Are Risky Personal Behaviors Associated with Risky Business Decisions?

Bob Sutton's blog has pointed me to a terrific article by New York Times writer Steven Davidoff.  The piece is titled, "A Mirror Can Be a Dangerous Tool for Some CEOs."   Davidoff examines the effects of CEO personality on business actions and performance, drawing on some interesting academic research. Here is an excerpt:

Arijit Chatterjee and Donald C. Hambrick said in a 2006 paper that narcissism among chief executives encouraged more volatile company performance. In a study of 111 chief executives in the technology industry, the authors found that indicators of narcissism correlated not only with company performance but also with the pursuit of deals.  The study was criticized for overstating the power a chief executive has over a company. But additional research has shown that a top executive’s personality can have powerful effects on how a corporation is operated.  For example, Henrik Cronqvist, Anil K. Makhija and Scott E. Yonker found that the level of debt for a company was related to how much a chief executive was willing to borrow to buy a house. Matthew Cain and Stephen B. McKeon looked at chief executives who had pilot licenses. Flying small planes is viewed as thrill-seeking behavior. Professors Cain and McKeon found that chief executives with pilot licenses were more prone to engage in acquisitions, with the theory that takeovers are risky, yet exciting ventures.

I think the latter two studies are truly fascinating.  One of our Bryant honors students (now finishing his MBA at Duke) completed a senior thesis examining similar relationships.  He analyzed people who enjoyed sky-diving , and likewise, he found that those individuals tended to exhibit riskier choices in other parts of their lives as well.  What is the implication of such studies?  I believe it suggest that we should be taking a look at signals that suggest an executive may have a high propensity to take risk or strive for the public spotlight, and we should search broadly for those signals.  However, we have to be careful.  These studies demonstrate a pattern that emerges, on average, from the data.  That does not mean every thrill-seeker will be advocating risky corporate acquisitions.

These studies do make a broader point as well about acquisitions.  They re-emphasize the fact that many CEOs do deals for reasons beyond the impact on shareholder value.   Many individuals find deal-making to be exciting and satisfying.  They derive much personal utility from such deals.   However, that "thrill-seeking" may be to the detriment of shareholders, customers, and employees.  

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How To Anger Your Best Customers

Have you ever become angry when you paid full price for an item, and then learned that the company had put that item on sale shortly after your purchased it?   We have all been there.   Now scholars have examined the long term effects of such deep discounting. 

Kellogg School of Management Professor Eric T. Anderson and MIT Professor Duncan I. Simester conducted a study to examine whether such deep discounting angered customers, particularly the company's best customers.  Beyond creating anger, they wanted to know if that negative emotional reaction affected long term sales.  Here's what the researchers did, according to Kellogg Insights:

"Anderson and Simester worked with a retailer that specialized in selling durable goods, like software, electronics, apparel, or books. In the past, the retailer had typically kept prices high but frequently offered small discounts and the occasional deep discount. Anderson and Simester worked with them to create test catalogs to determine whether and which customers would be antagonized by price changes. (Most of the retailer’s customers purchased via catalog at the time of the study.) The two types of test catalog were mailed according to the regular schedule and included 86 products, 36 of which were discounted by varying amounts depending on which test catalog people received. The deep-discount version offered the 36 items at an average of 62 percent off, while the shallow-discount version offered an average discount of 34 percent."

The scholars studied customers who paid full price for items and then received a catalog offering steep discounts.  “When you look at this segment of customers, what you see is that a substantial portion just stop buying,” Anderson said. “We call this the boycott effect.”   Customers offered the steep discounts placed substantially fewer new orders than those people who were offered smaller discounts!  Customers who received the steep discount catalog placed 14.8%  fewer subsequent orders than those who received the shallow-discount version. Moreover, many people who were offered subsequent deep discounts simply ordered nothing at all in the months that followed.   It turns out the "boycott effect" lasted for awhile.   The scholars found that customers who reacted poorly to the steep discounts tended to buy less items from that retailer for the next twenty months! 

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Does Ambition Shorten Your Life?

Fortune reports about a new study conducted by Professor Timothy Judge of the University of Notre Dame's Mendoza College of Business.   Judge examined 717 highly ambitious individuals born in the early 1900s.  They went to top schools, embarked on high-status careers, and made a great deal of money. 

He compared them to a control group of people who did not exhibit the same level of ambition.  Judge found that, "Despite their many accomplishments, ambitious people are only slightly happier than their less-ambitious counterparts, and they actually live somewhat shorter lives."  

Hmmm... food for thought indeed.  When we strive to accomplish great things, do we sometimes make lifestyle and health choices that may be detrimental to us?  

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Speakers, Have a Conversation With Your Audience

Nick Morgan at Forbes points us to a terrific TEDx Houston talk by Professor Brené Brown.  As Morgan writes, "Audiences long for presenters to be real with them, and just have a conversation.  Sure, they want a focused, smart conversation, not a rambling, pointless one like so many real conversations.  But they want an authentic connection with their speakers, and the way to achieve that is with a conversation."

Morgan goes on to explain that many presenters fear a conversation with their audience.  They want to control the situation.  Professors suffer from this same desire for control.  As a result, they sometimes shy away from interactive learning processes, because they are not sure how they will handle unexpected conversations and questions. 

I encourage you to read Morgan's article and watch Professor Brown's terrific talk:

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Can Companies Learn from Apple?

Adam Lashinsky's article has published an article on Fortune.com titled, "3 things any company can learn from Apple." (drawn from his book to the left)  I especially love the first point.  My students know that I preach this point about "saying no" all the time! Here's the excerpt:

Say no more often. Steve Jobs was fond of saying that saying no was harder -- and more important -- than saying yes. Apple said no to making personal digital assistants, in the 90s that is. It said no for years to making a telephone-- until it said yes. Apple refused to focus on selling to businesses. It wouldn't put a USB port on the first iPad. And so on. While not every company can achieve Apple's level of Zen by rejecting seemingly good business opportunities, there isn't a company out there that wouldn't benefit by more rigorously asking itself: "Have we absolutely satisfied ourselves that we have said yes for the right reasons?" How many companies pursue revenue opportunities that any new recruit knows the company is doing to make money rather than delight customers. (An example: Jobs ridiculed the PC industry for years for the margin-boosting "crapware" that comes loaded on a PC. The crap remains.) It takes real courage to say no. But it's not like top executives aren't being compensated for brave action.

I would like to make a larger point though.  I think leaders need to be very careful about trying to draw lessons from Apple and apply them to their businesses.  First of all, Apple is a very unique animal, unlike most other firms in terms of its fundamental DNA.   Secondly, we must remember that competitive advantage derives from fit among strategy, structure, systems, culture, and people.   It doesn't come from a silver bullet - a single core competence, one particular strategic choice, a specific business principle or value.  Emulating Apple in one or two dimensions may not bring much advantage to a firm, if that choice doesn't align well with everything else a company does.  Changing a company for the better requires systemic change, not just a tweak here or there that results from a benchmarking exercise of a stellar firm.   

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Learning from Our Success and Others' Failures

Scholars KC Diwas, Bradley Staats, and Francesa Gino have conducted a new study about how we learn and improve (or fail to do so).  They examined Minimally Invasive Cardiac Surgery procedures.   Their research shows that individuals (cardiac surgeons in this case) learn more from their own success than the success of others.  Moreover, they learn more from others' failures than others' successes.   What explains these findings?  The scholars argue that we attribute our own success as well as others' failures to internal factors rather than external conditions.   When we succeed, we attribute it to our own effort and capabilities.  When we fail, we often blame "unexpected external factors or pressures."  On the other hand, when others fail, we tend to attribute the outcome to some deficiency on the part of that person (poor effort, planning, skills, etc.).  Finally, the study demonstrated that, "Individuals may be more open to reflect on their own failures and learn from them when they have greater experience with success." 

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Our Everest Leadership and Team Simulation in the MBA Classroom

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