Is YouTube An Oppportunity For Terrific Advertising Experiments?

Alex Konrad has written an article for Fortune titled, "Pepsi, Brewing up viral magic."   The article describes how Pepsi debuted a new "Uncle Drew" ad for Pepsi Max on YouTube.   According to the article, "In the five-minute clip, 'Uncle Drew' amuses, then mesmerizes, a pick-up basketball game and its fans with crossovers and dunks unbecoming of a white-bearded, paunch-carrying old man, and only possible because the true identity of 'Uncle Drew' was a carefully disguised young basketball star, the clip's writer-director Kyrie Irving."  (Irving is the former Duke player and current NBA Rookie of the Year who plays for the Cleveland Cavaliers).   What's interesting is where the ad went next... it is now appearing on television as a 30-second spot during the first few games of the NBA Finals between the Miami Heat and the Oklahoma City Thunder (go Thunder!). 

That progression is somewhat unique, going from YouTube to television.   I find it very interesting though, and I think more firms should emulate this strategy.  This story proves that firms can and should use YouTube not just as part of a social media marketing strategy... They should think of YouTube as a land of experimentation.   YouTube offers an inexpensive way to experiment with new ad strategies.  The cost of failure is minimal, and even the ads that don't become viral sensations can be "useful failures" in that they may provide powerful learning opportunities.  

If firms are to use YouTube as a powerful mechanism for low cost, low risk, fast experimentation, then they need to have clear methods of evaluating these experiments.  Konrad's article explains that Pepsi had just such a method of evaluation:

"Pepsi Max brand team member Sam Duboff, who led creation and development of the piece, says 'Uncle Drew' had to satisfy three major metrics in order to justify its adaptation into a television segment. 'Uncle Drew' had to keep viewers engaged, hit the brand's target demographic, and generate its own legs through word of mouth. With 80% of viewers watching through the 4-minute mark, a 82.1% male viewer group that skewed towards the brand's core 25-44 age group, and over 5 million views from embedded YouTube players suggesting the viewer watched over a media site or Facebook, Duboff and his team hit all three." 

The Protege Effect: Lessons for Leadership Development?

You often hear the adage, "The best way to learn something is to teach someone else... If you can teach someone about a subject, you really have to understand the material."  New research, described by Annie Murphy Paul in Time magazine, reinforces the accuracy of this nugget of wisdom.  Scholars have used a "teachable agent" - a computerized animated figure named "Betty's Brain" to examine what they call the "protege effect."   Betty's Brain behaves like a real-world student.  Children are encouraged to "tutor" Betty's Brain.  The studies find that, "Student teachers are motivated to help Betty master the material, so they study it more conscientiously. As they prepare to teach, they organize their knowledge, improving their own understanding and recall. And as they explain the information to her, they identify knots and gaps in their own thinking."  Moreover, scholars have found that, "The agent’s questions compel users to think and explain the material in different ways, and watching the agent solve problems allows users to see their knowledge put into action." 

Is there a lesson here for leadership development?  I believe so.   Leadership development professionals, professors, and consultants always struggle with how to get managers to actually change their behavior based on what they might learn in a classroom-type environment.   We might think about putting high-potentials in the role of teacher, not just the role of student.  If we put high-potentials in the role of mentoring and teaching new hires and other junior employees, then perhaps the high-potentials will learn new skills and capabilities more effectively.  Perhaps behavior will change more significantly and more quickly. 

Small Groups of Smart People: Rethinking Our Meetings

Ken Segall wrote a good column for Fast Company about his experiences working with Steve Jobs.  Segall argues for bringing together "small groups of smart people" - avoid having a huge group of people attend key meetings.   He tells an anecdote about Steve Jobs:

One particular day, there appeared in our midst a woman from Apple with whom I was unfamiliar. I don’t recall her name, as she never appeared in our world again, so for the purposes of this tale, I’ll call her Lorrie. She took her seat with the rest of us as Steve breezed into the boardroom, right on time. Steve was in a sociable mood, so we chatted it up for a few minutes, and then the meeting began. “Before we start, let me just update you on a few things,” said Steve, his eyes surveying the room. “First off, let’s talk about iMac--" He stopped cold. His eyes locked on to the one thing in the room that didn’t look right. Pointing to Lorrie, he said, “Who are you?”

Lorrie was a bit stunned to be called out like that, but she calmly explained that she’d been asked to attend because she was involved with some of the marketing projects we’d be discussing. Steve heard it. Processed it. Then he hit her with the Simple Stick. “I don’t think we need you in this meeting, Lorrie. Thanks,” he said. Then, as if that diversion had never occurred--and as if Lorrie never existed--he continued with his update. So, just as the meeting started, in front of eight or so people whom Steve did want to see at the table, poor Lorrie had to pack up her belongings, rise from her chair, and take the long walk across the room toward the door. Her crime: She had nothing to add.

Ok, so the anecdote is powerful, but probably should not be emulated.  We don't want to run around throwing people out of meetings in this fashion.   However, the principle deserves our attention.  Keep those meetings streamlined.  We get much more done if we keep our teams small and focused.  As Segall writes, "Most people know from experience that the fastest way to lose focus, squander valuable time, and water down great ideas is to entrust them to a larger group."

I can hear the pushback already.  "But shouldn't we strive to be inclusive? Isn't that required to build buy-in?"  Sure... we have to worry about including people so as to build buy-in. However, that doesn't mean that everyone needs to be at all these meetings.  We can solicit input and advice in many ways, and still have a small group focusing on the key collaborative problem-solving task in a meeting.  

PowerPoint Abuse

Megan Hustad has a good article at Fortune.com about PowerPoint abuse.   In the article, Warren Berger, design expert and author of Glimmer, argues that speakers use Powerpoint as a crutch.  It deflects the audience's attention away from the speaker, which is something many presenters actually prefer.  Berger argues that PowerPoint isn't the problem; the way people use it is the issue.  Speakers talk to the slides, rather than engaging interactively with the audience.  That lack of audience engagement harms a speaker's ability to persuade, influence, and impact.

Terri Sjodin,  author of Small Message, Big Impact, makes the argument that bullet points don't help the audience understand cause and effect.  A persuasive argument draws connections; it explains how and why one factor influences another.  Hustad ends the article with a story from the creators of South Park.  The story reinforces the notion that we have to draw connections when making a presentation.   The creators explain how they put "story beats" together: "We can take these beats, which are basically the beats of your outline, and if the words 'and then' belong between those beats, you're fucked, basically. You've got something pretty boring. What should happen between every beat that you've written down is either the word 'therefore' or 'but.' So it's not this happens and then this happens. Instead, it's this happens therefore this happens. Or this happens but this happens also, therefore something else happens."

Pixar Storytelling Rules: One Rule Could Help You Make Better Decisions?

I found this terrific list of Pixar storytelling rules the other day.  I encourage all my readers to take a look.  The lessons apply to all storytelling, not just the development of animated movies.  Since great leaders tell stories to communicate key messages, the rules are a must-read for business executives. 

I'm particularly interested in Rule #9: When you’re stuck, make a list of what WOULDN’T happen next. Lots of times the material to get you unstuck will show up.

Think of a tough decision you have had to make recently, one characterized by high stakes and a great deal of ambiguity.   Were you stuck at some point, unsure of how to proceed?  If so, you might try applying this rule.  Make a list of the options you would clearly NOT pursue.  Ask yourself why.   Developing the options that are clearly not plausible or attractive may help you generate alternatives that do make sense.  

Tony Fadell: Why Self-Doubt Isn't Always A Bad Thing and Ignoring Experts Can Be a Good Thing

Thank you to the StrategyProfs.net blog for pointing me to this terrific video from iPod inventor Tony Fadell.

What Happens When The Former CEO Sticks Around?

Professors Tim Quigley (Lehigh) and Don Hambrick (Penn St.) have published a new study in Strategic Management Journal on the impact when a former CEO stays on as chair of the Board of Directors.  Their results prove quite interesting.  Quigley and Hambrick examined 181 successions in high technology firms.  What did they find?  When a predecessor sticks around as board chair, the firm tends to experience less strategic change.  Resources don't get re-allocated as much to new initiatives or sectors, divestitures are less likely to occur, and executive team members are not replaced as often.   The scholars also found that company financial performance doesn't change much.  As they wrote, "New CEOs who are restricted in their actions are correspondingly restricted in the degree to which they can alter performance."  When the predecessor finally does step down as chair of the board, then strategic and personnel changes begin to occur.  Moreover, performance begins to deviate from the earlier levels. 

Many people advocate separating the chair and the CEO roles in corporations.  These results suggest that we have to think carefully about who occupies those roles.  If the chair position is held by the current CEO's predecessor, we may have a chair who does more than monitor and control the CEO's actions.  That chair may actually restrict the CEO's actions so as to preserve the strategy, structure, and executive team that already had been in place prior to the succession.  In these cases, the governance process may actually inhibit very necessary strategic change at times.

Design thinking: You must observe well!

The Wall Street Journal has several good articles about design thinking today. The article notes that anthropological observation of customers in their natural setting is a key phase of the design thinking process. What the article doesn't say is that firms have to distinguish between effective and ineffective observation. What must you worry about when conducting observations? First and foremost, you have to protect against confirmation bias. You have to avoid allowing predispositions to cloud your interpretations of what you are seeing. That is why you should not observe alone. Always go in pairs or trios. Then compare notes. In addition, take lots of photos and videos if possible. Then you can show your colleagues back at the office what you saw. They don't see through your filter. They see the raw data. Finally, pick your observation sites carefully. Watch for selection bias. Are you seeing something typical or not. Of course, sometimes we learn from extreme cases, but we must acknowledge and understand that it is an extreme case!

Are CEOs Spending Too Much Time Outside the Firm?

A new study suggests that some CEOs may be spending far too much time outside the firm.  Oriana Bandiera, Luigi Guiso, Andrea Prat, and Raaella Sadun have written a paper titled, "What Do CEOs Do?"  They examined how 94 CEOs of top-600 Italian firms spent their time.  According to these scholars, "The patterns we observe are consistent with the hypothesis that time spent with outsiders is on average less beneficial to the firm and more beneficial to the CEO and that the CEO spends more time with outsiders when
governance is poor."   The research findings suggest that CEOs perhaps spend too much time dealing with external constituencies at times, and they may overdo their role as the "public face of the firm."   Now one must ask, "Won't it hurt the firm if the CEO isn't out there interfacing with these constituents?"  Perhaps one answer is that the CEO doesn't need to take on this role by himself or herself.   CEOs might consider sharing the responsibility for this outreach more broadly, thereby preserving their time so as to focus appropriately on internal activities. 

Shouldn't Our Best & Brightest Be Doing Something More Substantial?

Leadership Development: Why Not Across Levels?

I'm always struck by the fact that most leadership development programs consist of people who work at the same level of the organizational structure.   I understand the rationale for this structure, but I think it has some limitations.  After all, to get work done, people need to lead and work on teams consisting of people from multiple levels of the organization.  To be effective, people must manage up and down.  Nevertheless, formal leadership development programs typically select a cross-section of high performers from one particular level.  I understand why, of course.  The programs seek to foster a cohort of peers who can learn from and network with one another.  Moreover, putting more senior folks in the room can stifle dialogue at times. 

Many programs bring senior executives in to speak to the group, conduct question and answer sessions, and the like.  This senior executive involvement is very important and should definitely take place.  However, I believe a more substantive involvement in the actual programs can be beneficial.   Such cross-level involvement would enable development on key issues such as communication, teamwork, project management, giving and receiving feedback, and the like.   Mentoring becomes a hands-on activity that becomes embedded in such a program too.  Not only can senior folks mentor more junior managers, but reverse mentorship can take place as well.  Younger, talented high potentials can educate and inform senior executives on key social, technological, and market trends.   In sum, leadership development shouldn't be taking place in isolation.  Leaders need to engaging in some development work along with the subordinates and superiors with whom they must cooperate and collaborate to get things done.

Do Some Global Firms Exhibit Excessive Localization?

Experts frequently criticize large multinationals for failing to customize their products adequately for local markets.  We hear about the fabulous flops, in which firms try to export a popular product developed in the United States or Western Europe, only to experience a huge failure in an emerging market.  I'm quite sure that multinationals do make these mistakes often.  However, I think we hear far less about an equally serious mistake that many firms make.   Some companies have far too many local variations of essentially the same product.  They adapt their goods for every local market around the world, yet perhaps they don't quite need that level of localization. 

These firms don't encounter the same level of criticism. Why?  The economic damage is not as apparent.  After all, these goods may sell very well in each local market.  However, the localization strategy comes with some costs.   By constantly adapting their products for each country, the firms fail to take advantage of potential economies of scale and learning.  As a result, their costs are much higher than they should be.  Moreover, they spend excessive amounts of money building multiple brands in the same product category, rather than investing in the growth of fewer truly global brands.   I'm not saying such a global strategy is ALWAYS better than localization.  Naturally, localization is essential in some products and markets.  However, I do think we fail to levy the same amount of criticism at firms that miss out on key cost savings because of the constant adaptation that they engage in from country to country.

Why does this excessive localization take place in some multinationals?  I would argue that the explanation lies in the organizational structure, not in the minds of those senior executives plotting global strategy.   In many firms, country managers and regional presidents push for localization because it gives them more control and power.  It justifies the existence of larger brand management staffs at the local level, and in general, the country managers control more financial, physical, and human resources.  All else equal, country managers have some personal incentives to push a level of localization that may be higher than optimal.   We often don't hear experts discuss this failure; instead, we hear often about the firm that failed to adapt to a local market.  Yet, both types of mistakes can be equally costly. 

Making the Novel Seem Familiar

I've just finished reading New York Times journalist Charles Duhigg's new book, The Power of Habit.  I enjoyed it a great deal (full disclosure: Charles was my student 10 years ago at Harvard Business School).   Duhigg has a terrific chapter focusing on the predictive analytics function at many corporations, including Target.  Many of you probably read an excerpt from the book which appeared in the New York Times.  That excerpt discussed how Target tried to determine which female shoppers were pregnant so as to begin marketing key products to them before their babies were born.  As we all know, predictive analytics has become a crucial area of focus for many companies.  They can't seem to find enough talented folks who can mine data, conduct sophisticated analyses, and distill key insights.  

Duhigg makes a key point though.  Simply identifying people who are likely to want to purchase your product is not enough.  You have to entice them by "making the novel seem familiar."   It turns out that we are more likely to adopt a new habit if the behavior seems familiar to us.  Duhigg uses the example of a new song.  We tend to listen to music that has some key similarities to music heard often on the radio.   We tend not to listen to dramatically different songs.  Thus, radio stations sandwich such new songs between two tunes that are very familiar.  That tactic entices us to give that new song a shot.  Similarly, Target doesn't just come right out and bombard those pregnant women with a ton of ads and coupons for baby products.  They have come to realize that these women may not want retailers to know that they are pregnant, or they might be alarmed that a company could have figured this out.  Thus, retailers sandwich such targeted marketing between ads and coupons for other products unrelated to pregnancy and children.  They make the novel seem familiar.  It turns out that this tactic often works when it comes to getting us to adopt new habits, in life and in business.

Captain Sullenberger: Dealing with the Unexpected

CEOs with Military Experience

The Boston Innovation blog reported on a new study today about CEOs with military experience. New research by Efraim Benmelech of Harvard and Carola Frydman of Boston University found that CEOs with military experience tended to engage in less fraudulent behavior than those executives who had never served in the armed forces. The study findings suggest that the leadership training and emphasis on honor and ethics at the military academies may have a lasting impact on personal behavior - years after the individuals depart the military. Does this research suggest that we can teach ethics in places such as business school and thereby increase ethical behavior of business leaders? I'm not sure it is quite that simple. The military inculcates a certain sense of honor and character in many ways, well beyond the classroom. In short, the armed forces employ a holistic approach to building character. If business schools wish to enhance ethical behavior, they must do more than teach a class or two on ethics and morality.

When Hierarchy Helps?

Richard Ronay, Katherine Greenway, Eric Anicich, and Adam Galinsky have produced a new study titled, "The Path to Glory Is Paved With Hierarchy: When Hierarchical Differentiation Increases Group Effectiveness." Chris Shea writes about it in this weekend's Wall Street Journal. The scholars primed some people to think of a time when they had high power, while others were primed to think of an occasion when they wielded low power. Still others were not primed at all. In a cooperative task, the mixed groups outperformed those with folks only from one of the three conditions. The results suggest that a power hierarchy seems to improve productivity. Interestingly though, the results do not hold for other kinds of tasks. These results are consistent with another study by Galinsky, in which he found that NBA teams with larger salary disparities outperform those with more equal pay. Again, those results suggest a power hierarchy improves team effectiveness. We have to take these results with a grain of salt though. First, the type of task does matter. Second, this study examines "informal" hierarchies within teams. It does not examine formal hierarchies within larger, more complex organizations. Most importantly, we should not interpret the results to mean that efforts to flatten organizations are ill-advised. While some hierarchy may have benefits (it helps to have some who are clearly in charge), many organizations have such rigid hierarchies that many negative effects ensue.

Illustrated Brainstorming Tips

The Gentle Art of Smart Stealing blog has a terrific post titled "15 Illustrated Brainstorming Tips."  I highly recommend it.  Here are two that I really enjoyed:

14. Look for inspiration in other industries: cross industry innovation

15. Take action now and cure analysis paralysis

Made in the USA: Can it be a Differentiator?

How does a furniture maker compete with low-cost rivals producing goods in China?  It has several options.  It could outsource to China itself, so as to make its furniture more economically.  Alternatively, it could continue to produce in the USA, but try to differentiate its product so as to justify a significant price premium.  The latter strategy can be very successful in some product categories, but it has been difficult in a category such as furniture.   The Wall Street Journal reports, however, that one crib manufacturer is trying to produce a premium product right here in the US.  The Stanley Furniture Company hopes to persuade customers that they can worry less about product safety recalls if they buy from a company producing cribs in the US.   They also offer a wide variety of colors and designs, many more than can typically be provided by a firm producing its cribs off-shore.   However, Stanley charges a significant price premium - $700 vs. roughly $400 for many cribs made in Asia. Stanley is counting on the fact that customers are less sensitive to price when it comes to their infants.  Moreover, grandparents often contribute a significant amount to the purchase of a crib, according to the firm's research. 

Will the strategy work?  It could work, provided that Stanley delivers on its high quality promise.  Beyond that, though, the firm ought to think about the potential advantages that vertical integration may offer.  For instance, producing the cribs in-house here in the USA gives the company the opportunity to do more than offer many different colors and designs.  It also can change its designs much more frequently than an off-shore manufacturer can.  Moreover, it may even be able to offer some level of customization to the consumer.   Mass customization might help support a hefty price premium.    In all these cases, the company relying on outsourcing has a disadvantage, as they will be counting on large production runs of standardized products to take advantage of economies of scale.  Stanley could sacrifice those economies in return for providing the customer some benefits for which they would pay enough of a premium to offset the higher manufacturing costs.   Such a strategy comes with some risk, but given that Stanley cannot compete on cost with Asian manufacturers, it may be the only way to go. 

More Honest Customer Responses on Surveys?

We always should worry that customer surveys will yield inaccurate results for a variety of reasons.  In many cases, people simply say one thing and do another; they don't behave in a manner consistent with their survey responses. 

According to Christopher Shea in the Wall Street Journal, researchers may have discovered a simply way to enhance the accuracy of responses.  He cites a study by researchers at the University of Michigan and the New School for Social Research.  They compared phone surveys with text-message-based polls.  They found that texting-based responses tended to be more candid.    In fact, they asked about somewhat sensitive topics such as drugs, religion, and sex.   People admitted to certain behaviors more openly via texting than by phone. 

Perhaps the results suggest that market researchers should try text-message-based questionnaires in lieu of the usual phone surveys.  They may discover how consumers actually behave, rather than just hearing a "sanitized" version via phone call. 

Jon Stewart on the Internet and Social Media

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Understanding Your Customer: The Unasked Question Problem

As consumers, we receive tons of requests from companies to complete surveys these days.   During most restaurant visits, the waiters or waitresses ask us to complete a questionnaire.   Retailers print a phone number or web address on their receipts, and they request that we complete a survey.  After we purchase a car, the automobile company calls our home trying to solicit responses about our car-buying experience.    Do companies learn a great deal from these surveys, or might they be drawing erroneous conclusions at times?

Researchers David Gal and Derek Rucker at Kellogg Business School have examined a key form of response bias that may trip up companies. Specifically, they have demonstrated that consumers get quite frustrated when the survey instruments fail to ask them about key issues about which they would like to comment or respond.   In those cases, the unasked question becomes a serious problem.  Why?  It turns out that consumers often engage in a behavior that the scholars call "response substitution."   As researcher Derek Rucker says, "People don’t answer the question they’re asked. Instead, they supply an opinion they want to share." 

For example, a consumer may report that they did not like the food at a particular restaurant, when in fact, they really had an issue with the ambiance.   Perhaps the restaurant was a bit too loud.   However, if the survey doesn't ask about the ambiance, then the consumer may substitute their displeasure on a different question, such as one related to the quality of the meal.   In those cases, the restaurant may come to two misguided conclusions.  First, they may determine that the food quality must be improved, when the consumer actually likes the meals provided.  Second, the restaurant may not even realize that they have an ambiance problem.   The scholars recommend providing the consumer with a chance to offer an open-ended response in an "additional comments" section, so as to dig a bit deeper regarding consumer displeasure. 

Advice to College Graduates

For the past several years, I have re-run this old post with some advice for new college graduates.  I hope my seniors, and seniors at other institutions, will read and ponder these thoughts. 

With graduation ceremonies taking place at many colleges and universities this week, I thought it would be appropriate to re-run this post from last year with advice for graduates:

A few words to those graduating from college this year...

As you leave this place, you will become builders. You will build a career, a home, and hopefully a family. For many of you, life will take on a certain rhythm eventually. Routines and rituals will mark your days. You will experience a measure of comfort with the familiar – familiar people, places, and activities. As you grow older, the unfamiliar will jar you, unsettle you, at times. You will want to retreat to that which is comfortable and familiar.

My advice to you today: Do not become wedded to the old and familiar in your lives. Cherish the past, but always look ahead. Seek out novel experiences. Keep breaking new ground, even as the hairs become gray. When in his 80s, Michelangelo, the great Renaissance painter and sculptor, once said, “Ancora imparo.” – I am still learning. I hope that you will live to such a ripe old age, and that you will utter those same words. Researchers have shown that novelty stimulates the brain. So, I tell you know: Exercise your minds throughout your lives. Memories do not nourish the brain. New challenges do. They say that you cannot teach an old dog new tricks. Do not listen to such rubbish. I’m confident that you have the ability to transform yourselves, to make yourselves new, time and again throughout your lives.

As you experience the new and unfamiliar, you will feel discomfort, even fear, at times. Do not let that apprehension get the best of you. Dr. Peter Carruthers of Los Alamos National Laboratory once said, “There’s a special tension to people who are constantly in the position of making new knowledge. You’re always out of equilibrium. When I was young, I was deeply troubled by this. Finally, I realized that if I understood too clearly what I was doing, where I was going, then I probably wasn’t working on anything very interesting.”

As you learn and grow as individuals, do not keep your new knowledge and skills to yourself. Share your knowledge and insight with others. Do more than that; serve as an exemplar to others. Mentor young colleagues, teach your children well – through actions as well as words. Your impact on the next generation will become your enduring legacy.

Singer and songwriter Ben Folds once wrote to his daughter Gracie, “One day you’re gonna wanna go. I hope we taught you everything you need to know.” I love that song, but I know that we have not taught you everything you need to know. I sincerely hope, though, that we have cultivated your intellectual curiosity and nourished your love of learning. May that spark of youthful curiosity remain with you all the days of your lives.

Classic Hiring Mistake

Patty Azzarello has written a very good column for Fast Company titled, "The 6 Huge Hiring Mistakes Everyone Makes."   Here's one mistake I find particularly useful to highlight:

Admire a past accomplishment too much
Very often a candidate will have an accomplishment in their past that is truly extraordinary. It’s more impressive than anything you’ve ever done and vastly overshadows the accomplishments of the other candidates. Wow! You’re Hired!

• Don’t: Hire the candidate based on this one grand accomplishment alone.
• Don’t: Assume this breakthrough will be repeated for you!
• Do: Make sure they are ahead of the pack on many of the other hiring needs too.
• Do: Make sure to get them to talk about how they will think, learn about, and do the specific things you need now--don’t assume brilliant success on the prior thing will automatically translate to brilliant success on what you need done.

Make sure you will love them just as much for other reasons---for the mainstream work they will do and for their personal contribution to your team. Don’t just hope for a repeat home run.

I'm particularly struck by this piece of advice from Azzarello for several reasons.  First, we often forget that the person probably needed a strong team and organizational support system to achieve that great accomplishment.  Without that support, they may not be able to replicate the success. So, we have to find out if they built the team themselves... do they have the ability to build another great team?  That's very important, but often overlooked.  Second, we need to make sure that the person still has the same drive and determination that they may have had prior to that major accomplishment.  Have they gotten a bit complacent? Are they resting on their laurels?   Third, you have to ask whether their skills transfer to your organization?  In other words, we often think they may are bringing a set of 'best practices' with them to your firm.  However, those practices and processes may not fit your culture, your strategy, your people.  We must remember that success doesn't come from universal best practices... it comes from practices that are tailored to a particular organization, market, culture, etc.   So, you have to ask:  Will those person be able and willing to adapt their approach to our firm if modification and adaptation is needed? 

Does a Flat Organization Have Negative Consequences?

Julie Wolf of Harvard Business School has conducted an extensive study of companies that have tried to flatten their organizational structure.  She studied historical data on 300 large U.S. firms over a 15-year period, and she conducted interviews and analysis of CEO calendars.   She examines the consequences of attempts by large firms to "flatten their hierarchies" - something often recommended to improve performance.   The conventional wisdom is that we should flatten hierarchies so as to push decision-making down to the lowest level possible.  However, Wolf found an unintended consequence of such flattening efforts: "Results suggest that flattening transferred some decision rights from lower-level division managers to functional managers at the top. Flattening is also associated with increased CEO involvement with direct reports—the second level of top management—suggesting a more hands-on CEO at the pinnacle of the hierarchy."  In short, by removing layers, we may be pushing decision-making up the organization, rather than down to the people at the local level with specific knowledge about the customer, markets, technologies, and the like.  Flattening could lead to a more centralized management structure.

I've always believed that organizational structure is a blunt weapon.  Structure is an easy lever to pull if an executive wants to reduce costs and influence behavior.  However, simply moving boxes and arrows on the organizational chart often does not lead to higher performance.   Structural change must be accompanied by process and cultural change.  Specifically, Wolf's research suggests that firms need to be very clear about the allocation of decision rights when layers are removed.  I also think that firms need to pay close attention to status/informal hierarchies, rather than only focusing on the formal organizational structure.   Often, the informal hierarchy drives decision-making processes.   The values of the organization drive decision-making processes.  Flattening of the formal structure has to be accompanied by an effort to reduce the salience of status differences, and it has to be buttressed by leadership which emphasizes the value of putting decision-making in the hands of those closest to the work. 

The Challenge at Etsy

Etsy is the fast-growing online marketplace where artists and craftspeople can sell their products.   Wharton Professor Barbara Khan calls it a "very well run, high-quality street fair."   Etsy has 39 million unique visitors per month.  More than $525.6 million of items were sold on the site last year.  Etsy generates revenue through a small listing fee as well as a transaction fee equal to 3.5% of an item's price once it is sold.  

As this article on Knowledge at Wharton notes, the site faces an interesting challenge as it grows.   As it becomes very popular and goes more mainstream, it risks alienating some of its hard-core original customers.  Will the artists and craftspeople see it as less quirky and unique?   Will some people accuse of it selling out when they learn that some vendors, who are larger than perhaps it may seem at first, appear on the site?   This challenge isn't new, of course.  However, it creates a dilemma for a company such as Etsy.  After all, the company benefits from network effects, i.e. the value to each buyer and seller rises as the number of buyers and sellers increases.  People want to be where many other buyers and sellers are.  That network effect drives Etsy to get bigger at first.  Yet, at some point, that urge to get big fast runs up against this potential backlash... are you becoming "too mainstream" and "losing your soul"?  

The challenge for Etsy moving forward is to maintain that quirky appeal, to stay appealing to the unique artists and craftspeople who made the site popular.   They can continue to grow, while staying true to those values and positioning. However, it will take hard work.    To achieve this objective, the firm ought to be very clear now about what they absolutely won't do moving forward.  What is absolutely out of bounds?  Moreover, they need to be very clear about their core values.   What do they stand for as an organization?  What values are non-negotiable?  By being more explicit about these issues, Etsy and other firms like it will be more likely to avoid alienating their original, hard-core customers. 

Leadership Immersion at Hilton Hotels

Yesterday I had the privilege of attending (and presenting at) the Towers Watson HR Leadership Forum in Falls Church, Virginia.  Prior to my talk, one of the Towers consultants moderated a wonderful panel discussion of HR experts from a variety of different organizations.   During that discussion, I learned about a terrific program at Hilton Hotels.  At Hilton, the top 72 executives in the company take part in an "immersion" experience once per year.    In that immersion, they spend one week per year actually working in one of the company's hotels.   They don't go there just to hold a town hall meeting or "inspect" the work.  They actually work alongside their front-line associates for one week, performing a variety of roles from the front desk to maintenance.   The immersion provides a powerful learning experience for top executives, and it insures that they understand the challenges that front-line employees face. 

Bed Bath & Beyond Acquires Cost Plus

Bed Bath & Beyond has announced the acquisition of Cost Plus, a specialty food and home furnishings discounter. At first glance, one might wonder why a firm facing increasing competition from online players such as Amazon would double down in brick and mortar stores. Let's take a closer look. First, I find it interesting that the two firms were working together a bit over the past two years. Bed Bath & Beyond had opened several in-store Cost Plus shops in the past few years. It seems like a very good strategy to date a bit before getting married. More firms should pursue this strategy before major mergers. One might ask, though, why they needed to merge if they were working together effectively through a strategic partnership. That's a tough question to answer from the outside, but perhaps there are additional forms of cooperation that could not occur efficiently without a merger. Let's hope so. Finally, Bed Bath and Beyond seems particularly interested in Cost Plus because it mainly sells unique food products tht cannot be found at other retailers. It seems that thy view the proprietary product line, particularly in food items, as protection against online rivals such as Amazon. This move to proprietary items is a major trend tht will continue as retailers fight the "showrooming" threat.

Don't Ask Your Customers To Invent New Products

Steve Jobs used to say that the iPod and the iPhone didn't emerge from focus groups. Steven Spielberg says a great movie is not created in a focus group. We need to remember that customers often tell us about incremental improvements they would like to see in existing products. They have a hard time imagining a brand new future. That does not mean, however, that we should not engage customers in our radical innovation efforts. We should engage them. We need to focus, though, on the pain they feel when using existing products. What frustrations and obstacles do they experience? If we understand those deeply, then we can begin to develop ways to alleviate that pain. Radical innovations can emerge from that deep understanding of customers' pain.

Power without Status: A Recipe for Disaster?

Alison Fragale, Jennifer R. Overbeck, and Margaret Neale have conducted some interesting new research on power and status.   They have "observed that people who have power without status have a hard time in their organizations."   The researchers point out that most organizations have situations in which people have powerful positions, but people throughout the firm don't think very highly of them.   Status is in the minds of others; your status is how others perceive you.  You may secure a powerful position in a firm, but it doesn't mean that others attribute high status to you.  The scholars have found that, "high-power, low-status people struggle to lead and build a well-functioning team."  They have even found that people reject good advice from high-power, low-status leaders. 

What's the takeaway for leaders?  Recognize the difference between power and status.  Don't rely only on the formal hierarchy to get things done.  The informal status hierarchy matters a great deal.  Finally, when appointing someone to a powerful position, think about how others perceive them. Do they have high status?  If they don't, you might examine why that is the case.  What can be done to mentor or coach them so that their behavior can change, and ultimately, others' perceptions can change as well.

Bill Rasmussen: Founder of ESPN - Great Entrepreneurial Story

Bryant Collegiate Entrepreneurs Organization

I'm very proud to be the faculty adviser to this terrific group of young aspiring entrepreneurs:

Homeboy Industries: The Story of Father Greg Boyle

Fast Company has an amazing story this month about Father Greg Boyle's work with ex-cons and gang members in Los Angeles.   I promise that the story will make you smile and cry... and consider how business leaders truly can help social enterprises thrive.   Father Boyle runs Homeboy Industries, the largest gang-intervention program in the United States.  Homeboy employs ex-cons in a variety of small businesses, from a bakery to a tattoo removal service.   As this rather unorthodox priest says, ""We don't hire homies to bake bread. we bake bread to hire homies."

Source: Fast Company

What makes the story even more interesting is the role of Bruce Karatz, the former CEO of KB Home. 
Karatz ran the company for 20 years.  He made over $100 million in his final year as CEO.  However, in 2006, the SEC conducted a criminal investigation of the firm.  The Board fired Karatz.  According to the LA Times, "A federal jury in Los Angeles convicted Karatz of two counts of mail fraud, making false statements in a regulatory filing and lying to the company's accountants. The panel acquitted him of 16 other charges."  Karatz joined Homeboy Industries several years ago, as the social enterprise teetered on the brink of insolvency.  While Father Boyle has a tremendous sense of compassion and a loyal following among his people, one would be hard pressed to describe him as the most financially prudent executive.   Boyle explains, "The day won't ever come when I could run GE, but Bruce could. And the day won't ever come when Bruce could run Homeboy, but I have great affection for him. Because he gets who our people are, and he's moved by them."  What Karatz has done is make a big impact on Homeboy Industries.  Through his guidance, the enterprise has put itself on much firmer financial ground.  What an interesting and unique team... not one you would ever expect... a unconventional priest who speaks the language of gang members and a convicted former CEO who once ran a nearly $10 billion company.   Together they are making a difference in the lives of many people.  It's a story of redemption and unparalleled compassion.

Corporate Social Responsibility: How Do Firms Get Treated By the Press?

Jiao Luo, Stephan Meier, and Felix Oberholzer-Gee have published a new working paper titled, "No News Is Good News: CSR Strategy and Newspaper Coverage of Negative Firm Events."  They test the conventional wisdom that companies with strong corporate social responsibility programs build up lots of good will that can help them in difficult times. They examine firms in the oil industry specifically.  In fact, they find that, "the media far more likely to report accidents if they occur at a company with a superior CSR record. Rather than acting as an effective form of insurance, our results suggest that a strong CSR record can be a liability. Moreover, the tone of coverage is no less critical for organizations with a greener reputation." 

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Carlyle Group and Other Private Equity Firm IPOs

News reports indicate that the Carlyle Group, a large and successful private equity firm, has priced its IPO at slightly below the initially expected range.   Apparently, the firm met with some skepticism from investors about their offering, and more generally, the prospect of investing in publicly traded private equity firms. 

Dan Primack of Fortune has written an article about investing in these IPOs.  To start his article, he writes:

Shortly after the Blackstone Group went public in mid-2007, I advised friends not to buy the stock. Investors didn't seem to understand how private equity firms like Blackstone should be valued, as illustrated by a 6% share price bump in the days after Blackstone agreed to acquire Hilton Hotels. Private equity firms recognize value when they sell assets, not when they acquire assets, I argued. They aren't conglomerates that generate margin via economies of scale.

I'm quite confused by the comment.  How precisely is a private equity firm different than a conglomerate?  Both own a variety of unrelated businesses. Conglomerates don't achieve economies of scale.  In a developed market such as the United States or Western Europe, how can one achieve scale economies by acquiring unrelated businesses?    You simply cannot!


Let's get to the heart of the matter then. Private equity firms do create value in society, and they do differ from publicly traded conglomerates.  How?  In many ways, when private equity firms gained prominence, they offered a better governance model than publicly traded corporations.  Many publicly traded firms suffer from high agency costs that come with the separation of ownership and control.   Private equity ownership of a business reduces agency costs and reduces the clash of interests that often exists between CEOs and shareholders of publicly traded corporations.   If' that's a major advantage of a private equity firm, then what do we make of taking these private equity firms public?  Well, I would argue that such public offerings counteract one of the key benefits that private equity firms bring to the table.  They would seem to interest a layer of agency problems at the top, offsetting some of the very governance benefits that private equity firms bring to the companies in their portfolio.

Should Coke Acquire Monster?

The Wall Street Journal reports that Coca-Cola explored a possible acquisition of Monster, the energy drink company.   Coca-Cola apparently backed away due to the hefty price tag.  Some investors reportedly balked at the premium that would be paid for Monster, and they made their concerns known to management.

I found one particular note in the story quite interesting.  It reads: "Coca-Cola already has an agreement with Monster to distribute some of its drinks, and that could diminish the potential synergies from any deal—and thus Coke's willingness to pay a large premium."   When I teach strategy, I always reinforce the idea that companies need to consider whether a merger is actually required to achieve the benefits of cooperation.  I draw on Williamson's transaction cost theory, and I argue that we have this "markets vs. firms" choice to make.  Do we organize the activity inside the firm (merger), or do we transact with another party through the market (with a contract or alliance)?   In this case, Coke has been working quite effectively with Monster through the market for some time.  The question is:  What additional synergistic benefits will come if they move from this relationship to a merger?   What can they NOT accomplish through their current relationship?  That's the key question in this case.

Beyond that, though, we also have to consider the following:  What are the costs of inaction?  Will Pepsi acquire Monster, and therefore, Coke would lose its current relationship altogether with this leading energy drink firm?  We have seen that story before, in fact.  Coke once considered acquiring Gatorade, and investors (specifically Warren Buffett) balked at the price tag.  Pepsi swooped in and acquired Gatorade instead.  Coke has been a laggard in the sports drink business ever since that time.  So, Coke must consider the question about whether additional synergies exist above and beyond their current relationship, but they also must consider whether that relationship could get disrupted by a rival's purchase of Monster.

Biased Samples Hike Executive Compensation

When company boards of directors set executive compensation, they often benchmark against peers to determine the appropriate pay levels.  Unfortunately, as this Business Week article by Zachary R. Mider and Jeff Green indicates, many firms choose "peers" that are much larger than them.  Bigger firms tend to pay their executives higher salaries.  Thus, choosing to benchmark against bigger companies creates heftier pay packages.  For instance, the authors report that:

Setting the CEO’s salary is one of the most important duties of a public company’s board. So CBS (CBS) directors decided to give Chief Executive Officer Leslie Moonves a $69.9 million pay package last year only after assessing the competitive market for senior executive talent. The board of directors, however, looked at companies that are, on average, more than twice as large as CBS and included many in businesses far afield from media.

CBS is not alone though. The practice appears pervasive in publicly held corporations.   According to the authors, four of five academic studies that they found on this subject demonstrated evidence of bias in the selection of peer groups by boards of directors.   Why do directors build these clearly biased peer groups?  They want to stay in the good graces of the CEO, and they are often executives themselves... and would like similar treatment when their compensation packages are set.

Is Telecommuting Effective or Not?

Christopher Shea of the Wall Street Journal reports on a new research study by E. Glenn Dutcher in the Journal of Economic Behavior and Organization.  Dutcher examines the work of telecommuters through an experimental study.  He finds that their productivity depends on the type of work that they are doing.  If the work is rote and repetitive, then people tend to be more productive in the office than at home.  However, if they are performing creative tasks, then they appear to be more effective at home.   The evidence suggests that an informal work environment may be more conducive to creativity. 

I would add a bit more to this interpretation.  I think the lower productivity for rote work conducted at home may be accounted for by the fact that one has many other options for how to use your time at home.  If you have boring work to do at the office, you may be constrained in your ability to procrastinate while doing other more enjoyable activities.  On the other hand, when you are at home, there may be many more desirable activities that you can pursue instead of the repetitive work associated with your job. 

Teaming is a Verb!

My friend and frequent co-author Amy Edmondson has a terrific new book out titled, "Teaming: How Organizations Learn, Innovate, and Compete in the Knowledge Economy."  I strongly recommend the book.   Amy is one of the world's leading scholars in the area of team learning.  Here's a short excerpt from a HBS Working Knowledge feature on the book; it captures the essence  of her argument:

In these prior treatments, team is a noun. A team is an established, fixed group of people cooperating in pursuit of a common goal. But what if a team disbands almost as quickly as it was assembled? For example, what if you work in an emergency services facility where the staffing changes every shift, and the team changes completely for every case or client? What if you're a member of a temporary project team formed to solve a unique production problem? Or you're part of a group of managers with a mix of individual and shared responsibilities? How do you create synergy when you lack the advantages offered by the frequent drilling and practice sessions of static performance teams like those in sports and music?

Teaming is a verb. It is a dynamic activity, not a bounded, static entity. It is largely determined by the mindset and practices of teamwork, not by the design and structures of effective teams. Teaming is teamwork on the fly. It involves coordinating and collaborating without the benefit of stable team structures, because many operations like hospitals, power plants, and military installations require a level of staffing flexibility that makes stable team composition rare. In a growing number of organizations, the constantly shifting nature of work means that many teams disband almost as soon as they've formed. You could be working on one team right now, but in a few days, or even a few minutes, you may be on another team.

I find her argument about teaming very compelling.  Consider your own organizational context.  How many temporary, fluid team structures exist in your workplace?  To what extent is teaming a verb, rather than a noun, in your firm?  If you want to learn how to lead in that type of dynamic environment, then I recommend taking a look at Amy's book.  

What Every HR Exec Should be Doing

 

 Liz Ryan has a terrific post at Business Week about the 10 things every HR executive should be doing.   According to Ryan, these 10 actions all help the HR chief achieve his or her ultimate goal: "It’s every HR chief’s highest calling to make sure his or her employer has the most excited, switched-on, and capable people on the market."

Ryan's whole list is excellent, but I especially liked her final two points:

9. Asking your team members every day for their input on your business, their own careers, and life in general—not via a sterile, once-a-year “employee engagement survey.”

10. Replacing fear with trust at every opportunity, in policies, training sessions, management practices, and via every conversation in the place.

These two points cannot be reinforced enough.  Asking for input on a regular basis will accomplish so much more than any annual survey could ever achieve.  Fostering trust will do the same.  If people have been asked for input, and if they trust senior leadership, they will commit wholeheartedly to the organization and go above and beyond the basic duties of their position.  

Does Exercise Make You More Intelligent?

Forbes reports on a series of recent studies suggesting that regular exercise may keep us mentally sharp.  For instance, they write that, a Canadian research study found that, "A six-month stint of strength training slowed dementia in 70- something women."   Apparently, the cognitive benefits extend to young people as well.  Forbes reports about a University of Illinois study which concluded that, "Children  exhibit sharper thinking and quicker learning when they’re fit and exercise regularly compared with those who aren’t and don’t. Kids who were fit and exercised regularly scored higher on numerous cognitive tests and were also better at multi-tasking and memory recall."   Let's all go hit the gym! 

Is Doodling Something to be Encouraged?

The Wall Street Journal has an interesting article about doodling in today's paper - yes, doodling.  The article actually features how some firms have created workspaces with lots of whiteboards and chalkboards so people can display ideas visually.   They also describe how some firms hire graphic facilitators to help teams display their ideas during brainstorming meetings.

I love the concept.   I've worked with graphic facilitators on numerous occasions, and they really do help a team capture their ideas, and they help team members build on each others' ideas very effectively.   If we want teams to be creative, then we need to recognize that capturing elements of the conversation visually can be critical.  If we want people to learn from one another, then whiteboards and chalkboards can be very helpful. After all, consider a classroom without a chalkboard or whiteboard... could we learn as effectively in that environment.   Finally, we have to remember that some people process information more effectively if data and concepts are visually displayed.  Not everyone learns or thinks best if they are simply listening to conversation or looking at spreadsheets.

Why Humans Don't Excel at Multitasking

The Shops at Target

As we all know, mass merchandisers and department stores face stiff competition these days.  Online retailers continue to disrupt the brick-and-mortar retailers.  Moreover, many of these firms face intense price competition with their rivals, and they sell many items at steep discounts.  For years, Target has fought to differentiate itself, to do more than just sell the same goods others do.  They have tried to avoid direct price competition on some items, by selling exclusive designs and premium private label products not found at other retailers.  Now, they have launched Shops at Target - an interesting innovation in the mass merchandiser industry.  According to the company,

Through this ongoing program, Target will partner directly with the shop owners of specialty stores and boutiques to co-create affordable, limited-edition collections for its guests.  The first flight of The Shops at Target features five exclusive collections from five U.S. specialty stores: The Candy Store, Cos Bar, Polka Dog Bakery, Privet House and The Webster.

The innovation here is that Target is NOT partnering with well-known designers in these situations.  They are partnering with small, independent specialty shops.   In so doing, they avoid the competition to sign up those well-known designers, while also offering something even more unique and off-beat.   After all, other retailers have raced to sign up designers for exclusive collections, imitating Target's strategy.  As that has happened, the expense associated with this "arms race" has become quite high.  This strategy tries to find a way to move beyond that arms race.

 The limited-edition nature of the collections seems intended to drive traffic too - "Come now to see what's here, because it won't be here for long."   As we know, increasing frequency of trips is crucial for retailers.  When a shopper comes more often, they tend to buy other items perhaps not on their list.  In the end, the question will be:  Will shoppers pay premium prices for these products, and will Target be able to avoid deep discounting associated with slower-moving items in these collections? 

Do Older Entrepreneurs Have an Edge?

Marc Freedman, author of The Big Shift: Navigating the New Stage Beyond Midlife, has published an interesting blog post over at Harvard Business Review.  The post is titled, "Why Older Entrepreneurs Have an Edge."  The article cites research indicating that many entrepreneurs are older than we might think:

The findings reinforce consistent research from the Kauffman Foundation, which shows that for 11 of the 15 years between 1996 and 2010, Americans between the ages of 55 and 64 had the highest rate of entrepreneurial activity of any age group. The National Journal reports that 9 of the nation's 15 million small-business owners were born before 1965.

Freedman does acknowledge, though, that many of these new start-ups are sole proprietorships or very small businesses.  Still, he points to research showing that certain kinds of creativity and innovation do increase later in life.  Freedman points to the work of University of Chicago economist David Galenson.  His research distinguishes between "conceptual geniuses" and "experimental geniuses."   The former produce breakthrough insights, and they tend to do so early in life.  The latter refine their ideas through trial and error over time, and they tend to come up with their innovations much later in life.   Experimentation and refinement take time.

I like the blog post, but I really do think the focus on physical age is not critical.  The most important factor driving whether you can be a successful entrepreneur is your mindset, not your age.  Are you open to new ideas?  Are you willing to take risks and try new things?  Are you always learning?  Do you engage in disciplined experimentation?   These kinds of questions determine whether you have the mindset to be a successful entrepreneur, whether you are 25 or 65 years of age.