Perils of a Superstar CEO

Matt Palmquist writes this week for Strategy+Business about the fascinating new research conducted by Stanford University’s Elizabeth Blankespoor and Ed deHaan.  They examined the impact of CEO promotion.  By that, they mean the extent to which companies publicize their CEO in various ways, such as by providing quotes and access to journalists.   These scholars examined over one-half of a million press releases issued by 1,500 companies over a ten-year period.  What did they find?  Here's Palmquist's summary:

Large companies that actively promoted their chief executives in communications with journalists saw a more than threefold increase in the media coverage of their CEOs, the authors found. However, companies that went overboard in publicizing their chief executives eventually experienced a sharp decline in long-term performance, largely because their CEOs appeared so comfortable and entrenched in their role that they failed to seek novel solutions or think beyond the status quo... Those who push themselves into the limelight too aggressively may create unrealistic expectations in the minds of shareholders or become burdened by their own celebrity, unwilling to make risky or unconventional moves because of how highly they value their own reputation.

We all have heard the adage, "Don't believe your own press."  Well, now we have a study that confirms the perils of falling in love with all those splashy headlines.   Of course, the study does not provide the evidence of direct link between publicity and negative performance.  It offers a few hypotheses, as does Palmquist in his article about the research.  The comments above seem plausible.  CEOs can become entrenched and overly comfortable, fail to see new ideas, and become burdened with unrealistic expectations. 

Truth vs. Faith in Decision Making

In this week's New York Times Corner Office column, Adam Bryant interviewed Tae Hea Nahm, Managing Director of Storm Ventures - a venture capital firm based in Menlo Park, California.  Nahm described a fundamental tension that exists between truth and faith when it comes to decision making.  I have never quite heard leadership described in this way, and I thought it was worth sharing here.  Here's an excerpt: 

The other thing I learned as C.E.O. is that it’s very lonely. If you share all the doubts and fears with people, then people sort of freak out, whether they’re other investors or employees or executives. You have to provide a path to success. So what I found as C.E.O. is that you almost need a split personality.  On the one hand, you have to appear like Moses, so that people believe that you’re going to take them to the Promised Land. And you have to present a very simple, clear path to success. On the other hand, if you just believe all of that, you can easily run the company off a cliff. Being a C.E.O. requires a lot of faith and passion, but for making decisions, sometimes truth and faith are different.  So you also have to be a skeptic, almost like Galileo. You can have beliefs, but you have to really search for the truth, which is often tied to bad news. 

Step back and consider your leadership style for a moment.  Are you terrific at the passion element described by Nahm, but perhaps blindly devoted to the path on which you have set out?   Or, are you appropriately open to alternative views, but perhaps not effective enough in selling the vision to your employees?  Have you struck the appropriate balance? 

The (Not-So) Hidden Value of Pixar's Short Films

The Wall Street Journal reports this week on Pixar's purpose in making short films.  For instance, Lava is the short film that runs before the newest Pixar feature film, Inside Out.    The short films are a wonderful opportunity for experimentation.   As a result, they help fuel the creative process at the highly successful film studio.  Here's one excerpt from the article:  

[Making short films] is a wonderful opportunity to step out and do something you may not be able to do on a feature, really take some chances,” said Mr. Murphy, a senior animator at the studio. “I think each short really represents the tastes of the individual that directed them.” 

The article highlights one additional value from making these short films.   It enables Pixar to develop and evaluate its talent.  Providing young directors and animators an opportunity to create a short film is a relatively inexpensive way to see who might be ready to work on a feature film.  Moreover, it enables Pixar to grow and develop those high potentials.   They learn by doing in an environment in which they can take some risks.  Every firm should be looking for opportunities to experiment as a means of fostering innovation, but they should also be examining how these experiments can be a useful means of nurturing and testing younger talent. 

When Does Bragging Help... and When Does it Hurt You?

Taylor Swift Gets Paid!

Apple announced today that it would change its policy and pay performing artists for songs streamed during the trial period for its new music streaming service.  Why? Taylor Swift wrote an open letter to Apple pressuring the firm to change its tune.  The remarkable story has several lessons.  Most say it's a story about the power of social media.  I disagree.  It's a story about an influential supplier using their bargaining power to extract value from another party in the supply chain.  Another musician could have used social media and had a letter go viral, but they may not have had the leverage to create change. 

Why have others not exercised this power?  Well, some artists make most of their money off of tours.  They are ok with lots of their music being available for free, because it has introduced them to a large potential audience for their tours.  That is the Ed Sheeran story.  Fans flocked to his concerts and knew all the words to his songs because they had listened to him on YouTube.  Some artists sell lots of their hit singles, but few of their other songs.  

Few artists sell tons of albums these days.  Taylor is an exception.  In 2014, she is the only artist to release an album that sold more than 1 million copies.  Remember that Apple still generates a lot of revenue through the sale of songs on iTunes.  She had more leverage than most singers as a result. The other lesson though has to do with Apple's rapid response. They have a big challenge in taking on Spotify, a firm that has a giant head start in the streaming business.  When Apple launches iTunes, it overcame the first movers because it offered high quality, safe, legal downloads.  No viruses, high quality.  Apple does not have those advantages over Spotify.  It does have deep pockets though.  It can afford to give some value to the artists in hopes of developing relationships that may be an advantage over Spotify.  

Finally, this story shows how the actions of one powerful player can reshape industry structure.  In other words, supplier and buyer power are not simply fixed and exogenous. Key players can take actions that shift the structure in a way that lifts (or decreases profits) for all.  In some ways, Taylor was so influential here because she could claim to be speaking on behalf of other less powerful players in the industry.  She gained some economic benefit here, but most of the gains will go to fellow artists. 

Lessons from the CVS and Target Deal

We learned yesterday that CVS and Target have agreed to team up in the pharmacy/clinic business.   CVS will pay $1.9 billion to Target for the Minneapolis-based retailer's pharmacy business.  As a result, CVS will now operate the pharmacies and clinics in 1,600 Target stores across the United States.  

This development has important lessons and implications for other companies, particularly in the retail sector.  First, it shows how a firm should examine its various lines of business and determine where to focus its efforts.  Target came to the conclusion that it simply could not compete effectively in the pharmacy/clinic business as an independent player.   It did not have the scale and expertise to be successful.  Second, the deal shows that companies can work together and achieve synergies without having to merge with one another.   Alternative forms of cooperation can lead to economic benefits for both parties.   CVS gets access to new markets and new customers.   Target gains foot traffic in its stores, and it collects lease payments for the pharmacy/clinic locations.  Third, the store-within-a-store concept may provide a blueprint for other brick-and-mortar retailers as they continue to try to compete with online rivals such as Amazon.  By partnering with specialists, the mass merchandisers and department stores may be able to offer an enhanced in-store experience and increase foot traffic.  Finally, the deal shows that maximizing revenue is not a strategy.  Target has now made several moves that have trimmed revenue, but in all likelihood, have positioned it more effectively in the marketplace and improved profitability.  The Canadian exit and the CVS partnership were both such bold moves, and perhaps there may be more to come. 

The Advantages & Disadvantages Incumbents Have Relative to Startups

In this brief video, Stanford Professor Jesper Sorensen explores the advantages and disadvantages that incumbents have as they compete against startups.  It's a good recap for any entrepreneur.

Persuading People to Donate Their Time

In this video clip, Wharton Business School Professor Americus Reed describes the research that he and fellow scholars have done regarding how we can effectively persuade others to give of their time. 

Disney: Eisner vs. Iger

The Wall Street Journal published a good article this week about the Disney strategy under CEO Bob Iger.   Writer Ben Fritz summarizes the shift in strategy that has taken place since Iger replaced Michael Eisner as CEO.  

Mr. Iger has refocused Disney around what it calls “franchises”—or entertainment juggernauts that live on for many years as theme-park rides, toys, videogames, television shows, pajamas and just about anything else that keeps revenue rolling in.  The consistent performance of those franchises is helping Disney outshine competitors by measurements ranging from stock-price growth to product licensing to ticket sales per movie. “Ten years ago, we were more like other media companies, more broad-based,” Jay Rasulo, then Disney’s chief financial officer, told analysts last fall. “Almost every aspect of the company” is now “oriented around brands and franchises.”

I have been teaching a corporate strategy case study about Disney for many years.  I often show a series of charts that shows the Disney stock performance during three periods of time:  Eisner's tenure pre-ABC acquisition (roughly his first decade as CEO), Eisner's tenure post-ABC acquisition, and Iger's tenure.  What do you see when you examine these charts?   Disney outperformed the S&P 500 by a wide margin during the first half of Eisner's tenure, underperformed during the latter stages of his time as CEO, and has outperformed the S&P during Iger's tenure.  Several factors contribute to these performance changes, but I believe the shift in strategy over time plays a key role.   

During Eisner's early tenure, he focused on cultivating economies of scope among the businesses at Disney (i.e. synergies). The company leveraged characters in the Disney vault, and it created great new characters in films such as Beauty and the Beast, Aladdin, and The Lion King.  In the latter stages of Eisner's tenure, they diversified much more broadly.    The company begin to define itself not as a company that was simply great at creating franchises based on great characters, but instead as a leading entertainment company.   They were defining their capabilities more generally.... but of course, they were also less distinctive, and less clearly superior when talking in general about entertainment.  The stretched definition of who they were and what they were good at served as justification for moving well beyond the core "characters" businesses at Disney.   

What has Iger done?  He's returned to character development and the building of franchises based on those characters as the heart of Disney's strategy.  Look at the three major acquisitions of Iger's era:  Pixar, Marvel, and Lucas Films.  What do they all have in common?  Powerful characters around which Disney can leverage economies of scope across its many businesses and platforms.   Defining what Disney does best a bit more narrowly has limited the scope of the firm a bit, but it has elevated performance greatly.  Why?  Disney now competes in areas in which they are clearly world class and superior to the competition.  They are not competing as much in areas of entertainment where they are less distinctive. 

Starting Your First Job

As recent college graduates complete their post-commencement travels and celebrations, their minds begin to turn toward their first professional job.   What will the first day of work be like?   How will they navigate the transition from academia to the working world?   Since many of my former students are contemplating these questions right now, I thought that I would offer a few tips:

1.  Your appearance matters.  Yes, many professional workplaces have shifted toward business casual or casual attire.  Your boss has told you that you can dress in a more relaxed fashion.   Think carefully, however, before you show up as if you are about to walk into your nine o'clock class at school.  If you want to be taken seriously, you need to consider your appearance carefully. 

2.  Showing up (on time) is half the battle.  If you aren't dependable, you won't be employed for very long.  Dependability is a fundamental requirement for career success.    Show up every day ready to go.  It doesn't matter how great you are, if you are missing in action from time to time.   Be on time.   In fact, be early for work, for meetings, for client appointments, etc.  Traffic is not an excuse; traffic is a reality.  Always build in an extra cushion for travel, parking, etc.  

3.  Don't wait for assignments to come to you.   Good employees deliver what has been asked of them.  Great employees seek out interesting and challenging opportunities.  However, they don't just argue that they deserve the chance.  They do their homework, and they show quite specifically how they might be able to contribute. 

4.  Respond to messages promptly.  Email may not be the way that you communicate with your friends, but it is still a principal form of communication at work.  Check it regularly.  If you don't have time to respond in detail at the moment, then send a quick note indicating when you will have time to offer a more comprehensive answer.

5. Don't keep people in the dark.   Managers hate surprises.  Keep your supervisors updated on your progress on key projects.  If you have fallen behind schedule, then let them know as soon as possible.  Explain the reasons for the failure to meet expectations and explain your corrective action plan.  The worst thing you can do is have your boss become aware of bad news that you had been unwilling to share.  

6.  Stop with the work-life balance talk.   Keep quiet about work-life balance if you are 22 years old, single, and free of family obligations.   It's insulting to the 35 year old mom or dad with three kids, an aging parent who needs care, and a volunteer commitment at their church or community organization.   They are engaged in an incredible juggling act every day.   Be considerate of their situation before you begin talking about how you want to lead a balanced life with time for your bike rides on weekends, community service projects, or yoga classes in the evening.

Your Social Network and the Generation of Innovative Ideas

Salvatore Parise, Eoin Whelan and Steve Todd have published their latest research in MIT Sloan Management Review this month.  They have studied hundreds of ideas generated by employees of data storage giant EMC and correlated that data with information about the Twitter networks of those same workers.  EMC has a system whereby employees can submit new ideas.  The researchers gathered that information and then linked it to Twitter usage by those same employees.  What did they find?  The Twitter users did not generate more ideas than the non-Twitter users.  However, other employees and experts judged the ideas submitted by Twitter users more positively.   Most interestingly, they found that people with more diverse Twitter networks tended to generate higher quality ideas.  The finding proves important because many people tend to follow others with similar beliefs when they join social networks such as Twitter.  This study confirms the value of building diverse networks.  We have to avoid the confirmation bias, i.e. gathering data (i.e. Twitter users) that simply confirm what we already believe.

When LeBron Talks About Himself in the Third Person, Is it Narcissism or Wisdom?

Pamela Weintraub has penned an article for Psychology Today about the fascinating work of University of Michigan Professor Ethan Kross.   The Michigan scholar has studied how our inner voice functions.  Here's an excerpt from Weintraub's description of this research:

In a series of groundbreaking experiments, Kross has found that how people conduct their inner monologues has an enormous effect on their success in life. Talk to yourself with the pronoun I, for instance, and you’re likely to fluster and perform poorly in stressful circumstances. Address yourself by your name and your chances of acing a host of tasks, from speech making to self-advocacy, suddenly soar. Indeed, along with addressing a body of research by others, Kross is forcing a whole new take on what has long been ignored or relegated to pop psychology—the use of self-talk to boost confidence. His work elevates self-talk to something far more significant: a powerful instrument of consciousness itself. When deployed in very specific ways at specific times, it frees the brain to perform its absolute best.  By toggling the way we address the self—first person or third—we flip a switch in the cerebral cortex, the center of thought, and another in the amygdala, the seat of fear, moving closer to or further from our sense of self and all its emotional intensity. Gaining psychological distance enables self-control, allowing us to think clearly, perform competently. The language switch also minimizes rumination, a handmaiden of anxiety and depression, after we complete a task. Released from negative thoughts, we gain perspective, focus deeply, plan for the future.

Does using the third person actually help us? Kross argues that it enables us to achieve a very helpful psychological distance. LeBron may be narcissistic, but perhaps there is method to the madness. Kross argues, "When dealing with strong emotions, taking a step back and becoming a detached observer can help. It’s very easy for people to advise their friends, yet when it comes to themselves, they have trouble. But people engaging in this process, using their own first name, are distancing themselves from the self, right in the moment, and that helps them perform.” In other words, perhaps we don't give ourselves good advice unless we can achieve some level of detachment. Talking to ourselves in the third person may very well provide such helpful assistance.

Finding the Right Question

Fast Company's Stephanie Vozza has an article this week about Phil Mudd's new book The HEAD Game: High-Efficiency Analytic Decision Making and the Art of Solving Complex Problems Quickly.  Mudd is a former CIA and FBI executive - an expert on counter-terrorism.  I interviewed Mudd numerous times while working on a series of Harvard Business School case studies about the FBI's transformation after the 9/11 attacks.  Mudd offers a series of interesting tips regarding how to make better decisions.  I found this first point especially important to highlight here.  Here's an excerpt from Vozza's article:

People often focus on the wrong question because they assume questions are self-evident, says Mudd. Focusing on better questions up front yields better answers later.  "Good questions are hard to come up with," he says. "We typically overinvest our time in analyzing problems by jumping right to the data and the conclusions, while under-investing in thinking about exactly what it is we want to know."  Start with what you’re trying to accomplish and work your way back, instead of moving forward and making conclusions.  The right question provides a decision advantage to the person at the head of the table. Mudd says you can find the right question by looking backwards. Start with what you’re trying to accomplish and work your way back, instead of moving forward and making conclusions.

I agree with Mudd here.  I've argued in my work that leaders need to be careful about jumping into problem-solving mode.   I advocate stepping back to "decide how to decide" - i.e. think carefully about how you will organize your team and the type of decision-making process that you will employ to make a tough call.   If you do not decide how to decide, it's natural for many teams to encounter groupthink.   Mudd makes the case that you also can end up solving the wrong problem.   How you frame an issue often drives the type of alternatives that you consider.  Getting the framing right is a key first step an effective decision-making process. 

Questioning Fiat's Push for Auto Industry Consolidation

The Wall Street Journal reports today that Fiat CEO Sergio Marchionne has been pushing hard for auto industry consolidation.  He's approached several other large automakers, and they have rebuffed his inquiries.  Why is Marchionne intent on pursuing mergers in the industry? 

He argues that it will help eliminate excess capacity and raise returns on investment.  According to the Wall Street Journal, Marchionne cited the superior return on capital earned by industries such as aerospace and pharmaceuticals in 2014.  Here we have mistake number one.  Mergers will not eliminate the gap in profitability between automobiles and pharmaceuticals.  Here you have to think about the structure of the two industries.  The pharmaceutical industry simply has a much more attractive industry structure (run through the five forces for the two industries, and you will see the advantages for pharma).  Mergers will not suddenly alter the fundamental attractiveness of autos relative to pharma. 

One also has to question Marchionne's belief that consolidation is inevitable.  NYU Professor Pankaj Ghemawat has argued persuasively that many CEOs mistakenly cling to a belief that industries must consolidate as they globalize, and that eventually a "Rule of Three" will prevail - i.e. three big players will dominate.   He's gathered data showing that many industries have become less consolidated as they have globalized.  That includes the automobile industry.  The Wall Street Journal article actually makes this point.  It quotes Bill Ford, who recalls the pushes for consolidation in the 1980s that did not work out (think Ford acquiring Volvo, Land Rover, and Jaquar, Daimler acquiring Chrysler, etc.).  Ford also notes that the industry has actually become less consolidated since that time.  Ford says, "Everyone thought that's where this industry was clearly headed,.  Of course, then the Koreans came in and now the Chinese are in.  The numbers have proliferated rather than shrunk." 

Asking for a Favor: The Power of the Post-It Note

Kevin Hogan has penned a post for HBR about research conducted by Randy Garner at Sam Houston State University.  Garner performed a series of experiments to examine the likelihood that individuals would respond to requests for assistance with a task. Garner asked faculty members to complete a survey for him - a request often made of others when you are conducting research.   He divided the respondents into three groups.   For the first group, he attached a sticky note to the survey, asking them to complete it.   For the second group, he put the same handwritten message on the cover letter, rather than on a separate sticky note.   For the third group, Garner simply provided a typed cover letter.   They received no handwritten message at all.   What happened?  76% of the respondents completed the survey in the first group, far more than the other two groups.   Why such powerful results from a handwritten message on a sticky note?  Hogan outlines the four main reasons:

1. It doesn’t match the environment—the sticky note takes up space and looks a bit cluttered. The brain, therefore, wants it gone.
2. It gets attention first because of #1. It’s difficult to ignore.
3. It’s personalized. (That’s the difference between Group 2 and Group 3 in the experiment.)
4. Ultimately, the sticky note represents one person communicating with another important person—almost as if it is a favor or special request, which makes the recipient feel important.

What's the lesson here?  In an era of predominantly electronic communication, the power of a personal note should not be underestimated.  Moreover, it's important to put yourselves in the shoes receiving your request.  Ask yourself: How will they feel when they receive this request for assistance?  By stepping in your shoes, you can craft a more effective and persuasive appeal for help. 

Defending Meetings: They are not all bad after all!

Creativity expert David Burkus has a published a great blog post in which he defends the dreaded meeting.  He argues that meetings can actually make us more creative.  Really?  Well, he's talking about a particular type of meeting.  He cites some interesting research to make his point.  Here's an excerpt:

Psychologist Kevin Dunbar studied the workings of four prominent microbiology laboratories for insights into the creative work of experimentation. The findings from these field studies defied the conventional image of the lone scientist staring into a microscope to reveal a great discovery. Instead, Dunbar found that the most creative insights and greatest discoveries actually occurred during regularly scheduled lab meetings, where individual researchers revealed their latest findings and shared their most difficult setbacks. The creative discoveries produced by these labs occurred only after these individuals conspired together to find a solution or draw connections between previously unconnected insights.

 What's the key insight here?  At these meetings, people share their ideas, describe the work that they are doing, and they ask others to help them address the obstacles that they have encountered.  People have an opportunity to see the links between different streams of work, and they can provide each other valuable assistance.  To make this type of meeting helpful, you have to be willing to share your work process, not just your outputs.  You have to admit what you do not know, and you have to be willing to ask for help.  In other words, you have to have a very safe climate in which all attendees are comfortable sharing these types of issues with others, and in which they are willing to make themselves a bit vulnerable.  Unfortunately, that's often not the case in many meetings. 

My Favorite Letterman Moment: When GE Acquired NBC

Extroverts Earn More Than Introverts

Business Insider reported yesterday on a new research report from Truity Psychometrics.   The firm examined the relationship between personality types and compensation levels.   Not surprisingly, they found that extroverts tend to earn more than introverts.  For example, an ESTJ (one of the Myers-Briggs personality types) earned $77,000 on average, while several of the introverted personality types earned less than $40,000.   Why the major discrepancy between introverts and extroverts.  Truity's research suggests that extroverts tend to have more managerial responsibility.  On average, the extroverts in their study managed 4.5 others, while the introverts only managed 2.8 people on average.  In the Business Insider article, Susan Cain - author of a best-selling book about introverts - argues that extroverts are chosen more often for management positions because their outgoing nature creates a perception of leadership competence.  

Cain argues forcefully for the efficacy of introverted leaders.  Actually, the research does not show that one type of leader is clearly stronger than the other.  As always, it depends.  Adam Grant, Francesca Gino, and David Hofmann published an interesting article several years ago titled, "Reversing the Extraverted Leadership Advantage: The Role of Employee Proactivity." They conducted a field study at a national pizza chain.   They examined 57 locations within that company, and the scholars analyzed the link between personality and performance.  They found that each unit's performance hinged on the match between the leader's personality type and the followers' personalities.  Here's an excerpt from HBS Working Knowledge about the study:

A new study finds that extraverted leaders actually can be a liability for a company's performance, especially if the followers are extraverts, too. In short, new ideas can't blossom into profitable projects if everyone in the room is contributing ideas, and the leader is too busy being outgoing to listen to or act upon them.  An introverted leader, on the other hand, is more likely to listen to and process the ideas of an eager team. But if an introverted leader is managing a bunch of passive followers, then a staff meeting may start to resemble a Quaker meeting: lots of contemplation, but hardly any talk. To that end, a team of passive followers benefits from an extraverted leader... Sure enough, they observed high profits in stores where the employees were relatively passive but the managers were extraverted. On the other hand, when employees were proactive, the stores led by introverted managers earned high profits. Meanwhile, profits were lower in stores where extraverted managers led proactive employees and introverted managers led passive employees.

Where Does Vision Come From?

Dale Buss has written a good article for Chief Executive magazine about nurturing a leader's visionary skills.   Buss argues that compelling visions for an organization don't simply come to someone like a bolt of lightning from the sky.  Leaders can cultivate their ability to chart the right vision for the future.  Mainly, he argues that leaders need to maintain close contact with customers, rather allowing others to tell them what customers want and need.  They have to avoid becoming isolated at the top.  Buss also argues, "Be your own customer. Put yourself in the role of the customer and walk through every touch point, to see what they see. Are there gaps in the relationship? Can some touch points be shortened or made easier?"  

Buss notes that substantial new threats and opportunities often emerge at the periphery of an organization.  Andy Grove of Intel once observed the very same phenomenon.  I wrote about Grove's ideas in this regard in one of the early chapters of my book, Know What You Don't Know.  Buss explains how to see those issues emerging at the periphery, rather than the core, of the organization:

Spot weak signals at the periphery. Attempt to gain early detection of developments that could potentially interrupt or disrupt your business so you can take them into account as early as possible. Introducing “randomness” into your life can be one way to do this. Iconic and visionary architect Buckminster Fuller, for instance, used to pick up a magazine at random from a kiosk when he traveled and force himself to read the entire publication during his trip so that he kept in touch with parts of the world he otherwise knew nothing about, the authors said.

I've heard the Buckminster Fuller practice many times, and it's always struck me as a very effective technique.  It does not take much effort, but it can deliver strong dividends at the unlikeliest of moments.  It also enhances your general knowledge - useful as you network and engage with a variety of external and internal constituencies to the organization.  

Advice for the Class of 2015!

For the past several years, I have re-run this old post with some advice for new college graduates.  I hope my seniors at Bryant University, and seniors at other institutions, will read and ponder these thoughts.  Congratulations to the Class of 2015!

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

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

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

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

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

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

Improving Your Predictions

A great deal of research shows that experts are often not very accurate in their predictions.  In this video, Wharton marketing professor Barbara Meller discusses how we can improve our forecasting abilities.  It's worth taking a look. 

Negotiation Tips

Inc. magazine has a great new article about how to negotiate effectively.  The article features six tips from Professor Linda E. Ginzel of the University of Chicago Booth School of Business.  Several tips will be quite familiar to many people (focus on interests, not positions, enlarge the pie before dividing).  Her final two tips warrant mentioning because they are the hardest to employ, but they are critical to negotiation success.

Adapt your strategy to your counterpart's style.

"Be aware that different problem-solving modes are available to you: competition, collaboration, accommodation, cooperation, compromise and avoidance. Remember to switch strategies when lacking progress."

Practice conditional cooperation.

"Be nice (don't be the first to defect). Be provokable (reciprocate defection). Be forgiving (reciprocate cooperation). Don't be envious (don't compare your success relative to other players). Be clear (don't be too clever)."

Does Collaboration Actually Hurt Organizations At Times?

We all want more collaboration in our organizations, right?  Of course, we do!  Well, you might want to rethink your answer in light of new research by Jesse Shore, Ethan Bernstein, and David Lazer.  They conducted a fascinating experiment using a game created by the Defense Department.  This game asks people to try to determine the location and timing of a potential terrorist attack, as well as to determine the perpetrators.  HBS Working Knowledge describes the set-up of the experiment:

For the study, the researchers hired 417 participants to play the game. Players received two clues at the start of each round and were allowed to search for more clues once per minute; they had 25 minutes to solve the problem. (The experiment took place at Harvard Business School's Computer Lab for Experimental Research.)  Participants were randomly assigned to one of 70 16-person networks, some of which were more interconnected—or "clustered," in academic parlance—in terms of who could share information with whom during the game. "In the most-clustered conditions, people were connected in a clear team structure," Shore explains. "In the least clustered, nobody's partners were also partners with each other."

Interestingly, the most-clustered groups tended to engage in more extensive information gathering.  However, the least-clustered groups developed more hypotheses regarding the potential terrorist attack (17.5% higher).   The least-clustered groups also had tended to be more likely to arrive at a correct solution.  What happened in the high-collaboration groups that led to inferior problem-solving?  According to the scholars, "Those in very clustered positions were more likely to copy an incorrect theory from a neighbor than their less-clustered counterparts."   In short, these "high collaboration" groups have a tendency to prematurely converge on a particular alternative.   If you step back for a moment, you should not be surprised at all by these findings.  We have known for decades that pressures for conformity arise in groups at times.  Premature consensus is a classic outcome in a cohesive group where conformity pressures arise. 

How Long Should a CEO Serve?

Many people have pointed to data suggesting that average CEO tenure has dropped in the past two decades.   They argue that Boards of Directors are more likely to dismiss CEOs for poor performance than they were in the past.  In this post, though, I want to address a different question:  Can a CEO stay in office too long?  As I considered this question, I discovered this very good article by Jena McGregor in the Washington Post.  She examines the research on CEO tenure.  

McGregor cites a Fortune study from 2012 regarding CEO tenure.  The research demonstrated that CEO performance tends to be strongest for those who serve 10-15 years.  Of course, we do have to be careful about causation here.  Does performance lead to longer tenures or vice versa? She also cites a Booz Allen study that found, "In the second half of the tenures of long-serving CEOs, returns for shareholders sank. Those who served more than 10 years had median annual returns of 5.9 percent in the first half of their tenure, compared to -0.9 percent in the second half." Finally, she describes a study by researchers Xueming Luo, Vamsi K. Kanuri, and Michelle Andrews.  They found: "As CEOs accumulate knowledge and become entrenched, they rely more on their internal networks for information, growing less attuned to market conditions. And, because they have more invested in the firm, they favor avoiding losses over pursuing gains. Their attachment to the status quo makes them less responsive to vacillating consumer preferences."

Why might performance drop eventually if CEOs stay in power for too long?   They can become insular and risk averse, as described above.  They can become far less open to dissenting views.  They can believe their own press and become overconfident.  Meanwhile, people in the organization may become less willing to challenge the CEO if he or she has been highly successful.  The Board can defer to the CEO for the same reason.  The sunk cost effect can shape decisions too.  The CEO may not be willing to undo decisions from the past, because he or she has invested so much in those courses of action.  Finally, they can begin to surround themselves with like-minded people.  For all these reasons and more, it does seem that CEOs can stay too long at times. 

Does Potential Matter More Than Achievement?

Research by scholars Zakary Tormala, Jayson Jia, and Michael Norton has examined how people perceive those with high promise/potential.   Tormala explained their findings in an article on "Insights by Stanford Business."  

In a series of experiments set in different contexts, we found that high potential can be more appealing than equally high achievement. Our studies uncovered this in situations ranging from basketball player evaluations to hiring decisions, to salary offers, to grad school admissions recommendations... In general, potential seems to engender greater interest than achievement. It was counterintuitive to us too at first. It seems objectively more impressive to actually achieve something great than to have mere potential to do so. But there is a fairly robust finding in the psychological literature that uncertain events and outcomes can stimulate greater interest and information processing — more thought — than more certain ones. So when potential is being compared with achievement, the uncertainty surrounding potential can make it more engaging, or maybe even pleasurable, to think about. It's as if people engage more as they try to work through the uncertainty and figure out what the truth will be... In most of our studies we tried to equate the level of potential and achievement. For example, in one study we showed the exact same (impressive) stats for a hypothetical NBA basketball player and merely described those stats as predictions or as actual performance records. We found that participants thought the player was more likely to end up an All-Star one day when they'd seen predicted rather than actual stats.

The authors argue that these findings have substantial implications with regard to talent management decisions. I strongly agree.  They also contend that small changes in wording can matter a great deal, perhaps in a recommendation letter that you provide for someone.  Talking about their potential can be even more impactful than rattling off their past achievements.  

Human Resource Lessons from the NFL Draft

The NFL draft began yesterday, as each team made its first round selection.   My favorite team, the New England Patriots, drafted Malcolm Brown, a defensive tackle from the University of Texas.  You can imagine that fans often do not get excited about the drafting of an interior lineman.  They do not have a flashy highlight video or come out of college with gaudy statistics.  They are in the trenches.  Of course, solid line play is crucial to success in professional football.  

Interestingly, I noticed that six NFL teams chose wide receivers in the first round last night.  Wide receivers, naturally, tend to have highlight reels full of fantastic catches, long runs after the catch, and dazzling touchdowns.  They have plenty of attractive statistics such as receptions, yards, and touchdowns.  However, I know that the New England Patriots have not drafted a wide receiver in the first round in the entire Bill Belichick era.  He's been head coach since 2000, and of course, they have amassed the most victories and most Super Bowl championships in the league during that time.  

I took a quick look at the data from the past decade of NFL drafts (2005-2014).  During that time, 36 wide receivers were chosen in the first round.  By my quick count, just 2 (5.6%) of those WRs won a Super Bowl championship for the team that selected them in the draft.   In contrast, 8 of 68 (11.8%) defensive linemen chosen in the first round won a Super Bowl with their original team.  I dug deeper, and I found this article by Jeff Howe about this very topic.  He conducted a much more in-depth analysis, and he concluded that choosing a wide receiver at the top of the draft is a "waste" of precious resources. 

What's the lesson here?   As we select talent for our organizations, we have to be careful about the attributes/criteria that we employ.   Do the people who are flashy and charismatic tend to get more consideration than those who put their heads down working in the "trenches" of an organization?   Are we wowed by certain "gaudy personal statistics" that may not actually correlate with "winning" by the organization as a whole?  Finally, do we worry too much about what others think?  Coach Belichick could care less what others think.  He knows that others think the selection of a defensive lineman is boring.  Fans want flashy receivers.  He doesn't cave to outside pressure.  Of course, that's easy to do with his track record.  For managers, it might be more challenging.  However, we have to focus on doing what's right, not what's popular. 

Generational Diversity in the Workplace

One of my students, Caitlyn May, just completed her senior Honors thesis here at Bryant University on the topic of generational diversity in the workforce.  She examined how people perceive others from their own generation, as well as how they perceive individuals from other generations.  Because I have just finished reading her work, I was struck by this article from the Kellogg School about Professor Nicholas Pearce's research on generational diversity in organizations.  Here's an excerpt from the excellent article published on the Kellogg Insights website:

To make diversity work, Pearce says, leaders need to be more aware of the “pain points” that are likely to cause generational tension. “Many times, the tension is blamed on differences in maturity, when in actuality, generational differences are often the source of the conflict,” he says.... Traditionalists and Baby Boomers, for example, tend to give respect deferentially based on one’s position in the hierarchy, while Generation Xers and Millennials are more likely to give respect to those who are seen as deserving—regardless of where they fit in the organization’s hierarchy... One significant cause of intergenerational tension has to do with conflicting attitudes towards loyalty. Older generations tend to be more loyal to institutions—they still believe in what Pearce calls the “implicit social contract,” an understanding that those who pledge their commitment to one company will eventually reap the long-term benefits. Millennials, by contrast, are loyal to individuals. “Many of them saw their parents or grandparents play by those rules and get severed or fired just shy of the retirement party, the gold watch, and the pension that had been promised” he says, which caused a generation-wide shift from institutional loyalty to interpersonal loyalty. 

Getting Started in a New Job

Ximena Vengoechea has written a good article for Fast Company about taking a new job.  The article is titled, "10 Ways to Make the Most of Your First Month at a New Job."  I especially liked the first three tips:

• Prioritize what are the most important things to learn:  What do you need to know, and what matters most when it comes to that initial learning curve?   Think broadly, not just in terms of technical expertise.  Think in terms of what you need to learn about the social network at the firm -  the influencers, the gatekeepers, and other influential players.   Think also in terms of what you need to learn about the culture and values of the organization. 

• Find someone you can ask all the embarrassing questions:  Who will you turn to in order to learn the truth about certain topics?  Which topics are tough to address publicly?  Who can be trusted?  Who can be a good private sounding board?

• Identify opportunities for quick wins:  To me, this step is most important. Find the low hanging fruit.  Achieve some small victories so that you can build allies, deter opponents, prove that your ideas can work, and build powerful momentum.  

Why Sleep is Essential to Creativity

Art Markman, Professor of Psychology and Marketing at the University of Texas at Austin, has written an informative article for Fast Company regarding the relationship between sleep and creativity.  Markman writes the following:

To understand how, it is helpful to know a bit more about creativity. When you are trying to develop a creative solution to a difficult problem, you need to find some knowledge that you already have that will help you take a new approach. That means that a big part of creativity is allowing the problem to remind you of things you know about that probably come from another area of your expertise and that are relevant to your current problem. In short, you are seeking a good analogy.

 

Why then does getting a good night's sleep matter? Markman explains that, when you sleep, your memories are consolidated.  The brain does not remember everything about your day.  It has a way of retaining the most crucial events, ideas, and interactions.  If you want to be creative, and perhaps discover a relevant analogy, you do not want your thinking cluttered with non-essential information.  Getting a good night's sleep helps your brain sort out what's important and what is not essential.  In that way, you have a better shot at discovering that key analogy that might lead to a creative breakthrough.   

Amazon Reports Earnings for AWS

Amazon reported quarterly earnings yesterday.  For the first time, the company split out financials for its Amazon Web Services (AWS) business.  That unit provides cloud computing services.   Amazon indicated that AWS generated $1.57 billion in revenue and $265 million in operating income for the quarter.  Overall, Amazon reported revenue of $22.72 billion and a net loss $57 million for the company as a whole.  Amazon continues to argue that they are investing for the future, thereby explaining the continuing escalation of expenses and yet another net loss. 

Clearly, losses in the retail business are more substantial than previously thought.  AWS appears to be profitable, while the company as a whole lost money.  The earnings reports raises a few questions for me, inquiries that I believe many investors and analysts will be putting forth in the coming months.  

• Has Amazon been reluctant to split out financials for AWS because they know that it may cause more questions to be asked about the profitability (or lack thereof) of the core retail business?   
• Are the continuing losses related to investments and expenses that will eventually create a high profit retail business, or are those costs associated with many diverse lines of business that have been launched?  
• Is Amazon spreading itself too thin with so many strategic moves in a wide variety of areas?  
• Perhaps most importantly, what is the strategic logic for keeping AWS and Amazon's retail business together?  Will some investors begin to argue for a breakup at Amazon?

Should Your Firm Dump Its Employee Grading System?

The Wall Street Journal published an article this week titled "The Trouble with Grading Employees."  The article, authored by Rachel Feintzeig, focuses on some companies that have chosen to abolish their performance evaluation rating systems for employees.  Feintzeig also reports on some firms that have considered eliminating their rating systems, but were reluctant to abolish them.  Intel was one such firm.  Here's an excerpt that focuses on why rating systems are being questioned by companies such as Intel:

Intel Corp. has long rated and ranked its approximately 105,000 workers on a four-level scale, from “outstanding” to “improvement required.” Devra Johnson, a human-resources director at the chip maker, observed that ratings tended to deflate morale in a good chunk of the 70% of the company’s workforce that receives a “successful” rating each year—the second-lowest label.  “We’d call them the walking wounded,” she said.

I think the debate about ratings systems actually misses the point.  Companies should focus less on whether they use ratings and more on how they optimize performance overall.  To do so, firms should focus on four big ideas.  First, employees need to know where they stand.  That's the core principle that all performance evaluation systems must adhere to regardless of whether firms use a rating system or not.   In too many situations, employees simply do not understand how they are doing.   Second, differentiation is essential.  Not everyone is above average.  Even with ratings systems, some firms do not do enough to distinguish between high and low performers.  Others take rankings to an extreme.  Third, good performance management rests more on the informal modes of communication between manager and employee than on formal evaluation systems.  Communication between manager and employee must be frequent, open, and two-way.  Waiting for the formal review to take place is a recipe for disaster.  Finally, great companies create environments that foster intrinsic motivation.  They do not rely solely on the extrinsic rewards or punishments that come with formal evaluations. 

 

The Great Courses: My New Lecture Series on Business Strategy

I am very excited to announce the release of my new lecture series from The Great Courses (some of you may know them as The Teaching Company).   The new course is titled Critical Business Skills for Success.  It has five components, each consisting of 12 lectures.  I have created the 12 lectures on business strategy.  The other four components focus on finance, marketing, operations, and organizational behavior.   Those components are taught by Thomas Goldsby of The Ohio State University, Ryan Hamilton of Emory University, Eric Sussman of UCLA, and Clinton Longenecker of the University of Toledo. 

In my strategy course, I cover topics such as industry analysis, competitive positioning, defending and sustaining competitive advantage, competitor analysis, diversification, vertical integration, mergers and acquisitions, and entrepreneurial strategy.   Examples and case studies include Netflix, Trader Joe's, Disney, Zara, IKEA, Costco, LinkedIn, and Apple.  

Mistakes that Serial Entrepreneurs Make

Professor J.P. Eggers of the NYU Stern School of Business and Lin Song of the Central University of Finance and Economics in Beijing have conducted an interesting new study regarding serial entrepreneurs.   They examined data on Chinese entrepreneurs as well as startups supported by venture capital in the United States.  Their paper is titled, "Dealing With Failure: Serial Entrepreneurs and the Costs of Changing Industries Between Ventures.” It will be published soon in the Academy of Management Journal.

Eggers and Song find that serial entrepreneurs often change industries after an initial startup failure.  However, changing industries often proves to be a mistake.  Why do entrepreneurs switch industries?  Consider the fundamental attribution error, a phenomenon discovered years ago by psychologists.  When others fail, we look inside of them to identify the reasons for their failure.  We examine their expertise, capabilities, personality, and motives.   However, when we fail, we tend to blame external factors.  We attribute the failure to uncontrollable factors in the environment.  For this reason, serial entrepreneurs sometimes blame their initial startup failure on the industry environment, and they change industries for their next venture. 

These serial entrepreneurs may encounter difficulty, though, because they are not leveraging the learning  fully from their initial startup.   Moreover, they may not be leveraging their social networks as well as they can.  Changing industries may mean having to build entirely new networks.  Finally, they may not be taking a hard look at internal issues such as leadership style, ability to work with others, and other competencies that may be at the heart of their initial failure.  Not correcting these issues may lead to a subsequent failure.  

Elements of a Creative Culture

Matt Williams, CEO of The Martin Agency, shared his insights about the elements of a creative corporate culture with Kellogg Insights.   I think two points are worth emphasizing here.  

First, Williams argued that leaders should "celebrate the work, not just the wins."  In other words, be sure to honor and reward people for terrific work even if they don't land the big contract or make a key sale to a potential customer.  Sometimes you do great work, but you don't achieve the ultimate goal.  Celebrate that creativity.  

Second, Williams argues that we should "avoid hiring a lot of people who are 'similarly creative."" He argues that we need to be wary of "creative redundancy."   There are different types of creative people.  Some people are very broad thinkers; they are all about big ideas.  Others are wonderful at challenging the existing ideas on the table and making them better.  Some people are very visual in the way that they process information and share ideas.  Others tend to be excellent writers.  You want a mix of creative types to create a successful organization, and you want some level of healthy tension among these types. 

Jack Welch on the Role of a Manager

With Jack Welch visiting campus today here at Bryant University, I thought that I would share one of my favorite Welch quotes:

I see my job as a manager today so much clearer.  I see it as walking around with a can of fertilizer in one hand and a jug of water in the other.  Think of the employee population as a garden, and you are pouring the water and the fertilizer on.  You want the flowers to grow.  Some will grow.  Some you will have to cut out.  But your job is to constantly pour the water and the fertilizer, and give everyone a chance to flourish.

Welch shared this particular story in an interview with Harvard Business School Professor Chris Bartlett in 1999.

Loyalty: 60 Minutes Segment on Bryant Lacrosse Coach Mike Pressler

GE's Changing Corporate Strategy

General Electric announced this week that it would divest nearly all of GE Capital, the financial business that had been a major profit generator in the past.  The latest strategic shift at GE marks the continued move away from the firm's historic strategy of unrelated diversification.  Few true conglomerates (i.e. unrelated diversifiers) remain in the United States.  Investors can diversify risk more efficiently than corporate executives.  Without true economies of scope, conglomerates could not justify their existence.  The argument that governance economies existed did not hold water in many cases, i.e. corporate parents could not argue that they simply had better many management systems through which they added value to each of the business units.  For this reason, many conglomerates have broken up over the past two decades.  GE remained an exception to the rule for many years.  Investors did not push for a breakup when the company routinely outperformed competitors for each of its major business units.  The whole seemed clearly greater than the sum of the parts.  Governance economies did seem to exist.   People raved about the quality of the management systems and the leadership talent at GE.  A lagging stock price in the past decade shifted the conversation.  Investors begin to ask a question that once seemed unthinkable to ask: Should GE break up?   Could the whole no longer be worth more than the sum of the parts?  

The divestiture of GE Capital does not end this conversation though.  GE has returned to its industrial roots in many ways.  It no longer owns a television network or a major financial business.  However, it still owns quite a wide array of industrial businesses.  Investors will continue to ask the question:  Are these businesses worth more together than apart?  They will continue to ask:  Where are the economies of scope (i.e. the synergies)?   Are the governance economies sufficient to justify keeping all the units together?  Yes, these businesses are more similar than the portfolio was in the past.  However, we still aren't talking about the type of relatedness that we see at a company such as Disney.  If performance lags, the questions will continue.  GE has moved in the right direction, but the strategy will likely continue to evolve. 

Don't Pay for Past Performance!

This week marks the beginning of another major league baseball season.   Hope springs eternal.  In my home state, fans believe that our beloved Boston Red Sox will engineer another  magical "last to first" season, much like the 2013 campaign.  In Chicago, fans of the downtrodden Cubs believe that this season might just be the year that they return to respectability.  Of course, most teams have welcomed some new players in the offseason, including some high-priced free agents.  In addition, they have had to say goodbye to some key players who were signed by other teams.  In Boston, we lost ace pitcher Jon Lester to the Cubs.  Fans were not happy.  Management of the Red Sox claimed that they did not want to commit to a 6 year, $155 million contract to a pitcher in his 30s.  The philosophy is clear: Don't pay for past performance.   Fans don't like to hear that.  We fall in love with players based on past performance, and we aren't worried much about what that player will be like in three years.  Management, though, must think about the future.  Smart baseball teams, as well as other sports teams, do not pay for past performance. 

Business leaders should take a cue from the smart general managers in sports.   Of course, in sports, the reason we don't want to pay for past performance is because skills deteriorate with age.  In business, that is not the case.  In fact, performance can increase as managers gain more experience.  However, we still should be worried about paying strictly based on past performance. Why?  What made a manager and an organization successful in the past may not be the key to future success.  Competitive environments, technology, and consumer preferences can change dramatically.  As a result, the needed employee skill sets change.  Someone may have excelled in the past, but they may not have the skills required to succeed in the future.  They may have mental models that are rooted in the past, and they may have a hard time changing those mindsets.   For these reasons, companies need to think about the future drivers of performance, and not simply pay for talent that has excelled in the past. 

Don't Brag About Being a Dinosaur

The Boston Globe published an interview with Jack and Suzy Welch today (the two will be speaking here at Bryant University on Monday, April 13th).   I thought the excerpt below about the adoption of technology in the workplace was important to highlight. 

 Jack: Nothing is worse than the person in their 40s who says, ‘I’m not going to learn this.’ ‘I don’t carry an iPad.’ That will label you and put you right in the corner. Some people do it as a badge of honor. I’ve seen them myself, they walk around bragging [about not knowing much about technology].

Suzy: Why don’t you carry a placard saying ‘I am a dinosaur.’ You’ve got to dig in [and learn about things you don’t know] if you want to stay in the conversation.

I agree wholeheartedly.   I can never understand the rationale of those who brag about being dinosaurs. "Oh, I don't get the whole Twitter thing."  "I can't figure out how to sync my calendar across all my devices."  "I don't really need most of the functionality of my smartphone; that's why I haven't bothered to learn about those apps."  I think people put a target on their back when they make such statements.  I understand that one does not have to embrace every new social media platform, and some will rely on certain devices more than others.  However, bragging about being a dinosaur signals to others a reluctance to learn new things, make mistakes, and take risks.   The last thing that many leaders want in their organizations want is someone who is not a voracious lifelong learner. 

What do we want from our managers?

Gallup has released some interesting findings from a survey of 7,200 employees across a wide array of organizations.  Gallup has done some outstanding work in the past showing that many workers are not engaged or even actively disengaged at their jobs.  The lack of engagement often has much more to do with a bad boss than it does with other broader attributes of organizations. In this survey, Gallup's results help us understand what employees desire from their managers.  Here are three big takeaways:

1.  People want their managers to communicate very often with them... daily seems to be the desired frequency.   They also want their bosses to be approachable.  Engaged employees tend to be those who feel very comfortable asking their boss a question at any time.

2. Employees desire clear guidance regarding objectives and priorities.   They want to know: What should I be working on right now?   What's most important?

3.  People want everyone to be held accountable in a fair way.  Equal standards for all: that's the desired state.