Lessons from Patriots Coach Mike Vrabel's Leadership Journey

What can we learn from the leadership journey of New England Patriots coach Mike Vrabel?  This week, I sat down with Bryant University writer Bob Curley to share my thoughts, including some interesting data about other coaches in NFL history. 

Using AI to Create a "Fantasy Board of Directors" for Yourself?

What would it be like if you could have Steve Jobs and Warren Buffett serving as advisers as you lead your team and make difficult decisions? Matt Blumberg, CEO of Markup AI, decided to use AI tools to create what he calls a "fantasy board of directors." Preston Fore reported on Blumberg's invention in Fortune this week. He writes,

"To build the fantasy board, Blumberg used a mix of ChatGPT, Gemini, and Claude to create 5,000-word profiles for each person. The profiles were trained on items in the public domain—with the goal of enabling the AI to respond to problems the way real board members might—grounded in how those business leaders viewed leadership, governance, and performance."

Blumberg describes how it only took a few hours to create this AI-generated fantasy board of directors. He uses the chatbot to prepare for board meetings, garner feedback on proposals and plans, and build better presentations to his company and his actual board. Blumberg said, "I’ll say things like: Hey, I’m doing a presentation for our kickoff meeting next week. What do you think are the top three themes I should hit?" He even used the AI tool to provide him with an annual review of his performance as CEO. Blumberg notes that the feedback was right on the mark.

Why Big Projects Run Over Budget and Behind Schedule

Have you been involved in a major project that ran well over budget and way behind schedule?  I'm sure the answer is yes.  We all have experienced this misery at times.  Why do so many large projects encounter these problems, while failing to deliver the expected benefits as well?  University of Oxford Professor Bent Flyvbjerg and journalist Dan Gardner wrote a terrific book about this topic.  The book is titled, How Big Things Get Done: The Surprising Factors that Determine the Fate of Every Project, From Home Renovations to Space Exploration, and Everything in Between.  

The book is chock full of insights about why projects go off the rails, and how we can approach projects more effectively.  They argue that a bias for action gets many project leaders in trouble.  They rush to execute before planning adequately.  "Just do it" becomes a dangerous mantra.  Moreover, they argue that some project leaders engage in strategic misrepresentation.  In other words, they know the budget and schedule are not reasonable at all.  Yet, they "start digging a hole" knowing that it will be hard for those providing resources to not fund the overruns once the project has begun.  

The authors argue that experience is essential in managing large projects.  They are big fans of the practical wisdom and learning that emerges from experience.  However, they argue that many project funders and leaders marginalize experience.  Why?  One key reason is what they call the "uniqueness bias."  In short, people always seem to believe that their project is unlike any other that has been done.  Thus, they think there's little to learn from others.  Moreover, many of them strive to produce something that is the first of its kind or the "biggest, tallest, longest, fastest" of its kind. This desire to produce something unique means that they can take huge risks, and they fail to learn from the experience of others.  Thus, we should all ask ourselves:  Is our project truly unique?  Moreover, do we need it be unique?  Is it ok if it is NOT the tallest, biggest, or first of its kind?"  

Don't Use AI to Brainstorm for You!

Do you often use AI chatbots such as ChatGPT, Claude, CoPilot, or Gemini to brainstorm for you?  How effective do you find this process?  Kellogg Professor Brian Uzzi ran an experiment with his students to examine the efficacy of these models and student attitudes about them.  Uzzi administered the Divergent Aptitude Test (DAT) to his students.   In four minutes, they had to generate a list of ten words that were as different as possible from one another.  He compared the students' creativity to the AI models.  

Uzzi found that the humans produced more unexpected responses than the AI models.  In other words, creativity flourished among humans, while the AI models produced average answers.   Unfortunately, Uzzi discovered that the students tended to prefer the responses generated by the AI chatbots.  Why?  Simply put, the students are impressed by the efficiency of these models.  Uzzi says, "They get sucked in by the efficiency.  Someone in class will say, ‘The bot’s score is no better than mine, but I get it in 10 seconds instead of several minutes.’ To them, that feels like a good trade-off.”

Uzzi doesn't believe that this simple experiment argues against all use of AI models.  Instead, he argues that we have to think carefully about HOW we use the models.  He explains, "To get the most out of a bot, don’t ask it for answers.  Ask how to approach a problem. You want advice on how to think, not what to think.”  In short, don't ask the AI model to replace your original thinking.  Ask it to complement or supplement your way of working.   

Let me offer an example from my use of AI to develop teaching plans and materials.  I don't simply ask one of the chatbots how to teach a certain topic.  Instead, I tend to think creatively about how to teach a subject, drawing on my years of experience as a faculty member. Then, I will ask AI to help me develop certain teaching materials that will achieve my goals.  Thus, I'm engaging in the creative act, while asking AI to help with the implementation of my ideas.   In this way, I'm combining human creativity and AI efficiency.  

Recommended Books I Read in 2025

 

Here are some of my favorite books that I read in the past year.  The reading list certainly is eclectic, but I learned a great deal from each of them.  My suggestion: put your phone down, find a comfortable quiet spot, pick up a book, and enjoy! 

Netflix, Warner, and Vertical Integration

News broke this morning that Paramount, led by David Ellison, has made a hostile takeover bid for Warner.  Paramount has made this move after Netflix announced it had agreed to purchase Warner (including HBO) for $72 billion.  Investors did not react well initially to the Netflix deal.   The stock price dropped upon the acquisition announcement (as often occurs for the acquiring firm when mergers are announced).  

In this post, I'm not providing an overall evaluation of the deal.  However, I would like to focus on one facet of the potential acquisition that will be challenging for Netflix.   For years now, Netflix has been a vertically integrated entertainment company.  In other words, they have created content in their studios and distributed that content on their own streaming platform.  However, they have not distributed content on other platforms.  It has been a closed system.  Now, they are acquiring Warner.  That studio produces content for many different distribution outlets, not just HBO Max.  The question becomes:  What will other content buyers think when Netflix becomes the owner of Warner?  Might they wonder why Netflix would be willing to put some content up for sale/distribution on other platforms?  Might they think: If the content is so good, why not stream it on Netflix?  Will they ponder: Are we getting access to lesser quality shows that Netflix does not want to stream on its own platforms?   

Herein lies a key challenge with vertical integration.  You may find yourself competing with your customers (Netflix competes with other media distribution outlets such as other streaming platforms, cable networks, broadcast networks, etc.).  When you compete with your customers, it creates potential conflicts of interest.  Making the Warner acquisition a success will require navigating these challenging relationships.  Others in the entertainment business do it, but some have found it very difficult at times.  Netflix does not have much experience with this type of arrangement to this point.  

Of course, you might argue that they could avoid this problem if they simply distribute all Warner content on their own platforms (Netflix and HBO Max).  However, you then have to ask: Did they have to spend $72 billion on an acquisition to gain access to that valuable content?  Perhaps, but you do have to apply the ownership test.  In other words, would some other organizational arrangement have accomplished similar goals without the hefty price tag?

Are Others Pretending to Listen to You?

We have been taught that active listening is key to effective communication and collaboration.  What, though, constitutes the most effective form of active listening?  Suppose that someone is making eye contact, affirming your statements with a few simple nods, and/or uttering "mm-hmm" after a key point or two.  Are they listening closely?  Or are they pretending to listen?   

It turns out that we are not always very good at discerning whether another party is listening closely or feigning attentiveness.   UCLA's Anderson Review recently spotlighted the research of Professor Hanne Collins and her colleagues, writing:  

A burgeoning area of study, with papers co-authored by UCLA Anderson’s Hanne K. Collins, is establishing that speakers who feel heard often are not; that when the spoken-to feign attentiveness, it’s highly effective at misleading a speaker; and that a more active listening mode — volleying back a bit of what you’ve heard, explicitly stating a desire to engage, especially on topics of a sensitive nature – is the path to a more effective sort of conversing.

Collins suggests that there are two forms of active listening.  In the simpler form, it involves non-verbal cues intended to suggest that you are paying close attention. In another form, you are engaging with the other party in a much more conversational form.  This latter form of active listening is much more effective, and it signals clearly that you are in no way feigning attentiveness.  Collins focuses on three types of interaction:

• Paraphrasing: “Let me make sure I have this right. What happened at school today was…”
• Conversational callbacks: “As you mentioned in your email last week, your team needs more support to complete this project on time.”
• Follow-up questions: “I hear that you’re asking me to do more around the house. What specifically would help?”

For more on how to have an effective dialogue that includes a healthy dose of active listening, I highly recommend Charles Duhigg's book, Supercommunicators: How to Unlock the Secret Language of Connection. 

Testing Your Assumptions

You've used AI and/or Excel to build a beautiful model that examines the ROI of a new venture, project, or initiative.  The result? A strong case for investment, because the ROI is quite good.  You are ready to make your case to senior executives and/or investors.  How can you stress test your model?  The most important thing you can do is to test your assumptions. After all, garbage in, garbage out. If you build a model based on false assumptions, you are in big trouble.  Of course, confirmation bias afflicts many of us as we make decisions. We may be picking and choosing assumptions to deliver a rosy picture, rather than making more realistic presumptions about the future.  

How do we decide which assumptions warrant the most attention and should be tested vigorously?  Jon Fjeld was a long-time tech industry executive, and he now teaches at Duke's Fuqua School of Business.  He has a simple method for determining which assumptions need to be scrutinized first.  He argues that three factors are critical:

1. Severity:  How big is the impact on the project if the assumption is not true?

2. Probability: How likely is it that the assumption is not true?

3. Cost:  How expensive and time consuming is it to test the assumption?

Fjeld uses these three factors to create a simple ratio that can be used to rank your assumptions.  His equation is: (Severity x Probability)/Cost.   The higher the ratio, the more important it is that your prioritize the testing and validation of that assumption.  While we don't actually have a clear way to quantify these three factors, the concept of this ratio makes good sense.  By thinking about these three factors, and their relationship to one another, we can do a better job of deciding how we want to test, experiment, and prototype before making a big bet.  

Educating Students More Effectively, Preparing Them for the Workforce

Source: https://theglobalscholars.com/

Did you use a laptop to take notes in class during school?  Do your children use laptops during class to take notes?  University of Wharton Professor Adam Grant points us to a recent meta-analysis published in the Educational Psychology Review by Abraham Flanigan and his co-authors.  The results are crystal clear.  Grant summarizes the key findings: 

24 experiments: Students learn more and get better grades after taking notes by hand than typing. It's not just because they're less distracted—writing enables deeper processing and more images. The pen is mightier than the keyboard.

Perhaps all those schools requiring students to spend a big chunk of their day on Chromebooks should rethink their pedagogical approach.  As more and more companies complain about the skills and capabilities of entry-level employees, we need to rethink how we teach and how students learn.  Yes, we need to enable young people to use technology productively.  We can't go back to the stone ages.  However, we cannot just blame the phones and social media for the challenges that learners face these days (though banning phones in schools is an excellent idea).  We have to ask ourselves whether we have contributed to the challenges learners face by shifting so much teaching and learning from paper and pencil to the Chromebook (or other devices).  

Reviewing the Performance Reviews

Do you write effective performance reviews for your team members?  Have you received a performance review that you considered especially constructive and useful?  Stephanie Mehta has an interesting article about performance reviews in Fast Company this week.  She focuses on the effort by Ironclad CEO Dan Springer to improve the way his managers evaluate employees.   Mehta writes,

The CEO then read one written midyear review from every frontline manager—about 80 in total. He says about 20% were outstanding. Another 60% were solid—clear, metrics-driven, with specific examples. But roughly 20% missed the mark. Some featured long narratives that showed care for the employee but lacked actionable guidance. Others were short and vague. Springer tapped these managers for further training on how to give effective feedback. “We really did try to make it fun and not boring,” he says.

I admire the commitment to providing an in-depth examination of how these reviews are written and then following up with training.  Many managers receive very little education in how to write an effective review.  They are promoted to lead a team and then asked to take on this important task without a great deal of guidance and support.  Providing useful feedback is an art and a science.  Educating leaders about the science of providing constructive feedback is essential. For example, research suggests that providing forward-looking advice is more effective than traditional forms of feedback.  Giving them chances to practice is key to helping them master the art of reviewing their team members' performance.  

How Quickly Should a Leader Respond to Feedback?

Suppose that you a leader receives feedback, perhaps through a 360 degree evaluation.  Should leaders respond immediately to this feedback and change their behavior?  Perhaps not.  A new study suggests that moving too quickly to adapt in light of constructive feedback may be detrimental to a leader's reputation and effectiveness. Stanford Leadership Insights reports on the findings from an interesting new study by Danbee Chon, Ovul Sezer, and Francis Flynn: 

While past research — and conventional wisdom — suggests that leaders should respond promptly to employee feedback to avoid seeming dismissive, the researchers demonstrated through a series of studies that people don’t necessarily trust rapid changes in their leaders’ behavior, especially when they consider those changes to be difficult. Instead, they may regard sudden shifts as inauthentic, betraying a lack of fidelity between a person’s actions and their genuine thoughts and feelings.

What's the implication for leaders?  Is it simply to move slowly?  Not necessarily. The research suggests that leaders should carefully explain to their employees the consideration and effort that they put into a behavioral or policy change.  They should explain how they considered the feedback, why they chose to adapt given the critique from employees, and very importantly, how hard it was to alter their behavior.  Showing that it was not a kneejerk reaction meant to placate others is critical in these situations.  

What's Good for Our Kids is Great for Us Too!

Source: theladders.com

If you have not read Jonathan Haidt's amazing book, The Anxious Generation, I highly recommend it. Haidt makes a great case for banning smartphones in schools. Now, many school systems have adopted his advice. Early results suggest that the policies are having a positive impact on learning. I do not allow phones in my university classroom, and I'm confident that removing this distraction improves our dialogue considerably.

If this smartphone policy is good for our kids, shouldn't it be good for us as well? In today's Wall Street Journal, Chip Cutter writes an article titled "CEOs Are Furious About Employees Texting in Meetings."  He writes:

A few weeks ago, Airbnb CEO Brian Chesky asked his top lieutenants to identify the problems they saw quietly plaguing the company. Chesky called it the “fester list.” One executive threw out an issue: Too many Airbnb employees weren’t present in meetings because they were checking their phones or laptops. “It’s a huge problem,” Chesky said. Then the chief had a realization. He was guilty of zoning out, too. “Sometimes I’m like, ‘OK, I heard it. I know what you’re about to say. I know the subject matter,’” Chesky said. “I text, but then people see me text, they text. This is a major societal problem.”

Cutter cites leaders from JP Morgan CEO Jamie Dimon to QXO CEO Brad Jacobs about the challenges of distraction during meetings.  Many leaders have become incredibly frustrated by the disconnected conversations, lack of collaboration, and poor listening occurring during meetings.  Of course, many of us would say that we turn to our phones because many meetings are long, dull, and boring.  However, we have ask ourselves:  Isn't that what our kids would say about classes in which they would love to use their phone?  Are we just rationalizing our use of phones during meetings in the same way students often do?  How about the "what if there is an emergency?" excuse?  Ask yourself: Just how many true emergencies do we experience in a week?  Moreover, we can easily set our phones such that people won't disturb us unless it is truly an emergency.   Yet, we choose not to do so.  I'm just as much of a culprit as many others I know.  

You can see the self-reinforcing mess we have on our hands.  We jump to our phone because a meeting is boring.  Then, because we are distracted and not listening actively to others, the meeting discussion drags on endlessly.  The collaboration breaks down, and we end up needing yet another meeting to get key matters resolved.  We have to break this endless unproductive loop.  Team leaders need to establish a new contract with their team members.  They will focus the meeting, tighten the agenda, and avoid repeated tangents.   In return, they ask that team members stay off their phones.  Try it out. See what happens.  My guess?  The results will be very positive, much as they are in schools.  

Leaders Should Always Consider How Their Team Members Might Answer The Question: “What’s in it for me?”

https://transformpartner.com

If you don't communicate effectively with your team members during a time of significant change, you will sow confusion and doubt.  Some leaders remain silent until they have more clarity themselves and until all the loose ends are tied up.  However, a lengthy period of non-communication can be very detrimental to the organization.   As Molly Rosen and Connie Rawson write in Fast Company this week, " We see this pattern again and again: silence creates space for confusion. In the absence of clarity, people default to self-protection and assume the worst. The longer the silence lingers, the further they go down the rabbit hole."  In fact, your team members will not only be confused, but they will speculate with their peers.  They will presume certain intent on your part if you don't explain your rationale.   

Rosen and Rawson offer some advice for leaders. They suggest that leaders should always put themselves in their employees' shoes and ask the simple question: "What's in it for me?"  If you want their buy-in, you have to understand what they stand to lose, as well as gain, from this organizational change?  Leaders need to analyze why they might be inclined to resist a change, and why they might find it beneficial to embrace a new initiative.  Rosen and Rawson suggest that leaders should ask themselves four questions before communicating about a new initiative: 

1. What are they worried about losing?
2. What might they gain?
3. What does this mean for them in the next 30, 60, 90 days?
4. What will we be transparent about even if we don’t have all the answers yet?

Does Your Boss Know Your Strengths and Help You Pursue New Roles Based on Those Skills?

Source: https://www.skillscaravan.com

Has one of your former bosses identified your (perhaps previously undiscovered) strengths and helped you pursue new roles that were well-suited to those capabilities? If so, you are very fortunate. The benefits from having such a boss may be significant and long-lasting.

In today's Wall Street Journal, University of Chicago Professor Virginia Minni explains the findings from a well-designed study of managers at a large multinational company.  She identified "top managers" as those who were promoted much faster than their peers.  She explains her methodology and results:

Here is how it worked. Let’s say two different teams of comparable workers have a regular boss (in other words, not a top manager). Then the managers rotate, and one of those two teams gets a top-performing leader while the other team gets another lesser chief. Since the two teams are otherwise the same, the manager would be responsible for any changes in performance.

The results were striking. For one thing, employees who had contact with a high-quality manager were much more likely to make a lateral move within the firm—about 40% more likely than other workers, within seven years of being assigned to a top manager. These weren’t trivial moves, either: They often involved large changes, such as moving between completely different roles at the company.

That leads to the next striking difference in performance. The workers who served under a top manager and changed jobs were much better paid and much more productive than other workers. Within seven years of contact with a top manager, these people earned about 13% more than workers with lower-performing managers. And their performance metrics—like sales per capita—were 16% higher than other workers’ numbers.

Minni discovered that the effects endured, meaning that the workers did not just benefit while working for the highly effective boss.  They continued to excel in their career after shifting roles and working for different leaders.  She finds that these excellent bosses spent more time in one-on-one meetings with workers, which she argues helped these leaders match their employees with the right roles moving forward.  Moreover, they coached people to excel in those new roles.  

While the study may not offer earth-shattering (or even mildly surprising) results, it does document in a very rigorous way the impact of having an excellent boss who looks out for your interests.  What I would add is that some managers are not bad at leading their current teams, but they do hoard talent.  In other words, they are not always looking out for the interests of their team members.  They would rather hold on to talented individuals, rather than helping them find the next great role that could advance their career.  The best leaders create high-performing teams, but they also develop their people and help them secure great new opportunities.  Because they know how to identify and develop talent, these great leaders don't worry about losing that talent.  They are able to find new people who they can coach and develop to replace the people who have shifted to new roles.  

Can Cold Hard Facts Mitigate Overconfidence Bias?

Do humans suffer from overconfidence bias?  You bet!  Most of us think that we are above average.  In fact, studies show that, "The most incompetent people, in whatever skill researchers ask about, tend to overestimate themselves by the widest margin. People who actually are above average are often pretty good at self-assessment, and some rock stars even mistake themselves as closer to average than they are." 

Many people have argued, however, that overconfidence can and should diminish if individuals are exposed to objective performance evaluation data.  Is that true?  Well, a new paper by Patrick Heck, Daniel Benjamin, Daniel Simons, and Christopher Chabris (published in Psychological Science) questions that conventional wisdom.   They studied over 3,000 tournament chess players from 22 countries.  In chess, each player has a rating that accurately reflects their probability of winning a contest.  In short, chess players have access to objective, accurate performance evaluation data.  Yet, overconfidence persists even in the face of cold hard facts! The scholars report:

"On average, participants asserted their ability was 89 Elo rating points higher than their observed ratings indicated—expecting to outscore an equally-rated opponent by 2:1. One year later, only 11.3% of overconfident players achieved their asserted ability rating. Low-rated players overestimated their skill the most and top-rated players were calibrated. Patterns consistent with overconfidence emerged in every sociodemographic subgroup we studied. We conclude that overconfidence persists in tournament chess, a real-world information environment that should be inhospitable to it."

Hubris gets the best of us at times, and it certainly affects business leaders in many situations.  My conclusion from this study is that we can't simply expect good outcome measures to mitigate overconfidence bias.  Pointing to the facts is not enough.  People's emotions matter, and their identity shapes how they will make sense of objective performance data.  As we give feedback or evaluate performance, we need to consider the likelihood that distorted perceptions of self-efficacy may not go away just by pointing to the numbers.  We have to appeal to people in ways that go beyond the data if we wish to help them reset their self-evaluations and improve based on our feedback.  

When Should You Launch Your Startup?

Source: Reuters

Should you launch your startup right after college, or might you benefit from gaining some work experience before becoming an entrepreneur? Recently, Amazon founder Jeff Bezos told Italian Tech Week that gaining work experience is the smarter strategy. He explained, "Go work at a best-practices company somewhere where you can learn a lot of basic fundamental things [like] how to hire really well, how to interview, etc. There’s a lot of stuff you would learn in a great company that will help you, and then there’s still lots of time to start a company after you have absorbed it.”  Bezos argues that college dropouts such as Bill Gates and Mark Zuckerberg are the great exceptions rather than the rule.  

Is Bezos correct?  What do the data show?  Johnny Wood, writing for World Economic Forum, profiled a key study on this topic.  Scholars Pierre Azoulay and Daniel Kim examined the link between age and entrepreneurship.  They published their findings in the American Economic Review.  The researchers examined nearly 3 million ventures over a 7 year period.  They found that experience leads to a higher probability of entrepreneurial success, confirming Bezos' intuition.  Wood writes:

The research looked at 2.7 million business start-ups between 2007 and 2014, and found the average age of people who founded a business and went on to hire at least one employee was 42.  The team also found that experience counts. Those entrepreneurs who had worked in the same sector as their business start-up were found to be 125% more successful than those without a background in their chosen sector.   Azoulay and Kim’s findings show that a small proportion of high-performing start-ups in the study period were founded by 20-year-olds, less than 1%. Those with the highest growth had an average entrepreneur age of 45.

Many reasons exist for this advantage that experience offers.  Building on what Bezos argued, I think that you not only learn best practices, but you learn worst practices too.  You discover what NOT to do by operating in different businesses.  You witness dysfunction, inefficiency, cultural barriers, and customer pain points.  By seeing how companies fail, you increase your odds of succeeding. 

Teaching Yourself New Ideas & New Skills

When is the last time you taught yourself a new skill or body of knowledge?  How did it make you feel?  During the process, you probably felt mighty uncomfortable, perhaps even stressed out.  Few of us enjoy making mistakes, struggling to understand a concept, or failing to master a new skill.  When we have achieved mastery, though, we usually feel extremely good about ourselves.  More importantly, we may have cultivated a new skill that helps us thrive in our careers.  

Writing in Psychology Today, Carlin Flora explains, "To survive in the knowledge economy, we must all become self-taught learners, whatever our formal training was or will be."  Flora explains some of the benefits of teaching ourselves: "The rewards of becoming an autodidact, though, include igniting inner fires, making new connections to knowledge and skills you already have, advancing in your career, meeting kindred spirits, and cultivating an overall zest for life and its riches."

Being self-taught doesn't mean we don't attend workshops, watch YouTube tutorials, or listen to experts at a conference.  However, it does mean organizing our own learning journey, and not relying solely on the passive process of listening to others explain something to us. We have to read voraciously, find opportunities to practice new skills, and experiment with new methods and techniques. 

I must admit that I don't love being a novice at something. Author James Marcus Bach explains that, for many people, "feelings of inadequacy stop curiosity." Yet, curiosity is at the heart of learning.  While teachers hopefully fostered our curiosity as students, we need to cultivate our own curiosity as adult learners.  We need to take the time to ask interesting questions, acknowledge what we don't know, and seek out sources of new information.  In many cases, we won't truly learn something new in a 60-second video.  It will take sustained attention and the reduction of distraction.  Finding the time to focus will be key if we wish to become more proficient at teaching ourselves something new.  

You Can't Make It Up on Volume!

Have you ordered groceries online? If you have, you may have found it incredibly convenient. However, new research confirms my intuition, namely that many retailers struggle to make online grocery sales profitable. Knowledge@Wharton recently featured research by Professors Marshall Fisher and Santiago Gallino on this topic. The two scholars published an article in Harvard Business Review titled "How Grocery Stores Should Respond to the Growth of Online Markets."  Interestingly, the authors point out that Trader Joe's does not offer online grocery sales.  Having written a case study about Trader Joe's, I love how they buck the conventional wisdom and profit greatly by doing so.  

Why are online grocery sales unprofitable for many retailers?  The authors found that, "Traditional in-store shopping requires 30 minutes of employee labor per customer. When a customer comes inside the store to pick up an online order, an additional 27 minutes of labor is needed. Curbside pickup adds 32.6 minutes, and delivery adds 37 minutes."  These labor costs are hard to recoup.   Given thin margins and intense price competition in the industry, retailers struggle to charge enough to offset these costs. 

Some retailers seemed to think that they would eventually become profitable through economies of scale.  However, the problem is that a key cost driver is the labor involved in serving the online customer in grocery stores.  That cost is largely variable, and it does not come down as you scale up.  Gallino explains: “Many grocery retailers have been pushing for this with the hope that scale will bring profitability. But we’ve been in this effort for a number of years now, and it’s not true. There is a physical reality that scale is not going to fix. Broadly speaking, it’s very challenging to make a profit.”  In short, the research confirms the old joke that, "you can't make it up on volume."  If variable costs exceed price, then no amount of scale is going to make you profitable.  

Companies should take a key lesson away from this research, and it extends well beyond online grocery sales. Firms need to have a good handle on fixed vs. variable costs, and they must understand the contribution margin per item. If the contribution margin is negative, then economies of scale will not likely save you. How might increasing volume lead to lower costs and more profits? If variable costs come down through something such as volume discounts in procurement, that would be helpful. Or, if variable costs come down because of a steep learning curve, that could make a service or product more profitable as volume increases.

Simplify, Simplify, Simplify

Source: New England Patriots

Last night marked the end of opening weekend in the National Football League. My beloved New England Patriots lost their opening game against the Las Vegas Raiders. The debate has raged in the aftermath of the loss. Did offensive coordinator Josh McDaniels make his strategy and scheme too complex for his young quarterback, Drake Maye? Or, did Maye execute the gameplan poorly and make costly mistakes? As fans, we have no way of knowing which explanation is closer to the truth.

As I listened to this debate rage on sports radio, television, and the web yesterday, I began to think about the lesson for business leaders.  Many enterprises face incredibly complex challenges, particularly in today's turbulent economic and geopolitical climate. Yet, the most effective leaders simplify their strategies and the operating plans. They provide clear, concise direction. They focus on a few key metrics, rather than trying to constantly shift attention among many different performance indicators. They don't pursue dozens of major initiatives; instead, they rally people around a few important endeavors. These leaders understand the power of small wins too, rather than only measuring success at the end of long, complicated initiatives.

Steve Jobs put it best when he said, "Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains."

Breaking up Kraft Heinz: When Will Executives Learn?

Another corporate breakup. Ho-hum. Another mega-merger that is being unwound. Ho-hum. When will CEOs ever learn? Today's news: Kraft Heinz will split into two companies. As Jesse Newman reports in the Wall Street Journal, "The food giant said it plans to split its business into two companies, unwinding an industry megamerger that married two packaged-food behemoths."  

Why the breakup? We read a few explanations in the Wall Street Journal article:

• Miguel Patricio, Executive Chairman of Kraft Heinz: “We can allocate the right level of attention and resources to unlock the potential of each brand to drive better performance."
• TD Cowen analyst Robert Moskow: “Food companies have found that their breadth of influence in the grocery store does not necessarily yield the advantages they expected."
• Kraft Heinz CEO Carlos Abrams-Rivera: “Scale by itself is not the answer, but having scale along with focus creates opportunities."

For me, the lessons are simple, yet many leaders do not seem to recognize them as they rush headlong into these megamergers:

1. CEOs often overestimate the economies of scale and scope, and they discount or downplay the diseconomies. 
2. Leaders often overestimate the extent to which more market power will lead to huge benefits as they bargain with suppliers and buyers.  
3. The benefits of simplicity and focus are often underrated by executives. 
4. Merging two companies with inherent weaknesses does not automatically make them stronger together. 
5. The challenges of merger integration often overwhelm top management teams and distract them from giving critical strategic issues the attention they need and deserve.