Deepening your competitive position - P&G tries Tide Pods

P&G has announced the launch of new Tide laundry detergent pods - single-dose, dissolvable packets of detergent, stain fighters and brighteners. The launch comes after a significant delay, as well as some uncertainty regarding the extent to which US consumers will embrace this premium-priced product.

We don't know if P&G will succeed with this particular innovation, but it illustrates the right kind of approach to competitive strategy. As many firms face slowing growth in a mature category, they diversify and turn their attention to new areas. However, that often accelerates the decline of their core business because they stop innovating with the seemingly mature product. Then someone does innovate and hurts the company badly. P&G is choosing to try to deepen their competitive position in household products rather than simply diversifying to new areas in search of growth. They have identified two possible consumer needs that pods may fulfill: convenience and better cleaning. Why better cleaning? Many consumers do not use the right amount of detergent - they just pour some liquid in the machine. These pods will provide just the right amount for a load. Naturally, the pods also provide convenience and less mess. Will consumers pay a premium? That's the key question. Still, the attempt to innovate and deepen the firm's competitive position in a mature market should be lauded.

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Sears Spinning Off Hardware Stores

Sears continues to struggle.  Yesterday, it reported a net loss for the last quarter of $2.4 billion. Same store sales declined during the quarter as well.   The firm announced that it will be bolstering its balance sheet by selling off its Sears Hardware stores (along with several other moves designed to increase cash).  I understand the move, given the liquidity concerns about the company.  However, I found one item in Chairman Lampert's letter to shareholders rather puzzling.  He described the third pillar of the company's strategy:

With regard to our third pillar, we still have a long way to go but Kenmore and Craftsman have held up relatively well, despite our overall company performance and housing builds and turnover continuing at relatively low levels.  In the fourth quarter of 2011, Kenmore maintained its market leadership in appliances, while Craftsman, too, gained market share.  But, market share alone is not enough.  When we think about brands, we think about brands like Nike and Apple, and we aspire to have Kenmore and Craftsman be the Nike and Apple of the appliances, tools, and lawn and garden industries.

If a key pillar of the strategy is to build the Kenmore and Craftsman brands, then why sell off the hardware stores?   Is Sears more known for and appealing to customers with regard to apparel or hardware?  Sears already had announced the intent to sell Kenmore and Craftsman products at other retailers.  Will the brands thrive if the hardware stores are spun off entirely?  Are there synergies that will be lost as a result of the sale of the hardware stores?  I don't know the answers to these questions, but I think management must address these issues and explain their thinking to investors. 

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The Debate about Brainstorming

Jonah Lehrer recently wrote a fascinating New Yorker column in which he argued that brainstorming doesn't work.   In some ways, he's right on the money.   Academic studies often have demonstrated that individuals could perform better at a creative task than a group engaged in brainstorming.  For instance, Lehrer cites one of the early studies at Yale:

The first empirical test of Osborn’s brainstorming technique was performed at Yale University, in 1958. Forty-eight male undergraduates were divided into twelve groups and given a series of creative puzzles. The groups were instructed to follow Osborn’s guidelines. As a control sample, the scientists gave the same puzzles to forty-eight students working by themselves. The results were a sobering refutation of Osborn. The solo students came up with roughly twice as many solutions as the brainstorming groups, and a panel of judges deemed their solutions more “feasible” and “effective.” Brainstorming didn’t unleash the potential of the group, but rather made each individual less creative.

Unfortunately, Lehrer's column draws some misleading conclusions as well.  Scott Berkun, author of Mindfire: Big Ideas For Curious Minds, has written a strong rebuttal to Lehrer's essay.   Berkun offers four key criticisms of Lehrer's conclusions:


1. Nothing matters if the room is filled with morons or strangers (or both).

2.  Brainstorming is designed for idea volume, not depth or quality. 

3.  The person leading an idea generation session matters.

4.  Generating ideas is a small part of the process.  

Berkun takes particular issue with the conclusions that Lehrer draws from a study by Charlan Nemeth.  Brainstorming typically involves a shared norm called "deferred judgment."  Under that norm, participants do not criticize each others' ideas during the idea generation process.   Berkun explains Nemeth's study:


The primary thrust of Lehrer’s critique is based on a 2003 study by Nemeth, where students were divided into groups and given 3 different sets of instructions.  In one group, no instruction was given (‘Minimal’). In the second group, basic brainstorming rules were given (‘Brainstorming’). In the last, brainstorming rules were given, plus students were allowed to critique each others ideas (‘Debate’).... The results do show that the group that could critique generated more ideas... [However] The debate groups was given brainstorming instructions, as well as an instruction to debate. It should be labeled “Brainstorming with debate“. If the only instruction they were given was to debate, it’d be a fair comparison. But it isn’t.

Lehrer concludes from this Nemeth study that stimulating dissent and debate works much more effectively than brainstorming.  I'm with Berkun - that conclusion is a step too far.   My work over the past fifteen years has focused a great deal on the importance of debate and dissent.  I'm glad that Lehrer has chosen to emphasize its importance.  However, an effective group process doesn't employ either deferred judgment or dissent and debate.  It involves both!  In the idea generation phase, deferred judgment makes sense as a norm employed to encourage the generation of many different ideas and options.  Later, dissent and debate become critical as a means of comparing and contrasting those options, and perhaps facilitating the development and generation of more ideas and alternatives.

One final point - Later in the article, Lehrer describes the many innovations that emerged from Building 20 at MIT over the years.  He concludes, "The lesson of Building 20 is that when the composition of the group is right—enough people with different perspectives running into one another in unpredictable ways—the group dynamic will take care of itself."  In other words, if you get the team composition right, you will automatically get lots of constructive dissent and debate.  I disagree wholeheartedly with this conclusion.  It's just not right.   You do not guarantee constructive dissent and debate simply by building a diverse team and giving them a forum for dialogue.  In many settings, people simply don't speak up.  Groupthink occurs even in diverse teams at times.  Yes, you have to get the composition right, but group dynamics do not take care of themselves. They take hard work on the part of a leader.   Leadership matters!  Process matters!  

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Big Data, Diapers.com, and the Importance of Analytics

Several days ago, the New York Times published an article titled, "The Age of Big Data."  The newspaper described how companies will need many more data analysts who can "help businesses make sense of an explosion of data — Web traffic and social network comments, as well as software and sensors that monitor shipments, suppliers and customers — to guide decisions, trim costs and lift sales."   The article cited a McKinsey Consulting study which predicted that the United States will need 140,000-190,000 more employees with “deep analytical” expertise" in the coming years. 

As an example of the importance of big data, consider the online retailer Diapers.com (owned by Amazon).   Forbes writer Meghan Casserly describes the firm's use of big data in an article published on the magazine's website.  The company has built powerful proprietary algorithms over the past few years based on tons of transactions.  These algorithms predict what customers are likely to buy in the future, how much they will spend, and whether they will be profitable for the firm.  The company's strategy focuses on building loyal customers who purchase low margin baby supplies initially, and then buy higher margin items such as car seats, strollers, and the like in the future.  The algorithms not only help predict purchasing patterns, but they enable Diapers.com and its sister sites to market appropriately to different customers.  Perhaps most importantly, the firm can identify which customers will be profitable for the firm.  Thus, they can spend their time catering to the most profitable customers, rather than wasting marketing expenditures on consumers who will be a drain on resources. 

Every company should be thinking about how it can use algorithms to drive performance.  Analytics can be used in a myriad of ways.   However, building a strategy based on big data requires the right talent.  Therefore, firms need to begin thinking carefully about how they will attract, develop, and retain the talent needed to collect and analyze the huge volumes of data that now exist.  Universities need to think about how to educate people for these roles, as demand will be strong.  We need to do more than educate people in mathematics and statistics though.  We need analysts who can understand business models and strategies, and who have a deep understanding of consumer behavior too.   The best analysts will be those who can marry statistical knowledge with a broader understanding of the entire organizational system.  

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Top 50 Business Professors on Twitter

I'm very honored to have been named one of the top 50 business school professors on Twitter by the MBAPrograms.org website.   Thank you so much!   I hope my blog readers will follow me on Twitter.  The handle is @michaelaroberto

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Kellogg, Pringles, and P&G

Over the past few weeks, a scandal at Diamond disrupted the firm's intent to purchase the Pringles business from P&G.   As a result, Kellogg swooped in yesterday to acquire Pringles instead.  Investors and analysts generally reacted positively to the deal.  The Kellogg stock price rose 5% on the news of the deal.  Analysts believe that Kellogg will accelerate its international growth with the Pringles purchase for two reasons.  First, many countries do not consume cereal as much as the United States.  Second, the existing snack business at Kellogg is fairly US-centric as well.  Pringles offers access to many international markets through its extensive distribution channel, as well as a product more appealing to many foreign consumers. 

While most people are focused on Kellogg today with this news, my attention has turned to P&G.  The Pringles divestiture continues a strategy undertaken by former CEO A.G. Lafley several years ago.  Lafley began to divest many of P&G's low-growth food businesses such as Jif, Crisco, and Folger's Coffee.  He refocused the firm on two categories in which it was dominant, and in which it had strong international growth prospects - i.e. health/beauty and home care/household cleaning. 

A natural question to ask:  What remaining brands might be candidates for divestiture?   I would focus on the Iams pet food business.   While the product line represents a billion dollar brand for P&G, it faces a number of challenges.  First, private labels represent strong competition in the pet food category (unlike some strong P&G categories such as razors/blades).  Wal-Mart's private label, Ol' Roy, is the top-selling dry dog food in the United States!   Second, Iams doesn't benefit from purchasing synergies with other food businesses, as some pet food brands owned by rivals do (for instance, Nestle owns the Purina family of brands, as well as a host of other businesses that procure agricultural inputs).  Third, the Iams business has not performed as well financially as many other parts of the P&G portfolio. 

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Paul Levy's New Book: Lessons about Leadership from the Executive Suite... and the Soccer Field

As many of my readers know, I'm the co-author of a multi-media case study and a Harvard Business Review article about Paul Levy's turnaround of the Beth Israel Deaconess Medical Center.  Paul took the helm in January 2002, when the hospital was in dire straits.  As CEO, he helped the hospital return to profitability, after years of losses.  Prior to his tenure at the BIDMC, Levy served as Executive Dean for Administration at Harvard Medical School, where he was responsible for administrative, budgetary, and facility issues.  He also served as Executive Director of the Massachusetts Water Resources Authority, where he led the "Boston Harbor Cleanup," one of the largest pollution control projects in the country.  Levy also writes a popular blog titled "Not Running a Hospital." 

Levy now has written a terrific new book, which I highly recommend.  The book - Goal Play! Leadership Lessons from the Soccer Field - weaves together anecdotes from his twenty years of youth soccer coaching with his experiences as a chief executive.  Levy uses examples from these disparate settings to illustrate his theories of effective leadership.   This book is not the usual fluff that we read in books that try to apply lessons from sports to business.  Levy offers concrete lessons that can be applied by leaders in many different kinds of organizations.  He illustrates his ideas with anecdotes from soccer, but then shows you those ideas in action in the executive suite.   Along the way, he describes the effective actions of other executives too, rather than simply drawing on his personal stories.

Levy describes how you can be a supportive and transparent leader.  However, he also describes how to make the tough calls required to improve organizational performance.   Levy's book and his experiences show that making tough decisions doesn't mean simply dictating plans to the troops in your organization and ordering them to follow you.   How can you be supportive and empowering, yet still move quickly and get results?  That's the question Levy seeks to answer in this book. 

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