An Additional Thought on Providing Negative Feedback

Here's a brief follow-up to my recent post about how to offer negative feedback... Adam Bryant recently interviewed Jonathan Klein, CEO of Getty Images, for his excellent Corner Office column in the New York Times.  Klein explains how he learned to pause before offering negative feedback.  Here's an except from the interview:

I’ve learned a lot from my executive coach. Anytime someone came to me to show me their work, I would critique it. I would almost behave like a schoolteacher — my mother was a teacher — and bring out the metaphorical red pen. And what I didn’t appreciate at the time is that before you mess around the edges, you’ve got to say to yourself, “Am I going to make this significantly better, or am I going to make it only 5 or 10 percent better?” Because in fiddling over the small stuff, you take away all the empowerment. Basically it no longer becomes that person’s work. And after a while, those people get into the habit of giving you incomplete work, and then you have to do it for them.

I also used to always debate and argue whatever point was under discussion. And my coach said: “You’ve got to stop. You’ve got to pause, and think, ‘Are you debating the point to get a better outcome or because you just like getting the last word and you like winning?’ If you’re debating to get a better outcome, absolutely do it. If you’re debating because of the latter, cut it out.” 

I would add one other question that you should ask yourself in these situations.  When someone comes to me, am I truly listening to them?  Or, am I already preparing my rebuttal before they have completed their thought?  In many cases, we prepare our critique before the idea has been communicated fully.  Active listening not only shows respect to the other party, but it helps us understand their rationale more effectively.  

Darden Restaurants Pressured to Break Up

Activist investor Barington Capital is pushing for the breakup of Darden Restaurants, according to today's Wall Street Journal.   Darden operates the following restaurant chains: Red Lobster, Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V's, and Yard House.  The newspaper reports that, "The investor group argues that Darden should create one company with its Olive Garden and Red Lobster restaurants, and another with its higher-growth chains, which include Capital Grille."   

One could argue for a breakup of the firm, but this particular rationale does not make sense.   Why should Darden own multiple restaurant chains?  Presumably, they believe that significant economies of scope (i.e. synergies) exist among the chains.   If you believe that the company should be broken up, then you must believe that these synergies are relatively small.  

The article suggests, though, that the activist investor wants to split the high growth businesses from the low growth ones.  Why will this increase shareholder value?   Do they think that the P/E ratio of the firm is too low because it's being dragged down by the lower growth businesses in the portfolio.  If so, that's faulty logic.   The investors can see that some chains are higher growth than others, and they understand how to value the parts.   You can't create a pop in valuation just by putting the high growth chains in a different firm and looking for a high P/E ratio.  Why?  Well, investors will offset that high P/E with a very low one in the firm that remains holding the low growth businesses.  You have not magically created value just by segregating units with different expectations of future growth.   The only reason why it could make sense would be if you believed that the higher growth businesses somehow are fundamentally different, and that they share synergies with each other, but not with the lower growth units.  I don't see how that is the case, but that would have to be the rationale to pursue this particular breakup strategy. 

Giving Negative Feedback

Geoffrey Tumlin has a very useful article at Fast Company on the art of giving negative feedback.  Here are several of his key tips:

•  Offer an example!  Don't just tell someone that they have a generic problem (you have poor presentation skills).  Give them a concrete example (talk about the meeting last week where they did not pace their presentation well and ran out of time before conveying crucial information). 
• Focus on a problem that the other party can fix.  As Tumlin says, "If you tell Jim that he’s a bad presenter (a criticism), how does he fix that? But if you tell him he had too many slides during yesterday’s client pitch (feedback), you’ve pointed out something that he can fix.
• Be concise.  In many instances, we don't extract ourselves from the conversation.  Out of our discomfort, we keep the dialogue going, even after we have conveyed our key point.  Tumlin explains, "Length doesn’t correlate to success when it comes to delivering negative feedback; long conversations confuse as often as they clarify. Your goal is to communicate the negative feedback, not to produce a dazzling epiphany, a heartfelt apology, or a ton of emotive dialogue. Once you’ve communicated your message, get out of the conversation, and allow time and space for the feedback to work." 

 I would add one other tip to this terrific set of recommendations.  If possible, offer examples of how others overcame a similar problem.  For instance, if a student is struggling with their job search, I may notice that they are stumbling on a particular aspect of that search (e.g. interview skills).  If I can offer them an example (disguised perhaps) of another student who overcome this particular challenge, that can be helpful.  It conveys a path to improvement, and it gives them confidence that they too can fix this problem.  

Fairness and Leading Change

Eliane Bacha and Sandra Walker have published a new article in the Journal of Business Ethics.   The paper examines the relationship between perceptions of fairness and transformational leadership.  The scholars studied 100 European companies.   They found a relationship between certain types of fairness and the ability to inspire change.  In this article in The Guardian, Polly Courtice, director of the Cambridge Programme for Sustainable Leadership (CPSL), explains why perceptions of fairness matter:  "Fairness reflects an assumption about fundamental equality… about not putting your rank in front of other people's interests."   Co-author of the article Sandra Walker notes, "What they [employees] care about is whether they are active in decision-making and how they are treated by their boss." 

Fairness does not mean that everyone gets treated identically, of course.   There is a significant difference between outcome fairness and procedural fairness.  Leaders can't always make it such that all outcomes are equal or fair.  However, they can make the process of decision-making more fair.  They can invite input, demonstrate strong consideration of others' views, give others an opportunity to influence the final decision, and lead a transparent decision process.  If they create procedural fairness, then they can build commitment and buy-in even if all parties do not agree with the final decision.

Capitol Steps

On our Bryant University Honors Program trip to Washington, DC this week, we went to a Capitol Steps show.  For those not familiar with the Capitol Steps, they put on a terrific political satire comedy show.  It seemed very appropriate to hear from the Capitol Steps this week with all that is occurring in Washington.  Here's a brief look at one of their hilarious routines:

Should Companies Rethink the Practice of Offering Product Bundles?

You've all seen plenty of promotions that offer two or more products for one bundled price.  Think of a combo meal at McDonald's, an offer for an airline ticket and hotel reservation, or a special for a blazer and pair of slacks.  Does offering these bundles make sense?   New research by Aaron Brough and Alexander Chernev suggests that companies should proceed with caution.    Chernev explains that, " When we show people a burger and ask them how many calories it has, they might say 500. For a side salad, they might say 100. But if you pair the same burger with the side salad, people will often think that the whole meal has fewer calories—say 400—than the burger alone. That seems counterintuitive, as if the salad somehow has ‘negative’ calories.”  The scholars document a similar effect on consumer willingness to pay.  They conducted experiments in which they paired expensive items with an inexpensive item in a bundle (example: a home gym and a fitness DVD).  They found that bundling decreased customers’ willingness to pay substantially.  In fact, consumers sometimes end up valuing the bundle less than the expensive item on its own!  

IBM: What explains the sustained success?

IBM serves as a rare example of a very large organization that went through a near-death experience and came back to become one of the most successful and admired companies in the world.  If you look at the top 10 most admired companies on Fortune's original list in 1983 and compare it to today's list 30 years later, only 1 company is in the top 10 in both years - IBM.   In the middle years, of course, the company nearly did not survive.  Lou Gerstner led a remarkable transformation during the 1990s.

What accounts for IBM's remarkable sustained success over many decades?  One answer may be found in a quote from CEO Ginny Rometty in the current issue of Fortune magazine.  She says, "To be 100 years old, you can never define yourself by a product."  What an astute observation.  Too many firms become defined by a particular product that becomes very popular and profitable.  Then, as  the world changes, they can't adapt and newer, better products pass them by.   In IBM's case, they have not let a particular product become paramount.  They have been able to move beyond one generation of technology and embrace a new wave, and they have done that multiple times.  It's rare.  One wonders whether that "defined by a particular product" phenomenon serves as an explanation for the struggles of firms such as Blackberry.  

Customers Still Clamor for Trucks

When the auto industry bailouts occurred, we heard much talk about the need for the automakers to shift their focus toward smaller, more environmentally friendly vehicles.   We heard that a focus on trucks and SUVs was the reason for the collapse.  Well, where do things stand now in 2013?  Ford and GM just reported September sales.  Pick-up trucks accounted for 29% of their total vehicle sales in the past month (that does not include SUVs).   The chart below, from Bespoke Investment Group, shows Ford pick-up truck sales reaching pre-recession levels:



In the end, companies produce what consumers demand.   The evidence suggests that consumers in the US still like their trucks.   Will things change if gas prices spike once again?  Surely, they will.  How are Ford and GM positioned to respond to such a future shock?  It appears Ford is in a better position, even though it actually has the leading market share in pick-up trucks.  Ford has higher margins in the US, and thus, more room for error.  Moreover, it has several well-regarded passenger vehicles that offer strong gas mileage.  Time will tell, but the story here certainly reinforces the notion that, in the end, the customer is boss.  Companies deliver what customers want, and like it or not, many American consumers still want their trucks.  

Do We Pay For Status?

Conventional wisdom holds that consumers are often "duped" into paying exorbitant prices for luxury goods that serve as status symbols.   Is that true?  Are we paying a significant premium for status?  HBS Professor Daniel Matter has been studying this question for some time.  He argues, "We like to believe that people pay for status for purely symbolic reasons, but the empirical evidence for that has been weak at best."  He explains, "To get at the symbolic value of status, we have to find evidence that buyers are willing to place a premium on status, holding constant quality and the reputation for quality... Look around and you may be hard-pressed to find a high-status producer that consistently produces second-grade products or a low-status producer that consistently produces first-grade products."  Matter's research suggests that the conventional wisdom may not be true. Consumers aren't being duped after all.  They aren't paying for status over substance, in most cases.  It's an interesting perspective.  For more, check out this article on the HBS Working Knowledge site.

Where's Your Focus? Underperformers vs. High Performers

Building on my last post, I noticed an interesting column in Fortune by Anne Fisher this week.  The title is, "Tell-tale signs your employees are job hunting."  In the article, Fisher quotes Paul McDonald, an executive at staffing firm Robert Half International.  McDonald talks about how managers can improve talent retention.  He says,

"As managers, we spend most of our time on problems, including underperforming employees, and on getting our own work done. Budgeting time for high performers becomes almost an afterthought," he observes. "What works a lot better is flipping that order on its head, putting top employees first, then our own work, then problem employees." Easier said than done but, as holding on to stars gets harder, it's worth a try."

I am in total agreement with McDonald on this point.   I think managers have to ask themselves five questions about how they are managing underperformers vs. high performers:
1.  With which group am I spending the bulk of my time?

2.  Am I checking in regularly with my most talented folks to see what their needs and goals are?

3.  In what ways, beyond pay and promotion, am I recognizing high achievement, both publicly and privately?

4.  Do I invest my development resources mainly to improve the skills of low performers or to help take high performers to next level?

5. Am I dragging my feet in addressing poor performance issues, and as a result, creating disillusionment and frustration among my top employees?

Executives Are Not Loyal Either

How many times have you heard senior leaders in an organization complain about the lack of loyalty among lower-level employees?  They bemoan how hard it is to retain key talent.  Some even get quite frustrated about what they perceive as disloyal behavior on the part of those who choose to leave for other opportunities.  Well, a new study by Peter Cappelli and Monika Hamori shows that senior executives perhaps should look in the mirror.   Cappelli and Hamori studied information collected from a leading executive search firm. They discovered that 52% of the senior executives approached by the recruiters responded with an expression of interest in an outside opportunity.   They became candidates for an outside position.  Cappelli found the number quite surprising. 

What's the implication here?   Certainly, senior executives need to think about the conflicting messages that they are sending their employees.  If they are frequently entertaining outside inquiries, then how can they expect different behavior from their staff?   Moreover, executives need to think about their talent development programs and succession planning processes.  Why do many people consider leaving?  Their firms aren't investing in their development, and/or they don't see a clear path to advancement. 

One final interesting finding from the study:  Executives with greater career breadth, either outside the firm or within the firm, tended to be more likely to become candidates for outside positions.  In other words, moving people around to different units, regions, and functions can be good for your company and for the employees' development, but it may have one adverse effect.  It may actually make those people more open to moving to a new opportunity outside the firm. 

The Problem with Enterpreneurs' Pitches

Steve Blank, lean startup guru, has made a strong argument for what's wrong with how investors often judge entrepreneurs.   In many startup accelerators, "demo day" is when the entrepreneurs get to pitch their concepts to prospective investors.  However, Blank argues that, these demo days often turn into "beauty contests in bikinis for investors."  He stresses that the tendency exists for investors to focus on the quality of the presentation, rather than the content/substance of the business concept.  I think he's right.  Being able to craft an "elevator pitch" is a very useful skill, but in the end, we can end up focusing too much attention on how articulate the person is.  We need to remember that substance should trump style.

How The Brain Works

Belle Beth Cooper has a terrific column at Fast Company today, focusing on 10 surprising findings from research on how the brain works.   I highly recommend reading the entire article.  Let's focus on a few highlights here.  Cooper cites some interesting research on multi-tasking. She writes:

Multitasking is something we’ve long been encouraged to practice, but it turns out multitasking is actually impossible. When we think we’re multitasking, we’re actually context-switching. That is, we’re quickly switching back and forth between different tasks, rather than doing them at the same time.  The book Brain Rules explains how detrimental “multitasking” can be:  "Research shows your error rate goes up 50%, and it takes you twice as long to do things."

Cooper also writes that, "Our vision trumps all other senses."  She excerpts from the book, Brain Rules again:  

Hear a piece of information, and three days later you’ll remember 10% of it. Add a picture and you’ll remember 65%.  Pictures beat text as well, in part because reading is so inefficient for us. Our brain sees words as lots of tiny pictures, and we have to identify certain features in the letters to be able to read them. That takes time.

I found these two findings particularly interesting, because leaders often fail to adhere to these principles.  They find themselves multitasking very frequently.  Often they complain about how many meetings they attend, how little time they have to think, how many emails they respond to, etc.  However, they never confront the fact that multitasking may not be increasing their efficiency at all.  Instead, it may be harming their effectiveness.  Similarly, leaders often forget to communicate visually.  They give speeches, send emails, and the like... but they don't offer a good visual to tell their story.  I'm not suggesting the use of more Powerpoint!  I am thinking about the use of pictures, storyboards, and other mechanisms to communicate a vision or a strategy. 

 

ESPN Faces New Competition

The Wall Street Journal reports that ESPN is launching a significant advertising blitz in support of its "SportsCenter" franchise.  For the first time, ESPN will be advertising the program on other platforms besides its own networks. 

What has triggered the new campaign?  Clearly, the launch of Fox Sports Network and its flagship nighttime news and highlights show has caused some concern in Bristol (headquarters of ESPN).   ESPN, in fact, faces a number of new rivals.   NBC and CBS both now have cable sports channels, and many of the regional sports networks run their own nighttime news and highlights shows to compete with ESPN SportsCenter.

What's caused all the new competition to emerge?  In my view, television networks have focused even more intensely on sports in recent years, because live sports draws young audiences in a world where those young viewers can access other programming content via DVR, Netflix, HBO, the web, etc.

At this point, many of the competitors offer shows that do not look and feel dramatically different than SportsCenter.  The real threat will come if someone figures out how to differentiate successfully.  Beyond that, the threat to ESPN comes as much from substitution as it does from imitation. What do I mean by that?  A preoccupation with new rivals should not preclude ESPN from thinking about the fact that many young people can learn about scores and watch highlights from their tablets and smartphones, and therefore, may be less likely to watch SportsCenter than in years past.  ESPN has done a great job of offering other ways of accessing content, but of course, there are a plethora of options out there for news, scores, and highlights.  Just in the way that SportsCenter made the sports segment on local evening news fairly irrelevant, now digital platforms may be putting a dent in SportsCenter.

Kind Healthy Snacks and Starbucks

BusinessWeek has an interesting article this week about Daniel Lubetzky, founder of Kind Healthy Snacks.  His natural snack bar company has become quite a success, amassing $120 million in sales last year.  The article describes how Starbucks wanted to acquire Lubetzky's firm or engage the company to produce private label snack bars for the coffee giant.  Lubetzky refused.  He explains his thinking:

I’ve had years to internalize the question, and for me the answer is that building a brand that’s obsessed about quality is inconsistent with offering people private-label solutions. If you start competing in the private-label business, it’s all about cost. A competitor might offer to do something for 5¢ less, and now you have to start cutting corners. It’s our reputation.

Note the word inconsistent.  Great strategies exhibit high internal consistency, that is the whole is worth more than the sum of the parts.  The different choices and activities of the firm are well-aligned.  Lubetzky viewed private label production as inconsistent with the premium differentiated strategy that he was pursuing.  He goes on:

We couldn’t see ourselves running two businesses. If you’re training a team to obsess over quality, do you blow the whistle and say: Now we’re going to run a shift where we’re going to focus on cutting costs? If you’re in a volume-driven business, it’s probably OK. But if you’re building a brand and an experience, it’s incompatible.

Too many companies want to be all things to all people.  They don't recognize that it becomes very difficult to operate two fundamentally different strategies within the same organization.  Take a look at the cola business. Cott is a private label giant in the soda business.   They can focus intensely on the notion of driving down costs and operating efficiently.  Coca-Cola produces a premium branded portfolio of products. They can focus intensely on creating a brand that resonates emotionally with customers.  The two each have perfected the activities that support the very different missions.  Trying to do both would, in many cases, mean being not as good as either "pure play" strategy could achieve.   

Whole Foods Parody

If you haven't seen comedienne Kelly MacLean's hilarious essay about Whole Foods, you must take a look.  Her post appeared this week on the Huffington Post blog, and it has become a viral sensation.  I'm a big fan of the store, as is MacLean, but it's still very funny.  I haven't seen any official response from the firm.  It would be interesting to see if they have fun with a response, or if they choose to just ignore the blog post.

Understand vs. Like: Changing the Question

I had the opportunity today to teach a 1/2 day session at the Defense Acquisition University in Ohio.  One defense program manager offered me an important lesson.  He said that he always encourages his team members to ask two questions about any decision that he makes:

1.  Do I like this decision?

2. Do I understand this decision?

He points out that nearly everyone asks themselves the first question.  He focuses on shifting the conversation to the second question.   He stresses to his team members that they may not always like the decisions he makes.  However, he has failed if they do not understand the decisions.  Do they comprehend the rationale? criteria?  role they will play during implementation?   He cannot always please everyone on the team.  However, he must have strong shared understanding, if the implementation is to be successful.   I love it.  What a simple way to communicate to the team the importance of shared understanding, as well as to remind them that it's unlikely that all decisions will have unanimous support.  

Four Behaviors of Innovative Leaders

Forbes has produced a great interview titled, "The Four Behaviors of Innovative Leaders" to complement its article on the most innovative companies in the world.  Check it out.

Valuing Generalists over Specialists

City University of Hong Kong Professor Long Wang and Kellogg Professor Keith Murnighan and have conducted a series of studies to examine whether we value generalists over specialists in various types of hiring and compensation decisions.   They found that we do seem to undervalue specialists.  First, they took a look at 3-point shooting specialists in the National Basketball Association.  In this article on Kellogg Insight explains the conclusion:

"In one study, Wang and Murnighan used salary and performance data for over 300 NBA players to find that, on average, the three-point specialists’ salaries are tied not to their three-point shooting, but to their two-point shooting—even though their three-point shooting has the bigger impact on their team’s performance. In other words, these specialists, unlike their generalist teammates, are not compensated based on the actual role they play in their teams’ success."

The two scholars also examined how workplace managers make hiring decisions.  They found a tendency for managers to favor the generalist even if the specialist had skills better suited to the specific role being filled.   The researchers also examined job ads on sites such as Monster.com.  They found that, "Even positions flagged for specialists asked applicants to have skillsets in two distinct domains about 36% of the time. Moreover, larger organizations—those organizations best poised to take advantage of specialists’ unique skillsets—were more likely to demand multiple skillsets from their specialists than smaller organizations." 

Why the bias toward generalists?  The authors argue that risk aversion plays a role.  It's safer to pick someone who has a broader set of skills, in case the job changes or the person turns out not to be a perfect fit for that role, but may still have a place in the firm.   Moreover, our tendency to hire people like ourselves may play a factor.  Managers at higher levels tend to be more generalist than specialist, and thus, they may look for people who are similar to them.  

I think the studies are fascinating, but I do wonder whether this "bias" is truly a bad thing or not.  Perhaps, in a fast-changing world, we need more generalists.  Perhaps strategy, organization, and markets are changing too quickly to bank on specialists.   In a highly ambiguous situation, it may be quite the rational thing to do to select people with a wider range of skills.  It's a tough balancing act for any manager.  Perhaps the research is most useful at least in making us aware that we may be a bit too inclined to dismiss the specialist candidates.  

Wisdom of Crowds vs. Herd Behavior

The Wall Street Journal reports this morning about a new study by scholars Lev Muchnik, Sinan Aral, and Sean Taylor.  The researchers examined, "positive online ratings can be strongly influenced by favorable ratings that have come before."  They found that initial positive ratings did create herd behavior.  Ratings that followed were more likely to be positive as a result of the influence of the initial evaluations.  However, initial negative ratings did not lead to similar herd behavior.  

What's the lesson here?  First, the wisdom of crowds depends upon the notion that each individual is making an independent judgment.  Unfortunately, human beings are subject to social influence.  We aren't as independent-minded as we would like to believe.  Second, social influence doesn't just affect us when we are in a group having a discussion.  It can affect us in virtual settings as well.   Third, social influence does not just affect us when we know the other people involved.  An anonymous individual can exhibit influence over us, as is the case in this study.   Well, those conclusions paint a rather bleak picture, don't they?  We have to be aware of the power of social influence, and we cannot pretend that we are somehow immune to such bias.  Herding behavior is everywhere. 

Building Buzz for Fall TV Premieres

The ABC television network has announced that three comedies premiering this fall will actually appear first online.   Viewers can watch the premiere online before they will debut on the network.  The comedies are The Goldbergs, Trophy Wife and Back in the Game (see trailer for The Goldbergs below).   The goal is to create some excitement for the show and begin to build word-of-mouth ahead of the network premiere. Presumably, social media will be a big part of that buzz-building strategy.  In general, I'm pleased to see the networks doing some innovating.   As readers of this blog know, I've been critical of how the broadcast networks have stuck to an antiquated model for prime time television (fall premieres, shows on once per week, etc.).   The networks do face one risk with this type of strategy though.  They will have to be very mindful of what's happening on social media, but they should not overreact.   Immediate Twitter reactions are not always representative of the broader audience.  The creators of the shows do not want to change course dramatically without putting social media response in context.    On the other hand, it is very useful information that could be used to adjust the direction of a show.   In decades past, many network shows changed considerably during their first season or two.  We sometimes forget that the shows did not come roaring right out of the box as we now recall them.  As an example, do you remember that the Cunninghams actually had three children during the first season of Happy Days, or that the Cosby family magically added a child during the second season of  The Cosby Show?   Shows do change and adapt a fair amount int that first season or so.  Social media and the early response to these online premieres could be helpful today in adapting shows, not simply in building buzz. 

Price Wars in the Detergent Aisle?

The Wall Street Journal reports that P&G is considering a less expensive version of its Tide laundry detergent again.  The company has witnessed "value" brands taking share from the premium branded products in the detergent aisle.  Several years ago, P&G tried to cope with that threat by offering Tide Basic, but it abandoned that effort as a result of consumer confusion and fears about cannibalization.  Here's an excerpt from the WSJ article: 

A decision to offer a lower-priced version of the premium brand carries the risk that buyers of regular Tide could trade down and stay there.  Indeed, three years ago P&G scrapped a lower-priced powdered detergent called Tide Basic, which was tested for about a year. P&G said consumers were having a hard time distinguishing between the bargain version and the regular priced variety. The company's concern was that regular Tide users would trade down to Tide Basic, for instance, but be unhappy that it didn't clean as well as regular Tide.

As clearly indicated from the excerpt above, P&G faces some significant risks with a decision to offer a lower-priced version of Tide.   The decision also brings other challenges though.  At the end of the article, we see a quote from a rival company's CEO.  Church & Dwight Chief Executive Jim Craigie states, "It'd be a terrible mistake, I think, if they pulled the price lever on some of their businesses.  Nobody wins a price war game."   This quote points out that P&G, as the category leader, has the ability to influence industry structure.   Launching a low-end version of Tide could trigger a price war, and thereby diminish the overall attractiveness/profitability of this category.  P&G may improve market share, but at the expense of profits for themselves and the industry as a whole.

The Church & Dwight CEO recognizes that you can influence the competition through signals and statements.  It appears that he's trying to signal to P&G that the introduction of a low-end Tide product would trigger an aggressive response by his firm.   In so doing, he may be trying to deter entry into the lower-priced segment which his firm has excelled in over the past few years.  One wonders if his firm (and others) are trying to send other signals to deter a Tide entry into the value segment. 

Microsoft Acquires Nokia?

News reports today startled many tech industry observers and analysts... Microsoft will acquire Nokia's mobile phone business for $7 billion.   What can we conclude from this announcement?

1.  Years ago, Apple seemed the outlier when Steve Jobs insisted on being a fully integrated player, creating and selling both hardware and software.   Microsoft, under Bill Gates, chose to build the operating system and other software, leaving the production of PC hardware to others.  At the time, it was a wise move.  The PC industry has been a structurally unattractive market for many years.  Microsoft and Intel made tons of money, but most hardware manufacturers operated on very thin margins (or ceased to exist).   As the shift to mobile occurred, however, owning both the hardware and the software business became more important.  It enabled companies to produce better mobile device experiences for the customer.   As a result, we have seen many players follow Apple toward more integrated strategies.  Google purchased Motorola.  Now Microsoft has acquired Nokia.   What's interesting, of course, is that Microsoft and Nokia have been working together quite closely for several years.  Investors should ask:  What precisely can you now do that you could not do as strategic partners?  Undoubtedly, we will hear Microsoft echoing the kinds of arguments that Steve Jobs often made about the virtues of hardware and software integration.  How ironic is that!

2.  The timing of the deal seems rather odd.  Ballmer announced his retirement just a week ago. Now, Microsoft announces this major acquisition.  How will this move affect the search for a new CEO?  Wouldn't a new leader not want to be constrained by the strategic moves of his predecessor?  The Board of Directors will find itself with a more complicated search now, particularly if they are looking to outsiders as candidates.  

3.  Can a merger of two companies in weakened positions work?  In many cases, it seems that such marriages do not work.  In fact, acquisition integration becomes a further distraction to organizations already under duress.

4.  Is this move part of a broader strategic reshaping of Microsoft?   Many people have suggested that Microsoft should break itself into several pieces (separating some of the consumer businesses from the enterprise businesses).   I thought that such a move might come under a new CEO, but could it happen sooner?   One could now envision a scenario, though unlikely, where the firm announces a breakup and launches a search for two CEOs, one for each part.  

Physical Tools for Better Brainstorming

Fast Company Associate Editor Margaret Rhodes has written an article about an interesting new set of physical tools designed by Smart Interaction Lab to facilitate better brainstorming.   The Totem series of objects includes Alterego - a set of rings designed to help a group bring Edward De Bono's six thinking hats technique to life during a brainstorming session.  The video below demonstrates the Alterego tool.  The Totem series also includes the Baton - a simple device designed to give one person the opportunity to talk, while others listen carefully and actively.  The third device is called Echo.  According to Smart Interaction Lab, 

"Echo is a recording/playback bell-like device that can fit easily and comfortably into any setting—from creative spaces, to the living room of your home, to cafes. Echo works in two ways: it records the background noise from wherever it is placed, and as soon as a user picks it up and puts it to their ear, Echo will play back what it previously recorded. By shaking it, Echo will randomly play back other sound bytes from other parts of the day. The main aim of Echo is to help users get inspired by other adjacent creative conversations, keywords, and quirky background noises that we would not be able to pick up on without the help of technology."

As the Fast Company article notes, no one has researched the effectiveness of these tools yet.  However, I do believe that these tools are worthy of further testing and experimentation.  Teams should try these out and see if they can enhance the quality of brainstorming dialogue.  Keep in mind though.  The tools alone will not enhance brainstorming effectiveness.   The tools bring to life or remind us of key principles about how to have productive creative conversations.  We still need to have the discipline to use those principles.  The objects are reminders, but they can't dictate the right behavior. 

TOTEM: ALTEREGO by Smart IxD Lab for BCN Maker Faire from Smart InteractionLab on Vimeo.

Questions about Amazon

Vacation was wonderful, and now it's back to preparations for the new academic year... as well as a return to blogging.  As I'm catching up on various business news, I began thinking a great deal about the future of Amazon.  I have a few questions for readers to ponder:

1.  Will Amazon reach a point of  diseconomies of scale and scope sooner rather than later?   Many firms strive to achieve the benefits of size and scope, hoping it will juice their profit margins and overall return on invested capital.  At some point, though, size and scope become a handicap rather than a strength.   The complexity of managing a large, multi-business enterprise becomes problematic.  As we watch Amazon, as well as its founder Jeff Bezos, moving into more and more lines of business, one has to wonder whether the company will reach that point of diseconomies BEFORE it ever generates strong profit.  For years (17 years, in fact), investors have bet on Amazon, in hopes that its strategy would eventually yield high profits.  They have been very patient, incredibly so in fact.   What if the profits never materialize because Amazon gets too big and complex to manage?  I'm not predicting this fate, but I am wondering about how thin Bezos may become stretched as the company expands, and as he engages in other ventures such as the Washington Post.

2.  What exactly is the Amazon business model, and how new is it?    I read the other day that Amazon Prime accounts for a significant share of the company's rather thin profits.   That reminded of another business model.  Think about Costco.   The successful company makes a big chunk of its money from the membership fee.  Amazon Prime is essentially the membership fee.  In other words, Amazon's business model resembles Costco much more so than a traditional retailer.   Most warehouse clubs operate with very thin margins, and they use the membership fee as their profit engine.  Amazon may be the same, more similar to brick-and-mortar retail than many have imagined.

Project Management Podcast

Andy Kaufman interviewed me recently for his terrific People and Projects Podcast series.   Andy's expertise lies in the field of project management.  His blog has a wealth of resources for managers responsible for managing complex projects in a variety of fields.   To access the podcast, please click here.  I hope you enjoy it. 

Budweiser: Can It Go Global?

According to the Wall Street Journal, Anheuser Busch Inbev is making a big push to take the Budweiser brand global.   A quick look at the brand's performance in the United States tells us why the company is focused on expanding Budweiser's global reach.  The historic brand's consumption in the US has fallen for twenty-four straight years, and it has now fallen to number 3 in market share in the United States (behind Bud Light and Coors Light).   Budweiser faces challenges winning over customers in foreign markets though.  As the Wall Street Journal reports:

"Adolphus Busch launched a pale lager in St. Louis fashioned after beer from the Bohemian town of Budweis—has never won over most beverage connoisseurs. It scores only a 56, when any rating below 70 is "poor," on the website Beer Advocate. In Europe, where some beer brands have been popular for 500 years, Budweiser 'is not seen as a real beer by beer aficionados,' says Ian Shackleton, a London-based analyst with Nomura."

Budweiser faces a more fundamental challenge though.   In global markets, the local beer brands still dominate.  Many companies, including Anheuser Busch Inbev, have pursued acquisitions across the globe, because they understand this dynamic.  In the article, SAB Miller CEO is quoted: 

"We remain convinced beer is fundamentally a local business,'' says Alan Clark, SABMiller's chief executive in an interview. Although SABMiller is expanding international distribution of brands such as Miller Genuine Draft and Italy's Peroni, it puts far greater stock in its local beers, like Snow. "There's an emotional resonance we find consumers have with beer brands which frankly is different," he says. "We just see it continuing."

Of course, the question is:  How large are those global economies of scale, if local brands dominate so much.  What value does the global parent add?   I wish that Alan Clark had commented on those core questions.

Break Up the Washington Post Corporation

If I told you that a company had the following business units, what would you say? 

• an education and test preparation business
• a set of local television stations
• an internet company that helps churches engage in outreach and raise money
• a company that makes components for industrial furnaces
• a home healthcare and hospice provider

Most analysts would say that this company has a scattered strategy.   The company: the Washington Post Co. - or whatever it will be called now that Jeff Bezos has bought the flagship newspaper for $250 million.   With the newspaper gone, the Washington Post Co. will soon face pressure for more strategic change.  Investors will argue that this unrelated diversification strategy makes no sense.  Investors can diversify risk much more effectively and less expensively on their own.  They don't need the executives at the Washington Post Co. to do that diversification for them.  

Most people are focused on the Bezos' acquisition right now.  They are examining the future of the newspaper.  Can Bezos transform it?  Soon, though, many eyes will turn to the company that remains.  Expect investors to push for more change.   They will, rightfully, demand a clear strategy moving forward.  The key question: What does the Washington Post Co. want to be moving forward?

Why Great Leaders Don't Take Yes for an Answer

Here's a fun video that we produced to introduce readers to the new edition of my book, Why Great Leaders Don't Take Yes for an Answer.   Enjoy!

Employee Recognition: The Yum Brands Way

Fortune has a feature article this week about David Novak, the CEO of Yum Brands.  The article focuses on the leadership development efforts at Yum Brands, with a specific emphasis on the employee recognition program at the firm.  Yum Brands has a lot of fun with employee recognition, but they also take it very seriously.  They know that it's vitally important, and they stress the need for leaders at all levels to recognize the contributions of key employees.  However, they also do it with a smile and a joke - they have fun with it.   Here's an excerpt from the article:

As in all things, the way it's done makes all the difference. Every company offers recognition -- a trophy, a plaque, a ceremonial dinner. It typically accomplishes little, for two big reasons: It happens long after the performance that's being recognized, and it's impersonal. The Yum version is the opposite. Faster is better. "You go into a meeting, and somebody blows you away by something," Novak says. "You get up, go back to your office, get your Yum award out, and you go back and say, 'God, that's so great.' Boom! You give him a recognition award. That's the best recognition of all."

And it must be personal. Every Yum acknowledgement -- a rubber chicken, a cheesehead (used at Pizza Hut), a roof tile -- can be written on, and it must carry a handwritten message. "You want to give away a piece of yourself," says Novak. 

These two attributes are so crucial: it must be immediate and personal.   I would add a third criteria.  Recognition must be about behavior, not just results.  You have to identify the key behaviors that you want to reinforce, and you must recognize the individuals who engage in these activities.  People must understand what you think is important for achieving the broader objectives of the organization.  Moreover, they must know that you not only care about achieving the desired results; you also care about how people about achieving those goals.   

Hiring Unqualified Candidates: Why Do We Make That Mistake?

Samuel A. Swift and Don A. Moore of the University of California at Berkeley, Zachariah S. Sharek of Carnegie Mellon University, and and Francesca Gino of the Harvard Business School have conducted some fascinating new research that might explain why we often make the mistake of hiring someone who isn't as qualified as we think he or she is.  The scholars find that, "Across all our studies, the results suggest that experts take high performance as evidence of high ability and do not sufficiently discount it by the ease with which that performance was achieved."    How does this problem manifest itself?  Imagine that you are looking at a candidate for a sales position who worked in a high-flying business that was growing very rapidly.    You might fail to account for the fact that it is much easier being a sales person in that type of company as opposed to working for a mature company with low organic growth. 

The scholars conducted several experimental studies which showed that people often select candidates who have excelled at easier jobs/tasks over those individuals who may have performed slightly worse at a much more challenging task.   The scholars also looked at actual admissions data for graduate schools of business.   They found that students are at an advantage if they went to an undergraduate institution with a grade inflation problem!  In other words, if you went to a school that gave out easy A's, you have a better shot at getting into a good MBA program; the admissions officers are not doing a good enough job evaluating the difficulty level of various undergraduate programs. 

As a business school professor, I'm saddened that we appear to be rewarding grade inflation.   The study shines a spotlight on an important problem.  The research has much broader implications though; it shows us why many kinds of organizations may make poor hiring decisions. 

The Invisible Gorilla

Many of you have seen the video posted below.    The exercise is simple.    You ask people to count the number of passes made by people in white shirts in this short video.   At the end, you ask people whether they saw the person in the gorilla suit appear in the video.   Many people do not notice the gorilla!  They are too focused on the task that has been given to them; they are busy counting passes.  Scholars describe this problem as "inattentional blindness."  Basically, we see what we expect to see.  We expect to see people passing a ball, and we don't expect to see a person in a gorilla suit. 

Now we have an interesting new study that's a simple twist on this infamous gorilla video.  Harvard Medical School researchers Trafton Drew, Melissa L.-H. Võ, and Jeremy M. Wolfe decided to examine whether experts engaged in a serious task are "less blind" than the usual naive observer conducting a mundane task such as counting passes of a ball.   Here's what the scholars report about their study: 

We asked 24 radiologists to perform a familiar lung-nodule detection task. A gorilla, 48 times the size of the average nodule, was inserted in the last case that was presented. Eighty-three percent of the radiologists did not see the gorilla. Eye tracking revealed that the majority of those who missed the gorilla looked directly at its location. Thus, even expert searchers, operating in their domain of expertise, are vulnerable to inattentional blindness. 

CEOs: We Want Coaching, But We Don't Receive it.

Stanford has collaborated with the Miles Group to release its 2013 Executive Coaching Survey.   The findings are quite interesting.  According to the Stanford website, the report indicates that, "Nearly two-thirds of CEOs do not receive coaching or leadership advice from outside consultants or coaches, and almost half of senior executives are not receiving any either."  However, it seems that almost every CEO responded that they welcomed outside coaching and advice, and they thought it was worthwhile.   Huh?  So, you think having an external sounding board would be a good thing... what exactly is stopping you?  Is the board prohibiting you from reaching out to get this outside advice and counsel?  Can you not afford it?   It seems that the CEOs are telling us what they think we want to hear, but when asked about actual practice at their firms, they reveal the truth - many of them are not reaching out to make sure that they receive the kind of feedback, advice, and external input that could be very helpful. 

Now interestingly, most of the CEOs who do receive coaching made this happen on their own; they were not forced to do so by their boards.  Thus, some CEOs do see the benefit, and they have reached out to find coaching that can help them. 

In what areas did the CEOs indicate that they need the most help?  Conflict management ranks very high for them.  Since I do a ton of work in this area, I was quite pleased to see that executives value this competency.   I would hope, though, that they recognize that sometimes the key challenge for CEOs is the lack of conflict in key decision-making processes; too often people do not raise dissenting voices in the presence of a powerful chief executive.

Finally, the survey responses indicated that boards of directors are very concerned about talent development practices within firms.  They want their CEOs focused on developing future leaders, and putting good succession plans in place.  That's good news, as we see too many companies left searching externally for a CEO when a sudden need emerges because they have not put a good talent development and executive succession process in place.   

A Culture of Experimentation at Intuit

If you are interested in moving your organization toward a more effective, lower cost method of developing new products and services, take a look at this terrific presentation by Kaaren Hanson, VP of Design Innovation at Intuit. 

How Can Multinationals Find Talented Candidates? Go Where Firms Don't Hire Many Women

Suppose you are a multinational company searching for highly talented candidates.  You are finding it difficult in certain markets to attract the best people.  Where might you have an easier time finding top notch talent?   HBS Professor Jordan Siegel, MIT's Lynn Pyun, and Hanshin University's B.Y. Cheon have conducted a fascinating study titled, "Multinational firms, labor market discrimination, and the capture of competitive advantage by exploiting the social divide."   These scholars find that global firms can enhance profitability by recruiting and hiring women in countries that traditionally do not have ample opportunities for females to achieve leadership positions in business.  

Siegel and his co-authors focused their research first on South Korea.   According to this article on HBS Working Knowledge, South Korea makes a great setting for this research because, "Universities in South Korea are highly meritocratic about accepting and educating women. Hence, the country sports a large number of highly education, highly qualified women with advanced degrees in business, engineering, economics, and foreign languages - all useful in corporate management."   Unfortunately, the opportunities for these talented women are limited in many traditional Korean companies.   

This research focused on multinationals who were taking advantage of this talented pool of candidates that were not being given sufficient opportunities by domestic firms.  "Even after accounting for unrelated variables, the researchers found that a 10 percent nominal increase in the percentage of female managers (at the level of the then-prevailing glass ceiling) was associated with a  1 percent nominal increase in ROA."  

The researchers are focusing on Japan next, a country that also does not provide wide opportunities for women to assume senior leadership positions in business.  (I just read yesterday that only 1% of Japanese chief executives are women, though 1/2 of university graduates in the country are women).  Interestingly, Siegel's research in Korea suggests that Japanese multinationals might be providing more opportunities for women abroad than they are at home.  His work looked at 37 Japanese firms hiring in Korea, and he found that many of them were hiring female mangers there, but not at home in Japan. 

When Joint Ventures Fall Apart

The Wall Street Journal reports today that Ford and Toyota have chosen to end a partnership focused on hybrid vehicle development.  The article offers some speculation about why the partnership was dissolved, but it's not quite clear what all the reasons are.  The story does offer us a good opportunity to comment on some of the reasons why joint ventures do fail:

1.  Disagreements and concerns about intellectual property protection - who exactly owns the IP, and how does a firm protect the IP that it does not want to share/lose to its partner or any other rival?

2.  Culture clash - different firms have contrasting styles of decision-making and leadership, as well as different values and norms

3.  Strategic misalignment - the firms have a different view of how and where to compete in the future, or they potentially cannot overcome the challenges and conflicts of interest associated with head-to-head competition in many markets

4.  Catching up vs. Holding you back - Firms sometimes engage in joint ventures as a mechanism for "catching up" in an area in which they lag technologically (or otherwise).   However, at some point, the joint venture may hold you back.  If you have caught up sufficiently, you may wish to reduce your dependency on the partner at some point and focus more on internal capability development

True Engagement via Social Media: Honda's Latest Campaign

Honda launched a very creative social media campaign recently designed to truly drive engagement.  The company created a powerful back-and-forth conversation with its customers.  To kick off its summer promotions, Honda asked customers to write tweets using the hashtag #wantnewcar if they were itching to ditch their old car for a new set of wheels.   The company responded with six-second personalized Vine videos in response to some of these creative tweets.  The Vine videos made suggestions for new Honda cars and encouraged these potential customers to take a closer look.  As you might imagine, this campaign created quite a conversation between Honda and potential customers, as well as among consumers.    Check out this creative exchange as one example of the type of back-and-forth that emerged.  You can see that Honda was truly trying to have some fun with this campaign. 

Did the social media campaign have an impact?  It tripled Honda's engagement via Twitter.  According to this article, the hashtag has been used nearly 7,000 times.  The article reports that, "The word 'Honda' received an estimated 247 million impressions between July 14 and Tuesday morning." 

Has this incredible level of social media engagement with the consumer led to increased revenues?  That will be the key question.  We will watching closely to see if Honda reveals any data on the connection between the increased social media engagement and auto sales. 

Understanding Cultural Differences: The Michigan Fish Test

Check out this image. What do you see?   

Source:  Richard Nisbett via CNN.com

In this article for CNN, Columbia Professor Sheena Iyengar describes how people of different cultures view this picture quite differently, and she explains what that tells about important cross-cultural distinctions.   Iyengar is an expert on cross-cultural differences in decision-making processes.  Here is an excerpt:

The image here, known in psychology as the Michigan Fish Test, was presented to American and Japanese participants in a study conducted by Richard Nisbett and Takahiko Masuda.  In their five-second viewing, Americans paid more attention to the large fish, the "main characters" of the scene, while Japanese described the scene more holistically. For Americans, the large fish were the powerful agents, influencing everything around them. For Japanese, the environment dominated, interacting with and influencing all the characters.  After the initial test, the researchers offered participants different versions of the fish picture, with some elements changed and some not. With the altered pictures, the Japanese were more likely to notice changes in the scenery or context. The Americans, on the other hand, proved adept at recognizing the large fish wherever they appeared, while the Japanese had more trouble recognizing the fish in new contexts, outside the original environment.  So members of two different cultures--the more individualist Americans and the more collectivist Japanese--"saw" the pictures with differing emphasis on individuals, the environment, and how these elements interacted. The divergent accounts point to differing narratives of what controls what in the world, and how individual people fit into it.

For more on Iyengar's own research comparing how Japanese and American children approach choice, see this earlier blog post. 

Is the Sum of the Parts Worth More Than the Whole at Sony?

In May, hedge fund investor Dan Loeb proposed a break-up of Sony, the Japanese electronics and entertainment giant that has struggled over the past decade.   Actually, he's not proposing a complete break-up, but rather an initial public offering whereby Sony would sell a 20% stake in its music and movies business to outside investors.  Loeb argues that the sum of the parts is greater than the whole.  Sony has an entertainment division that produces movies (Skyfall, Spiderman) and represents recording artists (Adele, Springsteen).  The entertainment division has been more profitable than the electronics division in recent years.  Investors recognize that Sony has been subsidizing losses in areas such as its television business with profits from its entertainment division.   Sony also still owns a majority stake in a firm called Sony Financial Holdings, which operates in the banking and insurance business.  Here's an excerpt from a Bloomberg article about Loeb's push for a partial break-up at Sony:

The value of Sony’s entertainment division -- which makes the “Spider-Man” movies through its Culver City, California-based Sony Pictures and also represents music artists including Grammy winner Adele -- isn’t being realized in the company’s current structure, said Michael Souers, an equity analyst at Standard & Poor’s.  “It’s totally being weighed down by the struggling consumer electronics unit and the fact that it’s had to subsidize that unit,” Souers said in a phone interview from New York. A partial spinoff “would make sense for them. And from a managerial perspective, they could focus a little bit more on turning around the electronics business.” A sum-of-the-parts analysis by Christian Dinwoodie, a Tokyo-based analyst at CLSA, values Sony at 2,400 yen a share, 28 percent higher than its price May 14, before Loeb’s proposal lifted the stock. Spinning off part of the entertainment business would give Sony an infusion of capital and allow it to transfer some debt to the new entity, Dinwoodie wrote in a May 14 report. 

In late June, Sony CEO Kazuo Hirai announced the board of directors would be conducting a thorough review of the Loeb proposal.   The board has yet to make a decision on the Loeb proposal, to my knowledge.  Will Loeb succeed in his efforts?   It will be a tough slog, given that activist investors from foreign countries have not fared well historically in Japan.  Having said that, Sony did sell a stake in its financial services business several years ago; there is precedent for a refocusing of the company's strategy.  

Sony should consider Loeb's proposal seriously.   Years ago, many firms pursued strategies that combined media content with hardware/electronics businesses.  Most of those companies failed to realize the purported synergies.   Focused firms outperformed many of the integrated players (think Apple outmaneuvering Sony, not by owning media content, but by negotiating to secure access to content for iTunes).   One of the problems with integration in the entertainment business is the conflicts of interest that arise.  If you tailor content to your devices or vice versa, you run the risk of losing certain customers and partners. CEO Kazuo Hirai will have to explain clearly how he will make synergies materialize between the two arms of Sony, if he wishes to allay the concerns of investors.   If he holds onto both businesses, he has to explain why the entertainment business isn't going to continue subsidizing unprofitable elements of the electronics business. 

Can Uniqlo Succeed in the US?

Uniqlo, a division of Fast Retailing, is the largest apparel retailer in Asia.   Headquartered in Japan, Uniqlo (pronounced You-nee-klo) actually manufactures a majority of its clothes in China.   Known for its affordable bright-colored basic, the company aspires to be the largest apparel retailer in the world.  However, Uniqlo has encountered challenges expanding into Europe and the United States.   The firm opened a number of stores in the UK a decade ago, but then had to close many of them a few years later.  Still today, it has not been able to match the dominant home-grown rivals in Europe: Zara and H&M.   In the United States, Uniqlo operates seven flagship stores (3 in Manhattan, 3 in surrounding communities, and 1 in San Francisco).   The firm plans to open 10 more stores in the United States this fall.  However, Business Week recently noted that Uniqlo's July earnings report noted underwhelming performance in the US operations.  

What's the challenge for Uniqlo?   Clearly, cracking the already crowded casual apparel market in the US will be difficult for any new player.   Many companies jockey to attract budget-conscious young consumers interested in fashionable apparel.   Promotions and discounts are rampant, making it hard to sustain gross margins.  Moreover, young consumers prove incredibly fickle at times; today's high-flying retailer can quickly become yesterday's news.  

Uniqlo may be facing another challenge though.  It may not have a clear brand identity.  In this article for Racked.com, Kerry Folan argues that Uniqlo has not quite decided what it wants to be: a fashion brand such as Zara or H&M, a "blue jeans and basics" company such as the Gap, or a performance/technology apparel player such as Under Armour or even Lululemon.  The company has had incredible success with performance apparel actually, though many know it for the affordable and bright casual basics stacked to the ceiling at its flagship stores. For instance, the company's Heattech apparel has sold over 100 million units.  Heattech apparel actually helps to warm you up and keep you that way if you are outdoors on a cold day. 

Many Americans do not know much about Uniqlo.  I would concur with Kerry Folan's assessment.  The firm needs to establish a clear brand identity if it is to succeed in the United States.  Zara has excelled by entering the US with a clear positioning as a "fast fashion follower" with reasonably affordable price points.  Uniqlo must make some clear and perhaps difficult choices.  It would help if they clarified that brand identity before the next wave of new store openings, many in high rent urban locations. 

Can Japan Grow Again?

I'm here in Japan this week teaching an executive education program at the Nomura School of Advanced Management - something that I have done annually for the past 10 years.    Over the next week, I'll have a few blogs pertaining to interesting Japanese companies who compete in the US market. 

Today is actually election day here in Japan.   The country appears poised to support Prime Minister Abe's "three arrows" strategy for lifting the country out of the economic doldrums in which it has been mired for the past two decades.  Many Americans may forget that Japan is the third largest economy in the world, partially because of the lack of growth.  Abe's fiscal and monetary policy stimuli have created a burst of recovery, but the third arrow will be crucial.  Can he push through structural reforms, deregulation, and policies that enhance opportunities for women in the workforce, particularly in executive roles?   If he succeeds, perhaps we will see renewed attention to the Japanese economy, just as it appears that the Chinese economy is slowing down. 

Can It Scale Quickly? Is it the Wrong Question for Many Startups?

Does your business model enable you to scale quickly?   That's the question facing many start-ups these days as they seek capital from investors.   The question proves most pertinent for tech start-ups, but it seems to be thrown at founders in many different kinds of companies these days.   Is there a danger to focusing on this question?   I would argue that founders and investors must be aware of two significant downsides.    First, focusing on scale, and trying to scale too quickly, can cause start-ups to lose sight of their target market.  Who precisely do they aim to serve, and who they do not plan to serve?    A strategy can become "all things for all people" very quickly as the scale question comes to dominate conversations.   Second, founders and investors often can underestimate the challenges associated with scaling quickly.    Sometimes, it makes sense to take a bit of time to get the business model right before trying to grow rapidly.   I find it very interesting that many investors proclaim the mantra of fast iteration and experimentation, yet they also push for scale at the same time. 

The Relationship between TV and Twitter: The Sharknado Case

The Netflix Culture

If you have never viewed this presentation about the Netflix culture, you are in for a treat.  Check it out by clicking here.   I would point you to a few things, in particular, that I find insightful and refreshing.  

1. "Great workplace is stunning colleagues.  Great workplace is not day-care, espresso, health benefits, sushi lunches, nice offices, or big compensation, and we only do those that are efficient at attracting stunning colleagues."  How terrific!  People love to work with other highly talented, reliable, and kind people.    They do not like free riders, jerks, and people who don't invest time needed for self-improvement.  Think about when you went to college.  What made it a good experience?   The best courses were not simply taught by a talented professor.  They were courses in which the fellow students were intelligent, curious, reliable, and hard-working.

2.  Netflix chooses to focus on rapid recovery rather than avoidance of failure.  The firm argues that, in some environments, such as health care, we want to be highly reliable, i.e. avoid failure.  However, in creative environments, we should focus instead on rapid recovery.  

3.  The explanation of the nine behaviors and skills that the firm values in its employees is different than most "competency" models developed by company human resource departments.  The Netflix behaviors and skills are much less generic.  They describe specific behaviors, and they fit together to form a consistent whole.

4.  I like the "Keeper Test" a lot.  Here it is:  "Which of my people, if they told me they were leaving in two months for a similar job at a peer company, would I fight hard to keep at Netflix?"  The document states that you should let go of those who do not meet this test.  Make room instead for someone who will have the potential to meet this test.  It's tough medicine, but it really does make you think about whether you are keeping under-performers around too long. 

Too Cute! Lessons on Teamwork from a 6th Grade Heavy Metal Band!

Check out this Fast Company article featuring an interview with members of Unlocking the Truth - a heavy metal band comprised of ambitious and creative 6th graders!

Restructuring at Microsoft

Yesterday, Microsoft CEO Steve Ballmer announced a massive organizational restructuring of the company.   According to the Wall Street Journal, "Microsoft Corp.'s broad reorganization announced Thursday aims to break down internal fiefs that have slowed product development and caused friction among teams of employees... The company said it will shift from largely autonomous product groups to a more horizontal structure, under which managers who will oversee specific kinds of functions like engineering, marketing and finance."

Here are a few quick reactions:

1.  The Ballmer memo to the company consisted of more than 2,700 words.  Wow!   If you need that many words to describe what you are doing and why you are doing it.... do you really have a clear strategy?   Will employees really digest all of this material, understand it clearly, and align behind it?  First rule of thumb for leader communication:  keep it simple & concise.  The Ballmer approach falls down on this metric.

2.  No organizational structure is optimal.  Each structure has its strengths and weaknesses.  The key to high performance is driving the right culture, values, and processes in an organization.  Just moving lines and boxes around on an organizational chart won't enhance performance substantially.  Microsoft will succeed or fail based on how they redesign key processes and shift the culture and values.   Boxes and arrows won't  be the panacea.

3.  One still wonders if Microsoft should remain as an intact entity versus breaking up into several parts.  Many investors have wondered if the whole is truly worth more than the sum of the parts.  That question still remains after the Ballmer announcement. 

Freemium Business Models: Taking Advantage of Cognitive Bias

Psychologists have described a number of cognitive biases that affect our decision-making processes. These biases are systematic errors or traps that we encounter as we make choices.  Put another way, these biases are ways in which actual human behavior deviates from the assumptions economists make in their models of "rational" choice. 

In this terrific blog post titled, "The Psychology Behind Freemium," Alex Mayyasi describes how one such bias may explain the success of many freemium business models.   For those not familiar with the term, a freemium business is one in which customers can use a service for free at first, but must pay for upgraded versions or additional features.  

Mayyasi attributes the success of freemium business models in part to something called the "endowment effect."  If humans were perfectly "rational" in their choices, they would be willing to pay the same amount for a product or service they did not have as they would demand to be paid for giving up a good that they already possessed.  However, many individuals actually demand more in compensation for giving up a good they already have than they are willing to pay for that same good if they do not already possess it.   Mayyasi cites a study by Ziv Carmon and Dan Ariely in which they examined how people behave with regard to NCAA Final Four men's basketball game tickets.  They asked people what the highest price was that they were willing to pay for such tickets.   They also asked them the price at which they would be willing to sell their tickets if they already owned them.  The selling price was more than 10 times the buying price! 

Psychologists attribute the endowment effect, in part, to a cognitive bias called loss aversion.  As Mayyasi says, people "generally react more strongly to losses than gains."  Selling something you already have is a "loss" in many people's minds.  Loss aversion may kick in when you experience a freemium product or service and face the decision about whether to pay a fee to continue enjoying the service. 

I would argue that you can think about this effect in terms of sunk costs too.    Sunk costs are not just investments of dollars.  Sunk costs can be investments of time and energy as well.  If you have put a great deal of time and effort into a video game, you don't want to "waste" those resources that you have invested.  Therefore, when faced with the question of whether to now pay for additional features of the game to continue playing, you are prone to invest some money.  You put more resources into the endeavor because you don't want to "waste" the investment you have already made. 

Buy Online, Pick Up in Store - A Surprising Result for Retailers?

Many retailers now offer an option known as Buy Online, Pick Up in Store (BOPS).   What impact does that have on sales?  A new study by Kellogg's Antonio Moreno and Dartmouth's Santiago Gallino has uncovered a surprising result.    They studied one year of data from a housewares retailer with more than 80 locations in the US and Canada.   The scholars compared the behavior of individuals who had the BOPS option with those that did not (either because they lived far from one of the retailer's locations, or because they lived in Canada, where the retailer did not offer the BOPS option).  What did they find?  Online sales actually fell at the stores offering the BOPS option!  However, revenues overall rose for the retailer.  What happened and why? 

In this article on Kellogg Insight, Moreno explains, "We started thinking about what in the operations literature could possibly explain this behavior of people going more to the stores after this option was available, and that was when we came up with the idea of reliability of inventory information."  When customers shopped online, the BOPS system enabled them to see if items were in stock at that moment at a local store.  Knowing that, many of them simply went to the store to check out the item firsthand before committing to the purchase.  BOPS gave them a line of sight into inventory and item availability that they did not have in the past.   

As evidence of this effect, scholars found that many online shoppers were abandoning online shopping carts with items in them.  They had investigated, in other words, but not completed the purchase.  Yet, revenues at brick-and-mortar locations rose, suggesting that many shoppers then visited the stores and completed a purchase.  Moreno notes, "The most surprising thing to me was that online sales went down when the customers were given more options.  If you’re a customer and were planning to buy online, now you have even more reasons to [do so], because now you could buy online and pick up in the store.  We thought it would make the online channel more attractive, but what happened was that it led to this shift towards brick-and-mortar stores, which is a good thing for the company."  

Flocking Behavior on Social Media Can Lead to Narrow Thinking, Flawed Decisions

Ethan Zuckerman has written about an important issue regarding our use of social media.   The Harvard Gazette recently wrote about a talk that Zuckerman gave at Harvard's Berkman Center for Internet and Society.  Berkman noted, "Human beings flock; we tend to seek out people like us."  He argued that individuals tend to engage in a great deal of "flocking" behavior on social media platforms.   They find and follow people who are very similar to them.  He says, "We have a talent for finding people with the same socioeconomic background or racial background. But this tendency to flock may be keeping us from finding the information we need... My fear is that our tools are not promoting diversity."   In short, we are not experiencing a wide range of perspectives on issues and topics.  We are hearing from voices that are similar to ours.  As a result, we are vulnerable to the confirmation bias, i.e. we are looking for information that confirms what we already believe.   Cognitive diversity can be an important factor when making decisions, yet social media seems to discourage the nurturing of this key attribute.  For more on Zuckerman's work, see this Ted Talk below:

The Protege Effect

Fast Company's Drake Baer has a new column titled, "Why Teaching Makes You Smarter."   In the article, he draws upon a terrific blog post by Annie Murphy Paul about how people learn.  Paul writes about the so-called "protege effect" that has been discovered by teaching and learning researchers:

Students enlisted to tutor others, these researchers have found, work harder to understand the material, recall it more accurately and apply it more effectively. In a phenomenon that scientists have dubbed “the protégé effect,” student teachers score higher on tests than pupils who are learning only for their own sake. But how can children, still learning themselves, teach others? One answer: They can tutor younger kids. The benefits of this practice were indicated by a pair of articles published in 2007 in the journals Science and Intelligence. The studies concluded that first-born children are more intelligent than their later-born brothers and sisters and suggested that their higher IQs result from the time they spend showing their younger siblings the ropes.

Are there lessons here for business leaders?  Absolutely!   Mentoring, apprenticeship, and succession processes all involve the transmission of knowledge from expert to protege.  Most of the attention often focuses on the benefits to the recipient of this new knowledge.  This research demonstrates that a great deal of benefit exists for the expert as well.  They develop a better understanding of how to do their work by showing others the ropes.  I would argue that they can even become better leaders by reflecting on how they do their work, and helping to groom young future leaders of their organizations. 

Starbucks: Handcrafted Sodas?

The Wall Street Journal reports that Starbucks is testing handcrafted sodas at locations in Atlanta, Georgia, and Austin, Texas.   The article states that the flavors of soda include spiced root beer and lemon ale.  The sodas are created using a carbonation machine in the Starbucks stores, and a grande size drink sells for $2.95 at these locations.

What do we make of this newest product line extension for Starbucks?  As the article explains, the move clearly constitutes another attempt to drive sales at off-hours, i.e. in the afternoon and evening.  Moroever, it offers another way to drive same-store sales growth, a key metric for any restaurant or retailer.   

The move does come with some risks.  Naturally, customers must enjoy the product, or it could harm the Starbucks brand.  In addition, continued menu extensions add complexity to the operations of a particular location.  Can Starbucks maintain speed and customer service as the menu expands?   With food items expanding as well, Starbucks must watch the issue of complexity carefully.  The good news:  Starbucks understands the power of experimentation.  It is testing the concept in two locations, and presumably, it's gathering a great deal of data.  That data include customer feedback, barista input, and information about the impact that the new products are having on the speed of service.   What happens if customers love the soda, but service slows?  That could be tricky.  At that point, Starbucks will work to streamline operations as much as possible to increase throughput.   They have done quite a bit of that type of work in the past few years.  Still, I notice considerable differences in speed across locations.  Part of the difference can be accounted for by the fact that some store layouts are clearly not as conducive to streamlined, efficient operations.   Part of that is due to local differences in the way locations are managed.  

One final point about the notion of testing and experimentation.  Sometimes, companies find that such small tests go quite well, but national roll-outs then falter.  Why?  The tests are not truly representative of what will happen during a full-scale expansion.  Senior managers supervise the tests very carefully. Extra resources are deployed.  The test becomes something more than a test... it's actually a "proving ground" or "demonstration" rather than a true controlled experiment.  

LDRLB's David Burkus Podcast Interview: Why Great Leaders Don't Take Yes for an Answer 2nd Edition

Oral Roberts Professor David Burkus interviewed me for his LDRLB podcast series last week.  The podcast may be accessed here.   The interview focuses on the 2nd edition of my book, Why Great Leaders Don't Take Yes for an Answer, which was released several weeks ago.  I hope you will check it out. 

Fox Business News Segment About My Research

Organizational psychologist, Michael "Dr. Woody" Woodward talked extensively about my work during this segment on the "Career Accelerators" show on Fox Business.   Here is the link at which you can view the segment.