I'm headed to the Academy of Management conference in San Antonio today, and I'll be blogging over the next few days about interesting research presented at the conference. As I look at the program, I'm intrigued by a study conducted by Northwestern doctoral student Brian Gunia. He examines two dimensions of the typical apology offered after an organizational failure: Blame-taking vs. Expressing remorse. He finds that leaders are more likely to express remorse rather than accept blame during the delivery of an apology. However, other organization members valued an acceptance of blame more than an indication of remorse. It seems that taking responsibility reflects more positively on the leader's character. I find the study quite interesting given my work on how large-scale failures occur. Prior studies have not made this distinction, and I'm not sure if leasers think carefully about these two aspects of an apology.
Friday, August 12, 2011
First a customer, then CEO
Posted on 3:49 AM by Unknown
I've read a great deal recently about how Bob Kraft, owner of the New England Patriots, helped broker the agreement with the players' union in the National Football League. Players credited him with building bridges between the sides, despite dealing with the death of his wife, Myra, during the negotiations. Kraft has talked repeatedly about how the two sides owed it to the fans to get a deal done. I do not think that those comments are just platitudes. I'm struck by how Kraft has built an organization that truly concerns itself with optimizing the fan experience. I think the reason is that Kraft was a long-time fan before buying the team. He understands the customer because he lived, as a fan, through the horrid years the team experienced. He knows the frustrations of the customer firsthand. I'm not saying a CEO has to be a customer before taking charge of an organization, but I do think it's an advantage. I also think CEOs who were not customers prior to joining a firm must go the extra mile to try to walk in the customers' shoes. That sounds easy, but it's not because the CEO is never treated as an ordinary customer once they have taken charge.
Friday, August 5, 2011
Stand-up Economist: Humorous Take on the Federal Budget
Posted on 4:04 AM by Unknown
Thursday, August 4, 2011
Breaking up is the thing to do: Does Kraft's split make sense?
Posted on 7:09 AM by Unknown
Kraft announced this morning that it will be splitting into two independent companies. According to the firm's press release, it will divide into "a high-growth global snacks business with estimated revenue of approximately $32 billion and a high-margin North American grocery business with estimated revenue of approximately $16 billion." While some investors applauded the move, others expressed some surprise given that Kraft recently acquired Cadbury. At the time, Kraft made a strong argument for the synergies between Cadbury's chocolate and gum business and the Kraft food businesses.
I'm still trying to sort through the logic and details of the split, but I am a bit puzzled by a few details that have emerged. According to the company, the high-growth global snacks business will include brands such as "Oreo and LU biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee,and Tang powdered beverages." The high-margin North American foods business will include brands such as "Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Capri Sun beverages, Jell-O desserts and Miracle Whip salad dressing." Now, wait a second. We're going to have coffee brands in each new firm. We're going to have other beverage brands (Capri and Tang) in each new firm. How can one argue that the break-up is about keeping the most synergistic businesses together if you are putting identical products in different companies?
To me, the logic appears to be: keep the high growth stuff in one entity and the low growth stuff in the other entity, rather than focusing on the actual synergies among the businesses. The press release is very explicit about that motivation. The move seems designed to try to drive the stock price through a focus on attracting different types of investors to each entity, and through trying to garner as high a price multiple as possible for the global snacks business. I think this may be somewhat short-sighted though. At the end of the day, brands should be together in one firm if there are true economies of scope (i.e. synergies). Price multiples should not be driving competitive strategy. I'll be interested in hearing more about how and why different brands have been put into each entity. Perhaps there's more to the story.
I'm still trying to sort through the logic and details of the split, but I am a bit puzzled by a few details that have emerged. According to the company, the high-growth global snacks business will include brands such as "Oreo and LU biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee,and Tang powdered beverages." The high-margin North American foods business will include brands such as "Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Capri Sun beverages, Jell-O desserts and Miracle Whip salad dressing." Now, wait a second. We're going to have coffee brands in each new firm. We're going to have other beverage brands (Capri and Tang) in each new firm. How can one argue that the break-up is about keeping the most synergistic businesses together if you are putting identical products in different companies?
To me, the logic appears to be: keep the high growth stuff in one entity and the low growth stuff in the other entity, rather than focusing on the actual synergies among the businesses. The press release is very explicit about that motivation. The move seems designed to try to drive the stock price through a focus on attracting different types of investors to each entity, and through trying to garner as high a price multiple as possible for the global snacks business. I think this may be somewhat short-sighted though. At the end of the day, brands should be together in one firm if there are true economies of scope (i.e. synergies). Price multiples should not be driving competitive strategy. I'll be interested in hearing more about how and why different brands have been put into each entity. Perhaps there's more to the story.
Wednesday, August 3, 2011
The Innovative University
Posted on 6:25 AM by Unknown
I'm reading Clay Christensen's new book: The Innovative University. I'll be posting about it once I'm done. Here's a video from the authors:
Tuesday, August 2, 2011
McGraw-Hill - Breaking up is hard to do
Posted on 5:40 AM by Unknown
The Wall Street Journal reports that Jana Partners (a hedge fund) and the Ontario Teachers' Pension Plan have increased their equity stake in McGraw-Hill and may be pushing the company to break up in the near future. I found the news quite interesting, because it's been apparent for quite some time that the whole was not worth more than the sum of the parts. Last year, a team of my first-year MBA students performed a strategic analysis of McGraw-Hill for their course project. They concluded that McGraw-Hill's businesses did not fit together. The company operates a financial services unit, which includes the S&P credit rating agency. It also operates a large, but struggling, education unit (which sells textbooks, for example), and it has several television stations in its portfolio. McGraw-Hill divested Business Week last year. The synergies among these varied units are rather limited.
Of course, investors have known this for some time, as has the management team. Even a team of first-year MBAs could see rather easily that one had a hard time justifying this strategy given the limited economies of scope. Yet, the company has remained intact. It shows how difficult it can be for management to break up a company... particularly one that has a long and storied history of family ownership and leadership. Chairman and Chief Executive Harold McGraw III's great-grandfather founded the company in 1888. I'm sure that the family legacy makes it difficult to ponder breaking up the firm. One reason for that may be that a break-up might put the company in play. Firms may swoop in to try to acquire the various parts, and the firm may have a hard time remaining independent and family-controlled.
Of course, investors have known this for some time, as has the management team. Even a team of first-year MBAs could see rather easily that one had a hard time justifying this strategy given the limited economies of scope. Yet, the company has remained intact. It shows how difficult it can be for management to break up a company... particularly one that has a long and storied history of family ownership and leadership. Chairman and Chief Executive Harold McGraw III's great-grandfather founded the company in 1888. I'm sure that the family legacy makes it difficult to ponder breaking up the firm. One reason for that may be that a break-up might put the company in play. Firms may swoop in to try to acquire the various parts, and the firm may have a hard time remaining independent and family-controlled.
Monday, August 1, 2011
Little Bets and The Value of Crude Prototypes
Posted on 10:50 AM by Unknown
I just finished reading a great book titled Little Bets, by Peter Sims. The author makes a strong case for the concept of acting first, learning, and refining your ideas - rather than spending tons of time planning before doing. Others, of course, have made this argument in the past few years, yet Sims does a terrific job of tying together multiple threads of work, ranging from design thinking to Karl Weick's work on small wins. Moreover, he infuses his argument with lots of stories from different domains - from Pixar to Chris Rock to the U.S. Army.
I found his discussion of prototyping particularly interesting, as he discusses P&G's push to engage in more crude prototyping in its innovation process. Many firms make the mistake of trying to "perfect the prototype" - a process that takes far too long and diminishes opportunities for rapid learning and improvement. At P&G, managers discovered how keeping the prototypes simple has several key benefits, besides reduced cost and enhanced speed. Chris Thoen from P&G explains:
The problem with showing something to consumers when its almost totally done, people don't necessarily want to give negative feedback at that point, because it looks like, "This company has spent a lot of money already getting it to this stage and now I'm going to tell them, 'It sucks.'" On the other hand, if something hangs together with tape, it's clear that it's an early prototype, the mindset of the consumer often is, "These people still need some help, so let me tell you what I really think."
In sum, consumers will offer more candid and constructive feedback if firms keep the prototypes very simple/crude. Moreover, Thoen also argues that managers within the firm will be more open to feedback, because they won't have become overly committed to a particular design. In other words, crude prototypes minimize the sunk cost trap, which can prevent managers from adapting their ideas based on consumer feedback.
I found his discussion of prototyping particularly interesting, as he discusses P&G's push to engage in more crude prototyping in its innovation process. Many firms make the mistake of trying to "perfect the prototype" - a process that takes far too long and diminishes opportunities for rapid learning and improvement. At P&G, managers discovered how keeping the prototypes simple has several key benefits, besides reduced cost and enhanced speed. Chris Thoen from P&G explains:
The problem with showing something to consumers when its almost totally done, people don't necessarily want to give negative feedback at that point, because it looks like, "This company has spent a lot of money already getting it to this stage and now I'm going to tell them, 'It sucks.'" On the other hand, if something hangs together with tape, it's clear that it's an early prototype, the mindset of the consumer often is, "These people still need some help, so let me tell you what I really think."
In sum, consumers will offer more candid and constructive feedback if firms keep the prototypes very simple/crude. Moreover, Thoen also argues that managers within the firm will be more open to feedback, because they won't have become overly committed to a particular design. In other words, crude prototypes minimize the sunk cost trap, which can prevent managers from adapting their ideas based on consumer feedback.
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