5 Social Media Lessons

At Business Week's site, Home Depot's Brad Shaw shared the following five social media lessons for business:

1. You can't control the conversation:  Companies can't just proclaim; they must engage in a dialogue with consumers.

2.  Be authentic.  Your online image and approach must match your offline image and culture. 

3.  It's about people.  Don't just communicate about products and services.  Share information about the people behind the brand.

4.  Your people need hands-on expertise in what customers care about.  Use front-line employees in your social media efforts, because they touch the consumers directly.

5.  Be patient and flexible.  Invest in small increments, gather feedback, adjust over time.  Stay agile. 

Wharton Profs' Take on the HP Situation

Here is a good read from Knowledge@Wharton about the HP situation.  Several faculty members comment on the CEO switch and what Meg Whitman must do to turn things around at the firm.

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Defining Your Company's "Critical Behaviors"

Many companies outline a set of values by which they wish to operate, and they define the financial goals they wish to achieve.   Senior leaders often spend time describing those values and goals at various company events.  Company newsletters, posters, and wallet cards list the organizational values too.  However, many firms do not take the extra step to define clearly the individual and team behaviors necessary to live those values AND for the firm to achieve financial success.  Great companies take great care to outline the crucial behaviors required for success on both fronts (financial and values).   Moreover, they connect those behaviors to the personal development plans and merit assessments of each employee.  Goals-Values-Behaviors: Every firm should make sure they have addressed each leg of the stool.  

The HP Board: Another CEO Bites the Dust?

News reports indicate that the HP Board of Directors will fire CEO Leo Apotheker today and replace him with Meg Whitman.  Many people have criticized the Board heavily for its actions over the past few years... and rightfully so.  They have had their share of public fiascoes.  From my perspective, they deserve the most criticism for not having developed a talent pipeline and a succession plan that would have enabled them to promote an insider during at least one of these management changes.  From Fiorina to Whitman, the Board keeps going outside the firm to find a new CEO.  How can a firm such as HP constantly have to reach for an outsider?  That's a flawed talent strategy and poor governance.

On the positive side, I applaud the Board for not falling into the sunk cost trap with Apotheker.  They deserve some credit for acknowledging their mistake and cutting their losses.  Many Boards would have been reluctant to fire a CEO after such a short period of time, even if it became quite clear that things were not working out.  

Netflix and Qwikster: What are they thinking?

Why did Netflix decide to split itself in half?  Why create a new brand called Qwikster?  Most people have criticized the move quite heavily.  Slate has an interesting article about the decision.  Farhad Manjoo writes that Netflix seems to have taken guidance from Clay Christensen's model of disruptive innovation.  Manjoo bashes the move in the first few paragraphs of the article, but then writes the following:


I think it's an idiotic strategy.... And yet: It could work. In The Innovator's Dilemma, Christensen argues that the companies that are most vulnerable to disruptive technologies are those that have really good management. The problem with good managers is that they tend to listen to customers. And the problem with customers is that they don't always know what's best for them. If you were a devoted Blockbuster customer in 2001, and if Blockbuster's CEO sent you an email announcing he was closing all the company's stores and switching to a DVD-by-mail service, you would have balked... As Christensen explains, disruptive technologies usually start out as inferior substitutes, proving attractive only to a small fringe of customers. For years, the people who ran Blockbuster saw Netflix as irrelevant. It's easy to call them stupid now, but at the time they were mostly right. Blockbuster's customers considered Blockbuster better than all the alternatives; if they didn't, they wouldn't have been Blockbuster customers. And Blockbuster's managers were doing what good managers do—they were investing in the parts of the business that customers liked (opening more stores) rather than coming up with a whole new business that might alienate their current users.  The key advantage of Netflix's new model is that it will give each side of the business—the DVD side and the streaming side—flexibility to manage its service in a way that pleases its own customers. As a combined service, any move to strengthen one side of the company over the other would have been perceived negatively by one group of customers. 

For me, the negative reaction to the move has more to do with the seeming inconsistency of management's actions than anything else.  Several months ago, Netflix championed an integrated service at a low price.  Then, they raised prices dramatically on the integrated service, but allowed customers to opt for a lower priced streaming-only service.  Then, after a short period of time, they announced a split into two brands, one for streaming and one for DVD-by-email.  The series of changes in strategy over a short period of time give the impression of a management team unsure of how to move forward.  That makes investors uneasy (rightfully).  Secondly, people have criticized the move because they don't necessarily see the connection between setting up a separate business unit and establishing a second brand.  In Christensen's writings, he provides several good examples of companies establishing independent units to pursue an innovation, without necessarily creating a new brand. Take IBM's creation of a unit to launch the personal computer; it existed independent of the mainframe business, but it leveraged the existing IBM brand.

Despite all the questions, I understand Netflix's predicament.  They face unchartered waters, as a young growing company facing the inevitable demise of the original business.  In the old days, companies may have experienced the disruption of their core business after decades of success.  For Netflix, that demise of the core may be occurring just a decade after the firm rose to prominence.     

Another Break-up at Tyco

The recent burst of break-up activity among diversified companies continues.   Tyco has announced its intention to break up into three separate firms:  security, fire- protection and flow-control.    The split follows a 2007 break-up in the wake of the Kozlowski scandals.  At that time, Covidien and TE Connectivity became independent companies.  With this announcement, the Kozlowski empire has been dismantled completely.   I'm not surprised by the move.  The firm had become more focused after the 2007 spin-offs, but it still remained a company with limited synergies among these business units.   In an era of lower economic growth, firms cannot justify these diversification strategies as easily.  They have to show the economic value of diversification.  If not, they must try to create shareholder value by freeing the units to operate as independent, focused companies.  In the past, economic growth masked some of these sins of diversification at many firms.

Are Gifts Better Bonuses Than Cash?

The Wall Street Journal reports on a new study published in the American Economic Review.  Sebastian Kube, Michel André Maréchal and Clemens Puppe conducted an experiment, in which they compared workers' productivity when given a bonus vs. those in a control group.   Actually, they set up two different types of bonuses:  a 7 Euro cash bonus and a gift of a thermos worth 7 Euros.   They found that the workers promised the gift as a bonus were significantly more productive than those given cash, whether told the value of the thermos or not.

Now, one could conclude that the researchers have shown that gifts might have a better incentive effect in the workplace than cash.  However, I think we need to proceed with caution - a great deal of caution!  Here we have a simple experiment with the bonus only worth 7 Euros.  Would the same effect hold in the workplace if the amount of the bonus were much more substantial?  That's not clear to me at all.  So, while the experiment may be thought-provoking, I'm not sure it provides us practical guidance as to how to design incentive schemes for the workplace. 

Industrial Policy: Jon Stewart's Take

                       

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Could Sears Become a Product Company?

The Wall Street Journal reports today about Sears' moves to expand the sales of its Kenmore line of appliances to other retailers, such as Costco. A decision to move in this direction offers peril and promise. On the one hand, Kenmore is a strong brand likely to sell at other retailers. On the other hand, every sale at another retailer diminishes foot traffic and associated sales at a Sears store.

The decision raises a broader long term strategic question though. Sears has struggled mightily in recent years. Some question whether it can ever reverse this slide. If that is true, perhaps Sears could gradually be transforming itself from a retailer into a product company. It already sells Craftsman and Diehard branded products at other retailers. Could Sears one day no longer be a retailer at all, but instead be a home and garden products firm with a stable of strong brands (Kenmore, Diehard, Craftsman, etc)? As the retail business continues to decline, this may not be so far fetched.

Leaders, Explore outside your domain!

At the very start of my doctoral program, faculty members assigned us to read Thomas Kuhn's great book, The Structure of Scientific Revolutions. I learned that many great scientific discoveries emerged when people from one field tackled a question in a different domain. Why? I think three key reasons exist. First, people in a particular field become entrenched in a certain way of thinking, and that can inhibit innovation. Second, new ideas can emerge when we draw analogies carefully from one domain to another. Third, many social and scientific problems require a fundamentally interdisciplinary problem-solving approach. You simply can't address the issue from one silo.

What's the lesson for leaders? We have to read, scan, and explore ideas from outside our industry and outside the field of business. We have to make the time for this and encourage our peers and subordinates to do the same.

Advertising: The Value of Celebrity Endorsements

What's the value of a celebrity endorsement for your brand?  Harvard's Anita Elberse and and Barclay Capital's Jeroen Verleun examined this question recently.  They looked at how a firm's sales change as they sign a star athlete, as well as how revenue changes with major accomplishments by the athlete.  Elberse and Verleun found that a firm's sales do rise with the signing of a star athlete - on average by approximately 4%.  Moreover, revenue increases with each subsequent major accomplishment by the athlete.  In other words, winning helps drive the firm's sales.  However, they found decreasing returns to winning.  In other words, sales increases tend to diminish in size as the athlete racks up subsequent victories (the first Grand Slam victory by a tennis star yields a bigger jump in firm revenue than the fifth Grand Slam victory).  The researchers argue that firms need to keep these decreasing returns in mind as they contract with star athletes.  For instance, providing bonuses of equal size for each major victory would not necessarily make sense, since the associated economic benefit for the firm falls over time.  Moreover, the decreasing returns might suggest that long term deals should be negotiated with caution. 

GameStop: Trying to Counter a Disruptive Threat

GameStop made news this week by announcing that it will accept trade-ins of Apple iPods and iPhones at its stores throughout the country, after testing the concept in Texas for several months.  This article quotes CEO Paul Raines as saying, ""We're selling refurbished iPod Touches like crazy."   I find the news interesting for reasons beyond the fact that all things Apple tend to attract attention these days.  GameStop clearly faces a serious threat of disruption for two fundamental reasons. First, many people see the future of console-based video games shifting to downloads as opposed to buying CDs at retail stores.  Second, console-based games themselves are under attack from the shift toward mobile and social gaming.   GameStop clearly will have to evolve its strategy, or face a future that looks more like Blockbuster and Borders  than they would like.  I'm intrigued by how Raines, who I interviewed years ago when he was at a different firm, has continued to experiment with the business model and evolved the strategy in the face of these threats.  They seem much more agile than other brick-and-mortar retailers who have been disrupted, but it remains to be seen whether they can thrive amidst these challenges. 

Transformational Leadership Course

For those with a subscription, you might wish to check out the Providence Business News today.  John Larrabee interviewed me about my new leadership series from The Great Courses (The Teaching Company).   During the interview, I discuss how faculty members team up with the terrific staff at The Great Courses to build a course.  In addition, we talked about the challenges of shifting from case method teaching in the classroom, which relies on the Socratic method, to the lecture format of The Great Courses. 

Postal Service Blues: Substitution is Always the Biggest Threat!

Over the past few weeks, we have heard a great deal about the troubles at the US Postal Service.   The USPS experience offers a crucial lesson regarding threats to competitive advantage.  Many firms spend enormous amounts of time conducting competitor analysis of various kinds.  They worry constantly about how their rivals might overtake them.  However, the most dangerous threat to competitive advantage really does not come from direct rivals in your industry.  Instead, it often comes from substitutes.  In other words, different goods or services emerge that address the same customer need, thereby supplanting your product in the marketplace.  Think digital photography undermining instant cameras, NetFlix destroying Blockbuster, tablets eroding the position of traditional PC makers, mobile and social gaming undermining the position of traditional console-based video games, and clearly... email and other electronic forms of communication threatening the sustainability of the USPS business model.  In sum, companies should spend much more time scanning the external environment for the rising threat from potential substitutes, as opposed to fixating on their existing direct competitors.  Of course, in so many cases, companies fail to acknowledge the threat from a substitute until it's far too late... even though they are aware of the emergence of this alternative good or service.  Unfortunately, existing mental frameworks often make it difficult for executives to get their arms around the very different business model associated with the substitute.  

Recommender Systems Build Commonality, not Factions

Wharton Professors  Kartik Hosanagar, Andreas Buja and Daniel M. Fleder have conducted a fascinating new study regarding recommender systems (in this case, iTunes recommendations). The authors chose to examine the arguments being made by various folks that, "Increased personalization is creating fragmentation throughout society."   For example, Cass Sunstein,law professor and head of the Obama administration's regulatory policy, has made such an argument.   The scholars examined how recommendation systems on the Internet affect consumer behavior.  They focused on iTunes for their study.   Here is what they found, according to the Knowledge@Wharton website:

"An increase in the volume of purchases was anticipated, the authors write, but the increase of roughly 50% was larger than expected. By comparison, the number of purchases made by the control group actually declined by a small amount. "The personalization system exposes you to a lot more items you like, so you consume more than you used to before," says Hosanagar. "As each consumer buys more, it increases the likelihood they have something in common." For the taste effect, the study results also show that once volume is controlled for, consumers buy a more similar mix of products after receiving recommendations.  In addition to purchasing more songs, the research showed that consumers who used the service became part of networks that intensified as a result of receiving suggestions about songs. The researchers, who plotted relationships between thousands of users and millions of songs, found a 23% increase in the percent of listeners with an artist in common compared to the control group.  The researchers also plotted combinations exploring the "distance" between pairs of users, or the number of people in the network between them. They wanted to determine whether those who initially were close on the network become closer, while others who were farther removed grew farther away, indicating fragmentation. The authors found that all kinds of users -- close as well as far -- became closer to one another on their networks in the treated group relative to the control group. The group that received recommendations showed more user-pairs becoming closer (36%), while fewer pairs (9.2%) moved farther apart. "The increase in similarity appears uniform: All types of users become closer to one another," the paper states. "Users who were close became closer, and users who were initially far became closer, too."

In sum, music recommendation systems tend to broaden consumer interests, rather than narrowing the individual's focus on a particular niche.  Hopefully, future studies will examine whether the same result occurs with other types of recommendation engines.  For more on the importance of recommendation systems in many markets, I highly recommend reading Chris Anderson's excellent book, The Long Tail.  In that book, he explains how companies such as NetFlix and Amazon have a much higher percentage of their sales coming from non-blockbuster hits than brick-and-mortar retailers.  They accomplish this through the digital nature of their business, and they drive those sales of less well-known products through things such as their recommendation engines.  

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.