Project Management Podcast

Andy Kaufman interviewed me recently for his terrific People and Projects Podcast series.   Andy's expertise lies in the field of project management.  His blog has a wealth of resources for managers responsible for managing complex projects in a variety of fields.   To access the podcast, please click here.  I hope you enjoy it. 

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Budweiser: Can It Go Global?

According to the Wall Street Journal, Anheuser Busch Inbev is making a big push to take the Budweiser brand global.   A quick look at the brand's performance in the United States tells us why the company is focused on expanding Budweiser's global reach.  The historic brand's consumption in the US has fallen for twenty-four straight years, and it has now fallen to number 3 in market share in the United States (behind Bud Light and Coors Light).   Budweiser faces challenges winning over customers in foreign markets though.  As the Wall Street Journal reports:

"Adolphus Busch launched a pale lager in St. Louis fashioned after beer from the Bohemian town of Budweis—has never won over most beverage connoisseurs. It scores only a 56, when any rating below 70 is "poor," on the website Beer Advocate. In Europe, where some beer brands have been popular for 500 years, Budweiser 'is not seen as a real beer by beer aficionados,' says Ian Shackleton, a London-based analyst with Nomura."

Budweiser faces a more fundamental challenge though.   In global markets, the local beer brands still dominate.  Many companies, including Anheuser Busch Inbev, have pursued acquisitions across the globe, because they understand this dynamic.  In the article, SAB Miller CEO is quoted: 

"We remain convinced beer is fundamentally a local business,'' says Alan Clark, SABMiller's chief executive in an interview. Although SABMiller is expanding international distribution of brands such as Miller Genuine Draft and Italy's Peroni, it puts far greater stock in its local beers, like Snow. "There's an emotional resonance we find consumers have with beer brands which frankly is different," he says. "We just see it continuing."

Of course, the question is:  How large are those global economies of scale, if local brands dominate so much.  What value does the global parent add?   I wish that Alan Clark had commented on those core questions.

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Break Up the Washington Post Corporation

If I told you that a company had the following business units, what would you say? 

• an education and test preparation business
• a set of local television stations
• an internet company that helps churches engage in outreach and raise money
• a company that makes components for industrial furnaces
• a home healthcare and hospice provider

Most analysts would say that this company has a scattered strategy.   The company: the Washington Post Co. - or whatever it will be called now that Jeff Bezos has bought the flagship newspaper for $250 million.   With the newspaper gone, the Washington Post Co. will soon face pressure for more strategic change.  Investors will argue that this unrelated diversification strategy makes no sense.  Investors can diversify risk much more effectively and less expensively on their own.  They don't need the executives at the Washington Post Co. to do that diversification for them.  

Most people are focused on the Bezos' acquisition right now.  They are examining the future of the newspaper.  Can Bezos transform it?  Soon, though, many eyes will turn to the company that remains.  Expect investors to push for more change.   They will, rightfully, demand a clear strategy moving forward.  The key question: What does the Washington Post Co. want to be moving forward?

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Why Great Leaders Don't Take Yes for an Answer

Here's a fun video that we produced to introduce readers to the new edition of my book, Why Great Leaders Don't Take Yes for an Answer.   Enjoy!

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Employee Recognition: The Yum Brands Way

Fortune has a feature article this week about David Novak, the CEO of Yum Brands.  The article focuses on the leadership development efforts at Yum Brands, with a specific emphasis on the employee recognition program at the firm.  Yum Brands has a lot of fun with employee recognition, but they also take it very seriously.  They know that it's vitally important, and they stress the need for leaders at all levels to recognize the contributions of key employees.  However, they also do it with a smile and a joke - they have fun with it.   Here's an excerpt from the article:

As in all things, the way it's done makes all the difference. Every company offers recognition -- a trophy, a plaque, a ceremonial dinner. It typically accomplishes little, for two big reasons: It happens long after the performance that's being recognized, and it's impersonal. The Yum version is the opposite. Faster is better. "You go into a meeting, and somebody blows you away by something," Novak says. "You get up, go back to your office, get your Yum award out, and you go back and say, 'God, that's so great.' Boom! You give him a recognition award. That's the best recognition of all."

And it must be personal. Every Yum acknowledgement -- a rubber chicken, a cheesehead (used at Pizza Hut), a roof tile -- can be written on, and it must carry a handwritten message. "You want to give away a piece of yourself," says Novak. 

These two attributes are so crucial: it must be immediate and personal.   I would add a third criteria.  Recognition must be about behavior, not just results.  You have to identify the key behaviors that you want to reinforce, and you must recognize the individuals who engage in these activities.  People must understand what you think is important for achieving the broader objectives of the organization.  Moreover, they must know that you not only care about achieving the desired results; you also care about how people about achieving those goals.   

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Hiring Unqualified Candidates: Why Do We Make That Mistake?

Samuel A. Swift and Don A. Moore of the University of California at Berkeley, Zachariah S. Sharek of Carnegie Mellon University, and and Francesca Gino of the Harvard Business School have conducted some fascinating new research that might explain why we often make the mistake of hiring someone who isn't as qualified as we think he or she is.  The scholars find that, "Across all our studies, the results suggest that experts take high performance as evidence of high ability and do not sufficiently discount it by the ease with which that performance was achieved."    How does this problem manifest itself?  Imagine that you are looking at a candidate for a sales position who worked in a high-flying business that was growing very rapidly.    You might fail to account for the fact that it is much easier being a sales person in that type of company as opposed to working for a mature company with low organic growth. 

The scholars conducted several experimental studies which showed that people often select candidates who have excelled at easier jobs/tasks over those individuals who may have performed slightly worse at a much more challenging task.   The scholars also looked at actual admissions data for graduate schools of business.   They found that students are at an advantage if they went to an undergraduate institution with a grade inflation problem!  In other words, if you went to a school that gave out easy A's, you have a better shot at getting into a good MBA program; the admissions officers are not doing a good enough job evaluating the difficulty level of various undergraduate programs. 

As a business school professor, I'm saddened that we appear to be rewarding grade inflation.   The study shines a spotlight on an important problem.  The research has much broader implications though; it shows us why many kinds of organizations may make poor hiring decisions. 

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The Invisible Gorilla

Many of you have seen the video posted below.    The exercise is simple.    You ask people to count the number of passes made by people in white shirts in this short video.   At the end, you ask people whether they saw the person in the gorilla suit appear in the video.   Many people do not notice the gorilla!  They are too focused on the task that has been given to them; they are busy counting passes.  Scholars describe this problem as "inattentional blindness."  Basically, we see what we expect to see.  We expect to see people passing a ball, and we don't expect to see a person in a gorilla suit. 

Now we have an interesting new study that's a simple twist on this infamous gorilla video.  Harvard Medical School researchers Trafton Drew, Melissa L.-H. Võ, and Jeremy M. Wolfe decided to examine whether experts engaged in a serious task are "less blind" than the usual naive observer conducting a mundane task such as counting passes of a ball.   Here's what the scholars report about their study: 

We asked 24 radiologists to perform a familiar lung-nodule detection task. A gorilla, 48 times the size of the average nodule, was inserted in the last case that was presented. Eighty-three percent of the radiologists did not see the gorilla. Eye tracking revealed that the majority of those who missed the gorilla looked directly at its location. Thus, even expert searchers, operating in their domain of expertise, are vulnerable to inattentional blindness. 

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CEOs: We Want Coaching, But We Don't Receive it.

Stanford has collaborated with the Miles Group to release its 2013 Executive Coaching Survey.   The findings are quite interesting.  According to the Stanford website, the report indicates that, "Nearly two-thirds of CEOs do not receive coaching or leadership advice from outside consultants or coaches, and almost half of senior executives are not receiving any either."  However, it seems that almost every CEO responded that they welcomed outside coaching and advice, and they thought it was worthwhile.   Huh?  So, you think having an external sounding board would be a good thing... what exactly is stopping you?  Is the board prohibiting you from reaching out to get this outside advice and counsel?  Can you not afford it?   It seems that the CEOs are telling us what they think we want to hear, but when asked about actual practice at their firms, they reveal the truth - many of them are not reaching out to make sure that they receive the kind of feedback, advice, and external input that could be very helpful. 

Now interestingly, most of the CEOs who do receive coaching made this happen on their own; they were not forced to do so by their boards.  Thus, some CEOs do see the benefit, and they have reached out to find coaching that can help them. 

In what areas did the CEOs indicate that they need the most help?  Conflict management ranks very high for them.  Since I do a ton of work in this area, I was quite pleased to see that executives value this competency.   I would hope, though, that they recognize that sometimes the key challenge for CEOs is the lack of conflict in key decision-making processes; too often people do not raise dissenting voices in the presence of a powerful chief executive.

Finally, the survey responses indicated that boards of directors are very concerned about talent development practices within firms.  They want their CEOs focused on developing future leaders, and putting good succession plans in place.  That's good news, as we see too many companies left searching externally for a CEO when a sudden need emerges because they have not put a good talent development and executive succession process in place.   

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A Culture of Experimentation at Intuit

If you are interested in moving your organization toward a more effective, lower cost method of developing new products and services, take a look at this terrific presentation by Kaaren Hanson, VP of Design Innovation at Intuit. 

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How Can Multinationals Find Talented Candidates? Go Where Firms Don't Hire Many Women

Suppose you are a multinational company searching for highly talented candidates.  You are finding it difficult in certain markets to attract the best people.  Where might you have an easier time finding top notch talent?   HBS Professor Jordan Siegel, MIT's Lynn Pyun, and Hanshin University's B.Y. Cheon have conducted a fascinating study titled, "Multinational firms, labor market discrimination, and the capture of competitive advantage by exploiting the social divide."   These scholars find that global firms can enhance profitability by recruiting and hiring women in countries that traditionally do not have ample opportunities for females to achieve leadership positions in business.  

Siegel and his co-authors focused their research first on South Korea.   According to this article on HBS Working Knowledge, South Korea makes a great setting for this research because, "Universities in South Korea are highly meritocratic about accepting and educating women. Hence, the country sports a large number of highly education, highly qualified women with advanced degrees in business, engineering, economics, and foreign languages - all useful in corporate management."   Unfortunately, the opportunities for these talented women are limited in many traditional Korean companies.   

This research focused on multinationals who were taking advantage of this talented pool of candidates that were not being given sufficient opportunities by domestic firms.  "Even after accounting for unrelated variables, the researchers found that a 10 percent nominal increase in the percentage of female managers (at the level of the then-prevailing glass ceiling) was associated with a  1 percent nominal increase in ROA."  

The researchers are focusing on Japan next, a country that also does not provide wide opportunities for women to assume senior leadership positions in business.  (I just read yesterday that only 1% of Japanese chief executives are women, though 1/2 of university graduates in the country are women).  Interestingly, Siegel's research in Korea suggests that Japanese multinationals might be providing more opportunities for women abroad than they are at home.  His work looked at 37 Japanese firms hiring in Korea, and he found that many of them were hiring female mangers there, but not at home in Japan. 

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When Joint Ventures Fall Apart

The Wall Street Journal reports today that Ford and Toyota have chosen to end a partnership focused on hybrid vehicle development.  The article offers some speculation about why the partnership was dissolved, but it's not quite clear what all the reasons are.  The story does offer us a good opportunity to comment on some of the reasons why joint ventures do fail:

1.  Disagreements and concerns about intellectual property protection - who exactly owns the IP, and how does a firm protect the IP that it does not want to share/lose to its partner or any other rival?

2.  Culture clash - different firms have contrasting styles of decision-making and leadership, as well as different values and norms

3.  Strategic misalignment - the firms have a different view of how and where to compete in the future, or they potentially cannot overcome the challenges and conflicts of interest associated with head-to-head competition in many markets

4.  Catching up vs. Holding you back - Firms sometimes engage in joint ventures as a mechanism for "catching up" in an area in which they lag technologically (or otherwise).   However, at some point, the joint venture may hold you back.  If you have caught up sufficiently, you may wish to reduce your dependency on the partner at some point and focus more on internal capability development

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True Engagement via Social Media: Honda's Latest Campaign

Honda launched a very creative social media campaign recently designed to truly drive engagement.  The company created a powerful back-and-forth conversation with its customers.  To kick off its summer promotions, Honda asked customers to write tweets using the hashtag #wantnewcar if they were itching to ditch their old car for a new set of wheels.   The company responded with six-second personalized Vine videos in response to some of these creative tweets.  The Vine videos made suggestions for new Honda cars and encouraged these potential customers to take a closer look.  As you might imagine, this campaign created quite a conversation between Honda and potential customers, as well as among consumers.    Check out this creative exchange as one example of the type of back-and-forth that emerged.  You can see that Honda was truly trying to have some fun with this campaign. 

Did the social media campaign have an impact?  It tripled Honda's engagement via Twitter.  According to this article, the hashtag has been used nearly 7,000 times.  The article reports that, "The word 'Honda' received an estimated 247 million impressions between July 14 and Tuesday morning." 

Has this incredible level of social media engagement with the consumer led to increased revenues?  That will be the key question.  We will watching closely to see if Honda reveals any data on the connection between the increased social media engagement and auto sales. 

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Understanding Cultural Differences: The Michigan Fish Test

Check out this image. What do you see?   

Source:  Richard Nisbett via CNN.com

In this article for CNN, Columbia Professor Sheena Iyengar describes how people of different cultures view this picture quite differently, and she explains what that tells about important cross-cultural distinctions.   Iyengar is an expert on cross-cultural differences in decision-making processes.  Here is an excerpt:

The image here, known in psychology as the Michigan Fish Test, was presented to American and Japanese participants in a study conducted by Richard Nisbett and Takahiko Masuda.  In their five-second viewing, Americans paid more attention to the large fish, the "main characters" of the scene, while Japanese described the scene more holistically. For Americans, the large fish were the powerful agents, influencing everything around them. For Japanese, the environment dominated, interacting with and influencing all the characters.  After the initial test, the researchers offered participants different versions of the fish picture, with some elements changed and some not. With the altered pictures, the Japanese were more likely to notice changes in the scenery or context. The Americans, on the other hand, proved adept at recognizing the large fish wherever they appeared, while the Japanese had more trouble recognizing the fish in new contexts, outside the original environment.  So members of two different cultures--the more individualist Americans and the more collectivist Japanese--"saw" the pictures with differing emphasis on individuals, the environment, and how these elements interacted. The divergent accounts point to differing narratives of what controls what in the world, and how individual people fit into it.

For more on Iyengar's own research comparing how Japanese and American children approach choice, see this earlier blog post. 

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Is the Sum of the Parts Worth More Than the Whole at Sony?

In May, hedge fund investor Dan Loeb proposed a break-up of Sony, the Japanese electronics and entertainment giant that has struggled over the past decade.   Actually, he's not proposing a complete break-up, but rather an initial public offering whereby Sony would sell a 20% stake in its music and movies business to outside investors.  Loeb argues that the sum of the parts is greater than the whole.  Sony has an entertainment division that produces movies (Skyfall, Spiderman) and represents recording artists (Adele, Springsteen).  The entertainment division has been more profitable than the electronics division in recent years.  Investors recognize that Sony has been subsidizing losses in areas such as its television business with profits from its entertainment division.   Sony also still owns a majority stake in a firm called Sony Financial Holdings, which operates in the banking and insurance business.  Here's an excerpt from a Bloomberg article about Loeb's push for a partial break-up at Sony:

The value of Sony’s entertainment division -- which makes the “Spider-Man” movies through its Culver City, California-based Sony Pictures and also represents music artists including Grammy winner Adele -- isn’t being realized in the company’s current structure, said Michael Souers, an equity analyst at Standard & Poor’s.  “It’s totally being weighed down by the struggling consumer electronics unit and the fact that it’s had to subsidize that unit,” Souers said in a phone interview from New York. A partial spinoff “would make sense for them. And from a managerial perspective, they could focus a little bit more on turning around the electronics business.” A sum-of-the-parts analysis by Christian Dinwoodie, a Tokyo-based analyst at CLSA, values Sony at 2,400 yen a share, 28 percent higher than its price May 14, before Loeb’s proposal lifted the stock. Spinning off part of the entertainment business would give Sony an infusion of capital and allow it to transfer some debt to the new entity, Dinwoodie wrote in a May 14 report. 

In late June, Sony CEO Kazuo Hirai announced the board of directors would be conducting a thorough review of the Loeb proposal.   The board has yet to make a decision on the Loeb proposal, to my knowledge.  Will Loeb succeed in his efforts?   It will be a tough slog, given that activist investors from foreign countries have not fared well historically in Japan.  Having said that, Sony did sell a stake in its financial services business several years ago; there is precedent for a refocusing of the company's strategy.  

Sony should consider Loeb's proposal seriously.   Years ago, many firms pursued strategies that combined media content with hardware/electronics businesses.  Most of those companies failed to realize the purported synergies.   Focused firms outperformed many of the integrated players (think Apple outmaneuvering Sony, not by owning media content, but by negotiating to secure access to content for iTunes).   One of the problems with integration in the entertainment business is the conflicts of interest that arise.  If you tailor content to your devices or vice versa, you run the risk of losing certain customers and partners. CEO Kazuo Hirai will have to explain clearly how he will make synergies materialize between the two arms of Sony, if he wishes to allay the concerns of investors.   If he holds onto both businesses, he has to explain why the entertainment business isn't going to continue subsidizing unprofitable elements of the electronics business. 

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Can Uniqlo Succeed in the US?

Uniqlo, a division of Fast Retailing, is the largest apparel retailer in Asia.   Headquartered in Japan, Uniqlo (pronounced You-nee-klo) actually manufactures a majority of its clothes in China.   Known for its affordable bright-colored basic, the company aspires to be the largest apparel retailer in the world.  However, Uniqlo has encountered challenges expanding into Europe and the United States.   The firm opened a number of stores in the UK a decade ago, but then had to close many of them a few years later.  Still today, it has not been able to match the dominant home-grown rivals in Europe: Zara and H&M.   In the United States, Uniqlo operates seven flagship stores (3 in Manhattan, 3 in surrounding communities, and 1 in San Francisco).   The firm plans to open 10 more stores in the United States this fall.  However, Business Week recently noted that Uniqlo's July earnings report noted underwhelming performance in the US operations.  

What's the challenge for Uniqlo?   Clearly, cracking the already crowded casual apparel market in the US will be difficult for any new player.   Many companies jockey to attract budget-conscious young consumers interested in fashionable apparel.   Promotions and discounts are rampant, making it hard to sustain gross margins.  Moreover, young consumers prove incredibly fickle at times; today's high-flying retailer can quickly become yesterday's news.  

Uniqlo may be facing another challenge though.  It may not have a clear brand identity.  In this article for Racked.com, Kerry Folan argues that Uniqlo has not quite decided what it wants to be: a fashion brand such as Zara or H&M, a "blue jeans and basics" company such as the Gap, or a performance/technology apparel player such as Under Armour or even Lululemon.  The company has had incredible success with performance apparel actually, though many know it for the affordable and bright casual basics stacked to the ceiling at its flagship stores. For instance, the company's Heattech apparel has sold over 100 million units.  Heattech apparel actually helps to warm you up and keep you that way if you are outdoors on a cold day. 

Many Americans do not know much about Uniqlo.  I would concur with Kerry Folan's assessment.  The firm needs to establish a clear brand identity if it is to succeed in the United States.  Zara has excelled by entering the US with a clear positioning as a "fast fashion follower" with reasonably affordable price points.  Uniqlo must make some clear and perhaps difficult choices.  It would help if they clarified that brand identity before the next wave of new store openings, many in high rent urban locations. 

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Can Japan Grow Again?

I'm here in Japan this week teaching an executive education program at the Nomura School of Advanced Management - something that I have done annually for the past 10 years.    Over the next week, I'll have a few blogs pertaining to interesting Japanese companies who compete in the US market. 

Today is actually election day here in Japan.   The country appears poised to support Prime Minister Abe's "three arrows" strategy for lifting the country out of the economic doldrums in which it has been mired for the past two decades.  Many Americans may forget that Japan is the third largest economy in the world, partially because of the lack of growth.  Abe's fiscal and monetary policy stimuli have created a burst of recovery, but the third arrow will be crucial.  Can he push through structural reforms, deregulation, and policies that enhance opportunities for women in the workforce, particularly in executive roles?   If he succeeds, perhaps we will see renewed attention to the Japanese economy, just as it appears that the Chinese economy is slowing down. 

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Can It Scale Quickly? Is it the Wrong Question for Many Startups?

Does your business model enable you to scale quickly?   That's the question facing many start-ups these days as they seek capital from investors.   The question proves most pertinent for tech start-ups, but it seems to be thrown at founders in many different kinds of companies these days.   Is there a danger to focusing on this question?   I would argue that founders and investors must be aware of two significant downsides.    First, focusing on scale, and trying to scale too quickly, can cause start-ups to lose sight of their target market.  Who precisely do they aim to serve, and who they do not plan to serve?    A strategy can become "all things for all people" very quickly as the scale question comes to dominate conversations.   Second, founders and investors often can underestimate the challenges associated with scaling quickly.    Sometimes, it makes sense to take a bit of time to get the business model right before trying to grow rapidly.   I find it very interesting that many investors proclaim the mantra of fast iteration and experimentation, yet they also push for scale at the same time. 

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The Relationship between TV and Twitter: The Sharknado Case

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The Netflix Culture

If you have never viewed this presentation about the Netflix culture, you are in for a treat.  Check it out by clicking here.   I would point you to a few things, in particular, that I find insightful and refreshing.  

1. "Great workplace is stunning colleagues.  Great workplace is not day-care, espresso, health benefits, sushi lunches, nice offices, or big compensation, and we only do those that are efficient at attracting stunning colleagues."  How terrific!  People love to work with other highly talented, reliable, and kind people.    They do not like free riders, jerks, and people who don't invest time needed for self-improvement.  Think about when you went to college.  What made it a good experience?   The best courses were not simply taught by a talented professor.  They were courses in which the fellow students were intelligent, curious, reliable, and hard-working.

2.  Netflix chooses to focus on rapid recovery rather than avoidance of failure.  The firm argues that, in some environments, such as health care, we want to be highly reliable, i.e. avoid failure.  However, in creative environments, we should focus instead on rapid recovery.  

3.  The explanation of the nine behaviors and skills that the firm values in its employees is different than most "competency" models developed by company human resource departments.  The Netflix behaviors and skills are much less generic.  They describe specific behaviors, and they fit together to form a consistent whole.

4.  I like the "Keeper Test" a lot.  Here it is:  "Which of my people, if they told me they were leaving in two months for a similar job at a peer company, would I fight hard to keep at Netflix?"  The document states that you should let go of those who do not meet this test.  Make room instead for someone who will have the potential to meet this test.  It's tough medicine, but it really does make you think about whether you are keeping under-performers around too long. 

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Too Cute! Lessons on Teamwork from a 6th Grade Heavy Metal Band!

Check out this Fast Company article featuring an interview with members of Unlocking the Truth - a heavy metal band comprised of ambitious and creative 6th graders!

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Restructuring at Microsoft

Yesterday, Microsoft CEO Steve Ballmer announced a massive organizational restructuring of the company.   According to the Wall Street Journal, "Microsoft Corp.'s broad reorganization announced Thursday aims to break down internal fiefs that have slowed product development and caused friction among teams of employees... The company said it will shift from largely autonomous product groups to a more horizontal structure, under which managers who will oversee specific kinds of functions like engineering, marketing and finance."

Here are a few quick reactions:

1.  The Ballmer memo to the company consisted of more than 2,700 words.  Wow!   If you need that many words to describe what you are doing and why you are doing it.... do you really have a clear strategy?   Will employees really digest all of this material, understand it clearly, and align behind it?  First rule of thumb for leader communication:  keep it simple & concise.  The Ballmer approach falls down on this metric.

2.  No organizational structure is optimal.  Each structure has its strengths and weaknesses.  The key to high performance is driving the right culture, values, and processes in an organization.  Just moving lines and boxes around on an organizational chart won't enhance performance substantially.  Microsoft will succeed or fail based on how they redesign key processes and shift the culture and values.   Boxes and arrows won't  be the panacea.

3.  One still wonders if Microsoft should remain as an intact entity versus breaking up into several parts.  Many investors have wondered if the whole is truly worth more than the sum of the parts.  That question still remains after the Ballmer announcement. 

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Freemium Business Models: Taking Advantage of Cognitive Bias

Psychologists have described a number of cognitive biases that affect our decision-making processes. These biases are systematic errors or traps that we encounter as we make choices.  Put another way, these biases are ways in which actual human behavior deviates from the assumptions economists make in their models of "rational" choice. 

In this terrific blog post titled, "The Psychology Behind Freemium," Alex Mayyasi describes how one such bias may explain the success of many freemium business models.   For those not familiar with the term, a freemium business is one in which customers can use a service for free at first, but must pay for upgraded versions or additional features.  

Mayyasi attributes the success of freemium business models in part to something called the "endowment effect."  If humans were perfectly "rational" in their choices, they would be willing to pay the same amount for a product or service they did not have as they would demand to be paid for giving up a good that they already possessed.  However, many individuals actually demand more in compensation for giving up a good they already have than they are willing to pay for that same good if they do not already possess it.   Mayyasi cites a study by Ziv Carmon and Dan Ariely in which they examined how people behave with regard to NCAA Final Four men's basketball game tickets.  They asked people what the highest price was that they were willing to pay for such tickets.   They also asked them the price at which they would be willing to sell their tickets if they already owned them.  The selling price was more than 10 times the buying price! 

Psychologists attribute the endowment effect, in part, to a cognitive bias called loss aversion.  As Mayyasi says, people "generally react more strongly to losses than gains."  Selling something you already have is a "loss" in many people's minds.  Loss aversion may kick in when you experience a freemium product or service and face the decision about whether to pay a fee to continue enjoying the service. 

I would argue that you can think about this effect in terms of sunk costs too.    Sunk costs are not just investments of dollars.  Sunk costs can be investments of time and energy as well.  If you have put a great deal of time and effort into a video game, you don't want to "waste" those resources that you have invested.  Therefore, when faced with the question of whether to now pay for additional features of the game to continue playing, you are prone to invest some money.  You put more resources into the endeavor because you don't want to "waste" the investment you have already made. 

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Buy Online, Pick Up in Store - A Surprising Result for Retailers?

Many retailers now offer an option known as Buy Online, Pick Up in Store (BOPS).   What impact does that have on sales?  A new study by Kellogg's Antonio Moreno and Dartmouth's Santiago Gallino has uncovered a surprising result.    They studied one year of data from a housewares retailer with more than 80 locations in the US and Canada.   The scholars compared the behavior of individuals who had the BOPS option with those that did not (either because they lived far from one of the retailer's locations, or because they lived in Canada, where the retailer did not offer the BOPS option).  What did they find?  Online sales actually fell at the stores offering the BOPS option!  However, revenues overall rose for the retailer.  What happened and why? 

In this article on Kellogg Insight, Moreno explains, "We started thinking about what in the operations literature could possibly explain this behavior of people going more to the stores after this option was available, and that was when we came up with the idea of reliability of inventory information."  When customers shopped online, the BOPS system enabled them to see if items were in stock at that moment at a local store.  Knowing that, many of them simply went to the store to check out the item firsthand before committing to the purchase.  BOPS gave them a line of sight into inventory and item availability that they did not have in the past.   

As evidence of this effect, scholars found that many online shoppers were abandoning online shopping carts with items in them.  They had investigated, in other words, but not completed the purchase.  Yet, revenues at brick-and-mortar locations rose, suggesting that many shoppers then visited the stores and completed a purchase.  Moreno notes, "The most surprising thing to me was that online sales went down when the customers were given more options.  If you’re a customer and were planning to buy online, now you have even more reasons to [do so], because now you could buy online and pick up in the store.  We thought it would make the online channel more attractive, but what happened was that it led to this shift towards brick-and-mortar stores, which is a good thing for the company."  

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Flocking Behavior on Social Media Can Lead to Narrow Thinking, Flawed Decisions

Ethan Zuckerman has written about an important issue regarding our use of social media.   The Harvard Gazette recently wrote about a talk that Zuckerman gave at Harvard's Berkman Center for Internet and Society.  Berkman noted, "Human beings flock; we tend to seek out people like us."  He argued that individuals tend to engage in a great deal of "flocking" behavior on social media platforms.   They find and follow people who are very similar to them.  He says, "We have a talent for finding people with the same socioeconomic background or racial background. But this tendency to flock may be keeping us from finding the information we need... My fear is that our tools are not promoting diversity."   In short, we are not experiencing a wide range of perspectives on issues and topics.  We are hearing from voices that are similar to ours.  As a result, we are vulnerable to the confirmation bias, i.e. we are looking for information that confirms what we already believe.   Cognitive diversity can be an important factor when making decisions, yet social media seems to discourage the nurturing of this key attribute.  For more on Zuckerman's work, see this Ted Talk below:

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The Protege Effect

Fast Company's Drake Baer has a new column titled, "Why Teaching Makes You Smarter."   In the article, he draws upon a terrific blog post by Annie Murphy Paul about how people learn.  Paul writes about the so-called "protege effect" that has been discovered by teaching and learning researchers:

Students enlisted to tutor others, these researchers have found, work harder to understand the material, recall it more accurately and apply it more effectively. In a phenomenon that scientists have dubbed “the protégé effect,” student teachers score higher on tests than pupils who are learning only for their own sake. But how can children, still learning themselves, teach others? One answer: They can tutor younger kids. The benefits of this practice were indicated by a pair of articles published in 2007 in the journals Science and Intelligence. The studies concluded that first-born children are more intelligent than their later-born brothers and sisters and suggested that their higher IQs result from the time they spend showing their younger siblings the ropes.

Are there lessons here for business leaders?  Absolutely!   Mentoring, apprenticeship, and succession processes all involve the transmission of knowledge from expert to protege.  Most of the attention often focuses on the benefits to the recipient of this new knowledge.  This research demonstrates that a great deal of benefit exists for the expert as well.  They develop a better understanding of how to do their work by showing others the ropes.  I would argue that they can even become better leaders by reflecting on how they do their work, and helping to groom young future leaders of their organizations. 

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Starbucks: Handcrafted Sodas?

The Wall Street Journal reports that Starbucks is testing handcrafted sodas at locations in Atlanta, Georgia, and Austin, Texas.   The article states that the flavors of soda include spiced root beer and lemon ale.  The sodas are created using a carbonation machine in the Starbucks stores, and a grande size drink sells for $2.95 at these locations.

What do we make of this newest product line extension for Starbucks?  As the article explains, the move clearly constitutes another attempt to drive sales at off-hours, i.e. in the afternoon and evening.  Moroever, it offers another way to drive same-store sales growth, a key metric for any restaurant or retailer.   

The move does come with some risks.  Naturally, customers must enjoy the product, or it could harm the Starbucks brand.  In addition, continued menu extensions add complexity to the operations of a particular location.  Can Starbucks maintain speed and customer service as the menu expands?   With food items expanding as well, Starbucks must watch the issue of complexity carefully.  The good news:  Starbucks understands the power of experimentation.  It is testing the concept in two locations, and presumably, it's gathering a great deal of data.  That data include customer feedback, barista input, and information about the impact that the new products are having on the speed of service.   What happens if customers love the soda, but service slows?  That could be tricky.  At that point, Starbucks will work to streamline operations as much as possible to increase throughput.   They have done quite a bit of that type of work in the past few years.  Still, I notice considerable differences in speed across locations.  Part of the difference can be accounted for by the fact that some store layouts are clearly not as conducive to streamlined, efficient operations.   Part of that is due to local differences in the way locations are managed.  

One final point about the notion of testing and experimentation.  Sometimes, companies find that such small tests go quite well, but national roll-outs then falter.  Why?  The tests are not truly representative of what will happen during a full-scale expansion.  Senior managers supervise the tests very carefully. Extra resources are deployed.  The test becomes something more than a test... it's actually a "proving ground" or "demonstration" rather than a true controlled experiment.  

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LDRLB's David Burkus Podcast Interview: Why Great Leaders Don't Take Yes for an Answer 2nd Edition

Oral Roberts Professor David Burkus interviewed me for his LDRLB podcast series last week.  The podcast may be accessed here.   The interview focuses on the 2nd edition of my book, Why Great Leaders Don't Take Yes for an Answer, which was released several weeks ago.  I hope you will check it out. 

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Fox Business News Segment About My Research

Organizational psychologist, Michael "Dr. Woody" Woodward talked extensively about my work during this segment on the "Career Accelerators" show on Fox Business.   Here is the link at which you can view the segment. 

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Do You Wear Rose-Colored Glasses?

NYU Professor Nathan Pettit and LBS Professor Nino Sivanathan have written a new research paper titled, "The Eyes and Ears of Status: How Status Colors Perceptual Judgment.”  They conducted a series of experiments examining how a person's status affects his or her perceives feedback from others.    The studies show that people of high status felt that people were applauding louder and responding more favorably to them than those of lower status.  For instance, in one study, one half of the audience members exhibited favorable facial expressions, while the other half reacted negatively.  However, the high status presenters perceived that almost two-thirds of the audience members were reacted positively to their presentation.  

I'm sure you are not surprised by these results, but they do offer an important reminder to leaders of organizations.  Leaders need to be mindful that they often underestimate the negative reaction to their decisions, presentations, and other interactions with members of the organization.  Therefore, leaders need to take a second look at how people are receiving their messages.  Perhaps they should use a sounding board, a confidante, who can help check the pulse of the organization.  Sometimes, they might check in with small groups of people in an informal way to see how they are really feeling about a new plan or proposal.   At the extreme, on certain occasions, it's useful to watch yourself on video.  On many occasions, a leader's speech is captured on video to put on a company intranet or share with remote geographical locations.  An astute leader takes the opportunity, on from time to time, to take a look at himself or herself on video.   Watching themselves can be incredibly revealing.  They often will see things that they never realized. 

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Tina Fey - The "yes, and" Rule of Improv

In this terrific interview at Google, Tina Fey explains one of the basic rules of improv (starting at around 2:46).  Fey describes how actors and actresses use the "yes, and" rule in improv comedy.   In other words, you are trained to build on others' ideas.  Accept what they have said, and take the idea further.  Do not reject what someone has said.  Eliminate the "yes, but" mentality that can derail a sketch.  The "yes, and" rule is instrumental for teams in the workplace too.    It can help make brainstorming sessions more effective, and it keep debates constructive.  

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Should We Bring Reality TV Into The Workplace?

Should companies actually bring reality television techniques into the workplace?  Does creating your own version of Shark Tank or the Apprentice serve a useful role in the selection process for an attractive new assignment?   Fortune reports that some firms are using these types of competitions, modeled after reality television, to do everything from fun team-building to actually trying to select people for an important new role.  Jennifer Alsever writes,

When insurance executives at Aflac sought employees for plum assignments last year, they abandoned the traditional resumes and job interview routine.  Instead, they found inspiration from reality TV competitions like American Idol.  Aflac employees in search of promotions became "contestants" who would walk into a room inside the company's Columbus, Ga., headquarters and stand before a panel of five Aflac "judges." While cameras rolled, they could do whatever they wanted to sell themselves as the best one for the job. The idea? Get candidates to think on their feet and show a side not seen in a formal interview. Performances ran the gamut -- from the ill-prepared one-minute speech to shticks with personal slogans, PowerPoint presentations, and props. "It was kind of like American Idol in corporate America -- except we didn't ridicule them," says Blake Voltz, Aflac vice president of claims and a judge. "It puts them under the heat, much like they would face if they got the job."

I'm skeptical - very skeptical.   I'm not speaking to this particular situation at Aflac, since we don't know the full details of this selection process.  I'd like to address the broader issue of using this type of competition in this manner.   I acknowledge that we have to see how candidates think on their feet, particularly for certain types of roles.   We do want to see how articulate candidates are, and how well they can present their ideas and proposals.  However, I fear that such competitions can put too much emphasis on how well someone can pitch their ideas, persuade others, and respond smoothly to questions.  Some people can make a great 2 minute pitch, but beyond that, the substance is very thin.  Some people are incredibly intelligent, but they tend to prefer thinking a bit more about questions before providing a response.   I can definitely recall students and classmates who are terrific at offering the 90 second sound bite in response to a professor's question...but beyond that, there wasn't much there.  They could sound incredibly smart and persuasive in those sound bites, but they didn't have the depth of knowledge we would want.  Such competitions described in this Fortune article can give too much credit to those who are very good at sounding smart in small doses.    

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Are Google Interview Brainteasers Useless?

I can remember going on interviews when I was an MBA student at Harvard from 1993-1995.  Certain firms, particularly in the consulting industry, used to love using brainteasers as questions during interviews (along with the usual case interview methodology).  My first experience with such a brainteaser was the following question:  How many gas stations are there in the United States?   The questions allegedly helped the interviewer understand your thought process and your approach to solving problems.  Google, of course, became famous for using such brainteasers often during their job interviews.  One of my former students was asked at a Google interview:  "How many golf balls can you fit in this room?"  

Now, we hear from a senior executive at Google that such questions did not predict effectiveness on the job.   Here's an excerpt from an interview that the New York Times' Adam Bryant conducted with Laszlo Bock, senior vice president of people operations at Google:

"On the hiring side, we found that brainteasers are a complete waste of time. How many golf balls can you fit into an airplane? How many gas stations in Manhattan? A complete waste of time. They don’t predict anything. They serve primarily to make the interviewer feel smart.  Instead, what works well are structured behavioral interviews, where you have a consistent rubric for how you assess people, rather than having each interviewer just make stuff up.  Behavioral interviewing also works — where you’re not giving someone a hypothetical, but you’re starting with a question like, “Give me an example of a time when you solved an analytically difficult problem.” The interesting thing about the behavioral interview is that when you ask somebody to speak to their own experience, and you drill into that, you get two kinds of information. One is you get to see how they actually interacted in a real-world situation, and the valuable “meta” information you get about the candidate is a sense of what they consider to be difficult." 

I wonder how other firms feel about these types of brainteasers.  Will Google start a trend?  Will other firms finally ditch these silly questions?   I do think that Google's Laszlo Bok is correct - many interviewers are probably more interested in looking smart when they ask these questions, as opposed to truly learning something valuable.  One must also wonder if there's not some element of this line of thought:  "I went through this crucible; you should have to do so as well.  Let's see how you fare."  I'm sure some interviewers think this way when they consider asking one of these brainteasers.  

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Lululemon: How Much "Discretion" Should a CEO Exercise?

This week Lululemon CEO Christine Day announced that she would be stepping down.   Her resignation comes just three months after the substantial product recall of yoga pants that led to the departure of the firm's Chief Product Officer.   On the day of Day's surprising announcement, Lululemon shares fell 17%.  Investors wondered if other bad news might be coming from the company that has been a terrific growth story over the past several years.  Day chose not to discuss the detailed reasons for her departure.  She told Fortune, "There is no difference in strategic vision for the company, we were and are aligned... My values include discretion. While I know everyone would like to know 'the reason' [I'm leaving] there are some things that should remain private because the truth is the good things outweighed the bad and by being respectful and grateful one can remember that."  

I find this incident very interesting.  It raises some difficult questions regarding the responsibilities of a public company CEO.   While I respect Day's right to privacy, I can't help but look at that stunning 17% drop in the firm's shares.  Do the shareholders deserve more information?  Does Day have a responsibility to disclose more information about her departure so as to prevent such a drop in the firm's shares?   It's hard to say, of course, given that we don't know the reasons.   However, it seems clear that investors were spooked by the surprise departure.   Investors simply do not like being left in the dark. 

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Is Reputation a Bigger Motivator Than Money?

Erez Yoeli, Moshe Hoffman, David Rand, and Martin Nowak have conducted a fascinating new study that suggests reputation sometimes can be a bigger motivator than money.   They conducted a field experiment associated with a utility company's program in California to try to prevent blackouts. Some individuals were offered financial incentives to participate.  For other individuals, sign-up sheets were posted in common areas of apartment buildings.  Financial incentives did boost participation in the program.  However, the sign-up sheets had a much more significant impact!   Rand explained to the Harvard Gazette:  “When people know it’s a cooperative effort, they feel peer pressure to take part.  They think, ‘If I don’t do this, I’m going to look like a jerk.’ But if it’s not observable, then there’s no problem with not participating.”   Making behavior observable brings reputation to the forefront.  People care a great deal, in many cases, about how others perceive them.   Hoffman explained that Toyota may have used this self-perception concern to its benefit when designing the Prius.    “In fact, we think this is one reason why the Prius, for instance, is such a different-looking car. The designers at Toyota seem to have intuitively had this idea: designing a car that didn’t look like any other car so your neighbors can tell you’re driving a hybrid." 

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JetBlue: Does Adding Business Class Seats Make Sense?

According to Businessweek, JetBlue will be rolling out a 16-seat business-class cabin on certain transcontinental routes aboard new Airbus 321 planes in the near future.   JetBlue VP Scott Laurence told Businessweek,  “I think the incumbent pricing at $2,500-plus, each way, is something we think doesn’t make a lot of sense.  It doesn’t stimulate an already existing market. We think we can stimulate demand there and really have an impact on that market.”  In other words, look out legacy carriers!  Your first class service is about to be challenged by a less expensive, high quality service from JetBlue.  

Is this a good idea?   It strikes me that an opportunity does exist in the market.  A significant gap exists between the price (and associated service) of a first class seat on one of those transcontinental flights and the price and service associated with an economy seat.   JetBlue may be able to come in with an attractive offering at a price point that induces some economy customers to upgrade, while stealing some first class customers from other airlines. 

What's the downside?   JetBlue has succeeded in part because it made good tradeoffs.  It chose NOT to do many of the things legacy carriers do (no first class, no bulky cart used to deliver drinks, no hub and spoke system, etc.).  Those tradeoffs made JetBlue unique and hard to imitate.  Now the company is relaxing one of those key tradeoffs.   Companies often find that they violate key tradeoffs when they strive to grow.  Sometimes, abandoning key tradeoffs damages the power of a unique business model.  JetBlue will face some questions: Will it slow down the boarding process when you add a business class cabin?  Will stocking the cabin require more time, and thus slow down turnarounds?   Will providing service to the business class cabin cause flight attendants to sacrifice the quality of service to the rest of the passengers?  Given these questions, it's a good idea that JetBlue is launching this new model as an experiment.  The key will be to learn and adapt quickly as challenges arise.  The deeper question will be:  Are we sacrificing key elements of our competitive advantage by pursuing this opportunity, or are we enhancing our competitive advantage by further differentiating from the competition? 

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Would You Like That Bonus in Cash or Some Other Form?

How should you reward people?  What concerns should you have about offering rewards to your employees?   One important factor to consider: Will the employees compare rewards with one another?  Will those who receive smaller rewards be highly dissatisfied?   Extensive research shows that people engage in social comparisons.  They care not just about how much they receive, but how much they receive as compared to their peers.  Kellogg Professor Neal Roese and doctoral student Jingjing Ma have conducted some fascinating research with regard to reward comparisons.   They have shown that making rewards less "countable" can reduce the "likelihood that recipients will compare rewards, which in turn increases their satisfaction." 

The original experiment went as follows.  They created two groups of students: an "overbenefit" group and an"underbenefit" group.   The groups split a fixed reward 60/40.   One half of each group received a "countable" reward - i.e. cash.  The other half received an "uncountable" reward - i.e. a slice of cake.   Naturally, people who received higher rewards were more satisfied in both cases (cash and cake).  However, between the two "underbenefit" groups, the recipients of cake were much less dissatisfied than the recipients of cash rewards.  

Kellogg Insights provides the scholars' explanations of this result: "According to Ma, offering cake encouraged the recipients to focus on the experiential aspect of their reward—'oh, this cake is delicious,' she says—instead of 'thinking about how they received less than the other guy.'"

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Grandiose goals at Lenovo: Drinking games & hazing rituals?

Did anyone else find this Fortune magazine article about Lenovo a bit disconcerting?    The article describes a "lighthearted drinking game" that occurs each year among top executives at which they set their ambitious goals for the coming year.  The head of human resources even endorsed the ritual!  I understand cultural differences should be respected, but should a global company really be setting management goals while executives engage in "good-natured hazing" rituals?   The phrases in quotes come from Fortune writer Miguel Helft, not me.  Hazing?  Drinking games?  I can see many  executives at leading multinationals cringing when they read these words.  

The article goes on to lavish praise on the Lenovo management team ("a cocksure crew") for the performance it has achieved in recent years:

"Even without a few drinks in them, Lenovo's top executives are a cocksure crew these days, and for good reason: The company's contrarian bet to double down on the PC business has paid off handsomely. In recent years Lenovo invested heavily in R&D and acquisitions. It beefed up its own network of factories, allowing the company to bring innovations to market more quickly than competitors that outsource most of their manufacturing. As a result, Lenovo's growth has outpaced the industry's for the past 16 quarters, and it has tripled in size since the IBM deal to more than $33 billion in sales. This year it's on track to edge out HP to become the world's No. 1 PC maker."

What's missing from this paragraph lavishing praise on the company for its performance?  One little word:  profit.   Yes, the company has grown rapidly. Yes, it has achieved an impressive market share in the PC market.  Has it made any money?   Hmm... that would seem to be a desirable metric on which we should focus.  Late in the article, the author finally gets around to a discussion of margins.  Here's what Helft writes:

"At the same time, Lenovo benefited from its Chinese cultural heritage, in particular the propensity to focus on long-term goals. Lenovo approaches every new market with a similar strategy: pricing products aggressively at first, sacrificing margins. Executives are expected to deliver profitability only after market share gets to double digits. The risky approach has largely paid off. "The company has surprised me over and over," says Alberto Moel, an analyst with Sanford Bernstein. Its continued growth amid the industry's disarray, Moel says, "is a major achievement." But Moel warns that expanding margins, which at 2.5% are about half those of Dell's and HP's PC units, will be harder than management thinks. Such concerns have weighed on the stock, which has been stuck in a narrow range for the past year (its ADRs, now at $18, are down from $23 a share). With net income of $575 million over the past four quarters, Lenovo has a market capitalization of about $9 billion." 

Margins are half of those found at Dell and HP, and as it is, those American rivals have very thin margins in the PC business.  The firm apparently focuses on margins after getting to double-digit market share.  Yet, Lenovo has 15% market share in the PC business.  Will the margins improve?  How much?   Consider that the personal computer industry has been one of the least profitable markets on earth in recent years.   A simple structural analysis of the industry shows that it is highly unattractive - high buyer and supplier power, high threat of substitutes, and intense rivalry.  Increasing margins will be challenging. Lenovo has brought many product innovations to market.  It has developed strong relationships with many corporations and institutional buyers.  It has many positive attributes.  However, it will be challenging to make high profits in the PC business.  As Warren Buffett once said, "When an industry with a reputation for difficult economics meets a manager with a reputation for excellence, it is usually the industry that keeps its reputation intact."

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The Power of Independent Executives

Does a CEO bring in many new members on his or her top management team after taking charge at a company?  Or, does the CEO have a number of key holdovers from a previous administration?  Does this key factor in the composition of the top team make a difference?  New research by Augustin Landier, Julien Sauvagnat, David Sraer, and David Thesmar (published in the Review of Finance) suggests that having more "independent" executives on the senior team can have positive effects on decision making and financial performance.   The scholars define "independent" to mean executives not appointed by the current CEO.  

The scholars collected data on over 1,800 American companies over a 17 year period.  According to this article in Strategy and Business, here are their results: "Controlling for a variety of factors, they found that even the smallest uptick in the nonindependence of executives caused a decrease in the firm’s annual return on assets of between 0.5 and 0.8 percentage points."

What's going on here?  They argue that CEOs tend to hire people who think like they do. Moreover, executives hired by the current CEO may feel more beholden to that leader.   As a result, they may not be as willing to express dissenting opinions.   On the contrary, an executive hired by a previous CEO may be more willing to push back on high-stakes, potentially risky decisions.  The authors go on to argue that "independence" of senior executives may matter much more than the independence of board members, since the top team meets much more frequently and is much more directly responsible for strategic choices and performance at most large corporations. 

Additional research by these scholars shows that firms with fewer independent executives on the top team also are more likely to make acquisitions that destroy shareholder value.  Here is the key finding:  "Although acquisitions, on average, led to decreases in shareholder value for the companies in the study, firms with fewer independent top subordinates fared much worse, losing about 45 percent four years after they made an acquisition, almost triple the 16 percent loss posted by firms with more of those executives." 

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Do you care? How to increase employee engagement

In this Fast Company interview, Gallup's Jim Harter comments on the sad state of employee engagement in American corporations.  According to Gallup's research, only 30% of the U.S. population is engaged in the workplace, i.e. deeply committed to their jobs.  52% of the employee population is disengaged, and 18% is actively disengaged, meaning that they are "actively against what the organization, and their boss, is trying to get done."  Those statistics are rather alarming. Some companies, of course, have begun to focus intensively on employee engagement over the last decade.  Harter comments on what leaders need to do to increase employee engagement:

So, what are the qualities of leaders that businesses must now be seeking? According to Harter, it begins with a combination of being results oriented and authentically concerned about the development of every worker. “Some people are better at getting results and some are better at developing. But, we’ve found both are equally important.”  Harter describes the most effective managers as being deeply caring--and capable of seeing, supporting, and adjusting to the differences in people. “They help people build jobs that fit them as an individual person, while still helping them get to the outcome they need from an organization perspective.”

Authentically concerned - it's such a simple, yet powerful idea.  Think about what makes great professors or teachers.  Beyond simply knowing the material or being able to explain concepts clearly, great teaching is about showing students that you care.  My colleague, Jane McKay-Nesbitt, has this great saying about teaching: "They must know that you care before they will care what you know."  The same principle holds true for leaders.  People will not follow you if they do not believe you care about their well-being and development.  Engagement starts with authentic concern. 

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Decision Narratives at Amazon

In this article by Drew Hansen as well as this one by Adam Lashinsky, we learn about an important facet of the decision-making process employed by Jeff Bezos and his top management team at Amazon.  Here's an excerpt from the latter article:

Meetings of his "S-team" of senior executives begin with participants quietly absorbing the written word. Specifically, before any discussion begins, members of the team -- including Bezos -- consume six-page printed memos in total silence for as long as 30 minutes. (Yes, the e-ink purveyor prefers paper. Ironic, no?) They scribble notes in the margins while the authors of the memos wait for Bezos and his minions to finish reading.

Amazon executives call these documents "narratives," and even Bezos realizes that for the uninitiated -- and fans of the PowerPoint presentation -- the process is a bit odd. "For new employees, it's a strange initial experience," he tells Fortune. "They're just not accustomed to sitting silently in a room and doing study hall with a bunch of executives." Bezos says the act of communal reading guarantees the group's undivided attention. Writing a memo is an even more important skill to master. "Full sentences are harder to write," he says. "They have verbs. The paragraphs have topic sentences. There is no way to write a six-page, narratively structured memo and not have clear thinking."

The use of narratives at Amazon reminds me of this article written many years ago in Harvard Business Review about strategic planning at 3M.   The innovative industrial conglomerate had adopted the use of storytelling during its strategic planning.   In the article, the authors explained that bullet points on Powerpoint slides have several deficiencies.  Bullet point lists often prove rather generic, fail to clarify causal relationships, and leave crucial assumptions unstated.   One manager quoted in the article explains, "If you read just bullet points, you may not get it, but if you read a narrative plan, you will.  If there's a flaw in the logic, it glares right out at you.  With bullets, you don't know if the insights is really there, or if the planner has merely given you a shopping list."  Stories or narratives enable you to think more holistically, and they provide the basis for a more thoughtful dialogue and debate.  Finally, stories prove much more compelling than lists.  If we hope to persuade others that a strategy makes sense, a good story works much more effectively than a set of bullet points. 

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How Should You Balance Your View vs. Your Team's Perspectives on a Key Decision?

Leadership coach and blogger Julie Pierce has an interesting blog post on the question of how leaders should balance the desire to solicit input from their team with the desire to make the call based on their convictions?  She offers three tips:

1. Be clear on who is making the final decision.

2. Be specific on what kind of input you need from the team.

3. Be selective with your “no”. 

First, you need to be clear whether you are making this decision on your own vs. facilitating a highly collaborative process in search of consensus.  Second, you need to be clear about the type of feedback and advice you want from your team. Do you want them to generate options, critique a proposal, explain potential obstacles during implementation, etc.?   Finally, be judicious with your vetoes.  Exercising veto power over the team if all members feel strongly something is never easy.  If the stakes are small, consider acquiescing and holding onto that veto for a bigger issue. 

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Leaders, Listen First!

Here's some great advice for leaders from Deborah Triant, CEO and President of Check Point Software Technologies.  She tells Fast Company:

Making and implementing decisions boils down to a key ingredient: listening. I often wonder why schools emphasize debating. Why not have listening classes as well? Debating is easy; listening with an open mind is not. The worst thing that you as a leader can do in the decision-making process is to voice your opinion before anyone else can. No matter how open and honest your people are, stating your opinion first will short-change the discussion process and taint what you hear later. I've learned this the hard way.

I agree with Triant.  In my work, I have argued that leaders who state their positions firmly at the outset of a decision-making process can affect their teams adversely in three different ways. 

1. Decision Framing Effect:   You may trap your team into one way (your way) of thinking about a problem or issue.
2.  Conformity Effect:  You may discourage those team members with a dissenting view from expressing their ideas, options, or feedback. 
3. Legitimacy Effect:  You may create the impression that the decision has already been made, that the process of consultation is simply a facade since the choice is a fait accompli.

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The Asch Experiments

I discovered that YouTube features a good video on the famous Solomon Asch experiments regarding the pressures to conform in groups.  It's worth watching to remind us that the pressure to conform can cause us to make very poor decisions at times. 

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Can Packaging Innovation Revive Carbonated Soft Drink Sales?

Fast Company features a story this week about Coke's innovative new "sharing can" featured in the video below.  It makes you wonder:  Can packaging innovation revive sagging carbonated soft drink sales?  In developed markets, health and wellness concerns, coupled with many new alternative beverages, have dragged down sales of colas.  We have seen packaging energize other mature brands in beverages.  Take, for instance, the Coors Light cans where the blue color of the Rocky Mountains on the bottle indicate that the beer is very cold.  Coors Light rode this focus on "cold" to a stronger market share position in the US beer market - a market where sales have been relatively flat for some time.  Of course, Coors Light didn't just innovate on packaging... they truly have owned that market position as the "cold" beer.  The combination of positioning and packaging is what made their strategy successful.  Can Coke pull something similar off in the days ahead?

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Bill Marriott Jr. on the Lesson He Learned from Ike

In this week's New York Times Corner Office column, Adam Bryant interviews Bill Marriott Jr., Executive Chairman and former CEO of Marriott International.   The hotel company's longtime leader and founder's son offered this interesting anecdote about a time when he met President Dwight Eisenhower. 

In 1954, I had just finished Supply Corps School and came home for Christmas to our farm in Virginia. Dad’s best friend at the time was Ezra Taft Benson, who was secretary of agriculture and later became president of the L.D.S. church [Church of Jesus Christ of Latter-day Saints]. And he invited Ike and Mamie Eisenhower. So here’s the president and the secretary of agriculture, here’s my father, and here I am. They wanted to take Ike to shoot some quail, but it was cold and the wind was blowing like crazy. My dad said, “Should we go and shoot quail or should we stand by the fire?”And Eisenhower turned around and looked at me and he said, “What do you think we should do?”  That made me realize how he got along with de Gaulle, Churchill, Roosevelt and others — by including them in the decision and asking them what they thought. So I tried to adopt that style of management as I progressed in life, by asking my people, “What do you think?” Now, I didn’t always go with what they thought. But I felt that if I included them in the decision-making process, and asked them what they thought, and I listened to what they had to say and considered it, they usually got on board because they knew they’d been respected and heard, even if I went in a different direction than what they were recommending. 

I found the anecdote fascinating, because it confirms my conclusions about Eisenhower as a decision-maker.  In Chapter 9 of Why Great Leaders Don't Take Yes for an Answer, I examine Eisenhower's leadership during the months leading up to the D-Day invasion.    Here is an excerpt:

General Dwight Eisenhower commanded one of the most powerful military forces ever assembled in human history during World War II.   Under his skilled leadership, the Allied Forces stormed the beaches of France, defeated Hitler’s army, and liberated Europe.  Several years later, the American people elected the popular war hero as their President.   Naturally, not everyone believed that the retired general would make a smooth transition to the Oval Office.  During Harry Truman’s final months in the White House, he reflected on the challenges awaiting his successor: “He’ll sit here, and he’ll say, ‘Do this! Do that!’ And nothing will happen.  Poor Ike – it won’t be a bit like the Army.  He’ll find it very frustrating.”[i]  

Truman spoke from experience.  Getting his ideas and decisions implemented had been a formidable challenge at times.  The obstacles did not always prove to be his opponents in Congress; at times, Truman encountered resistance from members of his own administration.[ii]  Political scientist Richard Neustadt, who worked for Truman and several other chief executives, once observed, “The President of the United States has an extraordinary range of formal powers… despite his ‘powers’ he does not obtain results by giving orders – or not, any rate, merely by giving orders.”[iii]   Even the leader of the free world needs to build commitment and shared understanding if he wants his decisions to be executed in a timely and efficient manner.    

As it turns out, Eisenhower could not simply issue dictums from on high, even as Supreme Commander of the Allied Expeditionary Force in World War II.[iv]   He needed to hold a complicated alliance together and balance the competing demands of many strong-willed individuals on both sides of the Atlantic including the two heads of state, Churchill and Roosevelt; each nation’s military chief of staff, Marshall and Brooke; and powerful field commanders such as Montgomery, Patton, Tedder, and Spaatz.   Historian Stephen Ambrose has pointed out that Eisenhower’s diplomatic skills often proved to be more important than his strategy-making prowess.  He observed:

“Although none of his immediate superiors or subordinates seemed to realize it, Eisenhower could not afford to be a table-thumper.  With Montgomery’s prestige, power, and personality, for example, had Eisenhower stormed into his headquarters, banged his fist on the table, and shouted out a series of demands, his actions could have been disastrous.”[v] 

 

Eisenhower learned the importance of persuasion from one of his mentors, Brigadier General Fox Conner.  Eisenhower served on Conner’s staff in the Panama Canal Zone during the early 1920s.  Conner shared stories and lessons about his time on General Pershing’s staff during World War I.  He made the young Eisenhower study history extensively.  Eisenhower explained what he learned: 

 

“He laid great stress in his instruction to me on what he called the ‘art of persuasion.’  Since no foreigner could be given outright administrative command of troops of another nation, they would have to be coordinated very closely, and this needed persuasion.  He would get out a book of applied psychology and we would talk it over.  How do you get allies of different nations to march and think as a nation?  There is no question of his molding my thinking on this from the time I was thirty-one.”[vi]  

As Supreme Commander of the Allied Expeditionary Force many years later, Eisenhower indeed proved quite adept at bringing people together and finding common ground. The enemy too recognized Eisenhower’s strengths as a leader; the Germans once wrote that, “His strongest point is said to be an ability for adjusting personalities to one another and smoothing over opposite viewpoints.”[vii] Consider how Eisenhower chose the D-Day invasion strategy amidst much contentious debate among the heads of state and military commanders.  He built commitment to the final plan by leading a fair and legitimate decision process.   During often heated deliberations, Ambrose points out that Eisenhower “acted as chairman, listening judiciously to both sides, then making the final decision.”[viii]   He insured that everyone “received a fair hearing.”[ix]  Moreover, “his basic method was to approach all problems objectively himself, and to convince others that he was objective.”[x]  

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[i] R. Neustadt. (1980). Presidential power. New York: John Wiley and Sons. p. 9. 

[ii]Reflecting on the inefficiencies of decision-making within the U.S. government, Truman once said, “When you have an efficient government, you have a dictatorship." 
[iii]Neustadt, (1980). p. 10. 
[iv] This discussion of the decision-making process leading up to the D-Day invasion draws from historian Stephen Ambrose’s book on Eisenhower’s war years.  See S. Ambrose. (1970). The supreme commander: The war years of Dwight D. Eisenhower. New York: Doubleday.  For instructors wishing to teach about Eisenhower’s approach to planning the D-Day invasion, they might consider asking students to view a film about the decision-making process that the general led during the first half of 1944.  See R. Harmon. (2004). Ike: Countdown to D Day. Columbia Tristar.
[v] Ambrose, (1970). p. 323.   
[vi]Jean Edward Smith. Eisenhower in War and Peace.  2012.  New York: Random House. pg. 66.  
[vi]Ambrose, (1970). p. 324. 
[viii]Ambrose, (1970). p. 371. 
[ix]Ambrose, (1970). p. 373. 
[x]Ambrose, (1970). p. 664.

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