Hire for Excellence... in any field

Fast Company has a terrific interview with Oren Jacob, former Chief Technical Officer at Pixar.  Jacob describes some of the key attributes of the Pixar culture and processes.   Among the many great tidbits, Jacob explains a crucial facet of the Pixar hiring process.  He calls it "hire for excellence." Here's the explanation:

When Pixar is evaluating potential hires they look for three traits: humor, the ability to tell a story, and an example of excellence. These aren’t unique qualities to assess in applicants, but how excellence is defined is not that common. It doesn’t matter what you are excellent at, just that you have reached a level of excellence. It’s important that you know what excellence feels like and what it takes to achieve it. It could be gardening, jujitsu, or cooking. The main thing is you’ve had a taste of excellence and will know how to get there again.

I really like the concept of hiring for excellence.   Developing mastery in a particular field or endeavor demonstrates self-discipline, work ethic, and perseverance.   It also means that individuals have probably engaged in the kind of deliberate practice that is required to excel.  Familiarity with that process of learning and development will suit them well when they have to develop new skills and capabilities.   Finding people who have achieved excellence in a range of endeavors also creates a workforce with incredibly diverse perspectives and experiences that they can bring to bear on any problem.  

Struggles at the Gap

Martha White interviewed me for this story about the Gap's struggles and its decision to close many stores. Some past students will recall doing MBA course projects on the company and recommending significant changes in strategy.

How You Select the Leader Matters

Stanford's Bob Sutton has a terrific post this week on his Work Matters blog.  He reflects on some old research regarding the selection of leaders and its impact on group performance.    S. Alexander Haslam and his colleagues published a paper in the Group Dynamics journal in 1998 called,  "Inspecting the emperor's clothes: evidence that random selection of leaders can enhance group performance."  They examined groups performing an experiential exercise called the survival game.  Many MBA students have participated in this exercise during introductory organizational behavior courses.  In this Haslam study, the researchers compared group performance under four conditions:

1.  Formal selection of a leader (self-ratings by group members)
2. Information selection of a leader (group members picked a leader through a discussion)
3. Random selection of a leader.
4. No leader selected.

The findings demonstrated that the highest performing groups had used the random leader selection process.  Naturally, I don't think we want to recommend random selection in real organizations based on the results of this study.  However, the research does have important implications regarding the impact that the leader selection process can have on group dynamics.  Sutton writes,

"I especially like how it implies that just THE PROCESS of selecting the leader can provoke group dynamics that undermine the performance of the group as a whole.  That is worth considerable attention as this is something that selection committees and such often forget -- and consistent with findings from many corners of the behavioral sciences that show 'what you do is as important as how you do it.'"  

Cultivating serendipity: the annual reading vacation

In his terrific book, Where Good Ideas Come From, Steven Johnson writes about the notion that serendipity often plays a key role in innovation. However, he argues we can cultivate serendipity. How? Among his ideas, he argues that we need to consider "deep dives" in which we immerse ourselves in a topic in a condensed period of time. For instance, he recalls Bill Gates' annual reading vacations at Microsoft. Gates would collect tons of reading material during the year and then take a week or so to read as much of it that he could. Why pursue this condensed approach? Johnson explains that the compression enhances the probability that we will make interesting connections and combinations among disparate ideas. If too much time lapses between the time we read these books, the chances increase that we will forget certain things and fail to see the potential for novel combinations of ideas. The concept applies well beyond reading. It applies to any investigation of new ideas. Time compression may seem overwhelming at first, but it cultivates serendipity.

The Facebook - Zynga Relationship

As the Wall Street Journal notes today, Zynga has embarked on a strategy to become less dependent on Facebook. To date, the firm has ridden the coattails of Facebook, with its social games doing incredibly well on the social network's site.   However, as the firm approaches an IPO, investors expressed concern with the dependency on Facebook.  Zynga now has begun to pursue a strategy of offering games directly to consumers through its own site as well as through mobile platforms. 

The issue of dependency raises an interesting question.   To what extent is Facebook dependent on Zynga?  To date, the dependency has been mostly one-directional.   However, if Zynga does succeed in developing its own route to market, then we may see a bit more of a co-dependent relationship.  Why?  Well, Zynga certainly helps Facebook a great deal, not only through the direct revenue that Facebook generates from the relationship... but also because heavy Zynga users tend to spend a great deal of time on Facebook.  As a result, Facebook has an opportunity to sell more ads.   If we end up with a situation of co-dependency, then I would look for rumors to begin to swirl regarding a Facebook acquisition of Zynga.  That's what tends to happen when two firms become dependent upon one another.   Each side worries about being "held up" by the other, and therefore, a merger often resolves the conflict and enables the two parties to cooperate more effectively.   We are far from that point, but we may be headed in that direction with the latest Zynga strategy moves. 

Who benefits the most from Yelp?

HBS professor Michael Luca has conducted some terrific new research on the impact of Yelp.  He examined the effect of reviews.  He found that a one-star increase in the quality of a review led to a 5-9% increase in sales for a typical restaurant.  However, he found that positive Yelp reviews had much more impact for non-chain restaurants than for chain restaurants.  That makes sense, of course.  Smaller, independent restaurants have less means of reaching potential consumers.  The large chains have national advertising to build brand equity, and they develop a reputation over time.  I know that I rely on Yelp when I'm traveling to identify independent restaurants of high quality.  This research suggests that smaller restaurants should focus on encouraging their loyal and satisfied customers to review on sites such as Yelp.   However, the restaurants need to be careful.   Many review sites screen for obvious "planted" ratings or other efforts to manipulate ratings.  Customers too are quite discerning.  They often can determine the authenticity of a review. 

Qwikster gone rather quickly

Netflix has abandoned its plans to separate its DVD by mail service from its streaming business.  Qwikster is dead.  The stunning twists and turns in Netflix's strategy have left most of us dizzy.  The collapse of the stock price in recent months proves that investors don't like uncertainty.  While it's ok to change strategy, investors do not want to see constant twists, turns, and reversals. 

Beyond the uncertainty, I was never quite clear regarding the notion that Netflix and Qwikster would not share information regarding a customer's queue, movie preferences, recommendations, and rental history.  That lack of sharing made me wonder whether Netflix was failing to capitalize on one of its greatest strengths, namely its powerful predictive algorithms that it uses to recommend movies.  Would lack of sharing across sites mean that it would not capitalize on the wealth of data that it had accumulated?   It wasn't clear based on what I had read.  To me, the predictive algorithms lie at the heart of Netflix's success, and no change in strategy should undermine that strength.   After all, the algorithms enabled Netflix to take advantage of the "Long Tail Effect" - the idea that a large percentage of Netflix rentals always came from movies that were not new releases.   That strategy proved very profitable over the years.
 

Business is not evil: Lessons from the insanely great life of Steve Jobs

We live today in a world where many people consider business evil, corruptions corrupt, executives greedy.   It has become fashionable to bash Wall Street, lambast every move intended to boost profits, and even condemn capitalism itself.   Today, I reminded my students that business can indeed be a noble profession.  People can transform the world and make others' lives better through profit-making enterprises.  In society these days, we make heroes of those who work for non-profits and those who are great philanthropists. Surely, they are heroes. They do great work.  However, I believe business is also a noble profession, a deeply noble profession whereby you can create value, transform people’s lives, and create jobs that give people the opportunity to work and earn money to support their families.  Profit-making and social impact need not be mutually exclusive endeavors.  One can pursue profit and make the world a better place.  One need not only do that through an inherently "social enterprise." 

I mentioned this to students today as we reflected on the death of Steve Jobs.   He was more than just a successful CEO. He was a man who had a tremendous impact on society, who transformed the world. He did a great deal of good, as a business person who ran firms in pursuit of profit. Every day a doctor uses an iPad, a child with cancer watches a Pixar film and laughes, a person talks with their relative in a distant land via an iPhone, we see the transformational positive impact that he has had on the world.   Think about the incredible things that many people are doing to make others' lives better, using the technology that Jobs introduced to us.  

I also reminded students today that innovation, creativity, and entrepreneurship cannot happen without capital.   Steve Jobs persuaded investors to invest in him and his companies.  They believed in his vision.  They provided him the funds to pursue his dreams.  Many of those investors are now lambasted as "fat cats" from Wall Street.  Let's be careful before we paint with such a broad brush.   Access to capital is critical to those bold innovators who wish to change the world.   Business can indeed be a noble profession.

Steve Jobs' Commencement Speech

I've posted this speech before, but I felt it was important to post again this morning.  If you have not seen this speech, you MUST watch.  It proves rather eerie listening to it today, but the message is so powerful.

Henry Stewart Talks: Making Decisions

Prof. J. Edward Russo, S.C. Johnson Family Professor of Management at Cornell University, has edited a new seminar series on decision-making.  Henry Stewart Talks, a publisher of online seminars by leading experts, has published this series.  I'm honored to have been asked by Professor Russo to participate in this seminar series, along with accomplished researchers such as MIT's John Carroll, Gary Klein of Macrocognition, and Duke's Robert Clemen.  I hope you will take a look!

China, Inflation, and Margins

The Wall Street Journal reports that Yum Brands (owner of the KFC, Taco Bell, and Pizza Hut restaurant chains) has experienced a substantial decline in profit margins in China.  While the company continues to grow sales rapidly in China, inflation has caused its costs to escalate significantly.   Meanwhile, Yum Brands has been offering value-priced meals to attract customers.   In an inflationary environment, value-priced meals may seem quite attractive.  However, if costs rise faster than prices, the firm has a problem.   The story reminds us of the risk that inflation brings for firms operating in China.   A firm that sources components and raw materials in China may be able to raise prices in developed nations in which it sells the finished products. The problem is more severe for firms making and then selling products in China, given the low incomes of average citizens. 

Reasserting your Brand

Author and consultant Nick Tasler has a good article on Business Week's website regarding how firms can reassert their brand after a rocky period.   He uses Starbucks' turnaround recently to illustrate his points.  Starbucks realized it had strayed from its coffee roots and diluted its brand equity.   It had to clarify the brand's positioning.  Starbucks did so by trying to reassert itself as the "coffee authority."  Tasler argues that firms must take three steps to reassert their brand.


1. Decide what your equivalent is to being “the coffee authority.”   What do you want to be known for in the market?  For what do you want to be known as a leader?

2. Decide what you should start doing more of to reassert your authority.  What innovations can you bring to market to burnish your reputation as a leader in a particular market space?   Where should you invest to rebuild your competitive advantage? 

3. Decide what you should stop doing in order to reassert your authority.   What activities should you stop doing because they dilute your brand, distract management attention, and make you far too similar to other players in the market?  

SNL Parody - Netflix

The Challenge of Evaluating Leaders

Here in Boston, the Red Sox implosion has dominated the headlines for the past week. Manager Terry Francona has exited. Now attention has turned to General Manager Theo Epstein. How much blame does he deserve? Most people would place significant responsibility on Theo for selecting a series of high-priced players who have under-performed badly. However, observers then note that he has won two World Series during his tenure. Theo typically receives much credit for those championships. However, a closer look reveals that a number of key players from those teams were not selected by Theo. Consider the importance of Manny Ramirez, Johhmy Damon, Kevin Youkilis, Jason Varitek, Jon Lester, and others who were chosen by the prior regime (as well as Josh Beckett and Mike Lowell who came in a trade engineered when Theo briefly quit in 2006).

Consider too the credit given to Bill Belichick for the Patriots' three Super Bowl championships. Clearly, he deserves great credit for coaching those teams. However, what about player selection? Naturally, he chose most of the players. However, a small core of crucial players, particularly on defense, were chosen by Bill Parcells. Belichick has not won a Super Bowl without that core. Those core players include Ted Bruschi, Willie McGinest, Troy Brown, Ty Law, Ted Johnson, and Adam Vinateri. That's a key group not brought to the team by Belichick.

What's the lesson for those in business? Be careful when evaluating leaders at all levels. Performance lags decisions and actions by quite some time in many firms. Thus, today's success or failure often cannot easily be attributed solely to today's leaders. For this reason, firms also need to be careful with rotational programs. Moving folks too quickly can make it very difficult to judge their performance accurately.

Friendlys headed for bankruptcy

News reports this morning indicate Friendly's restaurants may be headed for Chapter 11. If you have been to one of their locations lately, you know they often exhibit very slow service. Moreover, some locations clearly need a makeover. They have clearly lost share to places such as Panera and Chipotle, as well as other restaurants at which there is table service. Here's a suggestion for survival: why not exit the restaurant business and focus on ice cream? The brand stands for ice cream. They could shift to small locations, reduce fixed costs substantially, and do what they do best.

The Progress Principle

In their new book, The Progress Principle, Teresa Amabile and Steven Kramer argue that small wins can be a powerful driver of creativity, commitment, and productivity in the workplace. This HBS Working Knowledge feature summarizes the key idea in the book:

Of all the factors that induce creativity, productivity, collegiality, and commitment among employees, the single most important one is a sense of making progress on meaningful work.   Seemingly small signs of progress will induce huge positive effects on employees' psyches. On the other hand, seemingly small setbacks will induce huge negative effects.
  
Amabile and Kramer build on the seminal work of Karl Weick, who wrote a terrific article about the power of small wins back in the mid-1980s.  Weick argued that we can make progress on tough problems by breaking them down into smaller segments and adopting a small wins approach.   He explained that a small wins approach works because tough, complex, large problems can be cognitively overwhelming as well as stressful.   Small wins enable us to build momentum, show proof of concept, and build bridges with others who may have opposed us at the outset.

The Heroic Failure Trophy

The Wall Street Journal has a terrific article today about Grey New York, an advertising agency.   The firm's leader, Tor Myhren, has created a quarterly "Heroic Failure" award to encourage innovative risk-taking.   It reminded me of the Build-A-Bear award program that I wrote about several years ago.    Here is an excerpt from what I wrote about the Build-A-Bear "Red Pencil" award program. 


[Build-A-Bear CEO Maxine] Clark has built an incredibly successful company, growing it to over $350 million in sales over the past decade. She has done so by delivering a world-class customer experience in her stores. Clark credits her store associates, who constantly find ways to innovate and improve. How do the associates do it? For starters, they tend not to fear admitting a mistake or surfacing a problem. Clark’s attitude toward mistakes explains her associates’ behavior. She does not punish people for making an error or bringing a problem to light; she encourages it.

Clark credits her first grade teacher, Mrs. Grace, for instilling this attitude toward mistakes in her long ago. As many elementary school teachers do, Mrs. Grace graded papers using a red pencil. However, unlike most of her colleagues, Mrs. Grace gave out a rather unorthodox award at the end of each week. She awarded a red pencil prize to the student who had made the most mistakes! Why? Mrs. Grace wanted her students engaged in the class discussion, trying to answer every question - no matter how challenging. As Clark writes, "She didn't want the fear of being wrong to keep us from taking chances. Her only rule was that we couldn't be rewarded for making the same mistake twice."  

Clark has applied her first grade teacher's approach at Build-a-Bear by creating a Red Pencil Award. She gives this prize to people who have made a mistake, but who have discovered a better way of doing business as a result of reflecting upon and learning from that mistake. Clark has it right when she says that managers should encourage their people to "experiment freely, and view every so-called mistake as one step closer to getting things just right." Of course, her first grade teacher had it right as well when she stressed that people would be held accountable if they made the same mistake repeatedly. Failing to learn constitutes the bad behavior that managers should deem unacceptable. Clark makes that point clear to her associates.

Excerpt from Michael A. Roberto, Know What You Don't Know, Wharton School Publishing, 2009.  

Quotes are from Maxine Clark's book, The bear necessities of business: Building acompany with heart.  John Wiley and Sons.  2006.

The IKEA Effect

The Neoacademic blog highlighted an interesting new piece of research last week regarding the IKEA effect.    For years, experts have pointed out that consumers love IKEA products in part because they have to exert effort to put the items together.  Many experts also have recounted the story of the launch of cake mix products in the 1950s.  Originally, the mixes did not require much effort at all on the part of the consumer.   However, when manufacturers changed the mixes to require some effort (adding eggs, vegetable oil, etc.), the mixes began to sell quite well.

In a new study published in the Journal of Consumer Psychology, scholars Michael Norton, Daniel Mochon, and Dan Ariely examined whether they could provide more concrete evidence supporting the IKEA effect.   In other words, do people value  things that they have created for themselves more highly than if others created it for them?   The scholars conducted a series of experimental studies.   For instance, in one experiment, subjects bid on IKEA items that they had either built themselves or simply examined.   The subjects bid over 60% more for the items that they had constructed themselves.  

The results have interesting implications for many brick-and-mortar retailers in my view.  Many of these retailers face the serious threat of losing sales to internet firms.  Could the brick-and-mortar retailers retain more customers by making their shopping experience more interactive and engaging, including the use of mas customization techniques?  Many have argued that they could.  Now we have another reason why an interactive shopping experience could yield better results.  If that interactivity involves "constructing" one's own product, perhaps through a customization experience, then retailers may increase buyer willingness-to-pay.    Customization, then, may have multiple benefits.   From IKEA to Build-a-Bear, we have plenty of examples that support this notion.