Wednesday, April 27, 2016

Is Market Share a Useful Metric?

In a short article for Sloan Management Review, Neil T. Bendle and Charan K. Bagga argue that managers should be cautious about using market share as a key metric for their businesses.  I concur wholeheartedly with their concerns about using market share as a primary objective.  I believe that efforts to grow market share often cause managers to pursue misguided strategies that ultimately undermine competitive advantage and damage long-run profitability.   Bundle and Bagga argue:

In some markets, bigger can be better; the most obvious examples are markets with economies of scale. Companies in such markets can reduce their cost per unit by selling more — thus increasing overall profits. If you think you are in such a market, you should confirm that the economies of scale you think exist actually do. Economies of scale do not automatically apply to all markets. For example, consulting does not get substantially cheaper per hour to provide at higher volumes... In some settings, market share can be a proxy for power. Depending on the setting, relative size can matter, and having a bigger market share can encourage others to treat your company more favorably. For example, when it comes to dealing with retailers, a category leader such as Coca-Cola may be able to negotiate better deals than a weaker brand can; retailers need Coke on their shelves more than they may need a smaller brand. A similar logic applies to network goods, which are products for which the benefit to consumers increases when more people use them. For example, Facebook’s value to its members increases when more of its members’ friends use it. Overall, though, the research on the relationship between profits and market share is ambiguous. There is no general rule; the importance of market share varies from market to market.

Monday, April 25, 2016

Changing the Town Hall Meeting

We have all witnessed how town hall meetings can be dreadful.  The CEO and/or some other senior executive shares an update about the company.  Then, supposedly, he or she would like to answer questions from the staff.  However, few meaningful questions surface.  People do not want to ask the tough questions for fear of being viewed as a "troublemaker" who is challenging or undermining company leaders.  I heard from a senior executive today who has a solution to this problem.  At his firm, they use audience interaction software to enable participants to offer questions anonymously.  Furthermore, the software enables other staff members to "like" the question.  The software then ranks the question by the number of "likes" it has received.   Executives, therefore, can identify quickly and easily the questions on top of mind for their staff members.   It facilitates a much more meaningful and substantive discussion during the town hall meeting.  Naturally, we would like to move beyond the need for such software.  We would like to create a culture in which people do not fear asking the tough questions.  Until that type of climate has been created and reinforced, this type of software may provide a vehicle to begin to open up the dialogue within the firm.  

Friday, April 22, 2016

Eliminating the Four Flaws in Leadership Development

My newest article has been published in the Journal of the American Management Association.  The article its titled, "Eliminating the Four Flaws in Leadership Development."  Please click here to read it.

Uncertainty More Stressful Than Knowing with Certainty That Something Bad Will Occur

What's more stressful for you: knowing for sure that something bad is about to happen or being highly uncertain about a possible negative outcome? Archy de Berker, Robb Rutledge, and their fellow researchers examined this question in a study in Nature Communications. The scholars conducted an experiment in which participants played a computer game. In the game, subjects looked under rocks, and in some cases, they discovered snakes. The subjects received an electric shock in the computer game if a snake appeared. The scholars embedded a great deal of uncertainty in the game, and it fluctuated significantly as participants played. They examined the stress that subjects experienced by measuring certain physiological responses (such as pupil dilation). Participants also reported their self-perceptions about stress as they played. 

What did the scholars find? Subjects experienced the most stress when uncertainty was at its highest levels. Perhaps most interesting though is the finding related to certainty vs. uncertainty. The Guardian recently reported on these findings: 

"So what’s the big deal? Everyone knows that uncertainty is stressful. But what’s not so obvious is that uncertainty is more stressful than predictable negative consequences. Is it really more stressful wondering whether you’ll make it to your meeting on time than knowing you’ll be late? Is it more stressful wondering if you’re about to get sacked than being relatively sure of it? De Berker’s results provide a resounding “yes”."

What's the implication for business leaders? You might be hesitant about communicating bad news because you know it will cause stress for others in your organization. However, this research indicates that the uncertainty leading up to a negative consequence could be much more stressful than knowing for sure that something bad will happen. Keeping people in the dark does not help them; it may cause more harm than good.

Thursday, April 21, 2016

Encouraging People to Ask for Help

The New York Times' Corner Office column, by Adam Bryant, featured an interview recently with Amy Pressman. She serves as President (and co-founder) of Medallia.   The firm provides customer experience management software for firms such as Paypal, Delta, Nordstrom, and GE Healthcare.  Pressman describes an important element of Medallia's culture in her interview.  Here's an excerpt:

We work hard to overcome the “impostor syndrome” that a lot of people feel. People present themselves with résumés of unbroken success. But none of us are perfect. Unfortunately, when we hit roadblocks and need help, many of us don’t feel like we can ask for it. So we’re essentially curtailing the pace at which we can learn, because it’s much harder to learn in the shadows without asking for help than to just come out and say, “I am really struggling with this. Please help me. What do I do?” A lot of people are hiding, and we have created environments where we do not learn quickly. Ultimately, the one sustainable competitive advantage that a company can have is a culture that enables its people and the entire organization to learn faster. Fast learning has to come from a place of people feeling safe to talk about what’s working and not working, of recognizing that their job is not to appear perfect but to get better. We run a week-long onboarding to expose new hires to all these ideas. Also, one afternoon during the week we tell them, “Go out and do something that is holding you back and scares you.” It sounds kind of faddish, but the exercise is actually really powerful. It makes a point: Don’t let the fear of failure — or even of imperfection — hold you back. 

I love the concept, and I'm curious about what the onboarding process entails at Medallia.  How does the firm inculcate these values right from the start?  How do they expose people to these ideas?   Most importantly, I love the goal that they have set out to achieve:  How do we create an environment that enables people to learn more quickly?  Every firm should ask themselves that question.  

Monday, April 18, 2016

Risky Business: How Low Self-Control Leads to Risky Choices

New research examines why people with low self-control may make riskier choices.  Scholars Uzma Khan, Jayson S. Jia, and Ab Litt conducted a series of experiments related to people's choices that impacted automobile safety, heart disease, gambling, and lung cancer.  Prior research has shown that people with low self-control tend to make riskier decisions.   These scholars wanted to know why that was the case.  What was the mechanism by which these people engaged in riskier behaviors?  Here's what they found:  
People perceive risk in two main ways: the probability that something bad will happen, and the consequences of those negative outcomes. And through a series of experiments, they found that those with low self-control focus more on the probability and pay less heed to the consequences.  For a real-life example, the researchers quizzed people on their health. They found that people with low self-control are more concerned if they are told their probability of contracting heart disease is twice as high rather than if they are told the consequences of heart disease are twice as bad as previously thought.   Khan, who studies behavioral judgment and decision-making, found the reverse to be true for people with high self-control, who tend to pay more attention to consequences and less to the probability of a risky outcome. This coincides with previous research showing that high-level executives pay less attention to the probability of negative outcomes. “Because they feel more in control, they think that outside odds don’t apply to them. Their behavior is, therefore, determined disproportionately by the consequence of the outcomes, such as the potential profits,” she explains.
The findings strike me as very interesting.  If we were purely rational decision makers, we would think in terms of expected values (probability multiplied by outcome).   Not only do we not think in such a calculating way about many choices, but we actually pay more attention to one element of expected value than the other, depending on our self-control.  That's a new twist on our prior understanding of how we can be "irrational" with respect to certain choices in life and in business.  What's the implication of this research?  Think carefully about how you craft messages to different audiences.  If you have an audience likely to exhibit low self-control, then focus on probability.  If you have an audience with high self-control, then focus your message on consequences:  "The outcome of this chain of events is very, very bad.  Here's the loss that could result."  

Wednesday, April 13, 2016

Don't Leave a Vacuum!

What happens when employees experience feelings of fear, uncertainty, and anxiety about the future direction of the organization? What if they are not clear about the plans for the future amidst some challenging financial circumstances? What if the organization's leaders have not explained the strategic direction clearly, concisely, and simply? It's pretty simple: as a leader, if you leave a vacuum, your people will fill it. How will they fill it? They will fill it with speculation, gossip, and assumptions. As a leader, you need to avoid that type of behavior. 

 You need to communicate clearly and frequently, so that no such vacuum exists. Don't leave room for fear and anxiety to fester. What if you don't have the future plans completely figured out? Don't wait until you have it all straightened out to communicate with your people. Tell them what you can about your plans, and explain the process you are using to clarify your course of action. Keep them updated on your progress in the planning process. Finally, make sure you keep you finger on the pulse of the organization, so that you know how people are feeling about the uncertainty facing the organization.  As Jack Welch once said, "You communicate, communicate, and communicate some more. Consistency, simplicity, and repetition is what it's all about."