Big Data, Diapers.com, and the Importance of Analytics

Several days ago, the New York Times published an article titled, "The Age of Big Data."  The newspaper described how companies will need many more data analysts who can "help businesses make sense of an explosion of data — Web traffic and social network comments, as well as software and sensors that monitor shipments, suppliers and customers — to guide decisions, trim costs and lift sales."   The article cited a McKinsey Consulting study which predicted that the United States will need 140,000-190,000 more employees with “deep analytical” expertise" in the coming years. 

As an example of the importance of big data, consider the online retailer Diapers.com (owned by Amazon).   Forbes writer Meghan Casserly describes the firm's use of big data in an article published on the magazine's website.  The company has built powerful proprietary algorithms over the past few years based on tons of transactions.  These algorithms predict what customers are likely to buy in the future, how much they will spend, and whether they will be profitable for the firm.  The company's strategy focuses on building loyal customers who purchase low margin baby supplies initially, and then buy higher margin items such as car seats, strollers, and the like in the future.  The algorithms not only help predict purchasing patterns, but they enable Diapers.com and its sister sites to market appropriately to different customers.  Perhaps most importantly, the firm can identify which customers will be profitable for the firm.  Thus, they can spend their time catering to the most profitable customers, rather than wasting marketing expenditures on consumers who will be a drain on resources. 

Every company should be thinking about how it can use algorithms to drive performance.  Analytics can be used in a myriad of ways.   However, building a strategy based on big data requires the right talent.  Therefore, firms need to begin thinking carefully about how they will attract, develop, and retain the talent needed to collect and analyze the huge volumes of data that now exist.  Universities need to think about how to educate people for these roles, as demand will be strong.  We need to do more than educate people in mathematics and statistics though.  We need analysts who can understand business models and strategies, and who have a deep understanding of consumer behavior too.   The best analysts will be those who can marry statistical knowledge with a broader understanding of the entire organizational system.  

Top 50 Business Professors on Twitter

I'm very honored to have been named one of the top 50 business school professors on Twitter by the MBAPrograms.org website.   Thank you so much!   I hope my blog readers will follow me on Twitter.  The handle is @michaelaroberto

Kellogg, Pringles, and P&G

Over the past few weeks, a scandal at Diamond disrupted the firm's intent to purchase the Pringles business from P&G.   As a result, Kellogg swooped in yesterday to acquire Pringles instead.  Investors and analysts generally reacted positively to the deal.  The Kellogg stock price rose 5% on the news of the deal.  Analysts believe that Kellogg will accelerate its international growth with the Pringles purchase for two reasons.  First, many countries do not consume cereal as much as the United States.  Second, the existing snack business at Kellogg is fairly US-centric as well.  Pringles offers access to many international markets through its extensive distribution channel, as well as a product more appealing to many foreign consumers. 

While most people are focused on Kellogg today with this news, my attention has turned to P&G.  The Pringles divestiture continues a strategy undertaken by former CEO A.G. Lafley several years ago.  Lafley began to divest many of P&G's low-growth food businesses such as Jif, Crisco, and Folger's Coffee.  He refocused the firm on two categories in which it was dominant, and in which it had strong international growth prospects - i.e. health/beauty and home care/household cleaning. 

A natural question to ask:  What remaining brands might be candidates for divestiture?   I would focus on the Iams pet food business.   While the product line represents a billion dollar brand for P&G, it faces a number of challenges.  First, private labels represent strong competition in the pet food category (unlike some strong P&G categories such as razors/blades).  Wal-Mart's private label, Ol' Roy, is the top-selling dry dog food in the United States!   Second, Iams doesn't benefit from purchasing synergies with other food businesses, as some pet food brands owned by rivals do (for instance, Nestle owns the Purina family of brands, as well as a host of other businesses that procure agricultural inputs).  Third, the Iams business has not performed as well financially as many other parts of the P&G portfolio. 

Paul Levy's New Book: Lessons about Leadership from the Executive Suite... and the Soccer Field

As many of my readers know, I'm the co-author of a multi-media case study and a Harvard Business Review article about Paul Levy's turnaround of the Beth Israel Deaconess Medical Center.  Paul took the helm in January 2002, when the hospital was in dire straits.  As CEO, he helped the hospital return to profitability, after years of losses.  Prior to his tenure at the BIDMC, Levy served as Executive Dean for Administration at Harvard Medical School, where he was responsible for administrative, budgetary, and facility issues.  He also served as Executive Director of the Massachusetts Water Resources Authority, where he led the "Boston Harbor Cleanup," one of the largest pollution control projects in the country.  Levy also writes a popular blog titled "Not Running a Hospital." 

Levy now has written a terrific new book, which I highly recommend.  The book - Goal Play! Leadership Lessons from the Soccer Field - weaves together anecdotes from his twenty years of youth soccer coaching with his experiences as a chief executive.  Levy uses examples from these disparate settings to illustrate his theories of effective leadership.   This book is not the usual fluff that we read in books that try to apply lessons from sports to business.  Levy offers concrete lessons that can be applied by leaders in many different kinds of organizations.  He illustrates his ideas with anecdotes from soccer, but then shows you those ideas in action in the executive suite.   Along the way, he describes the effective actions of other executives too, rather than simply drawing on his personal stories.

Levy describes how you can be a supportive and transparent leader.  However, he also describes how to make the tough calls required to improve organizational performance.   Levy's book and his experiences show that making tough decisions doesn't mean simply dictating plans to the troops in your organization and ordering them to follow you.   How can you be supportive and empowering, yet still move quickly and get results?  That's the question Levy seeks to answer in this book. 

Team Scaffolds: Enhancing Group Effectiveness

Melissa Valentine and Amy Edmondson of Harvard Business School have published an intriguing new working paper about team effectiveness.  Valentine and Edmondson explore a concept that they call "team scaffolds" in this paper.   The scholars ask the question: "It is increasingly necessary for 24/7 shift operations to include some component of team-based work. But how can organizations support such work among constantly changing groups of people in a setting where stable teams are not feasible?"  They examine this question by studying an urban hospital's emergency room.  However, the findings apply to other settings in which people often work in unstable/transitory teams. 

The scholars begin by pointing out that many organizations cannot design and use stable teams for certain types of work.  How then can they make these teams effective, given that the team design literature suggests a certain level of structure and cohesion boosts group performance?   Valentine and Edmondson explain that scaffolding proves quite effective in the emergency room setting that they studied.  Team scaffolds consist of "a bounded role set with collective responsibility for interdependent tasks."   In other words, team roles have been so well-defined that members can step into a role and interact effectively with their peers, even though they haven't worked together as a unit on a regular basis.

The emergency room in the study underwent a major transformation.  The ER did not have a team structure prior to the change.  Patients were treated in a sequential/linear process with various functions performed by different staff members who did not work as a team.  The hospital changed its organization structure, creating what they called "pods" - a physical location with dedicated computers, counters, supplies, beds, and crash rooms. The authors explain:

The pods were each staffed by one attending, one in-charge resident and possibly another resident or intern, and typically three nurses, one of whom was designated the “Pod Lead.” The pods themselves were stable structures that persisted over time, but the staffing of the pods changed constantly. Within some five-hour periods, all of the individuals staffing the pod composition may have turned over completely as a result of shift changes staggered across roles. The nurses, residents, and attendings (collectively called providers) were assigned to a pod at the beginning of each shift. Provider pod assignments were made more-or-less at random, and a provider may have been assigned to a different pod every shift. Their “pod mates” were typically different every shift as well. Education tended to happen within each pod following the redesign, rather than through a department-wide formal rounding process. The attending and resident worked closely together as they cared for patients and informally rounded together several times during the shift, as well as during the shift change between attendings or residents. Note that the pod system connected a clearly defined set of roles (the attending, one or two residents, and three nurses) with collective responsibility for a set of tasks (the patients assigned to the pod) bounded by a shared physical location.

What happened as a result of the structural transformation?   Valentine and Edmondson found that patients’ average time in the ER fell by nearly 40% after implementation of the pods.  The key, though, is that these pods did not constitute stable teams.  However, people worked together quite effectively in these group structures.  The authors argue that the well-defined boundaries and roles facilitated effective coordination.

Leaders, You Should Read History

Fortune recently interviewed Bob Rodriquez, CEO of First Pacific Advisors. He explained the best advice he ever received. The guidance came from Charlie Munger of Berkshire Hathaway, when he visited a class Rodriquez was taking at USC in the 1970s. Rodriquez said, "After the class was over, I walked up to Charlie and asked him if there was one thing that I could do that would make me a better investment professional. His answer was, 'Read history, read history, read history.' And so I became a good historian, reading both economic and financial history as well as general history.What I learned is that people relate to the crises they have experienced. So when the crisis of 2008 came, it felt like an old friend to me because it had so many similarities to the banking crisis of 1907. Asking Charlie's advice and then reading history allowed me to put those things in context." I agree wholeheartedly. However, I would note that one must scrutinize historical analogies very carefully. We have a tendency to focus on similarities and ignore differences when drawing historical analogies. For more on reasoning by analogy, I highly recommend the work of Ernest May and Richard Neustadt - great book called Thinking in Time.

Old Milwaukee: A Low-Budget Super Bowl Ad?

Companies spend enormous sums of money advertising during the Super Bowl.   If you are Budweiser, you can afford to invest in this type of marketing.  However, if you are Old Milwaukee beer, it becomes more difficult to justify that type of marketing expense.   The firm simply doesn't have the scale to support that type of advertising.  Moreover, it's not a premium beer; the firm has a simple, low cost strategy.  Old Milwaukee came up with an ingenious solution though.  They developed a simple TV commercial with Will Ferrell, who happens to love their beer.   It didn't run nationally though.  The firm ran the commercial in only one market - North Platte, Nebraska.  The town has approximately 15,000 homes.   It's the second smallest TV market in the country by Nielsen standards.  Why run the ad in this market?  Old Milwaukee actually leveraged that low-cost TV ad to create excitement via social media.   Boston-based advertising agency Mullen has reported that the Old Milwaukee ad generated more mentions on Twitter Sunday night than many nationally aired Super Bowl ads.  Moreover, a user uploaded a low-quality copy of the ad onto YouTube.  Old Milwaukee set up a link to YouTube on its official Facebook page.  Soon, the ad had been viewed more often than Budweiser's primary Super Bowl commercial!

What's the lesson here?  If your firm has a low cost strategy, it must think creatively about how to market its products.  Social media offers an opportunity to promote a brand at very little expense.  However, many firms are blitzing social media platforms these days.  It's become a cacophony at times.  Therefore, you have to think about how to emerge from the clutter.  Old Milwaukee did just that with an ad that not only generated buzz initially on Twitter and Facebook, but that also had a second life as a story picked up in the mainstream media about an innovative marketing strategy.  That story, of course, will live on far longer than the immediate surge of interest generated on Twitter and Facebook Sunday night.  After all, look at this blog and many others which are writing about it!

Do Colleges Need to Change Their Pricing Model?

CNNMoney writer Blake Ellis wrote today about the substantial tuition reduction enacted by the University of Charleston in West Virginia.   According to the article, "After seeing enrollment decline for the first time in a decade, the University of Charleston, in West Virginia, slashed tuition by 22% for the upcoming school year hoping to entice more students."  Interestingly, applications haven't increased since the move, but deposits have risen substantially.  Obviously, the jury is still out on the move. 

How did the university afford the move?   They cut some costs, but they also chose to reduce financial aid.  Thus, the net price did not actually fall by 22%.  What rationale drove the change in pricing strategy?  Here is an excerpt from Ellis' interview with the university's president, Dr. Edwin Welch:

We realized parents and families were now considering the overall price, not just the discount [financial aid and scholarships] they would be able to get. As universities we tend to market education the same way Joseph A. Banks advertises clothes, thinking the advertised price is not that important but the discounts are the most important part. But that's what is driving middle-class students away. So it seemed we needed to take a fresh look.

Could he be right?  Does the price tag at many universities drive away certain families, because they fixate on the overall list price rather than the net price (after aid and scholarships)?  After all, families don't learn their net price until late in the process?  By then, perhaps the overall list price has framed their view of a school.  I wonder if other schools might try this "Everyday Low Pricing" model of college tuition, in hopes that prospective students will look first at them because they have the lower "everyday price."  

The Changing Composition of Top Management Teams

Maria Guadalupe, Hongyi Li, and Julie Wulf have published an interesting paper that examines the changing size and composition of senior management teams.   The scholars compiled a dataset of US firms from 1986 to 2006.   They found that the size of the top management team doubled during this twenty year period (from 5 members to 10 members).   What drove the increase in size?  The researchers found that CEOs tended to add more functional executives to their senior teams (rather than more general managers with P&L responsibility for specific business units).   For instance, many senior teams now have a Chief Technology Officer, EVP of Human Resources, EVP of Supply Chain, etc.   Finally, the study shows that, "General manager pay decreases as functional managers join the executive team suggesting a shift in activities from general to functional managers-a phenomenon we term 'functional centralization.'" 

Are these trends all positive?  It's not clear to me.  In particular, I worry about the growing size of these teams.  Groups have a hard time being productive and efficient when they grow to double digits in terms of members.  The opportunity arises for more fragmentation within the teams.  Scholars have described a phenomenon called "fault lines" - where subgroups form along certain demographic lines, and friction emerges among the subgroups.  Communication patterns and information sharing may also suffer as team size increases, even if the group remains fairly cohesive. 

Will Facebook Acquire Zynga?

The Wall Street Journal has a good article describing the co-dependency that has evolved between Facebook and Zynga.  The paper reports the following statistics about the two firms:

"Facebook, based in Menlo Park, Calif., derived 12% of last year's $3.71 billion in revenue from Zynga, according to the social network's IPO prospectus released Wednesday.  Meanwhile, Zynga, the San Francisco-based social gaming company that makes many games that are played on Facebook, received 93% of its revenue last year from virtual goods it sells on the social network."

Economic theory suggests that the two firms may be headed for a merger.  Why?  Oliver Williamson, the Nobel-prizing winning economist, has argued that companies consider transaction costs when determining how to organize themselves.  Put simply, firms compare the efficacy of using the market to organize economic activity to the efficacy of organizing such activity within the firm.  Often, companies establish contracts, strategic partnerships, or formal alliances with other firms if the arrangement provides value to both parties.  However, these market-based transactions sometimes become problematic.  Why? One reason is that the potential for opportunism and hold-up occurs.  That is, the firms may try to take advantage of each other.  Such holdup tends to occur in situations of co-dependency. 

Let's take a classic example from Williamson's work.  Imagine an oil refinery adjacent to a pipeline, each owned by separate parties.  What if the refinery and the pipeline each had no alternative uses.  That is, the only way to ship the oil from the refinery was from the pipeline, and the only use of the pipeline was to ship that refinery's output.  In that situation, each party would be beholden to the other, and they might find it hard to work together amicably via contract or alliance.  Merger tends to be an outcome in such circumstances.

We had a similar situation in the entertainment business recently.  Disney and Pixar had worked together through a contractual relationship for many years.  Then, Disney and Pixar entered into contract renewal negotiations in 2005, and the relationship became strained.   Why?   I would argue that the two firms had become co-dependent over time.  Disney needed Pixar, because its own animation studios had fallen on hard times.  Meanwhile, Pixar needed Disney because the original contract had given Disney certain rights even if Pixar terminated their relationship.  Disney could continue using the characters from the early Pixar movies, and they could make sequels to those movies, even if Pixar partnered with someone else in 2006.  Pixar really didn't want to see that happen to their beloved characters.  Not surprisingly, Disney acquired Pixar in 2006, thereby choosing horizontal integration over a market-based relationship - just as Williamson's theory would predict.

Now, we could have a similar co-dependency emerging between Facebook and Zynga.  Could a merger be in the cards?  It's certainly something to watch.  On the other hand, Zynga has been working to diversify its revenue base lately.  That may lessen the co-dependency over time.

Overestimating economies of scale

The Wall Street Journal's Heard on the Street column yesterday discussed Fiat's relationship with Chrysler.  The article cites the risks that Fiat faces, particularly in its home market given the EU fiscal crisis.  It suggests that Chrysler and the American market may be even more key to Fiat's future viability than many people originally thought.  The column stresses, however, that Fiat remains a sub-scale automaker, with only about 2 million units of production annually.  It points out that Fiat CEO Sergio Marchionne believes automakers must reach 6 million units to be cost competitive in the global market.  I think it's dangerous to simply take a CEO's assertions about economies of scale at face value.  CEOs often over-estimate minimum efficient scale for several reasons.  First, they assume market share is more highly correlated with profitability than it actually is.  Second, executives are often obsessed with top line growth, believing it will always bring greater profits.  Of course, undisciplined growth often harms earnings.  Third, CEOs derive personal satisfaction from running bigger and bigger firms.  They garner power and fame as a firm expands in size.  Fourth, leaders often overestimate synergies that will emerges they merge entities to go after scale economies.  Finally, executives forget to account for the very real possibility of diseconomies of scale that may emerge as large firms become more complex and bureaucratic.  

Transformation at J.C. Penney

Laura Heller has written an article about the transformation taking place at J.C. Penney.  Heller's article, which can be found at Forbes.com, describes the firm as "the most interesting retailer of 2012."  As you probably know, the company recently hired Ron Johnson, the former leader of Apple's retail stores.  As CEO, Johnson has set out to remake J.C. Penney, and he's hired some talented folks to help him (including a senior executive from Target, where Johnson worked prior to Apple).   

So far, Johnson's team has redesigned the logo, hired a new spokesperson, invested in Martha Stewart's company and launched a design partnership with Nanette Lepore.  Perhaps most significantly, the company is overhauling its pricing strategy in a dramatic way, and it's redesigning the in-store experience.  The company will be reducing prices significantly on many basics, relying less on weekly sales, and keeping prices at the same level for a month at a time on many items.  It's not quite everyday low pricing (EDLP), but it's a shift away from the usual high-low pricing strategy that many retailers employ.   In terms of the in-store experience, the firm will be introducing many "stores within a store" - with each mini-store associated with a key brand.  Heller rightfully points out that it will be fun to watch these changes unfold, and to see if they succeed.

What's clear to me is that the department store format is crying out for re-invention.  Whether or not these changes all succeed, Johnson is right to try rethinking the department store concept.   In a world of massive discounting, outlet store malls in every state, and rapid e-commerce growth, department stores have to change their approach.  It will take more than a new store experience though.  The firm will have to offer exclusive products as well, so as to avoid pure head-to-head competition with rivals.  Moreover, it will have to define itself clearly vis a vis its rivals.  For years, the company's positioning and target market has been a bit  murky.   That will have to change too. 

Are You Communicating Effectively? - Testing For Understanding

Former General Electric CEO Jack Welch used to say the following about communication:

“You don’t get anywhere if you keep changing your ideas. The only way to change people’s minds is with consistency. Once you get the ideas, you keep refining and improving them; the more simply your idea is defined, the better it is. You communicate, you communicate, and then you communicate some more. Consistency, simplicity, and repetition is what it’s all about."

I think Welch is correct in emphasizing the need for consistency, simplicity, and repetition in their communications.   However, leaders need to take one additional step if they wish to communicate effectively.  Put simply, leaders need to test for understanding and alignment.  Did the troops understand my message?  How did they interpret the meaning of my statements?  Did they understand my intent?  Is everybody on the same page, or did people "hear" different messages?

In other words, leaders need to construct a strong feedback loop.  They have to circle back and make sure that people "heard" the same message that they intended to convey?   Many leaders fail to take that additional step.  As a result, confusion and misalignment persist despite the fact that leaders believe that they have communicated clearly, simply, and repeatedly.

Research on New Book

I am working on the research for my next book, and I am seeking my readers' assistance.  I'm studying successful or unsuccessful duos, with a particular emphasis on innovators in a variety of fields.   For instance, Dwight Eisenhower and George Marshall would be an example of a very successful duo, as would Andy Grove and Gordon Moore at Intel.  I'm looking for examples from the military, business, sports, etc.  How can you help?  Please send me ideas for successful or unsuccessful duos that I can analyze.  In addition, if you know of individuals that I could interview for this research, please reach out to me.  I appreciate your assistance and recommendations. 

The Problem with Competency Models

Fortune magazine recently published its list of the top firms for developing leaders.   The magazine works each year in conjunction with The RBL Group and Aon Hewitt to develop this list.  IBM topped this year's list. The report identifies a number of characteristics of these top companies.  For instance, it notes that the best firms have clearly defined competency models that identify what the organization expects of its leaders.  Specifically, the report indicates that, "Top Companies have a defined competency model that describes a unified theory of what leaders at their organization should know, be, and do. And they use their competency models in all phases of talent and leadership development."

I agree wholeheartedly that firms should construct well-defined competency models, and then use those models to guide talent management and leadership development processes, including performance evaluation, coaching, and succession planning.  However, in my experience with many large organizations, I have witnessed many highly flawed competency models.  What's the major weakness of these models?  Complexity!  Too many firms have developed a giant laundry list of competencies.  Leaders throughout the organization cannot even remember the list, never mind alter their behavior appropriately.   People need to understand clearly the organization's expectations.  Senior executives have to boil down their expectations to a simple list of behaviors and capabilities that they value and wish to cultivate in aspiring leaders.  Simplicity and brevity will breed behavioral change much more quickly and effectively than complexity and comprehensiveness.

Larry Page Reforms Decision-Making at Google

Google Vice President of Operations Kristen Gil has written a terrific memo explaining how Larry Page changed decision-making at Google when he took over again last year.  Page worried that decision-making had gotten bogged down at Google, that the firm wasn't acting with the same agility as in the past.  What did Page do?  First, he outlined some new rules for how and when meetings should take place.  Here's an expert from Gil's memo: 

For starters, we noted that every decision-oriented meeting should have a clear decision-maker, and if it didn’t, the meeting shouldn’t happen. Those meetings should ideally consist of no more than 10 people, and everyone who attends should provide input. If someone has no input to give, then perhaps they shouldn’t be there. That’s okay – attending meetings isn’t a badge of honor – but the people who are attending need to get there on time. Most importantly, decisions should never wait for a meeting. If it’s critical that a meeting take place before a decision is made, then that meeting needs to happen right away.

As I wrote in a recent blog post, Alan Mullaly also changed decision-making at Ford by setting out some new ground rules for his key Thursday morning business review meetings with his senior team.  Clearly establishing new ground rules and shared norms can be very important for altering patterns of behavior that have become dysfunctional.    Page made a second change that I find even more interesting and potentially quite effective.  He recognized that, as a firm grows in size and complexity, senior executives often find themselves disconnected.  Senior teams become fragmented.   Travel schedules, meetings, and the needs of their particular units take them away from their peers.  As a result, members of the senior team do not communicate often enough.  They don't share and integrate information effectively.   Page set out to change that dynamic.   Here's another excerpt from Gil's memo:  

Besides fast decisions, another key hallmark of start-ups is their fast-paced, densely populated offices. We’ve always promoted this approach at Google, organizing around small teams and working in close proximity to one another. Even Eric Schmidt shared his office with an engineer when he first joined the company.  But as Google grew, the executives spread out to the far reaches of our campuses so they could work side-by-side with their teams. To make sure our key decision-makers could work and make decisions in an environment more reminiscent of a start-up, we created a ‘bullpen’ in one of the buildings on our main campus, which was specially designed as a place for members of our executive team to work and talk in an informal setting. These execs now set aside a number of hours per week to be there. It’s amazing how fast things can get done – even in a large company – when you put so many key people together and don’t give them an agenda.

General Petraeus: Welcoming Dissent

I've enjoyed reading Tim Harford's excellent book, Adapt: Why Success Always Starts with Failure.  I find the overall argument of the book quite compelling, and the I love the stories and examples that Harford uses.  Some assertions are maddening, but you have to just push through on the occasional bizarre pronouncement. For instance, he writes that it's wrong to assume the Soviet planned economy failed because it lacked the profit motive or the creativity of private-sector entrepreneurs.  Huh?  He argues that the failure was due to an inability to experiment.  Somehow, in Harford's mind, the inability to experiment didn't have anything to do with a lack of profit motives and private sector entrepreneurship.  I don't get it.

The book is excellent overall though. He makes a great case for the importance of experimentation and the willingness to tolerate failure.  Harford also makes a strong case for why leaders must embrace conflict and dissent.  Take the story of General Petraeus that Harford tells us in the book.  Petraeus organized a conference on counterinsurgency in Fort Leavenworth during the Iraq War.  He invited many people, inside and outside the Army, who had been quite critical of the Army's strategy to that point.   It was a highly unusual meeting for the U.S. Army.   Petraeus also often invited lower level officers to email him directly about their observations and insights regarding how things were going in Iraq.   He wanted to circumvent the usual gatekeepers and hear directly from those on the front lines. 

Apparently, Petraeus learned the importance of inviting dissenting views from Major General Jack Galvin, a man to whom Petraeus reported back in the early 1980s.    According to Harford, "Jack Galvin also taught Petraeus that it is not enough to tolerate dissent: sometimes you have to demand it."  Music to my ears!  I have argued that same point for years.  Just telling people you want to hear from them doesn't always surface the full range of divergent views and perspectives that you need to hear.  When he's telling these stories, Harford is at his best.  I strongly recommend the book.

Sponsored Search: Do You Want to Be Listed First?

You might think it's obvious that a firm should seek to have its advertisement ranked first in a list of sponsored search engine results.   Being at the top of the list of sponsored search listings ought to be desirable, right? Well, not so fast!  Wharton Professor Kartik Hosanagar and his co-authors Ashish Agarwal and Michael D. Smith examined online ad auctions in some recent research.  They found that the ads in the top position do generate the most clicks, but that doesn't necessarily turn into the most revenue or profit.  The scholars found that ads in the 2nd, 3rd, and 4th positions seemed to have higher conversion rates (% of clicks turning into purchases).  That's interesting, of course, since it is more expensive to be placed in the first position. 

Why might that be the case?  The researchers offered two potential explanations.  First, many consumers clicking on the top ad might not be serious buyers.  They may just be looking for information on a particular product or service, and so they click on the first ad as part of a broad information gathering strategy.  Second, consumers may be exhibiting what psychologists call the recency bias.  In other words, they click on the top ad, and then click on the next few sponsored search ads to compare pricing or product features.  However, they don't return to the top ad in many cases before making a choice.  According to the researchers, consumers tend to "purchase from the most recently evaluated advertiser if all evaluated options appear reasonable." 

Who has the D? Does method encourage advocacy over inquiry at times?

Many people have embraced a terrific HBR article written a few years ago - "Who has the D? How clear decision roles enhance organizational performance". I think the article is excellent. It provides practical advice for enhancing the efficiency and effectiveness of decision-making processes. As they argue, it's so important to figure out who has the decision rights/authority before getting too deep into deliberations on a complex issue. I do think a word of caution is in order though. If we are too quick to frame a crucial meeting(s) as a decision moments, we risk having advocacy crowd out all inquiry. In other words, people may focus so much on winning the argument that the group as a whole stops learning about the problem, or about each other's perspectives and knowledge. Jumping too quickly into decision mode sometimes means that teams frame decisions as go/no go situations, rather than creating and considering multiple options. We sometimes have to remind a team that they may need to do some more collective and collaborative inquiry into the nature of the problem before shifting into individual advocacy mode. I'm not arguing for a go-slow approach. I'm simply recommending that groups remember that focusing too quickly on the "d" can lead to entrenched and polarized camps locked in a dysfunctional conversation without having shared ad integrated all the data and knowledge required to make a sound choice.

Kodak: More Than a Disruption Story?

Monitor's Larry Keeley has written an article for Fortune titled "The Kodak Lie."   In that story, he writes:

"The demise of Kodak isn't merely the classic disruption story that everyone loves to tut tut over. Nor is the company's downfall merely a result of recent bad decisions or the mismanagement of senior executives. It is the more nuanced story of how easy it can be to get things wrong, even when trying with the best of intentions to do everything right."

Keeley points out correctly that Kodak created one of the world's first digital cameras way back in the 1970s.   In his mind, that means the Kodak story doesn't fit the classic story of a disruptive technology.  Kodak didn't miss the boat completely.   He goes on to write:

"The digital photography field not only was slow growing but it actively undermined their largest source of profits: photo and motion picture films. The tiny sideline businesses simply could not scale at a rate that might make up for the loss of film revenues, so those inside the core business were unable or unwilling to do what it took to foster drastic transformation. This exact phenomenon plagues innovation in nearly every large firm. At least once a week, top executives tell me that new growth businesses in their firms are intriguing and potentially important, but they simply "don't move the needle." 

Again, Keeley is right on the money.  However, this story is PRECISELY the disruptive technology story told by Clayton Christensen.   Clay has documented many, many examples of upstarts disrupting incumbents in industry after industry.  In many of those cases, the incumbents didn't  miss the threat completely.  They were not simply blind (Polaroid too invested in digital photography R&D in the early days).  Some executives understood the new technology and recognized that it had some promise. However, the core business and the corporation's resource allocation process undermined the firm's ability to shift effectively into new markets.   The "move the needle" problem occurs in many firms, as well as a host of other pressures in the resource allocation process that make cannibalizing the core a very difficult thing to do.

The real challenge of "move the needle" thinking is somewhat different than what Keeley has suggested.  Many large firms become dismayed when new ideas don't seemingly "move the needle" in terms of revenue growth.  However, time and again, we have instances in which executives misjudge the actual revenue potential of new business opportunities.  They overestimate some and underestimate others... by a significant amount.  Thus, dismissing a new venture because it won't move the needle proves to be a very dangerous move. 

Making Cadillac Cool Again

Source:  Michael Edward, Fast Company

Fast Company has an article this month about Cadillac's attempt at reviving the brand and becoming more appealing to young people.  The article describes how Cadillac hired the Fallon advertising agency to develop its current campaigns.  The agency promptly put 28 year old Veda Partalo in charge of remaking Cadillac's image.  Putting someone that young in charge certainly takes guts, but of course, she understands what makes young people tick.  

I found one particular element of her strategy quite interesting.   Partalo describes how she chose not to focus on specific models, but instead tried to emphasize the brand as a whole:   "Sometimes you want to communicate to each buyer based on his individual needs.  But the luxury buyer is different. He's more concerned with the brand's overall background, its heritage. So we wanted to do two things.  First, bring Caddy back to its original standing. Second, do it through a campaign of substance."

In this case, I think the emphasis on the brand, rather than specific models, makes a great deal of sense.  First of all, it's a much more efficient way to spend advertising dollars - no more mini-campaigns for each model.  More importantly, Partalo has to get Cadillac into the consumer's consideration set.   Customers won't examine a particular model if Cadillac isn't even on their radar screen.  Therefore, she has to make them willing to be open to the idea of purchasing a Cadillac.  Once she achieves that, Partalo can sell consumers on the attributes of particular models.   Many firms make this mistake, thinking that they can sell consumers on a great new product without confronting the reality that the brand as a whole may simply not be a viable option at the moment for many individuals.  

Rise of the New Groupthink?

Susan Cain wrote a very provocative article for the New York Times this weekend.  It was titled, "The Rise of the New Groupthink."   Cain explains that, "Most of us now work in teams, in offices without walls, for managers who prize people skills above all. Lone geniuses are out. Collaboration is in."  However, Cain argues that many creative people are quite introverted, and they enjoy working independently and privately.   Some creative individuals thrive as "lone geniuses."   Privacy and solitude makes them productive, while constant interruptions can be very problematic.   Cain cites the work of K. Anders Ericsson, a scholar who has examined how people become world class experts in particular fields through deliberate practice.  Cain concludes from his research that, "The best way to master a field is to work on the task that’s most demanding for you personally. And often the best way to do this is alone."

Cain also argues that teams often do not achieve their potential; they do not outperform the results that could be achieved  by best individual members working alone.  Indeed, much research has shown that teams often experience "process losses" - i.e. 1+1 should equal more than 2, but somehow those synergies often don't materialize in teams.  1+1 might even add up to less than 2 at times.   She points specifically to the process of group brainstorming, whose results often do not meet expectations according to many studies.

Cain acknowledges that many of our toughest technical and scientific problems no longer can be solved by the "lone inventor" working in their garage.  Collaboration has become necessary to make progress on many complex challenges of our time.   However, she argues that we have to strike a balance in the way we organize ourselves in workplaces, schools, and other institutions.  We need to provide the space for collaboration to occur, but not inundate people with meetings.   We have to give people, particularly creative introverts, the opportunity and the venue to work privately and without interruption at times.   At the same time, we want to provide the opportunity for the mixing of ideas to occur and the sharing of knowledge.   It's a delicate balance, but I believe Cain is right in arguing that we must strive to achieve it.

Challenging Conventional Wisdom: Tebow and the NFL

As my beloved Patriots prepare to play the Denver Broncos this weekend, everyone is focused on Tim Tebow. His fans love him - he's a winner, they argue. His critics deride his unconventional style; he can't throw the way an NFL quarterback must, they argue.

I find the entire issue of conventional wisdom in the NFL fascinating. Allegedly, you have to run the football to win, but then Green Bay won the Super Bowl last year by always passing! Consider even the three best quarterbacks in the game. Each was, in part, rejected at one point by the so-called experts. Brews was deemed too short among other things and discarded by the Chargers. Brady was not picked until the 6th round of the draft - too slow, too weak, etc. Rodgers fell to late in the first round due to various criticisms. How did that work out?!!

In general, NFL general managers have a terrible time selecting quarterbacks in the draft. Many top picks turn out to be busts. Yet, the conventional wisdom remains a powerful thing in the NFL.

The lesson here for other industries is to be cautious about the conventional wisdom. It can lead you astray. Moreover, one can become blind to the weaknesses of that conventional wisdom if you have been part of that industry for years. Always be wary of those who tell you that certain rules of thumb always hold in a particular industry.

I'm not saying Tebow will be a Hall of Famer. I'm just saying that not all quarterbacks must be carbon copies of some mythical prototype.

Establishing Ground Rules for Your Team

I've finished reading Bill Vlasic's most recent book on the auto industry, and I highly recommend it.  As a journalist, Vlasic has covered the industry for decades, and he really understands the key players and the firms.  Some of you may remember his terrific book about the Daimler Chrysler merger (Taken for a Ride: How Daimler Drove Off with Chrysler).

In the book, Vlasic writes a fair amount about Alan Mulally's turnaround process at Ford.  I found several stories particularly compelling.  For instance, Vlasic describes how Mulally changed the culture of the senior management team at Ford.  Prior to his arrival, the top team experienced a great deal of infighting and dysfunctional group dynamics.  Mulally instituted a new business plan review process centered on a crucial Thursday morning meeting that took place weekly.  The new Ford CEO quickly established some new ground rules for how executives would behave during these meetings.  He called these shared norms and ground rules the "working together behaviors" of the senior team.

According to Vlasic, these ground rules included no smart phones, no encyclopedic briefing books, no aides, no jokes about colleagues, no side conversations, and most importantly... facts, not opinions, would rule the day.  Mulally announced to the team that this code of conduct would be strictly enforced.  If someone couldn't comply, Mulally told them bluntly, "You'll just have to work somewhere else."  He went on to explain, "The important thing is that we are all accountable to each other. You are accountable to the team, and the rest of the team is here to help you." 

What a fantastic leadership moment!  Too many teams suffer because leaders don't outline the ground rules and expectations EXPLICITLY.   Leaders need to be clear about the shared norms and ground rules which will govern behavior.  If leaders are explicit and clear about these "working together behaviors," they will find it much easier to encourage candid dialogue and to keep conflict constructive.  Moreover, they will find that explicit ground rules will enhance their odds of achieving alignment and shared commitment among the team members.

Leaders: Can You Transfer Success to a New Organization?

Glenn Llopsis has written an interesting column at Forbes.com.  The article is titled, "7 Reasons Leaders Can't Transfer their Success to Other Organizations."  I have always found this topic fascinating.  Why is it that highly effective leaders sometimes have trouble repeating their success at their next organizations?  First and foremost, I believe that we often over-attribute an organization's success to its chief executive.   We assume that he or she should receive most of the credit for the high performance, when in fact, others played a key role.  Perhaps even some good fortune played an important part in that success.  

Second, executives often try to take the processes and techniques that have made them successful and transplant them completely to their new organizations.  They forget that those practices must be adapted and tailored to the new industry, strategy, culture, and people.  In other words, there are very few "best practices" that can simply be dropped into any organization.  Practices must always be tailored to fit with the other systems, activities, and processes in place at the new organization.   Alignment or fit among processes and capabilities produces competitive advantage.  That's why tailoring matters so much! 

Executives encounter a problem though.  In the back of their minds, they often know that tailoring and adapting is necessary.  Yet, they have had such success with a particular "formula" that they are reluctant to change.  Chuck Knight, the former CEO of Emerson Electric, once visited my class a few years ago.  A student asked him if he would have taken the vaunted Emerson strategic planning process to Silicon Valley if he had taken on a CEO role at a firm there after he retired from Emerson.  He said that adopting the Emerson process there without significant adaptation would have been a big mistake, but he acknowledged that it would have been very tempting to rely on the winning formula from his past. 

Narcissistic CEOs: Impact on Acquisitions?

Nihat Aktas, Eric de Bodt, Helen Bollaert, and Richard Roll have written a thought-provoking paper that examines how CEO narcissism affects the acquisition process.   Here is an excerpt from their abstract, which summarizes their findings:

More narcissistic acquiring CEOs are more likely to be the initiator of the transaction. Compared to their less narcissistic peers, they also tend to negotiate faster during the private part of the process, and they are more likely to complete the transaction. Additional analyses show that target CEO narcissism is associated with higher bid premiums and lower acquirer abnormal returns. Our results make a strong case for the impact of CEO psychological characteristics on many dimensions of the takeover process.

I found these results fascinating.   I understand completely how narcissistic acquiring CEOs might be deal happy.  After all, one could imagine them enjoying the spotlight associated with making acquisitions, and deriving satisfaction from growing the size of their empire.   The more surprising results concern the impact of  narcissism on bid premiums and acquirer returns.  I would have thought acquiring CEO narcissism would have the significant impact there, but in fact, it's the target CEO's narcissism that creates higher bid premiums and lower abnormal returns.  The scholars explain the finding by arguing that, "Manipulative narcissistic acquiring CEOs may be able to browbeat their less narcissistic counterparts during talks."  It's an interesting potential explanation.  Is the lesson that we shouldn't try to do deals with narcissists?   Perhaps it is!

Nice Guys Finish Last - and Don't Become Leaders?

Nir Halevy, Eileen Chou, Taya Cohen and Robert Livingston have conducted an interesting study regarding the relationship between altruism and status.  First, they distinguish between two dimensions of status: prestige and dominance.  According to Livingston, “Dominance involves the use of intimidation and coercion to attain a social status based largely on the effective induction of fear.” Prestige derives from being a good person and demonstrating character that people respect and admire.

To begin, they divided participants into groups and created a series of experiments involving the allocation of ten game chips worth a total of $20. Then they examined how people rated fellow group members in terms of prestige and dominance.  They also asked people about the types of individuals who should serve as leaders of the groups.   Here is what they found (excerpt from Kellogg Insight):

In the first experiment, selfish participants—free-riders who kept all of the chips and contributed nothing to the group—were rated lower in prestige but higher in dominance than participants who contributed to the group. In subsequent studies, participants who harmed another group were also rated higher in dominance than people who contributed to their own group without harming outsiders. Finally, the most generous individuals—those who contributed to benefit both their group and outsiders—were rated lowest in both dominance and prestige. In sum, individuals were seen as more dominant if they were selfish and discriminated in favor of their own group at the expense of others.  When it came time to select leaders, dominance and prestige played distinctly different roles, depending on the type of leadership that was required. In instances where there was no intergroup competition, people preferred individuals with more prestige. But when groups had to compete against each other, dominant individuals rose to the top while benevolent people were least likely to be elected.

Does this mean that "nice guys finish last?"  It certainly seems that this might be the case.  Livingston argues, "Altruism is a double-edged sword.  On the one hand, generous individuals are admired for their kindness, compassion, and willingness to help. On the other hand, they may be perceived as feeble ‘bleeding hearts’ who lack the guts to make tough decisions that might advance the goals of the organization."  He goes on to argue that we may not quite have it right when we say "Power corrupts."   In fact, in competitive environments, we may be selecting high dominance leaders who have a natural tendency to exhibit selfish behavior.

Let's be careful about making sweeping generalizations based on this experimental study though.  The studies involve judgments made based on one set of actions.  Life in organizations represents a repeated game.  We interact numerous times with others, and we make determinations based on the patterns of behavior that we observe.   Long term success is not simply about dominance.  It clearly involves prestige as well, as the scholars acknowledge in their study.   Moreover, I do believe that leader selection depends on the culture of the organization.  Certain organizational cultures do not tolerate selfish behavior.  Others enable it.   The values of the firm matter a great deal. 

Barnes and Noble: Why Divest the Nook Business?

I'm puzzled today by the news that Barnes and Noble is considering a spin-off of the Nook business.  According to CEO William Lynch, “We see substantial value in what we’ve built with our NOOK business in only two years, and we believe it’s the right time to investigate our options to unlock that value."   Apparently, he believes that investors are discounting the value of the Nook business because they are so negative on the brick and mortar retail business model.  I'm sure that there's some truth there.  However, separation of the Nook business leaves, in my view, two unsustainable entities trying to operate on their own.  The brick and mortar model is dying, and it will have no future without an online element.  On the other hand, Nook will have a hard time competing as an independent entity.  It will lose some of those synergies with the stores.  Moreover, Amazon and Apple have broader business strategies in which the Kindle and iPad are embedded.  Those products benefit from the synergies associated with the entire ecosystem of those firms.   It sounds to me as though the firm is trying to use financial engineering to create value, rather than actually trying to identify a viable business strategy for survival. 

Can Best Buy Be Saved?

After yesterday's post on Sears, a friend recommended that I read Larry Downes' article regarding Best Buy (posted on Forbes.com).   Downes article is titled, 'Why Best Buy is Going out of Business...Gradually."  Some may find the article a bit harsh, but sometimes the truth hurts.  Downes points out the disturbing numbers that should alarm Best Buy  management:

Consider a few key metrics.  Despite the disappearance of competitors including Circuit City, the company is losing market share. Its last earnings announcement disappointed investors.  In 2011, the company’s stock has lost 40% of its value.  Forward P/E is a mere 6.23 (industry average is 10.20).  Its market cap down to less than $9 billion.  Its average analyst rating, according to The Street.com, is a B-.

Interestingly, Downes does not attribute all the company's problems to the threat from online retailers such as Amazon.   In fact, he focuses a great deal on customer service.  One could argue that brick-and-mortar retailers must have superb customer service, because that in-store experience can be one of their key (and perhaps only) advantages over online retailers.  However, Downes explains (as others have) that Best Buy employees seem to spend a great deal of their time pushing products and services on customers, rather than trying to offer educated and informed answers to their questions.  They aren't offering the best solution so much as they are trying to drive sales of Best Buy's products. 

I haven't bought a major item at Best Buy recently, so I cannot confirm this observation by Downes.  However, I can describe a recent encounter at the Apple Store, where an associate spent a considerable amount of time explaining to me why I should spend $300 less on a particular item because it would meet my needs more effectively and cost efficiently.   I thanked him for the honesty, and he explained that their job wasn't just to sell product but to make sure we had the best solution and best experience possible.  Sales would come if they did that part of their job.

Beyond the issue of customer service, I think Best Buy has to answer many of the questions that I posed for Sears in yesterday's post.   In particular, I think it needs to refine the relationship between its online store and its physical locations.  That connection should be clean and seamless given the types of products that Best Buy sells.  The firm needs to think about the choice of product categories in which to compete, the amount of real estate dedicated to each product category, and the optimal size and layout of the stores.   As J. Benjamin Stevens wrote on this terrific blog post, "Apple Retail Stores are many times smaller than Best Buy, Costco and Walmart. However its sales per square foot figures are off the charts. In 2009 an Apple Store in Manhattan had sales of $35,000 per square foot, while Best Buy’s national sales per square foot total was $930 for the same year."

One final point:  Downes suggests that Best Buy is facing a gradual demise, not a sudden one.  It reminds me of what governance expert Jay Lorsch once wrote in a book about boards of directors.  He argued that gradual crises often are more difficult to address than sudden ones.  The gradual crisis emerges slowly and in a manner that enables people to downplay the threat or underplay the need for a dramatic response.  

Can Sears be Saved?

The Wall Street Journal reports that Sears has hired Brookstone CEO Ron Boire as its new chief merchandising officer and president of the Sears and Kmart store formats.   Boire told the newspaper, "My focus will really be on creating more and better theater in the stores."  He also will attempt to better integrate Sears's stores, website and mobile-phone application.  ,He has a major challenge ahead of him.  According to the Wall Street Journal, "Sales at stores open at least a year have declined every single year since Mr. Lampert created the Hoffman Estates, Ill., company by merging Sears and Kmart in 2005."

What can and should Boire do to reverse Sears' fortunes?   Rather than proposing a specific answer, I would recommend an approach that might be fruitful.  I don't think Sears will turn itself around simply by making changes in the store experience, or in its ability to appeal to cross-channel shoppers more effectively.  Sears needs to take a top-to-bottom look at its entire business model.  Such an analysis would ask some fundamental questions to begin:


1.  Do Sears and Kmart belong together?   Do they help each other?  Are they truly more valuable together than apart? 


2.   Does Sears belong in all the product categories in which it competes?  Which categories are money-makers and which are money-losers?   What products still draw people into Sears stores?  (consider tools, appliances, etc.) 


3.  How many stores does Sears want/need in its network?  What's the optimal size of its store network?


4.  What's the optimal size/layout of a Sears store? 


5.  What are the right kinds of locations for Sears stores?  Does its mall-based strategy work effectively or not?


These kinds of questions must be addressed if Sears is to survive.  The firm has been on a long-term downward trajectory for years.  Minor adjustments won't save the company.  

Leaders, Go the Back of the Line!

Several days ago, someone reminded me about a book that I read awhile back - “It’s Your Ship: Management Techniques from the Best Damn Ship in the Navy” by Commander Michael Abrashoff.  In the book, the commander describes how he turned around a poor performing ship and helped it become one of the best vessels in the U.S. Navy.   My colleague reminded me of one particular story Abrashoff tells about his first week on the ship.   The commander went to the weekly cookout on the ship, and he noticed that all the officers jumped to the front of the line (cutting in front of the enlisting personnel waiting patiently for their food).  Abrashoff took his tray and went to the back of the line.   His officers got their food and sat down to eat on the upper level, while the sailors sat down on the lower level.  When they noticed the commander at the back of the line, one individual went down to speak with Abrashoff: "Captain, you don't understand. You go to the head of the line."  Abrashoff responded, "That's okay. If we run out of food, I'll be the one to go without."  Abrashoff waited patiently for his food and sat down with the sailors on the lower level.  He did not scream at his officers or reprimand them for his actions.  However, he noticed that the officers did not cut the line the following week, and they chose to sat with the enlisted men. 

Every leader at all levels should read that story and consider whether they lead from the front or the back of the line.  I would submit that far too many leaders choose to cut the line.   Moreover, many leaders who witnessed the cutting in line would choose the verbal reprimand route.  They would fail to recognize that actions often speak louder than words.   

Corporate Governance and a CEO Search at Avon

Avon recently announced that CEO Andrea Jung would be stepping down, but remaining at the firm as Executive Chairman.  The firm announced that a search for a new CEO would commence immediately.  Today the Wall Street Journal reports that two former Avon CEOs (including Jung's mentor and predecessor) have criticized the decision to have Jung remain as Executive Chairman for at least two years.  According to the Wall Street Journal,

Former Avon CEO James Preston, once one of Ms. Jung's closest mentors, took the unusual step of writing a letter to the board two days after the shake-up. He criticized Ms. Jung's leadership, stressed that departing CEOs should step aside and called on the board to replace her with someone with deep experience in the direct-selling world. "I have long held the belief that once a CEO leaves that position, he or she should make a 'clean break' and not question or second-guess the actions of his successor," wrote Mr. Preston, who ran Avon from 1989 to 1998, in the letter, dated Dec. 15, that was reviewed by The Wall Street Journal. "I have held true to that belief, even though in recent years I have become increasingly concerned—and saddened—by the declining fortunes of the company."

I found the Avon decision puzzling as well.   I wonder whether the decision will make it very difficult for Avon to find a top quality CEO.  What executive would want to take the job, knowing that the former CEO would be looking over their shoulder for the next two years?  It's particularly problematic, given that Avon has struggled lately.  Big changes will have to be made.  Will Jung prevent some of that change from occurring as fast as it should?  

The Board now has a major problem.  The fact that Preston's letter has become public puts pressure on the directors to clarify and justify their rationale for keeping Jung as executive chairman for two years.  They cannot ignore this issue.  They'll have to address it, or they jeopardize their ability to find a high quality CEO.  Moreover, a lack of response will raise more questions about the efficacy of corporate governance at the firm.  That could hurt the share price, as investors may be leery of investing in the company if they perceive governance to be weak. 

Preventing Analysis Paralysis

The Corporate Executive Board has posted a useful article on Business Week's website regarding how managers can avoid analysis paralysis.   Among their recommendations, they advise the following:


Unclutter dashboards for managers: Even the most relevant and informative survey data won’t get very far in your organization if managers cannot readily access them. Our research shows that managers who transform data into usable information for their teams can increase business performance by 24 percent. So, focus managers on what matters by providing them with personalized views of the data they need to be effective. Streamlined online dashboards provide managers with instant access to aggregate survey results from their team and organization overall. Ideally, they highlight areas of strong performance and opportunities for improvement for each manager, and equip them with the resources to improve.

I agree completely.   Many organizations face metric overload these days.  Senior leaders need to think carefully about the priorities of the organization and communicate those to all the troops.  Then, the dashboards used to run the business must reflect those priorities.   How does one rationalize the metrics and reports being generated? It starts with tying the dashboards closely to senior leadership's priorities.  One can go further though.   I can recall an exercise we undertook when I worked in corporate finance at a major aerospace firm in the early 1990s.  We went out and talked the people who received the reports we generated.   We asked them whether they used our reports, and if so, how.  We also asked them when was the last time that they had examined each report.  It sounds so simple, yet many people who put together dashboards and reports don't actually know how their data are being used.  By connecting the dashboard creator and user more closely, one can identify which metrics are most useful.    

You Gotta Believe - Leaders are Made vs. Born

Each Sunday, the Boston Globe's Uncommon Knowledge section features interesting research findings from the social sciences.  Yesterday, the newspaper described a study by Crystal L. Hoyt, Jeni L. Burnette and Audrey N. Innella.  The researchers examined the impact of individual beliefs regarding leadership on actual behavior.  They compared people who tend to believe leaders are "born" with those who tend to believe leaders are "made."   The scholars conducted two studies.  In the first study, they primed individuals to think about a leadership role model.  Then, they found that the people who believed that leaders are made tended to show more confidence and less anxiety as they performed a leadership task (delivering a speech).  In the second study, they asked some individuals to read an article arguing that leaders are made.  They found that those who read the article tended to show more confidence, exhibit less anxiety, and perform better in the delivery of a speech (as measured by independent judges). 

Knowing Your Customer - By Channel!

Knowledge @ Wharton has published an article about a new report produced by Wharton’s Jay H. Baker Retailing Center and The Verde Group, a market research firm.   The report emphasizes that companies need to think carefully about the multi-channel shopper.  Retailers clearly have been spending time (appropriately) trying to provide some commonality for the customer regardless of how they shop (online, in store, catalog, etc.).  However, the report reminds retailers that the shopper in each channel has different wants and needs.  Therefore, one has to tailor the experience to suit that customer at that point in time.  The same individual may actually want a different experience in store vs. online - and some of those differences may be quite subtle, yet critical.   Here is a key excerpt from the article:

"Courtney (Paula Courtney, president of The Verde Group) notes that while the emphasis for many retail businesses has been on creating a seamless experience across multiple channels, the reality is that retailers need to spend more time addressing the specific needs of various channel users. “While it’s important to have consistent policies across channels, policies are different from experiences. This [research] suggests that an overriding emphasis on ‘consistent’ channel experiences is misplaced. Different channels attract different types of customers who demand experiences that are specific to their needs and preferences.”

Lego Tries to Appeal to Girls

Business Week has a story this week about how Lego is trying to appeal more effectively to girls. I don't know if it will work, given the firm's historical image and positioning. However, I am very impressed with the research methodology that they employed before designing a new line of products specifically targeted at girls. Lego invested significant resources in anthropological research, sending researchers into homes to watch how girls play. They learned a great deal about how girls build, value beauty and color, and engage in role play. Here is one fascinating excerpt: Lego confirmed that girls favor role-play, but they also love to build—just not the same way as boys. Whereas boys tend to be “linear”—building rapidly, even against the clock, to finish a kit so it looks just like what’s on the box—girls prefer “stops along the way,” and to begin storytelling and rearranging. Lego has bagged the pieces in Lego Friends boxes so that girls can begin playing various scenarios without finishing the whole model. Lego Friends also introduces six new Lego colors—including Easter-egg-like shades of azure and lavender. (Bright pink was already in the Lego palette.)

Hasbro Faces Challenging Times in Board Game Business

The Wall Street Journal reports that Hasbro continues to face challenges in its board game business.   Naturally, mobile and social gaming, as well as other forms of entertainment, have threatened the board game industry for some time.  However, the Wall Street Journal reports that, "Sales of Hasbro's games and puzzles dropped 9% over the last three quarters, far more than overall sales of board games, which declined 3% in the same period, according to researcher NPD Group. Hasbro's game sales slid 3% last year, even as industry-wide game sales edged up 1%."   Some observers claim that Hasbro has neglected its board game business as it has tried to become a broader entertainment company.   The company, naturally, rejects such criticisms. 

I decided to take a quick look on the Amazon site.   What the are the most popular board games on Amazon right now?  The top three games are produced by GameWright, MindWare, and PlaSmart.  Each firm appears to be independent (i.e. not owned by a major toy company).  I found this fact quite interesting.  It appears, then, that the board game business may not have substantial barriers to entry, nor economies of scale that provide incumbent players such as Hasbro a formidable advantage.   In fact, these independent firms often use a form of crowdsourcing to generate new games.  That is, in addition to creating games in-house, they solicit game ideas from inventors around the world, and then select the best ideas.   They often build on and expand those ideas to create their games. 

Interestingly, the Wall Street Journal suggests that Hasbro has spent a considerable amount of time trying to modernize its classic board games, rather than emphasizing the development of many new titles.  These independent firms, of course, focus on bringing totally new ideas to market.  Some of Hasbro's modernization attempts have not gone so well, and in fact, have invited some humorous response.  Check out Stephen Colbert's take on a new version of Monopoly that Hasbro introduced recently (start watching at the 5 minute mark):

           

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
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Starbucks appoints 29 year old board member

Starbucks has announced that Clara Shih, the twenty-nine year old founder of Hearsay Social,has been appointed to the coffee company's board of directors. Shih's firm, Hearsay Social, provides tools for large companies to manage social media across many local branches and units. I find this appointment very refreshing. Company leaders often fall out of touch with key social and technological trends. Connecting regularly with young people insures that board members and executives will stay attuned to key generational differences and consumer trends. The key to making this move a success, though, will be working diligently to encourage other board members to consider her views seriously.

Amazon's Public Relations Problem

Amazon caused quite a stir this week with a new promotion.   They introduced a new "Price Check" smartphone app for consumers.  Individuals could visit a brick and mortar store, check the item's price on Amazon, and then receive a 5% discount (maximum $5 savings) if they purchase that particular item from Amazon.  Now, smartphone apps that enable consumers to check prices elsewhere have existed for quite some time.   Yet, this promotion by Amazon went one step further. It not only enabled price checking, but actually gave a discount to the consumer if they chose Amazon over the brick-and-mortar retailer in which they were shopping at the moment.   That extra step caused a backlash.  Small business owners and advocacy groups expressed outrage at the promotion almost immediately.  Politicians became upset as well.  Maine Senator Olympia Snowe issued a press release in response to the promotion:

"Amazon's promotion - paying consumers to visit small businesses and leave empty-handed - is an attack on Main Street businesses that employ workers in our communities. Small businesses are fighting everyday to compete with giant retailers, such as Amazon, and incentivizing consumers to spy on local shops is a bridge too far...   We should remember that our local restaurants, bookshops, and hardware stores are the economic engines in our communities.  I urge Amazon to cancel its planned promotion, and look for ways to partner with Main Street, not promote anti-competitive behavior that could shutter the doors of America's small businesses." 

What do we make of this situation?  At the end of the day, price checking via smartphones will not be stopped.   It has already begun to transform the way people shop, particularly for pricey electronics.  The prevalence of such price checking will only increase in the future.  Small businesses will not be able to put an end to that phenomenon.  On the other hand, Amazon may have underestimated the extent to which the discount would create a public relations mess.  While the firm states that they were focused mainly on competing with large retail chains, they ended up becoming portrayed as the enemy of small business.  I'm sure that they don't want to be seen in this fashion.  Moreover, the timing doesn't serve them well at all, given that they already face a growing controversy over the sales tax issue.   Given the anti-big business mood of many people at the moment, I'm surprised that Amazon didn't think through the way that this move might feed that sentiment.  Every large firm needs to consider how they might get caught up in that national mood these days.

In the video below, we hear the other side of the story.    Evan Newmark, a Wall Street Journal writer and former Goldman Sachs executive, defends Amazon and criticizes Senator Snowe.

How Early Career Experiences Shape Future Career Prospects and Decision-Making

Antoinette Schoar and Luo Zuo have published a new paper titled, "Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Style."    They studied how early career experiences shape future career prospects and decision-making.  Here is what they found:

"Economic conditions at the beginning of a manager’s career have lasting effects on the career path and the ultimate outcome as a CEO. CEOs who start in recessions take less time to become CEOs, but end up as CEOs in smaller firms, receive lower compensation, and are more likely to rise through the ranks within a given firm rather than moving across firms and industries. Moreover, managers who start in recessions have more conservative management styles once they become CEOs."

I found the last point particularly interesting, namely that a person tends to become a bit more risk averse after experiencing a major recession early in his or her career.  Now that could be a good thing.  Perhaps we will see less "irrational exuberance" in future years from those currently starting out their careers.    

Anxious Negotiators Lose Big Time!

Wharton Professor Maurice Schweitzer and graduate student Alison Wood Brooks have published an interesting paper titled, "Can Nervous Nelly Negotiate? How Anxiety Causes Negotiators to Make Low First Offers, Exit Early, and Earn Less Profit."  The scholars examine the effects of anxiety on business negotiations.   Not surprisingly, they find that anxiety can be very harmful in a negotiation. The study goes one step further though.  It shows precisely how anxiety harms negotiators.   Specifically, the researchers found that more anxious negotiators made lower initial offers, and they responded to others' offers more quickly.   Those behaviors contributed to the fact that anxious negotiators ultimately achieved worse outcomes. 

Why do anxious negotiators behave in this manner?  Schweitzer and Brooks explain that anxiety seems to induce conflict avoidance.  Anxiety often brings with it a desire to minimize the likelihood of confrontation with the other party.   However, the desire to avoid confrontation often drives a negotiator to compromise prematurely or advocate for their own interests less forcefully.   The lesson is clear:  If you are feeling anxious, step back for a moment and collect yourself before beginning a negotiation.  Your anxiety may not just make you feel sick to your stomach; it may lighten your wallet too! 

Decision Quicksand

The Wall Street Journal reported recently on a new study by Professors Aner Sela and Jonah Berger about what they describe as decision quicksand. These scholars compared the approach individuals took on three types of decisions: hard, important choices; hard, unimportant choices; and easy choices. The scholars found that individuals spent the most time on the difficult, but unimportant decisions! Moreover, happiness declined as the length of the decision-making process increased. it reminds me of what a former dean once said to me: "Academics find a way to argue the most over the decisions that matter the least!" Well, it appears that trivial choices trip up many people, not just hopeless professors.

MITX E-Learning Award

I am excited to report that last night the Everest Leadership and Team Simulation V 2.0 (released in July) received the 2011 Massachusetts Innovation and Technology Exchange Award for best eLearning solution. We were absolutely thrilled to earn this honor. According to the MITX website, “The MITX Interactive Awards is the largest and most prestigious awards competition in the country for interactive and web innovations and celebrates the best creative and technological accomplishments emerging from New England.” The awards ceremony took place last night at the Sheraton Hotel in Boston.

As you may know, Professor Amy Edmondson (of HBS) and I developed this simulation and released the original version three years ago. We made a series of enhancements for the V 2.0 release this summer. The product was developed by a terrific team from Harvard Business Publishing and Forio Simulations of California.

Under Armour and Target Markets

I just finished reading an article about Under Armour's remarkable success. The article ended, though, by pointing out that the firm has done much better with men than women. It cites the fact that many women choose Lululemon over Under Armour athletic wear.

When I read this type of article, I wonder whether we sometimes forget the concept of target markets. If we try to sell to every demographic under the sun, we have no focus at all. We might not be the best at serving any particular segment unless we are clear about our target. Of course, Under Armour may find a way to succeed with a particular segment of women. They may have great success eventually with a female demographic. However, their focus on a young male demographic to date is not a weakness, but a sign of a smart focused strategy. Similarly, Lululemon's focus on women has been a great strategy.

The article mentions that Under Armour also is very US-centric. Perhaps expanding their geographic scope before expanding their demographic may make good sense. At some point, you must allocate resources judiciously as you expand.

Another Major Downside to Large CEO Severance Packages

According to the Wall Street Journal, Tulane Professor of Finance Peggy Huang has conducted a terrific new study regarding CEO severance packages.  As you know, many journalists, investors, and analysts have expressed dismay at some of the large severance packages provided to dismissed CEOs in recent years.  Huang set out to examine the impact of such packages in more detail.   She explored whether such packages may have led to excessive risk-taking (since the cost of failure was substantially reduced by the generous severance).  More specifically, she examined whether companies whose CEOs had such packages underperformed the stock market during the CEO's tenure. 

Her findings suggest that Boards of Directors should proceed with caution when offering such packages, particularly cash-heavy packages.  Huang examined roughly 2,000 CEO severance agreements from S&P 500 companies between 1993 and 2007.  She discovered that these firms underperformed the market by 1.6% on average over a three-year period, when compared with firms that did not have CEO severance packages.  If the CEO had a cash-only severance package, the firms underperformed the market by 4% on average.  Looking at the CEO's actions in more detail, she found some evidence suggesting enhanced risk-taking by the CEOs with severance packages. 

Professor Huang offered a comment to the Wall Street Journal about her findings:  "With a severance contract, a company is basically saying that even if a CEO fails, there will be no penalty."

How Twitter Generates Revenue

Business Insider CEO and Editor-in-Chief Henry Blodget conducted this very informative interview the Twitter's Chief Revenue Officer Adam Bain.  Check it out to learn more about how advertising and sponsored tweets work on the Twitter platform.

Social Makeover at Electronic Arts

Fortune reporter Alex Conrad wrote a good article this week on the challenges facing Electronic Arts.  EA once stood at the pinnacle of the video game business.  Eight years ago, I wrote a case study about the firm.  At the time, EA had a stable of high-performing video game franchises, with healthy profits each year.   Today, EA faces many challenges.  It lost in excess of $1 billion in 2009, and it lost more than $300 million in the second quarter of this year.  Social gaming firms such as Zynga have burst onto the scene and disrupted the console-based video game industry. 

Interestingly, the signs of trouble stretch back to a time well before Zynga arrived on the scene.  EA became increasingly reliant over the years on building franchises, with a series of sequels building off of a popular game.  Moreover, those franchises often relied on others' intellectual property (whether it was a movie character or John Madden and the NFL players/teams).  Acquisitions played a key role too.   Fewer and fewer blockbuster hits emerged organically within EA's studios based solely on its own intellectual property.  As EA became more reliant on others, and less successful at creating home-grown hits, the threats to its competitive advantage increased.  Then, just as EA became vulnerable due to these trends, social gaming came along to disrupt the business substantially.

Now, EA must decide how to counter the social gaming threat.  The article suggests that one way it will do so is by adapting some of its popular titles for the social world.  However, one wonders if that is the optimal strategy.  Perhaps they will leverage those strong brands to make popular social games.  On the other hand, one must acknowledge the significant differences between console-based games and social games such as Farmville.  Will a firm trying to adapt titles from the console business end up creating a suboptimal social gaming experience?  Will the mindset of creating high quality, graphics intensive console games (which require substantial R&D expenditures) get in the way of producing successful social games (which have simple graphics, much less technological sophistication, and which require much less development investment)?   Companies focusing completely on social games, without the history of console game development, may actually have an advantage here.   EA itself seems aware of these challenges.  That may be why they have acquired several social gaming companies.  How they manage those acquisitions will prove critical to their future success.