The Volkswagen Scandal: The Perils of Trying to be #1

Yesterday we learned that Volkswagen employed software specifically designed to circumvent emissions regulations.  When I heard the news, I began to think about several recent scandals in the automotive industry.   GM had the ignition switch scandal.  Toyota had the acceleration problems.  Now Volkswagen has acknowledged to tampering with technology to make it appear as though emissions were lower than they actually were.  What do all three firms have in common besides these unfortunate failures?   At one point or another over the past fifteen years, each firm has aspired to be the largest automotive company in the world.   Each company aimed to achieve the number one position in terms of market share.  I cannot help but think that such aspirations contributed to the problems that have surfaced.   Becoming number one in market share should never be the goal of a firm.  They should be striving to achieve solid returns for their shareholders, exceed the expectations of their customers, become a responsible corporate citizen, etc.   Market share should not be the ultimate goal.   What's the downside of trying to be number one in market share?  It means that you may grow faster than you are capable of growing.  You may create an organization that is too large and complex to manage effectively.   You may overlook issues and problems in an effort to grow.  I'm not saying that aspiring to have leading market share is the only cause of these scandals.  Of course, many other factors contributed to this behavior.  However, I do think these scandals illustrate how trying to be the biggest can have pernicious unintended consequences. 

Overestimating Barriers to Entry: The Rise of Craft Distillers

The alcoholic beverage industry has experienced a significant change in the past few years, as a wave of new entrants has emerged.  A large number of "craft distillers" have exploded onto the scene.  According to the American Distilling Institute, the number of small distilleries has risen tenfold over the past ten years.  According to a recent article in the Wall Street Journal, the large players are taking notice. They don't want to get caught unprepared, as they were to some extent when craft beer began to disrupt their business.  

The rise of craft beer and craft distilleries raises an important strategy point.  For years, people argued that the barriers to entry in markets such as beer and distilled spirits were high because of economies of scale, brand equity, route to market advantages, and the extensive advertising and marketing required to launch a new product.  What's happened?  How have startups cracked these markets?  It's become easier to enter these days for a variety of reasons.  Perhaps most importantly, one can launch a new brand more easily today than in the past.  You don't need traditional marketing and advertising approaches, which can be very expensive.  You can use guerrilla marketing and social media to introduce a new product.  Authenticity has become a key product attribute for consumers, and entrants can play on that trend.  Retailers are looking for new, high margin, premium products to add to their portfolio.  Deregulation has occurred, with some laws restricting the sale of alcohol at certain days, times, and locations coming off the books.  Moreover, some rules restricting production have changed as well.  

What's the broader lesson here?  Economies of scale might be significant, but we can't overestimate their ability to prevent entry.   Niche players can still emerge.  Other entry barriers can decline, precipitating entry despite scale disadvantages.   Moreover, some advantages of being small often are overlooked.  While no one niche player may take substantial share, as a group they may create a significant disruption in the marketplace.  The strategic threat is not from one particular entry, but from a class of entrants.  That's a concept that incumbent players in many industries should keep top of mind. 

Using Internships to Facilitate the Reverse Mentoring Process

What is reverse mentoring?  It's when you have the new, young, rising talent in an organization teaching and advising the experienced managers and executives.   An effective reverse mentoring process enables senior executives to keep tabs on key social and technological trends.  Moreover, it provides a way for senior leaders to gain a better understanding of the millennial employee and customer.  

Phil McKinney has a great podcast focused on managing innovation (it's called Killer Innovations).  He is the CEO of CableLabs, and he formerly served as Chief Technology Officer for HP's Personal Systems Group.  McKinney says the following about reverse mentorship:

Each summer, we bring in interns across a wide range of disciplines: technical, legal, marketing and this year social media.  This years interns were impressive.  Over the years – I use interns to be my pulse on what is happening in the education system. In my previous role, I would select two and have them stay at my house. For their internship, they would report to someone else. At night – it was the barrage of constant questions. Why must we do something a certain way? Why aren’t we doing this?

Most people think I’m nuts for even doing this. I learn so much. It’s a process I call “reverse mentoring.”

Now most of us would not be willing to take interns into our homes.  However, we can find ways to structure a series of conversations with our summer interns to tap into their insights, knowledge, and creativity.   In some firms, you might do this through a series of one-on-one conversations with interns.  In others, you might assemble teams of interns, and ask each team to take on a particular innovation challenge for the firm.  The teams then might be given the opportunity to present their findings to senior executives.   Interns will enjoy this type of activity, because they get a chance to do something that is definitely not mundane, routine work.  Moreover, they have a chance to get in front of senior leaders.  Meanwhile, your organization creates a natural reverse mentoring process.

Jimmy Kimmel's Terrific iPhone 6s Prank

The New Everest Movie

On Friday, September 18th, the new movie - Everest - premieres at theaters across the United States.  The film chronicles the tragic events that took place on the world's highest mountain in May 1996.   Rob Hall and Scott Fisher, two experienced expedition leaders, died on the mountain along with several others.  Jon Krakauer wrote a best-selling book about those events (Into Thin Air).  I'm curious to see the movie, as I wonder how accurately it will depict the decisions and events of May 1996.   I'm looking forward to the film, as I have spent more than a decade studying this particular tragedy as well as expedition teams in general.   I've spent consider amounts of time interviewing climbers, including several people who were on the mountain when this tragedy occurred.  My work has focused on how expedition teams make decisions, and how leaders behave in these circumstances.  

My work on Everest expedition teams has included the following:

- Harvard Business School case study (and teaching note)

- Everest: Leadership and Team Simulation (a simulation for teaching about team decision making)

- California Management Review article about the 1996 Everest tragedy
- Great Courses lecture series - The Art of Critical Decision Making (Lecture 2)

- Ivey Business Journal article on how to avoid the sunk cost trap

- ILJE article titled  Teaching Business Leadership Using Non-Business Case Studies: The Mount Everest Example

I've also written about Everest climbing teams in my book, Why Great Leaders Don't Take Yes for an Answer.   Below you will find two videos about my work.  One focuses on the simulation, while the other discusses the leadership lessons from the catastrophe.  

Hire a Superstar or Dump a Toxic Worker?

Should you make it a priority to hire the next superstar talent for your team, or remove the toxic worker who is dragging the group down?  Which action has the most impact?  Kellogg's Dylan Minor and his co-authors have examined this question.  They define toxic workers as those who engage in violations of company policy and/or act unethically.   These scholars find that toxic workers actually induce others around them to behave inappropriately at times.  Moreover, these people drive good people away, leading to costly turnover in the organization and a talent drain. For these reasons and others, they can do serious damage to a team.  These scholars actually quantified the positive impact of adding a superstar to your team versus the impact of removing a toxic team member.  They conducted their study based on more than 58,000 hourly service workers at 11 firms.   They found that removing the toxic member and replacing them with an average performer created more than twice the value of simply adding a superstar to the team to replace an average member. 

Can Experts Predict the Next Great Startup Success Story?

Scholars Erin Scott, Pian Shu, and Roman Lubynsky have written a fascinating new paper about startups.  They examined a dataset of 652 ventures from MIT's Venture Mentoring Service (VMS).   The service attempts to match startups with mentors.  The mentors receive data about a variety of startup ideas.  They must decide what they think about the ideas without having an opportunity to review information about the founders or to meet the team in person.   The researchers then examined how many of these startups went on to have their products commercialized successfully.  

Overall, the more highly rated ideas did have a better chance of being commercialized.  However, that was not the case for all types of startups.  They grouped the ventures in terms of high R&D intensity industries (i.e. life sciences, energy) and low R&D intensity industries (i.e. software, consumer products).  Highly evaluated ideas tended to be more likely to be commercialized successfully in the high R&D intensity group, but no such relationship was found in the low R&D intensity group.  HBR's Walter Frick explains this finding: 

Think of it this way: if the venture “idea” includes patent-protected technology in an industry with high entry costs, it’s going to be easier to determine that the venture has commercial potential. For web and mobile ventures, which are less likely to have intellectual property, and where entry costs are lower, it’s harder to know up front whether a venture will have a real, sustainable competitive advantage.

Finally, the researchers examined whether experts were better at predicting success.   Frick writes, "The researchers checked to see if “expert” mentors were any better at picking ideas than the group overall. They looked at mentors with experience in the venture’s industry, as well as mentors with a PhD. Neither group was any better at predicting which ideas would succeed."  

Role Playing the Competition

When formulating strategy, leaders should ask members of their team to role play the competition from time to time.  Stepping into rivals' shoes can be an effective way to anticipate their strategic moves and prepare a counter-move.  In most cases, such competitor role plays focus on trying to anticipate the most damaging action that a rival might take.  We try to envision the worst case and prepare for it.  However, companies should also consider a very different scenario when role playing the competition.  They should also anticipate the ways in which key rivals might stumble badly.  What could a competitor do that would be damaging to its own position in the market?   Then, leaders want to challenge their teams:  How would we take full advantage of that stumble by the competition?  Are we ready to capitalize on that mistake?   Effective strategy formulation is not simply about anticipating the worst case scenario.  It's also about asking:  Are we well-positioned to take advantage of what could be a very good situation for us?  Do we have the capabilities, resources, and skills to capitalize on such a circumstance? 

Leading Cross-Cultural Teams

In this month's issue of HBR, Erin Meyer writes about the challenges of leading cross-cultural teams.  She has some good tips on how to prevent communication breakdowns and enhance team effectiveness.   I would like to highlight one of Meyer's recommendations.  Here is an excerpt from her article:

Train everyone in key norms.

When entering a new market, you’ll inevitably have to adapt to some of the local norms. But you should also train local employees to adapt to some of your corporate norms. For example, L’Oréal offers a program called Managing Confrontation, which teaches a methodical approach to expressing disagreement in meetings. Employees around the world hear about the importance of debate for success in the company. A Chinese employee told me, “We don’t do this type of debate traditionally in China, but these trainings have taught us a method of expressing diverging opinions which we have all come to practice and appreciate, even in meetings made up of only Chinese.”

 

Two points should be stressed here.  First, managing a global team is not simply about adapting to local culture.  It is also about deciding what core norms and principles should be applied globally.  Four Seasons, for instance, is known for doing an excellent job of adapting to local cultures.  However, all hotels and employees around the world adhere to some common guiding rules and principles that insure a consistent high quality brand experience.   Second, the L'Oreal example above provides a good model for how to handle the issue of conflict in meetings.  In some cultures, it will be much more difficult to encourage people to speak up and express dissent.  L'Oreal has recognized this challenge and addressed it head-on.  That's something all global teams should consider.  

How to Deal With Skeptics

Matt Forrest Abrahams and Burt Alper have posted a Stanford Business piece titled "How to Handle Audience Skepticism."   They argue that reframing can be a powerful technique for addressing criticisms, objections, and tough questions.  Here's an excerpt focused on how paraphrasing can help when responding to a skeptic:

Paraphrase to address emotional skepticism. Paraphrasing is a listening tool where you reflect back what others say in your own words. Effective paraphrasing affords you several benefits (e.g., ensures that you heard someone correctly, values the other person’s contribution, allows you time to think, etc.). As a framing technique, paraphrasing allows you to acknowledge the emotion of someone’s question/objection, then pivot your response to the world of logic.

In my work, I've written about how reframing and redescribing can be powerful tools for handling contentious situations.  They can be methods for helping keep conflict constructive.  Here are two excerpts from my book, Why Great Leaders Don't Take Yes for an Answer:

On reframing: 

 When individuals seem to be locked into their positions, leaders need to find a way to alter the way that people perceive the situation. Too often, when debates get heated, individuals begin viewing the situation as a contest to be won or a test of wills. They believe that they are playing a zero-sum game, when, in fact, win-win solutions still may be achievable. Individuals stop thinking about new sources of information that might be examined or the possibility of new alternatives that might prove superior to any of the options currently being debated. They begin to worry more about losing face if the decision does not go their way rather being concerned about the impact on the organization. In these circumstances, leaders need to shift the focus back to the problem that needs to be solved. 

On redescribing:

Sometimes conflict becomes dysfunctional because one set of individuals tries hard to convey an important idea, but they cannot present the supporting evidence in a persuasive manner. They become increasingly frustrated, because they do not understand why others do not find the data compelling. It seems so obvious to them! Soon they begin to attribute the others' inability to comprehend their argument to a personal deficiency on the part of those they have failed to persuade. They think, "How could an intelligent person not understand this point?" Cognitive psychologist Howard Gardner, a pioneer in the study of the multiple dimensions of human intelligence, has argued that people can avoid these frustrating situations through a strategy that he calls redescription. As Gardner writes, "Essentially the same semantic meaning or content, then, can be conveyed by different forms: words, numbers, dramatic renditions, bulleted lists, Cartesian coordinates, or a bar graph. Multiple versions of the same point constitute an extremely powerful way in which to change minds."

How To Create An Environment Of Collaboration

Recently, Stephanie Vozza interviewed me for an article she has now published in Fast Company.  The article is titled, "How To Create An Environment of Collaboration."  You can read it by clicking here. 

What is Intuition? Excerpt from my Great Courses lecture series

Here is a brief excerpt from my lecture series, The Art of Critical Decision Making, from The Great Courses.

The Virtues of the "Pile-on Meeting" at HGTV, Food Network, and Travel Channel

In this week's New York Times Corner Office interview, Adam Bryant interviewed Kathleen Finch, chief programming officer of HGTV, Food Network and the Travel Channel.  Finch describes a particular technique she uses to generate great ideas at her networks. She calls it the "pile-on meeting."  Here's her explanation of this method: 

I have a meeting every few months that I call a “pile-on meeting.” I bring about 25 people into a room and go over all the different projects that are coming up in the next six months, and the goal is that everybody piles on with their ideas to make those projects as successful as they can be.  The rule walking into the meeting is you must forget your job title. I don’t want the marketing person just talking about marketing. I want everyone talking about what they would do to make this better. It is amazing what comes out of those meetings.

I like the concept a great deal.  I would point out that several conditions must be present to insure that such a meeting is highly effective.   First, the leader has to establish a safe environment where everyone, regardless of position or title, feels safe speaking up.  Second, people have to adopt the "yes, and" philosophy... building on each other's ideas, rather than always being critical and poking holes in other's proposals.  Third, when people do critique others' ideas, they have to be constructive.  They can't attack people personally.  They must focus on the issues, not the personalities.  Moreover, they have to encourage the generation of new options, rather than just attacking the existing ideas.   Finally, the leader has to enforce the shared norms, the rules of engagement.  If people become to parochial, or they simply defend the interests of their functional area, the leader needs to call them on it.  That need not be done publicly, but enforcement of the group norms must take place.  

Three Myths and Lessons from the NFL Deflateglate Debacle

Yes, all of us here in New England enjoyed yesterday very much.  Our four-time Super Bowl winning quarterback prevailed in federal court over the National Football League and its commissioner, Roger Goodell.  As I reflected on this debacle over the past seven months, I discovered three myths that have prevailed at times.   As we debunk each myth, we find lessons for all organizations and leaders.  

Myth #1:   Attendance, television viewership, revenues and profits are at an all-time high.  Recent scandals and public relations disasters have not decreased any of these key metrics.  Therefore, these major stumbles on the part of the NFL don't actually matter much.

Reality:  Serious leadership and public relations mistakes have consequences, even if they do not lead to revenue and profit decreases in the short run.  Why?  Consider other stakeholders for a moment.  When a company stumbles badly as the NFL has, you have to ask yourself:  How do these events affect other constituencies besides our customers?  For instance, does this crisis affect employee engagement?  Does it diminish our ability to attract and retain great talent?  Consider whether top female lawyers are more or less willing to work for the NFL in the wake of the Ray Rice scandal.  Similarly, you can ask:  Are other organizations more or less willing to partner with the NFL on key initiatives?  You can certainly imagine how some organizations might choose to partner with other sports or entertainment entities because of the negative publicity that might come with a close affiliation with the NFL.   

Myth #2:  The owners have (and should) back Roger Goodell as commissioner because he has been good for the bottom line.  Sales and profits have soared under his leadership. 

Reality:  In major league baseball, a new metric has emerged in recent years.  It's called WARP (wins above replacement player).  How much value does a player provide ABOVE AND BEYOND that of a hypothetical replacement player (an inexpensive Triple A call-up who plays the same position).  When we think about leadership of a major organization, we should consider that person's VARL (value above replacement leader).  Could some other leader step into the job of NFL commissioner and achieve similar financial results.  I would contend that many other talented people could attain the revenue and profit levels achieved by the NFL during Goodell's tenure.  The sport is simply that popular, and the groundwork for that success was laid by Goodell's predecessors.   Too often, companies provide incredibly high compensation packages for CEOs because the board somehow convinces themselves that the person is indispensable.   Instead, they should seriously ask: What is this CEO's VARL?  

Myth #3:  Better data lead to better decisions. A better investigation would have led to a very different result. 

Undoubtedly, the NFL bungled this entire inquiry.   Top executives' lack of knowledge of the Ideal Gas Law, for instance, is simply astounding.  However, better data do not always to improved choices.  The bottom line:  this entire matter is an incredible example of the power of confirmation bias.  Put simply, people look for and rely upon data that confirms what they already believe.  The investigators fell into this trap.  They gathered and assimilated data in a highly biased manner.  The reporters and analysts all fell into the confirmation bias trap.  Fans naturally exhibited the bias as well. We all saw what we wanted to see in the data.  The same confirmation bias affects corporate decisions of all kinds.  More data do not always lead to better decisions, because we gather and analyze data in a biased manner.  

Five Crucial Strategy Questions

Freek Vermeulen, Associate Professor of Strategy and Entrepreneurship at the London Business School, has published a terrific post on the HBR blog this week.  It's titled, "5 Strategy Questions Every Leader Should Make Time For."  Here are his five key questions about competitive strategy:

1.  What does not fit?

2.  What would an outsider do?

3.  Is my organization consistent with my strategy?

4.  Do I understand why we do it this way?

5.  What might be the long term consequences?

I especially liked this advice about what doesn't fit.  Vermeulen writes:

Ask yourself, of the various activities and businesses that you have moved into, do they make sense together? Individually, each of them may seem attractive, but can you explain why they would work well together; why the sum is greater than the parts? As the late Steve Jobs explained to Apple’s employees when he axed a seemingly attractive business line, “Although micro-cosmically it made sense, macro-cosmically it didn’t add up.

Google Changes Its Logo: Does it Matter?

Google announced today that it has changed its logo (see the before/after comparison here).   While the shift may not be substantial, it did cause me to ponder the impact of a logo change.  After all, some companies spend considerable amounts of money on logo redesigns.  Does it matter at all?  I found an article from several years ago in Business Week that addresses this topic.  It describes research by Rice University Professor Vikas Mittal, West Virginia Professor Michael Walsh, and Penn State Professor Karen Winterish.   The scholars found that customers with high brand commitment tend to have the most significant negative reaction to logo changes.  These high commitment customers also reported that they would be less likely to buy that brand in the future.  Casual customers did not have this type of strong adverse reaction to logo changes. Mittal explained how managers must apply this research as they redesign logos from time to time:  "One strategy may be to manage the reactions and expectations of strongly committed consumers by actively soliciting their input and perhaps pre-notifying them before the changes are revealed to the broader public. Giving the strongly committed such a feeling of being an 'insider' may strengthen their self-brand connection and mitigate the potentially negative effects of logo redesign."

Can Exercise Enhance Creativity?

In this video, NYU Professor Wendy Suzuki explains her research that explores the link between physical exercise and creativity. 

Google and Alphabet: What are the risks?

Should we have been shocked by the Google/Alphabet news?  Actually, I don't think so.  Let's step back for a moment and think about Google's collection of businesses.  The company is incredibly creative and innovative, but in the end, one major business generated most of the profits: search.   That business is certainly as mature as a steel company, but it's much further along in the life cycle than many of the new ventures that Google has launched (such as driver-less cars).   How do investors look at companies with a big business generating lots of cash, and a set of smaller more speculative ventures that are users of cash.  Well, they become skeptical of too much cross-subsidization, particularly if the synergies among the businesses are limited.  We have seen the pressure on Google in recent quarters, as investors demand returns from the high-profit search business.  They don't want to see too much of that cash diverted to unprofitable and speculative ventures.  On the other hand, we know that new ventures often struggle when embedded in larger organizations.   They need a certain level of autonomy to flourish.  Therefore, it makes sense to separate out the new ventures.  It gives them a better chance to grow with some independence, and it enables the main search business to focus on optimizing returns.  

Are there some risks though of this new structure?  A discussion on the Knowledge@Wharton site has highlighted some of those key risks very well.  Here's an excerpt:

According to Wharton emeritus management professor Lawrence Hrebiniak, “transparency … is good, [but] I don’t know if transparency translates into profits.” Trouble could follow if Google’s investments in projects like driverless cars and drones don’t make money, he adds. “The transparency could cause some investors to rethink whether they want to be invested in these other businesses and prefer to put their money in Google,” he says. “There might be some pressure, in time, to divest some of these bad businesses on the non-Google side.”

The Impact of Inauthentic Behavior: How Does It Feel to be a Phony?

Kellogg Insights reports on the latest research by Francesca Gino, Maryam Kouchaki, and Adam Galinsky.   They examine the impact of inauthentic behavior - or "phoniness" to put it simply.  What happens we were act like phonies, perhaps to stay in the good graces of a boss at work?   These scholars demonstrate that inauthentic behavior actually makes us feel immoral.  Moreover, it makes us want to engage in some moral behavior (e.g. helping or serving others) to compensate for that bad feeling about ourselves.   The scholars suggest that low employee engagement in many workplaces may result, in part, from the fact that people feel immoral about phony behavior that they have engaged in at work.  What's the implication for business leaders.  Here's an excerpt from Kellogg Insights summarizing the scholars' conclusions:

For business leaders, these consequences are worth keeping in mind. If employee dissatisfaction is based on a violation of moral values—even at a subconscious level—it might be worth considering how authentic employees are allowed to be in their particular role. “It seems to be true that to act in accordance with one’s own self, emotions, and values is a fundamental aspect of well-being,” Kouchaki says. “Leaders might want to factor that in. The knowledge that inauthentic behavior has costs and that prosocial behavior”—like assisting or mentoring a colleague—“increases moral self-regard—this is something leaders might consider when designing their organizations.”

Live Chat: Tonight (Wednesday, 8/26) at 7pm!

What questions about business do you have? Join me and The Great Courses for a live online chat tonight from 7-8pm.  As you many of you know, The Great Courses offers wonderful opportunities for lifelong learning by providing audio/video courses by professors from universities throughout the country.  I've enjoyed creating three courses for the company (topics: decision-making, leadership, and strategy).   Here's the link to join the discussion.  Hope to interact with many of you this evening!   

Wal-Mart, Sam's Club, and Costco: A Key Strategy Lesson

The Wall Street Journal published an article today (by Sarah Nassauer) titled "Sam's Club Aims to be Less Like Wal-Mart."   The article quotes the Rosalind Brewer, chief executive of Sam's Club:  "“We want to be less of a Wal-Mart."  The article goes on to explain Brewer's thinking:

The new strategy means carrying fewer products that appeal to households that earn $45,000 a year—Wal-Mart’s sweet spot—in favor of targeting wealthier shoppers with more organic food, brand-name clothes and 1,000-thread count Egyptian cotton sheets, she said during a recent interview.  Sam’s struggle to shake an early focus on mainstream consumers has become a liability as club stores have evolved into a favorite among more affluent shoppers who are able to pay a membership fee for access to discounts on items from large screen TVs to bulk boxes of peaches. At the same time, big- box retailers and grocery stores have embraced discounted bulk sizes, without a membership fee. Rival Costco Wholesale Corp. has thrived, building stores in wealthy enclaves and delivering strong annual sales gains.

The story of Costco and Sam's Club offers a key strategy lesson for all managers.   Think about the wholesale club business for a moment.  Who is the typical consumer?  The data show that they have a substantially higher income than the usual Wal-Mart customer.  Does that surprise you?  Consider the wholesale club business for a moment.   You have to pay an annual membership fee.   You buy in bulk.  Therefore, while you may save on a per unit basis, the total cash outlay on a typical shopping trip is quite high.  You need an SUV to get the goods home, because they are bulky.  Moreover, you need a good-sized house with an ample pantry space to store the goods.  In short, the wholesale club model is more attractive to customers with a higher level of disposable income than many Wal-Mart shoppers.

Consider Costco's success.  They figured out who the customer was in this business, and they tailored their entire business model to this consumer.   For that reason, Costco locates in wealthier suburbs, and they offer premium goods in many categories.  They have become the largest retailer of wine in the country.  They know their customer.   Why has Sam's Club stumbled a bit in the past?  Wal-Mart built Sam's Club and tried to leverage all that was successful and effective about their value chain in the discount retailing business.  However, the activities and choices that were well-suited for discount retail were not necessarily tailored effectively to the wholesale club  business.  You see the temptation though.  Successful firms want to leverage their existing capabilities, choices, and activities when they move into a new market segment.  Yet, that effort to leverage what they do well may become a stumbling block if the new segment has some crucial differences for which they should account. Costco could build a business model well-suited to the more affluent customer because they were building from scratch. 

Should You Pursue Market Share in Fast-Growing Industries?

Mark Chussil of Advanced Competitive Strategies has an interesting post on Harvard Business Review this month.  He questions several myths about competitive strategy.   He writes, "Say you are competing in a fast-growing industry. How much do you care about profits versus market share?  It’s a common rule of thumb that businesses should go for market share in fast-growing in­dustries. It’s conventional wisdom, though, not a law of physics; you don’t have to go for share."  

Chussil examines the wisdom of pursuing growth vs. profits using a complex computer simulation.  He finds the majority of people tend to pursue growth in fast-growing industries (55% vs. 45%).  What happens when people aim for market share gains.  Chussil writes, "And yet in over 173 million tournament simulations – every unique combination of the 700+ strategies for the three competitors in the fast-growth industry – the quest for market share led to price wars 90% of the time, subtracting value from the industry. In other words, following the “rule” produced results worse than if the participants had taken naps and done nothing at all." 

Chussil does not argue that you should always prefer profits to growth.  Instead, he simply makes the point that we should not blindly follow conventional wisdom.   For instance, he points out that the conventional wisdom suggests we should keep our strategies secret from our rivals. Yet he describes the situations in which revealing our strategies can actually be value-enhancing.  He offers good advice.  Beware the conventional wisdom when it comes to formulating competitive strategy.  You simply cannot boil strategy down to a formula or a few rules of thumb. 

Brief Clip from The Great Courses lecture series on Competitive Strategy

Back to the Blog!

I'm sorry for the lengthy period since my last blog post.  I enjoyed several weeks away with my family, and now I'm back on campus preparing for the start of the semester.  I'll be posting regularly starting today.  I hope you enjoy the blog. 

Timing of the Devil's Advocate

As this blog's readers know, I'm a proponent of Devils advocacy as a mechanism for enhancing decision-making effectiveness.  However, some teams make a crucial mistake with regard  to the timing of the devil's advocate.  Specifically, they allow one or more people to begin playing the role of devil's advocate too early in the decision process.  That early critique actually suppresses idea and alternative generation.  The best teams wait to critique ideas.  They begin by focusing on generating a wide range of options.  Then they begin engaging in critical analysis.  

Don't Reinvent the Wheel

Stanford Professor Yossi Feinberg has identified five common traps that trip up entrepreneurs.  There's one trap that I think applies to any business, startup or large corporation.  Here's Feinberg describing this particular trap:

Don’t try and reinvent the wheel if you don’t need to.

The Internet has democratized access to all kinds of information, and if a successful process or structure exists for a non-core element of your business, use it.  This can be anything from administrative office functions to technical elements on the periphery of your central business proposition. If an effective solution exists, then the chances are it will not add value to your business to develop it from scratch.

Far too many companies fall into the "not invented here" trap.  They build out their own systems and processes when an "off-the-shelf" alternative already exists.  They fail to learn from what others have already succeeded or failed at doing.  They conclude that their business is unique, and that outside solutions simply don't apply.   Of course, you can't just copy others.  You have to adapt what they have done to fit your business.  However, simply starting from scratch and not leveraging what others have done is a big mistake.  

Funny: Networking or a Date?

Source:  Fast Company

Preparing and Rehearsing for a Meeting with Your Boss

Patti Johnson has written a good Fast Company column titled, "8 Ways to Get the Most out of a Meeting with Your Boss."   Johnson explores how you can prepare effectively for these meetings, as well as how to conduct yourself to get the most out of these interactions.   Here's an excerpt:

Think less about your slides and more about the discussion
I once watched a colleague of mine endlessly tinker with the wording on his PowerPoint slides right up to the moment before his presentation. Of course you need solid content to grab your audience’s attention, but when you’re speaking to senior leaders, you need much more than a striking PowerPoint show. Instead, think of it as a tool for spurring the right conversation.  What decisions will be made during the meeting, and what information will be needed to make them? Pin down those objectives first, then plan your presentation accordingly. And stick to what's essential. Too many slides can signal that you plan to do all the talking or even that you can’t manage your time effectively. 

Focus on your audience, not yourself 

Anticipate the issues your audience cares about most. Put yourself in their shoes, and make a list of potential questions from your listeners' perspective. What do they want to know? Do they want in-depth details or just the headlines? How much time do they want to spend listening to you? If you base your presentation around your audience’s needs and interests, you can align your time and content to fit them.

I think the best part of this advice is that it encourages employees to anticipate how the meeting will unfold.  Putting yourself in the other person's shoes is so crucial.  I would even encourage employees to rehearse how they might respond to certain questions.  You also need to think about timing.  You won't have time to cover everything that you would like to discuss.  That's almost always the case.  So, be clear in advance about what your priorities are.  What must you absolutely cover in the meeting, and what can you defer? 

There is No Optimal Organizational Structure

Many senior executives seem to obsess over organizational structure.   They love to move the boxes and arrows around on organization charts.  Today we are a functional organization; tomorrow we will organize ourselves by product line.  That will solve our problems!  It will make us more customer-focused!  We will improve speed to market!  One year later, they shift to a geographically-focused organization chart.  That will solve our problems!  We need to think globally, but act locally!  We will adapt more effectively to local customs and cultures!   Executives should stop obsessing over the boxes and arrows on those organizational charts.  No "optimal" structure exists.  Each type has its strengths AND its flaws. 

Executives should recall the old adage coined by Rufus Miles, Jr. - a senior government official in the administrations of Presidents Truman, Eisenhower, and Kennedy. Miles coined the phrase, "Where you stand depends on where you sit." In other words, your stance on key issues depends not simply on your own judgments, values, and beliefs.  It also depends on your position within an organization.  Your views will represent the interests and goals of your unit. 

What is the implication of Miles' perspective?  It means that leaders should focus on getting their team members to understand how the structure of an organization often drives its strategy.   They should challenge the executives to consider this important question:  How might we look at this strategic decision differently if we were organized differently?  In other words, are we allowing structure to drive strategy (rather than the other way around)?   Leaders need to encourage team members to stand in each others' shoes.  They need to be able to understand why people in other units, regions, or lines of business have different beliefs, positions, and perspectives.  They need to understand how current structures might be leading to certain biases in decision making.  In the end, no optimal organizational structure exists.  However, the best firms understand the limitations of their particular structure.   The best companies do not allow the organization chart to drive decision making. 

Risks for High Potentials If They Switch Jobs

In today's Wall Street Journal, Joann Lublin writes about the "stay or go" decision for high-potential leaders.  These folks often find themselves in demand these days.  Should they stay at the company that has designated them as a high potential and invested in their development, or should they go to a new employer promising better opportunities, faster promotions, and/or a slice of equity?  Lublin identifies several risks associated with moving to a new employer: 

Job-hopping stars usually lose the extra attention to their leadership development needs. “That’s often when they need it the most,” says John Beeson, author of “The Unwritten Rules,” a book about landing executive promotions. “If you jump ship while a high potential, you may never get those issues addressed,” Mr. Beeson warns. “And they can derail your career.”  Departing high potentials also risk burnt bridges with an employer that has invested time and money grooming them. A surprise exit may harm the reputation of internal advocates who fought for their advancement.  “You need to handle those relationships carefully to avoid causing a rift,” recommends Mike Travis, head of Travis & Co., an executive-search firm in Newton, Mass

I would add that high potentials need to assess the "supporting infrastructure" at their prospective employers.  You cannot succeed on your own.   Therefore, you need to ask these five questions:  

1. How strong will your new team be?  
2. Are employees throughout the organization highly engaged?   
3. Will your peers be supportive and collaborative, or will they constantly compete with you?
4. How effective are the systems that you will need to do your work? 
5. Will the firm provide you with continued coaching and development?  

Is It Time to Rethink This Standard HR Practice?

This week Forbes contributor Liz Ryan takes on some standard company policies and procedures that she thinks are outdated and counterproductive.   Among them, she criticizes the rule in many firms whereby employees must notify their manager if they wish to apply for another job within the organization.  Here's an except from her article:  

Most large and many medium-sized organizations still have policies in place that require an employee who wants to apply for a different job in the company to get his or her manager’s approval first.  Any person with three functioning brain cells can instantly think of plenty of good reasons why a manager might prevent a qualified and eager employee from moving into another job.  It’s a pain in the neck to replace a key employee. You might want to keep a great person on your team to boost your own chances at getting promoted... HR people working together with your employees should arrange transfer and promotion interviews. If an employee doesn’t get the job he applied for, his or her manager never even needs to know about it. If s/he gets the job, the manager can be brought into the loop at that point.

I'm curious what readers think about Ryan's recommendation.  I can see both sides of this argument.  In many firms, this rule does inhibit employees from pursuing new opportunities at times.  Some managers do horde talent to the detriment of employees' personal development and to the detriment of the organization's effectiveness as a whole.   On the other hand, Ryan's idea puts human resource professionals in an awkward spot. Moreover, it leaves managers - perhaps very good ones - completely in the dark.   Ideally, human resources should be facilitating career development conversations between managers and subordinates, rather than sidestepping supervisors in this manner.  They should be encouraging and facilitating each manager to talk to their people frequently about their goals and aspirations (not just at an annual performance review).  Moreover, human resources should be talking to managers about employee engagement data, so that they can proactively address situations where people may be frustrated on a particular team.  Finally, human resources should be facilitating discussions at more senior levels about key job openings, so that the organization can proactively identify key talent that it may wish to move into a new opportunity.  

Hiring for Cultural Fit

Many companies hire for cultural fit.  They want to find employees who share their organization's values, and whose behavior and mindset align with the way that decisions are made and work gets done in their firm.  A recent Knowledge@Wharton article argues that companies need to be careful, however, when considering a candidate's cultural fit.

Cultural fit clearly plays a key role in organizational effectiveness. Consider the study by Nancy Rothbard, Gina Dokko, and Steffanie Wilk, published in Organizational Science in 2009.   They found that companies must cope with a key downside when hiring people with relevant experience.  Specifically, they noted that many experienced employees come with "cognitive baggage" that can inhibit them from being effective at their new firm.  However, a candidate's flexibility and cultural fit tended to offset the negative impact of cognitive baggage to some extent.

What's the downside of hiring for cultural fit?  Hidden biases may creep into your decision-making process. You may simply look for people who are similar to you in many ways, i.e. same educational background, socio-economic status, hobbies and interests, etc.  In other words, you focus on fit with your personal interests and values, rather than organizational norms and attributes.  Kellogg Professor Lauren Rivera recently wrote an article for the New York Times about how we might bond with candidates over things that don't really matter when it comes to organizational effectiveness: “Bonding over rowing college crew, getting certified in scuba, sipping single-malt Scotches in the Highlands or dining at Michelin-starred restaurants was evidence of fit; sharing a love of teamwork or a passion for pleasing clients was not.”  In other words, people tend to make snap judgments based on who they might like to be friends with rather than who could collaborate with others to drive organizational performance.  

Consider your interviewing process for a moment.   What types of questions are you asking?  How are you assessing candidates?   Is the emphasis on fit with the interviewer's interests and values, or are you truly evaluating cultural fit?  How might you alter your hiring process to emphasize the latter and downplay the former?  

Encouraging Others to Set High Expectations for Themselves

We often hear that great leaders and great teachers establish high expectations for their followers and their students. They set the bar high and challenge others to exceed that target. However, I was struck by some advice in a recent column by Fast Company that challenges this conventional wisdom a bit. Natasha Awasthi wrote a piece titled, "7 Hard-Earned Lessons in Leading a Dysfunctional Team." She talked about taking charge of an under-performing group and turning it around. Awasthi offered this important nugget of advice: "Make them exceed their expectations first (not yours)." She goes on to explain:

"A GPS needs to know where you are and where you want to go before it can give you directions. In a similar vein, before you unveil designs for another individual’s work-life, you must plot their starting point, and their desired destination. Your aim should be to thoughtfully and incrementally build an individual’s confidence in her ability to succeed at tasks seemingly out of her reach."

She makes a great point.  Before we charge people with achieving goals that we have established for them, we sometimes have to prove to them that they can exceed their own expectations.  We need to encourage them to set the bar high and show them that they can succeed at achieving those goals.  In short, we have to encourage others to demand a great deal of themselves.  Then they need to see that that achieving those loftier goals is possible.  If they do it for themselves, rather than for us, we are much more likely to succeed as leaders (and teachers).  

Engaging Your Consumer to Create New Products

Leading companies have become much more adept lately at co-creating new products in close partnership with their customers.  They do so in a number of ways, including intensive ethnographic research, crowdsourcing projects, social media contests, customer advisory councils, etc.  One example of an interesting approach is the "Do Us a Flavor" campaign conducted by the Lays brand of potato chips (owned by Pepsico).  This Knowledge@Wharton article describes the effort.  This excerpt explains how the program worked:

Anyone who had a chip idea in mind could visit Lays’ Facebook page, enter some information about their flavor and be rewarded with a shareable image of “their” bag of chips. The company teamed up with Facebook to turn the “like” button into a vote of “I’d Eat That.” Lays’ Facebook cover photo became a rotating billboard, which featured a new submission every few minutes.  A panel of judges and campaign spokespeople — celebrity chef Michael Symon and actress Eva Longoria — helped narrow the contest to three finalist flavors: sriracha, cheesy garlic bread and chicken and waffles, and then opened the vote for a winner to the public.

14 million people voted in this campaign, and the bags of chips for the three finalists flew off the shelves in a matter of hours.  Of course, the campaign's true value extends well beyond the sales of these new flavors of potato chips.  In my view, the value lies in the learning that is taking place as the campaign unfolds.  The brand managers identify flavors that excite customers, as well as those that clearly do not.   They also learn about the type of people most likely to engage closely with the company via social media.  Perhaps these customers share other important needs and wants along the way.   Moreover, the company engages the customer in a way that may lead to more sales for the brand overall.  They drive traffic to important retail partners, and they give those retailers something new and exciting to merchandise.  Finally, they help the company reach millennials, an important group for whom the brand may otherwise become less relevant amidst many new choices.  

Were We Lucky or Smart?

Eric J. McNulty, Director of research at the National Preparedness Leadership Initiative, has written a highly useful blog post for Strategy+Business.   He examines outcome bias and how to overcome it.  Outcome bias, put simply, is the tendency to evaluate a decision (or set of decisions) simply based on the result.  In other words, if the outcome is positive, people assume that good decisions were made, and that an effective decision-making process was employed.  If the results are less than desirable, people presume that  the parties involved made faulty decisions and engaged in a flawed decision process.    Of course, that need not be the case.  We sometimes achieve great results despite some poor choices and a flawed process.  Similarly, we sometimes experience poor outcomes despite having made sound decisions.  How do we overcome outcome bias?  McNulty has a simple question that should be considered when great results are achieved:  Were we smart and capable or were we simply lucky?  By asking about the role of luck, we get people to consider the role of external and/or uncontrollable factors that may have contributed to our success.  It causes us to look beyond ourselves and to look beyond the simple explanation that our wonderful capabilities led to success. 

Communicating Your Organization's Vision to Your Team

Kelly and Ben Decker have published a terrific Harvard Business Review blog post about communicating your organization's vision to your team.  They argue that middle managers should follow four basic steps when translating the overall company vision for their direct reports. 

1.  Know your audience:  What do these particular people care about most?   What are their primary goals and objectives?  What is their passion?

2.  Tailor the message:  Hone the communication of the vision to this particular audience.  Having learned about their passions, needs, and wants, you can shape the message in a way that is most appealing to them.

3.  Be specific:  Ok, if that is the vision, what do we do next?  How specifically do we act in ways that advance the vision?  Be specific and concrete.

4.  What's in it for them?   Sure, they care about the organization as a whole.  In the end, though, they are also self-interested.  How will these actions enable them to meet their personal goals?  Why will they benefit from the pursuit of this organizational vision? 

How the Powerful Perceive & React to Fair/Unfair Situations

The Boston Globe reported yesterday on a new study by Stanford researchers Takuya Sawaoka, Brent L. Hughes, and Nalini Ambady.  They examined how powerful people perceived unfair treatment.  The scholars conducted a series of experiments.  In those studies, they primed some people so that they recalled a situation in which they had significant power over others.  They discovered that people primed in the "high-power" state were much more likely to expect fair treatment, and they  are more likely to perceive treatment as unfair relative to those in the "low-power" state.   However, they also found that participants in the "high-power" condition were significantly less likely to perceive situations as unfair or unjust when they benefit or when others are harmed. 

In this article in Science Daily, Sawaoka commented on the findings: "Powerful people are only faster to notice unfair situations when they're the victims.   Our findings also suggest that powerful people are slower to notice unfair situations that victimize other people, and this converges with other research demonstrating that the powerful are less empathetic to the plight of others."

The Downside of a Strong Corporate Culture

New research by two professors at the Kellogg School of Management at Northwestern University suggests that we should reexamine the impact of organizational culture on firm performance.  They argue that strong cultures serve a useful purpose, but they become a liability when faced with the threat of disruptive innovation.  A strong organizational culture enhances efficiency, because everyone is on the same page.  They can coordinate their activities effectively.    A weaker culture means a broader diversity of viewpoints.  It diminishes efficiency, but it might enhance the organization's ability to adapt to a changing external world.  The finding should not surprise you.  We have been aware of this good news/bad news story about organizational culture for years.  Nevertheless, it bears repeating... we all need the reminder that a strong culture is not all roses and rainbows.  Here's an excerpt from Kellogg Insights that summarizes the findings of this research: 

New research by Willemien Kets, an assistant professor of managerial economics and decision sciences at the Kellogg School, suggests that a strong culture serves a utilitarian purpose: it sets expectations, increasing the likelihood that, faced with uncertainty, members of a team will all be on the same page.  Kets, along with her coauthor, Alvaro Sandroni, a professor of managerial economics and decision sciences at the Kellogg School, argues that cultural norms make interactions easier—a good thing much of the time. But in fast-changing industries, or in a tumultuous economy, the broader diversity of viewpoints that a weaker company culture engenders can lead to fewer missed opportunities.

Jimmy Kimmel Strikes Again: The Cold Pressed Juice Craze

Juice bars have become the new craze.  We see many of these stores opening up around the country.   Here in Boston, many new juice bars have opened in recent months.   Customers $8-$10 for a freshly created juice at these stores.  Jimmy Kimmel decided to see whether people really knew what they were buying. Let's take a look at this hilarious sketch!

What happens if you feel you can't express dissent?

Imagine you are in a meeting, and you sense that the group has prematurely converged on a solution.  The leader does not seem to want to hear dissenting views.  What do you do?  The easy answer is to have the courage to speak up anyway.  That's tough though, and it may embarrass the boss.  A one-on-one meeting might be more productive.  Talk to the leader privately.  Discuss how you think several people may have other ideas or alternatives that they are reticent to put forward.  Don't critique the current plan.  That may put the leader on the defensive.  Instead, simply suggest that it might be worthwhile to examine other options, if for no reason then that the discussion may help strengthen the current proposal.  Talk about others who perhaps have ideas that they have not shared.  Suggest that the leader invite a broader discussion.  This type of discussion in a one-on-one meeting with the leader often is a more effective way forward as opposed to direct confrontation in a large meeting.  

First-Time Managers: Weak at Influence and Persuasion

The Center for Creative Leadership (CCL) has reported on an interesting finding from its research.  The organization reviewed 360-degree feedback for first-time managers, and it discovered that many of these individuals received poor evaluations for their ability to influence others.  However, people reported that the ability to exercise influence was an important leadership competence that would have made these managers much more effective.  

How do you influence others?   CCL points to the research of SUNY-Albany Professor Gary Yukl and four basic approaches to influencing others described in his work.  You can attempt to persuade others through logical arguments and analysis.  In contrast, you can appeal to their hearts, using an emotional and inspirational message.   Third, you can give others voice and seek their input as a means of building buy-in for a proposal.  Finally, you can offer resources and help to another party if they will help you enact a particular idea or initiative.  

What do the best leaders do?  They match the persuasion and influence tactic to the situation at hand.  They examine the circumstances as well as the people they are trying to influence.  Once you understand these factors, you can choose the right influence tactic - i.e. the one best-suited to achieve your goals in this situation.  

Urgent vs. Important Work: The Eisenhower Matrix

Source: http://www.georgeambler.com/

George Ambler has a terrific blog post about the so-called Eisenhower Matrix that is definitely worth reading in full. Ambler quotes the former president and five-star general, "“What is important is seldom urgent and what is urgent is seldom important.” He refers to the Eisenhower Matrix, popularized by Stephen Covey in his best-selling book, The 7 Habits of Highly Effective People. The concept focuses our attention on the notion that what we often deem urgent is not, in fact, that crucial to our success (personal and/or organizational). Effective leaders don't allow busywork and "fighting fires" to crowd their schedule, leaving little time for important work that may be strategic and longer term in nature.

Overclaiming: How We (Mistakenly) Judge our Contributions to Group Work

Melissa Dahl recently wrote an article in New York Magazine about University of Chicago Professor Nicholas Epley's research on "over-claiming" behavior.   By overclaiming, Epley means the tendency for people to claim too much credit for their contributions to group work.   He and his co-authors have asked people to estimate the percentage of work that they believe they contributed to a group's output.  They found that the sum of all members' estimates consistently exceed 100%.  Why does this take place?  Plain and simple, people are egocentric.  

In more recent work, Epley has explored the over-claiming phenomenon in more depth.  He has found that, "People wrongly assume that time spent on a project is productive time spent on a project, and claim credit accordingly."    In one experiment, he asked people to work in groups of three to tackle word puzzles.  Two people actually did the work, while one person was assigned to act as a supervisor.  They were asked to "leverage the synergies" of the team.   In another set of groups, the third person simply was asked to be an observer, rather than a supervisor.  The two groups did equally well on the word puzzles. In other words, the supervisor did not make a meaningful contribution.   However, they claimed to have made a substantial contribution!   

Epley explains the meaning of this finding:  "People like awarding themselves E's for effort, another tendency that can result in claiming more credit than you really earned."  In other words, people aren't really judging their contribution to the task's accomplishment.  They are measuring the time and effort that they spent on the task.  Of course, time and effort does not equate to substantive contribution in many cases!  

How does one stop the over-claiming from becoming a problem within a group?  In a paper with Harvard Professor Eugene Caruso, Epley discovered that asking team members to reflect on the contributions of their fellow team members can make a big difference.  In other words, you have to direct people to look beyond themselves.   If asked to focus on others for a moment, rather than themselves, over-claiming is reduced.   That's an interesting finding, but I don't think a bit of reflection solves the problem entirely.   I do something a bit different that helps to address over-claiming behavior.  At the end of a major group project, I ask students to evaluate the contributions of all team members, but I tell them that the sum of all percentages must equal 100%.  That too does not solve the problem entirely, but it helps.