Thursday, June 22, 2017

Sabbatical Life

Creating Great Ideas: Combining Open Innovators and Extroverted Peers on a Team

Sharique Hasan and Rembrand Koning have conducted research on idea generation in teams, using a unique field experiment design.  These scholars conducted their field experiment within the opening week of an entrepreneurship academy in India during the summer of 2014.  The scholars begin by noting that prior research suggests that, "Individuals with higher openness are more creative because they seek out diverse information and experiences, but also recombine these more effectively into novel ideas."  However, they explore how creativity may be enhanced when we combine these open innovators with extroverted peers.  Why does the combination of individuals enhance creativity within a team?  They argue that extroverted peers provide new, unique, interesting, and diverse information to the open innovators,   In short, those conversations with extroverted peers provide fuel for the open innovators.  Here's a summary of their conclusions:

Contrary to prior research, we find that being open to experience alone does not lead individuals to generate better ideas (e.g. McCrae, 1987; Feist, 1998). Our findings suggest that this individual capability depends on the types of peers with whom a focal innovator converses. When open innovators are exposed to extroverted peers, they are more likely to develop higher quality ideas–ones that are evaluated higher, are more detailed, and have more distinct word usage compared to other ideas. Conversely, more open innovators whose peers are not extroverted appear to produce mostly average ideas. In terms of magnitude, while this effect alone will not make the lowest-quality ideas the best ones, it can shift ideas at the margins of “good” to “very good” or “very good” to “great.” This is equivalent of moving an idea from being at the 80th percentile of quality to being in the top decile. Overall, our findings highlight the importance for considering the specific nature of social inputs in to the production of good ideas. Moreover, this insight—about the value of a dyadic interaction for information acquisition and ideation—can fruitfully be used to design teams that have a preponderance of those individuals who can help develop high-quality ideas within teams.

Tuesday, June 20, 2017

You Don't Always Want To Focus


Dr. Srini Pillay, an author and executive coach who teaches part-time at Harvard Medical School, has written an intriguing HBR post about the value of "focus" in our work. Pillay argues that focus can enable us to perform outstanding work, but certain negative consequences may emerge if we are "too focused." Pillay argues, "The brain operates optimally when it toggles between focus and unfocus, allowing you to develop resilience, enhance creativity, and make better decisions too." 

What's an example of the value of "unfocus" in our work? Pillay points to a study by Denis Dumas and Kevin Dunbar in which the scholars found that one can solve creative problems more effectively by pretending to be someone else.  Assuming a different identity, or pretending to stand in someone else's shoes, can help people achieve better results at creative problem-solving tasks.  Specifically, Dumas and Dunbar invoked two stereotypes for their research subjects:  the "rigid librarian" and the "eccentric poet."   They asked subjects to either imagine themselves as the librarian or the poet, and of course, they had a control group in their study as well.  The students who imagined themselves as eccentric poets exhibited more divergent thinking than either the librarian group or the control group.  They conclude that, "divergent thinking... is a highly malleable rather than a fixed trait."  

Friday, June 16, 2017

Design Thinking: Observation Tips

When conducting field research as part of the design thinking process, we should keep in mind some of the key do's and don'ts of observational research.  Here are some key tips:

Source:  M. Roberto, Know What You Don't Know (2009). 

Monday, June 12, 2017

Will Immelt's Retirement Lead to the Break-up of GE?

Stunning news from General Electric headquarters this morning;  Jeffrey Immelt will step down as CEO, and John Flannery will succeed him.  Many people wonder what's next for GE given the leadership change.   Immelt has transformed GE in many ways, but some big strategic questions remain.  While he divested a number of businesses during his tenure, the company remains a conglomerate with some seemingly unrelated businesses.   As the stock has languished in recent years, many analysts and observers have asked:  Should GE break up? Is the whole not worth the sum of the parts?   After all, one has to wonder how powerful the scope economies (synergies) are when combining a healthcare company and a jet engine manufacturer under one corporate parent.   Flannery's background and initial comments suggest that a broad strategic review will take place, and nothing is off the table.  

Conglomerate strategies may have made sense many decades ago, but focused firms and related diversifiers have outperformed unrelated diversification strategies in recent years.  In GE's case, it often has been viewed as an exception to the rule when it comes to unrelated diversification.   While many such conglomerates have faltered and broken up in recent decades, GE prospered.  Recent performance has not been as good though.  GE does not seem to have powerful economies of scope (typical synergies), but in the past, it has exhibited strong governance economies. In other words, it used common management systems and methods (the GE way) across the range of businesses, adding value as a result.  Moreover, it had a strong talent management system that moved people across the business and enabled highly effective management of a diverse array of businesses.  Are those governance economies still as strong as they used to be?  Is that enough to justify keeping some unrelated business units together.   John Flannery will have to answer those questions.  

One final note:  John Flannery is a fair bit older than Jack Welch and Jeff Immelt were when they became CEO.  He is 55 years old.  Welch and Immelt were each ten years younger when they became CEO in 1981 and 2001 respectively.   One might conclude, therefore, that the Board does not expect Flannery to serve for as long as his predecessors.  Could that mean Flannery will have more urgency to conduct a strategic review and make substantial changes in the near future?   I think so.  

Wednesday, June 07, 2017

Innovating Around the Box

Knowledge@Wharton reports on a new book by Wharton Professor David Robertson. (The Power of Little Ideas).   In the author interview, Robertson describes his focus on innovation associated with complementary products and services.  In short, he's not focused on simple incremental innovations to existing products.  However, he's also not focused on breakthrough innovations or products in entire new categories.  Instead, Robertson looks at how companies can drive profitable growth through the development of complementary products and services.  In pursuing such innovation, companies can not only drive growth, but deepen their competitive advantage.  Many companies see slowing growth in their core market and look for the next big thing.  Many of these firms should focus on complementary growth first, but they miss those opportunities.  LEGO is a good example of a firm that looked for the next big thing, and nearly went bankrupt.  They recovered by thinking about how to grow "around the brick" and "around the box" as he explains:  

My previous book was about Lego, and that was a story about a company that figured out that you didn’t want to innovate inside the box — that wasn’t going to get them anywhere — and you didn’t want to innovate outside the box because that almost put them out of business, but rather, around the box. Complementary innovations around a core product — the brick for Lego — was what really led them to their recent success.

I got my house painted a couple of summers ago, and the contractor I hired put together a proposal. He helped me choose colors and helped me decide what kind of paint, what things needed painting the most, and how I’d manage on a limited budget. He put together a proposal, and he picked Sherwin Williams paint.

I looked at my favorite consumer ratings magazine, and Sherwin-Williams paint is good, but it’s twice as expensive as another paint that’s equally good. So I talked to him, and I said, “Can’t we use this other paint?” And he said, “Well, yes, we could, but it’s going to raise your price.” I said, “I don’t understand, the other paint is half the price.” And he said, “Yeah, but paint is only about 15% of the total cost of your project. I have to think about all the supplies; I’ve got to line up the labor; there’s the overhead of running a company, etc..”

He said, “What Sherwin-Williams does is help me though the entire process of working with you, from helping you choose your colors — there’s a Sherwin-Williams color consultant — to figuring out how much paint is needed for the primer, and for the paint itself, brushes, tarps, all the other supplies. Then, during the project, it is keeping me supplied — I can return extra primer if I don’t need it. If I run out of something, that Sherwin-Williams rep will be over at the site, delivering what I need. Then, at the end, he helps me put together that next proposal. Because there’s always a next proposal, as any homeowner knows.

I looked, and it turns out within a five or 10-minute drive of my house, there are more Sherwin-Williams stores than there are Starbucks, and that’s because they realized who their customer is. It’s not me. I’m the end consumer, of course, and I’m the one that has Sherwin-Williams paint on the house. But it’s that small business, the painting contractor, [that they focus on]. Sherwin-Williams, like Lego, realized it’s not so much about the product — their product is a can of paint — it’s about their innovations around the product that make that product more valuable.

Tuesday, June 06, 2017

Leaders as the Rim vs. the Hub

In Adam Bryant's New York Times Corner Office column, he interviewed Edison International CEO Pedro Pizarro recently.   Pizarro offers this very insightful description of how he thinks about the role of a leader in an organization: 

I see a lot of leaders who want to be the hub, with their people as the spokes, bringing them information. My visual for leadership is that if the team is a wheel, I’m actually the rim. I’m not the center. My job is to keep the spokes together, keep the team together and really help that team perform because they, collectively, are going to have a lot more insights than I will. It also means that when you have to go through mud, the rim goes in first. But that’s the way it should be. 

How awesome is that?!  I love the notion of the rim holding the team together.  In addition, he describes the rim as going through the mud first.   Imagine those situations where the leader can take the flak for his or her team, or perhaps serve as a buffer between the team and outside forces that may get in the way of the work being done.  A leader does not simply direct his or her team.  An effective leader also shields his or her team at times and takes responsibility when things go wrong... rather than throwing the team under the bus.  

Making People Feel That They Count

Andrea Illy, CEO of Illy Coffee, talks in this short video about how important it is for people to feel that they "count" in an organization.

Monday, June 05, 2017

Do Reusable Grocery Bags Lead to Unhealthy Eating?

Scholars Uma Karmarkar and Bryan Bollinger have conducted fascinating new research regarding reusable grocery bags.  Through both empirical data from the field and experimental studies, Karmarkar and Bollinger discovered how shopping with reusable grocery bags influenced consumer behavior.  Not surprisingly, they found that people tend to buy more organic foods when they shop with reusable bags.  However, they discovered that these same consumers indulge more as well. While they might buy more organics, they also buy more ice cream, cookies, and the like.  

Could reusable bags really affect people's behavior in this manner?  Think about what might be going through our brains as we shop.   It's almost as if we decide that we deserve a reward for helping the environment.  We've done something good for the planet, so why not splurge and have a bowl of ice cream when I get home.  Of course, that bowl of ice cream might not be very good for our health.  Yet, we are not necessarily thinking about that damaging effect in the moment. Instead, we are looking to indulge as a reward for "good" behavior.   

To me, the research reinforces the age-old law of unintended consequences.  We might not ever imagine such a negative impact of shopping with reusable bags when we begin shopping with them.  Yet, this unintended consequence emerges.  Humans foil even the most well-intentioned schemes and systems.  We behave in ways that are sometimes hard to predict in advance.  We always have to remember the law of unintended consequences when we try to reshape human behavior.  

Friday, June 02, 2017

Panera Bread, Technology, and Wait Times: The Value of Prototyping

Popularity can be a blessing and a curse for fast casual and fast food restaurants.   Naturally, these chains want as many customers as possible to frequent their locations.  However, customers will become disenchanted very quickly if the wait times become lengthy.   The easy way to solve these issues is to open more locations.   You can't continue to do that forever though.  You have to be able to drive same-store sales, and you must address wait times in order to maintain the customer satisfaction necessary to achieve that revenue growth.  

Panera Bread faced this issue in recent years.  They tackled the problem head-on with a number of initiatives, including the use of technology.  The Wall Street Journal discusses their strategy in an article today titled, "How Panera Solved Its Mosh Pit Problem."   Mobile ordering became a key part of Panera's strategy.   They have done an amazing job with the Panera app, and the mobile ordering system put in place along with that app.  As a frequent customer, I find the mobile ordering system simple, easy-to-use, and very convenient.  I often will order on my phone when I leave my office or home, and I can simply walk in and pick up the order from a shelf near the entrance as soon as I arrive at Panera. Payment is already taken care of via the app.  

How did Panera develop such an effective system?   They prototyped, and they iterated many times.  They used a prototype store in Braintree, Massachusetts as their testing ground.  Even the top two executives spent a great deal of time watching how workers and customers interacted in this location.   They didn't settle quickly on one solution, devised in a boardroom somewhere. They listened to feedback, and they adapted based on that feedback.   What a great innovation story! The article describes the approach, led by CEO Ronald Shaich and President Blaine Hurst:


The chain opened a prototype Panera in Braintree, Mass., to test all elements of “Panera 2.0”: self-order kiosks, delivery, digital ordering and a new practice of bringing food to customers’ tables.  Messrs. Shaich and Hurst spent about 100 hours a week in that Braintree cafe observing what would work.  Easing the ordering bottleneck by taking orders online, instead of at the counter, wasn’t enough: The kitchen had to be able to handle the volume. Allowing customers to place orders themselves led to more customization, but also more staff mistakes. The company revamped the way employees process orders in an effort to minimize errors by simplifying the kitchen display systems.  “It was literally hundreds of these little things that we did,” said Mr. Hurst, who became company president last year after holding several other executive positions with Panera.

Thursday, June 01, 2017

Elmer's Glue: The Slime Craze

In 1947, Borden introduced Elmer's Glue packaged in a glass bottle. Over the years, it became a key item for elementary school classrooms throughout the country. Seventy years later, Elmer's Glue (owned by Newell Rubbermaid now)  has experienced an interesting phenomenon, fueled by social media.   Product sales have skyrocketed over the past year, as young people throughout the country enjoy the "slime" craze.  They've all learned how to make slime using Borax and Elmer's Glue.   In March, Money magazine reported on the remarkable profit-making venture launched by Theresa Nguyen, a 13-year old from Texas.  She earns $3,000 per month selling her slime creations.  Her Instagram account has 665,000 followers.   Her most recent post already has 149,000 views.  Unbelievable! 

Newell has ramped up production of its glue to meet skyrocketing demand.  Meanwhile, the company has also set up an extensive website with its own videos, recipes, and the like.  It all sounds like a terrific story.  Why should Newell be careful though?   Kids are fickle.  Fads come and go.  Will the slime craze be sustainable, or will kids move on next month or next year?   Newell will have to be careful as it ramps up production.  The company will want to be cautious about making large investments to extend capacity.  Moreover, it will have to careful as it manages inventory.   It should strive to meet rising demand while the craze is ongoing... after all, you have to take advantage of the fad while it's ongoing.  However, you don't want to get caught with huge amounts of excess inventory if the fad suddenly stalls out.  In addition, you have to think carefully about how to extend the surge in demand. How can you take steps to insure that it's not just a passing fad? How can you come up with new recipes or ideas that build upon what kids are already doing?   How do you create activities that art teachers and others can use that enable sales to continue to grow?  Finally, and perhaps most importantly, you don't want to damage the authenticity of this craze.  You don't want kids and parents to begin to perceive Elmer's as pushing sales in an inauthentic way.    You want kids such as Theresa to spread the word more so than the corporate social media managers.   Authenticity should be a key priority as the company takes steps to market its product.   

Wednesday, May 31, 2017

How Should You Handle The Impossible Job Interview Question?

University of Texas Professor Art Markman has written a good column for Fast Company about job interviews.  He offers some good advice for how to handle the challenging interview question that has you stumped.  His advice boils down to three key ideas:

1.  Don't try to BS your way through an answer if you are clueless about the subject matter.  You will do far more harm than good with this approach.  You will be much better off acknowledging what you don't know, while demonstrating an eagerness to learn quickly on the job. 

2.  Make the interview a conversation.  Ask questions for clarification if you are stumped.  Probe to learn more about the interviewer's intent with the question that he or she has posed.  Sometimes initiating that conversation will make things much clearer for you, while also building rapport with the interviewer.  In many cases, a reframing of the question will spark a thought for you that will help you provide a thoughtful response.  

3.  Remember that the interviewer may have asked a very tough question with a clear purpose in mind... namely, he or she may want to evaluate your ability to handle adversity and to navigate a difficult conversation.  Keep your cool in these situations and remember that you don't have to knock every question out of the park to get the job.  Focus on the big picture... explaining why your skills and capabilities will benefit the organization.   

I would add one other key piece of advice.  If the question is technical in nature, be ready for the topic to come up in a second or third round interview.  Be sure that you have done your research and are prepared to answer the question in a subsequent interview.  That type of good follow-up will be viewed very positively by most organizations.  

Tuesday, May 30, 2017

Why Walking Promotes Good Thinking

Jessica Stillman recently recapped the research linking walking with the generation of great ideas in a column for Inc.com.  She draws upon a terrific article by Ferris Jabr in The New Yorker.  Stillman explains that exercise enhances blood flow and stimulates the brain.  She also argues that the rhythm of our steps has a positive impact.  Finally, she explains that walking requires little conscious effort, leaving time and capacity for our minds to wander.  Insights emerge during that time when we can allow our minds to observe, reflect, and make connections among various ideas.  For more information about the positive impact of walking, take a look at this TED talk by Stanford psychologist Marily Oppezzo:

Friday, May 26, 2017

Why Being #1 Should NOT Be Your Goal

This morning Kathy Chu wrote a Wall Street Journal article titled, "China's Lenovo to Reboot  After Losing PC Crown to HP."   Chu writes:

China’s Lenovo Group is shaking up its operations as it seeks to reclaim the title of global leader in personal computers and shore up its smartphone business.   For the first time in four years, Lenovo—a company that gained acclaim a decade ago for turning around storied U.S. personal-computer maker International Business Machines Corp.—slipped from the top spot this year to No. 2 in the personal-computer market, behind rival HP Inc.  Lenovo has also fallen to No. 8 in the number of smartphones shipped globally, from No. 3 when it acquired another U.S. brand, Motorola, in late 2014.

When I read this article, I asked myself:  Why do firms obsess with being #1 in their market?  Or, perhaps more specifically, why do they obsess with being #1 in market share in their industry?  Yes, Lenovo held the top spot in the personal computer industry for the past four years.  What precisely did that mean for them?  Well, I checked their Annual Report.  Last year, the company reported a net loss.  During the previous year, they generated a slim profit (1.79% profit margin).    Before that, the margins ranged from 1.6% to 2.1% from 2012-2014.  In short, Lenovo has made very little money over the past five years.  Perhaps, you might argue, they generated a decent return on assets despite the low margins.  With strong asset turnover as a low cost producer, they might produce a good return on assets.  Not so much... in 2015, their ROA equaled 3%.   We should not be surprised by these results.  It's not necessarily an indictment of management.  The personal computer industry is one of the lowest profit industries on earth.  If you perform a five forces analysis, you conclude rather quickly that all the elements of the industry structure point to low returns.  It's a very unattractive industry.  

The lesson: Don't obsess over market share.  Don't worry so much about being #1 in volume.  Think instead about the structure of your industry.  If you are in an unattractive industry, you might not want to be #1 in market share. Instead, you may want to find profitable niches and segments within that industry.  By focusing there, you might not lead the industry by volume, but you may produce stronger returns for investors.  

Thursday, May 25, 2017

How To Think About Goals Over Time

Researchers have conducted some interesting new work on goal-setting and achievement.   Insights by Stanford Business summarizes the findings of research conducted by Szu-chi Huang, Liyin Jin,, and Ying Zhang:

New research by Szu-chi Huang, assistant professor of marketing at Stanford Graduate School of Business, finds that while people benefit from concentrating on small “sub-goals” in the early stages of a pursuit, they should focus instead on the larger objective in the late stages. That notion could be important to any business that entices consumers and employees to set goals, whether as part of an incentive program or service offered.

“When you are just starting a pursuit, feeling reassured that it’s actually doable is important, and achieving a sub-goal increases that sense of attainability,” Huang says. But later, people are no longer concerned about attainment and need to feel that their actions continue to be worthwhile in order to maintain motivation.  “At that point, to avoid coasting and becoming distracted, they need to focus on that final goal to see value in their actions,” Huang says. 


The research appears very consistent with the work on small wins.  You need to have those sub-goals, because small wins are important during any transformation process or challenging task.  However, you need to have the broader vision as well.   This work adds nicely to our understanding of how small wins work by describing the important shift that has to happen over time from small sub-goals to broader objective.

Thursday, May 18, 2017

Advice for Graduates (2017)

At this time of year, I've always shared an old blog post with some advice for those young people graduating from college.  This year, I thought that I would share a new post.  Here goes... 

I want to tell you a story about Retired U.S. Navy Captain D. Michael Abrashoff.   Twenty years ago, in June 1997, Captain Abrashoff became the Commander of the USS Benfold, a guided missile destroyer.  Unfortunately, the USS Benfold was a seriously dysfunctional ship.  Morale was quite low, and many sailors could not wait to leave the Navy.   Captain Abrashoff has described how he led a remarkable turnaround on the USS Benfold.  I love the stories that he tells in his book, It's Your Ship: Management Techniques from the Best Damn Ship in the Navy.  

My favorite story centers on the Sunday afternoon cookouts on the aft flight deck of the USS Benfold.    One day Captain Abrashoff noticed the enlisted men waiting in line patiently for their food at one of these cookouts.  Then he watched as the officers cut in line, rather than waiting their turn.  The officers then ate together, separate from the enlisted men.  What did the Commander do?  He went to the back of the line.  One officer approached him, "Captain, you don't understand.  You go to the head of the line."  Abrashoff responded, "That's okay.  If we run out of food, I will be the one to go without."  When the Commander finally received his food, he went to sit with the enlisted men, rather than his officers.   Note that Abrashoff did not chastise his officers or reprimand them for their behavior.  He simply chose to enjoy a quiet lunch with the sailors whose morale had been so low when he took over.   On the following Sunday, the officers waited patiently at the back of the line, and they did not go off and eat by themselves.  How about that?! 

What's the morale of this story for young people beginning their careers after commencement this month?   Be the type of person who understands that leaders don't cut to the front of the line.  Lead by example, not simply by harsh words and reprimands.   Take the time to sit with those doing the real work.  You might learn a new thing or two... no, you WILL learn a thing or two.  Finally, remember that all eyes will be on you when you become a leader.  Your words and actions will have great symbolic importance.  Mind the signals that you send.  Small actions will say a great deal to others about who you are and what you value.  

Wednesday, May 17, 2017

More CEOs Fired for Ethical Lapses

The Wall Street Journal reported this week on new research from Strategy&, the consulting practice of PWC, about CEO dismissals. The researchers found that more CEOs are being fired these days due to ethical transgressions. According to the newspaper, "CEO ousters due to ethical lapses—either their own improper conduct, or their employees’—are climbing. Such forced exits rose to 5.3% of CEO departures in the 2012-to-2016 period, up from 3.9% during the previous five years." 

 The article goes on to quote Per-Ola Karlsson, a Strategy& partner, about the reasons for this uptick in such firings. Karlsson argues that the trend is not the result of an increase in unethical behavior. Instead, Karlsson cites the rise of social media, the loss of trust in institutions as a result of the scandals from the 2007-2009 period, and the enhanced attention from regulators as reasons for the increase in dismissals. The bottom line - for whatever the reason, CEOs are being held accountable for ethical lapses.  That's a good thing.  It shows that they can't escape from responsibility for flawed decisions that due harm to consumers and other stakeholders.   The data suggest that CEOs should have all the more reason to be highly vigilant about uncovering hidden risks in their organizations, welcoming those who wish to share bad news, and demonstrating transparency when problems do surface.  

Tuesday, May 16, 2017

Should You Sit Next to a High Performer at Work?

New research by Michael Housman and Dylan Minor examines the impact of sitting next to a high performer at work.  They discover important "spillover" effects.  In fact, these spillover effects can occur in both a positive and negative direction.  Here's an excerpt from Kellogg Insight about their research:

Researchers looked at the 25-foot radius around high-performers at a large technology firm and found that these workers boosted performance in coworkers by 15 percent. That “positive spillover” translated into an estimated $1 million in additional annual profits, according to new research from Dylan Minor, an assistant professor of managerial economics and decision sciences at the Kellogg School.

Of course, the flipside is that bad eggs impact their neighbors, too. Negative spillover from so-called toxic workers is even more pronounced—sometimes having twice the magnitude of impact on profits as positive spillover. Yet, while this toxic spillover happens very quickly, it also dissipates almost immediately once that worker is either fired or relegated to the far physical reaches of the company.

Friday, May 12, 2017

The Power of a Nudge: Persuading People to Take the Job

Knowledge@Wharton profiles some interesting new research regarding how to persuade people to commit to a new endeavor such as a job. Clayton Featherstone and Judd Kessler have written a paper titled, “Can Social Information Affect What Job You Choose and Keep?"   They studied Teach for America, and they conducted an experiment to see if they could convince more young people to sign up for the program.   Featherstone explains the research:    

Teach for America tries to place teachers in schools. If you’re admitted to the program, you get an email that says something like, “Congratulations, you’ve been admitted to Teach for America. You’ve been assigned to wherever. We hope you’ll join us.” That email is how they communicate that you should join Teach for America. The sentence we added to the email was, “Last year, 84% of people in your position chose to join Teach for America. We hope you will as well.” We found that one sentence was actually pretty powerful in inducing extra people to join. That sentence is a canonical example of social information. Basically, when I’m thinking about doing something, I might be interested in what others in my situation have chosen to do in the same way.

Now you might wonder if these people were convinced to join, but later dropped out as teachers in the program.  In fact, the scholars found that these people stayed on in their positions.  The small inducement via social information had long term positive consequences.  You can begin to see the implications for other situations, not simply letters to candidates who have been offered a job.   Of course, the power of social information has to be used with care.  You would not want to persuade someone to do something which is not ultimately good for them or the organization.  One wonders too whether the effect is pronounced here due to the age of the people in the study.  We are all shaped and affected by social information, but might the effect be larger for younger people?  

Monday, May 08, 2017

Learning Strategies: Is Talking to Yourself Crazy or What?

Ulrich Boser has written an interesting piece for Harvard Business Review regarding learning strategies.  Boser argues that our ability to learn new skills and assimilate large amounts of new information has become very important in today's economy.  We have to be lifelong learners to adapt and grow as our companies and our jobs change.  Boser reviews the work of University of Illinois psychologist Brian Ross, who has conducted some fascinating research on how we learn.   Boser tells the story of how Ross decided to take a computer science course.  Ross chose to employ a learning strategy called self-explaining to try to master the class.  Boser explains the strategy:

The approach revolves around asking oneself explanatory questions like, ”What does this mean? Why does it matter?” It really helps to ask them out loud. One study shows that people who explain ideas to themselves learn almost three times more than those who don’t.  To help him outperform his younger colleagues, Ross asked himself lots of questions. He would constantly query himself as he read through the assigned texts. After each paragraph, after each sentence, he would ask himself: “What did I just read? How does that fit together? Have I come across this idea before?”  By the end of the course, Ross had found that, despite his relative inexperience and unfamiliarity with computers, he could answer many questions that the other students couldn’t and understood programming in ways that they didn’t. “I sometimes had the advantage,” he told me. “I was focused on the bigger picture.”

Far too many of us continue to believe that reading and re-reading a text provides the best mechanism for digesting new material and accumulating new knowledge.  We whip out our highlighter and brighten the pages of those books, thinking that these colorful additions to the text will help us remember key nuggets.  It doesn't work.  Recent advances in learning research show that other strategies are far more effective than reading and highlighting.  These studies show that we must force ourselves to recall what we read.  We have to quiz ourselves.  We have to summarize and synthesize what we have heard and read.  We have to do something with the information that we are trying to digest.   In short, we need to be much more active in our learning strategies, rather than passively reviewing material.   These strategies work well for students, but they also work well for adults on the job, as we try to develop and enhance our skills and as we take on new roles.  

Wednesday, May 03, 2017

Edward Lampert & The Demise of Sears

Earlier this year, Sears acknowledged publicly for the first time that bankruptcy might be a possibility.  The two charts shown here document the financial deterioration over the past decade.  Many people have placed substantial blame at the feet of CEO Edward Lampert.  In Forbes last year, Adam Hartung wrote about the unwillingess of Lampert to welcome and listen to dissenting views.  

Source:  Company 10K Filings

Mr. Lampert had no time for staff who did not see things his way. Mr. Lampert wanted his management team to agree with him - to confirm his Beliefs, Interpretations, Assumptions and Strategies -- to believe his BIAS. By seeking managers who would confirm his views, and execute rather than disagree, Mr. Lampert had no one offering alternative data, interpretations, strategies or tactics. And, as Mr. Lampert's plans kept faltering it led to a revolving door of managers. Leaders came and went in a year or two, blamed for failures that originated at the Chairman's doorstep. By forcing agreement, rather than disagreement and dialogue, Sears lacked options or alternatives, and the company had no chance of turning around.



Source: www.bigcharts.com
Of course, others have argued that Sears' culture had become insular long before Lampert took over.   Fortune writer Geoffrey Colvin wrote about an incident in the early 1990s, when Edward Brennan served as the firm's CEO:


At this same time, shareholder activist Robert A.G. Monks launched a campaign to get elected to the Sears board and to reform its rules; he even ran a full-page ad in the Wall Street Journal headed “The Directors of Sears, Roebuck and Co.: NON-PERFORMING ASSETS.” When he was finally granted an audience with Sears CEO Ed Brennan in his 90th-floor office in the Sears Tower (now the Willis Tower), the functionary escorting Monks in the elevator reportedly said, “This is the first time bad news has made it above the 78th floor.” Star consultant Ram Charan asks CEOs if they’re hearing lots of bad news. Why? Every company has lots of bad news, he tells them, and if you’re not hearing it, something’s wrong.

Tuesday, May 02, 2017

Strategy at McDonald's: Cheaper or More Premium?

Venessa Wong has written an interesting article about McDonald's for Buzzfeed.  Here is an excerpt: 

McDonald's spends a lot of time and money rolling out "premium" products like design-your-own burgers and ambitious, leafy wraps. But time and time again, the chain is rewarded most when it goes cheap.  It's a tough reality for a restaurant giant whose CEO loves to share his vision for "a modern, progressive burger company," and invests in store remodeling, digital technology, and ingredient overhauls like upcoming switch from frozen to fresh beef by 2018.

Yet amidst this much hyped transformation, guest numbers have been declining for years. "When value is customer-focused and locally-relevant, it drives guest counts, period," McDonald's CEO Steve Easterbrook recently said on an investor call. Even as the chain tools around with guacamole and artisan grilled chicken sandwiches, it needs to focus on value, he said, "whether customers have a couple of bucks in their pockets or a few more than that."

It raises questions about how far McDonald's can really innovate. The McDonald's "concept succeeds best when leaning into core competencies," analysts at Cowen and Co. wrote in a report in April, such as selling Egg McMuffins all day long, or offering bigger and smaller versions of the Big Mac. Going upscale was not on that list, and few people think of McDonald's when they're craving guacamole. They think of it when they want ten chicken nuggets for $2.

Consider some recent flops. McDonald's launched Premium McWraps in 2013, and they failed. Mighty Wings — which cost almost $1 per wing — failed in 2013. The chain made a splashy foray into build-your-own burger territory with the Create Your Taste menu in 2014 — and that will be pared down to a smaller menu with fewer choices this May.

McDonald's faces a thorny strategy challenge.  It is a low cost player faced with erosion of customers and revenue, as more premium fast casual players have entered the market (think Five Guys, Smashburger, Panera, etc.).   People have criticized the firm's food as unhealthy and unnatural.  Should it try to enhance quality and offer more premium products in response to this trend?  Some would say yes; they should follow customer and societal trends.  Yet, those trends cut against much of what they do well.  They have been a successful low cost player for decades, emphasizing speed of service and low prices.  Of course, if they just "stick to their knitting," they must end up a dinosaur.  What can a firm in such a predicament do?   

What they certainly don't want to do is straddle... i.e get caught stuck between a low cost position and a more premium, high quality position in the market.  They will have to make tough choices.  If they don't, they'll lose to fast food places offering more value at the bottom end, and fast casual chains offer more quality at the higher end.  One interesting question:  Could a corporate strategy move be the solution?  In other words, what about launching a new business unit that leveraged the company's core strengths, but enabled it to find new growth?  That's a tough move too perhaps.  They did own a large stake in Chipotle after all, and they divested that stake because it was difficult to manage the tensions between the two very different operating models.  Still, a separate chain might enable them to experiment without confusing customers who have a fixed view of the McDonald's brand.  It will be interesting to watch the firm's next moves.    

Sunday, April 30, 2017

Time is Money: Does Thinking This Way Elevate Stress Levels?

Stanford Professor Jeffrey Pfeffer and Berkeley Professor Dana Carney have conducted some interesting new research on stress.  They examined the impact of thinking about the value of your time.   When we think of "time as money," we become significantly more stressed.  That's bad for us as individuals and bad for the organizations in which we work.  Stanford Insights summarizes the findings:  

Pfeffer’s most recent research, coauthored with Dana R. Carney from the Haas School of Business at the University of California, Berkeley, demonstrates the physiological consequences of the economic evaluation of time. Their study concludes that people who are keenly aware of the economic value of their time — people who think of time as money — generally are more psychologically stressed and exhibit higher levels of the stress hormone cortisol that do people for whom the economic value of time is less salient.

Why do stress levels matter?   Clearly, stress is not good for worker's health.  In turn, an individual's  health condition affects his or her productivity.   We don't want employees to experience burnout, both for their sake and for the benefit of the firm as a whole.  

Friday, April 28, 2017

It Pays to Plan

You are an aspiring entrepreneur.  You would like to launch a startup.  You've been hearing that writing a business plan is over-rated.  You just need to do it.  Mistakenly, some have counseled you that adopting a learning by doing approach somehow means not planning at all.    New research by Francis Greene and Christian Hopp explores the question of whether it "pays to plan" as an entrepreneur.  Their paper, published in the Strategic Entrepreneurship Journal, is titled, "Are formal planners more likely to achieve new venture viability?: A counterfactual model and analysis." Greene and Hopp summarize their findings in the abstract of their paper:

Our results, using data on 1,088 founders, identify two key results: selection effects matter in the decision to plan; and it pays to plan. This study assesses if founders that write a formal plan are more likely to achieve new venture viability. This is important because, despite its popularity, there is considerable debate about the value of plans. One root reason for this is that what prompts a founder to plan also impacts on their chances of creating a viable new venture. The study's novelty is to separate out influences on the decision to plan from the plan-venture viability relationship. Our results show that better educated founders, those wanting to grow and innovate, and those needing external finance are more likely to plan. Subsequently, having isolated what prompts planning, we assess if writing a plan actually promotes venture viability. We find that it pays to plan.

Tuesday, April 25, 2017

Connecting People's Work to the Mission and Vision of the Organization

We hear quite often these days that leaders need to instill a sense of purpose in their organizations. People have to believe that they are doing meaningful work.  They have to understand why the organization exists and what beyond profit is the goal of the firm.  In an interview for Knowledge at Wharton, Professor Andrew Carton talks about an important part of this process. He talks about how important it is to connect the broad vision of the firm to the actions of individuals on the front lines.  That connecting process is crucial.  People have to see how their work connects to the bigger picture.  How are they specifically contributing to the mission even if they are not interacting with the customer every day or doing what they perceive to be the glamorous work in the firm?  

What I found is that it’s absolutely critical that leaders do depict a compelling picture of where ultimately we want to go. But just as important — and also more time consuming and requiring even more investment — is that they communicate about how each employee in the organization can get a sense of how their work connects to the organization’s mission or vision. That process of connection-building took more steps and was more time intensive and more complex than the process of just selling somebody about the importance and beauty of this ultimate goal that we’re trying to achieve together. In some sense, that was the easy part. The hard part is helping people see a connection between their work and the organization’s mission.

Monday, April 24, 2017

Positive vs. Negative Feedback

Ayelet Fishbach, Tal Eyal, and Stacey R. Finkelstein have written an interesting research paper titled, "How Positive and Negative Feedback Motivate Goal Pursuit."   They examined the usefulness of positive and negative feedback.  They conclude that timing matters. Moreover, it matters whether you are evaluating your commitment to a particular pursuit (positive feedback more helpful), or whether you are evaluating your progress toward a goal (negative feedback more helpful).  The authors explain: 

We propose that whether people wish to evaluate their commitment or pace of pursuing a goal influences whether positive or negative feedback is more effective. Our theory further predicts that the question people ask themselves (‘am I committed?’ versus ‘am I making sufficient progress?’) shifts over the course of pursuing a goal. People often start by evaluating commitment and then shift to monitoring progress as they gain experience or expertise in a goal domain. They make this shift because novices feel uncertain about their level of commitment, whereas experts are already committed and wish to monitor their rate of progress. One consequence of this shift is that novices should increase their efforts in response to positive feedback on their successes, and experts should increase their efforts in response to negative feedback on their lack of successes.

The authors describe a series of studies on this topic.  As an example, they examined student choice of instructors for French classes.  They found that beginner students preferred instructors who offered positive feedback.   Advanced students preferred instructors who offered more negative feedback.  

What's the lesson here?  If someone is just starting out on a challenging new task, they may want and need encouragement.  They could use more positive reinforcement than negative feedback.  However, as they begin to move toward mastery of that task, they need more negative feedback so that they can continue to improve.  

Friday, April 21, 2017

Are Job Interviews Utterly Useless?

Jason Dana, Assistant Professor of Management at Yale, wrote a thought-provoking piece for the New York Times this past week.  The title of his article: "The Utter Uselessness of Job Interviews."  Dana argues that people draw conclusions from interviews based on a variety of factors, yet in many cases, these conclusions are unwarranted or flat-out wrong.  In his article, Dana explains the findings from his experimental research. He began by conducting an experiment in which people were asked to predict a student's future GPA.   They had an opportunity to review each student's past GPA as well as the student's course schedule.  The research subjects also had an opportunity to interview these students.  The research subjects also tried to predict future GPA for some students who they did not interview.  Amazingly, they predicted GPAs more accurately in the case of the students who did not participate in interviews.  In a second experiment, they instructed half of the interviewees to answer each question posed by the interviewer honesty.  The other half of interviewees were told to answer the questions randomly.   Dana reports a startling finding: "The students who conducted random interviews rated the degree to which they 'got to know' the interviewee slightly higher on average than those who conducted honest interviews."  What's the lesson here? Dana argues, "The key psychological insight here is that people have no trouble turning any information into a coherent narrative....People can't help seeing signals, even in noise."  

Wednesday, April 19, 2017

Identifying High Potentials in Your Organization

Many organizations seek to identify their high potential employees.  They provide them good opportunities for growth and development and interesting work assignments.  Firms typically invest a great deal in their high potential employees.  A recent article in Harvard Business Review suggests that many firms may be going about this process all wrong.  They might not be selecting the right people as their high potential employees.  

Jack Zenger and Joseph Folkman, leaders of the Zenger/Folkman leadership development consulting firm, wrote recently about a study they conducted at three companies.  They studied nearly 2,000 high potential employees at these firms.   Zenger and Folkman used a 360 degree feedback instrument to evaluate the leadership effectiveness of these individuals.  Amazingly, they found that 42% of these high potentials scored below average on leadership effectiveness.  12% of the high potentials ranked in the bottom quartile.  

What's going on?  Zenger and Folkman argue that companies are selecting high potentials using the wrong criteria in many cases.   They maintain that many firms select based on technical and professional expertise.  Moreover, they examine whether people can deliver results, meet commitments, and fit the organizational culture.  Unfortunately, many of these traits might make someone a strong individual performer, but not an effective team leader.  

Tuesday, April 18, 2017

Strong Opinions, Weakly Held

Jessica Stillman writes this week in Inc. about a new research study conducted at Duke University.  Mark Leary and his colleagues conducted a series of studies examining the impact of "intellectual humility." Stillman writes, " In everyday language, it means the willingness to accept that you might be wrong and to not get defensive when arguments or information that's unfavorable to your position comes to light. And according to this new study, those who lack this quality make markedly worse choices that those who have it in abundance."  

Stillman notes that others have written about this concept previously, though this research at Duke provides strong statistical evidence of the impact of intellectual humility.   An article published on Duke's website cites some of the key findings:  "People who displayed intellectual humility also did a better job evaluating the quality of evidence -- even in mundane matters. For instance, when presented with arguments about the benefits of flossing, intellectually humble people correctly distinguished strong, fact-based arguments from weak ones."

Stillman notes that Stanford's Bob Sutton wrote about intellectual humility a decade ago, and he explained using a phrase made famous by people at the Institute for the Future in Palo Alto, California.  I love the phrase as it conveys the essence of intellectual humility.  Sutton explains that people should have "strong opinions, weakly held."  Here is Sutton's full explanation of this phrase:

Perhaps the best description I've ever seen of how wise people act comes from the amazing folks at Palo Alto's Institute for the Future... they advise people to have "strong opinions, which are weakly held." They've been giving this advice for years, and I understand that it was first developed by Institute Director Paul Saffo.

Bob explained that weak opinions are problematic because people aren't inspired to develop the best arguments possible for them, or to put forth the energy required to test them. Bob explained that it was just as important, however, to not be too attached to what you believe because, otherwise, it undermines your ability to "see" and "hear" evidence that clashes with your opinions.

Friday, April 14, 2017

Framing the Question: Improving Your Brainstorming Session

I listened recently to a Stanford Innovation Lab podcast with Professor Tina Seelig. During this episode, she interviews Emily Ma from Alphabet.  They discuss the keys to an effective brainstorming session.  During their discussion, they focused on important it is to frame the question properly at the outset of a brainstorming meeting.  For instance, Seelig and Ma describe the question:  "How might we create an awesome birthday party for our friend?"   Then they talk about how you might reframe the question with a slight change in word choice. What if you used the word "celebration" instead of "party" in your "How Might We" question?  The word "party" might have framed the question too narrowly.  Changing the word to "celebration" could invite a much wider range of ideas.   This example reminds us that we should be careful about our word choices.  However, we also have to consider multiple frames as we pose the question(s) that initiate our brainstorming sessions. 

Thursday, April 06, 2017

Would Anyone Miss Your Company?


Columbia Business School Professor Rita McGrath sent out a terrific tweet several days ago.  She offered a thought about Macy's, the department store struggling to adapt to the new business environment in which find themselves.  Macy's faces multiple threats these days, including e-commerce, as well as more nimble specialty retailers that pursue "fast fashion" strategies.  I have posted McGrath's tweet here.  What an awesome concept!   Who would miss Macy's if they disappeared tomorrow?  What customers find them indispensable? What customers are highly devoted to Macy's and why?  What do people get at Macy's that they cannot get anywhere else?  Every firm should be asking this question.  It truly challenges management to consider what makes their organization truly distinctive.  



Meg Whitman: The Right Approach Early in Your Career

Friday, March 31, 2017

Creating a Culture of Trust

Paul Zak has published an article in Harvard Business Review titled, "The Neuroscience of Trust." Zak opens by stating, 

In my research I’ve found that building a culture of trust is what makes a meaningful difference. Employees in high-trust organizations are more productive, have more energy at work, collaborate better with their colleagues, and stay with their employers longer than people working at low-trust companies. They also suffer less chronic stress and are happier with their lives, and these factors fuel stronger performance.

He goes on to explain how he has conducted research on the neuroscience of trust. Zak has conducted numerous experiments measuring the brain chemical oxytocin to gain a better understanding of "why trust varies across individuals and situations." He's also conducted survey research in numerous organizations. Through his research, Zak has identified eight factors that enhance trust in organizations. 

1. Leaders must recognize excellence publicly. 
2. Leaders should provide people challenging work. 
3. Leaders ought to give people some autonomy with regard to how work gets done. 
4. Leaders should give people some say with regard to which tasks they perform. 
5. Leaders ought to share information about the firm's goals, strategies, and performance. 
6. Leaders have to show people that they care about them. 
7. Leaders should promote the personal and professional development of their employees.
8. Leaders should not be afraid to ask for help when necessary. 

Thursday, March 23, 2017

What's the Best Incentive Compensation Strategy for Salespeople?

Harvard Business School Professors Doug Chung and Das Narayandas have conducted an interesting new study about compensation schemes for salespeople.  They conducted a field experiment with a Swedish electronics retailer.   The firm used a monthly quota system to motivate and reward salespeople.   The scholars tested the effect of shifting to a daily quota system.  What did they find? Overall revenue increased with the installation of a daily quota system. HBS Working Knowledge summarizes their conclusions:


They found that sales productivity increased by 4.9 percent, on aggregate, under the daily quota scheme. But the results were more dramatic among the lowest quartile of salespeople—those with the worst recent sales records in the company. That group saw an 18 percent increase in sales productivity under the daily quota.

Chung explains that low performers are susceptible to falling behind in a monthly quota scheme, becoming less motivated or less capable of meeting their quota the further they fall back. “So they just give up,” he says.

A daily quota, on the other hand, provides “a fresh start every day in which past performance does not affect current payoff and thus does not disturb current motivation,” the researchers write. “For high-performing salespeople, because they are more immune to the disutility of effort, even if they experienced bad luck earlier in the month, they would put in the additional effort necessary later in the month to meet their monthly quotas.”


However, this finding is not the end of the story.  The scholars also examined the type of products that these employees sold before and after the change in quota scheme.  As it turns out, the retailer sold many more low-priced goods with the new quota scheme, but fewer higher-priced, higher margin items.  Why?  The higher-priced items took more time to sell.  Thus, the daily quota system created a powerful incentive to push the items that were easiest to sell (the low-priced goods).  

What's the lesson of this story?  You have to decide what your strategic objectives are.  If you want volume, a more frequent quota makes sense.  If you are interested in being very successful at the high end of the market, then you do not want the quotas to be as short term in nature.  

Wednesday, March 22, 2017

Sears Acknowledges Possibility of Bankruptcy

Many of us have been predicting the demise of Sears for years.  The writing has been on the wall now for quite some time - falling sales, declining customer satisfaction, and many store closings.  Fortune reported this week that Sears is admitting (finally) that bankruptcy is a possibility. Phil Wahba of Fortune writes:

Sears Holdings has recognized for the first time that many people think the retailer is not long for this world.  In its annual report released on Tuesday, the retailer, which owns Sears and Kmart, said that its years-long sales declines, "indicate substantial doubt exists related to the Company's ability to continue as a going concern." In other words, many think Sears will go under.

Amazingly, Sears has lost nearly $10 billion in the last six years.  How long can they continue to sustain such losses?  Could they be headed to liquidation, not simply a restructuring under Chapter 11? Some think that may be the case.  For me, Sears represents what Harvard Business School Professor Jay Lorsch once described as a "gradual crisis."  Lorsch argued that firms struggle mightily when a threat emerges gradually and unfolds over lengthy periods of time.  They can find themselves rationalizing the threat and avoiding the hard truths.  No single event causes them to shake things up and shift direction in a major way.  By the time they begin to truly confront the threat, it's too late. They find themselves far behind the times, or simply unable to transform the organization that is so set in its ways.  

How Does Information Flow & Collaboration Take Place?

Tuesday, March 21, 2017

Becoming More Resilient

Maria Konnikova wrote a terrific article for The New Yorker last year, focusing on the research on resilience over the past few decades.   Konnikova describes the research conducted by developmental psychologist Emmy Werner.  Konnikova summarizes a key finding:

Perhaps most importantly, the resilient children had what psychologists call an “internal locus of control”: they believed that they, and not their circumstances, affected their achievements. The resilient children saw themselves as the orchestrators of their own fates. In fact, on a scale that measured locus of control, they scored more than two standard deviations away from the standardization group.

Then Konnikova turns to the research conducted by George Bonanno, a Columbia University psychologist.  She writes: 

One of the central elements of resilience, Bonanno has found, is perception: Do you conceptualize an event as traumatic, or as an opportunity to learn and grow? “Events are not traumatic until we experience them as traumatic,” Bonanno told me, in December. “To call something a ‘traumatic event’ belies that fact.” He has coined a different term: PTE, or potentially traumatic event, which he argues is more accurate. The theory is straightforward. Every frightening event, no matter how negative it might seem from the sidelines, has the potential to be traumatic or not to the person experiencing it. (Bonanno focusses on acute negative events, where we may be seriously harmed; others who study resilience, including Garmezy and Werner, look more broadly.) Take something as terrible as the surprising death of a close friend: you might be sad, but if you can find a way to construe that event as filled with meaning—perhaps it leads to greater awareness of a certain disease, say, or to closer ties with the community—then it may not be seen as a trauma. (Indeed, Werner found that resilient individuals were far more likely to report having sources of spiritual and religious support than those who weren’t.) The experience isn’t inherent in the event; it resides in the event’s psychological construal.

Konnikova concludes by reporting that scholars believe that people can change the way that they frame events in their lives.  They can be trained to reframe potentially traumatic events as positive ones.  If that is true, then we can actually become more resilient.  We are not destined to always act the way that we have acted in the face of potential adversity.  

Monday, March 20, 2017

Great Interview Question!

On Friday, I moderated a panel discussion at Bryant University's 20th Annual Women's Summit.   One audience member asked the panelists to describe their favorite interview question.  Gerardine Ferlins, founder and CEO of Cirtronics (a contract manufacturer based in New Hampshire), explained her favorite line of inquiry.  She asks job candidates to think of someone that they admire professionally... perhaps a former manager or colleague.  Then she asks the candidates to describe the characteristics and qualities of that person.  Ferlins explained that this question tends to tell you a great deal about the candidate.  In short, they often describe themselves!  They select someone who has the types of qualities that they think are most important.  You learn a great deal about someone's values, beliefs, and priorities when you ask this question.   In short, this interview question builds on the old adage:  You can tell a lot about a person by the friends they keep.   

Thursday, March 16, 2017

Write Your Company's Obituary

James Allen, co-leader of Bain Consulting's global strategy practice, has written a good article for the Wall Street Journal about how firms can avoid the fate of once-proud industry leaders such as Sears, Blockbuster, Circuit City, Research in Motion, and many others.  Allen starts by referring to a personal development exercise that many individuals have been asked to conduct at some point in their careers:  writing your own obituary.   The exercise is meant to clarify your priorities and objectives, and help you rediscover your true purpose and passion.  Allen argues that firms might take a similar approach.  Executives might try to write their company's obituary.  Here is an excerpt from his article: 

The same exercise can help CEOs determine what their organizations need to live a productive life, and what could lead to an untimely death. CEOs should imagine they are business journalists, writing a postmortem on how the company began a slide toward oblivion—how it lost its leadership position, was targeted by an activist investor or acquired by a company with a more successful business model. What were the likely causes? Which factors in the downfall were knowable but not seen or addressed by executives? Which former strengths became fatal weaknesses? What could senior leaders have done differently to position the company for success?  These theoretical obituaries would vary greatly in detail, but I suspect they will include a common thread: The natural life cycle of many companies goes from insurgency to incumbency to struggling bureaucracy to replacement by the next wave of insurgents.

Wednesday, March 15, 2017

Hootsuite's Czar of Bad Systems

Source: Wikipedia
Ryan Holmes, CEO of social media platform Hootsuite, has written a terrific article for Fast Company about the latest management initiative at his firm.   Holmes begins by recounting the story of one employee who became frustrated with the approval process required to send one customer a Hootsuite t-shirt as a gift.   The t-shirt cost $15.  The employee spent hours tracking people down to get the appropriate approvals.  That example may sound a bit crazy, but every organization has cumbersome, bureaucratic procedures that frustrate people who are just trying to get the job done.  These processes may have started out with good intent, but they evolve to the point where they make little sense in many circumstances.  Moreover, these types of processes tend to centralize decision-making authority over time.  They take away autonomy from the people on the front lines trying to get the work done.  Processes never die.  They almost always grow and become more complex.  

Hootsuite set out to change that dynamic.    One individual has taken on the unofficial position of "Czar of Bad Systems."  Holmes writes, "Our employees now have a go-to person who can take an objective look at processes that have outlived their usefulness. If people have a problem they can’t fix, even with help from their manager, they reach out to the Czar. In the past, these processes would’ve fallen through the cracks–they’d be cursed at but ultimately complied with. Now there’s hope that they might actually be corrected."  

Why do bad processes emerge in organizations?  Holmes explains, "Interestingly, most bad processes seem to boil down to a few common failings: needless complexity, unanticipated bottlenecks, or irrational fear of worst-case scenarios."  I would add one significant reason for bad processes: the desire by certain managers and executives to amass power and authority.  Simply put, some managers want the right to approve or reject certain decisions because it gives them power over others, and it helps justify their existence in the organization.  What these managers fail to do is put themselves in the shoes of those trying to do the work.  They don't appreciate the frustrations that they have created.  Moreover, they often do not understand how much they have slowed down the organization.  When approaching these types of processes, managers need to put themselves in the shoes of those on the front lines.  They need to stop thinking about themselves and start thinking about those whom they should be serving.  

Sunday, March 12, 2017

Managerial Career Concerns & Risk Aversion

When we try to understand corporate strategy decisions, we should examine the factors affecting the way executives approach key situations. Specifically, we should seek to comprehend how career concerns might shape strategic choices. Consider the research of Todd Gormley and David Matsa. They conducted an interesting study of over 2,220 firms in which managers learned that government officials had identified something used in their manufacturing process as a carcinogen. The scholars analyzed the strategic choices that followed this discovery.  Here is what they found, according to a summary of the research published by Kellogg Insight. 

“They started buying other firms,” says Matsa. Discovering that their workers had been exposed to a carcinogen was linked to a 6% increase in acquisitions. But critically, acquiring these companies didn’t actually create any value for shareholders. That’s because, rather than making more strategic purchases, the troubled firms overpaid for large and unrelated “cash cows”—firms whose healthy profits might offset any future payouts the company would have to make.

“We likened it to how tobacco firms diversified into food when the health risks of smoking became more pronounced legally,” says Matsa. (Consider, as the most famous example, Phillip Morris’ acquisition of Kraft Foods in 1988.) “The managers were looking for a way to reduce risk.”

Matsa and Gormley argued that that the managers pursued this strategy to reduce their personal exposure. Because their compensation was closely tied to the firm’s performance, their own finances would have been disproportionately hit by the firm’s collapse. And because a catastrophe would likely cost them their jobs, their careers also hung in jeopardy.

Similarly, they studied firms which operated in states that made it difficult for companies to execute hostile takeovers.  They described these firms as "protected" in that managers did not face a high risk of being displaced/terminated by another company undertaking a hostile takeover.   Here is what the research demonstrated about the strategic choices made by these executives in "protected" situations: 

Moreover, just as seen in the previous study, these managers actively reduced risk by pursuing safe, diversification-focused acquisitions. Their firms undertook 27% more acquisitions compared with unprotected businesses—with two-thirds of these transactions diversifying the firms into new industries rather than building on existing strengths. Disproportionately, the firms targeted “cash cows.”  And their caution negatively impacted their companies’ value, investments, and growth. “These incremental acquisitions destroy shareholder value on average,” Matsa says.

Monday, March 06, 2017

Celebrating Failure at Drug Companies

The Wall Street Journal had an interesting article about the pharmaceutical industry on Saturday. In this article, they described a new type of party being held at some firms:

After making the difficult decision to scrap a once-promising drug program, the biotech firm Ironwood Pharmaceuticals in Cambridge, Mass., did something unusual: It gathered to celebrate. With dozens of staffers in attendance, the “drug wake” at Ironwood featured seven-layer dip, homemade cupcakes and a bittersweet send-off. “It’s hard to say goodbye, so I won’t,” said Mark Charest, who works on regulatory affairs at the company. “I’ll say, ‘Thank you—thank you to the peptide.’ ”

The article describes how firms are holding these types of events to prevent researchers from becoming discouraged after lengthy efforts that do not lead to a product that can go to market.  It also describes how companies are conducting extensive after-action reviews to capture the learning from these failed drug discovery efforts.  Finally, they want to avoid excessive risk aversion; they want people to take risks in hopes of discovering the next highly effective drug.  

I would argue that these efforts also de-stigmatize failure and perhaps help people make the tough decision to stop a research effort and cut their losses.   We know that the sunk cost trap can cause researchers and managers to throw good money and effort after bad in the drug discovery process. By minimizing the stigma of failure, perhaps these firms can make it a bit easier for people to cut their losses.  In the end, that will lead to a much more efficient use of resources at these firms.  

Wednesday, March 01, 2017

Whole Foods Inside of Target?

Brian Sozzi of TheStreet.com has reported in recent days rather extensively about Target's disappointing financial results.   Target experienced a 1.5% decline in same store sales in the most recent quarter, while rival Wal-Mart produced a 1.8% gain in same-store sales.  Moreover, Target missed earnings estimates this quarter, and the firm decreased its estimates for 2017 earnings.  Sozzi has some interesting ideas as to how the firm might turn things around.  For instance, he's focused on the grocery part of the business, noting that Target must decide who it wants to be with regard to the food portion of the stores.   Sozzi proposes one solution that might startle some observers:

Food sales represent more than 20% of Target's business, and it's vital it finally gets this business right. Same-store sales were pressured throughout last year, as the company battled with pricing strategies in a competitive backdrop. Further, Target continues to deal with not having a broad enough assortment in fresh categories such as fruit, vegetables and meat and deli (would like it if they sold some fresh fish and more grab-and-go sandwiches at my local Target, for example). 

The retailer has to decide whether it wants to be a grocery store and, if so, how it could do it more effectively. Becoming a successful grocer could lift sales throughout the store. As I have said in the past, Target should consider outsourcing its grocery department to a Whole Foods (using its new 365 value banner) in the same fashion as it outsourced its pharmacy business to CVS Health. Let someone with the expertise in food service handle the business, freeing up Target to focus on what it does best -- higher quality general merchandise vs. Walmart at good prices.

I certainly find the concept intriguing.  By all accounts, Target made a wise decision to outsource its pharmacy business to CVS Health.   It did not have the same capabilities as CVS, and yet, having a strong pharmacy in the store had important benefits in terms of building foot traffic.  CVS made for a perfect partner.  However, the Whole Foods partnership raises some questions.  Yes, Whole Foods offers strong capabilities in the grocery business.  However, Whole Foods has a very premium image, and it is known for high prices ("Whole Paycheck").  Yes, Target hopes to differentiate itself from Wal-Mart and offer a premium shopping experience for guests.  Is Whole Foods a bit too far in that direction though?  Will it turn off shoppers looking for good value (Expect More, Pay Less)?  Sozzi recommends using the new 365 value banner from Whole Foods, but that store concept is not yet proven.   Perhaps more importantly, Whole Foods is facing many struggles of its own right now, both trying to reinvigorate its flagship stores as well as launch the 365 stores.   CVS Health was a strong, high performing partner for Target.  Is it the right moment to partner with a firm such as Whole Foods, given the challenges that the grocer is facing at the moment?   Finally, outsourcing 20% of your business is a far different decision than shifting the small pharmacy unit to CVS Health.  Sozzi certainly raises an interesting idea though, and I'm sure others will press Target's management to consider similar moves if same-stores sales growth does not improve.  

Monday, February 27, 2017

Can Uber Recover?

By now, everyone has read about the serious problems at Uber.  On February 19, former Uber engineer Susan Fowler published a blog post in which she described serious transgressions by managers at the firm, including sexual harassment.  Soon, newspaper accounts documented a culture that appeared to be out of control.   CEO Travis Kalanick has tried to address the situation, though his early moves have been met with criticism.  He appointed a panel to investigate the situation, but people have objected by noting that all three members are essentially "insiders" at the firm.  Kalanick himself has been criticized for comments in the past that have contributed to the dysfunctional culture.   

Can Uber recover from this fiasco?  Will there be lasting damage?  I see several potential long term negative consequences for Uber.  First, Uber will have a challenging time attracting top talent moving forward, particularly highly successful female engineers and managers.   Why would they wish to work for a firm with this reputation?  Talent acquisition and retention will be a problem for Uber, no matter the promise of financial rewards that they may offer.  Second, investors may begin to scrutinize Uber more closely.  Will they tolerate the huge losses and be as patient as they have been while Uber forsakes profits for aggressive growth?  Third, will corporate governance change?  Will the Board members begin to recognize their own vulnerability here, and will they start asking tougher questions?  Management could face a very different environment in future Board meetings.  

How can Uber recover?  They have to address multiple issues very quickly.  First, they have to insure that the outside review truly is objective.  Perception is reality.  If people perceive the current appointees as insiders who cannot be objective, it will be difficult to persuade people that the conclusions of the review are valid.  Second, they must confront and remove employees who engaged in unethical or even illegal behavior immediately.  Now is not the time for second and third chances.  People have to be held accountable.  Third, Uber must address how it evaluates and rewards employees.  Excusing the inappropriate behavior of brilliant jerks must end.  People must be evaluated and rewarded not simply on the results they achieve, but how they go about achieving them.  Fourth, Kalanick must address his own behavior and past comments.  He has to acknowledge his own culpability in molding and shaping this dysfunctional culture.  Moreover, he has to be very transparent as the review is conducted and changes are made.   Next, the company must address various informal rituals (the push-ups, for example) that have evolved over the years at the firm.  Are these rituals productive?  Should they be stopped? What new rituals should emerge?  Finally, Uber has to redefine the core values for which it stands.  The company is known for its 14 cultural values.  The company has to take a hard look at those values.  Are they the right values?  Have the current values enabled some unintended, but dangerous, behaviors and attitudes?   The company needs to think hard about the message that each value sends... and recognize the ways in which it has enabled bad behavior on the part of many managers. 

Saturday, February 25, 2017

Disturbing Finding on Happiness

Knowledge@Wharton reports on the intriguing, but perhaps rather disturbing, findings of Professor Maurice Schweitzer's latest research.   Schweitzer has studied how people perceive others who appear to be very happy people.  He explains the conclusions from the research:

The pursuit of happiness is deeply embedded in our national thinking. Yet sometimes people who are very happy are exactly the kinds of people who are exploited. That’s what we document in our research, where we look at people who are very happy. If they seem more happy than baseline happiness — people who are very happy, always chipper, always upbeat — they strike us as naive. We found that link consistently. One of the most robust findings in our research is that people see very happy individuals as naive, and in our last couple of studies we found that people are more likely to exploit those individuals.

I don't think the implication is that we should be less happy, or stop presenting ourselves as satisfied and content with our lives, jobs, etc.   However, perhaps we need to open our eyes a bit, and recognize that others may perceive us as naive at times.  Unfortunately, some people may try to take advantage of perceived naivete.