Why aren't more retailers offering customization?

As I see the success of customization at retailers such as Build-A-Bear, I wonder why other retailers haven't engaged in more extensive efforts to provide customization experiences in their stores. With the web disrupting brick-and-mortar retail, I've argued on this blog that retailers need to get more experiential. Customization serves as critical component of an engaging retail experience. Certainly, one can customize over the web too. However, in some cases, brick-and-mortar stores can provide a more satisfying experience, in which one examines and chooses from various options and builds their own product.

Retailers: putting yourself in kids' shoes!

I visited a number of NYC retailers today with a group of sales executives from a major consumer products firm. I was struck by the contrast in how two firms approached children's products. At one retailer, a line of products appealing to kids sat well above the sight and reach of children. They were so high that i missed them until someone else pointed them out. At the Times Square Disney, on the other hand, we learned that managers walked around on their knees as they built the store to see it from kids' perspectives. They considered the sight lines for a child slightly reclined in a stroller. They employ iTouch devices to allow parents to pay at the point of sale at the "customized cars" station, so kids don't have to wait in line to pay after spending 15-20 minutes building their unique car. They have truly put themselves in children's shoes and minds to design the store experience. All retailers need to do this, while remembering to also cater to the parent who ultimately is making the purchases.

How Children Learn - Lessons Here For Adults Too

Abercrombie and Fitch: Push-up Bikini Tops for Young Girls

As the father of two young girls, I'm dismayed (but not that surprised) by the news that Abercrombie and Fitch chose to market padded, "push-up" bikini tops to girls under the age of 10 this week. Naturally, a firestorm of criticism ensued. The company responded by removing the term "push-up" from the product description, though it continues to sell the item.

As I read about this situation, I wonder what's going on inside of the company. One interpretation of this type of situation is that it is clearly an intentional strategy to achieve a high degree of free public relations. There's no such thing as bad publicity, I guess. Another interpretation is that they simply have a hard time assessing what constitutes "crossing the line" given that they are always dancing so close to that line with their marketing strategies. We simply don't know which interpretation is correct in this case.

The second interpretation strikes me as interesting though, as we ponder the lessons for other companies from this episode. If you are a firm that chooses to dance close to that line of "appropriateness" at times, I would argue that you should have extensive discussions within your organization about the criteria that folks should apply when making brand decisions. You should have a process to vet particularly controversial decisions. Moreover, you should have some feedback built into your product launch process from the very groups that are most likely to be offended by controversial moves. Finally, it might be a good idea to have a devil's advocate who argues against launch in these controversial cases to make sure that you have thought through all the possible risks and consequences.

Does Public Announcement of Goals Decrease Effort?

My former student Luke Bornheimer (now working at Google) pointed me to some fascinating new research on goal setting. New York University psychologist Peter Gollwitzer and his coauthors have studied the impact of announcing your goals publicly. Conventional wisdom suggests that such public pronouncements propel you to work harder to achieving your objectives. However, in an experiment with law school students, the scholars found that those who maintained their goals privately tended to exert more effort than those who disclosed their goals publicly.

The authors then conducted a second experiment. They were shown photographs of Supreme Court justices. The photographs differed in size. The experimenters asked the students: "How much do you feel like a jurist right now?" Those who publicly announced their goals picked larger photos. Psychologists previously have shown that selecting larger pictures demonstrates a connection to one's sense of identity and wholeness.

According to the article, the second experiment suggests that, "Simply stating a strategy for becoming a good lawyer made them feel like they were real lawyers, and this inflated self-image paradoxically made them less hard working. They had become legends in their own minds, and legends don't have to get down and dirty."

I'm fascinated with the result, and I look forward to seeing more research in this domain. Naturally, the results have implications for business leaders as well as students, and they even have relevance for our personal lives.

SodaStream: Reinvigorating a 104 Year Old Firm

I read a great article about SodaStream in Fast Company this month. I had no idea that the firm was 104 years old when current CEO Daniel Burnbaum took over. I thought it was a start-up from the past few years. For those who are not familiar with the company, it sells a countertop machine that enables families to make their own soda. The firm has seen its business skyrocket in the past few years.

What is interesting about the firm's revitalization and growth? Four issues jumped out at me.

1. Burnbaum says, "The first thing we did was change the mind-set of the product from functional to lifestyle -- an object of desire. That kitchen counter is some of the most expensive real estate in the world."

2. They borrowed the concept of a razor-and-blades business model from other industries. They don't just make money off of the machines. They make money off of the CO₂ refills, the flavor syrups, and the bottles that they sell. Complementary products are key.

3. They have marketed the green advantage with their product. After all, using SodaStream means not having to buy products from large beverage companies which require all that packaging.

4. The company made their products healthier, capitalizing on the wellness trend.

What a terrific strategy. It really hits on a number of different trends, and it provides a sound economic model for the business.

Men's Zone at H-E-B

Recently, I read an interesting article in the Boston Globe about the Men's Zone experiment at retailer H-E-B. With the help of Proctor and Gamble, the retailer created a "store within the store" for men. The aisle contains more than 530 grooming products for men, ranging from razors to body wash. Males can find their grooming products without having to hunt through lots of women's items. Interestingly, the article suggests that women like browsing the aisle as well. When they are shopping for their husbands, they can find items more easily... and they aren't hunting through men's items when they are doing their own shopping for women's products. It's a win-win situation. We see more and more retailers creating "store within a store" concepts these days. They offer a way to provide an enhanced shopping experience. Moreover, they potentially offer a way to differentiate their retail shopping environment from rivals' locations.

Persuasion: The Wrong Approach by Many Leaders

Jay Conger has done some excellent work on the topic of persuasion. He argues that many leaders think of persuasion incorrectly. He says they define persuasion as consisting of three basic steps:

1. State your position firmly
2. Assert your supporting data and arguments
3. Close the deal

Most people put on the hard sell, backed by passion, persistence, and data. However, Conger argues that such an approach may not be appropriate in all circumstances. He explains that leaders sometimes need to approach persuasion as a learning and negotiation process. They must start by establishing their own credibility. Then, they must determine and explain the benefits for the other party of whatever course of action has been proposed. They must provide evidence to support that assertion of mutual benefits, but they also must connect emotionally with the people they are trying to persuade. This alternative approach focuses on trying to understand the other side's point of view, to step into their shoes, so as to learn how and why they are willing or unwilling to support your position. Persuasion occurs through giving them a sense of ownership in the solution that has been developed.

Deliberate Practice

Many people have heard about the famous rule of thumb regarding the "10,000 hours" required for someone to become an "expert" in a field. Gladwell wrote about this notion in his Outliers book. The notion of deliberate practice has been studied extensively by K. Anders Ericsson and his colleagues. They have documented how star performers in music, sports, chess, and the like are not simply born. They are made, in the sense that they engage in thousands of hours of what they describe as deliberate practice.

However, many people misunderstand the notion of deliberate practice. As Geoffrey Colvin of Fortune has written, "Simply hitting a bucket of balls is not deliberate practice, which is why most golfers don’t get better. Hitting an eight-iron three hundred times with a goal of leaving the ball within twenty feet of the pin eighty percent of the time, continually observing results and making appropriate adjustments, and doing that for hours each day – that’s deliberate practice.”

Deliberate practice consists of extensive repetition of the very same activity, so as to hone a particular skill. It emphasizes focus over variety in the building of skills - i.e. working on one thing at a time. Famous tennis instructor Vic Braden has said, “Losers have tons of variety. Champions just take pride in learning to hit the same old boring winning shots." Moreover, deliberate practice means paying close attention to your technique, not simply the results you achieve.

Does deliberate practice apply to business? It certainly does. As individuals and organizations, we engage in many activities repeatedly over time. We can become more deliberate in the way that we engage in those activities, with more focused reflection on process, not just outcomes, so as to improve over time.

Colbert on AT&T

This clip is several years old, but it's particularly relevant with the announcement of AT&T's newest acquisition:

Looking for Fault Lines in Your Team

In recent years, a great deal of research has taken place with regard to one potential pattern of dysfunction that can occur in highly diverse teams. Researchers have discovered that individuals within a demographically diverse team often gravitate toward others with similar demographic characteristics. Thus, subgroups naturally emerge within teams. Actually, since individuals are actually bundles of demographic characteristics, we may "join" multiple clusters within a team. Gradually, we begin to see "in-group" vs. "out-group" dynamics unfold in some of these situations. "Fault lines" constitute the divisions or cracks that emerge within teams on these occasions. As a result of these fault lines, interpersonal conflict may occur, and information sharing may bog down. As a leader, you must learn to diagnose a team situation, looking for potential fault lines. If you can assess the probability that they may occur, then you can address the situation proactively before major stress and conflict take place.

Asking Good Questions

Warren Berger has a terrific column posted over at Fast Company. He argues that the boldest innovators are terrific at asking questions that challenge existing assumptions and mental models. That's not surprising, of course. However, perhaps more interestingly, he cites a University of Michigan study that found that many business people are reluctant to ask questions at times because they don't want to seem ignorant or incompetent. Perhaps they don't want to be seen as upsetting the apple cart. Berger asked Richard Saul Wurman, the original creator of the TED Conference, about the reluctance of many people to ask the probing questions. Wurman argues that the educational system deserves some blame. Here is Berger's comment about his conversation with Wurman:

When I discussed the subject of “questioning” a while back with Richard Saul Wurman, the original creator of the TED Conference and a man who’s pretty much obsessed with questions, he immediately focused on the educational system. “In school, we’re rewarded for having the answer, not for asking a good question,” Wurman pointed out. Which may explain why kids--who start off asking endless “why” and “what if” questions--gradually ask fewer and fewer of them as they progress through grade school. And, Wurman observed, the questions they do ask tend to become “smaller and more proscribed.”

I think educators have to take this criticism to heart. We need to encourage our students to ask the "big questions" - as one of my colleagues told me the other day. We have to encourage them to challenge and probe, not just to memorize and regurgitate. That also means, however, that faculty have to stop advocating their own philosophies and ideologies, and focus instead on allowing the students to explore in a safe environment.

Khan Academy: Reshaping Classroom Activity

Knowledge @ Wharton has a great column on Salman Khan's impact on education. Khan, the hedge fund analyst turned education innovator, gave a TED talk recently. The video is below. Khan has attracted a great deal of attention with his wonderful short educational videos that he provides for free online. He has produced more than 2000 of these videos, and he's attracted fans from parents of middle schoolers to Bill Gates. In this talk, Khan reports how teachers have contacted him to talk about how they are using his videos. Some teachers actually encourage their students to watch the videos at home, and then they are using the classroom time to have the students work on problems individually and collaboratively. What a fantastic reversal of the traditional approach! The lecture has moved out of the classroom, and the teacher-student interaction focuses on active learning in the form of problem-solving. In the past, the teacher lectured in class, and the problem-solving became homework. More educators should experiment with using this type of approach.

Five Myths about Leadership

Many people hold onto the following five myths about leadership:

1. Leaders are born, not made
2. Leadership is the act of a lone genius.
3. Leaders must be charismatic extroverts.
4. Leadership requires formal authority.
5. All great leaders have a common set of personality traits.

Joanne Chang Coming to Bryant!

Joanne Chang, founder and owner of the Flour Bakery Cafes in the Boston area, will be speaking at Bryant. Chang, a friend of mine from Harvard College, also co-owns the Myers and Chang restaurant in Boston. She has been named Entrepreneur of the Year by the Boston Chamber of Commerce. Her new cookbook has become a best-seller, driven in part by appearances on the Today Show and Martha Stewart. Some of you also may have seen her a few years back, when she defeated Bobby Flay in his "throwdown" on The Food Network. We can't wait to hear Chang's entrepreneurial story. The event takes place at 6pm on Wednesday, March 23rd in Bryant's Bello Center. The public is welcome.

Starbucks and Green Mountain/Keurig

The Wall Street Journal reports that Starbucks has struck an agreement with Green Mountain Roasters. Starbucks will sell pods of its branded coffee for Keurig single-serve coffee brewing machines at various supermarkets, club stores, and the like. Starbucks may soon sell the K-Cup pods and Keurig machines at its stores and through its website as well.

Some rumors had swirled that Starbucks might even acquire Green Mountain, but in the end, a contractual arrangement took place. I find this development interesting in light of yesterday's blog post about GM deciding to acquire a sub-prime lender. GM had been working with an outside finance company, but chose to acquire it. Starbucks chose to go the route of partnership and contractual arrangement, rather than acquisition. Starbucks may have concluded that they can achieve most of the benefits of cooperation without the costs associated with doing a deal and subsequent acquisition integration. Now, they may eventually choose the acquisition route... this may just be a step toward even closer cooperation. Starting with this cooperative arrangement seems like a good "real option" approach. In other words, let's make an investment now in a partnership with the option of coming closer together down the road. Let's first learn about each other and get to know one another first. Perhaps too we'll learn we can cooperate perfectly well without having to integrate fully.

GM Loses Its CFO

General Motors... We keep hearing about the great turnaround, but I have some doubts. Several years ago, we had a top management team filled with folks who had been at the firm for decades. One had to wonder if the firm lacked the fresh blood needed to see the world differently and effect real change. Now, we have may have more turnover than optimal. That starts with four CEOs over a two year period. Now, we hear that Chris Liddell, the CFO, has chosen to step down after only serving in the post for 14 months. Could this departure be a troubling sign? According to the Wall Street Journal, Liddell had some doubts about the company's strategy. Here is what the paper reported:

Mr. Akerson (GM's CEO) has green-lighted a drive by other top executives, including Mr. Ammann, to rebuild an in-house auto-finance business, a move Mr. Liddell has voiced some doubts about. "I am philosophically against having a $100 billion finance company attached to a $50 billion to $60 billion car company," he said in January. "In a [market] downturn, we might be exposed. It's critical we have credit flowing through those times."

I've also wondered about the move into auto finance. After all, GM used to be in this business (GMAC), and it divested the unit amidst many problems. Why does an automobile company need to have an in-house finance operation? Many auto firms do, but that does not mean it's the optimal strategy. Should GM really be making subprime loans with an in-house credit arm? Could the sales resurgence be driven, in part, by making credit available to some folks who will have a hard time repaying the loans?

I wrote about this issue back when GM acquired subprime lender AmeriCredit in 2010. Here is what I said on this blog, referring to an article on Forbes.com about the deal:

The article goes on to explain that, "The two companies have had a financial relationship for years. AmeriCredit, which already works with about 4,000 GM dealers, now gets about one-third of its business from financing new and used GM vehicles, GM said." That comment actually intrigues me, because one has to then question why GM needs to acquire the firm in order to accelerate sales. When a merger occurs, we should always ask: Why do these firms need to join together to cooperate? Why would a simple contract not do the job just as well? In this case, these firms appeared to be cooperating and working together quite a bit. What is it about that arrangement that was insufficient? Why the need to now merge?

Teachers, Seniority, and Intrinsic Motivation

Across the nation, a debate continues to rage over teacher quality. Questions abound. Should we abolish tenure? How can we make it easier to fire poor teachers? Should we eliminate seniority-based rules for dismissing teachers? Don't we have to increase pay to attract better teachers?

Some people defend the current system, arguing that it will be even harder to attract people to the teacher profession if we reduce job security substantially. They argue that the job security helps to offset the low compensation. I think these defenders of the status quo miss a very important point. People do not only put forth effort based on extrinsic motivation (pay, benefits, etc.). Clearly, intrinsic motivation also drives people. Ask yourself this question then: If a high quality teacher watches as a system protects incompetence around them, would it decrease their intrinsic motivation? Of course it would! Thus, I would argue that creating a system that is more meritocratic will help attract, retain, and motivate high quality teachers better than a system that protects those who aren't doing their job well.

The CEO Has a Daughter: Shrinking the Gender Wage Gap?

Knowledge@Wharton profiles some fascinating new research by David Gaddis Ross, Michael Dahl, and Christian Dezso. They conducted a study in Denmark on the pay gap between men and women in various businesses. Specifically, they examined whether the gap grew or shrunk after a company's CEO had a daughter. They found that the gender wage gap decreased at firms after the CEO welcomed a daughter to the family. The birth of a son did not have a material effect on the pay gap between men and women in the organization. First-born daughters had a more substantial impact than the following children. The study suggests that the birth of a daughter causes a CEO to adopt a different perspective with regard to women in the workforce. The result does not strike me as surprising, but proving the point with data clearly constitutes a major contribution. As someone with two daughters, it certainly makes me consider how my attitudes and actions have changed since their births.

Will a new NFL Collective Bargaining Agreement Lead to More Inefficiency?

In a study conducted several years ago, Cade Massey and Richard Thaler found that high draft picks in the National Football League are overvalued. In other words, teams seem to give up too much for top picks, particularly given the high financial cost and the uncertainty regarding whether they will turn out to be good players. Ryan Leaf and Peyton Manning were selected at the top of the NFL draft and received similar contracts. However, one turned out to be a Hall of Famer, while the other was a complete bust.

One can trace the improper valuations of top draft picks to the famous chart developed by the Dallas Cowboys organization during the early 1990s. That chart enabled Jimmy Johnson and Jerry Jones to quickly assess the value that they should seek in return when making draft trades. Chart usage spread quickly throughout the league. Unfortunately, the chart caused people to give up too much for top draft choices!

Why bring up this research today? Well, I began thinking about it again as I considered the implications of a new collective bargaining agreement in the NFL. The owners are pushing hard for a new salary scale for rookies, which would significantly constrain their pay. If they achieve their goals, then I wonder how this will affect the efficiency of the draft trade market. Will teams recalibrate their trading philosophies in light of the new wage scale? How long will it take for teams to adjust? Will some teams be more adept at adjusting the value that they place on high draft picks? I can see a new study in a few years examining how teams adjusting to a new financial reality. My guess is that it will take some time for teams to adjust properly, and some teams will clearly do better than others.

Aged Bourbon: A Scarcity Strategy

Fortune has an article in the current issue about Old Rip Van Winkle Distillery. The small company makes fine aged bourbon. It only sells 7,000 cases per year. Demand appears to be much higher than that, and people are willing to pay a premium price for the product. The firm raises annually. In fact, some stores hold the bottles under the counter for particular customers, and they sell it at much higher than the usual retail price.

What's the key to this type of scarcity strategy? As the article points out, two factors must be kept in mind. First, you must resist the temptation to increase production dramatically, because you might dilute the brand. Second, you must have a strategy for promoting your product that is fairly inexpensive. After all, the small size of the firm makes it difficult to justify a large advertising and promotion budget.

Interestingly, social media has raised the possibility of creating a profitable small firm with such a scarcity strategy. Social media provides a way to raise product awareness very inexpensively. Exclusive in-person events, such as distillery tours and workshops, also provide a way to educate buyers about the value of your product. Finally, small firms can partner with related complementary products that also have an air of exclusivity and a high quality image.

Better Writing for Business

The Wall Street Journal had an article yesterday about how top MBA students around the country struggle to write well. Every educator and student should read the article. I did find it a bit humorous, though, that one writing instructor offered the following advice. For one assignment, students at a particular university had to write a persuasive email in 150 words or less to an executive regarding a marketing strategy. The instructor noted that students have a hard time making a concise, compelling point. They waste words and do not get right to the core issue. He advises that the memo should begin, "The single most important issue here is...." I cringed when I read the advice. What do I always tell students? Use the active voice, not the passive voice! Yet, here the instructor advised the use the passive voice in the very first sentence. In a 150 word memo, the passive voice surely means the inclusion of many extraneous words.

So, in the spirit of providing useful advice for students, I offer a few tips on writing for business:

1. Use the active voice as much as humanly possible!

2. Keep your sentences short and simple. Avoid long compound sentences.

3. Keep your paragraphs relatively short as well.

4. Use colons and semicolons sparingly.

5. Don't end your sentences with a preposition.

6. Use the word "however" properly, i.e. not as a conjunction!

7. Explain and interpret charts and graphs for the reader, and do not include extraneous figures that distract from the main point.

Learning from Kardashian? Twitter Anticipation

Mark Pasetsky writes over at Forbes.com about a lesson we can learn from Kim Kardashian regarding the effective use of social media. Pasetsky explains that Kardashian has been providing "exclusive" info to her Twitter followers building up to the release of a new album in a few days. The tweets either provide information directly, or drive fans to her blog to reveal additional information. While we may not be fans of Kardashian, we can take a lesson from this example from Pasetsky. A social media campaign should be thought of as a process that begins well before the actual launch of a new product or service. Staged correctly, a series of actions via social media outlets can help build up to a very successful launch. That type of campaign can be far more effective than a series of Tweets, blog posts, and the like that all hit on the day of, or immediately after, a new product introduction.

5 Crucial Customer Satisfaction Factors, Not 80!

Business Week has an article about how companies are using "sentiment analysis" to examine how customers are feeling about their brands and products. This new form of business intelligence mines social media platforms, blogs, and other sites on the web to gauge how consumers are feeling in real time about a firm.

What actually struck me about the article, though, was an example regarding Gaylord Hotels. Gaylord operates upscale hotels particularly designed to host meetings and retreats. Through this type of research, Gaylord learned about 5 critical factors during the first 20 minutes of a guest's stay that a substantial impact on their satisfaction. Interestingly, in the past Gaylord had operated with a list of 80 items that it felt were crucial to a guest's visit. Think about that - 80 factors! Imagine a hotel staff member trying to optimize 80 attributes of a customer's experience. Surely, no manager could remember 80 factors.

To me, the best part of this story is that Gaylord was able to hone in on 5 items. By creating more clarity and focus, they were able to really drive performance improvement. Every company should go through that type of exercise to streamline their metrics and get everyone focused on a few high priority items with regard to customer satisfaction. It's just like asking a student to read for class. If I ask them to read 300 pages, they are likely to throw up their hands and read none. If I ask them to read 10 very important pages, I might actually get them to do the work!

Colbert on Toothpaste Brand Differentiation (or lack thereof)

The Wall Street Journal had an article this week about toothpaste manufacturers finally putting a limit on the number of new product varieties that they are going to launch. The toothpaste aisle reminds me of Youngme Moon's argument in her book, Different: Escaping the Competitive Herd. In that book, she argues that we see many instances of "heterogeneous homogeneity" in consumer products these days. Yes, there are many different SKUs on the shelf, but in the end, the items are not truly differentiated at all. In this funny clip, Stephen Colbert makes fun of the heterogeneous homogeneity in the toothpaste aisle!

Do MBAs from Top B-Schools Have to be More Consultative Leaders?

The Wall Street Journal Weekend Edition reports on a new study by Stephen Sauer to be published in the Journal of Applied Psychology. Sauer compares the effectiveness of "directive" vs. "participative" leadership styles for "high status" vs. "low status" leaders. By status, for instance, he refers to the ranking of the business school from which the leader graduated. In an experiment, Sauer asked observers to evaluate the effectiveness of leaders that they watched on video. For leaders with lower status, a more directive approach yielded higher evaluations of effectiveness. However, leaders with higher status experienced the opposite result. They were given lower grades if they were more directive and higher grades if they were more participative. It seems, then, that individuals are more apt to penalize high status leaders for being too heavy-handed. They may have to be a bit more consultative until they can build some trust and overcome some of the "image liabilities" associated with going to a top notch school.

Can You Identify Star Employees Early On?

I love the Boston Globe's Uncommon Knowledge section on Sundays. That section profiles interesting new research from the social sciences. Recently, it highlighted a study by Professors Longley and Wong from the University of Massachusetts. They examined whether minor league performance predicted major league success for pitchers. They found that it was NOT a good predictor.

What does that have to do with business? Well, ask yourself this question: Does your firm assume that high performance in an entry-level job is a good predictor of future success as a manager? Does it identify "high-potentials" at a very early stage? If so, this study offers a note of caution. Perhaps, early success at an entry-level job may not be a good predictor of future performance in all professions or in all organizations. Moreover, there may be some people who struggle early in their careers, but who blossom late.

What's the advice, then, for companies who are trying to identify high potentials? They must think about the skills and capabilities required to succeed in future leadership positions and look for signs of potential in those areas, rather than simply looking at task performance in the entry level job. After all, good technical skills often make you stand out in an entry-level job, but those capabilities don't mean you have great leadership potential. In addition, companies need to watch for the late bloomers, who perhaps take awhile to find their footing. Some young people may take a bit of time to get acclimated or to mature enough to succeed in the workplace.

Why iPad Can Sell at $500

On Wired's website, Brian Chen writes about how the iPad can possibly sell at $500, when many competing tablets coming to market are more expensive. He begins by citing Jason Hiner of Tech Republic, who focuses on the fact that Apple has its own retail stores. Hiner argues that Apple "saves" the usual retailer margin paid to other chains by competing tablets. Chen rightfully refutes this argument, which is often incorrectly cited to justify vertical integration. As Chen writes, "The retail advantage is a reasonable theory, but Hiner neglects to mention the high overhead costs that Apple must pay handsomely for each of its 300 stores."

If forward integration's benefits were as simple as "cutting out the margin made by retailers," then we would see many more firms owning their own stores. Naturally, we do not because firms don't eliminate that margin "for free" - they must invest a ton of capital. The shareholders expect a return on that investment. They will only tolerate a forward integration strategy if the return on capital invested makes sense.

What does explain Apple's ability to sell the iPad at such a competitive price? Chen argues that one has to look at Apple's vertical integration strategy in its entirety to understand its advantage. Moreover, one has to look at the money it can make off of its "ecosystem" - i.e. all the apps, music, etc.

However, I would go one step further. To understand Apple's advantage, you also must look at its HORIZONTAL integration. In other words, Apple has an advantage from the fact that it competes in multiple product markets - phones, MP3 players, personal computers, tablets, etc. Why is that? Well, Apple can share and leverage resources and capabilities across these product categories. As a simple example, consider the operating system that drives Apple products. An Apple computer operating system costs more than $1 billion to develop. If Apple only competed in personal computers, it would face a steep hill to climb to break even on that investment. However, Apple leverages those R&D expenses across all of its products. The basic elements of the Apple operating system underpin everything from its laptops to its phones and the iPad. That ability to spread its R&D investment and capability across so many categories provides a powerful competitive advantage.

Penalty for Creative Individuals?

Jennifer Mueller, Jack Goncalo, and Dishan Kamdar have written a provocative new paper titled, "Recognizing Creative Leadership: Can Creative Idea Expression Negatively Relate to Perceptions of Leadership Potential?" They find that creative individuals may face a "penalty" when it comes to others assessing their leadership potential. The authors conducted three studies that showed that people have a tendency to view creative individuals as having less leadership potential (unless they are told to focus on charismatic individuals). Why might that be? The authors argue that people tend to have mixed feelings about creative individuals. Mueller explains, "In addition to 'visionary' and 'charismatic,' people also use words like 'quirky,' 'unfocused' [and] 'nonconformist.' The fact is people don't feel just positively about creative individuals -- they feel ambivalent about them." The research demonstrates a powerful dilemma. On the one hand, people express a strong desire to have creativity as a characteristic of their leaders. One the other hand, when people offer out-of-the-box ideas, they sometimes are viewed in a negative light. People think that they are strange or perplexing.

Jameson Whiskey Commercial

The Wall Street Journal has a fascinating article about Jameson Whiskey's new advertising campaign. The article quotes Paul Duffy, a Pernod Ricard executive: "If you can root the brand in truth and authentic ideas, I think consumers are looking for that kind of real substance." For instance, one commercial has Jameson founder John Jameson battling an octopus to save a barrel of whiskey that had fallen off a ship. Now, here is what is so interesting. The ads provide a funny look at the brand's heritage. However, according to the article, "Little in either ad rings true."

Hmmm... so the ads are not authentic at all! They may be very effective though. They link back to the brand's heritage, but in a humorous way. No one wants to bore young 25-35 year olds in the firm's target market with "history" commercials. These ads seem to walking a fine line, providing a bit of a "heritage" feel to the branding while keeping it hip and funny. They become the types of ads that probably play well in the social media space as well. The campaign does raise a challenge though. You want to be careful that you don't sacrifice the quality image of the brand by going for laughs. The firm also has to be mindful that such ads may bring accusations that the firm is targeting young underage drinkers. These are all interesting questions that these creative ads raise, and that other brands must consider as they try to walk this fine line between heritage branding and remaining hip.

Why Didn't Borders See It Coming?

When a company such as Borders files for bankruptcy, we hear many people exclaiming: "They had their heads buried in the sand." The comment suggests that companies such as Borders failed to identify a threat soon enough, that they didn't recognize how the world was changing quickly around them. Certainly, some companies fail to see emerging threats for quite some time. Many firms, however, falter because of a lack of action, not a lack of attention. They see the problem, but they cannot adapt quickly enough.

What are the barriers to taking effective action in the face of a daunting new threat? One could build a very lengthy list. Let's focus on just a few key obstacles. First, firms make commitments as part of their strategy. They commit to certain physical assets, types of human capital, contracts and relationships, and organizational cultures. These commitments often prove very rigid. One cannot easily undo major commitments to a physical infrastructure, such as Borders' brick and mortar stores. One also cannot easily undo major "soft" commitments such as the culture, mentality, and skills of the executive team.

Second, companies have a hard time determining the appropriate pace of the transition from the old business model to a new one. How quickly can and should we abandon our brick and mortar strategy and move toward a digital one? The pace question proves difficult because one cannot decimate an old revenue stream before a new one fully emerges.

Third, firms face certain exit barriers and exit costs associated with an old business model. Do we have expenses that will be substantial if we shut down old operations very quickly? Those expenditures might include lease termination fees, asset writedowns, severance costs, and the like. While firms perhaps should just bite the bullet on these types of costs, we know that executives sometimes have a hard time doing so. They feel pressure to make short term earnings targets.

Finally, firms simply don't like to shrink in size. Sometimes, making a transition to a new business model means having to shrink in the near term so as to grow profitably in the future. However, managers have a hard time with the size and scope of a firm. We know that executive compensation in larger firms often exceeds that in smaller firms. Morever, a certain level of prestige sometimes comes with running a larger firm.