Grandiose goals at Lenovo: Drinking games & hazing rituals?

Did anyone else find this Fortune magazine article about Lenovo a bit disconcerting?    The article describes a "lighthearted drinking game" that occurs each year among top executives at which they set their ambitious goals for the coming year.  The head of human resources even endorsed the ritual!  I understand cultural differences should be respected, but should a global company really be setting management goals while executives engage in "good-natured hazing" rituals?   The phrases in quotes come from Fortune writer Miguel Helft, not me.  Hazing?  Drinking games?  I can see many  executives at leading multinationals cringing when they read these words.  

The article goes on to lavish praise on the Lenovo management team ("a cocksure crew") for the performance it has achieved in recent years:

"Even without a few drinks in them, Lenovo's top executives are a cocksure crew these days, and for good reason: The company's contrarian bet to double down on the PC business has paid off handsomely. In recent years Lenovo invested heavily in R&D and acquisitions. It beefed up its own network of factories, allowing the company to bring innovations to market more quickly than competitors that outsource most of their manufacturing. As a result, Lenovo's growth has outpaced the industry's for the past 16 quarters, and it has tripled in size since the IBM deal to more than $33 billion in sales. This year it's on track to edge out HP to become the world's No. 1 PC maker."

What's missing from this paragraph lavishing praise on the company for its performance?  One little word:  profit.   Yes, the company has grown rapidly. Yes, it has achieved an impressive market share in the PC market.  Has it made any money?   Hmm... that would seem to be a desirable metric on which we should focus.  Late in the article, the author finally gets around to a discussion of margins.  Here's what Helft writes:

"At the same time, Lenovo benefited from its Chinese cultural heritage, in particular the propensity to focus on long-term goals. Lenovo approaches every new market with a similar strategy: pricing products aggressively at first, sacrificing margins. Executives are expected to deliver profitability only after market share gets to double digits. The risky approach has largely paid off. "The company has surprised me over and over," says Alberto Moel, an analyst with Sanford Bernstein. Its continued growth amid the industry's disarray, Moel says, "is a major achievement." But Moel warns that expanding margins, which at 2.5% are about half those of Dell's and HP's PC units, will be harder than management thinks. Such concerns have weighed on the stock, which has been stuck in a narrow range for the past year (its ADRs, now at $18, are down from $23 a share). With net income of $575 million over the past four quarters, Lenovo has a market capitalization of about $9 billion." 

Margins are half of those found at Dell and HP, and as it is, those American rivals have very thin margins in the PC business.  The firm apparently focuses on margins after getting to double-digit market share.  Yet, Lenovo has 15% market share in the PC business.  Will the margins improve?  How much?   Consider that the personal computer industry has been one of the least profitable markets on earth in recent years.   A simple structural analysis of the industry shows that it is highly unattractive - high buyer and supplier power, high threat of substitutes, and intense rivalry.  Increasing margins will be challenging. Lenovo has brought many product innovations to market.  It has developed strong relationships with many corporations and institutional buyers.  It has many positive attributes.  However, it will be challenging to make high profits in the PC business.  As Warren Buffett once said, "When an industry with a reputation for difficult economics meets a manager with a reputation for excellence, it is usually the industry that keeps its reputation intact."

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The Power of Independent Executives

Does a CEO bring in many new members on his or her top management team after taking charge at a company?  Or, does the CEO have a number of key holdovers from a previous administration?  Does this key factor in the composition of the top team make a difference?  New research by Augustin Landier, Julien Sauvagnat, David Sraer, and David Thesmar (published in the Review of Finance) suggests that having more "independent" executives on the senior team can have positive effects on decision making and financial performance.   The scholars define "independent" to mean executives not appointed by the current CEO.  

The scholars collected data on over 1,800 American companies over a 17 year period.  According to this article in Strategy and Business, here are their results: "Controlling for a variety of factors, they found that even the smallest uptick in the nonindependence of executives caused a decrease in the firm’s annual return on assets of between 0.5 and 0.8 percentage points."

What's going on here?  They argue that CEOs tend to hire people who think like they do. Moreover, executives hired by the current CEO may feel more beholden to that leader.   As a result, they may not be as willing to express dissenting opinions.   On the contrary, an executive hired by a previous CEO may be more willing to push back on high-stakes, potentially risky decisions.  The authors go on to argue that "independence" of senior executives may matter much more than the independence of board members, since the top team meets much more frequently and is much more directly responsible for strategic choices and performance at most large corporations. 

Additional research by these scholars shows that firms with fewer independent executives on the top team also are more likely to make acquisitions that destroy shareholder value.  Here is the key finding:  "Although acquisitions, on average, led to decreases in shareholder value for the companies in the study, firms with fewer independent top subordinates fared much worse, losing about 45 percent four years after they made an acquisition, almost triple the 16 percent loss posted by firms with more of those executives." 

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Do you care? How to increase employee engagement

In this Fast Company interview, Gallup's Jim Harter comments on the sad state of employee engagement in American corporations.  According to Gallup's research, only 30% of the U.S. population is engaged in the workplace, i.e. deeply committed to their jobs.  52% of the employee population is disengaged, and 18% is actively disengaged, meaning that they are "actively against what the organization, and their boss, is trying to get done."  Those statistics are rather alarming. Some companies, of course, have begun to focus intensively on employee engagement over the last decade.  Harter comments on what leaders need to do to increase employee engagement:

So, what are the qualities of leaders that businesses must now be seeking? According to Harter, it begins with a combination of being results oriented and authentically concerned about the development of every worker. “Some people are better at getting results and some are better at developing. But, we’ve found both are equally important.”  Harter describes the most effective managers as being deeply caring--and capable of seeing, supporting, and adjusting to the differences in people. “They help people build jobs that fit them as an individual person, while still helping them get to the outcome they need from an organization perspective.”

Authentically concerned - it's such a simple, yet powerful idea.  Think about what makes great professors or teachers.  Beyond simply knowing the material or being able to explain concepts clearly, great teaching is about showing students that you care.  My colleague, Jane McKay-Nesbitt, has this great saying about teaching: "They must know that you care before they will care what you know."  The same principle holds true for leaders.  People will not follow you if they do not believe you care about their well-being and development.  Engagement starts with authentic concern. 

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Decision Narratives at Amazon

In this article by Drew Hansen as well as this one by Adam Lashinsky, we learn about an important facet of the decision-making process employed by Jeff Bezos and his top management team at Amazon.  Here's an excerpt from the latter article:

Meetings of his "S-team" of senior executives begin with participants quietly absorbing the written word. Specifically, before any discussion begins, members of the team -- including Bezos -- consume six-page printed memos in total silence for as long as 30 minutes. (Yes, the e-ink purveyor prefers paper. Ironic, no?) They scribble notes in the margins while the authors of the memos wait for Bezos and his minions to finish reading.

Amazon executives call these documents "narratives," and even Bezos realizes that for the uninitiated -- and fans of the PowerPoint presentation -- the process is a bit odd. "For new employees, it's a strange initial experience," he tells Fortune. "They're just not accustomed to sitting silently in a room and doing study hall with a bunch of executives." Bezos says the act of communal reading guarantees the group's undivided attention. Writing a memo is an even more important skill to master. "Full sentences are harder to write," he says. "They have verbs. The paragraphs have topic sentences. There is no way to write a six-page, narratively structured memo and not have clear thinking."

The use of narratives at Amazon reminds me of this article written many years ago in Harvard Business Review about strategic planning at 3M.   The innovative industrial conglomerate had adopted the use of storytelling during its strategic planning.   In the article, the authors explained that bullet points on Powerpoint slides have several deficiencies.  Bullet point lists often prove rather generic, fail to clarify causal relationships, and leave crucial assumptions unstated.   One manager quoted in the article explains, "If you read just bullet points, you may not get it, but if you read a narrative plan, you will.  If there's a flaw in the logic, it glares right out at you.  With bullets, you don't know if the insights is really there, or if the planner has merely given you a shopping list."  Stories or narratives enable you to think more holistically, and they provide the basis for a more thoughtful dialogue and debate.  Finally, stories prove much more compelling than lists.  If we hope to persuade others that a strategy makes sense, a good story works much more effectively than a set of bullet points. 

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How Should You Balance Your View vs. Your Team's Perspectives on a Key Decision?

Leadership coach and blogger Julie Pierce has an interesting blog post on the question of how leaders should balance the desire to solicit input from their team with the desire to make the call based on their convictions?  She offers three tips:

1. Be clear on who is making the final decision.

2. Be specific on what kind of input you need from the team.

3. Be selective with your “no”. 

First, you need to be clear whether you are making this decision on your own vs. facilitating a highly collaborative process in search of consensus.  Second, you need to be clear about the type of feedback and advice you want from your team. Do you want them to generate options, critique a proposal, explain potential obstacles during implementation, etc.?   Finally, be judicious with your vetoes.  Exercising veto power over the team if all members feel strongly something is never easy.  If the stakes are small, consider acquiescing and holding onto that veto for a bigger issue. 

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Leaders, Listen First!

Here's some great advice for leaders from Deborah Triant, CEO and President of Check Point Software Technologies.  She tells Fast Company:

Making and implementing decisions boils down to a key ingredient: listening. I often wonder why schools emphasize debating. Why not have listening classes as well? Debating is easy; listening with an open mind is not. The worst thing that you as a leader can do in the decision-making process is to voice your opinion before anyone else can. No matter how open and honest your people are, stating your opinion first will short-change the discussion process and taint what you hear later. I've learned this the hard way.

I agree with Triant.  In my work, I have argued that leaders who state their positions firmly at the outset of a decision-making process can affect their teams adversely in three different ways. 

1. Decision Framing Effect:   You may trap your team into one way (your way) of thinking about a problem or issue.
2.  Conformity Effect:  You may discourage those team members with a dissenting view from expressing their ideas, options, or feedback. 
3. Legitimacy Effect:  You may create the impression that the decision has already been made, that the process of consultation is simply a facade since the choice is a fait accompli.

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The Asch Experiments

I discovered that YouTube features a good video on the famous Solomon Asch experiments regarding the pressures to conform in groups.  It's worth watching to remind us that the pressure to conform can cause us to make very poor decisions at times. 

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