Amazon Buys Goodreads

We learn today that Amazon has acquired Goodreads, a social network for people who love to read.  Goodreads has roughly 16 million members.  More than 30,000 book clubs use the site.  Many people see the move as a perfect fit for Amazon.   The company gets the opportunity to learn about people's likes and dislikes regarding books, and they have an opportunity to promote to this active book-loving community.  Moreover, they can use analytics to mine this tremendous amount of data about books that the social network will provide.  Early reports indicate that they intend to integrate Goodreads more closely with their Kindle reader devices as well. 

For me, this move clearly extends the powerful network effect that Amazon already benefits from in the book business.  The network effect means that the value for each Amazon user goes up as more people use the site.  That effect increases now with the addition of this powerful and broad social network.   Book lovers will derive even more value from Amazon, as the online marketplace enhances its ability to provide informative reviews and highly personalized recommendations to each customer. 

What's the downside?  Goodreads has cultivated an independent status up to this point.  Some Goodreads users will undoubtedly worry about the link with Amazon and the loss of that independent status.  Amazon will have to manage this tension, much as firms do any time they vertically integrate.  

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Chevron Cuts Executive Compensation

The Wall Street Journal reports today that Chevron's Board of Directors has cut compensation for senior executives at the firm, despite stellar financial results.  What's the reason?   Apparently, Chevron has had a spotty safety record over the past year or so.  Therefore, despite strong financial performance, the bonuses for top executives have been scaled back.

Now, the total compensation numbers are still very high.  So, I don't think anyone is crying about the compensation changes.  However, the move does send an important message.  Unlike many other firms, Chevron's board is saying that financial performance at all costs will not be rewarded.   A strong safety culture has many facets, so incentives alone will not improve safety.  However, incentives are a key component.  You have to reward the right kinds of behaviors if you want a strong safety culture.  You also have to send the right symbolic messages.  Chevron seems to have taken a step in the right direction. 

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Rethinking the Action Learning Project

Many executives push hard for leadership development programs to deliver a strong return on investment.  They want the programs to be "practical" and "applied" in nature.  As a result, many companies have embedded action learning initiatives in their leadership development programs.  They sound like a great idea.  Bring a group of highly talented managers together for a leadership development program led by faculty members, consultants, and/or company executives.  Then, put the participants in teams and have them work on real projects back at work for the next few months.  Those projects provide an opportunity to put their learning into action, to apply the principles and techniques that they discussed during the program.   After several months, the teams present to senior executive sponsors of these projects, and hopefully, some of their recommendations become reality.  Hooray - we have demonstrated ROI!

Ok, that's the ideal...what's the reality?  The reality is that many of these action learning initiatives do not deliver the intended results.  Why?  It begins with the fact that you have overburdened some of your best talent.  You bring them off-line for a week, perhaps several weeks, for a leadership program.  They are now already feeling behind about work.  Then, you ask them to take on this new project on top of everything else they are doing.  Moreover, you ask them to collaborate on a team with members who may not even be co-located with them.   Executive sponsorship often doesn't materialize as promised either.  Senior leaders commit to serve as champions for the projects, but then they offer little guidance, support, or resources.   I have seen this scenario play out on numerous occasions.   Yes, applying what you have learned on a project can be a powerful development opportunity with tangible results for the business.  However, these types of projects require far more preparation, support, and resources than we usually find in companies.   For that reason, I would argue that many companies should re-think their action learning initiatives.  

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3D Printing and Rapid Prototyping

This very good USA Today article describes the impact that 3D printing is having on innovation processes.  This new technology has enabled firms to build incredible prototypes, so that they can bring innovations to market faster and more effectively.   I think the technology has great promise, and firms can use it effectively to test out new ideas.

Having said that, I think firms can fall in love with the concept of 3D printing prematurely.   It is expensive to purchase and use this new technology.   On most occasions, firms would benefit from beginning with a very inexpensive, crude prototype.  They need not spend much money at all.  They simply want to begin the discussion about a new idea, and offer folks a chance to touch and feel a product. 

Source: Fast Company

As an example, consider this article in Fast Company about the creation of the Nike FuelBand.  The article describes the first prototypes shown to Nike CEO Mark Parker.  One prototype is shown here.  It's a simple prototype made from a Velcro strap.   It made a huge impression on Parker, and from there, Nike developed a hit new product. 

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Mission Questions

Warren Berger has an outstanding column over at Fast Company about what he calls "mission questions."   Berger, the author of the forthcoming book A More Beautiful Question, argues that leaders should be asking five crucial questions pertaining to a company's mission.   Here are the five questions:

1.  Why are we here in the first place?

2. What does the world need most that we are uniquely able to provide?

3.  What are we willing to sacrifice?

4.  What matters more than money?

5.  Are we all on this mission together?

I think these questions are very useful.   I would simply add two comments.  First, companies need to be cautious about adopting an insular approach when responding to these questions.   The questions focus on "we" a great deal - as in the company's leaders and other employees.  Of course, the key player here is the customer.  What do they want, need, and desire?   Why should they choose us?   We might have a cool product idea, and we might care about it a great deal... but does it really solve a problem for a customer?  Does it relieve their pain?   Too much product focus and not enough customer focus can be a problem in some organizations.  

Second, the questions get people to think very broadly about the company's purpose. However, a great strategy has a strong degree of focus.  Answering these questions can sometimes get people thinking so expansively that they aren't carefully delineating the boundaries of the firm's strategy. Who are we trying to serve, and who are we not trying to serve?   What are we going to produce, and what are not going to produce?  

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Backward Integration at Starbucks

Source: Wall Street Journal

The Wall Street Journal reports that Starbucks has acquired a 600 acre coffee farm in Costa Rica.  You might ask: Why is Starbucks backward integrating?  They probably do not think they can operate the supply chain more efficiently through vertical integration.   They certainly aren't going to obtain a significant amount of coffee beans through one 600 acre farm.  What are they doing?

They are learning, experimenting, and innovating.  It's a terrific reason to engage in partial/limited backward integration.   Starbucks CEO Howard Schultz explained, "We are talking about doing innovative things we would not be able to do without this farm."   Craig Russell, a Starbucks senior vice president, explained that the company would try to identify ways to address a fungus problem that is affecting coffee farm yields in Central America: "It's a dynamic situation and we will absolutely use this farm for testing different methodologies and ways to use new types of coffee trees we've developed that have become more disease- and rust-resistant."   Finally and most importantly, Starbucks intends to share what they learn about the fungus with other farmers, so that coffee bean production improves overall for the industry.   

This example demonstrates that a small bit of vertical integration (backward) can be very effective as a means of innovation and experimentation.  Many companies simply view vertical integration from the perspective of its immediate effect on the bottom line.   Ironically, many of those efforts actually decrease profits much to the chagrin of senior executives.   Of course, many of those efforts are not small experiments.  They are bold moves down without a good pilot to test the concept.  In this case, a small bit of experimentation could yield large improvements in profits over time.  

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Ron Johnson: The Heat is On

The pressure continues to escalate on J.C. Penney CEO Ron Johnson.   In this week's New Yorker, James Surowiecki writes about the struggling retailer (thank you, James, for the shout-out).   Meanwhile, on CNBC, former J.C. Penney CEO Allen Questrom speaks out about the situation.

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