "peers" when evaluating what they should pay top executives. Typically, firms compare their compensation packages to peer companies. However, a key question remains: "Who are the relevant peers?" The new academic research shows that firms often select larger rivals, who have higher compensation, when putting together these peer comparison analyses. Therefore, firms find it easier to justify high compensation packages for top executives.

Immediately, I began to think about how effective boards and corporate governance practices should be able to monitor such analyses and force more reasonable comparisons. Weak boards and weak governance would seem more likely to allow such biased analyses to slip by. Indeed, the research shows just that... According to this same article in the Wall Street Journal:

"Companies with what experts consider weak corporate governance -- where the CEO is chairman of the board or where directors serve on multiple boards, for example -- are more likely to choose highly paid peers, the study found."

Smart Discounting

Here's a good article by Steve McKee on how to discount without doing lasting damage to your brand.

Preemptive Competitive Action

In many cases, competitors learn about a new entrant into their market, but they wait to see if the entrant gains traction before offering a competitive response. However, successful companies should think about how, when, and why they might engage in preemptive action to ward off the threat from a new entrant. Such preemptive action need not always entail price cuts, nor do they even have to cost a great deal of money.

Let's take a look at an example from the Boston radio market. Here in Boston, WEEI has reigned supreme for many years as the dominant sports radio station. Several rivals have tried to compete with them, but they have not fared well at all. However, a new entrant has emerged this summer. This station - The Sports Hub 98.5 - appears to have the potential to be a more substantial threat for a variety of reasons. WEEI has made some interesting preemptive moves. First, about one week prior to the entrant's debut, they came to an agreement to allow Boston Globe sportswriters onto WEEI for the first time in years (the station and the paper had been at odds for years). This enabled WEEI to insure that they would have a substantial infusion of on-air talent, before the entrant snapped up these famous writers. Secondly, WEEI changed its format a bit. One thing that always annoyed listeners were the very long commercial breaks. Now, they have broken up the commercials into shorter chunks - breaking more often, but for a shorter period of time. The shift is also significant for another reason. By changing the regular rhythm of their breaks, and making them shorter, they are trying to discourage listeners from switching the dial over to try out The Sports Hub.

Such preemptive strikes may or may not work in this case, but as you can see, they are low cost maneuvers that are trying to defend a competitive position. I would argue that incumbents need to think hard about using such preemptive action, while trying to avoid the price wars that can damage profit margins so badly.

Women Underrate Bosses' Opinions of Them

The Boston Globe reports on a fascinating study presented at the Academy of Management conference this week. Here's the basic finding:

"A new study shows female managers are more than three times as likely as their male counterparts to underrate their bosses' opinions of their job performance. The discrepancy increases with women older than 50, the study states. 'Women have imposed their own glass ceiling, and the question is why,' said Scott Taylor, an assistant professor at the University of New Mexico Anderson School of Management who conducted the study."

Do you have a view as to why women, particularly older women, come to these conclusions?

Cash For Clunkers

Several days ago, the administration reported on the cash for clunkers program. They indicated that many small, energy efficient cars made the list of the top-selling cars in this program. Today, however, I read a surprising story on CNN's website. Peter Valdes-Dapena writes about an analysis conducted by Edmunds.com, which challenged the results communicated by the administration. Edmunds found that pick-up trucks such as the Chevy Silverado and Ford F-150 actually made their version of the top 10 list. How could that be? What explains the discrepancy between Edmunds' findings and the goverment's reporting? Edmunds.com discovered that the government "subdivides models according to engine and transmission types, counting them as separate models." Edmunds counted all variations of a particular car as one automobile in their analysis. As it turns out, trucks and SUVs tend to come in many more variations. Therefore, by counting each variation as a separate vehicle, the government found that no truck or SUV made their top 10 list.

What's the lesson from this story? First and foremost, we have to be careful how we measure the outcomes of any program or initiative. One always has to question the means by which a program has been evaluated or measured. Secondly, these results demonstrate once again the law of unintended consequences. The administration hoped that the program would mean that consumers would trade in their clunkers for small, energy efficient cars. Now, what has happened is that people have improved the energy efficiency of the cars they own, but perhaps not by as much as the administration had hoped. They may have traded an old gas guzzler for a reasonably efficient truck, but it's still a truck, not a Prius! The real question is: Did the administration and the Congress anticipate the results that have been achieved? If not, why did they miss seeing these unintended consequences?

In your own companies, you always have to ask: Are we seeing unintended consequences of a particular initiative? If so, why didn't we anticipate these results? Could we have enhanced our decision-making process so as to better anticipate unintended consequences?

Academy of Management Conference

Management professors from around the world converge on Chicago this week for the annual Academy of Management Conference. I'll be involved in two professional development workshops on Friday. I'm the organizer of a session on how academics and practitioners can collaborate effectively to develop leadership development programs for corporations. I'm also a panelist in a day-long workshop on blogging for management professors. I look forward to the discussions at both sessions.

P&G Introduces Tide Basic

The Wall Street Journal ran a front-page story about P&G's intense internal deliberations over whether to launch a less expensive, simplified version of Tide. In the end, facing pressure from consumers buying less of P&G's premium products during the recession, P&G decided to introduce Tide Basic. This debate highlights a crucial issue for many firms during this downturn. How does one cope with changing consumer habits while trying to not damage their brand equity? At the heart of this debate lies a critical question: Is the change in consumer habits temporary or perhaps more long lasting? It seems as though P&G believes they are facing a longer term challenge, driven both by the broader economy as well as the increasing pressures from higher quality private label products in many of their product categories.

GM: Is Market Share the Goal?

I read with some consternation the comments in today's Wall Street Journal from GM's new Board Chairman, Edward Whitacre. He explains that he wants GM to aim for being #1 in market share in the US. He clearly acknowledges that profitability is also a key goal, but I worry about the tension between those two objectives. Market share and profitability are not necessarily fully compatible. In the end, the company's goal should be to return to profitability, even if it may mean ceding the #1 market share position in the US. Too many firms become obsessed with market share, and their efforts to maximize share lead to suboptimal profits. GM needs to be wary of this trap.

Whole Foods: Becoming Healthier

I read with great interest the article in today's Wall Street Journal about Whole Foods Market. The company has announced that it is launching a healthy eating initiative. Apparently, CEO John Mackey has adopted healthier eating in his personal life and recognized the amount of unhealthy food at Whole Foods. His goal is to return the company to its natural foods origins and to focus on foods that are good for you. As a customer of Whole Foods, as well as an observer of company strategies, I applaud the strategic shift. I've noticed over the past few years that Whole Foods was not at all a store filled with healthy foods. While it did have wonderful fruits and vegetables, and plenty of organic foods, it also had many, many foods that were very high in saturated fat. This always seemed to me to conflict with the "healthy" image that Whole Foods hoped to portray. Thus, it seems to me that Whole Foods is trying to clarify its brand image and insure that its product selection reinforces that brand image. That seems like the right move for a company that faces intensifying competition, particularly from lower-priced rivals.

Innovation Process at Whirlpool

Here's an interesting article about the innovation process at Whirlpool. Such processes always raise a series of interesting questions. Perhaps most importantly, one must ask whether a process such as this one strikes the right balance between promoting incremental innovations versus breakthrough/radical innovations. If the process focuses too much on short term financial targets, then it will drive out breakthrough ideas. On the other hand, without the discipline of metrics and targets, management may find itself wasting a great deal of money on ideas that cannot be executed profitably. It's always a delicate balancing act. I'd like to know more about how Whirlpool deals with this tension in their innovation process.

Advice for New GM Chairman

The new GM Board of Directors meets today for the first time. Here are three pieces of advice for new GM Board Chairman, Edward Whitacre, Jr.

First, Whitacre needs to have a frank discussion with the Board, as well as senior management at GM, about the role of the Board relative to management. The Board needs to exercise good governance and control, but it can't be meddling in numerous operational decisions at GM. Whitacre needs to lead an open conversation about how they will delineate the boundaries between management versus Board responsibilities.

Second, Whitacre must discuss Board process with his team of directors. How will he run the Board meetings? What is expected of each director? What role(s) will each director play? What information will be made available to the directors, and at what time? How will Whitacre encourage candid dialogue and the expression of dissenting views?

Third, Whitacre must establish a process for evaluating CEO Fritz Henderson over the coming months. What criteria will be used to evaluate Henderson? Whitacre should establish those criteria clearly, as well as marking out clear milestones for Henderson to strive to achieve. He should also establish the timing of the CEO review process. In other words, how often will the Board formally review Henderson's performance? Given the situation at GM, an annual review seems inadequate. Establishing quarterly milestones and reviews seems more appropriate given the depth of the crisis.

Tata Motors and Jaguar/Land Rover

The Financial Times has an interesting story today about the struggles Tata Motors has faced since acquiring Jaguar Land Rover from Ford Motor Company. The article raises important questions about issues such as the ability of niche players to survive in an auto industry that continues to consolidate globally. However, I think the most relevant question remains whether a company that makes the Nano - a low cost car for the developing world - is also well-suited to make luxury automobiles. Certainly, some auto firms, such as Toyota, make everything from subcompacts to luxury automobiles. However, Toyota has far more experience in the business than Tata, and they have scale economy advantages over Tata. Moreover, Toyota may be an exception, rather than the rule. In many industries, firms that try to serve such disparate segments of the market end up becoming average at best - not excellent at serving any particular segment. The article does point out, though, that Tata has a reputation for taking a long-term perspective. They have been patient with their investments in the past. Thus, they may ride out this dramatic slump in the auto business, and gradually learn how to make Jaguar Land Rover profitable.

Can't Sell His Home

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Home Crisis Investigation
www.thedailyshow.com
Daily Show Full Episodes Political Humor Joke of the Day

Bryant Student Interviews Southwest CEO

One of our exceptional students, Dan Webb, managed to score a brief interview with Southwest Airlines CEO, Gary Kelly. Here is the link.

The Naysayer vs. the Devil's Advocate

This article, by Michael Maddock and Raphael Louis Vitón, offers some useful advice for how to deal with the naysayer in your company who puts up roadblocks at every turn. However, you must also keep in mind the difference between a dysfunctional naysayer and a constructive/useful devil's advocate. In my first book, I contrasted effective devil's advocacy with what Lou Gerstner described as the "culture of no" that he inherited at IBM - where very powerful individuals, acting as naysayers, could effectively torpedo any innovative idea. The bottom line is that you can benefit from devil's advocates who help insure a high level of critical thinking. However, devil's advocates must remember that their job is to spur more divergent thinking, to open up new lines of inquiry, and to generate new options. Their job is not simply to tear down every existing proposal on the table. The best devil's advocate is not closed-minded; he or she seeks to open other's minds up to new possibilities.

Investing in Customer Service

According to this article, "The American Customer Satisfaction Index, a widely followed survey conducted by the University of Michigan, is at a record high. Other surveys also report gains in customer satisfaction." What's interesting about these results? According to the research cited in the article, service often suffers during economic downturns. This year, however, we see firms taking care to retain loyal customers, and trying to improve service. It's good news for customers, who were taken for granted by some firms during boom times.

What does this all mean for companies moving forward? It's so important to understand two sets of customers. The first are those buyers who are likely to defect if not served properly. Does your firm understand which customers, who are profitable for your firm, are also in danger of defecting to the competition? Secondly, your firm has to ask itself: Which consumers are most likely to increase their spending substantially when the economy begins to pick up steam? You want to take good care of them now, so that they demonstrate loyalty to your firm when they begin spending again. In some cases, those buyers may be keeping their wallets mostly closed now, but there may be indicators that they could be profitable customers for you down the road.

Intuition, Emotion, and the Decision-Making of Soldiers

Benedict Carey, writing in the New York Times, offers a look at the latest research on intuition in the military. Carey describes how researchers have been studying the way in which soldiers make decisions about where they believe IEDs are located. It's fascinating work that looks at the role of intuition and emotion in the choices that soldiers make. It reminds me of the groundbreaking work of psychologist Gary Klein, who has studied intuition in the decision-making of soldiers, firefighters, and nurses. Klein has written several great books on the subject. I highly recommend Sources of Power, a book that he wrote in the late 1990s based on his research. Klein shows that intuition fundamentally is pattern recognition based on experience. He provides a model of how we spot cues in our environment, draw analogies to past experiences, and make choices instantaneously and subconsciously in many situations. It's worth reading if you want to know more about what people often describe as "gut instincts."

Wisdom of Crowds

Here's an article about the results of the NetFlix prize, which is an example of what James Surowiecki described as the "wisdom of crowds" in his superb book.

Craig Ferguson: Young and Stupid

To my students...

Bailout Song

Thanks to my former prof, Greg Mankiw, for introducing me (via his blog) to singer Merle Hazard and the "Bailout" song.

Boardrooms and Blackberries

I couldn't agree more... Professors David Beatty and J Mark Weber, writing in the Financial Times.

Leaders as Confronters

Carol Smith, senior vice president and chief brand officer for the Elle Group, offers some interesting thoughts on leadership in this article. While I don't agree with her generalizations about women vs. men as leaders, I do think she makes a number of good points about leadership - particularly on the issues of confrontation and hiring.

Starbucks: Trying to Revive Authenticity

Starbucks tries to go back to its roots and emulate the independent coffee house product/service offering with its new shop in Seattle - 15th Avenue Coffee and Tea, Inspired by Starbucks. It will be interesting to see what Starbucks learns from this experiment. To me, the real success of this concept is not whether this particular store format succeeds, but whether the rest of the Starbucks chain can benefit from the learning and experimentation taking place here.

Don Sull: Updating Mental Maps

Don Sull has an interesting new series of posts on his blog about the types of information that managers must use to update their mental maps during turbulent times. Here's a brief excerpt from the introduction of his latest blog post:

"People use mental maps to guide action. In turbulent markets, however, these maps quickly grow outdated. To update their maps as circumstances change, leaders need information that has four critical characteristics. My last three blogs have discussed the importance of real time, unfiltered, and shared data. This post argues that holistic data is critical to spot opportunities and threats in volatile markets."

Financial Literacy

I'm a big believer in the need for improved financial literacy in the United States. However, as this article notes, one major limitation may be finding teachers at the secondary school level who can provide this education on personal finance matters:

"One weak link in the push for more financial literacy training for young people is teachers, who often lack financial savvy themselves. 'You get a real multiplier effect if you get a teacher prepared well,' says Joseph Peri of the Council for Economic Education."

Ultimately, as with so many things, the real problem begins at home. If parents don't set the right example, we are unlikely to find young people developing good financial habits. As a parent, I think it's important to begin at a young age trying to educate children about how to manage money responsibly.

Blunders Costly in a YouTube World

Major customer service blunders prove mighty costly in a YouTube world. See this article and the video below.

Do You Know What Customers Care About?

Many times, we think we know what our customers care about, but we may be relying on "conventional wisdom" or "gut instinct" rather than cold, hard facts. According to G. Michael Maddock and Raphael Louis Vitón over at Business Week, major league baseball teams may be misguided in their understanding of why fans attend ballgames. Here is an excerpt from what Maddock and Viton wrote:

These same teams are, for the most part, relying on either outdated research approaches or "gut feel" to determine what fans want. And not surprisingly they are swinging and missing. Want proof? Consider some of our recent findings:

• Every sports executive we have ever met says the No. 1 thing fans want is a winning team. Fans rank it 11th when asked why they show up at a game.

• What the paying customers want most is a "fan friendly" environment, right? Nope. Fans rank it 6th in importance.

• Teams worry that their ticket prices are too high. Fans say cost ranks 7th when they are deciding whether or not to attend a game

Has your firm tested or validated its conventional wisdom regarding what customers care about most? Do disconnects exist between what you believe and what is actually true? What does this mean for your product and service offering? Every company should take a lesson from these interesting findings about major league baseball, and they should revisit some of the core assumptions that executives routinely making about their customers.

Huffington Post: Review of my work

Thank you, Tom Alderman, over at the Huffington Post for such a wonderful review of my Teaching Company course on decision-making.

Ford's Turnaround

Ford reports more progress on its turnaround efforts. A one-time gain enabled it to turn a profit for the quarter. While the company continues to burn cash at a substantial rate, it does appear to making strides toward turning its core auto operations profitable. It's not out of the woods yet, but there's light at the end of the tunnel. Of course, cutting costs, improving quality, and reducing debt will help the firm stop the bleeding, but to ultimately have sustainable profits, Ford will have to be a leader in new product development. A major test will be this year's introduction of several new models, including the all-new Taurus championed personally by CEO Alan Mullaly. If the Taurus becomes a hit, Ford could have a bright future ahead.

Bezos on Zappos

Google vs. Microsoft

Holman Jenkins offers an interesting theory on the competition between Google and Microsoft in today's Wall Street Journal. While many journalists describe this as a heated battle, Jenkins provides a contrasting view. It reminds me of how the rivalry of Coke vs. Pepsi was often termed the "cola war" over the years, yet in fact, it resembled the sort of war described by Jenkins, in which both firms prospered for decades.

Zappos Acquired by Amazon

As readers of this blog know, I visited Zappos - the online shoe retailer - about a month ago. I was intrigued by the culture and the incredible customer loyalty generated by the firm. Today, I read that Amazon has agreed to acquire Zappos for $847 million. While I think the acquisition makes a good deal of sense strategically for Amazon, I wonder about the cultural fit. Will Zappos be able to preserve its unique culture? I think Amazon will want to preserve it because the company has delivered such amazing customer service, but I'm sure pressures will emerge on that culture over time.

Ruining the Mystique

Some start-ups become successful as they cultivate a cult following among a hard-core group of consumers. The brand builds mystique. However, as the firm aspires to grow rapidly, it begins to expand its target market - even to go mainstream perhaps. As it does so, the company brand can "lose its mystique" as Professor Burnett mentions in this Wall Street Journal article. Here are some questions to ask yourself to test whether your firm might be in danger of losing the loyal following that fueled early popularity of the brand:

1. Would some of our earliest diehard customers accuse us of "selling out" in some fashion? What did those early customers once think about us, and how do they perceive us now?

2. How different are our early customers as compared to our newest customers? Do their needs and wants differ substantially?

3. Have we become less authentic over time in the minds of some customers?

4. Have we become less unique and distinctive over time?

5. Does the firm have the same sense of purpose that it once had?

What's Wrong with Academia

Here's a funny article from the Wall Street Journal, which highlights some of the odd studies being conducted in academia. While I haven't read and cannot judge these particular studies, we all know that far too many scholarly publications simply state the obvious or offer results which have little meaning for those outside of academia. The publish or perish culture of our universities gives scholars plenty of reasons to conduct such studies simply to get one more peer-reviewed journal publication under their belt.

Joined Twitter!

Well, I've decided to try Twitter: http://twitter.com/michaelaroberto

Thank You - The Teaching Company Course

Thank you to all those who have been listening to my new course - The Art of Critical Decision Making - from The Teaching Company. I've been overwhelmed by the response to the course since its introduction a few months ago, and I've enjoyed hearing directly from quite a few of you who have been listening (or watching) the course.

Suggestion Box at GM

The Wall Street Journal has a story today about how Fritz Henderson, GM's CEO, has implemented an online suggestion box so that he can hear feedback directly from customers. I certainly applaud Henderson's efforts to listen directly to his customers, without all the usual filters that synthesize and summarize data for a CEO. However, leaders must be careful when they engage in such efforts. First, they have to expose their entire management team to such feedback, so that everyone is hearing the same messages from customers. Second, they must be careful not to act based on anecdotal evidence that may emerge from the suggestion box. Many managers grab on to a particularly compelling story or example, and they run with it. Perhaps, though, that bit of feedback may not represent the experience of the vast majority of GM customers. Finally, the company must be prepared to act on this feedback. Nothing angers customers more than a suggestion box that becomes a black hole from which feedback never returns. Can GM handle the volume that my come their way? Are they prepared to hear what they may not want to hear?

Vermont Teddy Bear Stages a Comeback

The Boston Globe reports that Vermont Teddy Bear has completely shifted its strategy in an attempt to execute a turnaround of the struggling firm. It's quite a shift in target markets, from adult men who listened to shock jock radio to children who want a lovable teddy bear with which to play and sleep. Most firms can't pull off such a radical change in their target market, but perhaps Vermont Teddy Bear can do it. It does seem to make sense to play off of their Vermont heritage with items such as an eco-friendly bear.

Is Google a One-Trick Pony?

Many people have labeled Google a "one-trick pony" despite its many varied efforts to launch innovative new businesses. Much has been made lately of their efforts to challenge Microsoft on a variety of fronts, but this article suggests that it's been a tough slog in the application software business. One has to wonder whether Google may lose focus at some point as it pursues so many different avenues of new growth beyond its search advertising juggernaut. How can it keep so many balls in the air, and do them all highly effectively?

Check out Harsh Luthar's Blog

Harsh Luthar is my colleague at Bryant University, and I'd like to recommend his very unique blog. Harsh is a talented scholar and teacher in the field of human resources. His blog has a spiritual/psychological/religious orientation, and it seeks to promote interfaith understanding and peace. Harsh writes on a wide range of issues, including many aspects of personal growth, happiness, and development. Harsh also regularly invites international scholars from England, India, Egypt, Germany, U.S., and other parts of the world to contribute to the site.

The Boston Red Sox, Sunk Costs, and Julio Lugo

The Boston Red Sox face an interesting decision in the next few days. One of their shortstops, Jed Lowrie, returns from injury this weekend. They will have to make a spot on the roster for him. One logical move would be to release Julio Lugo, a shortstop who has performed poorly, particularly defensively, during his tenure in Boston. However, Lugo's contract runs through the end of next season. Thus, regardless of whether Lugo plays another game on the Red Sox or not, the club will owe him approximately $13 million for the remainder of his contract.

What should the Red Sox do? The $13 million represents a sunk cost. It should be irrelevant to the decision as to whether Lugo should remain on the team. It's as if they already paid him the money, since its a guaranteed contract. If Lowrie is better than Lugo, then the club should release Lugo and "eat the money" as they say in baseball. Of course, most sports teams would keep the player, out of a desire to not "waste" the money that they have spent on him. That's poor logic, but it happens all the time in sports. The big-money athlete gets playing time, while a low-paid athlete sits on the bench, despite the fact that the low-paid athlete is the better performer. Why? Because management allows the sunk costs to sway their decision.

Scholars Staw and Hoang published a great paper in Administrative Science Quarterly back in 1995 showing that sunk costs distort decisions in the NBA. Players drafted very high coming out of college tend to get more playing time and stay on their original team longer than players selected later in the draft, holding constant for performance. In short NBA clubs often throw good playing time after bad, much like companies throw good money after bad when high sunk costs exist.

What will the Red Sox do? History suggests that this management team understands the sunk cost trap, and it is willing to release players even if they have invested a great deal of money in the player. They faced the same situation with another shortstop, Edgar Renteria, and they chose to "eat the money" rather than throwing good playing time after bad. My guess is that they do the same with Lugo. Of course, some fans might wonder why J.D. Drew continues to get so much playing time, and if perhaps his huge contract has affected the club's decision-making with regard to that player, who has under-performed expectations since signing with the Sox. Could J.D. Drew someday be another test of Boston's ability to avoid the sunk cost trap?

Knowledge@Wharton

Knowledge@Wharton has published an excerpt of my latest book. This excerpt is from the final chapter, which focuses on the mindset of a problem-finder.

The Power of Collaboration

Maya Payne Smart at CNNMoney.com has an interesting article on small businesses collaborating with one another to compete for contracts, reduce costs, and introduce new products and services. Collaboration through contracts and relationships provides an appealing alternative to either going it alone or engaging in a full-blown merger with another firm. However, such collaboration raises key challenges. First and foremost, firms must be careful to protect their intellectual property. Second, firms have to think carefully about how to divide both the costs and the profits associated with a collaborative endeavor. They have to think about carefully delineating each firm's roles and responsibilities. They must think about the extent to which the company cultures are compatible with one another. Finally and perhaps most importantly, they must consider their exit strategy for this collaborative venture. Is this going to take place for a finite period of time? Is it going take place for a particular project? How will it end, and when it does, how will firms separate from one another in a constructive way?

Progressive Insurance

Progressive Insurance has put a substantial amount of advertising dollars behind its "Name Your Price" innovation in the automobile insurance market. With this new program, customers go to the firm's website, input a price they are willing to pay for car insurance, and then are given several options for car insurance packages that they can purchase for that price. It's another distinctive strategy by a firm known for innovation in the auto insurance market. I wonder if this "Name Your Price" concept might be applied effectively to the health insurance market. What if we could name our price and then instantly be given an array of options for health insurance packages that we could procure at that named price?

Internship Opportunities

For my students, see this article about the companies with the largest internship programs.

Blogging Workshop at Academy of Management

I will be one of the presenters at a professional development workshop about blogging taking place at the Academy of Management conference next month in Chicago. The title of the workshop is Blogging for Management Scholars: Why & How to Read Blogs, Write for Blogs, and Create your Own Blog. The date of the workshop is Friday, August 7th. The organizer is CV Harquail, the author of the Authentic Organizations blog.

I'm also the co-organizer, with Professor David Ager, of a professional development workshop titled Creating Leadership Development Experiences: Collaboration among Academics and Practitioners. That workshop also takes place on Friday, August 7th. I encourage my faculty colleagues at other universities to attend one or both of these workshops if they can.

Leadership Transitions

How might companies make the transition to an outsider CEO more effective? Let's take a look an interesting successful example that other firms might try to emulate.

In the late 1980s, General Dynamics encountered serious financial difficulty. The company brought in an outsider, Bill Anders, as CEO. Anders, the former Apollo 8 astronaut, had served as an executive at General Electric and Textron. In September 1989, the General Dynamics board chose Anders as the heir apparent to the current CEO, Stanley Pace. Anders joined the firm as Vice Chairman on January 1, 1990. He served in that capacity for one full year, and then succeeded Pace as CEO on January 1, 1991. During his time as Vice Chairman, Anders learned the business inside and out. He conducted a comprehensive strategic and financial assessment, and he evaluated the changing industry dynamics given world events taking place as the Cold War came to an end. He also evaluated the strength of the management team at General Dynamics, deciding on the individuals he wished to retain and those he would replace.

Why is this an interesting example? Well, many firms have planned successions for inside hires, but very few firms have periods of transition for outside hires. Instead, they often hire an outside and throw them into the fire. In many cases, the outsiders have a bumpy transition, to say the least. In this case, though, Anders had a year in which to get up to speed on the business, including a thoroughy assessment of the strategy, culture, and personnel. Anders had a remarkably successful tenure as CEO, and he set General Dynamics on a new course that would lead to exceptional performance over the past two decades. Many people remember his tenure at General Dynamics because of a controversial compensation package that he negotiated for himself and other top executives. Of course, in today's terms, his package looks rather bland! Still, what should be re-examined is the thoughtful approach to leadership transition which the company and Anders undertook so successfully. Other companies ought to consider emulating that strategy when bringing in an outsider as CEO.

Vertical Integration in the Auto Industry

Andy Grove, former Chairman and CEO of Intel, has an op-ed in today's Wall Street Journal in which he suggests that the auto industry should follow the path taken by the computer industry two decades ago... by moving away from the old business model of vertical integration. Grove questions whether the government's actions to date are simply propping up an old business model rather than investing in a fundamentally new way of doing business.

How Boards Can Avoid Surprises

Barry Bader has a blog post about an interview that he conducted with me several weeks ago. I look forward to seeing the full interview published soon in his publication, Great Boards. That publication is a useful read for those involved in both healthcare management and governance.

Career Advice from Colin Powell

Fortune magazine current issue has a feature in which a number of prominent people share the best advice they have ever received. General Colin Powell offers this bit of wisdom pertaining to your career:

“You won’t become a general unless you become a good first lieutenant.”

– Colin Powell, former U.S. Secretary of State and retired four-star general, in the Best Advice issue of Fortune, now on newsstands. This “barracks wisdom,” Powell says, was passed down from the old reserve captains to the young infantry officers at Fort Benning in the form of a fable: A young officer asked a general what it took to earn that rank. The general told him he’d have to have moral and physical courage, never show fatigue or fear, and always be the leader. The young officer thanked him and said, “So, is this how I become a general?” The captain answered, “No, that’s how you become a first lieutenant, and then you keep doing it over and over and over.”

McNamara and Obama

Bret Stephens wrote a very insightful piece in the Wall Street Journal yesterday about the lessons that President Obama might take from Robert McNamara's career in Washington. Here is the excerpt which I found fascinating:

But all that happened only after the Planners gave way to what development economist William Easterly has called the "Searchers." As Mr. Easterly writes in his book "The White Man's Burden," "a Planner thinks he already knows the answers; he thinks of poverty as a technical engineering problem that his answers will solve. A Searcher admits he doesn't know the answers in advance; he believes that poverty is a complicated tangle of political, social, historical, institutional, and technological factors. A Searcher hopes to find answers to individual problems only by trial and error experimentation. A Planner believes outsiders know enough to impose solutions."

Stephens writes in reference to the President and his advisors, but I think the notion of Planners vs. Searchers also applies to business executives. Too many CEOs think of themselves more as Planners than as Searchers. They would be well-served to remind themselves that they are unlikely to have all the answers for the thorny problems facing their complex organizations. As leaders, they need to think more carefully about how to uncover the answers amidst the skills, capabilities, and knowledge embedded at all levels of their organizations.

Boeing and Vought Aircraft Plant

Frustrated by delays with the 787 Dreamliner, Boeing has announced that it's acquiring a Vought Aircraft Industries manufacturing facility in South Carolina. The company says that they believe that assuming ownership and complete control over the facilty will help them get the Dreamliner back on track. This incident makes for an interesting example of the virtues and costs of vertical integration. Many firms have chosen to de-integrate in recent years, but of course, there are some coordination and transaction costs associated with trying to work closely with an outside party on a complex endeavor. Boeing appears to have concluded that the coordination costs have become unwieldly, and that the benefits of full ownership and control are perhaps greater than they first anticipated.

Decision Criteria at General Motors

Is this the type of decision-making that will lead to a successful turnaround at General Motors? I think not. Trying to balance so many objectives, rather than focusing on restoring the firm to profitability, seems like a recipe for failure. Moreover, I wonder if it is credible for GM to espouse a strategy of trying to become "the greenest car company in the world." Is this the actual strategy, or is it simply hyperbole? Can the company get back to profitability in the near term while pursuing this vision? I have my doubts given their current capabilities.

Robert McNamara

I just heard the news that Robert McNamara has died. I understand that many people reviled him for his role as a principal architect of the Vietnam War, and there's no question that he made many tragic mistakes... However, I'm still very grateful that Mr. McNamara visited my class at Harvard Business School four years ago. I'm especially thankful for the fact that a conversation with him that day inspired the stream of research that led to my recent book. My students certainly appreciated the opportunity to ask him about many of the momentous decisions he was involved with as Defense Secretary, President of Ford, and head of the World Bank.

Comparison in Decision-Making

Dan Ariely also points out in his book, Predictably Irrational, that we tend to avoid difficult comparisons when making purchasing decisions, while gravitating toward easier comparisons. What does this mean? Suppose we are comparing products A and B, and these two products differ along many dimensions. Now suppose that we add a slightly inferior version of A to our set of choices. How does this affect our behavior? It turns out that adding a slightly inferior version of A to the mix enhances the likelihood to choose the better version of A. Why? Human beings tend to gravitate toward the "easy" comparison...i.e. comparing A to the inferior version of A. Once we do that, the choice becomes obvious.

Predictably Irrational

Several weeks ago, I wrote about the attempt by some Harvard Business School students to create an MBA oath akin to the professional oaths taken by doctors and lawyers. I must admit that I had my doubts regarding the efficacy of such an oath in promoting more ethical and responsible behavior on the part of business executives.

Today, I just finished reading Dan Ariely's interesting book, Predictably Irrational, while on the train from Amsterdam to Brussels (I'm teaching several executive education workshops this week in Europe through the Institute of Management Studies). Ariely is a behavioral economist, i.e. a scholar working at the intersection of psychology and economics to understand how human behavior often does not confirm to the "rational" model of choice employed by many economists.

In his book, Ariely has several chapters on the topic of honesty and cheating. He describes an interesting experiment in which he examines whether being reminded of the Ten Commandments might induce individuals to exhibit more honest behavior. In the experiment, participants were asked to solve some simple mathematics problems. The control group did not have an opportunity to cheat; they handed their answers directly to the experimenter. A second group had an opportunity to cheat; they were allowed to self-report their number of correct responses without handing in their answer sheets. Prior to taking the math test, this group was asked to write down the names of ten books that they had read in high school. Finally, a third group also had the opportunity to cheat through self-reporting, but they were asked to write down as many of the Ten Commandments as they could remember. What did Ariely find in this experiment? The second group answered more questions correctly than the control group, suggesting some cheating. However, the third group (which recalled the Ten Commandments prior to taking the test) did not answer any more problems correctly than the control group. Amazingly, many subjects could not recall all of the Ten Commandments, yet they still exhibited honesty. Simply thinking about moral standards had induced honest behavior!

Could this mean that taking a professional oath would reduce unethical behavior on the part of business executives? I'm not so sure. As Ariely points out, the key to his experiment is that the subjects were asked to think about the Ten Commandments immediately before they had an opportunity to cheat. In the case of the MBA oath, students may take it upon graduation, but the tempting situation may not occur to them for a number of years. Thus, the key to any professional oath is not simply to administer one at the start of a career, but to somehow reinforce its salience over time.

New Zealand Air's Creative Advertisement

Well, this certainly represents an interesting way to advertise the lack of fees on an airline... the crew in body paint!

Building Effective Boards

Beverly Behan outlines some key principles regarding the construction of effective boards of directors. I think it's especially important to note that so much of the governance reform literature focuses on the composition of the board, whereas much of the impact can be found in improving board process. After all, one can alter composition to insure, for instance, a high share of outsiders on the board, but that doesn't mean that the board will truly be independent of top management. Many people who appear to be outsiders, in fact, may have close social ties with the CEO. Composition, then, is a blunt instrument of governance reform. For boards to operate effectively, they need to rethink their process. That improvement effort should focus on key process issues such as information flow, opportunity for surfacing divergent views, and the like.

Made to Stick

I just finished reading Chip and Dan Heath's best-selling book, Made to Stick, while on vacation in Maine. What a terrific book! The Heath brothers explain how we can create, spot, and communicate ideas that people both memorable and compelling. I love the blend of research insights, practical advice, and convincing examples. The Heath brothers boil "stickiness" down to six key principles: simplicity, unexpectedness, concreteness, credibility, emotions, and stories. For those who are interested in increasing the impact of their ideas, this book is a must-read.

Discover Bryant University

Later this summer, my institution, Bryant University, will be hosting two great events for high school students interested in learning more about our school. We hold these events each summer. This year's "Discover Bryant" programs will be held on August 14th and August 28th. The programs represent a casual and fun way to learn more about the school. The event includes a campus tour, mock interview session, and a barbeque lunch with members of the faculty and staff. I hope to attend both picnics and to meet many prospective students and their families at that time. Come learn more about how Bryant prepares young people for personal and professional success through applied learning. We don't just teach theories espoused by those in the ivory tower; we create opportunities for students to apply what they are learning through a variety of projects and real world experiences. We hope that talented young people will come take a look.

Ethnography for Innovation

Business Week provides another example of the power of ethnographic methods in the innovation process. This article features a new product development project at OfficeMax. Here's an excerpt:

"In order to get beyond the survey data, OfficeMax asked GravityTank, a Chicago innovation consultancy, to study women who buy office supplies. "If you wanted to understand the behaviors of a long lost tribe in the Amazon, you wouldn't send them a census survey. You'd observe them," says Ryan Vero, OfficeMax executive vice-president and chief merchandising officer, who initiated the research. Ditto, he says, with consumers. "Ethnographies are a critical component of our innovation process."

Vero wanted to know more about the potential customers' underlying needs and values. How could OfficeMax offer something more valuable than an eco-friendly paper line or longer-lasting pens? What products would address their problems? What messaging would resonate? Did OfficeMax need to change the design or staffing of its stores to better address female customers? Gravity Tank's task was to paint a more complete portrait of women's lives and understand how office supplies fit into them.

The research team recruited a group of 10 women, all from the Midwest, who together represented a cross-segment of OfficeMax's customer base, which includes both small offices and big companies.

Over the course of two weeks, the Gravity Tank field teams, including a researcher and videographer/photographer, spent one or two days with each subject, arriving at the woman's home in the morning and shadowing her as she traveled to work and back. "We try to watch for workarounds. Things people don't necessarily perceive as a problem, because they've developed a way around it," says Shailesh Patel, a Gravity Tank partner who led the OfficeMax project.

For instance, the research teams repeatedly saw women trying to reuse file folders, often writing a new project name on a Post-It and sticking that on the tab. But because the adhesive was relatively weak, the Post-Its would often fall off."

Visiting Zappos

My colleague, David Ager, and I spent yesterday afternoon visiting Zappos, the fast-growing on-line shoe retailer. Zappos has been recognized repeatedly for its extraordinary customer service as well as its very distinctive organizational culture. We simply had to see what Zappos was all about... and we learned a great deal during our visit.

I had heard so much about Zappos' ten core values, which are at the heart of its unique culture and commitment to exceptional customer service. What struck me most, though, was how every employee we met could rattle off the core values. Not only that, but they seemed incredibly committed to bringing these values alive each and every day. These people absolutely loved the company and their jobs.

We also heard legendary stories of how Zappos "delivers WOW through service." One person, for instance, described multiple occasions when employees have spent HOURS on the phone with a customer to help them find just the right shoes that they wanted. In another example, a woman bought shoes for her husband, but he died right after the order was placed. The Zappos' employee not only helped her return the shoes and get her money back, but also sent a beautiful bouquet of flowers to the funeral.

The work environment proved quite unique. Each group decorates its own workspace, and each group had a unique greeting for us as we toured the offices. People freely answered so many of our questions, and they wanted to share their knowledge with us. Zappos talks a great deal about the importance of passion, and we certainly saw a great deal of evidence of passion for the company and its mission.

Perhaps most interestingly, we learned that many much larger companies are trying to learn about Zappos, and trying to understand how they deliver such an exceptional customer experience.

For more on Zappos and its core values, you might wish to view this video:

Lessons in Leadership

If you have not seen it, the Wall Street Journal has developed a rich set of video resources on leadership. They call the site, "Lessons in Leadership" - it includes many videos from CEO interviews that they have done. Many videos offer good, practical advice for managers. Here's the link.

Business Plan Flaws

London Business School Professor John Mullins has a terrific article in today's Wall Street Journal about the typical flaws in entrepreneurs' business plans.

M&A Advice

Shaun Rein provides some sound advice regarding how to approach mergers and acquisitions in his column over at Forbes.com.

I would add a few additional pieces of advice. First, be aware of how sensitive valuations are to a few assumptions. Slight changes in growth rates, discount rates, and the like can have a profound impact. Therefore, it's especially important to identify who is driving those assumptions. If the advocates for the deal control the assumptions, they control the valuation... and thereby can push through bad deals. Too many times, the bankers have a powerful influence on those assumptions, which is problematic because they have a financial interest in seeing the deal completed.

Second, the people who are going to implement the deal (i.e. the integrators) need to be involved in the decision process. That not only helps scope out a deal effectively, but it also builds buy-in and commitment that will be helpful in making the integration process succeed.

Third, don't leave due diligence to the financial experts. You need to also perform due diligence from an operational perspective. You want to not only know about the target firm's financial condition, but also the condition of their fundamental business functions.

Finally, don't let deal fever, momentum, and sunk costs take over an acquisition decision process. It's easy to get swept up in the moment and find yourself going down a path where you find it very hard to turn back.

Writing Good Emails

Stacey Hanke provides some wonderful advice on how to write effective emails. I would simply add one additional recommendation: individuals must learn to write consistently in the active voice!

Gaming the US News Rankings

Is it any surprise that some colleges have learned to game the US News ranking system? I doubt very much that Clemson is the only school to engage in such activity. The incentives to game the system are quite substantial. I'm not excusing such behavior, of course, but simply pointing out that we should not be surprised.

Economies of Scale in Autos?

For a long time, the conventional wisdom in the auto industry has been that bigger is better. In other words, consolidation occurred as firms sought to achieve economies of scale. We saw huge mergers such as Daimler & Chrysler, as well as acquisitions such as Ford's purchase of Volvo and GM's acquisition of Saab.

Now, we see a reverse in this trend. As GM reorganizes, it is selling off many business units. However, these units are not being purchased by large automakers. Just today, we hear that Koenigsegg Automotive AB, a quite small Swedish super luxury carmaker, has acquired Saab. Magna, a Canadian auto parts supplier, acquired GM's European subsidiary, Opel, last week. With these deals, we see firms operating at what used to be considered suboptimal levels of production. In fact, Fiat bid for Opel in part because their CEO, Sergio Marchionne, believes that his firm needs to get to roughly 6 million cars produced in order to fully capitalize on economies of scale. Below that number, he does not believe that he will have fully exploited scale economies.

Who is correct? Are these smaller firms making sensible moves by choosing to compete at levels of production far below 6 million autos, or is Marchionne correct that one has to achieve that level of production to be cost competitive in the mass market? I tend to believe that some powerful scale economies do exist in autos, but that consolidation over the past two decades went too far. Companies failed to account sufficiently for the possibility of diseconomies of scale, and they didn't fully understand the challenges of cross-border merger integration.

CEO as Storyteller

Sangeeth Varghese has a good post over at Forbes.com about the importance of storytelling for leaders. Here's an excerpt:

"Many top executives, trained at conventional business schools, eschew storytelling and stick to a tight-jacketed professional approach. They lay out their vision, goals and results using data points, graphs, Excel sheets and PowerPoint slides. They transform the boardroom into a bored room. Not that numbers and charts are unnecessary, of course--what would happen if salespeople never mentioned numbers? But storytelling can be the most powerful way for a chief executive to sketch a vision and align people behind it. Explanatory talk and statistics appeal to the intellect, but people aren't inspired by reason alone. Compelling stories convey loads of information while also appealing to our emotions, ensuring that we not only listen, but get engaged and inspired."

Several years ago, Gordon Shaw, Robert Brown, and Philip Bromiley wrote an interesting Harvard Business Review piece about strategic planning at 3M. In that article, they explained how stories can be used to convey a strategy quite effectively. For those who are interested, here's the link to obtain that article.

Diversity's Missing Ingredient

Pat Lencioni has a great new article discussing why diversity does not automatically lead to better decisions. He rightfully points out that taking advantage of diversity requires the proper management of conflict. Simply having people with diverse backgrounds in an organization does not automatically lead to higher performance. Those diverse ideas must be brought together in a vigorous dialogue and debate. Unfortunately, sometimes people with diverse backgrounds engage in conflict that becomes personal and highly counterproductive, in part because they don't understand each other well.

Heading Issues Off at the Pass

Thank you to CIO Insight for putting together this nice slideshow about my work.

Safeway's Efforts To Cut Health Care Costs

Steven Burd, CEO of Safeway, has an interesting op-ed in today's Wall Street Journal explaining how his company has tackled the high cost of healthcare. Specifically, Burd's firm has set worker premiums based on each employee's behavior. In other words, if you smoke, or are obese, you can expect to pay more for your health care at Safeway. He's creating incentives for people to change their lifestyle so as to become healthier, thereby driving down the cost of care, particularly for chronic conditions. It's an approach worth further examination.

Software Makers Choosing Between Apple, Palm, and RIM

Business Week has an article about how some software makers, given limited resources, must grapple with the difficult choice regarding whether to develop software for the iPhone, Blackberry, Palm's new smartphone - the Pre, or other devices. The situation provides a powerful example of positive and negative feedback loops. If one player achieves a dominant lead in the smartphone business, then developers will flock to build software for that platform, as they will be able to more quickly achieve a return on their investment. Laggards will be in trouble, as few developers will want to expend precious resources to create software that has limited market potential. Of course, the question becomes: How does one achieve a lead in the smartphone market? In part, one has to woo developers, so as to have enough interesting software available to persuade consumers to buy your phone. If one attracts developers, then that increases the installed base of your smartphone, which in turn attracts more developers. That's the virtuous cycle of positive feedback in action. Of course, if one does not attract sufficient developers, that shrinks the installed base of phones, which means less developers work on your platform in the future - that's the negative feedback loop in action. What determines the intensity of these feedback loops. The size of the fixed costs of software development will be a key factor. To the extent that the fixed costs of development rise, then the pressure on laggards will intensify dramatically. Software developers will not want to develop products for niche phone-makers, because they won't be able to amortize their high fixed costs effectively. Recall that this phenomenon affected Apple in the late 1980s and early 1990s, when its very small market share relative to Windows caused many software developers to choose to create products for Windows rather than Apple. The key factor was that the fixed costs of software development could not be recouped quickly given the small installed base of Apple machines relative to Windows.

Succession at P&G

Business Week has an article about the succession process unfolding at Proctor and Gamble. The company announced this week that Robert McDonald will take over from A.G. Lafley as CEO. The authors point out that Lafley has become a management icon during his very successful tenure at the company. Moreover, they stress that the track record of those CEOs who follow icons is rather mixed.

This issue raises an important question about which I've often wondered. Many leadership scholars argue that the mark of a truly great CEO is that the company's performance persists long after he or she retires. It is said that such CEOs built sustainable organizations. However, one could make the counterargument... a drop-off in performance after a CEO retires could be taken as a sign that the leader was indeed substantially responsible for the exceptional performance during his or her tenure. In other words, maybe a drop-off after retirement means that the CEO added a great deal of value, above and beyond what another leader can bring to the table.

Questions to Ask Your Boss

Rachel Zupek of Career Builder provides a terrific list of nine important questions to ask your boss.

The Limits of Telecommuting

Jonathan Weber writes on MSNBC.com about the pitfalls of extensive telecommuting within your organization. He makes some good points about the value of face-to-face interaction.

Supermarket Differentiation

Business Week has an article about supermarkets trying to differentiate themselves given the low margins in the business and intense competition for the roughly 10% of consumers who do switch supermarkets each year. Here's an excerpt:

"Today's newly frugal consumers are cranking up the pressure on retailers to innovate. Margins in the $547.1 billion market averaged just 1.84% nationally in 2008, according to the Food Marketing Institute. Though an average grocery store has 46,852 items, the sector's big chains also stock pretty much the same brand-name goods. So with little room to further cut prices or wow consumers with unique products, food retailers are seeking out new trends and technology that might differentiate them from competitors."

The article goes on to examine some of the innovations that have been introduced by various supermarkets around the country. However, the author fails to highlight one key problem facing the supermarket industry. Most of the attempts to differentiate can easily be imitated. After all, many innovations and improvements have taken place in the industry over the past several decades, yet margins remain paper thin. Why? In part, supermarkets cannot fatten their margins because it's difficult to sustain differentiation; most innovations are easily copied in this industry. Of course, a few supermarkets have differentiated in the premium segment of the market (Whole Foods, for instance), but most mainstream supermarkets remain in an intensely competitive space.

In any industry, the challenge is to build a sustainable and defensible competitive advantage through strategies that are inimitable. Unfortunately, some industries lend themselves to such differentiation attempts more easily than others (for instance, some industries involve innovation that can be defended through intellectual property laws).

Why Don't Students Like School?

Cognitive scientist Daniel Willingham has written a tremendous book titled, "Why Don't Students Like School?" I read a review of the book in the Wall Street Journal and promptly ordered it. I couldn't put the book down. Willingham has written a serious book, filled with findings from rigorous academic research, yet he has communicated his points in clear and concise language that all can understand.

The book focuses on nine cognitive principles "that are so fundamental to the mind's operation that they do not change as circumstances change." Willingham outlines these principles in detail, and he then lays out the implications for teachers in the classroom (whether it be elementary schools or universities).

The book has many important insights. He explains, for instance, that "factual knowledge must precede skill." What does this mean? First and foremost, it implies that one cannot teach students to be critical thinkers without first teaching them a body of factual knowledge. Many college professors that I know talk about how it's not important to "drill facts"... that their job is to teach critical thinking skills. However, Willingham provides rich evidence that contradicts this viewpoint, that explains the importance of background knowledge for everything from reading comprehension to complex problem-solving.

Willingham also challenges another precious bit of conventional wisdom held by many in the field of education. Many people believe that teachers should vary their approach with students based on each individual's cognitive style. Willingham explains that scant evidence exists to support this widely held viewpoint. That chapter was eye-opening for me.

The book has many more important insights, useful to both teachers and parents. I highly recommend the book.

General Motors and Efficient Markets

Some very useful video for teaching students about efficient capital markets...

http://money.cnn.com/video/news/2009/06/04/news.buzz.gm.060509.cnnmoney

Mulally at Ford

Here's a good video from CNN about Alan Mulally's efforts to turn around Ford Motor Company. The video highlights two key aspects of his tenure at Ford: how he positioned Ford to survive a severe downturn such as the current one, and how he chose to streamline the company's brand portfolio and focus on the core Ford brand. Both decisions appear to smart ones, though clearly, Ford has a long way to go to return to profitability.

Politicians Running GM

Yesterday brought the first signs that members of Congress, from both parties, will find it hard to resist meddling in the affairs of General Motors. First, we hear that Massachusetts Congressman Barney Frank intervened to stave off the closing of a GM distribution center in his home state. That distribution center was slated to be shut down according to GM's restructuring plan. At the same time, Congress held hearings on GM and Chrysler's plans to shut down many dealers throughout the country. Naturally, we heard members of Congress pushing the heads of GM and Chrysler to reconsider the closings of dealers in their districts. It's week 1 of the GM bankruptcy, and already, we see some disturbing signs.

The Incredible Shrinking Harvard

Richard Bradley writes a fascinating piece about the current challenges at my alma mater. There's no question that Drew Faust was hired when the university faced a a bountiful set of opportunities... much different from the problems and threats it faces today. She may very well have been ideal for the situation Harvard faced two years ago. Bradley raises the interesting question though of whether Faust has the skills and capabilities to deal with today's circumstances.

An MBA Oath?

On her blog, Decision to Lead, Frances Frei explains that some business school students have attempted to create an MBA oath, modeled after the type of oaths taken by law and medical school graduates. For more information regarding the oath, go to http://mbaoath.org/

Cutting Salaries Instead of Jobs

Business Week has an interesting article on the pros and cons of the "cut salaries rather than enact layoffs" approach to reducing costs being taken by many firms in this recession.

Jon Stewart: Carmageddon '09 - Lemon Aid

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Air France Crash

The Associated Press has posted an article about the Air France crash with the title, "Multiple factors eyed in case of missing jet." Experts tell the writer that lightning or turbulence alone are unlikely to have caused the crash. Here is a brief excerpt:

Although aviation experts stressed it was much too early to speculate about the causes of the disappearance, they noted that the incident was most likely caused by various factors that combined to cause a catastrophic chain of events. "It sounds like something that evolved into a problem, not something that happened instantly," said Bill Voss, president and CEO of Flight Safety Foundation, in Alexandria, Virginia. "It would appear that their systems were degrading but we don't know why they were degrading." Most aviation accidents are the result of the combination of several adverse circumstances which by themselves would not ordinarily be dangerous.

The lesson here applies to all large-scale failures, not simply aviation accidents. Most large-scale failures result from a series of small errors and failures, rather than a single root cause. These small problems often cascade to create a catastrophe. Accident investigators in many fields, not simply aviation, have shown that a chain of events and errors typically leads to a particular disaster. The key lesson: Be wary of trying to identify a single root cause; search instead for all the links in the chain of events that led to catastrophe.

Questions about the GM Bankruptcy

A few questions to ponder on this historic day in which General Motors announces that they are filing for bankruptcy:

1. Why should we believe that a company whose core capabilities revolve around making trucks and SUVs can suddenly become a highly competitive and successful manufacturer of small, environmentally friendly cars?

2. How long will it take to wind down the "old GM" and will this process require an additional infusion of government funds?

3. Has the company done enough in its talks with the UAW to make the firm competitive against firms such as Honda and Toyota?

4. Will GM's suppliers survive this process, or will some enter bankruptcy themselves? Will the government find itself bailing some of them out as well?

5. Can the firm attract the management talent required to engineer the turnaround, particularly given the limitations on executive compensation that are likely to be put in place due to government ownership?

6. How much will Washington meddle in business decisions for political reasons?

7. Will Washington find itself favoring GM over Ford or engaging in protectionist policies to advance the interests of government-owned General Motors?

8. Does GM have a viable, profitable strategy for the Volt?

9. With the sale of assets such as Opel and Saab, GM will become more U.S.-centric while the auto industry continues to globalize; is this an effective strategy?

10. Finally, how much more money will the government have to invest in GM in the years ahead? Will we end up throwing good money after bad?