The Incredible Shrinking Harvard

Richard Bradley writes a fascinating piece about the current challenges at my alma mater. There's no question that Drew Faust was hired when the university faced a a bountiful set of opportunities... much different from the problems and threats it faces today. She may very well have been ideal for the situation Harvard faced two years ago. Bradley raises the interesting question though of whether Faust has the skills and capabilities to deal with today's circumstances.

An MBA Oath?

On her blog, Decision to Lead, Frances Frei explains that some business school students have attempted to create an MBA oath, modeled after the type of oaths taken by law and medical school graduates. For more information regarding the oath, go to http://mbaoath.org/

Cutting Salaries Instead of Jobs

Business Week has an interesting article on the pros and cons of the "cut salaries rather than enact layoffs" approach to reducing costs being taken by many firms in this recession.

Jon Stewart: Carmageddon '09 - Lemon Aid

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Air France Crash

The Associated Press has posted an article about the Air France crash with the title, "Multiple factors eyed in case of missing jet." Experts tell the writer that lightning or turbulence alone are unlikely to have caused the crash. Here is a brief excerpt:

Although aviation experts stressed it was much too early to speculate about the causes of the disappearance, they noted that the incident was most likely caused by various factors that combined to cause a catastrophic chain of events. "It sounds like something that evolved into a problem, not something that happened instantly," said Bill Voss, president and CEO of Flight Safety Foundation, in Alexandria, Virginia. "It would appear that their systems were degrading but we don't know why they were degrading." Most aviation accidents are the result of the combination of several adverse circumstances which by themselves would not ordinarily be dangerous.

The lesson here applies to all large-scale failures, not simply aviation accidents. Most large-scale failures result from a series of small errors and failures, rather than a single root cause. These small problems often cascade to create a catastrophe. Accident investigators in many fields, not simply aviation, have shown that a chain of events and errors typically leads to a particular disaster. The key lesson: Be wary of trying to identify a single root cause; search instead for all the links in the chain of events that led to catastrophe.

Questions about the GM Bankruptcy

A few questions to ponder on this historic day in which General Motors announces that they are filing for bankruptcy:

1. Why should we believe that a company whose core capabilities revolve around making trucks and SUVs can suddenly become a highly competitive and successful manufacturer of small, environmentally friendly cars?

2. How long will it take to wind down the "old GM" and will this process require an additional infusion of government funds?

3. Has the company done enough in its talks with the UAW to make the firm competitive against firms such as Honda and Toyota?

4. Will GM's suppliers survive this process, or will some enter bankruptcy themselves? Will the government find itself bailing some of them out as well?

5. Can the firm attract the management talent required to engineer the turnaround, particularly given the limitations on executive compensation that are likely to be put in place due to government ownership?

6. How much will Washington meddle in business decisions for political reasons?

7. Will Washington find itself favoring GM over Ford or engaging in protectionist policies to advance the interests of government-owned General Motors?

8. Does GM have a viable, profitable strategy for the Volt?

9. With the sale of assets such as Opel and Saab, GM will become more U.S.-centric while the auto industry continues to globalize; is this an effective strategy?

10. Finally, how much more money will the government have to invest in GM in the years ahead? Will we end up throwing good money after bad?

Teaching Kids About Basic Business Skills

I just learned about Lemonade Day, a terrific Texas event designed to train young people about entrepreneurship in a fun, enjoyable way. Take a look at this inspiring video about Lemonade Day:

Nintendo: Cultivating Complements

Peanut butter is to jelly as the Wii is to... well, video games, of course. We are talking complements here. It comes as no surprise that, according to the Wall Street Journal, Nintendo is "pushing to increase the number of Wii videogames made by outside publishers, including combat and sports titles that target serious players." The Wii has been a fabulous success, but some observers have worried that the system will run out of steam if Nintendo is not able to cultivate a more diverse array of titles. Many Wii consumers (includin our family) actually own and play a very limited number of games. The concern is that such users may eventually get bored with these games. The key to long term sustainable success is to continue to build more diverse games, including some that are for use with new hardware attachments. Thus, the push to cultivate more complements (i.e. games from outside publishers) makes a great deal of sense.

One note of concern though... the quote above from the Wall Street Journal suggests a push to create combat games for more serious players. What will these combat games be like? One reason that many families purchased the Wii instead of Sony or Microsoft is the fact that Wii games tended to be more family friendly. A push to move more aggressively into combat games enjoyed by hard-core gamers could turn off the core family casual gamers that Nintendo has had so much success selling to over the past few years.

Marketing: Art or Science

Seth Godin has a thought-provoking post over on his blog concerning the distinction between marketing as science vs. marketing as art. He puts forth the cogent argument that sometimes we get confused as to whether we are practicing art or science. As Godin writes, "If you don't know if you're doing a science project or an art project, you'll probably emphasize the wrong elements." I would add that managers often encounter dysfunctional conflict with their peers when they are talking different languages (art vs. science) without being aware of it. They simply talk past one another, and conflicts boil over at some point.

Twitter's Revenue Model

It's still hard for me to believe that a company as ubiquitous as Twitter does not have a revenue model yet. In an interview with the Wall Street Journal, the founders of Twitter discuss their plans to generate revenue in the near future. Click here for a link to the video.

Guest Post: How Relevant is Education to Leadership

From Kat Sanders:

How Relevant is Education to Leadership?

Perhaps the most convincing argument a kid can make against education, the kind of formal learning that’s taught at school today, is to point out that Albert Einstein was not held in too high esteem by his teachers, none of whom expected him to achieve great things in life. Well, in hindsight, we know how wrong an opinion that was! And we also know that academic brilliance is not the only way to achieve a bright future. So does this same principle apply to leadership as well? Are leaders born naturally or are they made through circumstances? While people who do well at school and college (academically) may or may not go on to success in later life, leadership is an aspect that comes to the fore on demand, and this is why, in my book, leaders are born and not made. When we talk of the relationship between education and leadership or of the relevancy that education has in leadership skills, we see that people who assumed leadership in school and college go on to make natural leaders when they are adults. This is because they are familiar with leading from the front and know what leadership involves. I’m not talking of the leadership that is thrust on us, but of that which we take on willingly. For instance, a group may have a designated leader, but he or she is not the one who is actually carrying out all the tasks that a leader should do. Instead, another person in the group, someone who is a born leader, assumes the mantle and sets out to lead the group when the designated leader falters or is found wanting. Consider a sport where each team has a captain, someone who does not necessarily have to be the best in the game, but who is supposed to bring out the best of his/her teammates. Normally, when you’re pretty young, the best player on the team is the captain. But as the games progress and you need to get into the spirit and become more competitive, the team member with a natural flair for leadership takes over and begins directing play and strategy.

Perhaps we could say that situations bring out the true leaders, rather than an education. While you can try to teach people the qualities of leadership, there’s no guarantee that they will become good leaders because of the education. However, if they do have leadership traits in them, no matter how long they remain dormant, they will find a way to break free when the right situation comes. Maybe we could say that a formal education provides us with opportunities for true leaders to show themselves, to understand their skills, and put them to good use all through their lives.


This article is written by Kat Sanders, who regularly blogs on the topic of best online engineering degree at her blog, The Engineering A Better World Blog. She welcomes your comments and questions at her email address: katsanders25@gmail.com.

Anne Mulcahy at Xerox

Anne Mulcahy announced last week that she will be retiring as CEO of Xerox, turning over the reins to Ursula Burns in a long-planned succession. Mulcahy, of course, engineered a remarkable turnaround at Xerox, having taken over when the firm seemed on the verge of collapse. I wrote a bit about Mulcahy in my new book, Know What You Don't Know. Here's an excerpt:

Mulcahy has taken some interesting steps to ensure that she and her fellow senior executives receive unfiltered information about customer satisfaction and dissatisfaction. She has chosen to listen directly to them, without a go-between who might alter or muddy the message. Specifically, Mulcahy employs two techniques to circumvent the usual filtering process that shapes the customer service data that reaches senior leaders. Her techniques involve more than simply going out on customer visits, though she does that as well. First, Mulcahy has assigned each of the company’s top 500 customers to a member of the top management team. Interestingly, she has not only assigned accounts to executives in charge of functions such as sales, marketing, and operations. She explains:

“All our executives are involved--including our Chief Accountant, our General Counsel and our head of Human Resources. Each executive is responsible for communicating with at least one of our customers, understanding their concerns and requirements and making sure the appropriate Xerox resources are marshaled to fix problems, address issues and capture opportunities.”

Secondly, Mulcahy has created a program whereby each member of the top management team serves as a “Customer Officer of the Day” at corporate headquarters on a monthly basis. She wants to hear the unvarnished comments of customers who may be having problems with the firm’s products. Moreover, Mulcahy wants each member of the top team, including herself, to be personally accountable for addressing customer concerns. She describes the program:

“There are about 20 of us and we rotate responsibility to be "Customer Officer of the Day." It works out to about a day a month. When you're in the box, you assume personal responsibility for dealing with any and all customer complaints, that come in to headquarters that clay. They are usually from customers who have had a bad experience. They're angry. They're frustrated. And they're calling headquarters as their court of last resort. The Xerox "Officer of the Day" has three responsibilities--listen to the customer, resolve their problem and assume responsibility for fixing the underlying cause. Believe me, it keeps us in touch with the real world. It grounds us. It permeates all our decision making.”

Mulcahy’s initiatives create direct communication between front-line users of her products and senior executives. She does not simply rely on summaries of statistics about customer service. The conversations with customers become valuable raw data that may provide insights not available in reports compiled from reams of customer survey statistics. Mulcahy has learned that customer questionnaires can be deceiving. People may report that they are “satisfied” with a company on a survey, yet still remain quite likely to switch to another firm’s products. Mulcahy describes this phenomenon:

“There has been a norm around for many years that somewhere around 75 per cent of customers who defect say they were "satisfied." Our own research bears this out. When our customers tell us they are “very satisfied," they are six times more likely to continue doing business with us than those who are merely satisfied… If you're just providing your customers with service that's good, they're probably just satisfied. This should set off alarm bells. Take the automotive industry. Satisfaction scores average around 90 per cent. Guess how many people repurchase from the same manufacturer? Only 40 per cent.”

Making Cars Less Safe

We all learned in our introductory economics course in college that "there is no free lunch." Life is full of tradeoffs that cannot be ignored or wished away. In today's Wall Street Journal, former Environmental Defense Fund trustee Robert Grady makes a key point about the push to increase fuel efficiency in U.S. automobiles:

"The Obama fuel efficiency plan may also contribute to a significant increase in highway deaths as vehicles are required to quickly meet the new CAFE standard and will likely become lighter in weight as a result. According to a study completed in 2001 by the National Research Council (NRC), the last major increase in CAFE standards, mandated by the Energy Policy and Conservation Act of 1975, required about a 50% increase in fuel economy (to 27.5 mpg by model year 1985 from an average of 18 mpg in 1978). The NRC study concluded that the subsequent downsizing and down-weighting of vehicles, "while resulting in significant fuel savings, also resulted in a safety penalty." Specifically, the NRC estimated that in 1993 there were between 1,300 and 2,600 motor vehicle crash deaths that would not have occurred if cars were as heavy as they were in 1976.

The president now proposes a fuel economy increase of similar magnitude in an even quicker time frame -- to 39 mpg by model year 2016 from 27.5 mpg now. Given the time it takes for new technologies to be developed, tested and incorporated into new car models, it is likely that down-weighting of cars will be an important means of meeting the new standard. And one result again could be highway deaths that might otherwise not have occurred."

First Mover Advantage

Many managers and students mistakenly presume that first movers always have an advantage in the marketplace. Of course, that is not the case. This article explores one key variable that may explain why first movers have advantages in some markets, but not others. It seems that the article is simply restating a notion that has been discussed previously in the strategy literature - i.e., if there are large spillover effects, whereby firms can easily capture the benefits of their rivals' learning curve economies, then first mover advantage wanes. Still, the researchers make a good point.

In fact, though, there are a number of reasons why first mover advantage may or may not exist in a particular industry. For instance, all else being equal, the presence of large network effects tends to create a first mover advantage. On the other hand, if scale economies are small and buyer switching costs are minimal, then this tends to favor followers rather than leaders.

Larry Lucchino at Bryant Commencement

Boston Red Sox CEO Larry Lucchino gave the commencement address at Bryant University on Saturday. He offered a top ten list of advice to our graduating seniors. Here are two of his excellent bits of advice:

Lucchino quoted Elwood Dowd, a character played by Jimmy Stewart in the movie "Harvey" - “My mother used to say to me, ‘Elwood, in this world you must be oh-so clever, or oh-so pleasant.’ For 40 years I tried clever. I recommend pleasant.”

Lucchino also stressed to the students that they should be courageous enough to say, “I don’t know.” He told them not to guess and not to fake it when they don't have the answer. Lucchino explained, "If you don’t have the answer, say so. These seven words often work out well: 'I don’t know, but I’ll find out.'”

All in all, Lucchino offered a humorous speech with sound advice... and he kept it brief, which is a must in commencement speeches!

Time for Perceptions to Change

When companies experience a downturn in quality or customer service, it can take a very long time to recover. The problem is that perceptions are "sticky" - i.e., even when quality and/or service improves, it may take a long time for customers to alter their perceptions. Customers may cling to the old belief that quality and/or service are inadequate long after a firm has corrected the problem.

Home Depot may be a firm experiencing this situation today. The company reported earnings this week. While the firm is making progress financially, it appears to be largely due to expense control, rather than sales gains. Home Depot sales continue to suffer due to the poor economy, as well as the consequences of a damaged customer service reputation. Interestingly, the firm reports that customer service has improved after dismal performance in that area during the later stages of Bob Nardelli's tenure as CEO. It may take time, however, for the general consumer to recognize and believe that service has indeed bounced back from that period of very poor performance.

Companies need to think very carefully about how they can communicate improvements in quality and/or service. They have to be transparent, and show consumers key data that will help convince them of the enhancements. They also must use social media to help drive word of mouth, as traditional advertising may not the best way to change perceptions. What they cannot do is over-reach about their accomplishments, because consumers may become more upset if they perceive that the firm is proclaiming improvements that do not seem real and substantial to the consumer.

Rising Productivity

In Business Week, Michael Mandel points out that labor productivity continues to rise despite the economic downturn. Mandel points out that productivity dropped during two past historically deep downturns - the Great Depression and the steep recession of the early 1980s. Mandel explains that there could be a positive interpretation of this productivity growth today:

So why, today, are we blessed with the unlikely combination of deep recession and rising productivity? The optimistic explanation is that American businesses have gotten religion and are aggressively squeezing out waste and boosting efficiency.

However, Mandel also offers a cautionary note. Perhaps, this productivity increase will be harmful in the long run. He explains that companies have been cutting professionals, which could be worrisome:

In the short term, when a company cuts professionals, output per hour goes up. A pharmaceutical company could, in theory, ax its entire research operation without affecting current sales. And an automaker that laid off its new car designers could still churn out the same number of vehicles, and productivity would rise.

The danger: If the economy is stuck in a slow-growth recovery, companies may not be quick to rehire their professionals—and that would be a disaster. Professionals are the people who do the research, the new-product development, the information-gathering, the training, and even the marketing which moves the economy forward. They are the main source of the "intangible investments" necessary for innovation and future growth. In effect, we could be eating our seed corn to get through the financial crisis—and the official stats would not warn us.

I think it's an interesting issue to consider, and naturally no clear answer exists to this puzzle. In general, though, I'm inclined to favor the optimistic view. Mandel, for instance, does not mention that productivity grew in both of the last two recessions (early 1990s and 2000-2001).

Auto Dealer Consolidation

While the economy will take another jolt this week with the announcement of large number of dealer closings at Chrysler and General Motors, this move is necessary. Long before this current recession, the American automakers had far too many dealers. Top American brands have 3-5 times as many dealers in the U.S. than Honda and Toyota. The dealer network is incredibly inefficient and has to be rationalized.

One thing to watch... closing dealers has typically been a very expensive proposition for automakers due to state franchise laws. However, GM and Chrysler will avoid those excessive costs this time around due to their conditions of financial distress. However, what will happen to Ford? Can they rationalize their auto dealer network while also avoiding excessive closure costs? If not, then the federal help for GM and Chrysler will provide them an advantage over the healthier Ford.

For some time now, experts have worried that Ford will be disadvantaged in key ways by the fact that they are actually healthier than their domestic rivals and do not need federal assistance. The government has to be mindful of this potential inequity, and take care not to harm Ford through this bailout, bankruptcy and reorganization process... after all, Ford deserves better since they have been the best-managed to date in the domestic auto industry.

Hiring an Executive Search Firm at GM

News reports indicate that the federal government pressured new General Motors Chairman of the Board Kent Kresa to hire Spencer Stuart, an executive search firm, to recruit new directors for the firm. Now, I understand and respect the function of executive search firms. However, I'm a bit shocked that we would be spending taxpayer dollars to hire a search firm to find new directors for GM. Why can't the federal government's hand-picked Chairman, Kent Kresa, and those "brains" at the U.S. Treasury find good solid directors on their own? Kresa apparently wanted to do this on his own. I can understand not wanting him to simply hand select them completely on his own, but do we really want to hire a search firm at a company that is bleeding cash at this rate? After all, we didn't hire a search firm when the federal government decided to hire a new CEO. Isn't the CEO position a bit more important than board positions? We have the federal government making strategic decisions about the brands GM should shut down and the kinds of cars that they should build, yet those same federal officials do not feel capable of identifying and selecting board candidates. What sense does that make?

Bank Stress Tests

Another gem from Saturday Night Live, featuring SNL's Timothy Geithner impersonator: