How Teams Reject Good Advice

Prof. Mueller

Wharton management professor Jennifer Mueller and Wharton lecturer Julia Minson have published a fascinating new paper titled, "The Cost of Collaboration: Why Joint Decision-making Exacerbates Rejection of Outside Information." Minson and Mueller compared how pairs of people responded to outside input as opposed to individuals working alone.  They found that people working in pairs exhibited a greater tendency to reject outside input.   The individuals and the pairs gave initial responses to a series of questions such as, "What percentage of members of Congress are Catholic?"   Then, they had an opportunity to revise their estimate based on outside input.  As expected, the pairs demonstrated higher accuracy during their initial responses (two heads are better than one).  However, the discrepancy in accuracy disappeared after the opportunity to incorporate outside input.   Why? The individuals working alone tended to adjust their responses more so than the pairs. 

What's going on here?   A number of factors surely play a role in this phenomenon.  However, I think the general point is that teams have a tendency to be inward-focused at times.  An in-group vs. out-group dynamic emerges, whereby you exhibit an affinity for your fellow group members, and you tend to reject, marginalize, or discriminate against those in the out-group (such as the outsider providing input to the pair).  The group members also may spend time bolstering each others' confidence in the judgment at which they arrive, and that makes it difficult to alter that judgment in the future.

I recall one fascinating example of this phenomenon in action during a leadership development workshop.  My colleague Amy Edmondson was conducting a team exercise called the Electric Maze.  She invited a group of individuals on stage to work on the exercise.  After the group had a chance to plot their strategy for a few minutes, the audience members had an opportunity to offer the group advice before it started the exercise.  The group barely listened to the audience.   They had become so fixated on the strategy that they had begun to concoct that they were not receptive to outside advice.  The amazing thing is that the group had only been plotting its strategy for a few minutes when the outsiders chimed in with their input.  Yet, the group dismissed the outside input. The team already had become insular!

Susan Cain TED Talk: Power of Introverts

Should Pepsi Divest Frito Lay?

As many of my readers know, I am often skeptical of diversification strategies. I prefer focused firms that place their undivided attention on one business. However, I do believe that many investors and analysts react in a knee-jerk fashion when a firm's share price lags - they quickly recommend a break-up or divestiture. They think this move will magically increase the share price. While such moves often do increase shareholder value, they don't always create value.

Recently, some investors and analysts have called for Pepsi to divest Frito Lay. However, it does not appear to me that Pepsi's recent struggles are primarily due to a poor diversification strategy. I don't see Pepsi investing in unrelated businesses with no synergies. I see them struggling to deal with the changing beverage market, and I see them failing to maintain the strength of their core brands whose growth has stalled. Still, I don't think divesting Frito Lay magically solves those problems. Breakup is not an elixir. For investors and analysts, it's an easy, ready made solution... While it may add value in many cases, it shouldn't be viewed as the answer in every case where stock price slumps.

Show & Tell in a Job Interview?

Fortune writer Jennifer Alsever has written an article about a clear new trend in the job market. Increasingly, companies don't simply want to interview candidates. They want to see them in action! In other words, firms want to see potential hires make a presentation, conduct some research, perform analysis on some data, or evaluate a product or service. Applicants need to demonstrate that they can execute. Moreover, they have to show that they can think on their fee, communicate clearly, and think critically. Alsever offers some good advice for applicants given this trend. Naturally, she recommends doing your homework. She also points out that firms aren't just evaluating the answers you provide. They are examining the kinds of questions you ask. They want to know how you think.

Are Risky Personal Behaviors Associated with Risky Business Decisions?

Bob Sutton's blog has pointed me to a terrific article by New York Times writer Steven Davidoff.  The piece is titled, "A Mirror Can Be a Dangerous Tool for Some CEOs."   Davidoff examines the effects of CEO personality on business actions and performance, drawing on some interesting academic research. Here is an excerpt:

Arijit Chatterjee and Donald C. Hambrick said in a 2006 paper that narcissism among chief executives encouraged more volatile company performance. In a study of 111 chief executives in the technology industry, the authors found that indicators of narcissism correlated not only with company performance but also with the pursuit of deals.  The study was criticized for overstating the power a chief executive has over a company. But additional research has shown that a top executive’s personality can have powerful effects on how a corporation is operated.  For example, Henrik Cronqvist, Anil K. Makhija and Scott E. Yonker found that the level of debt for a company was related to how much a chief executive was willing to borrow to buy a house. Matthew Cain and Stephen B. McKeon looked at chief executives who had pilot licenses. Flying small planes is viewed as thrill-seeking behavior. Professors Cain and McKeon found that chief executives with pilot licenses were more prone to engage in acquisitions, with the theory that takeovers are risky, yet exciting ventures.

I think the latter two studies are truly fascinating.  One of our Bryant honors students (now finishing his MBA at Duke) completed a senior thesis examining similar relationships.  He analyzed people who enjoyed sky-diving , and likewise, he found that those individuals tended to exhibit riskier choices in other parts of their lives as well.  What is the implication of such studies?  I believe it suggest that we should be taking a look at signals that suggest an executive may have a high propensity to take risk or strive for the public spotlight, and we should search broadly for those signals.  However, we have to be careful.  These studies demonstrate a pattern that emerges, on average, from the data.  That does not mean every thrill-seeker will be advocating risky corporate acquisitions.

These studies do make a broader point as well about acquisitions.  They re-emphasize the fact that many CEOs do deals for reasons beyond the impact on shareholder value.   Many individuals find deal-making to be exciting and satisfying.  They derive much personal utility from such deals.   However, that "thrill-seeking" may be to the detriment of shareholders, customers, and employees.  

How To Anger Your Best Customers

Have you ever become angry when you paid full price for an item, and then learned that the company had put that item on sale shortly after your purchased it?   We have all been there.   Now scholars have examined the long term effects of such deep discounting. 

Kellogg School of Management Professor Eric T. Anderson and MIT Professor Duncan I. Simester conducted a study to examine whether such deep discounting angered customers, particularly the company's best customers.  Beyond creating anger, they wanted to know if that negative emotional reaction affected long term sales.  Here's what the researchers did, according to Kellogg Insights:

"Anderson and Simester worked with a retailer that specialized in selling durable goods, like software, electronics, apparel, or books. In the past, the retailer had typically kept prices high but frequently offered small discounts and the occasional deep discount. Anderson and Simester worked with them to create test catalogs to determine whether and which customers would be antagonized by price changes. (Most of the retailer’s customers purchased via catalog at the time of the study.) The two types of test catalog were mailed according to the regular schedule and included 86 products, 36 of which were discounted by varying amounts depending on which test catalog people received. The deep-discount version offered the 36 items at an average of 62 percent off, while the shallow-discount version offered an average discount of 34 percent."

The scholars studied customers who paid full price for items and then received a catalog offering steep discounts.  “When you look at this segment of customers, what you see is that a substantial portion just stop buying,” Anderson said. “We call this the boycott effect.”   Customers offered the steep discounts placed substantially fewer new orders than those people who were offered smaller discounts!  Customers who received the steep discount catalog placed 14.8%  fewer subsequent orders than those who received the shallow-discount version. Moreover, many people who were offered subsequent deep discounts simply ordered nothing at all in the months that followed.   It turns out the "boycott effect" lasted for awhile.   The scholars found that customers who reacted poorly to the steep discounts tended to buy less items from that retailer for the next twenty months! 

Does Ambition Shorten Your Life?

Fortune reports about a new study conducted by Professor Timothy Judge of the University of Notre Dame's Mendoza College of Business.   Judge examined 717 highly ambitious individuals born in the early 1900s.  They went to top schools, embarked on high-status careers, and made a great deal of money. 

He compared them to a control group of people who did not exhibit the same level of ambition.  Judge found that, "Despite their many accomplishments, ambitious people are only slightly happier than their less-ambitious counterparts, and they actually live somewhat shorter lives."  

Hmmm... food for thought indeed.  When we strive to accomplish great things, do we sometimes make lifestyle and health choices that may be detrimental to us?  

Speakers, Have a Conversation With Your Audience

Nick Morgan at Forbes points us to a terrific TEDx Houston talk by Professor Brené Brown.  As Morgan writes, "Audiences long for presenters to be real with them, and just have a conversation.  Sure, they want a focused, smart conversation, not a rambling, pointless one like so many real conversations.  But they want an authentic connection with their speakers, and the way to achieve that is with a conversation."

Morgan goes on to explain that many presenters fear a conversation with their audience.  They want to control the situation.  Professors suffer from this same desire for control.  As a result, they sometimes shy away from interactive learning processes, because they are not sure how they will handle unexpected conversations and questions. 

I encourage you to read Morgan's article and watch Professor Brown's terrific talk:

Can Companies Learn from Apple?

Adam Lashinsky's article has published an article on Fortune.com titled, "3 things any company can learn from Apple." (drawn from his book to the left)  I especially love the first point.  My students know that I preach this point about "saying no" all the time! Here's the excerpt:

Say no more often. Steve Jobs was fond of saying that saying no was harder -- and more important -- than saying yes. Apple said no to making personal digital assistants, in the 90s that is. It said no for years to making a telephone-- until it said yes. Apple refused to focus on selling to businesses. It wouldn't put a USB port on the first iPad. And so on. While not every company can achieve Apple's level of Zen by rejecting seemingly good business opportunities, there isn't a company out there that wouldn't benefit by more rigorously asking itself: "Have we absolutely satisfied ourselves that we have said yes for the right reasons?" How many companies pursue revenue opportunities that any new recruit knows the company is doing to make money rather than delight customers. (An example: Jobs ridiculed the PC industry for years for the margin-boosting "crapware" that comes loaded on a PC. The crap remains.) It takes real courage to say no. But it's not like top executives aren't being compensated for brave action.

I would like to make a larger point though.  I think leaders need to be very careful about trying to draw lessons from Apple and apply them to their businesses.  First of all, Apple is a very unique animal, unlike most other firms in terms of its fundamental DNA.   Secondly, we must remember that competitive advantage derives from fit among strategy, structure, systems, culture, and people.   It doesn't come from a silver bullet - a single core competence, one particular strategic choice, a specific business principle or value.  Emulating Apple in one or two dimensions may not bring much advantage to a firm, if that choice doesn't align well with everything else a company does.  Changing a company for the better requires systemic change, not just a tweak here or there that results from a benchmarking exercise of a stellar firm.   

Learning from Our Success and Others' Failures

Scholars KC Diwas, Bradley Staats, and Francesa Gino have conducted a new study about how we learn and improve (or fail to do so).  They examined Minimally Invasive Cardiac Surgery procedures.   Their research shows that individuals (cardiac surgeons in this case) learn more from their own success than the success of others.  Moreover, they learn more from others' failures than others' successes.   What explains these findings?  The scholars argue that we attribute our own success as well as others' failures to internal factors rather than external conditions.   When we succeed, we attribute it to our own effort and capabilities.  When we fail, we often blame "unexpected external factors or pressures."  On the other hand, when others fail, we tend to attribute the outcome to some deficiency on the part of that person (poor effort, planning, skills, etc.).  Finally, the study demonstrated that, "Individuals may be more open to reflect on their own failures and learn from them when they have greater experience with success." 

Our Everest Leadership and Team Simulation in the MBA Classroom

GM Alliance with Peugeot? Risky Business

News reports indicate that GM is considering an alliance with (and investment in) French automaker Peugeot. I'm skeptical of this strategic move.

The French automaker is struggling, as is GM Europe. It is rare that two weak companies join together and become formidable. Beyond that, here are three other reasons to question this deal:

1. GM has a poor track record of international alliances, joint ventures, and acquisitions.

2. GM execs may find this move distracting, when it should be focused on strengthening its position in the US and China, where profit potential is greater.

3. Why does GM need cooperation with Peugeot to build cars? Shouldn't GM have already moved toward global platforms that are only slightly adapted for local markets? Shouldn't GM Europe cooperate with GM China instead? Shouldn't it maintain a rationalized product line rather than proliferating similar models around the globe? It is possible to take localization too far, and GM has done so in the past, losing valuable scale economies.

Does "Buzz" Stimulate Creativity?

Building on yesterday's post regarding introverts and creativity, I thought that I would share news regarding an interesting study about creative cognition.  Christopher Shea of the Wall Street Journal reported this weekend on a new research study by Ravi Mehta, Rui Zhu, and Amar Cheema - forthcoming in the Journal of Consumer Research.   According to Shea,

"A moderate level of noise—the equivalent of the background buzz of conversation—prompts more-creative thought, according to a study.   More than 300 people worked on mental exercises, solving word-association puzzles and pondering practical problems (say, improving a mattress). At the same time, researchers played ambient noise recorded in a cafeteria, roadside, and at a construction site softly, moderately, or loudly, with the moderate level being about what you'd hear in a bustling cafe. People in the moderate-noise groups scored higher on the objective word-association test, and their answers to the other problems were rated, subjectively by peers, as more creative. The study adds to research suggesting that small doses of distraction prompt the mind to work at a more abstract—and creative—level."

Naturally, we need to be careful about drawing conclusions from these types of simple experimental studies.  However, the results do point to possible benefits for the type of collaborative spaces that Google, Pixar, and other firms have tried to create. These environments may be fertile not only because they bring people together, but perhaps because a bit of background noise might be stimulating. 

Introverts and Creativity: A Critique of Susan Cain's Argument

I've begun reading Susan Cain's best-selling book, Quiet, about introverts and creativity.   I also read her thought-provoking article in the New York Times several weeks ago.   Cain argues that introverts are exceptionally creative, and yet the world has become so "noisy" and "collaborative" that we might inhibiting these folks' creativity.   This weekend, I read an interesting, must-read rebuttal from Keith Sawyer, the outstanding creativity scholar who wrote a book titled Group Genius.  Sawyer argues,

"Psychologists who study creativity know that it requires both solitude and collaboration. Exceptional creativity involves a lot of hard work, and that often happens in solitude. But Cain misses the big picture: Researchers have found that breakthrough ideas are largely due to exchange and interaction, and that’s because breakthrough ideas always involve combinations of very different ideas." 

Sawyer also points out that most studies do not show a relationship between introversion and creativity.  I find Sawyer's argument about exchange and interaction very compelling.  It fits nicely with the argument put forth by Steven Johnson in his terrific book, Where Good Ideas Come From.  Johnson argues that good ideas emerge from "fertile environments" that enable "adjacent" ideas to "connect, fuse, recombine."  He argues  that collaboration and communication are essential elements to breakthrough innovation.  Innovators often take ideas from multiple disciplines and fields and recombine them in ways that lead to new insights and breakthroughs.  They have to immerse themselves in a domain and connect with others to achieve that synthesis and integration.

Deepening your competitive position - P&G tries Tide Pods

P&G has announced the launch of new Tide laundry detergent pods - single-dose, dissolvable packets of detergent, stain fighters and brighteners. The launch comes after a significant delay, as well as some uncertainty regarding the extent to which US consumers will embrace this premium-priced product.

We don't know if P&G will succeed with this particular innovation, but it illustrates the right kind of approach to competitive strategy. As many firms face slowing growth in a mature category, they diversify and turn their attention to new areas. However, that often accelerates the decline of their core business because they stop innovating with the seemingly mature product. Then someone does innovate and hurts the company badly. P&G is choosing to try to deepen their competitive position in household products rather than simply diversifying to new areas in search of growth. They have identified two possible consumer needs that pods may fulfill: convenience and better cleaning. Why better cleaning? Many consumers do not use the right amount of detergent - they just pour some liquid in the machine. These pods will provide just the right amount for a load. Naturally, the pods also provide convenience and less mess. Will consumers pay a premium? That's the key question. Still, the attempt to innovate and deepen the firm's competitive position in a mature market should be lauded.

Sears Spinning Off Hardware Stores

Sears continues to struggle.  Yesterday, it reported a net loss for the last quarter of $2.4 billion. Same store sales declined during the quarter as well.   The firm announced that it will be bolstering its balance sheet by selling off its Sears Hardware stores (along with several other moves designed to increase cash).  I understand the move, given the liquidity concerns about the company.  However, I found one item in Chairman Lampert's letter to shareholders rather puzzling.  He described the third pillar of the company's strategy:

With regard to our third pillar, we still have a long way to go but Kenmore and Craftsman have held up relatively well, despite our overall company performance and housing builds and turnover continuing at relatively low levels.  In the fourth quarter of 2011, Kenmore maintained its market leadership in appliances, while Craftsman, too, gained market share.  But, market share alone is not enough.  When we think about brands, we think about brands like Nike and Apple, and we aspire to have Kenmore and Craftsman be the Nike and Apple of the appliances, tools, and lawn and garden industries.

If a key pillar of the strategy is to build the Kenmore and Craftsman brands, then why sell off the hardware stores?   Is Sears more known for and appealing to customers with regard to apparel or hardware?  Sears already had announced the intent to sell Kenmore and Craftsman products at other retailers.  Will the brands thrive if the hardware stores are spun off entirely?  Are there synergies that will be lost as a result of the sale of the hardware stores?  I don't know the answers to these questions, but I think management must address these issues and explain their thinking to investors. 

The Debate about Brainstorming

Jonah Lehrer recently wrote a fascinating New Yorker column in which he argued that brainstorming doesn't work.   In some ways, he's right on the money.   Academic studies often have demonstrated that individuals could perform better at a creative task than a group engaged in brainstorming.  For instance, Lehrer cites one of the early studies at Yale:

The first empirical test of Osborn’s brainstorming technique was performed at Yale University, in 1958. Forty-eight male undergraduates were divided into twelve groups and given a series of creative puzzles. The groups were instructed to follow Osborn’s guidelines. As a control sample, the scientists gave the same puzzles to forty-eight students working by themselves. The results were a sobering refutation of Osborn. The solo students came up with roughly twice as many solutions as the brainstorming groups, and a panel of judges deemed their solutions more “feasible” and “effective.” Brainstorming didn’t unleash the potential of the group, but rather made each individual less creative.

Unfortunately, Lehrer's column draws some misleading conclusions as well.  Scott Berkun, author of Mindfire: Big Ideas For Curious Minds, has written a strong rebuttal to Lehrer's essay.   Berkun offers four key criticisms of Lehrer's conclusions:


1. Nothing matters if the room is filled with morons or strangers (or both).

2.  Brainstorming is designed for idea volume, not depth or quality. 

3.  The person leading an idea generation session matters.

4.  Generating ideas is a small part of the process.  

Berkun takes particular issue with the conclusions that Lehrer draws from a study by Charlan Nemeth.  Brainstorming typically involves a shared norm called "deferred judgment."  Under that norm, participants do not criticize each others' ideas during the idea generation process.   Berkun explains Nemeth's study:


The primary thrust of Lehrer’s critique is based on a 2003 study by Nemeth, where students were divided into groups and given 3 different sets of instructions.  In one group, no instruction was given (‘Minimal’). In the second group, basic brainstorming rules were given (‘Brainstorming’). In the last, brainstorming rules were given, plus students were allowed to critique each others ideas (‘Debate’).... The results do show that the group that could critique generated more ideas... [However] The debate groups was given brainstorming instructions, as well as an instruction to debate. It should be labeled “Brainstorming with debate“. If the only instruction they were given was to debate, it’d be a fair comparison. But it isn’t.

Lehrer concludes from this Nemeth study that stimulating dissent and debate works much more effectively than brainstorming.  I'm with Berkun - that conclusion is a step too far.   My work over the past fifteen years has focused a great deal on the importance of debate and dissent.  I'm glad that Lehrer has chosen to emphasize its importance.  However, an effective group process doesn't employ either deferred judgment or dissent and debate.  It involves both!  In the idea generation phase, deferred judgment makes sense as a norm employed to encourage the generation of many different ideas and options.  Later, dissent and debate become critical as a means of comparing and contrasting those options, and perhaps facilitating the development and generation of more ideas and alternatives.

One final point - Later in the article, Lehrer describes the many innovations that emerged from Building 20 at MIT over the years.  He concludes, "The lesson of Building 20 is that when the composition of the group is right—enough people with different perspectives running into one another in unpredictable ways—the group dynamic will take care of itself."  In other words, if you get the team composition right, you will automatically get lots of constructive dissent and debate.  I disagree wholeheartedly with this conclusion.  It's just not right.   You do not guarantee constructive dissent and debate simply by building a diverse team and giving them a forum for dialogue.  In many settings, people simply don't speak up.  Groupthink occurs even in diverse teams at times.  Yes, you have to get the composition right, but group dynamics do not take care of themselves. They take hard work on the part of a leader.   Leadership matters!  Process matters!  

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.