Women Rise to Executive Ranks More Often in Decentralized Organizations

Does organizational structure affect the likelihood that women will climb to C-suite positions?  Indeed, it seems that structure has a substantial impact.  Women tend to do better in decentralized organizations.  That finding emerges from new research by Tingyu Du and Ulya Tsolmon.   They assembled a dataset of over 15,200 companies with nearly 600,000 managers.  The scholars state that, "Our findings suggest that decentralized organizational structure seems more conducive to reducing the gender gap than centralized structures." 

The scholars explain their finding by focusing on the skills that are needed in centralized vs. decentralized organizations, as well as the differences in the way that performance is measured and evaluated. The scholars argue that decentralized firms with leaders of separate units, each with their own P&L, tend to have clearer performance metrics than managers in highly centralized firms. The scholars conclude, "“In decentralized organizations, managers often have clearer accountability for their units’ performance, making their achievements more recognizable both internally and externally." Women achieve promotions in those firms based on their abilities without confronting as much bias.  In the firms with a high degree of power centralization, performance is often harder to measure, and social networks, political capital, and relationships play a much larger role in the promotion process. Bias may be more prevalent in that setting, thereby limiting the likelihood that women will rise to the C-suite.

I'm struck by this finding because it makes sense intuitively, and I'm also intrigued because I don't think people have considered this relationship between structure and female advancement in the past. It seems that these scholars have discovered one more very important reason for reducing power centralization in organizations.

Communication Breakdowns During Leadership Transitions

Stephen Michael Impink, Andrea Prat, and Raffaella Sadun have published a thought-provoking paper titled "Communication within Firms: Evidence from CEO Turnovers." Impink and his co-authors studied internal communication data for more than 100 companies in the period around a CEO transition.  They found an interesting pattern.  First, during the three months following the appointment of a new CEO, email traffic and the number of meetings declined by approximately 20%.  Roughly five months after new CEOs began their tenure, communication increased to slightly more than the amount prior to the leadership transition.   Six months after the transition, meetings and email volume returned to approximately the level prior to the appointment of the new CEO.  

Why does communication dip immediately following the leadership transition? The authors suggest that employees are uncertain about the future strategy and direction of the organization.  Perhaps they are a bit confused.  People are waiting and watching, trying to interpret signals and analyze statements emerging from the C-suite.  A great deal of speculation about the future probably occurs, though likely amidst informal communication at the water cooler rather than through formal meetings.  

You can see the risk associated with this communication pattern.  The new leader may not want to pronounce their strategy in those first few weeks, as they learn about organization and diagnose the situation. Still, they have to be careful about just how much confusion and uncertainty might affect the organization.  If you leave people a vacuum, they will fill it... but with speculation and gossip, which might do more harm than good. 

Leaders would be well-served to keep employees in the loop as they proceed with their diagnostic and learning process.  Providing regular updates on the transition and meeting with people to collect feedback can help reduce stress and tamper down speculation. Giving people a rough timeline of how the transition will proceed can be helpful.  You don't want people paralyzed during a transition.  You want them to stay focused on executing, while the strategy reset is unfolding.  Finally, leaders need to ask themselves: what will most certainly NOT change?  Will the organization's foundational purpose remain the same? Will its values stay unchanged?  If so, let people know - loudly and clearly.  Reassure them regarding the things that will stay the same.  That will help alleviate much of the stress and confusion surrounding a transition. 

Keeping Secrets at Work: When Transparency Isn't Valued

We often hear discussion of the value of transparency in organizations.  Nevertheless, many employees become frustrated about the lack of openness in their organizations.  They wish that more information was shared about key initiatives so that they could understand future plans, as well as the rationale for pursuing certain courses of action.

In a new study, Michael Slepian, Eric Anicich, and Nir Halevy examine the issue of organizational secrecy.  They find that people who keep information from others in organizations experience personal benefits as well as costs.  On the negative side, the scholars report that individuals who maintain secrets tend to express more stress and social isolation.   However, withholding vital information from others also comes with certain benefits.   It boosts perceptions of status and privilege for those holding the secrets. They feel more valued in the organization and perceive their work to be more meaningful.   These findings should not surprise us.   Just think for a moment about how people with privileged access to information tend to behave in your own organization.  

While this study highlights certain key benefits and costs associated with secrecy, it leaves open the question of just how much withholding of information is necessary in organizations.  My sense is that, in many organizations, people are more secretive than they need to be.  They withhold information because these personal benefits (status, meaning) outweigh the personal costs.  That does not mean the lack of transparency is good for the organization as a whole.  People come up with all sorts of justifications for that secrecy, but often, these arguments don't hold water.  They are flimsy rationales for not being transparent.  Leaders should test these arguments and probe the rationale being used to justify secrecy.  The costs of disclosure need to be weighed against the substantial value that derives from being transparent.   

Founder Mode: Should Entrepreneurs Reject the Conventional Wisdom about How to Manage Their Companies?

Source: Y Combinator

Y Combinator co-founder Paul Graham sparked a vibrant and wide-ranging discussion after posting a short essay titled, "Founder Mode," on his website.  He drafted his blog post as a reaction to a recent talk given by Airbnb founder Brian Chesky.   Graham and Chesky propose that entrepreneurs ought to reject the conventional wisdom about how to scale a business.   Graham writes:

The theme of Brian's talk was that the conventional wisdom about how to run larger companies is mistaken. As Airbnb grew, well-meaning people advised him that he had to run the company in a certain way for it to scale. Their advice could be optimistically summarized as "hire good people and give them room to do their jobs." He followed this advice and the results were disastrous. So he had to figure out a better way on his own, which he did partly by studying how Steve Jobs ran Apple. So far it seems to be working. Airbnb's free cash flow margin is now among the best in Silicon Valley.

Graham argues that the usual advice to avoid micromanagement might be wildly off-base when it comes to founders leading their companies as they scale.   In short, he suggests that we are advising founders to delegate far more than they should.  He argues that the most effective founders might very well dive deep into the details more often than conventional wisdom recommends.  They can and should talk directly to technical experts at lower levels of the organization and frequently conduct skip-level meetings.  They should employ "founder mode" rather than delegating as much as many leadership consultants suggest.  

Graham acknowledges that you have to adjust your management style as you scale a business.  You cannot run a large organization in the same way you operate a startup.   In short, managing in founder mode is complicated... 

To me, the key argument here is not about whether founders should delegate more or less often.  "Founder mode" sounds interesting, but what exactly does that mean?  The key issue is WHEN one should delegate and when it is appropriate and effective to take a deep dive on critical issues.  I would love to hear Chesky, Graham, and others explain how they think about THAT important leadership choice.  It's all well and good to reference successful founders such as Steve Jobs, but plenty of entrepreneurs meddle too much, alienate people by not trusting them to make decisions, and burn out their subordinates.   Advising entrepreneurs to embrace "founder mode" might do more harm than good unless we help them understand how and when to engage in those deep dives.  

How Do We Select Managers? Where Self-Promotion Goes Awry

Source: https://www.aihr.com/blog/hiring-manager/

Ben Weidmann, Joseph Vecci, Farah Said, David Deming, and Sonia Bhalotra have published a thought-provoking new NBER working paper titled, "How Do You Find a Good Manager?"  The paper ingeniously uses an experimental methodology to examine whether self-promotion is harmful or helpful in the managerial selection process.   They find that people who nominate themselves for managerial roles tend to perform worse than those individuals selected randomly!  Moreover, they find that the "self-promoters" may be underperforming because they overestimate their own interpersonal skills. In short, overconfidence seems to be a significant problem for these self-promoters.  Here's an excerpt from their paper: 

Do people who want to be managers perform well in the job? We explore this question by randomly varying the manager selection mechanism in our experiment. After describing the expected tasks and compensation structure of the manager and worker roles, we elicit participants’ eagerness to be a manager on a 1-10 scale. Half of groups were randomly assigned to a “self-promotion” treatment where participants with the strongest preferences became managers. Managers were assigned randomly in the other half of groups. We find that self-promotion is worse than choosing managers randomly. Teams with self-promoted managers perform 0.1 standard deviations lower than teams with randomly assigned managers. This magnitude is roughly equivalent to being assigned a manager with fluid IQ one standard deviation lower. We show that self-selection can lead to mistaken inferences about the characteristics of good managers. People who prefer to be in charge– who we call ‘self-promoters’– have characteristics that differ from the broader population. For example, we find suggestive evidence that self-promoters tend to overestimate their own social skills relative to an objective test of emotional perceptiveness called the Reading the Mind in the Eyes Test (RMET).   Among self-promoted managers, we find a negative relationship between self-reported people skills and managerial performance. In contrast, randomly selected managers do not tend to overestimate their social skills, and we find no negative relationship between self-reported people skills and managerial performance.

Naturally, more work needs to be done to examine how these dynamics play out in actual organizations rather than experimental settings.  Yet, intuitively, the findings resonate with me.  Considering the implications for hiring process should be top of mind for those leaders tasked with selecting managers for their teams.  

Three Critical Questions for the New Starbucks CEO Brian Niccol

As we all know, Starbucks hired a new CEO last week. They hired Chipotle CEO Brian Niccol to replace beleaguered CEO Laxman Narasimhan.  Niccol faces many challenges as the company has experienced declining revenues, frustrated customers, and disgruntled employees.  As a loyal customer (albeit also a frustrated one) and a close observer of the company, I've been considering the questions that Niccol must grapple with as he embarks on this transformation effort.  Here are three key questions:

1.  How much customization can Starbucks offer to its customers?  Give the customers what they want, right?  Customers clearly love to customize their drinks (in far more complex ways than Chipotle faces).  However, it has become abundantly clear that many Starbucks cafes are unable to effectively handle their throughput each day, particularly given the intense amount of customization they must deliver.  We've read about or experienced long wait times, abandoned orders, and incorrect drink orders.  Mass customization only works if a company can actually deliver on its promises.  One might argue that Niccol simply has to figure it out, and that he has to improve operational efficiency so that Starbucks can offer abundant customization.  However, Niccol also has to think about the practical implications of this strategy.  Should he curtail customization at all while he tries to figure out the operational challenges in the cafes?  I'm reminded of the story of Lego's turnaround twenty years ago, led by CEO Jorgen Vig Knudstorp (see HBS case study by Jan Rivkin and Stefan Thomke for details on this story).  He took charge when Lego faced the prospect of bankruptcy.  The number of parts produced by the company had doubled in the late 1990s, leading to numerous manufacturing and supply chain problems.  Knudstorp reduced the number of parts substantially so as to help the company gets its operations back in order.  At the same time, he invested heavily in innovation.  Lego came roaring back stronger than ever.  Niccol might want to study that turnaround as he considers the customization challenges at Starbucks.  

2.  How will the design (or redesign) of cafes balance worker efficiency vs. customer comfort/needs?  Longtime Starbucks CEO Howard Schultz envisioned the cafes as a "Third Place" where people could gather with others either to enjoy a friendly conversation or to get work done.  However, many of the cafes were designed to handle much less volume than they currently receive.  Workers are in each other's way, and they lack the equipment needed to handle as many orders as they receive.  In one of my local Starbucks cafes, they have renovated completely.  Now, the workers have more equipment (two espresso stations rather than one) and more space.  Undoubtedly, the set-up is much more efficient, and wait times will hopefully decline as a result.   However, customers have less places to sit and gather with others.  No tables are within reach of outlets at this point, reducing the ability to work at the cafes.  You can clearly see the tradeoffs that Starbucks must grapple with in their design choices.  Niccol has to determine the appropriate balance here between enhanced efficiency vs. "Third Place" dynamics.  

3.  How will Niccol handle the shadow of longtime CEO Howard Schultz?  We all know the story by now of how Schultz has returned twice after his initial resignation as CEO in 2000.  We also know that he has opined about the challenges his successors have faced, and he's done so in a very public way at times.  Most recently, he took to LinkedIn to criticize the efforts of CEO Laxman Narasimhan.  Niccol will have to think about how to engage Schultz.  He clearly has a great deal of influence, though he no longer serves on the Board of Directors.  Niccol can't allow Schultz to dictate strategy, but he cannot ignore him completely.  

Are We Aligned? If Not, Why Not?

Source: Superbeings

Effective leaders do not just articulate their goals clearly and concisely; they test for alignment repeatedly.  Did their message get through clearly to those several levels below them in the organizational hierarchy? Do middle managers and front-line employees understand the priorities, and do they know what is expected of them?  Why might alignment around goals and priorities not exist?  Here are five key reasons:

1.   Leaders did not repeat their message using different media and in different forums/channels.  They articulated the goals once or twice, and they expected others to hear them, understand them clearly, and embrace them fully.  You have to say it again and again, but using different modes of communication.  Some read their emails, and others do not.  Some listen at the town hall meetings, while others multi-task the entire time.  Some watch the 15-minute video you circulated, while others stop watching after 3 minutes. 

2.  Leaders established too many goals and objectives, and employees experience too many instances of competing priorities.  Employees don't know what really matters.  Employees draw disparate conclusions about what is most important.  

3.  Leaders did not build buy-in.  They didn't engage enough people in the process of determining those goals.  Therefore, employees do not feel a sense of collective ownership of the organization's plans and objectives.  

4.  Leaders have established goals that do not seem attainable to those doing the actual work.  As a result, employees become frustrated and start to make judgements about what is reasonable and achievable.  Those conclusions may be quite different across the organization. 

5.  Leaders create goals that do not match the needs and pain points of customers.  Thus, front-line employees perceive a mismatch between what customers want and what senior leaders would like to achieve.  Employees either address the customer needs and frustrate managers who don't see actions that fulfill their plans, or employees pursue the goals set out by top management while frustrating their customers.  

What Can We Learn From Olympic Fencing Stars?

Source: Sports Illustrated

As you watch the Olympics this week, take note of a few of the sports that receive much less attention.  For example, consider the sport of fencing.  You might notice something rather odd.  An unusually high number of athletes in the sport are left-handed.  Or, consider trap shooting.  As author David Epstein points out, "Half of the women in the final were left-handed, while fewer than ten percent of women in general are lefties."  Epstein cites fencing as an example of frequency dependent advantage.  Scholars use the term to describe the advantage left-handers may have in certain competitions because right-handers aren't well-equipped to face lefties and do not compete against them often at earlier points in their careers.  (The advantage in fencing seems obvious, but Epstein is not quite sure why such an advantage may exist in trap shooting).  

Jeff Haden, writing for Inc.com, points out that there's a lesson for all of us from these Olympic fencing competitors. He argues that we can CREATE a frequency dependent advantage in our careers. He writes, "Want to build a business? Be willing to do a few things your competition will not. Want to build a career? Be willing to do a few things the people you work with will not."  What terrific advice!  Haden has identified a key source of career success.  You can bet on your ability to do the same thing others are doing, but just better.  You might be successful, but that could be challenging.  Or, you could do things others aren't willing to do, or haven't chosen to invest time and effort into mastering to this point.  That might be a more fruitful way to propel your career forward at times.  

Should Senior Managers Learn about AI from Younger Employees?

https://michaelmauro.medium.com

Katherine C. Kellogg and her co-authors have written a fascinating new HBS Working Paper titled "Don’t Expect Juniors to Teach Senior Professionals to Use Generative AI: Emerging Technology Risks and Novice AI Risk Mitigation Tactics."  They begin by noting that experienced managers often can learn a great deal from younger, less experienced employees.  The scholars note the benefits of this "reverse mentorship" in their paper.  They point out that junior employees are often closer to the work, able to experiment with new methods more easily, and often are more open to learning about new techniques and practices.  They point, for instance, at a famous ethnographic study by Stephen Barley in which he found that senior radiologists learned a great deal about new CT scanning technology in the 1980s from their less experienced colleagues. 

However, Kellogg and her fellow scholars argue that such positive benefits of reverse mentorship do not always materialize.  For instance, senior professionals may find that their status in the organization feels threatened by such reliance on junior colleagues.  Moreover, they argue that we need to be careful in some instances, when junior colleagues may still not have clear knowledge of the benefits AND risks of emerging technologies such as AI.  If the technology is still evolving rapidly, and the risks associated with its use are still unclear, then we may not want to be so reliant on younger employees to teach senior managers.  

Junior employees may simply not be well-equipped to engage in appropriate risk mitigation strategies, and they may not know how best to convey an understanding of those risks and the appropriate ways to manage them.  To me, it seems that we need a more collaborative approach in these cases of emerging technologies with unclear risks.  Together, we need to engage in the type of two-way dialogue that enables us to learn about the appropriate application of these new technologies in our organizations, rather than depending on one set of individuals to teach another set.   Reverse mentorship has its place in organizations, but it may not be the best model for embracing new AI methods and practices. 

What Can We Learn from Nike's Struggles?

Source: Runners World

Over the past year, the S&P 500 Index has risen by roughly 20%.  Meanwhile, Nike's shares are down by more than 30%.  Revenue growth has stalled. In February, CEO John Donahue announced major layoffs.  What happened to Nike?

The company has made a number of key strategic mistakes in recent years.  I'd like to focus on one key blunder.  Nike focused a bit too much on the allure of driving growth by selling lifestyle-oriented shoes and apparel.  As a result, it didn't invest enough in innovation for the hard-core athlete, particularly runners.  Upstarts such as Hoka and On seized upon this opportunity, brought innovations to market, and grabbed market share.   For years, Nike had led with innovation for the serious athlete, and then used its brand credibility to appeal to more casual athletes and lifestyle customers.  

The Nike story is not a new one.  Many companies begin by appealing to a targeted market segment with innovative products, then expand their reach to the mass market.  However, many firms stumble by failing to protect the core, as well as failing to innovate sufficiently.  They begin to lose their hard-core customers, and ultimately, that damages the brand.   The loss of brand equity ultimately makes it harder to succeed in the mass market.  

How can companies avoid this trap?  First, they need to think about how every move to extend a brand or reach the mass market will affect the hard-core loyalists that were at the core of the initial success?  How will they perceive each particular growth strategy?  Are they diluting the brand, or damaging their reputation for technological preeminence?  Second, they need to invest substantially in customer research that focuses on the pain points and unfulfilled needs of their hard-core customers.   Third, they need to make sure incentives within the firm don't over-emphasize growth at the expense of succeeding with the narrow market niche that formed the heart of the firm's initial success.  Finally, they need to scan the external environment voraciously to examine trends that might lead to a change in consumer preferences among their hard-core brand loyalists.   These steps can help a firm make sure that it doesn't leave itself exposed to innovative upstarts.  

When Team Members Flatter the Leader, Problems May Ensue

Source: https://jonathanbecher.com/

People tend to flatter their leaders at times.  We've all done it on occasion.  At times, we have rolled our eyes when a peer begins to flatter the boss in a less-than-subtle manner.   The flattery might seem harmless, but it risks a problem for both leader and follower.  The leader may become overconfident if he or she lets the flattery go to their head.  Similarly, the follower may lose credibility with their peers if they are seen trying to ingratiate themselves with the boss.  It seems that a bit too much flattery directed at the boss is a surefire way to get yourself marginalized or mocked by your peers on the team.  

New research suggests another potential risk associated with flattery. Benjamin A. Rogers, Ovul Sezer, and Nadav Klein have published a new paper titled "Too naïve to lead: When leaders fall for flattery."  They find that some leaders can bear a cost if they respond ineffectively to flattery by their team members.  The scholars find that leaders who "fall for flattery" can be perceived as rather naive by team members and peers.  Those perceptions, of course, can have negative consequences as they try to persuade and influence subordinates and peers in the future.  If a leader is perceived as unfairly playing favorites based on past flattery, then they will lose the trust of their team members. 

Do New Hires Quickly "Learn" Not To Speak Up?

Source: Inc.com 

Derrick Bransby, Michaela Kerrissey, and Amy Edmondson have published some fascinating new research on psychological safety in the Harvard Business Review. They found an alarming trend regarding new hires and their willingness to speak up. They write, "We studied more than 10,000 employees in a large organization and discovered that new hires’ psychological safety eroded swiftly. On average, newcomers joined the organization with higher psychological safety relative to their more tenured colleagues, then lost it and waited years to reach levels comparable to when they arrived."  Their findings proved consistent across various demographic groups.  

As I read the article, I thought about why new hires might experience a significant drop in psychological safety soon after joining an organization.  One can imagine that new hires might think that leaders welcome pushback and are open to new ideas.  After all, they probably heard a good deal of positive talk during the hiring process about how leaders expect them to contribute during meetings and to bring fresh ideas.   New hires might learn quickly, however, that some leaders react poorly to dissenting perspectives or the sharing of bad news.  In some cases, experienced leaders might not recognize how their reactions to new perspectives have discouraged new hires.  

Three other explanations might exist for this drop in psychological safety though, and it may not involve dysfunctional behavior by team leaders.  First, new hires might not be particularly adept at speaking up.  Perhaps they try to share a concern about a proposed course of action, or express a dissenting opinion, during some early meetings.  If they struggle to present their ideas, they might find that others do not seem receptive.  New hires could conclude that people don't want them to speak up, when in fact, others simply didn't find the arguments well-crafted and persuasive.  Or, others may feel that the pushback was not presented in a constructive fashion.  The remedy for this problem is some effective coaching and development for new hires, so that they can become more effective at presenting their ideas. 

Second, psychological safety may decrease for new hires as a result of their socialization into the organization.  New hires may hear from peers that they should "keep their heads down" and "not rock the boat."  Sometimes, peers are sharing accurate appraisals of the culture, and specifically, of the low level of psychological safety on that particular team.   However, at times, peers may be overly negative.  Take, for instance, a situation in which the leaders themselves are relatively new.  Long-tenured employees may be accustomed to prior leadership that led in a top-down fashion and did not welcome dissenting views.  These experienced team members may not yet have adjusted to new leadership and may not trust that the new leaders genuinely want to hear dissent.  Peers also might be wary of newcomers who question existing practices and challenge the conventional wisdom.  They might even feel threatened.  As a result, they may discourage new hires from speaking up. 

Third, new hires may come to the organization with a "grass is always greener" mentality.  Perhaps they concluded during the hiring process that this organization is clearly superior to their old company.  When their highly optimistic expectations prove not to be accurate, they may become discouraged.  Perhaps the new team does have higher psychological safety than their old team, but the failure to meet lofty expectations may be troublesome.  It's certainly true that it can be very challenging to assess psychological safety during an interview process.  

Harley-Davidson: The Aging Customer Dilemma

John Keilman has written a Wall Street Journal article this week that is titled "Harley Will Ride or Die With the Graybeards." Keilman reports that, "The Milwaukee-based company is selling less than half as many bikes as it did during its 2006 peak. Harley’s portion of the U.S. large motorcycle market recently dropped to its lowest level since the 1980s."  He notes that the average age of the Harley customer has risen substantially in the past two decades.  The company reports that the average age is 49.  UBS analyst Robin Farley disagrees, arguing that it actually has reached the late 50s.  Critics argue that the current CEO has focused on high-priced bikes for older customers, prioritizing profit margins over growth.  In so doing, they say he has made it even harder to attract younger buyers.  

The Harley story illustrates several important lessons in business strategy.   First, the temptation for many executives at mature companies is to focus on high-margin products and opportunities to further increase margins at the expense of growing the customer base.  This focus often leads to better earnings per share in the short run, satisfying investors.  However, it creates a long-term challenge.  Eventually, the focus on the highest-margin products can exacerbate the challenge of bringing new customers to the brand.  In Harley's case, younger buyers find it increasingly difficult to afford the purchase of one of the company's bikes.  

Second, mature companies with an aging customer base always have to balance the desire to attract younger buyers with the worry that such efforts might alienate their most loyal customers.  Harley has to worry that attempts to build products and develop marketing campaigns aimed at millennials and Gen X customers might turn off the Baby Boomers and Gen X customers that comprise its most profitable pool of current customers. 

Third, companies often think that the answer to attracting younger customers is simply about the products they offer and the price point at which they sell those products.  While product and price matter a great deal, the brand image and the customer experience also prove to be very important.  Too often, managers at these mature firms are out of touch with trends, and with the younger potential customers in general.  They have been so laser-focused on their most loyal customers, and they are part of that demographic as well.  They need to find a way to truly step into the shoes of those younger potential buyers, and they need to hire people from that demographic.  Effective empathy-based user research is very important for firms in this predicament. 

Finally, firms have to understand the broader social trends against which they are battling.  In Harley's case, they need to understand that the current generation is not nearly as fascinated with the freedom of the open road as prior generations.  As Jonathan Haidt documents in his book, The Anxious Generation, far fewer young people are rushing to get their motor vehicle license at age 16.    He describes several reasons why young people are less eager to drive.  This broader social trend is clearly affecting Harley.  It needs to understand how the psychology of young people has changed, and how that will affect they way the firm should go to market.  

My sense is that Harley-Davidson executives should reach out to companies that have proven adept at navigating some of these challenges and refreshing brands that have encountered aging customer bases.  For example, the leadership team at LVMH has done a remarkable job of acquiring luxury brands that need a refresh, and then helping that brand attract a new generation of buyers.  

Learning Through Acquisition: Admit What You Don't Know

Source: https://www.thekitchn.com/

I've been reading John Mackey's book, The Whole Story, about his journey as co-founder and long-time CEO of Whole Foods Market.   The book certainly reads quite differently than many other CEO books, as it documents in detail his experimentation with various psychedelic drugs alongside his retelling of the founding and growth of the organic foods retailer.  

One key lesson jumped out at me from Mackey's story of the early years at Whole Foods Market.  He described how Whole Foods grew by acquisition, but the most important part of those deals was not the growth in revenue,  expansion into new geographic regions, or achievement of scale economies.  Instead, many of those early deals involved incredible amounts of learning about key facets of the business.  Mackey seemed to recognize what he did not know, or what he did not do well.  He went searching quite explicitly for those who were better than him at key elements of the business, and he brought them onboard.  Many of the owners of those businesses stayed with the company and became key executives as the retailer grew.  

For example, Whole Foods Market acquired Bread and Circus, an organic foods retailer in the Boston area.  While studying the company closely, Mackey noted that they had strong sales, but weak profitability.  However, he realized that they had mastered the retailing of perishables.  In fact, they did a far better job than his own company.  Similarly, he bought Walter Robbs' business in northern California because he recognized Robbs' talent and passion for creating a truly beautiful retail environment and refining the processes needed to operate those stores efficiently.  Robbs went on to become co-CEO of Whole Foods Market years later.   Mackey acquired Wellspring, a retailer in North Carolina, because its leader, Lex Alexander, brought a different approach to natural foods.  He had expanded beyond the original focus on health and wellness characterized by many firms such as Whole Foods Market.  Lex brought a "foodies" mindset with an emphasis on foods that were delicious, hand-crafted, and beautiful - e.g., specialty coffees, artisan olive oils, handmade pasta, etc.   Each time Whole Foods Market acquired one of these businesses, it expanded its capabilities and added brilliant, talented individuals to the team.  

In some sense, there's nothing new here.  We hear about learning through acquisition all the time.  Yet, in so many cases, it is the intention, but the reality never meets expectations.  Why?  The acquiring CEO has to be open to the new ideas, and open to learning from others at the acquired company.  In my experience, I've found that many executives end up frustrating the leaders from the acquired company. They don't listen effectively, and they emphasize economies of scale and scope, rather than learning and capability enhancement.  They talk a good talk about learning from others, but they ended up concluding that they know better than the managers at the acquired organization.   Knowledge and expertise ends up just walking out the door.  Therefore, to me, the lesson is clear: Take a hard look at your own expertise and capabilities before an acquisition, and admit what you don't know.  It will make that deal so much more fruitful moving forward. 

Being Concise and Interesting During An Interview, or A Networking Event

Source: www.agilitypr.com

Professor Craig Wortmann recently shared some terrific advice in a Kellogg Insights column titled, "How to Talk About What You Do (without Being Boring)."   Wortmann explains two key mistakes that people make either during job interviews or at networking events.  Put simply, many individuals either share too little or too much. Imagine someone asks, "What do you do?"  One person might simply state their occupation (banker, lawyer, professor, doctor, etc.).  Another might offer a lengthy treatise that puts others to sleep.  Both mistakes are commonplace and easily avoidable.  

Wortmann recommends responding to the question in a manner that sparks a lively dialogue.  Provide a concise answer that leaves them wanting more... more information about the work, about the people you serve, about your particular expertise, etc.  Find a way to spark their interest and their curiosity.   If you think you have been concise enough, think again.  Most of us overestimate how tight (and interesting) our responses actually are.  

I would add that it's generally helpful to demonstrate interest in the other party as well.  Be curious as to what they do, what motivates them, and why they are passionate about their work.  In short, don't just make it about you.   Ask questions, rather than just talking at the other person.   A good interview typically involves the interviewee offering some thoughtful, non-typical inquiries that demonstrate strong interest in the role, as well as a true desire to assess the fit.   In a networking event, great questions often make the conversation proceed much more smoothly, and you will learn so much more about the other person through these inquiries.  

Should Southwest Airlines Change?

Source: TripAdvisor

The Wall Street Journal published an interesting article this week titled "Meet the Southwest Superfans Who Don’t Want the Airline to Change." Dawn Gilbertson writes that some very loyal customers do not want the airline to make some of the dramatic changes being considered by management in the face of a push from an activist investor, Elliott Investment Management.  The hedge fund and some other investors would like to see Southwest offer a series of additional benefits and collect fees for those amenities as other airlines do.  Many other airlines generate substantial revenue from those additional charges.  Some of these huge fans of the airline don't want to see these changes.  These loyal customers would like to see Southwest remain committed to its original model.   The hedge fund thinks that Southwest runs the risk of being stuck in the past, tied to an outdated business model.

The situation represents a classic strategy conundrum.  Southwest Airlines became highly successful because it made a series of critical tradeoffs, exemplifying Michael Porter's concept that, "The essence of strategy is choosing what NOT to do."  They didn't offer assigned seats, first class sections, etc.  These tradeoffs not only made Southwest distinctive, but they made the airline difficult to imitate.  When incumbents tried to create new brands to compete with Southwest, they struggled mightily (think Delta with Song and United with Ted).   Southwest used its unique business model to establish a successful low-cost position in the airline industry.  While most others struggled, it produced profits year after year, even during recessions.  Southwest's challenge now is that they no longer have a clear cost advantage in the industry.   Ultra low-cost carriers have lower costs per available seat mile in some cases.  Thus, the problem is not simply that they are missing out on revenue streams others have developed.  They may not have the cost edge that enables lower pricing than rivals and creates a competitive advantage.  

When companies experience slowing growth or other financial challenges, they often feel the pressure to abandon some of the tradeoffs that made them so distinctive.   The thinking goes like this: these tradeoffs limit potential set of customers we can attract, and if we want to thrive, we have to update our strategy to meet changing consumer trends.  All of that makes a great deal of sense.  However, as firms abandon the tradeoffs they have made, they became more and more like other competitors in their industry.   In short, they might just juice revenue and profits in the near term by changing the strategy, but ultimately, the firm becomes less and less distinctive.  Strategy convergence takes place within the industry, and when that happens, industry profits tend to fall.  

Interestingly, Jost Daft and Sascha Albers conducted a study of the European airline industry a decade ago. They studied 26 European airlines from 2004-2012.  They measured the average "distance" between company business models.  They found that the average distance declined by 19% during this time period.  However, they note one exception in the industry:  

"In 2012, a low-cost carrier (Ryanair) again featured the highest average distance (0.4468) to all other airlines. Moreover, Ryanair was the only airline in the sample to increase its average distance and to become more differentiated from all other competitors, while all other airlines were becoming more similar." 

What's interesting about this finding?  Well, Ryanair produced very high profits throughout this time period.  They remained true to a no-frills strategy, refusing to compromise on the bedrock principles of their low-cost strategy.  Many other airlines struggled as their strategies converged with rivals. 

This finding offers a word of caution as Southwest navigates this period during which they are considering changes to the core business model.  They need to cope with changing consumer trends and preferences, as well as new threats from competitors who have changed their strategies in recent years.  At the same time, they don't want to just follow the crowd.  Activist investors should not simply be looking at revenue and profit enhancements in the very near term, but thinking carefully about how the strategy should evolve so as to remain distinct from competitors.  

Customer Experience Hits Rock Bottom

Forrester Research recently released its annual Customer Experience Index (CX Index™) rankings. The results are dismal.   The chart below shows that the index has reached a new low.  

The scores probably do not surprise shoppers who have had some poor experiences lately.  On the other hand, you might be puzzled a bit given that many company leaders talk obsessively about customer obsession.   They appear to be talking the talk, but not walking the walk.  

Why might it be so difficult to elevate customer experience?  Here are a few hypotheses:

1.  Senior executives are extremely detached from the experiences of their everyday customers.  In fact, many of these executives live very different lifestyles than their average customers.  In short, they are out of touch.

2.  High employee turnover makes it difficult to maintain consistent customer service. 

3.  Company resource allocation processes are distorted.  It's often rather simple to quantify the return on investment from initiatives intended to reduce labor costs.  It's much more difficult to quantify the ROI when it comes to projects aimed at improving the customer experience.  Thus, programs aimed at cutting expenses get funded more easily.   

4.  Metrics drive behaviors in ways that harm customer experience. For example, one of my daughters once worked at a large national coffee shop chain.  One key metric focused on the time required to serve customers in the drive-thru lane.  The manager's focus on that metric caused employees to de-emphasize service to customers who came into the shop.   Frustration ensued for customers walking up to the counter. 

5.  Young people working in many retail locations have weak interpersonal skills, in large part due to the rise of the smartphone and social media platforms. During their childhoods, as Jonathan Haidt has eloquently argued, we have seen the smartphone cause a substantial decline in vitally important in-person interaction.  They never developed key skills that come from free play, in person, with other children.  

What Happens When Your Team Adds an AI Teammate?

Source: Getty Images

Bruce Kogut, Fabrizio Dell’Acqua, and Patryk Perkowski have conducted a study to examine how team performance changes when we replace a human member with an AI agent.  In their research project, more than 100 two-person teams played 12 rounds of a video game. For the first six rounds, only humans played the game. For the next six rounds, the researchers replaced one human on each team with an AI agent. Interestingly, they found that performance in the game initially declined when an AI agent replaced a human team member, though performance ultimately bounced back after several rounds of game play. This effect occurred even though the AI agents were actually superior to humans when playing the game individually.  Kogut explained why team performance declined at first:

Despite the AI’s superior individual performance and the fact that bonuses were paid to the entire team if it performed well, 84% of respondents preferred to play with their human teammates. From surveys conducted at the midpoint and end of the experiment, we learned that AI causes team sociability to fall, and that lessens members’ motivation, effort, and trust.

Perhaps most surprisingly, the scholars found that all-human teams adjacent to a team with an AI agent also experienced a decline in performance.  The scholars described this phenomenon as a spillover effect.  What's going on there?  Kogut explained that the AI agent disrupted the environment, perhaps affecting the routines and processes within the all-human teams.  He likened to the impact that losing an employee, or hiring an inexperienced one, can sometimes have on adjacent teams in an organization because of the disruption of usual work routines.  

Companies Learning from Their Histories

Fortune's Phil Wahba has written an excellent article titled "From Tide Pods to Coach bags, how Fortune 500 companies use museums of their hits and misses to drive success."  He documents how business leaders have developed company museums and assigned individuals to serve as corporate historians.  Many firms derive great benefit from these efforts to preserve and highlight important facets of their histories.  What are some of the key uses of these company museums?

1.  The museums keep track of substantial failures, enabling the the firms to heed the lessons of those setbacks in the future.  Moreover, sometimes companies can resurrect failed projects, find new uses for old technology, and simply find that the time is now right for something that may have been ahead of its time.  Documenting and highlighting failures, and not just successes, also sends an important message regarding the culture.  Employees come to understand that intelligent failures are acceptable, and even encouraged, because they represent the type of experimentation that can lead to breakthrough innovation. 

2.  The museums enable product developers to tap into past designs for inspiration, as the Wahba article illustrates by pointing out that designers at Coach enjoy looking back at the bags that were fashion hits in previous decades.  

3.  Executives can dig into the artifacts and records to examine how leaders addressed similar challenges in the past.  Wahba writes that Coca-Cola executives dug into records from the 1918 pandemic when the COVID-19 virus swept across the globe in 2020.  They sought to understand how the company responded then, and what lessons might be applicable in the 21st century.  

4.  Perhaps most importantly, these museums enable companies to highlight the values that they hope will endure at the company.  What aspects of the company culture do they want to highlight for current employees?  How can they demonstrate the company's commitment to making life better for customers, and not just producing profits?  The museums have a role in telling the story of the founders and giving employees a sense of the impact that the organization has made on people's lives.  

In short, history matters.  Companies have much to learn from their past, and investing in telling the story of past success and failure can be incredibly valuable.   It's so important to examine the good and the bad, because people learn very effectively when they can compare and contrast success and failure.  

Why Do We Miss Deadlines and Overrun Budgets?

Source: USA Today

We all have experienced projects that miss key deadlines and exceed budgets.  It's not a fun experience.  In retrospect, it seems obvious that we were overly optimistic in our estimates.  Yet, at the start, we thought we had been reasonable, even conservative, in our projections.  Why do we make these crucial errors?  One study offers an interesting explanation.  Bradley Staats, Katherine Milkman, and Craig Fox once published a paper titled "The Team Scaling Fallacy: Underestimating the Declining Efficiency of Larger Teams" (Organizational Behavior and Human Processes, 2012). 

Staats, Milkman, and Fox found that people tend to overestimate the benefits and underestimate the costs of increasing team size on a project.  Adding more people can enhance expertise and skills available on the project.  However, the challenges of coordination and collaboration grow as well.  By not acknowledging those costs sufficiently, many people generate overly optimistic estimates regarding budget and schedule on important projects.  

The study confirms the intuition of leaders such as Jeff Bezos at Amazon, Steve Jobs at Apple, and Brad Smith at Intuit.  Each of those leaders advocated keeping critical work teams small and nimble.   For example, the "two-pizza rule" maintained that you should be able to feed the entire team with two large pizzas (meaning the team should probably not exceed 6-7 members).