Jim Newman has written an excellent
article for Fast Company regarding retention of talented new hires.
He focuses on the on-boarding process, arguing that an ineffective approach can
do irreparable harm. New hires may be gone in a very short period
of time if firms mishandle those crucial days and weeks. He argues that
firms should focus on three things:
1. Initiate Dialogue Before Orientation
In a number of instances, a significant period of time exists between the
date when an individual accepts an offer of employment and the date when they
actually start work. Companies need to keep the lines of communication
open with that individual during that time. They must provide a steady
stream of communication, in different forms and from different
people.
2. Create Executive Leadership Interactions
Giving new hires, even young people joining the company, an opportunity to
hear directly from senior leaders can be a powerful retention tool.
People want to know the big picture, and they would like to know that senior
leaders are interested in providing development opportunities for them.
Everyone, from the front lines to senior executives, wants to understand how
they can contribute to the accomplishment of the organization's broad vision
and goals.
Newman argues that it is crucial to make "employees feel productive as
quickly as possible." Therefore, he recommends quick action to
provide "team-specific opportunities that engage recruits in their areas
of specialization while testing and expanding their knowledge about the
company." Companies don't want to focus only on the HR nuts
and bolts (benefits, policies, etc.). They also don't want to only focus
on generic skills applicable to all employees. They need to get specific
early, so that people understand the skills htey need to be successful in their
particular job, and so that they begin to form relationships with key
experienced employees who can serve as mentors. Newman provides a good
example: "For example, sales recruits might spend a week or more
cultivating their sales pitches and testing them in simulated client meetings.
Over the course of the week, recruits can present to sales managers or learn
how to improve their performance based on actual case studies."
I would add one other thought here. Firms need to provide a series of
early "check-ins" to insure that a new hire's on-boarding process is
on track. Some check-ins should be with the person's direct
supervisor. However, other check-ins might be useful with an HR
representative, a peer in their work group, and perhaps a mentor at some higher
level in the organization. These check-ins should be vehicles for two-way
communication. The individual should receive some early constructive
feedback and advice, while also being provided an opportunity to offer input on
how to make their on-boarding process proceed more smoothly.
Fortune recently interviewed Nobel-prize winning chemist Roald Hoffmann. They asked him how his experiences translate at all to leadership in the business world. Hoffmann talked about his work leading groups of researchers, managing large grants, and maintaining a high level of productivity. I found this particular excerpt quite interesting:
In science, almost all the papers we publish are written together
with several people in research groups. But within that research group,
somehow, we have mastered the ethics of collaboration. There's something about the way that the group leader tells people
that an idea made by one of the other people in the group is not good or
not right. The criticism is made in a way which allows the person,
first of all, to come up with further evidence, but more importantly,
doesn't shake them so that they're afraid of making another idea. Hoffman has hit the nail on the head when it comes to describing that delicate balance. We all can recall bosses who crushed someone during a meeting, leaving that person reluctant to express their ideas at future team meetings. We also know that some teams are simply too polite. People avoid conflict, and therefore, the teams don't generate and discuss enough creative alternatives.
How does a leader strike that delicate balance? No magic formula exists. Leaders need to constantly keep their fingers on the pulse of a team. They need to read body language, ask for feedback, and meet one-on-one with team members to see if they might have additional input to add. Leaders also need to conduct periodic "after-action reviews" with their teams - not about the task only, but also about the group process. How is it going? How can we perform better as a team? How can our dialogue and collaboration improve? Leaders will never get the balance perfect... but they can monitor the team aggressively so as to determine when they may have tipped the scales too far in one direction or another.
Bill Gurley, a partner at Benchmark Capital, has written an outstanding column for Forbes which is titled, "The Dangerous Seduction of the Lifetime Value (LTV) Formula." Lifetime value, of course, is the net present value of the profits that will be generated by a particular customer over time. As Gurley points out, many companies, particularly of the consumer internet variety, use the LTV model to argue for "get big fast" strategies in which a firm spends aggressively to acquire customers today in expectation of healthy future profits. Unfortunately, many companies use the tool to justify wildly excessive marketing spending in the near term. Moreover, as Gurley points out, the people who "own" the tool within a company often are the very same individuals who are petitioning for bigger marketing budgets. The advocates are the analysts, and their calculations are clearly biased. Gurley also explains some of the common mistakes people make in their calculations. Here's an excerpt:
As an example, marketers often divide spend by total customers to
calculate SAC rather than just those customers that were “purchased.” If
you have organic customers, they shouldn’t be included in the spend
calculus. They would have arrived regardless of spend. Also, many people
discount “revenues” rather than marginal cash contribution. It is
critical to bundle all future variable costs of supporting the customer
in order to fairly estimate the future contribution.
I cannot stress this last point enough. I see students make this mistake a great deal. For instance, they conduct a break-even analysis, and they divide a fixed cost investment by the revenue per unit that will be generated in the future. No! That's not right. You have to divide by contribution margin, not revenue. For every dollar in revenue that will come in the door down the road, there will be some variable costs. You have to deduct those variable costs when thinking about value.
Gurley makes one other key point that cannot be stressed enough. He explains that, "Organic users typically have a higher NPV, a higher conversion rate, a
lower churn, and more satisfied than customers acquired through
marketing spend." Many companies fail to acknowledge that key point. I've hit on a few key points here in this post, but I strongly encourage you to read the entire article. It's filled with great points about this widely used, and widely misused, analytical tool.
Adam Bryant recently interviewed Bill Flemming, CEO of Skanska USA, for his Corner Office column in the New York Times. He asked Flemming about his leadership style, and the CEO offered these thoughts: "When people ask me a question, I don’t always answer it with, “Yes, this is what I want you to do,” or, “This is what I’d do.” Instead, I’ll ask them, “So what do you want to do?” I don’t want you to just announce the problem to me and expect me to solve it. You tell me what the problem is, you tell me what your proposed solution is, and I’ll give you feedback. I don’t always want to give you an answer on what to do. I want you to think about what your answer’s going to be. I’ll always have an opinion about something, but I want people to form their own opinions." Flemming's approach has many virtues. First, he solicits more buy-in and commitment, because he's encouraging his folks to "own" the problems AND the solutions. Second, he develops his people in this manner, by giving them some responsibility and autonomy and then offering feedback and advice. Third, he hears new ideas. If he led with his view, he may very well never hear certain ideas, because some folks would just defer to him.
Anita Tucker and Sara Singer of Harvard Business School have conducted a fascinating new study about how leaders interact with workers on the front lines. They examined efforts to improve quality, efficiency, and customer satisfaction in hospitals. The scholars conducted a field study of 56 work areas from 19 randomly selected hospitals and compared the results to 138 work areas in 48 randomly selected
control hospitals. They examined an approach called Leadership
WalkRounds™ which they describe as "a program of [senior managers] visiting the organization's front-lines to
observe and talk with employees while they do their work." They found that employee perceptions of performance improvement dropped after implementation of the WalkRounds™-based program. The scholars argue that,
"The study provides a cautionary tale that visits by senior managers
to the front-lines of the organization will not necessarily increase
staff perceptions of performance improvement. Failure to meet expectations, once raised, can negatively impact
organizational climate. Unless such programs are implemented with
authentic motivation to identify and resolve issues, they may yield a
negative return on the money invested."
Should we be surprised by the findings? I'm not so sure. While I've written about executives who effectively engage the front line workers in their organizations, I've also seen many cases where such efforts are counterproductive. What goes wrong when executives visit with front-line workers? Here are a few pitfalls that I have seen:
1. Sometimes, employees perceive the visit as an "inspection" rather than a genuine effort to solicit input and ideas from workers.
2. Workers perceive that managers have already made up their mind on certain issues, and therefore, that the executives are not genuinely listening and considering their views. In other words, workers conclude that they aren't being given a legitimate opportunity to influence decisions.
3. Senior managers spend too much time talking and not enough time listening. They focus on communicating messages to the front lines, rather than soliciting feedback.
4. Workers change their behavior because of the presence of senior managers. Therefore, managers do not get a sense of what's really going on in the organization.
5. Executives fail to follow up in a timely manner on employee ideas or questions.
Yesterday the Wall Street Journal published an article about how many companies with "freemium" business models have failed to become solidly profitable. Freemium refers to the idea that some firms give away a basic version of their product or service, in hopes that some significant fraction of consumers will upgrade to the paid version. According to the Wall Street Journal article written by Sarah Needleman and Angus Loten, "The 'freemium' strategy is turning out to be a costly trap, leaving
them with higher operating costs and thousands of freeloaders."
Of course, some companies have enjoyed spectacular success with a freemium business model. Take LinkedIn, for example. Most people use the free version. However, LinkedIn generates significant revenue and profits by offering a premium service, which has become very attractive to company human resource departments that use LinkedIn as part of their recruitment and hiring strategy.
What types of firms should consider a freemium strategy? I think there are two key attributes that entrepreneurs should consider when determining whether a freemium approach suits their business. First, is there economic value (and early mover advantage) to be derived from a "get big fast" strategy? Specifically, are there strong network effects in the business? If so, then attracting high numbers of users can enhance the perceived value to each user. Second, are the marginal costs of providing the good or service close to zero? If so, then adding a new non-paying user doesn't drain the company's finances. If, however, there are some incremental costs that will be incurred, then the firm may have a serious problem with a freemium approach. The problem, of course, is that many start-ups assume that marginal costs are zero, when in fact there are some hidden costs for each additional user for which they have not accounted properly.
For more on freemium business models, see the video below featuring Chris Anderson, author of Free: The Future of a Radical Price.
This week Fortune features an article about the planned eastward expansion of See's Candies. For folks on the west coast, you are quite familiar with the See's chocolate shops and airport kiosks that sell fresh delicious chocolates. The company does not have any shops east of the Mississippi though. That will change over the next few years, according to plans described in the article. The company, owned by Warren Buffett for the past forty years, aims to expand with up to 30 new stores in the eastern part of the United States in upcoming years.
The See's expansion offers some interesting challenges. First, the company will have to introduce themselves to those on the east coast and deal with existing luxury chocolate brands such as Godiva that have a significant share in that region. Second, the supply chain will be a challenge. The chocolates do not have preservatives. Thus, they have a short shelf life. The company will need a factory close to its east coast locations. Third, the firm must expand its appeal young mothers, according to its new head of marketing, Tracy Cioffi. She notes, "We can't focus on great-grandma anymore."
As I read the article, I kept thinking that the company could learn a great deal from another highly successful California retailer that expanded eastward after many years of focusing on the west coast. That company would be Trader Joe's. The firms have much in common: fiercely loyal customers, longtime employees who enjoy working there, strong profits, and a reputation for quality products. Trader Joe's found success on the east coast through a careful and methodical expansion strategy, rather than rushing to open tons of new stores all at west. It appears that See's will do the same. The article mentions that See's uses pop-up stores to test new locations before committing to a new store. That makes a great deal of sense too.
Still, the company will face challenges. On the west coast, the firm generates a great deal of revenue through on-line and phone orders. The stores help build the brand, and they encourage people to try the product. Yet, the company depends on on-line sales to achieve strong profitability. It will need to do the same on the east coast, but without the long-time customers who know the firm well and have been ordering particular chocolates by phone or on-line for years.
One final note: I learned in the article that Lucille Ball trained at See's plant for her famous chocolate factory scene on the hit show, I Love Lucy. Here's that classic clip:
I've just returned from a fantastic 11-day trip to France with my family, and therefore, I thought it would be very appropriate today to blog about strategies regarding the return to work after vacation. Lydia Dishman has a terrific article on the subject at Fast Company's website. Specifically, I thought she had several good tips related to email. She cites several executives who recommend using the long airplane trip home or the evening before the first day back at work to chug through all those emails that accumulated while you were gone. Second, Dishman describes a tip from Andrea Wasserman, an executive at Nordstrom. Wasserman explains that one should take time after a vacation to "ask yourself some honest
questions about your tasks and to-do list. 'What activities started to
creep into your work day that aren’t a high return on impact or aligned
to your strategic goals?'" Finally, Wasserman also recommends trying to capture the key insights or ideas that came to mind as one relaxed on vacation. Get those thoughts down on paper before they slip your mind!
The Wall Street Journal reports this morning on Best Buy founder and ex-Chairman Richard Schulze's plans for the struggling electronics retailer. As you probably know, Schulze hopes to take the company private. The paper reports that Schulze "envisions a turnaround plan for the electronics retailer that involves cutting prices to better compete against Amazon
and other online retailers while ensuring that the in-store customer-service experience is as good as Apple's
according to people familiar with the matter." Naturally, such a plan to lower prices, while not reducing costs aggressively, will shrink profit margins.
We need to know much more about this turnaround plan before being able to evaluate its prospects thoroughly. However, this initial news has not put investors and analysts at ease (understandably). The Wall Street Journal cites skepticism from Sanford Bernstein's retail analyst Colin McGranahan, who says, "As long as the top line is
slowing you have to cut costs at a similar rate or your cash flow starts
to suffer."
Beyond the simple math problem cited by McGranahan, the strategy may be flawed. Schulze appears to be trying to compete on price, while offering a premium experience a la Apple. However, we know that Apple achieves that premium experience by spending generously on branding, training, design, and the like. There is no free lunch. They make up for higher costs in some areas by charging premium prices. Schulze appears to want that premium experience, but if he doesn't get strong pricing, how will he generate decent profits? The risk here is clear. Could Best Buy end up stuck in the middle? They might not have the cost structure to compete with Amazon, nor the premium image and experience to compete effectively with Apple.
George Bradt has a good article at Forbes in which he describes his recent interview with Steelcase CEO Jim Hackett. Steelcase, of course, designs excellent office furniture and workspaces. Hackett explained that modern offices need a "range of settings to accommodate focused, collaborative and social work in both open and enclosed environments." Hackett emphasizes the collaborative "we" spaces a great deal, because many offices lack those types of environments conducive to bringing people together to accomplish a group task. Here is an excerpt:
Now, instead of designing traditional offices, Steelcase creates “we”
spaces around the three-four most important meta issues. According to
Hackett, executives don’t need homes, “command-level projects” do. So
there might be a project room for a team working on a merger, product
launch or a recall. Instead of people bringing information into meetings
with executives, the information stays in the project rooms and
executives travel to it. As Hackett explains, they made this shift
because:
Innovation requires collective ‘we’ work. To this end,
it’s critical to design spaces that not only support collaboration, but
augment it (with) spaces that promote eye-to-eye contact, provide
everyone with equal access to information, and allow people to move
around and participate freely.
The idea of "war rooms" is very appealing to me. I think they create a powerful sense of group identity, as well as proving that all-important equal access to information. I think executives do need personal "homes" too... there is some focused, solo work that still needs to be done. People sometimes need time without distraction, as Susan Cain has argued. However, collaborative work often can be done much more effectively if "war room" type space is available.
This morning, I read this interview with Blake Anderson, Adam DeVine, and Anders Holm - the creators of the show Workaholics on Comedy Central. They describe how they brainstorm together to come up with ideas for the show. To me, the most fascinating portion of the interview addresses the issue of how they "put the brakes on an idea." Anders Holm explains that you don't want the same person always being the individual who is reining the group in or pruning ideas:
Adam: I don’t think any of us have a real problem, being like,
“Naaaah,” to an idea. Because it’s not hurting our feelings, it’s just
an idea and we’ll come up with a new one. We try not to be too precious
with any of these ideas. And we’ve worked together now--like really,
really worked hard together--for the last six, seven years. So we’re
really comfortable knowing whether the guys are gonna love this one. Or
the guys aren’t gonna love this one but I’m gonna keep pitching it
anyway. Anders: You gotta juggle that role around or else all of a sudden
somebody becomes the cop. Then as soon as that person speaks it’s like,
“Uhhhhggg, here comes the cop.” For us everybody puts on the badge every
once in awhile.
I'm in agreement about avoiding the conversation cop phenomenon. In working with executives, I often talk about the value of assigning someone to play the role of devil's advocate to enhance the quality of high-stakes decisions. However, I argue that a group should rotate the responsibility for playing the devil's advocate. Otherwise, that person can become a broken record, and other group members can begin to downplay the arguments put forth by the constant critic.
Procera Networks reports that streaming traffic on Netflix has fallen by 25% in recent days (reported on CNN Money website here). The company believes that the Olympics accounts for the decreased activity on Netflix. Indeed, Netflix has admitted that the Olympics may have an adverse effect on the firm this quarter. I'm curious as to the financial impact, as less streaming on the part of someone who still pays the monthly subscription fee doesn't have a negative impact on Netflix earnings. On the other hand, if the Olympics slows new subscriber growth, then the company has a problem.
This report makes me wonder what other firms might be adversely affected by the Olympics. Will Redbox take a hit as well? What about movie purchases and rentals via iTunes? Do people go to movie theaters less often during these two weeks? Perhaps sporting events such as minor league baseball take an attendance hit as well. What do my readers think? Any thoughts on the firms that might have a nasty financial surprise this quarter due to the two-week Olympic effect?
David Burkus, Professor at Oral Roberts University, has written a terrific blog post about some new research on creativity. Burkus describes the work of NYU's Evan Polman and Cornell's Kyle Emich. These scholars found that we tend to be more creative when we think of others facing a challenging situation, rather than thinking of ourselves caught in that predicament. In one experiment, Polman and Emich found that subjects could solve a tough riddle only 48% of the time when they imagined themselves facing that challenging situation. Meanwhile, two-thirds of the subjects actually solved the riddle when asked to imagine someone else facing the same predicament.
The goal of a corporate "dashboard" should be to provide a quick snapshot of how the business is doing. However, far too many firms create complex dashboards full of a wide variety of metrics. They overload managers with information, and they don't get the results that they intended to achieve.
I was reminded of the power of simple metrics, as I read this article at Knowledge @ Wharton. It discusses the concept of "net promoter score." The concept is straightforward: How likely would you be to recommend my company, my product or my service
to your friends, your colleagues or your family members? Fred Reichheld and Rob Markey developed this concept, and their research suggests that a firm's net promoter score is highly correlated with a number of other key measures of financial performance.
In this exchange between Markey and Wharton Professor Peter Fader, we see a fascinating discussion about Net Promoter Score. The bottom line: We could enhance the accuracy of the Net Promoter Score, but it may not be worth doing so. Every firm should keep this conversation in mind as it identifies and formulates key business metrics:
Markey: The truth is that
the Net Promoter Score is designed to be radically simple, not because
it is statistically better, but because it is statistically fine and
that simplicity appeals to frontline employees. Even CEOs can understand
it. The designations of promoter, passive and detractor are based on one
question. It's a simplifying construct that helps motivate and inspire
people to want to create more promoters and fewer detractors. If you
really wanted a statistically robust thing that was about the
statistically accurate correlations, you would always go for more
questions. But what we found is that there's about a 10% or 15%
improvement by adding more questions in terms of statistical accuracy,
but it tremendously degrades your ability to motivate the organization
to take action because then you get into these debates: Which questions
are part of the index? How are they weighted? I don't know, maybe that
question isn't relevant for my business. Then you end up debating the
score and not actually focusing on what matters, which is getting your
customers to stay longer, buy more and tell their friends.
Fader: Indeed, what you've just described is very
consistent with the academic research, which shows that a richer,
multidimensional scale can be 10% to 15 % better. But this one question
-- this ultimate question -- really is good enough. In the academic
community, it's kind of a half-full, half-empty [situation]. I'm a
half-full kind of guy, saying, "Give me a measure that is good enough,
one that managers can actually appreciate, understand, implement and
spread throughout the organization." It raises the whole idea of
measurement and understanding customer differences to a level that we've
never seen before in any organization.
Knowledge @ Wharton has a special report on Olympic sponsorships this week. Do these sponsorships make economic sense? Some experts argue that sponsorships don't offer an immediate benefit, but they have a positive long term effect on brand equity. That may be the case, but hopefully, firms would experience beneficial short term effects as well. Unfortunately, that may not be the case. University of
Nebraska-Lincoln Professor Kathleen Farrell and her co-author W. Scott
Frame conducted a study of the impact of sponsorships on the market
value of firms. They found that stocks tended to fall slightly during
the period in which firms announced that they were sponsoring the 1996
Olympics.
Perhaps even more interesting are two reports by marketing firms. Gallup and Robinson found that most people cannot identify the official Olympic sponsors. Another report by marketing agency Jam found that Nike was the brand most mentioned by consumers as an Olympic sponsor, but the firm actually is not sponsoring the London Olympics!
Stanford Professor Bob Sutton has a terrific blog post today about the Olympics. He asks: Are the bronze medal winners happier than the silver medal winners? He cites a study by Vicki Medvec, Scott Madey, and Tom GIlovich. They examined the emotions of medal winners at the Barcelona Olympics (using videotape). Naturally, gold medal winners were ecstatic. However, they found that bronze medal winners displayed more positive emotions than silver medalists. According to Sutton,
"The researchers proposed that this finding is driven by what is
called "counterfactual thinking," those thoughts of what might have been
if something different had happened. In particular, they proposed that
silver medals did upward comparisons to the gold medal winner, while
the bronze medalists did downward comparisons to people who didn't win
medals"
Sutton also points out that expectations play a key role here. Of course, a bronze medalist who expected gold won't be very happy. However, a bronze medalist who wondered whether they would win any medal at all will be quite thrilled. I'm intrigued by the research, and I'll be watching the emotions of the Olympians from here on out... watching to see if this research finding holds true in London.
Fast Company has published an article by Gina Sclafani, Creative Director at Grey New York (an advertising, public relations, and branding agency). Sclafani describes a policy implemented by her boss, Tor Myhren, at the New York office. Myhren declared Thursday mornings the "No-Meeting Zone." Workers should use this time to think creatively, expand their minds, and work on new ideas that are not getting enough attention because of the day-to-day work.
Sclafani decided to use this time to "learn about something I am not interested in." She thought that going outside of her comfort zone would enable her to "find meaning and create connections." She also thought it would be lots of fun. She learned that moving outside of her comfort zone was not fun at all... in fact, it was painful at times. As she wrote, "I’m no neurologist but I am now certain that the synapses in your brain
like the familiar path. It’s fast and easy. Diverting hurts."
She also found it rewarding though. Sclafani discovered that it did help expand her mind and make new connections. It took some persistence though. Sometimes it was not fun. On other occasions, she was too busy to actually devote the three hours on Thursday morning to working on something truly novel and outside of her day-to-day work. We might all try to follow her example though. Could we devote a few hours each week (even each month) to going outside our comfort zone, learning or exploring something new? Could it help us make a creative breakthrough?
University of North Carolina Professor Brad Staats and his co-authors have published an interesting new study regarding talent retention. The paper is titled, “Breaking Them In or Revealing Their Best?
Reframing Socialization Around Newcomer Self-Expression.” The scholars conducted a field experiment at Wipro BPO in India. In this study, they introduced a new type of on-boarding technique for new employees. The methodology is called "authentic socialization." It focuses on helping new employees identify their capabilities and strengths, and then finding ways to use them to help the organization achieve its mission and goals. That method contrasts with the usual on-boarding process, which is more about teaching employees "the way things are done here." In the UNC Kenan Flagler Business School Research Insights magazine, Staats explains his research:
“Instead of indoctrinating new employees on ‘how things are done
around here’ in hopes that they will internalize organizational values, authentic socialization enables newcomers to highlight
their unique identities at the very beginning of the employment
relationship and bring more of their signature strengths to the job.”
As we all know by now, Ron Johnson's first moves at JC Penney have not gone smoothly (to say the least). He put forth a bold new pricing strategy that left customers befuddled, and those consumers simply stopped shopping at his stores. Sales dropped sharply, sending the stock tumbling. Now the company has announced a shift in pricing strategy. They've made it simpler. The firm will cut prices across the board, while moving to a two-tiered pricing structure: EDLP on most items, with sharp discounts on clearance items.
Many people have criticized Johnson's pricing maneuvers. Rather than focusing on the CONTENT of his pricing strategy, I'd like to comment on the TIMING of his moves. According to the Wall Street Journal, Johnson's longer term strategy for the retailer is to focus on creating a "department store full of vendor-branded and themed boutiques." The company launched its first such boutique yesterday in Manhattan - a jeans boutique featuring Levi's, Arizona, and iJeans by Buffalo. My question is this: Wouldn't it have been more effective to launch the boutiques FIRST and then move to a new pricing structure? Didn't the firm need to get the store layout and experience improved FIRST and then try to wean customers off of constant discounts? I think the timing issue, in a way, is a more interesting strategic question than the issue of precisely how JC Penney should price its items.
Rae Ann Fera has written a column for Fast Company about comedic actor John Cleese and his ideas regarding creativity. I found the article quite fascinating, particularly Cleese's point about the importance of play. Cleese tells the story of Sussex University Professor Brian Bates and his study of architects. Here is what Fera wrote about Bates' conclusions from his research:
The first thing he discovered is that the creative architects knew
how to play. They could get immersed in a problem. It was almost
childlike, like when a child gets utterly absorbed in a problem. The
second thing was that they deferred making decisions as long as they
could. This is surprising. If you have a decision to make, what is the single most important
question to ask yourself? I believe it’s ‘when does this decision have
to be made’? When most of us have a problem that’s a little bit
unresolved, we’re a little bit uncomfortable. We want to resolve it. The
creative architects had this tolerance for this discomfort we all feel
when we leave things unresolved. Why would those two things be importance? The playfulness is because
in that moment of childlike play, you’re much more in touch with your
unconscious. The second is that when you defer decisions as long as
possible, it’s giving your unconscious the maximum amount of time to
come up with something.
As a research on decision-making, I found this point about deferring decisions quite interesting. Often you hear people bemoaning the chronic indecision that they observe in their organizations. Here though, Bates' research shows that sometimes we have to give ourselves time to let thoughts and ideas percolate. I found it a bit hard to reconcile this advice with one of the key principles from design thinking...which is that we learn and improve very effectively through trial and error. In other words, take action, experiment, and learn and adapt from that trial. How does one reconcile that model of innovation with this advice to defer decisions at times? I think the idea here is that "deferring decisions" doesn't preclude trial and error. It simply means not setting things in concrete too soon. It means exploring options and waiting to commit fully to particular path. Trial and error, in fact, can help sort out those plausible options,and it can be part of the "play" process.
David Marquet, Captain, U.S. Navy (Retired), has written a good article on Fast Company's website about his leadership philosophy. Marquet used to command a nuclear submarine for the U.S. Navy. He describes how leaders can make the shift from a top-down, command-and-control approach to a model that stressed empowerment and accountability at all levels. Marquet emphasizes the importance of language as a tool for changing the way people view the leader-subordinate relationship:
The key to your team becoming more proactive rests in the language subordinates and superiors use. Here is a short list of "disempowered phrases" that passive followers use:
Request permission to . . .
I would like to . . .
What should I do about . . .
Do you think we should . . .
Could we . . .
Here is a short list of "empowered phrases" that active doers use:
I intend to . . .
I plan on . . .
I will . . .
We will . .
Marquet doesn't want action to begin with an order from the commander. Instead, he wants action to begin with an empowered subordinate coming up with a recommended course of action. Then, the subordinate should explain their plan ("I intend to"). The commander reacts to that recommendation, rather than simply barking out orders. The change in language may seem trivial, but it emphasizes a shift in responsibility. It pushes the burden down upon the subordinate to proactively come up with a plan of action and to recommend it to the "boss" - rather than having subordinates wait passively to be told what to do.
1. What does my organization bring to the world?
2. Does that
difference matter?
3. Is something about it scarce and difficult to
imitate?
4. Are we doing today what we need to do in order to matter
tomorrow?
While that's not a new list, it is certainly very clear and concise. The challenging part, for many firms, is actually coming up with a clear and concise answer to these questions. It's amazing how many firms struggle to respond effectively. What about your company?
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
"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.
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?
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.
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.
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!
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.
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?
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.
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."