Amazon Opens Brick-and-Mortar Store

The Wall Street Journal reports today that Amazon will open its first brick-and-mortar store in Manhattan.  Here's the description of the first site:

Amazon’s space at 7 West 34th St., across from the Empire State Building in Midtown, would function as a mini warehouse, with limited inventory for same-day delivery within New York, product returns and exchanges, and pickups of online orders. The Manhattan location is meant primarily to be a place for customers to pick up orders they’ve made online, but will also serve as a distribution center for couriers and likely one day will feature Amazon devices like Kindle e-readers, Fire smartphones and Fire TV set-top boxes, according to people familiar with the company’s thinking.

What do we make of this move?  As an experiment, it may serve a very useful purpose.  Innovative companies test ideas and conduct well-designed experiments frequently.  They recognize that such experiments may fail, in the sense that they do not achieve desired business results.  However, they view them as successful if tons of learning emerges from these tests.  Could this site in Manhattan drive a great deal of learning and innovation at Amazon?  Definitely.   However, the logic of a major brick-and-mortar expansion at Amazon escapes me.  Leasing incredibly expensive space in the middle of Manhattan to serve as a place for customers to pick up online orders does not seem to make economic sense.   If the store is meant to be a flagship, focused on providing a fun and engaging retail experience for showcasing the firm's digital products, then one might be able to make a case for it.  Of course, a "flagship" strategy would entail a very limited number of brick-and-mortar locations. Does Amazon need such flagship locations to build the brand and sell more digital devices?  It does not seem so; they already have a strong brand and have achieved great success with the Kindle.   Is the brick-and-mortar location all about same-day delivery?  Well, one could achieve that without leasing high-priced retail space on 34th Street in Manhattan.  It will be interesting to see how this experiment evolves, and to understand precisely what Amazon's aims are with this brick-and-mortar strategy.   

Tim Cook: Intuition's Role in Decision-Making Processes

The Dangers of Multitasking

Travis Bradberry, author of the bestselling book Emotional Intelligence 2.0, has a great post over at the Forbes website about multitasking.  Bradberry reviews the research on multitasking and concludes that it can very detrimental.   He notes that Stanford's Clifford Nass, Eyal Ophir, and Anthony Wagner conducted research showing that, "Multitasking is less productive than doing a single thing at a time."  Moreover, the notion that some people are simply great at multitasking appears to be false.  Bradberry explains, "They found that heavy multitaskers—those who multitask a lot and feel that it boosts their performance—were actually worse at multitasking than those who like to do a single thing at a time."  The article also cites recent research showing differences in the brain for those people who engage in a great deal of multitasking.   Bradberry suggests that those changes in the brain may even reduce an individual's emotional intelligence.   That last point is purely speculation, but the overall point is clear:  multitasking may be having an adverse effect on employee performance in many organizations. 

Breaking Up Isn't So Hard to Do

HP announced yesterday that it would be splitting into two companies.  One will focus on personal computers and printers, while the other will focus on computer hardware, software, and services.  Interestingly, this breakup represents the second split for HP in its history.  In 1999, HP spun off its measurement instruments business as Agilent Technologies.  Could the deal increase shareholder value?  Perhaps, as it has become increasingly difficult to argue that the synergies between the two sides of HP are significant enough to outweigh the costs associated with managing and integrating such a large, bureaucratic, and highly complex organization.  Of course, the deal also opens up the possibility that one or both of the new entities could be takeover targets.  Here in Massachusetts, we have been reading rumors about EMC exploring talks with HP about a merger.  The breakup at HP probably makes such a deal more likely.   Of course, it's not entirely clear why or how a merger would be beneficial.  While some synergies might exist, again the key question is whether the benefits outweigh the costs associated with integrating such large, complex organizations. 

Beyond this particular deal, the Wall Street Journal reports that, "Corporations around the world have sold or spun off $1.6 trillion worth of subsidiaries and business lines so far this year, just behind 2007’s record-setting pace, according to data provider Dealogic."   We have seen some high-profile moves by diversified firms to become more focused.    GE sold its appliance business.   Gannett announced  a split into two entities, one focused on newspaper publishing and the other on television broadcasting.  Other firms, such as Pepsi, face pressure from activist investors to break up.  What's behind these moves?  The Wall Street Journal cites research showing that U.S. conglomerates tend to under-perform more focused firms:  "Shares of North American conglomerates underperformed their more focused rivals by 11.4% on average from 2000 to 2010, according to a study from Anil Shivdasani, a finance professor at the University of North Carolina Kenan-Flagler Business School... Professor Shivdasani said Monday the data remained similar through the end of last year."

This research has been well known for many years though. Why the pickup in breakups lately?  I think several reasons may exist.  First, economic growth has been very low in this "recovery."  As a result, many firms have businesses in mature markets that are struggling to find ways to grow revenue.   Without sales growth to help drive share prices upward, they are looking for other ways to create value for investors.  Second, a new class of activist investors has become very vocal and has challenged the diversification strategies of many of these large firms.   Third, more investors have begun to question the economies of scale and scope rationale behind these large firms.  They are wondering if, in fact, these organizations are experiencing significant diseconomies of scale and scope. Finally, investors have become quite concerned that CEOs are cross-subsidizing extensively, milking cash cows to fund other initiatives.  Such practices used to be quite commonplace and accepted, but increasingly, they are being challenged.  These investors would rather see the CEOs return cash to shareholders from mature units, and let the newer, higher growth entities seek capital directly from the markets. 

Maximize vs. Satisfice: How Do You Decide?

What type of decision-maker are you? Do you examine all the options exhaustively, hoping to find the absolutely best alternative?  Do you carefully compare the pros and cons of a wide range of options before making a decision?  Or, do you search until you find an option that is satisfactory, and then choose that one even if it is not perfect or completely optimal?    Nobel winner Herbert Simon described these two patterns of decision-making decades ago.  He called them "maximizing" vs. "satisficing" behaviors.  

In today's Wall Street Journal, Elizabeth Bernstein examines these two strategies.  She describes the research of Swarthmore Professor Barry Schwartz.  Here's an excerpt:

In a study published in 2006 in the journal Psychological Science, Dr. Schwartz and colleagues followed 548 job-seeking college seniors at 11 schools from October through their graduation in June.  Across the board, they found that the maximizers landed better jobs. Their starting salaries were, on average, 20% higher than those of the satisficers, but they felt worse about their jobs.

Bernstein describes how maximizers often find themselves less content than satisficers.  Why might that be?  The exhaustive search and comparison of many alternatives often opens the door for feelings of regret once a decision has been made.  Did I make the right call?  Should I have chosen another option?  Did I consider the right variables and attributes?   Satisficers may not experience those feelings to the same extent.  Does this mean that we should not examine options carefully? I don't think so, but it does mean that we have to watch out for feelings of discontent in the immediate aftermath of a tough decision.  Moreover, we have to be cognizant of the fact that we might be on a team with people how tend to have the opposite decision-making pattern.  

Leaders, Power, and Perspective-Taking

Adam Galinksy, Joe Magee, Diana Rus, Naomi Rothman, and Andrew Todd have published a new paper titled “Acceleration With Steering: The Synergistic Benefits of Combining Power and Perspective-Taking.”   Leaders need a certain amount of power to get things done.  However, the research shows that leaders can be more effective if they have both power AND what they call perspective-taking.  In other words, can leaders put themselves in others' shoes so that they can see how those individuals view particular issues and situations?  

Of course, as many leaders accumulate power, sometimes it's difficult for them see the world as others do.  You "forget" what it was like when you were in their position.  You become isolated from the day-to-day work.   You interact most frequently with other senior executives, who often see the world much as you do.  Some leaders simply hire folks who think just like they do. 

Generate Multiple Frames to Make Better Decisions

How you frame a situation helps to determine the types of options you consider and the ultimate decision that you make.   By frame, I mean the way that you characterize a situation.  We face a complex and messy reality.  We simplify those situations by adopting mental models and frameworks.  Those frames can be powerful in helping us make sense of that messy reality.  However, how you frame a situation can constrict the range of alternative solutions that you generate and analyze.  To broaden the range of alternatives generated, managers should seek to frame situations in multiple ways.  For example, suppose that a firm has experienced high employee turnover.   A leader may frame the situation as an incentive problem.  However, that framing would focus his or her team on potential solutions such as changes in compensation.   A better approach would be for the leader to offer multiple frames of the situation.  He or she might ask: We might say that we have a turnover problem, or perhaps we might cast the issue as a talent management problem.  In other words, we don't simply have a talent retention issue... perhaps we have a recruitment challenge, a development problem, etc.   Framing the problem in a broader way might lead to a very different type of discussion.  If you are in a situation where you feel that the range of options being considered is particularly narrow, consider reframing the problem. 

Think Your Idea is Great? Go for a Walk!

University of Texas Professor Art Markman has a great article on idea generation over at Fast Company's website this week.   Markman describes the "high" that people often feel at the end of an idea generation session.   He argues that we should be careful about that positive emotional rush that we feel in that moment.  Markman explains:

Unfortunately, some amount of the strong positive feeling you are having in that moment is a result of the idea generation process itself. Completing a goal makes you feel good, and coming up with a potential solution to a hard problem makes you feel good. In addition, positive social interactions make you feel good, and group idea generation fits that bill. Finally, research demonstrates that fast thinking makes you feel good. When the ideas are flying around the room, there is a lot of fast thinking going on.So, the entire setting of idea generation creates lots of positive feeling. Then, everyone looks around the room for the source of that feeling. And they settle on the idea you just created as a team. In that moment, that idea is not just good, it is the best idea ever. 

 How do you avoid a rush to judgment?  How can you protect yourself against falling head over heels for your idea a bit too quickly?  Markman argues that it's a good idea to step back for a bit.  Go for a walk, he says.  Take some time to go do something else, and then return to your idea.  See how it looks after you have slept on it.  Don't let yourself get caught up in the emotions of the idea generation process itself.  That seems like terrific advice to me!

Trustworthy Leaders

What do trustworthy leaders do? How do they build trust?  Stanford's Roderick Kramer has been studying this topic for many years.  Here are a few of his key findings, described in more depth in this article from the Stanford Business School research website:

1. They project confidence, competence, and benevolence.  In other words, they have the experience and the capabilities required to do the job.  Moreover, they are trying to do what's best for the firm as a whole rather than pursuing their own self-interest at the expense of others.


2.  They define roles and responsibilities clearly.   Kramer says, "“When people know what they’re supposed to do, and they know what other people are supposed to do, then they trust that system of roles to work.”

3.  They share the credit and take the blame.   Taking responsibility proves to be very important.  Trustworthy leaders do not throw others under the bus.  They also talk in terms of "we" when discussing major accomplishments, rather than "I did this" or "I achieved that."

4.  They tell it straight, particularly when a crisis occurs. They do not try to cover things up.  Instead, they acknowledge mistakes, and they commit to preventing problems from happening again.  

The Downside of Strategy Agility

Words and concepts such as "strategic agility" or "adaptive strategy" have become all the rage in recent years.  People argue that strategies must be dynamic given the turbulent world in which firms must compete.  A recent article on Kellogg Insights offers a word of caution for those focused on adaptation and dynamism in their competitive strategy.  The article focuses on the research of Kellogg Professor Tom Hubbard, Paul Leinwand - a senior partner with Strategy&, and Cesare Mainardi - CEO of Strategy&. 

Mainardi explains, "“Everybody’s talking about dynamic strategy, agility, and chasing opportunity.  That’s all well and good. But if you aren’t operating from a base of who you are, you will likely not realize what the real risks you’re facing are because you aren’t focused on your core strengths, and therefore you will be less clear-minded about how best to respond.”

Hubbard argues that many company growth strategies follow the "let a thousand flowers bloom" philosophy.  In other words, plant a bunch of seeds, and hope that few of them flourish.  Hubbard explains that this type of growth initiative can lead to a highly incoherent strategy.  Firms need to understand who they are, as well as what their distinctive, scalable capabilities are.

Finally, Hubbard emphasizes that profits alone do not justify the existence of a business within a corporate portfolio.  You have to ask the question:  Does it fit given the capabilities that you have?  Can you sell the business at a higher value than the present value of future profits that you can generate from that unit?  

I could not agree more with this article's main message.   Too many firms, starved for growth, simply plant a wide variety of seeds without focusing on coherence.  They focus on the size of the market opportunity rather than thinking about fit.  They see profits, and they use those to justify having a new venture in the portfolio, rather than thinking about whether that unit could generate higher returns as part of some other firm's portfolio.   

Grade Inflation

Economist Justin Wolfers tweeted out this chart yesterday regarding grade inflation at Ivy League colleges.  What a wonderful world in which everyone is exceptional!

Résumé Mistakes

What are some the classic mistakes that job hunters make on résumés?  Laszlo Bock, SVP of People Operations at Google, has posted a good article on LinkedIn with the top five common mistakes that he has seen.  It's a good list.  Here are Bock's top five, with some commentary from me:

1. Typos

I would expand his point to include grammatical errors, particularly on the cover letters that accompany résumés.  Poor writing plagues many cover letters.   Examples of writing deficiencies include:  overly complex sentences, improper use of commas and conjunctions, far too much use of the passive voice, and poor paragraph construction.  The list could go on! 

2.  Length

As Bock says, you should be aiming to land a first round interview, not to tell your life story.  You can expand the story during the interviews.  Focus on getting your foot in the door.

3.  Formatting

Bock recommends saving the document as a PDF since other formats can become troublesome as they are passed electronically across various platforms and devices.  Good advice!  He also argues that it should be a clean, easy-to-read document.  I would emphasize the need for plenty of white space.    You do not to jam every inch of the page with words.

4.  Confidential Information

Bock uses the example of a consultant who clearly reveals the names of clients.   Many consulting firms have confidentiality policies.  If an applicant breaks their current or past employer's confidentiality policy, that's a major problem.  

5.  Lying

Lying on résumés appears to occur quite often.  We have just seen a senior executive at Wal-Mart who lost his job due to a lie about his educational background.  We've seen CEOs lose their jobs over these types of lies.  I think the harder-to-detect lies are even more common, specifically exaggerating job responsibilities and accomplishments.  I also think that résumés sometimes fail to give proper credit to those who helped an individual achieve certain goals at a prior employer.  Was it a team effort?  Does the résumé reflect the fact that a team achieved the goal, not just that individual?  Not giving others proper credit seems to be a major issue in the job application process. 

When is grit beneficial, and when is it not?

Angela Duckworth has been of the leading researchers on the topic of "grit" - something she defines as "perseverance and passion for long-term goals.”  She has found that grit can be a powerful predictor of academic achievement.   In short, she argues that academic achievement is not just a matter of raw intellect; grit matters a great deal. 

Now Magdalena Grohman, a faculty member at the University of Texas at Dallas, has questioned whether grit may be as powerful a predictor of creative achievement.   According to Grohman, "These are 'no results' that we are actually excited about. Creative achievement and grit, intellectual creativity and grit, everyday creativity and grit: no effects whatsoever."   She found that "openness to new experiences" did help creativity, but grit apparently did not.  Similarly, Yale's Zorana Pringle conducted a study in which she asked students to evaluate their peers in terms of the generation of creative and original ideas.  Grit scores did not correlate with high peer evaluations on creativity.  Grohman speculates that grit may be very useful in structured environments and tasks, but perhaps is less useful to individuals when they are embarking on ill-structured, creative endeavors.  More research certainly will be done in this area to explore this rather interesting set of new findings.

Experts Buy Private Label

Bart J. Bronnenberg, Jean-Pierre Dubé, Matthew Gentzkow, and Jesse M. Shapiro recently published a working paper titled, "Do Pharmacists Buy Bayer?  Informed Shoppers and the Brand Premium?"  Here's an excerpt from the abstract of their paper:

In a detailed case study of headache remedies we find that more informed consumers are less likely to pay extra to buy national brands, with pharmacists choosing them over store brands only 9 percent of the time, compared to 26 percent of the time for the average consumer. In a similar case study of pantry staples such as salt and sugar, we show that chefs devote 12 percentage points less of their purchases to national brands than demographically similar non-chefs.

Private label products certainly have taken a much larger share in many categories over the past decade.  Nevertheless, the scholars still found this "brand premium" effect, particularly for non-experts.  As private label products continue to rise in quality and availability though, we should expect more people to act like the informed consumers in this study.  Consider, for instance, the success of firms such as Trader Joe's and Aldi, both able to persuade consumers that private label products can deliver solid quality.  

Brainwriting: How to Run a Better Idea Generation Session

Check out Northwestern Professor Leigh Thompson on the brainwriting technique:


Kellogg - Animation - Final for Site

Five Classic Competitive Strategy Mistakes

Based on my experience, here are five business strategy mistakes that organizations often make:

1.  Focusing on market share extensively, while not thinking enough about how to drive product category growth - as a result, they miss chances to grow the pie for all

 2.  Paying too little attention to a maturing core business while focusing effort on growth into new markets, resulting in further erosion of the core

3.  Overestimating economies of scale and scope - and forgetting that diseconomies of scale and scope can become substantial

4.  Benchmarking rivals and then imitating one particular activity or capability, while not realizing that the rival's competitive advantage comes from how that activity fits tightly into a broader, integrated system of activities

5.  Resorting prematurely to price as a competitive weapon - not being creative enough to think about other ways to attract customers, deepen their relationship with existing customers, and grow an entire category

Does Apple Spend Enough on R&D?

Matt Kramer published an article in USA Today this week titled, "7 Companies Outspend Apple on Innovation."  Kramer noted that Apple ranked behind seven other prominent technology companies in terms of R&D spending.  Moreover, Apple ranked 95th  among the S&P 500 in terms of R&D as a percentage of sales.  He found that quite surprising.  Kramer ends the article by saying, "But with the iPad getting stale, and competition in the smartphone arena kicking up, investors might wonder if Apple might need to pick up its R&D game."  The article caught my eye because a great deal of academic research shows that R&D spending is not strongly correlated with successful new product development.  It's not just how much you spend; it's how you spend it!   Kramer's article is thought-provoking, but it would have made for a much stronger piece if he included the research findings about the connection between R&D spending and firm performance.  

Fast Company article: Embracing Failure

Rachel Gillett has written an article for Fast Company titled, "What The Hype Behind Embracing Failure Is Really All About."  She has included several of my comments. The article examines the popularity of the concept of "tolerating failure" - is it overdone? Is it a fad?  What's the true meaning of the concept of embracing failure?  Here is the link to the article. 

Are Smaller Boards More Effective?

The Wall Street Journal reported last week on a new study conducted by GMI Ratings for the newspaper.  The study examined boards of directions, and it took a look at the link between board size and performance.  Here is a summary of the findings:

Among companies with a market capitalization of at least $10 billion, typically those with the smallest boards produced substantially better shareholder returns over a three-year period between the spring of 2011 and 2014 when compared with companies with the biggest boards, the GMI analysis of nearly 400 companies showed.  Companies with small boards outperformed their peers by 8.5 percentage points, while those with large boards underperformed peers by 10.85 percentage points. The smallest board averaged 9.5 members, compared with 14 for the biggest. The average size was 11.2 directors for all companies studied, GMI said.

What are the advantages of smaller boards? Why might they perform more effectively? Here are a few potential reasons cited in the Wall Street Journal article:

• Decisions can be made more quickly with a smaller team. It can be more nimble.
• Each person is more likely to be fully committed, prepared, and engaged. There's less likelihood of free riders on a small board.
• People are more likely to be candid in a more intimate atmosphere than on a large board.
• A small board can dig into an issue in much more depth. On a large board, you may have a tendency to deal superficially with issues rather than really "getting your hands dirty."

I would add one other reason. We already know that teams tend to focus their discussion on information commonly held by all participants, and they don't spend enough time on information held privately by one or a few members. That challenge becomes even more pronounced as a team becomes larger. Therefore, a smaller board benefits from a higher likelihood that information and expertise from all members will be shared and discussed.

Stihl: Making Tradeoffs

Great firms make tradeoffs; they choose what not to do.   One key tradeoff that firms make is about the channels through which they decide to sell their products.  Premium brands often make an explicit choice to restrict distribution of their products, so as to maintain service quality and preserve the reputation of their brand.  As an example, consider Stihl.  They are quite blunt about their strategic choice to only sell their products through licensed dealers and not through big box retailers such as Home Depot, Lowe's, or Wal-Mart.  Here's an except from their Canadian website:

We can give you over 1,000 reasons - our legion of independent STIHL Dealers nationwide. We count on them every day and so can you. To give you product demonstrations, straight talk and genuine advice about STIHL products. To offer fast and expert on-site service. And to stand behind every product we carry, always fully assembled. You see, we won't sell you a STIHL in a box, not even a big one.

In addition, here's an advertisement that they ran several years ago.