Stumbles at JC Penney

As we all know by now, Ron Johnson's first moves at JC Penney have not gone smoothly (to say the least).  He put forth a bold new pricing strategy that left customers befuddled, and those consumers simply stopped shopping at his stores.  Sales dropped sharply, sending the stock tumbling.   Now the company has announced a shift in pricing strategy.  They've made it simpler.  The firm will cut prices across the board, while moving to a two-tiered pricing structure:  EDLP on most items, with sharp discounts on clearance items. 

Many people have criticized Johnson's pricing maneuvers.  Rather than focusing on the CONTENT of his pricing strategy, I'd like to comment on the TIMING of his moves.  According to the Wall Street Journal, Johnson's longer term strategy for the retailer is to focus on creating a "department store full of vendor-branded and themed boutiques." The company launched its first such boutique yesterday in Manhattan - a jeans boutique featuring Levi's, Arizona, and iJeans by Buffalo.   My question is this:  Wouldn't it have been more effective to launch the boutiques FIRST and then move to a new pricing structure?   Didn't the firm need to get the store layout and experience improved FIRST and then try to wean customers off of constant discounts?   I think the timing issue, in a way, is a more interesting strategic question than the issue of precisely how JC Penney should price its items. 

A Creativity Lesson from John Cleese

Rae Ann Fera has written a column for Fast Company about comedic actor John Cleese and his ideas regarding creativity.  I found the article quite fascinating, particularly Cleese's point about the importance of play.  Cleese tells the story of Sussex University Professor Brian Bates and his study of architects.  Here is what Fera wrote about Bates' conclusions from his research:

The first thing he discovered is that the creative architects knew how to play. They could get immersed in a problem. It was almost childlike, like when a child gets utterly absorbed in a problem. The second thing was that they deferred making decisions as long as they could. This is surprising.
If you have a decision to make, what is the single most important question to ask yourself? I believe it’s ‘when does this decision have to be made’? When most of us have a problem that’s a little bit unresolved, we’re a little bit uncomfortable. We want to resolve it. The creative architects had this tolerance for this discomfort we all feel when we leave things unresolved. Why would those two things be importance? The playfulness is because in that moment of childlike play, you’re much more in touch with your unconscious. The second is that when you defer decisions as long as possible, it’s giving your unconscious the maximum amount of time to come up with something.

 As a research on decision-making, I found this point about deferring decisions quite interesting.   Often you hear people bemoaning the chronic indecision that they observe in their organizations.   Here though, Bates' research shows that sometimes we have to give ourselves time to let thoughts and ideas percolate.  I found it a bit hard to reconcile this advice with one of the key principles from design thinking...which is that we learn and improve very effectively through trial and error.   In other words, take action, experiment, and learn and adapt from that trial.  How does one reconcile that model of innovation with this advice to defer decisions at times?   I think the idea here is that "deferring decisions" doesn't preclude trial and error.  It simply means not setting things in concrete too soon.   It means exploring options and waiting to commit fully to particular path.  Trial and error, in fact, can help sort out those plausible options,and it can be part of the "play" process.  

The Language of Empowerment: Leading Differently

Source: Wikimedia Commons

David Marquet, Captain, U.S. Navy (Retired), has written a good article on Fast Company's website about his leadership philosophy.   Marquet used to command a nuclear submarine for the U.S. Navy.  He describes how leaders can make the shift from a top-down, command-and-control approach to a model that stressed empowerment and accountability at all levels.  Marquet emphasizes the importance of language as a tool for changing the way people view the leader-subordinate relationship:

The key to your team becoming more proactive rests in the language subordinates and superiors use.
Here is a short list of "disempowered phrases" that passive followers use:

• Request permission to . . .
• I would like to . . .
• What should I do about . . .
• Do you think we should . . .
• Could we . . .

Here is a short list of "empowered phrases" that active doers use:

• I intend to . . .
• I plan on . . .
• I will . . .
• We will . . 

Marquet doesn't want action to begin with an order from the commander.  Instead, he wants action to begin with an empowered subordinate coming up with a recommended course of action.  Then, the subordinate should explain their plan ("I intend to").  The commander reacts to that recommendation, rather than simply barking out orders.   The change in language may seem trivial, but it emphasizes a shift in responsibility.  It pushes the burden down upon the subordinate to proactively come up with a plan of action and to recommend it to the "boss" - rather than having subordinates wait passively to be told what to do.

Four Questions for Every Leader About Strategy

Cynthia Montgomery, my former colleague at Harvard Business School, has written a new book titled, "The Strategist: Be the Leader Your Business Needs."   In this HBS Working Knowledge feature about the book, she cites four key questions every leader should ask about his or her firm:

1. What does my organization bring to the world?
2.  Does that difference matter?
3.  Is something about it scarce and difficult to imitate?
4.  Are we doing today what we need to do in order to matter tomorrow?

While that's not a new list, it is certainly very clear and concise.  The challenging part, for many firms, is actually coming up with a clear and concise answer to these questions.  It's amazing how many firms struggle to respond effectively.   What about your company?

Working on Multiple Teams at the Same Time: Positive or Negative?

Wharton Professor Martine Haas (a grad school classmate of mine) and Duke Professor Jonathan Cummings have published a new study about teams.  They collected original data within a multinational corporation about how people allocate their time among multiple teams on which they are serving.  According to Knowledge at Wharton, here is what they found:

The professors also discovered that highly skilled people were more likely to be involved in multiple teams, and that having members who were involved with multiple teams was associated with good team performance. A person with that kind of knowledge tends to be highly sought after, so his or her attention will likely be divided among many teams. And that's not necessarily a bad thing, says Haas. Teams composed of these valuable members also performed well. "That was a surprising result," she notes. "It's not necessarily causal, but it suggests if you take people who are assigned to several other teams already and bring them onto a new team, that team can benefit from their networks, knowledge and access to resources, even if they can't devote a lot of attention to the team. The exception is if the team members who are involved in lots of other projects are also very geographically dispersed -- in this case, the fact that they cannot devote much attention to the team makes the performance advantage disappear."

I find these results compelling, and they make sense intuitively.  I do wonder about one thing though.  Does it matter what TYPE OF WORK the teams are doing, or THE TIME CONSTRAINTS under which they may be operating?  Perhaps some types of work require more focused attention, while others benefit from people being able to access a wider network through service on multiple teams.  Similarly, perhaps working under a tight deadline could make it less attractive to serve on many teams simultaneously. 

What Does a Business Apology Mean in Different Cultures?

Yesterday, I taught my case on BP and the Gulf of Mexico Oil Spill here in Tokyo.   We had a very interesting discussion regarding BP's actions both before the accident and in the immediate aftermath.  Some Japanese executives felt that BP CEO Tony Hayward should have put forth a clearer, more direct apology immediately. Others were not so sure, pointing out that the US is a highly litigious society.

I brought up a study by Insead's William Maddux which he conducted along with Tetsushi Okumura of Japan's Nagoya City University as well as USC's Peter Kim and Northwestern's Jeanne Brett.  They have studied the meaning and function of apologies across cultures.   They found a difference between what they call "individual-agency cultures" such as the US and "collective" cultures such as Japan.  In the US, an apology means that one is taking the blame for a failure.  On the other hand, in Japan, apologies are "general expressions of remorse rather than a means to assign culpability."   Perhaps because of this difference in meaning, they found that the Japanese tend to apologize more often, even if they were not at fault for particular actions.  The findings definitely resonated with the Japanese executives with whom I discussed the BP case yesterday.   They acknowledged that apologies do take on a different meaning in their country.  As executives work and do business in different countries, they would be well-served to understand these key differences. 

Will Non-Experts Fuel Future Disruptive Innovation?

Highly successful entrepreneur and philanthropist Naveen Jain has published an interesting essay on the Forbes website.  Jain argues that non-experts will fuel much of the future disruptive innovations.  He challenges Gladwell's emphasis on experts in his book, Outliers.  Jain explains that the experts won't necessarily be the ones to solve some of the world's most challenging problems. 

Jain offers two main reasons.  First, he explains that experts can often be quite myopic.   Second, Jain argues that information is widely available these days, not restricted to a few experts.   Moreover, technology is moving so quickly that expertise seems to become outdated much sooner than in the past.  Here is an excerpt that describes his thinking:

The human brain, or more specifically the neo-cortex, is designed to recognize patterns and draw conclusions from them. Experts are able to identify such patterns related to a specific problem relevant to their area of knowledge. But because non-experts lack that base of knowledge, they are forced to rely more on their brain’s ability for abstraction, rather than specificity. This abstraction—the ability to take away or remove characteristics from something in order to reduce it to a set of essential characteristics—is what presents an opportunity for creative solutions.

Do you agree with his arguments? 

Elevator Groupthink

Thank you to Maria Popova for discovering this old video and posting it on her blog, Brain Pickings.  It's called "Elevator Groupthink." 

Supermarkets Losing Market Share

The Wall Street Journal reported that supermarkets are losing market share in the United States.  Traditional supermarkets -  such as Jewel, Stop & Shop, or Albertson's - accounted for nearly 2/3 of all grocery sales in the nation a decade ago.  Today, those supermarkets generate only 51% of all grocery sales.  Where have the grocery shoppers gone?   Mass merchandisers (Target and Wal-Mart), Pharmacies (CVS, Walgreen's), and warehouse clubs (BJ's, Costco, and Sam's Club) have all taken a bite out of that pie.   Target, for instance, recognized that food may not be very profitable, but it generates traffic.  When people come to the store more often, they buy other higher margin items.   Traditional supermarkets are also feeling their profits squeezed because many are "caught in the middle" between premium players like Whole Foods and hard discounters such as Aldi or Dollar General. 

Interestingly, I read another article in the Wall Street Journal recently about Target collaborating with Neiman Marcus on some special designer collections to be sold in both chains.  It is a unique collaboration.  Target, of course, is pursuing this type of strategy because they continue to try to seek unique items for their stores.  They don't want to simply be selling the same items that you can find at Kohl's, Wal-Mart, etc.   That makes a ton of sense.  However, that triggered a thought in my mind... why don't more supermarkets pursue such strategies?  Why aren't more traditional supermarkets trying to create unique product lines that can't be found elsewhere.  A few players have done this successfully (think Trader Joe's and Whole Foods).  However, the mainstream supermarkets don't do this much at all.   They ought to be doing that, because otherwise all they are doing is competing on price.  The struggles recently at firms such as Supervalu show that price competition can be deadly. 

Fewer Startups in Japan: Lessons for all Nations

I'm here teaching in Tokyo for a week, as I have each July for the past decade.   Therefore, I thought it would be appropriate to offer a reflection related to Japanese business.  Adam Acar, Associate Professor of Communication at Kobe City University of Foreign Studies in Japan, published an interesting op-ed today in The Japan Times.  The article was titled, "Why Japan Hosts Fewer Startups."  He cites the fact that a study by the Global Entrepreneurship Monitor found that Japan had the lowest entrepreneurship activity of 37 countries studied.   Professor Acar offers several possible explanations for the low rate of startup activity in Japan:

1.  Japan is a collective society, with less emphasis on individual self-achievement.

2.  Japan is a "high power distance" society, meaning that it's tough for young entrepreneurs to deal directly with senior executives at various organizations that might provide financing, supply key inputs for their products, etc.    

3.   Many Japanese value job security a great deal, perhaps even more so than securing the highest compensation possible.  

4.  Many Japanese worry about disappointing others and worry that a failed startup would harm many peers and colleagues. 

5.  Japan's low rate of social network usage relative to many Western nations means that potential entrepreneurs have lower social capital to draw upon as they seek customers, partners, investors, suppliers, employees, and the like. 

One may or may not agree with each of these explanations, or characterizations of Japanese society.  However, I do think all countries and regions should consider these hypotheses as they think about how to stimulate entrepreneurial activity.  

Curing CEO Disease

The Wall Street Journal's Joann Lublin wrote a terrific column this week about "CEO disease."   Specifically, she writes about how some executives become isolated, overconfident, and stubborn when they become CEOs.  They ignore suggestions and recommendations, and they let their ego get in the way of making sound business decisions.  Her column offers a few suggestions for curing CEO disease:

1.  Surround yourself with highly capable people.

2.  Encourage dissent and discourage people from behaving as yes-men.

3.  Regularly admit and fix your mistakes.

4.  Treat every employee with respect.

5.  Find an objective sounding board outside the office.

I think it's a terrific list.  Moreover, I think it applies to managers at all levels of an organization, not just at the CEO position.   Front-line managers should also cultivate an objective sounding board, encourage dissent, and surround themselves with talented subordinates.   In fact, if people engage in these practices early in their managerial career, they may be less likely to catch CEO disease if and when they rise to the top.

I Get It, but How Do I Change My Boss' Behavior?

Often, when I'm working with emerging leaders or high potentials in an organization, I hear them say something like the following:  "I get what you are saying about encouraging subordinates to speak up and express dissent.  However, I can't change the culture/climate on my own.  My boss isn't here.  He or she needs to change too.  What do I do to influence their behavior?"  It's a great question!  Let me offer a few thoughts:

1.  First, focus on what you can control, rather than worry about what is beyond your control.  Change the way you lead your team.  If all of you in this program begin to do that, you will begin to shift the organizational climate.  You will serve as exemplars for those that work for you. 

2.  Use questions as your tool for opening up more dialogue in meetings led by your boss.  Rather than confronting your boss about the fact that he or she may not be encouraging people to speak up, try asking some non-threatening questions in team meetings that encourage others to share information or views that have not been disclosed previously. 

3.  Use one-on-one meetings to convey to your boss that he or she may not have heard all views in a key team meeting.  Let them know, with specifics, how certain concerns are not being surfaced (without naming names!). 

4.  Invite your boss to sit in on a meeting you are leading with your team, and showcase some techniques that you and your team use to cultivate productive debate and candid dialogue. 

5.  When you read about a company that stumbled because senior executives were unaware of bad news until it was far too late, share it with your boss.  Send the article to him or her by email.  A compelling story of another organization's failure might trigger an attempt to change behavior at your firm. 

On-Demand Ice Cream Trucks?

Please don't tell my kids about this service!

The Two-Pizza Rule! How To Make Your Teams More Effective

Source: Forbes.com

At the Forbes website, David Williams recently published an interview with Brad Smith, CEO of Intuit.  The interview focuses on the entrepreneurial skills required to lead a successful firm of any size or scope.   Here is one excerpt that I found fascinating:

David: How does being an entrepreneur at the helm of a very large enterprise differ from entrepreneurial leadership of a small startup or growth company?

Brad: Regardless of whether you are leading a large enterprise or a small team, you need to remove barriers to innovation and get out of the way. At Intuit, we operate like a company of startups. We create and foster a culture where our nearly 8,000 employees worldwide have the courage to take risks and grow by learning from success and failure. Idea Jams and unstructured time give passionate employees opportunities to collaborate on new ideas to solve customer problems. To keep ideas moving and teams nimble, we embrace the “Two-Pizza rule,” making sure product development teams are no larger than two pizzas can feed.

I absolutely LOVE the two-pizza rule.   If everyone eats 2 slices of pizza, then we are talking about an eight-person team.  That sounds just about right for me.  I constantly find organizations building teams that are far too large to be effective at accomplishing a creative task.  The two-pizza rule provides a simple heuristic for helping leaders keep their teams small and nimble.  Every organization should consider embracing this powerful rule of thumb.  

Time Management: Interesting New Finding

Knowledge at Wharton features the research of Wharton Professor Cassie Mogilner and her colleagues, Harvard business professor Michael J. Norton and Yale postdoctoral associate Zoe Chance. Through a series of experimental studies, they find that, "by taking time to help others, we can help ourselves by creating a feeling of expanded time." In other words, perhaps we should reconsider when we feel stressed and reject invitations to help someone else out at work, at church, or in our neighborhood. The scholars found that "although people's objective amount of time cannot be increased (there are only 24 hours in a day) ... spending time on others increases feelings of time affluence. The impact of giving time on feelings of time affluence is driven by a boosted sense of self-efficacy -- such that giving time makes people more willing to commit to future engagements despite their busy schedules."

While I find the work compelling, I think we should take great care acting on the conclusions. We might feel better if we help others, but we also have to remember that trade-offs exist. There is no free lunch. Will our effectiveness at all activities suffer if we take on too many tasks? Many students, for instance, struggle with time management in their early years in college. While taking on extracurriculars has many benefits, I have definitely seen many students become stretched too thin. Not only does schoolwork suffer, but their effectiveness in their social or community service work tails off as well.

Vertical Integration at Lenovo vs. Outsourcing at Rivals

The Wall Street Journal has an article today about Lenovo's vertical integration strategy.  That strategy stands in stark contrast to many of the firm's rivals in the computer business (including Apple), which have outsourced many aspects of the manufacturing process.   Lenovo CEO says, "Selling PCs is like selling fresh fruit.  The speed of innovation is very fast, so you must know how to keep up with the pace, control inventory, to match supply with demand and handle very fast turnover."  Lenovo's SVP of supply chain says, "Three years ago the whole industry was saying everyone should outsource, that's the future.  [We] came to the conclusion that even though all our other competitors are going in the other direction…we can move faster if we're more vertically integrated." 

I'm surprised by the comments, and frankly, by the strategy.   Most people would agree that Apple is one of the most innovative and highly differentiated companies in the computer industry.  If Apple can achieve that type of rapid innovation without being completely vertically integrated, then why can't Lenovo?  Apple pursues vertical integration on selected components, most importantly on its operating system.  However, Apple does not keep all manufacturing in-house.   Lenovo chooses to use outsiders for its operating system (Microsoft Windows for its PCs and Google's Android for its new tablets).    Yet, Lenovo is manufacturing many hardware components in-house.   Time will tell if the strategy will pay off.   One wonders if the path to successful innovation, though, has more to do with company culture, leadership, and new product development processes, rather than with the extent of vertical integration. 

Clear Roles: Crucial To Team Success

Tammy Erickson writes at HBR about her research on teams at the BBC, Reuters, and elsewhere.   She argues that leaders should take great care to clearly define individual roles on a team, while leaving the approach to achieving the team's goals more ill-defined.  Why?   According to Erickson,

"Collaboration improves when the roles of individual team members are clearly defined and well understood — in fact, when individuals feel their role is bounded in ways that allow them to do a significant portion of their work independently. Without such clarity, team members are likely to waste energy negotiating roles or protecting turf, rather than focusing on the task." 

Erickson also finds that a little less clarity or definition on the path to achieving the team's goals can be beneficial.  Why?  Individuals perceive the task as something requiring them to be creative, and they feel empowered to provide their input as how to achieve the team's objectives.   In other words, define the shared goal very clearly, but give the team members some freedom to figure out the best way to get there. 

Feeling Guilty About a Mistake? Is it a Sign of Leadership Potential?

Stanford Professor Francis Flynn and doctoral student Becky Schaumberg have conducted an interesting new study about leadership.    They administered a personality test to groups of 4-5 people.  The test examined guilt proneness, shame proneness, extraversion, and other traits.  They were particularly interested in the distinction between guilt and shame.   Feeling guilty means that someone "feels bad about a specific mistake and wants to make amends."  Feeling shame means that someone "feels bad about himself or herself and shrinks away from the error."

In this experiment, the groups had to perform two tasks after completing the personality inventory.   The subjects evaluated each others' leadership qualities after completing these tasks.  It turns out that the people who scored highest on the "guilt proneness" measure tended to be identified as the strongest leaders.  In fact, guilt proneness "predicted emerging leadership even more than extraversion."  According to Schaumberg, "Guilt-prone people tend to carry a strong sense of responsibility to others, and that responsibility makes other people see them as leaders."  

Well... I guess I may have some leadership potential... after all, I'm Catholic, and we are experts at feeling guilty!   Seriously, though, I think the study points to something very important.  Feeling a responsibility to others is the mark of a good leader.  Moreover, wanting to atone for your mistakes, rather than simply trying to cover them up, makes for an effective leader.   I wonder how we might look for those characteristics as we interview young people for leadership positions early in their careers.  Thoughts? 

News Corp Split

This week, we heard the news that Rupert Murdoch will be splitting News Corp. into two separate entities: a publishing company and an entertainment firm.   I have several reactions:

1.  The News Corp split follows a familiar pattern.  In the 1990s, we saw a number of media companies engaging a great deal of both horizontal and vertical integration (Viacom merges with CBS, AOL mergers with Time Warner, Disney buys ABC, etc)   Now, we have seen the reversal of many of these strategies.  I'm not surprised.   Disney always had the strongest case for horizontal integration, because they leverage a highly valuable resource (the characters) across many business units.   Other entertainment firms had far less synergy across their businesses. 

2.  One might argue that the media conglomerate phase of the past was a case of herd behavior.  They all imitated one another in strategies of horizontal and vertical integration, without necessarily questioning the merits closely enough.

3.  News Corp may not have a great deal of difficulty breaking up into two firms because of how they manage the business units.  Murdoch always ran the units in a fairly decentralized manner.  That always puzzled me, because it meant that they really weren't pursuing major synergies.  On the other hand, that unit autonomy makes breaking up much easier, given the lack of strong interconnections. 

4.  One wonders how much cross-subsidization occurred in the past, with cash flow from the profitable, but mature publishing businesses to the higher growth entertainment businesses that needed cash to grow.  If a great deal occurred, then it will be interesting to see how the entertainment business funds its growth moving forward.  Meanwhile, investors may be very happy to see the cash flow from the publishing business returned directly to them (perhaps via strong dividends), for people to invest as they choose.

Microsoft Surface: What's the Strategy?

Microsoft's decision to build its own tablet computer (called Surface) has raised some interesting questions about the firm's strategic intent.   Has the firm finally acknowledged that Steve Jobs was correct when he said that you had to be vertically integrated to produce something as terrific as the iPad?  In other words, did the same firm have to make the hardware and the software, because complex integration was needed to deliver a exceptional customer experience?   Jobs, of course, believed that Android devices could not match the iPad experience because they lacked such sophisticated integration (since the hardware makers were simply licensing the Android system). 

A recent New York Times story suggests an alternative hypothesis:  Has Microsoft decided to move temporarily into the tablet hardware business so as to drive the type of innovation that could lead to lucrative tablet operating system and software sales down the road?   Toward the end this New York Times article, MIT Professor Michael Cusumano offers his take on Microsoft's latest move.  Here is the excerpt from the article:

Some who study the technology industry still believe Microsoft will get out of the business of selling its own tablet computer as soon as it can persuade other hardware companies to build compelling devices of their own. “I think once they jump-start it, they plan to make money the way they always have — from licensing software,” said Michael A. Cusumano, a management professor at M.I.T. 

I found this hypothesis quite intriguing.  I can think of at least one other example of a company choosing to vertically integrate on a "temporary" basis.   Coke and Pepsi both chose to forward integrate into bottling and distribution some years ago, and then they divested those units.  Why the back-and-forth?  Some (including HBS Prof. David Yoffie) would argue that Coke and Pepsi forward integrated  so that they could acquire and consolidate their distribution network, driving economies of scale throughout the channel.  They also wanted control of the channel at times as their product strategies shifted.   However, the firms didn't want to have all those assets on their books for the long haul, given the returns in bottling and distribution are much lower than in concentrate production.   Of course, both chose to forward integrate once again more recently, and now we hear rumblings (particularly at Pepsi) of the possibility of another divestiture down the road.  Again, forward integration may have served a distinct strategic purpose, but the firms may find themselves questioning the returns on the distribution businesses. 

Similarly, Microsoft may not want to be in the hardware business long term, as the returns are likely to be lower than in the software business (at least if the tablet market operates in a manner consistent with returns in the personal computer market).   However, "temporary" vertical integration may be their way of shaping the industry in the way that will be positive for them in the long term.   We'll see which hypothesis turns out to be correct.  It should be fascinating, and of course, it will depend on how well customers receive the Surface product.