Do Narcissists Impede Information Sharing in Groups?

A lengthy stream of research demonstrates that groups tend to focus their discussion on information commonly possessed by all members, while privately held information tends not to be shared and discussed sufficiently.  Team performance often suffers when members fail to disclose privately held information.  Some tasks and decisions require the integration of each member’s information and expertise; just one member’s failure to disclose and share privately held information can impair the team’s ability to accomplish its task effectively.  Some studies have shown that small changes in a leader's behavior can facilitate or impede information sharing in groups. 

Christopher Shea of the Wall Street Journal pointed us to a new study conducted by Barbora Nevicka, Femke Ten Velden, Annebel De Hoogh, and Annelies Van Vianen.  Their research examined specifically how narcissistic leaders performed in a setting in which group members needed to share and integrate privately held information to solve a problem.  The scholars found that, "The narcissists’ preoccupation with their own brilliance inhibits a crucial element of successful group decision-making and performance: the free and creative exchange of information and ideas."  I don't find the conclusion surprising at all, but the research definitely helps shine the spotlight on this important challenge that many leaders and groups face. 

IBM's Palmisano: Charisma vs. Leadership and the Role of Culture

IBM CEO Sam Palmisano gave a speech recently at the Computer History Museum in Silicon Valley.    He offered his view on how companies can achieve enduring success:

 "We have learned not to confuse charisma with leadership. IBM has faced this challenge (of following a charismatic leaders in founder Thomas Watson Sr. and his son, Thomas Watson Jr.) Many historians believe that Watson Sr.'s most enduring contribution to business was his intentional creation of something that would outlast him -- a shared corporate culture. He showed that how the basic beliefs and values of an organization could be perpetuated -- how they could become its guiding constant through time.  This is why we have focused too much attention over the years on building talent. Betting it all on one person, or a small cadre of stars, is the opposite of building for the long term."



I agree wholeheartedly with Palmisano's remarks.   I found these comments particularly interesting though because of the challenges that IBM endured in the late 1980s and early 1990s.  Many would say that corporate culture served as one of the causes of IBM's struggles during that time.  The culture had become a barrier to high performance and to necessary change.  Fortunately, IBM has transformed its corporate culture during the tenures of Gerstner and Palmisano.   The firm didn't throw out its old corporate culture entirely.  However, it embraced new ways of working. 

In his book, Gerstner wrote, "I came to see, in my time at IBM, that culture isn't just one aspect of the game - it is the game."   He extolled the three basic beliefs or values that Thomas Watson, Sr. had established as the foundation of the company's culture: 1. Excellence in everything we do. 2. Superior customer service.  3. Respect for the individual.  However, Gerstner noted that, "What the Beliefs had come to mean - or at least, the way they were being used - was very different in 1993 than in 1962, when Tom Watson introduced them."  In short, the culture had become rigid, while the world changed dramatically around them.   Gerstner and Palmisano didn't throw out these core values... they brought them to life again, but in a way that fit the new context in which IBM competed.  

To his credit, Palmisano didn't just maintain the culture and the organization that Gerstner put in place.  He has continued to evolve the culture during his tenure, enabling IBM to thrive in a very dynamic industry while many younger, allegedly more agile firms have floundered.  


If you are interested in IBM's history and culture, you might take a look at the book the firm put together for its 100th anniversary.  The book is titled, "Making the world better: The ideas that shaped a century and a company." 

Starting College: Words of Advice

Here's a column that I wrote last year.  Perhaps it may be useful to first-year students about to begin their college experience.

Inspired by Greg Mankiw's great New York Times column titled "A Course Load for the Game of Life," I decided to offer a few comments of my own for college freshmen.

1. Pick your faculty, not just your courses. Ten years from now, it won't matter much if you took "18th Century French History" or "Cognitive Psychology" in your freshmen year, but you will remember the faculty member who made a huge difference in your life. Seek out the professors who care the most, who have a passion for teaching, and who are willing to spend time outside the classroom with students. Building those relationships early in your college career, and finding good mentors, can have a huge impact.

2. Be smart about personal finance. Think carefully about how you manage your money. The habits you cultivate at 18 years of age will last a lifetime. Have a great time, but don't take on unnecessary debt and don't spend carelessly.

3. Redefine how you study. For many students, studying means reading or re-reading the textbook and their notes from class. I would encourage you to think differently about studying. As you prepare for an exam, sit down with all your class materials, and write out a detailed review of the entire course. Then, boil that review down to just 1 or 2 pages. Then, boil it down again to just a few note cards. That process of having to synthesize and integrate all your learning in writing will have much more impact than a few extra hours spent re-reading the same tired words from a textbook.

4. Seek out your own space. Don't count on studying in your dorm room. Far too much distraction exists in the dorm room. Find a spot on campus in which you are comfortable, and in which you can focus. For many, it will be a spot in the library. However, there may be other locations as well. If you do go to the library, don't sit in a high traffic area where you will constantly be approached by friends.

5. Care for your whole self - mind, body, and soul. Don't just focus on academics. Stay in physical shape, take care of your spiritual well-being, and be mindful of your stress level.

6. Read constantly about world events. You might think I'm crazy. After all, you will have tons of assigned reading in your courses. Who has time for more reading? Actually, staying abreast of current events in world affairs, business, science, and the like will be very helpful in your college career. As you read, you can and should try to make connections to what you are learning in class. By applying what you are learning in class as you read about world events, you will engage in much deeper learning. The lessons will sink in much more effectively.

7. Thank your parents. Be sure to express appreciation early and often to your parents and other family members who are supporting you throughout your college experience. Be mindful of the sacrifices that your parents are making for you. Don't dismiss the fact that it may be emotionally difficult for them to see you leave home. Surely, you should seek out and affirm your independence from your parents, but don't trample on your parents' feelings as you do so.

JC Penney Reacts Quickly to Controversial T-Shirt

How quickly can and should companies react to a social media firestorm?  We have an interesting case study this week.   Bloggers and tweeters unleashed a barrage of criticism on J.C. Penney this week, after it began selling a back-to-school t-shirt that read, "I'm too pretty to do my homework, so my brother does it for me."  You can imagine how people reacted to this shirt.  To their credit, the retailer reacted within just a few hours to the controversy that erupted via social media, and they pulled the shirt.  What's the lesson from the story?   Most would say that you should anticipate such controversies and avoid them.  I would argue that it's nearly impossible to avoid all such controversies.  If you never experience one, you probably aren't doing anything fun or exciting with your products.   The key for any company is to TRY to avoid them, but to ACKNOWLEDGE that you won't prevent them all.  Then, you need to establish a monitoring process for detecting social media controversy and a rapid response mechanism for addressing such a firestorm. 

Making the Most of A Leadership Coach

In Fortune magazine, Vicki Elmer has a good column on the growth in the use of executive coaches.  She offers "four ways to make your coaching experience a success."

1.  Find the right match.

2.  Get clarity on your firm's expectations regarding the coach.

3.   Come prepared with key issues to discuss when meeting with your coach.   

4.   Make sure the coach observes you interacting with peers and direct reports. 

I would add that you shouldn't recommend that someone get a coach unless you think they are prepared/ready for that experience.   Some people may need some other types of developmental experiences to establish a "readiness" to be coached.  If you rush someone into a coaching relationship, they may not be willing yet to share their concerns about problems they are experiencing, or they may not even yet be fully aware of their areas requiring improvement.   If that's the case, then they won't get the most of a coaching experience.

Podcast Interview with Andy Kaufman - Information Filtering

In every organization, people filter information as it moves up the hierarchy.   Naturally, the good news makes its way up the line quite easily.  It's always the bad news that tends to get filtered out.  As many of you know, I've written extensively about this problem.  On this interview with Andy Kaufman, President of the Institute for Leadership Excellence and Development (I-LEAD), I discuss the concept of filtering with him.   Click here for additional follow-up material on Andy's site. 

BMW, 4 cylinder engines, and new fuel efficiency standards

BMW has announced that it will be launching new vehicles with four-cylinder engines in the United States.  The decision represents a sharp reversal from past policy.   Twelve years ago, BMW stopped selling four-cylinder vehicles in the United States due to a lack of sufficient consumer demand.  Why are they reversing their strategy now?  CAFE: Corporate Average Fuel Economy standards.   The United States has implemented a sharp increase in those standards, and to avoid large fines, automakers will need to sell many more fuel efficient vehicles. 

What's the implication for BMW?   Regardless of whether you endorse the new government regulations or not, the business question is whether an effort to comply with the standards will lead to poor investments.  Will consumers buy four-cylinder BMWs?  Beyond that, though, one has to wonder about the potential damage to the brand if they offer four-cylinder vehicles which lack the power and performance that customers are accustomed to experiencing with BMW cars.  After all, this is the "ultimate driving machine" company.  They have done a terrific job of articulating that brand positioning over the years  and remaining completely consistent with it.  BMW insists that the engine technology has advanced sufficiently over the past twelve years so that consumers will not be dissatisfied with power and performance for the new four cylinder engines.  It will be interesting to watch consumer reaction. 

SNL Parody - Salary Tutor

My friend, Wired.com's "marketing guy" Jim Hopkinson, has produced this terrific Saturday Night Live parody as part of the launch of his new book, Salary Tutor - a book designed to help with those ever-so-delicate and always challenging salary negotiations. 

Developing your people: Lessons from NFL Quarterbacks

Karl Moore and Devin Bigoness have a good column at Forbes.com about developing your people.  They draw lessons from the development of National Football League quarterbacks.  As they point out correctly, teams tend to take one of two contrasting approaches with their young quarterbacks.  Some teams take the "immediate testing" approach - i.e. they throw them in the pond and challenge them to learn to swim.   These quarterbacks often will struggle mightily in their rookie year.   It's trial by fire.   Other teams will adopt a "learning to win" model.  These quarterbacks sit on the sidelines for some time, perhaps even several years, watching a veteran quarterback lead the team.  

Each of these models has had its successes and failures.  Aaron Rodgers succeeded using the "learn to win" approach.  He spent four seasons as a back-up before becoming the starting quarterback for the Green Bay Packers.  He went on to become a star and a Super Bowl champion.   Peyton Manning, on the other hand, went the immediate testing route.  His team lost many games during his first year, and he did throw many interceptions.  However, we went on to craft a Hall of Fame career, won multiple MVP awards, and became a Super Bowl champion too.   Of course, both models also have their share utter failures as well.

Moore and Bigoness do not advocate one model over another (appropriately, I might add).  Instead, they propose that you should really understand your people, so that you can determine which model might be best for each individual.  At the same time, you have to assess your organization's needs.  You must balance what's best for individual against what is best for the firm.  Some times, you might have to "rush" someone's development, despite some risks, because of a pressing organizational need.  In other cases, you may determine that the organization can afford to give an individual a bit more time to "learn to win." 

Importantly, if you do adopt at  the "learn to win" model, you do need to still make sure that you present that individual with sufficient challenges and development opportunities.  One risk, with this model is that a talented person will leave because they are not receiving the opportunity that they desire.  In the NFL, teams have control over young players for several years.  In companies, people can depart at any time.  Thus, leaders must share their development strategy with the individual being groomed, and work with them to co-create a development plan that works for them and the organization. 

Why Individuals In Larger Teams Perform Worse

The University of Pennsylvania's Jennifer Mueller has published an interesting new study regarding team effectiveness.  She examines why individuals in larger teams tend to perform worse than individuals in smaller teams.  For many years, scholars have argued that motivation and coordination problems tend to worsen performance in larger teams.  Mueller does not dispute that these effects exist.  However, she demonstrates another factor that may play an important role.  Mueller's work shows that intra-group relationships may not be as strong in larger groups, and that may decrease individual performance.  She writes:

"Specifically, there may be process losses due to relational losses- individuals in larger teams perceive that support is less available in the team. Hence, the current paper expands the theory of group size and performance by identifying that individuals in larger teams also experience relational loss, and this additional source of process loss contributes uniquely to poor individual performance."

What's the implication for team leaders?  Based on this research, leaders ought to spend more time with larger groups focused on making sure that helping and supporting relationships exist among team members.  They need to identify key team members who may play a role in facilitating support for their fellow team members.  Moreover, they need to encourage team members to reach out if they need support from peers. 

Do we complicate easy decisions unnecessarily?

Knowledge@Wharton has profiled a new paper, "Complicating Choice," by Wharton marketing professor Rom Schrift and co-authors Oded Netzer and Ran Kivetz of Columbia University.  They find that consumers tend to feel that a certain amount of effort should be associated with making a buying decision.  The notion comes from people's belief that hard work pays off, and that a lack of appropriate effort will lead to a bad outcome.  If a decision appears "too easy" to us, we sometimes come to the conclusion that the seemingly obvious choice is "too good to be true."   As a result, we over-complicate the decision.  We make it more complex in order to make ourselves feel as though we have exerted appropriate effort.  Of course, such over-complication may lead us to choose a less desirable option or to waste time and energy.   We may end up moving far too late and missing a golden opportunity. 

The scholars discovered three ways in which consumers over-complicate easy decisions.  First, they "make the unimportant important."  In other words, they end up deliberating about an attribute that they didn't even care about at the initial stages of the decision process.  Second, they make two alternatives appear more equal than they actually were.  Third, people actually alter their preferences about specific attributes of one of the the options in order to make their decision harder.

HP's Exit from PC Business

While I was away on vacation, HP announced that it was exploring the sale of its PC business.  Naturally, the news surprised many journalists and investors, given how much attention the company has focused in recent years on the unit.  I don't find it shocking though.  As my students learn in their strategic management course, the Wintel portion of the PC industry is incredibly unattractive.  If you conduct a five forces analysis, you come to the conclusion that the industry is characterized by low product differentiation, massive supplier power (Microsoft, Intel), and substantial price rivalry.   More recently, substitutes have become problematic (smartphones, slates, etc.).  

As a result, the margins in the PC business prove incredibly thin for many players.  HP generated a large portion of its revenues from the PC business, but only a small slice of its profits.  Over the years, the incredible profitability of HP's printer business has masked many sins, including the thin margins on PCs and ill-fated new product introductions such as HP's TouchPad.  

The unattractive industry structure has led many firms to exit thePC business over the years, most famously IBM with its divestiture to Lenovo.  Even Dell has struggled on the consumer side of the PC business, though it has been very profitable with its core business focused on the corporate customer.  Of course, Dell has had a tremendous low cost position for many years.  

What's the lesson of this story?  As Warren Buffet once said, "When an industry with a reputation for tough economics meets a manager with a reputation for excellent performance, it’s usually the industry that keeps its reputation intact."

Why ESPN should embrace crowdsourcing

In the National Football League, statisticians have compiled a measure called "passer rating" to evaluate quarterbacks since 1973. Many people have criticized this statistic since it's inception. This year ESPN invested a great deal of time and effort to develop a better measure that they call "total QBR.". They unveiled the rankings of QBs based on this measure in a TV special recently. They argued that this rating includes a much better evaluation of how QBs perform in key situations.

Interestingly, ESPN did not disclose the actual formula and methodology for compiling the rating. I think this was a mistake. These days so many statistics experts love to dissect sports. They would love to sink their teeth into this rating. If ESPN embraced crowd sourcing, they could create a contest whereby many people could compete to refine and improve the measure. They could offer a special prize for the winner - think one day at the firm's Bristol headquarters complete with a lunch with a top ESPN personality. Such a contest wouls be very inexpensive to run, but it would have many benefits. It would engage many rabid sports fans, who are ESPN's core customers. The contest would specifically build connections with stats-obsessed fans. It could yield a better measure. Moreover, being open about the method could enhance the acceptance and use of this new rating by fans, media folks, and teams. Think of the hoopla that they could create and the attention it would draw.

Changing the Culture at Ford

I watched a CNBC special last night about the transformation taking place at Ford under Alan Mullaly. I found one story particularly interesting. Ford had a culture in which managers feared disclosing problems or admitting problems in front of senior executives. During the early months of Mullaly's tenure, EVP Mark Fields spoke about a planned new product launch. He disclosed a problem with the vehicle and recommended a launch delay. As Mullaly tells it, many people looked around the room wondering what would happen next. Putting a problem out in the open like that did not happen usually at Ford. If it did occur, the consequences were not typically positive. Mullaly did something rather remarkable. He started applauding right there in the meeting! He celebrated Fields' openness and willingness to confront the problem head-on. He told team that he didn't want managers keeping bad news from him. What a terrific leadership moment!

Reverse Innovation

Vijay Govindarajan of Dartmouth's Tuck School of Business gave a terrific presentation yesterday at the Academy of Management conference. He spoke about reverse innovation, a concept he introduced in an HBR article he wrote with GE CEO Jeff Immelt. Vijay described how most multinationals develop innovations in industrialized nations and then try to sell them in emerging markets. Reverse innovation occurs when innovations arise in emerging markets and then multinationals find markets for those products in the developed world. He gave the example of a EKG machine that GE sells in the US for $25,000. Naturally most Indian health care providers cannot afford these machines, particularly in rural areas. Thus, GE developed a simple $500 mobile device well-suited to rural India. Then, they realized a market for those devices exists in the US. Specifically, they have found that ambulances can carry these low cost mobile devices. Vijay argued that reverse innovation represents a huge opportunity for many multinationals. I think it's a fascinating phenomenon to watch.

Reviewing Organizational Failures: The Case of Medical Accidents

NYU professor Lucy MacPhail has earned a best paper award here at Academy of Management for her paper examining how an academic medical center conducts reviews of medical accidents. In healthcare, regulators dictate that certain types of errors must be subjected to a formal organizational review. MacPhail found that the hospital did indeed conduct systematic reviews in accordance with regulatory oversight. However, her research shows that the hospital did not review a number of incidents which had the potential to provide substantial learning opportunities. Why not? Those incidents did not fall under the regulatory rules. In other words, the focus on compliance may steer managers away from investigating failures which may yield key learning. I believe that similar experiences may exist in a number of other industries. MacPhail recommends that organizationals their own learning goals, independent of compliance concerns. Those learning goals should drive the selection of projects to review in a systematic manner.

Accepting blame vs. Expressing remorse

I'm headed to the Academy of Management conference in San Antonio today, and I'll be blogging over the next few days about interesting research presented at the conference. As I look at the program, I'm intrigued by a study conducted by Northwestern doctoral student Brian Gunia. He examines two dimensions of the typical apology offered after an organizational failure: Blame-taking vs. Expressing remorse. He finds that leaders are more likely to express remorse rather than accept blame during the delivery of an apology. However, other organization members valued an acceptance of blame more than an indication of remorse. It seems that taking responsibility reflects more positively on the leader's character. I find the study quite interesting given my work on how large-scale failures occur. Prior studies have not made this distinction, and I'm not sure if leasers think carefully about these two aspects of an apology.

First a customer, then CEO

I've read a great deal recently about how Bob Kraft, owner of the New England Patriots, helped broker the agreement with the players' union in the National Football League. Players credited him with building bridges between the sides, despite dealing with the death of his wife, Myra, during the negotiations. Kraft has talked repeatedly about how the two sides owed it to the fans to get a deal done. I do not think that those comments are just platitudes. I'm struck by how Kraft has built an organization that truly concerns itself with optimizing the fan experience. I think the reason is that Kraft was a long-time fan before buying the team. He understands the customer because he lived, as a fan, through the horrid years the team experienced. He knows the frustrations of the customer firsthand. I'm not saying a CEO has to be a customer before taking charge of an organization, but I do think it's an advantage. I also think CEOs who were not customers prior to joining a firm must go the extra mile to try to walk in the customers' shoes. That sounds easy, but it's not because the CEO is never treated as an ordinary customer once they have taken charge.

Stand-up Economist: Humorous Take on the Federal Budget

Breaking up is the thing to do: Does Kraft's split make sense?

Kraft announced this morning that it will be splitting into two independent companies.  According to the firm's press release, it will divide into "a high-growth global snacks business with estimated revenue of approximately $32 billion and a high-margin North American grocery business with estimated revenue of approximately $16 billion."   While some investors applauded the move, others expressed some surprise given that Kraft recently acquired Cadbury.  At the time, Kraft made a strong argument for the synergies between Cadbury's chocolate and gum business and the Kraft food businesses.  


I'm still trying to sort through the logic and details of the split, but I am a bit puzzled by a few details that have emerged.  According to the company, the high-growth global snacks business will include brands such as "Oreo and LU biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee,and Tang powdered beverages."  The high-margin North American foods business will include brands such as "Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Capri Sun beverages, Jell-O desserts and Miracle Whip salad dressing."  Now, wait a second.  We're going to have coffee brands in each new firm.  We're going to have other beverage brands (Capri and Tang) in each new firm.  How can one argue that the break-up is about keeping the most synergistic businesses together if you are putting identical products in different companies?   

To me, the logic appears to be: keep the high growth stuff in one entity and the low growth stuff in the other entity, rather than focusing on the actual synergies among the businesses.   The press release is very explicit about that motivation.  The move seems designed to try to drive the stock price through a focus on attracting different types of investors to each entity, and through trying to garner as high a price multiple as possible for the global snacks business.   I think this may be somewhat short-sighted though.  At the end of the day, brands should be together in one firm if there are true economies of scope (i.e. synergies).  Price multiples should not be driving competitive strategy.    I'll be interested in hearing more about how and why different brands have been put into each entity.  Perhaps there's more to the story. 

The Innovative University

I'm reading Clay Christensen's new book: The Innovative University.   I'll be posting about it once I'm done.  Here's a video from the authors:

McGraw-Hill - Breaking up is hard to do

The Wall Street Journal reports that Jana Partners (a hedge fund) and the Ontario Teachers' Pension Plan have increased their equity stake in McGraw-Hill and may be pushing the company to break up in the near future.  I found the news quite interesting, because it's been apparent for quite some time that the whole was not worth more than the sum of the parts.  Last year, a team of my first-year MBA students performed a strategic analysis of McGraw-Hill for their course project.  They concluded that McGraw-Hill's businesses did not fit together.  The company operates a financial services unit, which includes the S&P credit rating agency.  It also operates a large, but struggling, education unit (which sells textbooks, for example), and it has several television stations in its portfolio.   McGraw-Hill divested Business Week last year.   The synergies among these varied units are rather limited.  

Of course, investors have known this for some time, as has the management team.  Even a team of first-year MBAs could see rather easily that one had a hard time justifying this strategy given the limited economies of scope.  Yet, the company has remained intact.   It shows how difficult it can be for management to break up a company... particularly one that has a long and storied history of family ownership and leadership.   Chairman and Chief Executive Harold McGraw III's great-grandfather founded the company in 1888.  I'm sure that the family legacy makes it difficult to ponder breaking up the firm.  One reason for that may be that a break-up might put the company in play.   Firms may swoop in to try to acquire the various parts, and the firm may have a hard time remaining independent and family-controlled.  

Little Bets and The Value of Crude Prototypes

I just finished reading a great book titled Little Bets, by Peter Sims.   The author makes a strong case for the concept of acting first, learning, and refining your ideas - rather than spending tons of time planning before doing.  Others, of course, have made this argument in the past few years, yet Sims does a terrific job of tying together multiple threads of work, ranging from design thinking to Karl Weick's work on small wins.  Moreover, he infuses his argument with lots of stories from different domains - from Pixar to Chris Rock to the U.S. Army.

I found his discussion of prototyping particularly interesting, as he discusses P&G's push to engage in more crude prototyping in its innovation process.   Many firms make the mistake of trying to "perfect the prototype" - a process that takes far too long and diminishes opportunities for rapid learning and improvement.  At P&G, managers discovered how keeping the prototypes simple has several key benefits, besides reduced cost and enhanced speed.  Chris Thoen from P&G explains:

The problem with showing something to consumers when its almost totally done, people don't necessarily want to give negative feedback at that point, because it looks like, "This company has spent a lot of money already getting it to this stage and now I'm going to tell them, 'It sucks.'" On the other hand, if something hangs together with tape, it's clear that it's an early prototype, the mindset of the consumer often is, "These people still need some help, so let me tell you what I really think."  

In sum, consumers will offer more candid and constructive feedback if firms keep the prototypes very simple/crude.  Moreover, Thoen also argues that managers within the firm will be more open to feedback, because they won't have become overly committed to a particular design.  In other words, crude prototypes minimize the sunk cost trap, which can prevent managers from adapting their ideas based on consumer feedback.

Touchy Shoppers

Years ago, retailing expert Paco Underhill explained how shoppers, particularly females, did not like to be brushed or touched by others in the store.  When they did get brushed up against in crowded areas of the store, they tended to move on from the items they were examining.  The store often lost a potential sale.  Underhill developed this conclusion based on years of anthropological observation of customers in retailers around the world. 

Now, researchers have conducted a field experiment and confirmed Underhill's conclusions.  According to the Wall Street Journal, Brett Martin has published a new study that shows, "Getting touched by a fellow shopper—even an apparently accidental brush—makes consumers less likely to buy the product they're considering."  The effect proves more significant if a male shopper brushes up against a female consumer, just as Underhill suggested.  The study confirms that retailers need to think about the tradeoffs between utilizing floor space efficiently versus losing potential sales due to the "brush" effect.

The thing that I find fascinating about this study is that researchers felt compelled to conduct an experiment to prove Underhill's point.  It demonstrates a continued under-appreciation for qualitative observational field research... just one more thing that is maddening about academia!

Do Friends Encourage or Discourage Us From Becoming Entrepreneurs?

Harvard Business School Professor Josh Lerner and his co-author Ulrike Malmendier have written a fascinating new paper about how our friends may affect our propensity to become entrepreneurs.  They studied a decade worth of students in the first-year curriculum at HBS.  Those students take all their first-year classes in the same section of 80-90 students.  Thus, they spend a great deal of time inside and outside of class with that group, and many of them become quite friendly.   Lerner and Malmendier examined the students' backgrounds prior to HBS as well as what they did after graduation.  Here is the abstract of their paper:

To what extent do peers affect our occupational choices? This question has been of particular interest in the context of entrepreneurship and policies to create a favorable environment for entry. Such influences, however, are hard to identify empirically. We exploit the assignment of students into business school sections that have varying numbers of classmates with prior entrepreneurial experience. We find that the presence of entrepreneurial peers strongly predicts subsequent entrepreneurship rates of students without an entrepreneurial background, but in a more complex way than the literature has previously suggested: A higher share of entrepreneurial peers leads to lower rather than higher subsequent rates of entrepreneurship. However, the decrease in entrepreneurship is entirely driven by a significant reduction in unsuccessful entrepreneurial ventures. The effect on the rate of successful post-MBA entrepreneurs, instead, is insignificantly positive. In addition, sections with few prior entrepreneurs have a considerably higher variance in their rates of unsuccessful entrepreneurs. The results are consistent with intra-section learning, where the close ties between section-mates lead to insights about the merits of business plans.

The finding regarding the "discouragement effect" proves rather surprising and perhaps disappointing to some observers.  However, the finding regarding intra-section learning proves much more encouraging (i.e. the reduction in entrepreneurship is entirely driven by a decrease in unsuccessful start-ups, suggesting that students may learning from peers how to sharpen their business plans). 

Free Kindle Version of Book Today!

Apparently, my last book - Know What You Don't Know - is available free on Amazon's Kindle today!

New version of Everest Leadership and Team Simulation released!

I'm very excited to announce that Harvard Business Publishing has just released a new, updated version of the Everest Leadership and Team simulation (Everest 2.0!) which we developed originally several years ago.  We are incredibly grateful to all the instructors who have adopted the simulation in the past few years, and who have taken time to offer us useful feedback.  We have tried to address many of the suggestions and ideas offered by faculty members and students.  We think you will really enjoy the upgrades! 

I'd like to thank the entire team that worked on the simulation as well.  I always enjoy working with my co-author, Amy Edmondson.   The team at Harvard Business Publishing is just terrific, led by Heide Abelli and Nicole Harris (Nicole, in particular, did much of the heavy lifting on the revision).  Finally, Michael Bean and his team at Forio do a terrific job of software development. 

By the way, for those who are interested, we have been working on a new simulation.  We have a fair bit of work left to do, but I'll post details once we are close to completion.

I've posted the official announcement about the Everest simulation from Harvard Business Publishing below, which contains a few details about the upgrades to the simulation. 

Harvard Business Publishing is pleased to announce that the Leadership and Team Simulation: Everest V2 is now available. This second release of the team-based simulation combines the proven learning objectives and storyline of the original with an updated user experience for both student and instructor.

Key Features:

• NEW Design—Updated visuals and navigation enhance the look and feel of the simulation while maintaining the principles of the original for continued ease of use.
• NEW Setup Options—Drag and drop functionality and the new auto-assign feature simplify and expedite team and role assignment.
• NEW Teaching Materials—The updated Teaching Note reduces simulation ramp-up time. A new Microsoft PowerPoint deck populated with your specific classroom results provides an effective and efficient tool for a classroom debrief session.
• NEW Performance Tracking—New debrief histograms offer role-by-role comparison of individual goal achievement across teams. Now you can also download results for multiple teams for more powerful results analysis.

Traveling Interationally vs. Living Overseas

Many universities now urge or even require their students to travel internationally as part of their education.  In some instances, students go on very short trips abroad with faculty and other advisers.  For others, their global experience involves a semester or more of study abroad.   Some companies also require high potential employees to take an international assignment as part of their career plan.  Other firms don't require it, but managers travel extensively abroad as part of key assignments. 

I think it's important to consider the difference between traveling and living abroad.  As I write this blog, I'm in Tokyo teaching an executive education program.  It's my eighth year doing so.  Each summer, I spend a week or so here teaching senior managers from a variety of Japanese firms.  I began to contrast my experience here with the trips I've taken going all the way back to my childhood to visit family in Italy.  Here in Japan, I stay at a very nice hotel and eat at restaurants each day.  When I go to Italy, I stay with family members in their homes and on their farms.  I help out as much as they will let me around the house.  I go to the grocery store, gas station, and the park with them.   When I was a kid, I went for a whole month several times.  The experience differs dramatically.  Traveling overseas certainly exposes you to a culture, but it is not nearly as informative as living and breathing the culture day to day.  When you stay for longer, and live in a community, you experience the routines and the frustrations of daily life in a way that you do not when traveling for a short time in another nation.

Thus, I think students benefit greatly when they go abroad for a whole semester, and executives benefit when they take an overseas assignment.  Neither of these is always possible, and so, travel overseas certainly isn't a negative thing.  However, to gain a true understanding of what customers need and want in different regions and cultures, living in that environment can't be beat. 

Does Google need an auteur?

The New York Times published an interesting article this weekend about Google and Apple. The article describes a theory outlined by blogger John Gruber at MacWorld Expo two years ago. Gruber argued that innovative firms need an auteur, someone like a film director who calls the creative shots... Like Steve Jobs does at Apple. The article suggests that Apple's auteur approach (Jobs as ultimate design arbiter) excels relative to Google's collaborative design process (many people weighing in on key choices).

I have two problems with this argument. First, I think it downplays the level of true collaboration at Apple, and discounts the true contribution of people such as Jonathan Ive. More importantly, though, I think we have to consider whether we should be generalizing based on observations of Apple. Perhaps it is a very unique firm that cannot be easily emulated. Moreover, perhaps it would be problematic to bet on the "lone genius" approach in a wide variety of other firms based on this auteur argument.

Recently, Bob Lutz made a similar argument regarding car design. He argued essentially that a dictator approach beats design by committee. However, that assumes a really capable dictator. What if the dictator is less than spectacular?

Sharing Feelings, not Facts

In the Wall Street Journal this weekend, Jonah Lehrer writes about the research of Wharton Professor Jonah Berger. That research focuses on why people share certain types of information more than others. Berger's work focuses on how we tend to share information more frequently when it triggers emotions such as anger and awe.

We all know that organizations suffer when information is not shared within teams or across silos. Is it actually even more problematic if people are biased toward sharing emotionally charged information rather than "cold, hard facts" available to them? Does the bias toward sharing feelings over facts make the conflicts among silos even worse?

That's the downside one can examine based upon this research? What about the positive recommendations for action? Well, if we want others to pass along data we have shared with them, we might be well-advised to frame the information in a way that triggers feelings and emotions. It's not "just the facts" after all!

The Bad Apple vs the Systemic View

Whenever an organizational experiences an accident, crisis, or scandal, many people rush to find fault. They want to identify the individuals to hold accountable. They ask about the CEO: What did he or she know and when did they know it? I think we have to resist this urge. We must adopt a more systemic view. In most cases, the problem stems from more than just one bad apple. Firing the bad apple might be appropriate, but that alone won't prevent a recurrence. The systemic issues must be addressed.

Apple's Pile of Cash

Apple reported earnings this week, and the balance sheets shows an enormous amount of cash:  $76 billion!   For the first time, we are beginning to hear more investors clamor for clarity about what will happen with this cash.  Some even would like to see some cash returned to shareholders.  In the Wall Street Journal today, we see a quote from one investor: "If they can't find ways to use it to grow, they should be returning it to shareholders," said Tim Ghriskey, chief investment officer of Solaris Asset Management, which owns Apple stock. 


On the other hand, some investors don't mind Apple's financial strategy at all: "It provides me enormous comfort that their balance sheet is so strong," said Mike Binger, a fund manager at Thrivent Asset Management, which owns Apple stocks. As far as he is concerned, "They have the flexibility to do whatever they want with it."

I am astounded by the amount of cash on the balance sheet.  Normally, I worry about firms that have this amount of cash.  I don't want them squandering the cash on flawed acquisitions or poor diversification strategies.  The question, though, is whether Apple deserves more of a benefit of the doubt, given their tremendous track record, coupled with the fact that they are still growing very rapidly.    To me, we should worry most about a cash pile like this when we have:

1. Slowing growth at the firm's core business
2. A history at the firm of flawed diversification or acquisition strategies.
3. Poor corporate governance practices at the firm
4. A lack of opportunities for productive R&D investments

To me, Apple does not raise concerns on these four points.   However, the situation bears watching as the pile of cash continues to grow at an incredible pace.

Myths of Innovation

I discovered this good Google Talk by Scott Berkun on the Myths of Innovation:

Stop the Charade!

I continue to be amazed at how many executives get themselves into trouble with their teams by engaging in what my friend and colleague Michael Watkins calls the "charade of consultation."   The charade occurs when an executive makes a decision, and then goes to his team to "consult" them about the issue.   The executive might even entertain a discussion of multiple options, yet then steer the dialogue toward the alternative he or she preferred from the outset.  Naturally, team members see right through the charade.  Such leadership approaches actually diminish trust and commitment. 

Scholars have shown that people care about the procedural fairness of decision-making processes; they don't just care about the outcomes.   When leaders engage in the "charade of consultation," they create the perception of an unfair process.  The research clearly shows that perceptions of procedural fairness affect buy-in, trust, and commitment.  

Do Customers Prefer Products with Small Flaws?

The Ideas section of the Wall Street Journal Weekend Edition reported on an interesting new consumer behavior study.    The scholars (Danit Ein-Gar, Baba Shiv, and Zakary L. Tormala) examined how people reacted to small flaws in a product. 235 undergraduates participated in this study (ok, so right away, we must acknowledge that one could raise validity concerns based on the sample).   The researchers asked the students if they wanted a chocolate bar.  The students could see, through the wrapper, that some chocolate bars were slightly broken, while others were not.   The researchers intentionally approached some students that were preoccupied, while others were not.   The preoccupied students bought more flawed chocolate bars than perfect ones (by a significant margin).  The non-preoccupied students tended to prefer the perfect chocolate bars. What accounts for these findings?  The scholars argued that the flaw caused the preoccupied students to take notice, to pay attention more closely, and thereby to purchase more chocolate bars.

What's the implication for companies?  I certainly don't think it means that we should intentionally produce flawed products.  However, I do wonder if companies that offer early-stage products might benefit by actively engaging customers and asking them to offer feedback on flaws and potential improvements.  Being very direct about possible flaws, and asking for customers to help, may draw their attention to the product in a crowded, noisy marketplace (i.e. one in which consumers are often preoccupied!). Do you see other implications of this research?  If so, I hope you will post a comment and share your thoughts.

Better Brainstorming

My friend and co-author Lynne Levesque pointed me to a great blog post by Kevin Eikenberry on how to improve brainstorming.   I agree with Kevin when he says, "The problem is that we try to brainstorm without a clear problem statement, in the middle of a long meeting, when people are already tired, and they are sitting in a relatively (or totally) sterile, uncreative space."  He goes on to offer ten useful tenets for improving how teams brainstorm.

I would add one crucial element to his recommended process.  I believe that groups need to do some detective work after they craft a problem statement and before they begin to brainstorm.  They need to out into the field, use their powers of observation, and collect data about the phenomenon.   That means interacting with, observing, and questioning customers and other constituencies.   Once you have gathered some of that fuel for the creative fire, then you can brainstorm effectively.  Starting with an absolutely blank slate, in my view, doesn't yield the best results.  

NetFlix: Value-Based Pricing Run Amok?

As everyone knows by now, NetFlix spurred a major consumer backlash with its significant pricing increase.  As I considered how they might have arrived at this decision, I began to focus on how NetFlix management might have analyzed the value that they provide for consumers.   In value-based pricing, companies examine the customer's economics, and they evaluate the cost to the consumer of purchasing an alternative.   How would this work for NetFlix?   Management would examine the customer's options, and they would calculate how much consumers would have to spend to purchase a service roughly equivalent to the one that NetFlix is offering.  If NetFlix executives examined it this way, then you can see why they might have arrived at a decision to raise price significantly.

Some have argued persuasively that they don't see a customer-friendly alternative to NetFlix at the $10 per month price point, with access to new releases and a more extensive library of older movies (which NetFlix provides through a combination of DVDs and streaming).  Thus, I can see how the decision was made.  It doesn't mean that it was a smart move.  They clearly created quite a backlash.  Moreover, as Nilofer Merchant wrote yesterday, they might have communicated and executed a price increase in a way that did not set off such a furor.

What will most interesting, though, will be to see what customers do, not what they say on social media.  How many will actually follow through on the threat to abandon NetFlix, and where will they turn.  NetFlix seems to be betting that the consumer's options aren't all that attractive, and many will end up sticking with the company despite all the complaining.  We shall see. 

Non-Compete Agreements and Innovation

New research by Harvard Business School Professor Lee Fleming and co-authors Matt Marx and Jasjit Singh examines the impact of laws regarding non-compete agreements.   In some states, non-compete agreements are essentially illegal.   In other states, they are legal.   Not surprisingly, their research shows that inventors migrate to states which ban non-compete agreements.   In fact, the most productive innovators tend to be most likely to be attracted to states which do not allow non-compete agreements.  The researchers point out that California, for instance, does not allow non-compete agreements.  Not surprisingly, then, Silicon Valley attracts so many entrepreneurs.   Here in Massachusetts, journalist Scott Kirsner has been pushing for the state to get rid of non-compete agreements so as to foster innovation and entrepreneurship more effectively.  This study should provide more support for Kirsner's argument. 

The Riskiest Move of All

I love this column over at Fast Company by Josh Linkner.  He titled it "The Riskiest Move of All."  What's that, you ask?  Doing nothing at all.   It's a simple concept, but it cannot be emphasized enough.  Standing still in a dynamic world can be very dangerous for any business.  Wait, though... Does taking Linkner's advice mean companies should constantly be tinkering with their strategy?  Wouldn't that lead to inconsistency, lack of focus, and an inability to engage in disciplined execution?   Here's the way I would approach this issue.  Good companies don't stand still, but it does NOT mean changing strategy on a whim.  Being active means constantly scanning your external environment, staying abreast of competitors' moves, examining social and technological trends regularly, interacting with customers continuously, and striving constantly to improve internal processes.   Being active means asking the "What if?" questions and amplifying potential threats for the purposes of keeping your people vigilant.   Being active means playing out scenarios for the future in which major disruptions might occur.  An active and vigilant management approach doesn't mean constantly changing direction and purpose, but it does mean being ready, willing, and able to shift direction if necessary. 

Incentives for Crowdsourcing

The Boston Globe reported Sunday on an interesting new Chinese study about crowd sourcing. Professors Zhang and Zhu examined the behavior of non-Chinese after the Chinese government blocked it's citizens from seeing or using the Chinese version of Wikipedia. It turns out that non-Chinese reduced their contributions significantly. The scholars conclude that the size of a potential audience affects substantially individuals' incentives to contributeopening source projects.

Daredevil CEOs, Options, and Risk

Wharton Professor Todd Gormley, Northwestern's David Matsa, and Washington University of St. Louis' Todd Milbourn have published a new paper titled "CEO Compensation and Corporate Risk Taking: Evidence from a Natural Experiment."  Many scholars have argued that stock options increase executive risk-taking, since there is a huge upside with limited downside associated with options grants.  These scholars use a fascinating natural experiment to test this theoretical prediction.   The researchers looked at firms affected when the federal government added certain chemicals to the list of known carcinogens.   They looked to see whether firms took concrete steps to reduce cash flow volatility (i.e. cut risk) after this threat emerged.  The scholars found that executives with a high amount of option-based compensation were less likely to try to cut risk to offset the increased risk/threat from the carcinogen finding by the federal government.  

I find the study quite fascinating and persuasive in providing data to support its conclusion.  However, in the article on the Knowledge@Wharton website, I must dispute one key point.  Gormley addresses the question of whether risk-taking is always necessarily a bad thing for shareholders.  According to the article, "Gormley points to the case of defense contractor General Dynamics as an example of risk paying off."  He argues that executives there in the early 1990s took the risk of not diversifying, but rather than focusing on defense, after the national defense budgets began to be cut.    He's right that the risk paid off handsomely, as General Dynamics provided handsome shareholder returns through the 1990s.  

There's only one problem with this argument.  I worked at General Dynamics at the time, and I've taught a case study about the firm during that period.   When Bill Anders became CEO in 1991, a very aggressive pay-for-performance compensation scheme was put in place for the top 25 executives.  However, the compensation scheme was heavily weighted toward cash bonuses.  It became very controversial because the executives received large cash bonuses if the stock rose by $10 and stayed there for 10 days.  The incredible short-term orientation of that bonus scheme set off criticism from many quarters.  60 Minutes even did a very critical feature on the company.   After that, General Dynamics eliminated the cash bonus scheme and shifted to an option-based compensation structure.  However, the key decision to not diversify into commercial ventures, but instead to focus on defense, had already been made by Anders and the top team before the options scheme was put in place. 

Despite this slight inaccuracy, the paper provides a terrific look at a natural experiment with implications for how Boards compensate CEOs.   I recommend taking a look.

Leadership lessons from the softball field

I've coached youth softball now for the past six years. You can learn a great deal about leadership when coaching any team. Here is one key lesson I've learned. In youth softball, girls often become bored at the slow pace of the game. It becomes worse if they are playing a position that they would rather not play. As a coach, you have to remember to explain to each player why their role/position is critical to the team's success. Moreover, you must heap praise on a player who, after perhaps after some period in which they haven't seen much action, then executes their role perfectly to help the team. That moment of positive reinforcement becomes an aha moment when many begin to see how each role is valuable. However, leaders can't stop there. They must continue making it clear how each role is instrumental to team success, because the message wears off if not heard repeatedly.

Leaders of all types of teams must remember to take the time to make it crystal clear how and why each role is valuable. Leaders must constantly explain how each member's actions drive team success. They must go out of the way to praise those who may have a role that is perceived as less significant. Take Bill Belichick, coach of the New England Patriots, as an example. Several years ago, after the Patriots won a key playoff game on the way to the championship, he heaped praise on the backup quarterback after the game. However, he had not played at all! Yet, the coach explained how the player's mimicry of the opposing quarterback in practice all week had helped the defense's preparation immensely. Now that is how to make sure each member of the team sees the criticality of his role!

Facebook: Comparing Different Marketing Strategies

Gregory Ferenstein has written a new column over at Fast Company about an interesting new study regarding Facebook marketing strategies.   NYU Professor Sinan Aral and Research Associate Dylan Walker examined two versions of a Facebook app used by a company (whose name was withheld).  The passive version posted automatically to an individual's newsfeed if they engaged with the brand in any way.   The active ersion also enabled consumers to send personalized messages to their friends about the brand.  Professor Aral summarizes the key finding: "Passive features are better for spreading a product widely and for quick adoption. Active features, on the other hand, are better for building a loyal customer base and make a product stickier."  Moreover, the scholars found that viral strategies, whether active or passive, proved much more effective than traditional banner ads and email advertising.  

IDEO's Tom Kelley on Field Observation

Thank you to Stanford Professor Robert Sutton for recommending this terrific video clip (via Twitter).  For those interested in using field observation to drive the innovation, it is a must-see!

Part 2 - Interview with HR Expert Jane Perdue

Here is Part 2 of an interview I conducted recently with Jane Perdue, CEO and founder of Braithwaite Innovation Group.  Perdue has extensive experience as a human resource executive, and now a consultant, at Fortune 500 firms. 

Many changes have been made in employee evaluation and merit review processes in the past decade or so. What are some of the most significant problems that still remain with those evaluation processes?

There are many days in which I wish I had a magic wand and could transform the entire performance appraisal process into something practical and meaningful! In my perspective, many of the changes have been in process. An organization can have the most extraordinary online appraisal systems and still fail to move the needle on developing employee performance.

There’s too much focus on the form and too little on the content. While a lunch once with a boss, he wrote a few development notes on a napkin – that’s truly the most effective performance feedback I ever received.

Performance assessment and evaluation must transcend being simply a document completion process to a corporate-wide mindset and dedication to continuous improvement. A mindset that’s embedded in multiple systems: strategic planning, business metrics, staffing, leadership and succession development, just to name a few.

What are 2-3 key success factors with regard to developing sound management succession processes?

For management succession development to be effective and successful:

•  An organization must have identified the requisite knowledge, skills and abilities – both from a quantitative and qualitative perspective – that are crucial to running the business and are embedded in a leadership development program based on measured outcomes
•  Succession development is practiced, recognized and rewarded as business fundamental, just like strategic planning and budgeting
• The process is simple and straightforward, having been pared down to the core essentials with reams of paperwork avoided.