Wharton Professor Martine Haas (a grad school classmate of mine) and Duke Professor Jonathan Cummings have published a new study about teams. They collected original data within a multinational corporation about how people allocate their time among multiple teams on which they are serving. According to Knowledge at Wharton, here is what they found:
The professors also discovered that highly skilled people were more
likely to be involved in multiple teams, and that having members who
were involved with multiple teams was associated with good team
performance. A person with that kind of knowledge tends to be highly
sought after, so his or her attention will likely be divided among many
teams. And that's not necessarily a bad thing, says Haas. Teams composed
of these valuable members also performed well. "That was a surprising
result," she notes. "It's not necessarily causal, but it suggests if you
take people who are assigned to several other teams already and bring
them onto a new team, that team can benefit from their networks,
knowledge and access to resources, even if they can't devote a lot of
attention to the team. The exception is if the team members who are
involved in lots of other projects are also very geographically
dispersed -- in this case, the fact that they cannot devote much
attention to the team makes the performance advantage disappear."
I find these results compelling, and they make sense intuitively. I do wonder about one thing though. Does it matter what TYPE OF WORK the teams are doing, or THE TIME CONSTRAINTS under which they may be operating? Perhaps some types of work require more focused attention, while others benefit from people being able to access a wider network through service on multiple teams. Similarly, perhaps working under a tight deadline could make it less attractive to serve on many teams simultaneously.
Friday, July 20, 2012
Thursday, July 19, 2012
What Does a Business Apology Mean in Different Cultures?
Yesterday, I taught my case on BP and the Gulf of Mexico Oil Spill here in Tokyo. We had a very interesting discussion regarding BP's actions both before the accident and in the immediate aftermath. Some Japanese executives felt that BP CEO Tony Hayward should have put forth a clearer, more direct apology immediately. Others were not so sure, pointing out that the US is a highly litigious society.
I brought up a study by Insead's William Maddux which he conducted along with Tetsushi Okumura of Japan's Nagoya City University as well as USC's Peter Kim and Northwestern's Jeanne Brett. They have studied the meaning and function of apologies across cultures. They found a difference between what they call "individual-agency cultures" such as the US and "collective" cultures such as Japan. In the US, an apology means that one is taking the blame for a failure. On the other hand, in Japan, apologies are "general expressions of remorse rather than a means to assign culpability." Perhaps because of this difference in meaning, they found that the Japanese tend to apologize more often, even if they were not at fault for particular actions. The findings definitely resonated with the Japanese executives with whom I discussed the BP case yesterday. They acknowledged that apologies do take on a different meaning in their country. As executives work and do business in different countries, they would be well-served to understand these key differences.
I brought up a study by Insead's William Maddux which he conducted along with Tetsushi Okumura of Japan's Nagoya City University as well as USC's Peter Kim and Northwestern's Jeanne Brett. They have studied the meaning and function of apologies across cultures. They found a difference between what they call "individual-agency cultures" such as the US and "collective" cultures such as Japan. In the US, an apology means that one is taking the blame for a failure. On the other hand, in Japan, apologies are "general expressions of remorse rather than a means to assign culpability." Perhaps because of this difference in meaning, they found that the Japanese tend to apologize more often, even if they were not at fault for particular actions. The findings definitely resonated with the Japanese executives with whom I discussed the BP case yesterday. They acknowledged that apologies do take on a different meaning in their country. As executives work and do business in different countries, they would be well-served to understand these key differences.
Wednesday, July 18, 2012
Will Non-Experts Fuel Future Disruptive Innovation?
Highly successful entrepreneur and philanthropist Naveen Jain has published an interesting essay on the Forbes website. Jain argues that non-experts will fuel much of the future disruptive innovations. He challenges Gladwell's emphasis on experts in his book, Outliers. Jain explains that the experts won't necessarily be the ones to solve some of the world's most challenging problems.
Jain offers two main reasons. First, he explains that experts can often be quite myopic. Second, Jain argues that information is widely available these days, not restricted to a few experts. Moreover, technology is moving so quickly that expertise seems to become outdated much sooner than in the past. Here is an excerpt that describes his thinking:
The human brain, or more specifically the neo-cortex, is designed to recognize patterns and draw conclusions from them. Experts are able to identify such patterns related to a specific problem relevant to their area of knowledge. But because non-experts lack that base of knowledge, they are forced to rely more on their brain’s ability for abstraction, rather than specificity. This abstraction—the ability to take away or remove characteristics from something in order to reduce it to a set of essential characteristics—is what presents an opportunity for creative solutions.
Do you agree with his arguments?
Jain offers two main reasons. First, he explains that experts can often be quite myopic. Second, Jain argues that information is widely available these days, not restricted to a few experts. Moreover, technology is moving so quickly that expertise seems to become outdated much sooner than in the past. Here is an excerpt that describes his thinking:
The human brain, or more specifically the neo-cortex, is designed to recognize patterns and draw conclusions from them. Experts are able to identify such patterns related to a specific problem relevant to their area of knowledge. But because non-experts lack that base of knowledge, they are forced to rely more on their brain’s ability for abstraction, rather than specificity. This abstraction—the ability to take away or remove characteristics from something in order to reduce it to a set of essential characteristics—is what presents an opportunity for creative solutions.
Do you agree with his arguments?
Tuesday, July 17, 2012
Elevator Groupthink
Thank you to Maria Popova for discovering this old video and posting it on her blog, Brain Pickings. It's called "Elevator Groupthink."
Monday, July 16, 2012
Supermarkets Losing Market Share
The Wall Street Journal reported that supermarkets are losing market share in the United States. Traditional supermarkets - such as Jewel, Stop & Shop, or Albertson's - accounted for nearly 2/3 of all grocery sales in the nation a decade ago. Today, those supermarkets generate only 51% of all grocery sales. Where have the grocery shoppers gone? Mass merchandisers (Target and Wal-Mart), Pharmacies (CVS, Walgreen's), and warehouse clubs (BJ's, Costco, and Sam's Club) have all taken a bite out of that pie. Target, for instance, recognized that food may not be very profitable, but it generates traffic. When people come to the store more often, they buy other higher margin items. Traditional supermarkets are also feeling their profits squeezed because many are "caught in the middle" between premium players like Whole Foods and hard discounters such as Aldi or Dollar General.
Interestingly, I read another article in the Wall Street Journal recently about Target collaborating with Neiman Marcus on some special designer collections to be sold in both chains. It is a unique collaboration. Target, of course, is pursuing this type of strategy because they continue to try to seek unique items for their stores. They don't want to simply be selling the same items that you can find at Kohl's, Wal-Mart, etc. That makes a ton of sense. However, that triggered a thought in my mind... why don't more supermarkets pursue such strategies? Why aren't more traditional supermarkets trying to create unique product lines that can't be found elsewhere. A few players have done this successfully (think Trader Joe's and Whole Foods). However, the mainstream supermarkets don't do this much at all. They ought to be doing that, because otherwise all they are doing is competing on price. The struggles recently at firms such as Supervalu show that price competition can be deadly.
Interestingly, I read another article in the Wall Street Journal recently about Target collaborating with Neiman Marcus on some special designer collections to be sold in both chains. It is a unique collaboration. Target, of course, is pursuing this type of strategy because they continue to try to seek unique items for their stores. They don't want to simply be selling the same items that you can find at Kohl's, Wal-Mart, etc. That makes a ton of sense. However, that triggered a thought in my mind... why don't more supermarkets pursue such strategies? Why aren't more traditional supermarkets trying to create unique product lines that can't be found elsewhere. A few players have done this successfully (think Trader Joe's and Whole Foods). However, the mainstream supermarkets don't do this much at all. They ought to be doing that, because otherwise all they are doing is competing on price. The struggles recently at firms such as Supervalu show that price competition can be deadly.
Saturday, July 14, 2012
Fewer Startups in Japan: Lessons for all Nations
I'm here teaching in Tokyo for a week, as I have each July for the past decade. Therefore, I thought it would be appropriate to offer a reflection related to Japanese business. Adam Acar, Associate Professor of Communication at Kobe City University of Foreign Studies in Japan, published an interesting op-ed today in The Japan Times. The article was titled, "Why Japan Hosts Fewer Startups." He cites the fact that a study by the Global Entrepreneurship Monitor found that Japan had the lowest entrepreneurship activity of 37 countries studied. Professor Acar offers several possible explanations for the low rate of startup activity in Japan:
1. Japan is a collective society, with less emphasis on individual self-achievement.
2. Japan is a "high power distance" society, meaning that it's tough for young entrepreneurs to deal directly with senior executives at various organizations that might provide financing, supply key inputs for their products, etc.
3. Many Japanese value job security a great deal, perhaps even more so than securing the highest compensation possible.
4. Many Japanese worry about disappointing others and worry that a failed startup would harm many peers and colleagues.
5. Japan's low rate of social network usage relative to many Western nations means that potential entrepreneurs have lower social capital to draw upon as they seek customers, partners, investors, suppliers, employees, and the like.
One may or may not agree with each of these explanations, or characterizations of Japanese society. However, I do think all countries and regions should consider these hypotheses as they think about how to stimulate entrepreneurial activity.
1. Japan is a collective society, with less emphasis on individual self-achievement.
2. Japan is a "high power distance" society, meaning that it's tough for young entrepreneurs to deal directly with senior executives at various organizations that might provide financing, supply key inputs for their products, etc.
3. Many Japanese value job security a great deal, perhaps even more so than securing the highest compensation possible.
4. Many Japanese worry about disappointing others and worry that a failed startup would harm many peers and colleagues.
5. Japan's low rate of social network usage relative to many Western nations means that potential entrepreneurs have lower social capital to draw upon as they seek customers, partners, investors, suppliers, employees, and the like.
One may or may not agree with each of these explanations, or characterizations of Japanese society. However, I do think all countries and regions should consider these hypotheses as they think about how to stimulate entrepreneurial activity.
Curing CEO Disease
The Wall Street Journal's Joann Lublin wrote a terrific column this week about "CEO disease." Specifically, she writes about how some executives become isolated, overconfident, and stubborn when they become CEOs. They ignore suggestions and recommendations, and they let their ego get in the way of making sound business decisions. Her column offers a few suggestions for curing CEO disease:
1. Surround yourself with highly capable people.
2. Encourage dissent and discourage people from behaving as yes-men.
3. Regularly admit and fix your mistakes.
4. Treat every employee with respect.
5. Find an objective sounding board outside the office.
I think it's a terrific list. Moreover, I think it applies to managers at all levels of an organization, not just at the CEO position. Front-line managers should also cultivate an objective sounding board, encourage dissent, and surround themselves with talented subordinates. In fact, if people engage in these practices early in their managerial career, they may be less likely to catch CEO disease if and when they rise to the top.
1. Surround yourself with highly capable people.
2. Encourage dissent and discourage people from behaving as yes-men.
3. Regularly admit and fix your mistakes.
4. Treat every employee with respect.
5. Find an objective sounding board outside the office.
I think it's a terrific list. Moreover, I think it applies to managers at all levels of an organization, not just at the CEO position. Front-line managers should also cultivate an objective sounding board, encourage dissent, and surround themselves with talented subordinates. In fact, if people engage in these practices early in their managerial career, they may be less likely to catch CEO disease if and when they rise to the top.
Thursday, July 12, 2012
I Get It, but How Do I Change My Boss' Behavior?
Often, when I'm working with emerging leaders or high potentials in an organization, I hear them say something like the following: "I get what you are saying about encouraging subordinates to speak up and express dissent. However, I can't change the culture/climate on my own. My boss isn't here. He or she needs to change too. What do I do to influence their behavior?" It's a great question! Let me offer a few thoughts:
1. First, focus on what you can control, rather than worry about what is beyond your control. Change the way you lead your team. If all of you in this program begin to do that, you will begin to shift the organizational climate. You will serve as exemplars for those that work for you.
2. Use questions as your tool for opening up more dialogue in meetings led by your boss. Rather than confronting your boss about the fact that he or she may not be encouraging people to speak up, try asking some non-threatening questions in team meetings that encourage others to share information or views that have not been disclosed previously.
3. Use one-on-one meetings to convey to your boss that he or she may not have heard all views in a key team meeting. Let them know, with specifics, how certain concerns are not being surfaced (without naming names!).
4. Invite your boss to sit in on a meeting you are leading with your team, and showcase some techniques that you and your team use to cultivate productive debate and candid dialogue.
5. When you read about a company that stumbled because senior executives were unaware of bad news until it was far too late, share it with your boss. Send the article to him or her by email. A compelling story of another organization's failure might trigger an attempt to change behavior at your firm.
1. First, focus on what you can control, rather than worry about what is beyond your control. Change the way you lead your team. If all of you in this program begin to do that, you will begin to shift the organizational climate. You will serve as exemplars for those that work for you.
2. Use questions as your tool for opening up more dialogue in meetings led by your boss. Rather than confronting your boss about the fact that he or she may not be encouraging people to speak up, try asking some non-threatening questions in team meetings that encourage others to share information or views that have not been disclosed previously.
3. Use one-on-one meetings to convey to your boss that he or she may not have heard all views in a key team meeting. Let them know, with specifics, how certain concerns are not being surfaced (without naming names!).
4. Invite your boss to sit in on a meeting you are leading with your team, and showcase some techniques that you and your team use to cultivate productive debate and candid dialogue.
5. When you read about a company that stumbled because senior executives were unaware of bad news until it was far too late, share it with your boss. Send the article to him or her by email. A compelling story of another organization's failure might trigger an attempt to change behavior at your firm.
Wednesday, July 11, 2012
The Two-Pizza Rule! How To Make Your Teams More Effective
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| Source: Forbes.com |
David: How does being an entrepreneur at the helm of a very large enterprise differ from entrepreneurial leadership of a small startup or growth company?
Brad: Regardless of whether you are leading a large enterprise or a small team, you need to remove barriers to innovation and get out of the way. At Intuit, we operate like a company of startups. We create and foster a culture where our nearly 8,000 employees worldwide have the courage to take risks and grow by learning from success and failure. Idea Jams and unstructured time give passionate employees opportunities to collaborate on new ideas to solve customer problems. To keep ideas moving and teams nimble, we embrace the “Two-Pizza rule,” making sure product development teams are no larger than two pizzas can feed.
I absolutely LOVE the two-pizza rule. If everyone eats 2 slices of pizza, then we are talking about an eight-person team. That sounds just about right for me. I constantly find organizations building teams that are far too large to be effective at accomplishing a creative task. The two-pizza rule provides a simple heuristic for helping leaders keep their teams small and nimble. Every organization should consider embracing this powerful rule of thumb.
Tuesday, July 10, 2012
Time Management: Interesting New Finding
Knowledge at Wharton features the research of Wharton Professor Cassie Mogilner and her colleagues, Harvard business professor Michael J. Norton and Yale postdoctoral associate Zoe Chance. Through a series of experimental studies, they find that, "by taking time to help others, we can help ourselves by creating a feeling of expanded time." In other words, perhaps we should reconsider when we feel stressed and reject invitations to help someone else out at work, at church, or in our neighborhood.
The scholars found that "although people's objective amount of time cannot be increased (there are only 24 hours in a day) ... spending time on others increases feelings of time affluence. The impact of giving time on feelings of time affluence is driven by a boosted sense of self-efficacy -- such that giving time makes people more willing to commit to future engagements despite their busy schedules."
While I find the work compelling, I think we should take great care acting on the conclusions. We might feel better if we help others, but we also have to remember that trade-offs exist. There is no free lunch. Will our effectiveness at all activities suffer if we take on too many tasks? Many students, for instance, struggle with time management in their early years in college. While taking on extracurriculars has many benefits, I have definitely seen many students become stretched too thin. Not only does schoolwork suffer, but their effectiveness in their social or community service work tails off as well.
While I find the work compelling, I think we should take great care acting on the conclusions. We might feel better if we help others, but we also have to remember that trade-offs exist. There is no free lunch. Will our effectiveness at all activities suffer if we take on too many tasks? Many students, for instance, struggle with time management in their early years in college. While taking on extracurriculars has many benefits, I have definitely seen many students become stretched too thin. Not only does schoolwork suffer, but their effectiveness in their social or community service work tails off as well.
Monday, July 09, 2012
Vertical Integration at Lenovo vs. Outsourcing at Rivals
The Wall Street Journal has an article today about Lenovo's vertical integration strategy. That strategy stands in stark contrast to many of the firm's rivals in the computer business (including Apple), which have outsourced many aspects of the manufacturing process. Lenovo CEO says, "Selling PCs is like selling fresh fruit. The speed of innovation is very fast, so you must know
how to keep up with the pace, control inventory, to match supply with
demand and handle very fast turnover." Lenovo's SVP of supply chain says, "Three years ago the whole industry was saying everyone should
outsource, that's the future. [We] came to the
conclusion that even though all our other competitors are going in the
other direction…we can move faster if we're more vertically integrated."
I'm surprised by the comments, and frankly, by the strategy. Most people would agree that Apple is one of the most innovative and highly differentiated companies in the computer industry. If Apple can achieve that type of rapid innovation without being completely vertically integrated, then why can't Lenovo? Apple pursues vertical integration on selected components, most importantly on its operating system. However, Apple does not keep all manufacturing in-house. Lenovo chooses to use outsiders for its operating system (Microsoft Windows for its PCs and Google's Android for its new tablets). Yet, Lenovo is manufacturing many hardware components in-house. Time will tell if the strategy will pay off. One wonders if the path to successful innovation, though, has more to do with company culture, leadership, and new product development processes, rather than with the extent of vertical integration.
I'm surprised by the comments, and frankly, by the strategy. Most people would agree that Apple is one of the most innovative and highly differentiated companies in the computer industry. If Apple can achieve that type of rapid innovation without being completely vertically integrated, then why can't Lenovo? Apple pursues vertical integration on selected components, most importantly on its operating system. However, Apple does not keep all manufacturing in-house. Lenovo chooses to use outsiders for its operating system (Microsoft Windows for its PCs and Google's Android for its new tablets). Yet, Lenovo is manufacturing many hardware components in-house. Time will tell if the strategy will pay off. One wonders if the path to successful innovation, though, has more to do with company culture, leadership, and new product development processes, rather than with the extent of vertical integration.
Tuesday, July 03, 2012
Clear Roles: Crucial To Team Success
Tammy Erickson writes at HBR about her research on teams at the BBC, Reuters, and elsewhere. She argues that leaders should take great care to clearly define individual roles on a team, while leaving the approach to achieving the team's goals more ill-defined. Why? According to Erickson,
"Collaboration improves when the roles of individual team members are clearly defined and well understood — in fact, when individuals feel their role is bounded in ways that allow them to do a significant portion of their work independently. Without such clarity, team members are likely to waste energy negotiating roles or protecting turf, rather than focusing on the task."
Erickson also finds that a little less clarity or definition on the path to achieving the team's goals can be beneficial. Why? Individuals perceive the task as something requiring them to be creative, and they feel empowered to provide their input as how to achieve the team's objectives. In other words, define the shared goal very clearly, but give the team members some freedom to figure out the best way to get there.
"Collaboration improves when the roles of individual team members are clearly defined and well understood — in fact, when individuals feel their role is bounded in ways that allow them to do a significant portion of their work independently. Without such clarity, team members are likely to waste energy negotiating roles or protecting turf, rather than focusing on the task."
Erickson also finds that a little less clarity or definition on the path to achieving the team's goals can be beneficial. Why? Individuals perceive the task as something requiring them to be creative, and they feel empowered to provide their input as how to achieve the team's objectives. In other words, define the shared goal very clearly, but give the team members some freedom to figure out the best way to get there.
Monday, July 02, 2012
Feeling Guilty About a Mistake? Is it a Sign of Leadership Potential?
Stanford Professor Francis Flynn and doctoral student Becky Schaumberg have conducted an interesting new study about leadership. They administered a personality test to groups of 4-5 people. The test examined guilt proneness, shame
proneness, extraversion, and other traits. They were particularly interested in the distinction between guilt and shame. Feeling guilty means that someone "feels bad about a specific mistake and wants to make amends." Feeling shame means that someone "feels bad about himself or herself and shrinks away from the error."In this experiment, the groups had to perform two tasks after completing the personality inventory. The subjects evaluated each others' leadership qualities after completing these tasks. It turns out that the people who scored highest on the "guilt proneness" measure tended to be identified as the strongest leaders. In fact, guilt proneness "predicted emerging leadership even more than extraversion." According to Schaumberg, "Guilt-prone people tend to carry a strong sense of responsibility to others, and that responsibility makes other people see them as leaders."
Well... I guess I may have some leadership potential... after all, I'm Catholic, and we are experts at feeling guilty! Seriously, though, I think the study points to something very important. Feeling a responsibility to others is the mark of a good leader. Moreover, wanting to atone for your mistakes, rather than simply trying to cover them up, makes for an effective leader. I wonder how we might look for those characteristics as we interview young people for leadership positions early in their careers. Thoughts?
Friday, June 29, 2012
News Corp Split
This week, we heard the news that Rupert Murdoch will be splitting News Corp. into two separate entities: a publishing company and an entertainment firm. I have several reactions:
1. The News Corp split follows a familiar pattern. In the 1990s, we saw a number of media companies engaging a great deal of both horizontal and vertical integration (Viacom merges with CBS, AOL mergers with Time Warner, Disney buys ABC, etc) Now, we have seen the reversal of many of these strategies. I'm not surprised. Disney always had the strongest case for horizontal integration, because they leverage a highly valuable resource (the characters) across many business units. Other entertainment firms had far less synergy across their businesses.
2. One might argue that the media conglomerate phase of the past was a case of herd behavior. They all imitated one another in strategies of horizontal and vertical integration, without necessarily questioning the merits closely enough.
3. News Corp may not have a great deal of difficulty breaking up into two firms because of how they manage the business units. Murdoch always ran the units in a fairly decentralized manner. That always puzzled me, because it meant that they really weren't pursuing major synergies. On the other hand, that unit autonomy makes breaking up much easier, given the lack of strong interconnections.
4. One wonders how much cross-subsidization occurred in the past, with cash flow from the profitable, but mature publishing businesses to the higher growth entertainment businesses that needed cash to grow. If a great deal occurred, then it will be interesting to see how the entertainment business funds its growth moving forward. Meanwhile, investors may be very happy to see the cash flow from the publishing business returned directly to them (perhaps via strong dividends), for people to invest as they choose.
1. The News Corp split follows a familiar pattern. In the 1990s, we saw a number of media companies engaging a great deal of both horizontal and vertical integration (Viacom merges with CBS, AOL mergers with Time Warner, Disney buys ABC, etc) Now, we have seen the reversal of many of these strategies. I'm not surprised. Disney always had the strongest case for horizontal integration, because they leverage a highly valuable resource (the characters) across many business units. Other entertainment firms had far less synergy across their businesses.
2. One might argue that the media conglomerate phase of the past was a case of herd behavior. They all imitated one another in strategies of horizontal and vertical integration, without necessarily questioning the merits closely enough.
3. News Corp may not have a great deal of difficulty breaking up into two firms because of how they manage the business units. Murdoch always ran the units in a fairly decentralized manner. That always puzzled me, because it meant that they really weren't pursuing major synergies. On the other hand, that unit autonomy makes breaking up much easier, given the lack of strong interconnections.
4. One wonders how much cross-subsidization occurred in the past, with cash flow from the profitable, but mature publishing businesses to the higher growth entertainment businesses that needed cash to grow. If a great deal occurred, then it will be interesting to see how the entertainment business funds its growth moving forward. Meanwhile, investors may be very happy to see the cash flow from the publishing business returned directly to them (perhaps via strong dividends), for people to invest as they choose.
Monday, June 25, 2012
Microsoft Surface: What's the Strategy?
Microsoft's decision to build its own tablet computer (called Surface) has raised some interesting questions about the firm's strategic intent. Has the firm finally acknowledged that Steve Jobs was correct when he said that you had to be vertically integrated to produce something as terrific as the iPad? In other words, did the same firm have to make the hardware and the software, because complex integration was needed to deliver a exceptional customer experience? Jobs, of course, believed that Android devices could not match the iPad experience because they lacked such sophisticated integration (since the hardware makers were simply licensing the Android system).
A recent New York Times story suggests an alternative hypothesis: Has Microsoft decided to move temporarily into the tablet hardware business so as to drive the type of innovation that could lead to lucrative tablet operating system and software sales down the road? Toward the end this New York Times article, MIT Professor Michael Cusumano offers his take on Microsoft's latest move. Here is the excerpt from the article:
Some who study the technology industry still believe Microsoft will get out of the business of selling its own tablet computer as soon as it can persuade other hardware companies to build compelling devices of their own. “I think once they jump-start it, they plan to make money the way they always have — from licensing software,” said Michael A. Cusumano, a management professor at M.I.T.
I found this hypothesis quite intriguing. I can think of at least one other example of a company choosing to vertically integrate on a "temporary" basis. Coke and Pepsi both chose to forward integrate into bottling and distribution some years ago, and then they divested those units. Why the back-and-forth? Some (including HBS Prof. David Yoffie) would argue that Coke and Pepsi forward integrated so that they could acquire and consolidate their distribution network, driving economies of scale throughout the channel. They also wanted control of the channel at times as their product strategies shifted. However, the firms didn't want to have all those assets on their books for the long haul, given the returns in bottling and distribution are much lower than in concentrate production. Of course, both chose to forward integrate once again more recently, and now we hear rumblings (particularly at Pepsi) of the possibility of another divestiture down the road. Again, forward integration may have served a distinct strategic purpose, but the firms may find themselves questioning the returns on the distribution businesses.
Similarly, Microsoft may not want to be in the hardware business long term, as the returns are likely to be lower than in the software business (at least if the tablet market operates in a manner consistent with returns in the personal computer market). However, "temporary" vertical integration may be their way of shaping the industry in the way that will be positive for them in the long term. We'll see which hypothesis turns out to be correct. It should be fascinating, and of course, it will depend on how well customers receive the Surface product.
A recent New York Times story suggests an alternative hypothesis: Has Microsoft decided to move temporarily into the tablet hardware business so as to drive the type of innovation that could lead to lucrative tablet operating system and software sales down the road? Toward the end this New York Times article, MIT Professor Michael Cusumano offers his take on Microsoft's latest move. Here is the excerpt from the article:
Some who study the technology industry still believe Microsoft will get out of the business of selling its own tablet computer as soon as it can persuade other hardware companies to build compelling devices of their own. “I think once they jump-start it, they plan to make money the way they always have — from licensing software,” said Michael A. Cusumano, a management professor at M.I.T.
I found this hypothesis quite intriguing. I can think of at least one other example of a company choosing to vertically integrate on a "temporary" basis. Coke and Pepsi both chose to forward integrate into bottling and distribution some years ago, and then they divested those units. Why the back-and-forth? Some (including HBS Prof. David Yoffie) would argue that Coke and Pepsi forward integrated so that they could acquire and consolidate their distribution network, driving economies of scale throughout the channel. They also wanted control of the channel at times as their product strategies shifted. However, the firms didn't want to have all those assets on their books for the long haul, given the returns in bottling and distribution are much lower than in concentrate production. Of course, both chose to forward integrate once again more recently, and now we hear rumblings (particularly at Pepsi) of the possibility of another divestiture down the road. Again, forward integration may have served a distinct strategic purpose, but the firms may find themselves questioning the returns on the distribution businesses.
Similarly, Microsoft may not want to be in the hardware business long term, as the returns are likely to be lower than in the software business (at least if the tablet market operates in a manner consistent with returns in the personal computer market). However, "temporary" vertical integration may be their way of shaping the industry in the way that will be positive for them in the long term. We'll see which hypothesis turns out to be correct. It should be fascinating, and of course, it will depend on how well customers receive the Surface product.
Friday, June 22, 2012
Defeating Boredom in Long Meetings
Claire Suddath has a funny column at Business Week on how to cope with boredom at long management meetings. Among the best coping strategies listed, she provides this story from Marcy, a former employee of the federal government:
“The M&M game is designed for a large-scale, all-hands-on-deck type meeting where you’re not expected to participate,” she explains. She and her friend would each get a packet of peanut M&M’s and then sit on opposite ends of the conference room, but within eye contact of each other. “We’d pick a set of buzzwords ahead of time—like ‘mission-driven,’ ‘nonproliferation,’ ‘efficiency,’ or ‘the president’—and then whenever one was used, we’d eat an M&M. If you finished your bag of M&M’s, you won.” This, my friends, is the American government in action.
I think that I'll try this strategy with a few colleagues here at the university. I'm sure that we can come up with some terrific academic buzzwords to fuel our M&M appetites!
“The M&M game is designed for a large-scale, all-hands-on-deck type meeting where you’re not expected to participate,” she explains. She and her friend would each get a packet of peanut M&M’s and then sit on opposite ends of the conference room, but within eye contact of each other. “We’d pick a set of buzzwords ahead of time—like ‘mission-driven,’ ‘nonproliferation,’ ‘efficiency,’ or ‘the president’—and then whenever one was used, we’d eat an M&M. If you finished your bag of M&M’s, you won.” This, my friends, is the American government in action.
I think that I'll try this strategy with a few colleagues here at the university. I'm sure that we can come up with some terrific academic buzzwords to fuel our M&M appetites!
Thursday, June 21, 2012
Struggles at P&G
Apparently, the heat is on Proctor and Gamble CEO Bob McDonald. McDonald reported some disappointing sales and profit news this week. According to the Wall Street Journal, "He said the company's sales likely fell by 1% to 2% in the current
quarter from a year earlier, compared with a previous forecast of 1% to
2% growth, and said core earnings would come in at 75 to 79 cents a
share, down from a previously expected range of 79 cents to 85 cents." Investors are becoming restless and asking increasingly tough questions.
P&G clearly needs to find a way to jump start organic growth. However, I believe investors also will begin asking questions regarding the corporate portfolio. Does the firm need to trim some operations that appear outside the core? For instance, Iams is a billion dollar brand for P&G, yet pet food does not represent one of the company's main product lines. P&G focuses primarily on health and beauty as well as household care. The US pet food market is not as consolidated as the European market. Therefore, perhaps there may be an opportunity to find a buyer for the business. Investors may begin asking questions about other brands too, such as the Duracell battery brand. Does it fit well with P&G's portfolio. Whenever a company begins to struggle and investors become restless, these types of questions will begin to be asked.
P&G clearly needs to find a way to jump start organic growth. However, I believe investors also will begin asking questions regarding the corporate portfolio. Does the firm need to trim some operations that appear outside the core? For instance, Iams is a billion dollar brand for P&G, yet pet food does not represent one of the company's main product lines. P&G focuses primarily on health and beauty as well as household care. The US pet food market is not as consolidated as the European market. Therefore, perhaps there may be an opportunity to find a buyer for the business. Investors may begin asking questions about other brands too, such as the Duracell battery brand. Does it fit well with P&G's portfolio. Whenever a company begins to struggle and investors become restless, these types of questions will begin to be asked.
Wednesday, June 20, 2012
How Analytics Can Help You Improve Quality and Reduce Costs
I found a terrific example of the use of "Big Data" in Fast Company magazine this month. The article by Farhad Manjoo describes a situation at Washington Hospital Center. ER doctors became concerned that many patients returned to the hospital just a short time after being discharged. A computer scientist at Microsoft Research began to investigate. He wanted to identify some triggers that would predict whether a patient would be readmitted. Specifically, he was looking to help doctors identify some predictors that might not otherwise receive much attention by ER physicians and nurses. He analyzed more than 300,000 ER visits. Among other things, he discovered that the length of a patient's stay in ER tended to be a good predictor of readmission. If a patient stayed in the ER for more than 14 hours, they were likely to return to the hospital within a few weeks. Similarly, if the patient's chart mentioned the word "fluid" at some point, that seemed to predict readmission quite well too.
This story illustrates how companies can use analytics to help them understand how to improve the quality of customer service, as well as to reduce costs. Take an automobile dealer. They conduct repair and maintenance on thousands of cars per year. A fair number of those cars return shortly after a repair or maintenance appointment, because something is not working correctly or hasn't been done to the customer's satisfaction. An automobile dealer could analyze the data from thousands of those cases, and it could try to identify the predictors of return visits. If they could identify a few solid predictors, then they could try to intervene to reduce those return visits. Those interventions could improve quality and customer satisfaction, while reduce costs (since every return visit is costly). Many service businesses could apply a similar logic and use analytics to achieve positive results. Can your company benefit from such an approach?
This story illustrates how companies can use analytics to help them understand how to improve the quality of customer service, as well as to reduce costs. Take an automobile dealer. They conduct repair and maintenance on thousands of cars per year. A fair number of those cars return shortly after a repair or maintenance appointment, because something is not working correctly or hasn't been done to the customer's satisfaction. An automobile dealer could analyze the data from thousands of those cases, and it could try to identify the predictors of return visits. If they could identify a few solid predictors, then they could try to intervene to reduce those return visits. Those interventions could improve quality and customer satisfaction, while reduce costs (since every return visit is costly). Many service businesses could apply a similar logic and use analytics to achieve positive results. Can your company benefit from such an approach?
Tuesday, June 19, 2012
Innovation: Working at the Boundaries
For years, we have known that successful innovations often come from people working in other disciplines. They bring deep knowledge in a related field, and just enough outside perspective, to solve a tough problem that individuals with years of experience in a particular field could not solve. Harvard Professor Karim Lakhani has studied crowdsourcing efforts and confirmed this result. He found that, "successful solvers solved problems at the boundary or outside of their fields of expertise, indicating a transfer of knowledge."
What does that mean for people trying to drive innovation within firms? I think it means finding ways to expose tough issues to people in different functional areas and silos. It means finding people working at those crucial boundaries. It means giving problem solvers access to the social networks of people working in related fields, thus expanding their perspectives.
What does that mean for people trying to drive innovation within firms? I think it means finding ways to expose tough issues to people in different functional areas and silos. It means finding people working at those crucial boundaries. It means giving problem solvers access to the social networks of people working in related fields, thus expanding their perspectives.
Friday, June 15, 2012
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."
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."
Thursday, June 14, 2012
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.
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.
Wednesday, June 13, 2012
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.
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."
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."
Tuesday, June 12, 2012
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.
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.
Saturday, June 09, 2012
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.
Friday, June 08, 2012
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.
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.
Thursday, June 07, 2012
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!
Wednesday, June 06, 2012
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 Raaella 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.
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.
Tuesday, June 05, 2012
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.
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.
Friday, June 01, 2012
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.
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.
Tuesday, May 29, 2012
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.
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.
Monday, May 28, 2012
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.
Tuesday, May 22, 2012
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:
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| 14. Look for inspiration in other industries: cross industry innovation |
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| 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.
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.
Saturday, May 19, 2012
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.
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.
Friday, May 18, 2012
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.
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.
Thursday, May 17, 2012
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.
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!
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?
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.
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?
Tuesday, May 15, 2012
Does a Flat Organization Have Negative Consequences?
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.
Monday, May 14, 2012
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.
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.
Friday, May 11, 2012
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.
Thursday, May 10, 2012
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.
Wednesday, May 09, 2012
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.
Tuesday, May 08, 2012
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.
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.
Bryant Collegiate Entrepreneurs Organization
I'm very proud to be the faculty adviser to this terrific group of young aspiring entrepreneurs:
Monday, May 07, 2012
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."
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.
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| 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.
Saturday, May 05, 2012
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."
Thursday, May 03, 2012
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.
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.
Tuesday, May 01, 2012
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.
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.
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