Establishing Ground Rules for Your Team

I've finished reading Bill Vlasic's most recent book on the auto industry, and I highly recommend it.  As a journalist, Vlasic has covered the industry for decades, and he really understands the key players and the firms.  Some of you may remember his terrific book about the Daimler Chrysler merger (Taken for a Ride: How Daimler Drove Off with Chrysler).

In the book, Vlasic writes a fair amount about Alan Mulally's turnaround process at Ford.  I found several stories particularly compelling.  For instance, Vlasic describes how Mulally changed the culture of the senior management team at Ford.  Prior to his arrival, the top team experienced a great deal of infighting and dysfunctional group dynamics.  Mulally instituted a new business plan review process centered on a crucial Thursday morning meeting that took place weekly.  The new Ford CEO quickly established some new ground rules for how executives would behave during these meetings.  He called these shared norms and ground rules the "working together behaviors" of the senior team.

According to Vlasic, these ground rules included no smart phones, no encyclopedic briefing books, no aides, no jokes about colleagues, no side conversations, and most importantly... facts, not opinions, would rule the day.  Mulally announced to the team that this code of conduct would be strictly enforced.  If someone couldn't comply, Mulally told them bluntly, "You'll just have to work somewhere else."  He went on to explain, "The important thing is that we are all accountable to each other. You are accountable to the team, and the rest of the team is here to help you." 

What a fantastic leadership moment!  Too many teams suffer because leaders don't outline the ground rules and expectations EXPLICITLY.   Leaders need to be clear about the shared norms and ground rules which will govern behavior.  If leaders are explicit and clear about these "working together behaviors," they will find it much easier to encourage candid dialogue and to keep conflict constructive.  Moreover, they will find that explicit ground rules will enhance their odds of achieving alignment and shared commitment among the team members.

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Leaders: Can You Transfer Success to a New Organization?

Glenn Llopsis has written an interesting column at Forbes.com.  The article is titled, "7 Reasons Leaders Can't Transfer their Success to Other Organizations."  I have always found this topic fascinating.  Why is it that highly effective leaders sometimes have trouble repeating their success at their next organizations?  First and foremost, I believe that we often over-attribute an organization's success to its chief executive.   We assume that he or she should receive most of the credit for the high performance, when in fact, others played a key role.  Perhaps even some good fortune played an important part in that success.  

Second, executives often try to take the processes and techniques that have made them successful and transplant them completely to their new organizations.  They forget that those practices must be adapted and tailored to the new industry, strategy, culture, and people.  In other words, there are very few "best practices" that can simply be dropped into any organization.  Practices must always be tailored to fit with the other systems, activities, and processes in place at the new organization.   Alignment or fit among processes and capabilities produces competitive advantage.  That's why tailoring matters so much! 

Executives encounter a problem though.  In the back of their minds, they often know that tailoring and adapting is necessary.  Yet, they have had such success with a particular "formula" that they are reluctant to change.  Chuck Knight, the former CEO of Emerson Electric, once visited my class a few years ago.  A student asked him if he would have taken the vaunted Emerson strategic planning process to Silicon Valley if he had taken on a CEO role at a firm there after he retired from Emerson.  He said that adopting the Emerson process there without significant adaptation would have been a big mistake, but he acknowledged that it would have been very tempting to rely on the winning formula from his past. 

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Narcissistic CEOs: Impact on Acquisitions?

Nihat Aktas, Eric de Bodt, Helen Bollaert, and Richard Roll have written a thought-provoking paper that examines how CEO narcissism affects the acquisition process.   Here is an excerpt from their abstract, which summarizes their findings:

More narcissistic acquiring CEOs are more likely to be the initiator of the transaction. Compared to their less narcissistic peers, they also tend to negotiate faster during the private part of the process, and they are more likely to complete the transaction. Additional analyses show that target CEO narcissism is associated with higher bid premiums and lower acquirer abnormal returns. Our results make a strong case for the impact of CEO psychological characteristics on many dimensions of the takeover process.

I found these results fascinating.   I understand completely how narcissistic acquiring CEOs might be deal happy.  After all, one could imagine them enjoying the spotlight associated with making acquisitions, and deriving satisfaction from growing the size of their empire.   The more surprising results concern the impact of  narcissism on bid premiums and acquirer returns.  I would have thought acquiring CEO narcissism would have the significant impact there, but in fact, it's the target CEO's narcissism that creates higher bid premiums and lower abnormal returns.  The scholars explain the finding by arguing that, "Manipulative narcissistic acquiring CEOs may be able to browbeat their less narcissistic counterparts during talks."  It's an interesting potential explanation.  Is the lesson that we shouldn't try to do deals with narcissists?   Perhaps it is!

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Nice Guys Finish Last - and Don't Become Leaders?

Nir Halevy, Eileen Chou, Taya Cohen and Robert Livingston have conducted an interesting study regarding the relationship between altruism and status.  First, they distinguish between two dimensions of status: prestige and dominance.  According to Livingston, “Dominance involves the use of intimidation and coercion to attain a social status based largely on the effective induction of fear.” Prestige derives from being a good person and demonstrating character that people respect and admire.

To begin, they divided participants into groups and created a series of experiments involving the allocation of ten game chips worth a total of $20. Then they examined how people rated fellow group members in terms of prestige and dominance.  They also asked people about the types of individuals who should serve as leaders of the groups.   Here is what they found (excerpt from Kellogg Insight):

In the first experiment, selfish participants—free-riders who kept all of the chips and contributed nothing to the group—were rated lower in prestige but higher in dominance than participants who contributed to the group. In subsequent studies, participants who harmed another group were also rated higher in dominance than people who contributed to their own group without harming outsiders. Finally, the most generous individuals—those who contributed to benefit both their group and outsiders—were rated lowest in both dominance and prestige. In sum, individuals were seen as more dominant if they were selfish and discriminated in favor of their own group at the expense of others.  When it came time to select leaders, dominance and prestige played distinctly different roles, depending on the type of leadership that was required. In instances where there was no intergroup competition, people preferred individuals with more prestige. But when groups had to compete against each other, dominant individuals rose to the top while benevolent people were least likely to be elected.

Does this mean that "nice guys finish last?"  It certainly seems that this might be the case.  Livingston argues, "Altruism is a double-edged sword.  On the one hand, generous individuals are admired for their kindness, compassion, and willingness to help. On the other hand, they may be perceived as feeble ‘bleeding hearts’ who lack the guts to make tough decisions that might advance the goals of the organization."  He goes on to argue that we may not quite have it right when we say "Power corrupts."   In fact, in competitive environments, we may be selecting high dominance leaders who have a natural tendency to exhibit selfish behavior.

Let's be careful about making sweeping generalizations based on this experimental study though.  The studies involve judgments made based on one set of actions.  Life in organizations represents a repeated game.  We interact numerous times with others, and we make determinations based on the patterns of behavior that we observe.   Long term success is not simply about dominance.  It clearly involves prestige as well, as the scholars acknowledge in their study.   Moreover, I do believe that leader selection depends on the culture of the organization.  Certain organizational cultures do not tolerate selfish behavior.  Others enable it.   The values of the firm matter a great deal. 

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Barnes and Noble: Why Divest the Nook Business?

I'm puzzled today by the news that Barnes and Noble is considering a spin-off of the Nook business.  According to CEO William Lynch, “We see substantial value in what we’ve built with our NOOK business in only two years, and we believe it’s the right time to investigate our options to unlock that value."   Apparently, he believes that investors are discounting the value of the Nook business because they are so negative on the brick and mortar retail business model.  I'm sure that there's some truth there.  However, separation of the Nook business leaves, in my view, two unsustainable entities trying to operate on their own.  The brick and mortar model is dying, and it will have no future without an online element.  On the other hand, Nook will have a hard time competing as an independent entity.  It will lose some of those synergies with the stores.  Moreover, Amazon and Apple have broader business strategies in which the Kindle and iPad are embedded.  Those products benefit from the synergies associated with the entire ecosystem of those firms.   It sounds to me as though the firm is trying to use financial engineering to create value, rather than actually trying to identify a viable business strategy for survival. 

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Can Best Buy Be Saved?

After yesterday's post on Sears, a friend recommended that I read Larry Downes' article regarding Best Buy (posted on Forbes.com).   Downes article is titled, 'Why Best Buy is Going out of Business...Gradually."  Some may find the article a bit harsh, but sometimes the truth hurts.  Downes points out the disturbing numbers that should alarm Best Buy  management:

Consider a few key metrics.  Despite the disappearance of competitors including Circuit City, the company is losing market share. Its last earnings announcement disappointed investors.  In 2011, the company’s stock has lost 40% of its value.  Forward P/E is a mere 6.23 (industry average is 10.20).  Its market cap down to less than $9 billion.  Its average analyst rating, according to The Street.com, is a B-.

Interestingly, Downes does not attribute all the company's problems to the threat from online retailers such as Amazon.   In fact, he focuses a great deal on customer service.  One could argue that brick-and-mortar retailers must have superb customer service, because that in-store experience can be one of their key (and perhaps only) advantages over online retailers.  However, Downes explains (as others have) that Best Buy employees seem to spend a great deal of their time pushing products and services on customers, rather than trying to offer educated and informed answers to their questions.  They aren't offering the best solution so much as they are trying to drive sales of Best Buy's products. 

I haven't bought a major item at Best Buy recently, so I cannot confirm this observation by Downes.  However, I can describe a recent encounter at the Apple Store, where an associate spent a considerable amount of time explaining to me why I should spend $300 less on a particular item because it would meet my needs more effectively and cost efficiently.   I thanked him for the honesty, and he explained that their job wasn't just to sell product but to make sure we had the best solution and best experience possible.  Sales would come if they did that part of their job.

Beyond the issue of customer service, I think Best Buy has to answer many of the questions that I posed for Sears in yesterday's post.   In particular, I think it needs to refine the relationship between its online store and its physical locations.  That connection should be clean and seamless given the types of products that Best Buy sells.  The firm needs to think about the choice of product categories in which to compete, the amount of real estate dedicated to each product category, and the optimal size and layout of the stores.   As J. Benjamin Stevens wrote on this terrific blog post, "Apple Retail Stores are many times smaller than Best Buy, Costco and Walmart. However its sales per square foot figures are off the charts. In 2009 an Apple Store in Manhattan had sales of $35,000 per square foot, while Best Buy’s national sales per square foot total was $930 for the same year."

One final point:  Downes suggests that Best Buy is facing a gradual demise, not a sudden one.  It reminds me of what governance expert Jay Lorsch once wrote in a book about boards of directors.  He argued that gradual crises often are more difficult to address than sudden ones.  The gradual crisis emerges slowly and in a manner that enables people to downplay the threat or underplay the need for a dramatic response.  

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Can Sears be Saved?

The Wall Street Journal reports that Sears has hired Brookstone CEO Ron Boire as its new chief merchandising officer and president of the Sears and Kmart store formats.   Boire told the newspaper, "My focus will really be on creating more and better theater in the stores."  He also will attempt to better integrate Sears's stores, website and mobile-phone application.  ,He has a major challenge ahead of him.  According to the Wall Street Journal, "Sales at stores open at least a year have declined every single year since Mr. Lampert created the Hoffman Estates, Ill., company by merging Sears and Kmart in 2005."

What can and should Boire do to reverse Sears' fortunes?   Rather than proposing a specific answer, I would recommend an approach that might be fruitful.  I don't think Sears will turn itself around simply by making changes in the store experience, or in its ability to appeal to cross-channel shoppers more effectively.  Sears needs to take a top-to-bottom look at its entire business model.  Such an analysis would ask some fundamental questions to begin:


1.  Do Sears and Kmart belong together?   Do they help each other?  Are they truly more valuable together than apart? 


2.   Does Sears belong in all the product categories in which it competes?  Which categories are money-makers and which are money-losers?   What products still draw people into Sears stores?  (consider tools, appliances, etc.) 


3.  How many stores does Sears want/need in its network?  What's the optimal size of its store network?


4.  What's the optimal size/layout of a Sears store? 


5.  What are the right kinds of locations for Sears stores?  Does its mall-based strategy work effectively or not?


These kinds of questions must be addressed if Sears is to survive.  The firm has been on a long-term downward trajectory for years.  Minor adjustments won't save the company.  

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