Struggles at the Gap

Martha White interviewed me for this story about the Gap's struggles and its decision to close many stores. Some past students will recall doing MBA course projects on the company and recommending significant changes in strategy.

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How You Select the Leader Matters

Stanford's Bob Sutton has a terrific post this week on his Work Matters blog.  He reflects on some old research regarding the selection of leaders and its impact on group performance.    S. Alexander Haslam and his colleagues published a paper in the Group Dynamics journal in 1998 called,  "Inspecting the emperor's clothes: evidence that random selection of leaders can enhance group performance."  They examined groups performing an experiential exercise called the survival game.  Many MBA students have participated in this exercise during introductory organizational behavior courses.  In this Haslam study, the researchers compared group performance under four conditions:

1.  Formal selection of a leader (self-ratings by group members)
2. Information selection of a leader (group members picked a leader through a discussion)
3. Random selection of a leader.
4. No leader selected.

The findings demonstrated that the highest performing groups had used the random leader selection process.  Naturally, I don't think we want to recommend random selection in real organizations based on the results of this study.  However, the research does have important implications regarding the impact that the leader selection process can have on group dynamics.  Sutton writes,

"I especially like how it implies that just THE PROCESS of selecting the leader can provoke group dynamics that undermine the performance of the group as a whole.  That is worth considerable attention as this is something that selection committees and such often forget -- and consistent with findings from many corners of the behavioral sciences that show 'what you do is as important as how you do it.'"  

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Cultivating serendipity: the annual reading vacation

In his terrific book, Where Good Ideas Come From, Steven Johnson writes about the notion that serendipity often plays a key role in innovation. However, he argues we can cultivate serendipity. How? Among his ideas, he argues that we need to consider "deep dives" in which we immerse ourselves in a topic in a condensed period of time. For instance, he recalls Bill Gates' annual reading vacations at Microsoft. Gates would collect tons of reading material during the year and then take a week or so to read as much of it that he could. Why pursue this condensed approach? Johnson explains that the compression enhances the probability that we will make interesting connections and combinations among disparate ideas. If too much time lapses between the time we read these books, the chances increase that we will forget certain things and fail to see the potential for novel combinations of ideas. The concept applies well beyond reading. It applies to any investigation of new ideas. Time compression may seem overwhelming at first, but it cultivates serendipity.

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The Facebook - Zynga Relationship

As the Wall Street Journal notes today, Zynga has embarked on a strategy to become less dependent on Facebook. To date, the firm has ridden the coattails of Facebook, with its social games doing incredibly well on the social network's site.   However, as the firm approaches an IPO, investors expressed concern with the dependency on Facebook.  Zynga now has begun to pursue a strategy of offering games directly to consumers through its own site as well as through mobile platforms. 

The issue of dependency raises an interesting question.   To what extent is Facebook dependent on Zynga?  To date, the dependency has been mostly one-directional.   However, if Zynga does succeed in developing its own route to market, then we may see a bit more of a co-dependent relationship.  Why?  Well, Zynga certainly helps Facebook a great deal, not only through the direct revenue that Facebook generates from the relationship... but also because heavy Zynga users tend to spend a great deal of time on Facebook.  As a result, Facebook has an opportunity to sell more ads.   If we end up with a situation of co-dependency, then I would look for rumors to begin to swirl regarding a Facebook acquisition of Zynga.  That's what tends to happen when two firms become dependent upon one another.   Each side worries about being "held up" by the other, and therefore, a merger often resolves the conflict and enables the two parties to cooperate more effectively.   We are far from that point, but we may be headed in that direction with the latest Zynga strategy moves. 

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Who benefits the most from Yelp?

HBS professor Michael Luca has conducted some terrific new research on the impact of Yelp.  He examined the effect of reviews.  He found that a one-star increase in the quality of a review led to a 5-9% increase in sales for a typical restaurant.  However, he found that positive Yelp reviews had much more impact for non-chain restaurants than for chain restaurants.  That makes sense, of course.  Smaller, independent restaurants have less means of reaching potential consumers.  The large chains have national advertising to build brand equity, and they develop a reputation over time.  I know that I rely on Yelp when I'm traveling to identify independent restaurants of high quality.  This research suggests that smaller restaurants should focus on encouraging their loyal and satisfied customers to review on sites such as Yelp.   However, the restaurants need to be careful.   Many review sites screen for obvious "planted" ratings or other efforts to manipulate ratings.  Customers too are quite discerning.  They often can determine the authenticity of a review. 

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Qwikster gone rather quickly

Netflix has abandoned its plans to separate its DVD by mail service from its streaming business.  Qwikster is dead.  The stunning twists and turns in Netflix's strategy have left most of us dizzy.  The collapse of the stock price in recent months proves that investors don't like uncertainty.  While it's ok to change strategy, investors do not want to see constant twists, turns, and reversals. 

Beyond the uncertainty, I was never quite clear regarding the notion that Netflix and Qwikster would not share information regarding a customer's queue, movie preferences, recommendations, and rental history.  That lack of sharing made me wonder whether Netflix was failing to capitalize on one of its greatest strengths, namely its powerful predictive algorithms that it uses to recommend movies.  Would lack of sharing across sites mean that it would not capitalize on the wealth of data that it had accumulated?   It wasn't clear based on what I had read.  To me, the predictive algorithms lie at the heart of Netflix's success, and no change in strategy should undermine that strength.   After all, the algorithms enabled Netflix to take advantage of the "Long Tail Effect" - the idea that a large percentage of Netflix rentals always came from movies that were not new releases.   That strategy proved very profitable over the years.
 

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Business is not evil: Lessons from the insanely great life of Steve Jobs

We live today in a world where many people consider business evil, corruptions corrupt, executives greedy.   It has become fashionable to bash Wall Street, lambast every move intended to boost profits, and even condemn capitalism itself.   Today, I reminded my students that business can indeed be a noble profession.  People can transform the world and make others' lives better through profit-making enterprises.  In society these days, we make heroes of those who work for non-profits and those who are great philanthropists. Surely, they are heroes. They do great work.  However, I believe business is also a noble profession, a deeply noble profession whereby you can create value, transform people’s lives, and create jobs that give people the opportunity to work and earn money to support their families.  Profit-making and social impact need not be mutually exclusive endeavors.  One can pursue profit and make the world a better place.  One need not only do that through an inherently "social enterprise." 

I mentioned this to students today as we reflected on the death of Steve Jobs.   He was more than just a successful CEO. He was a man who had a tremendous impact on society, who transformed the world. He did a great deal of good, as a business person who ran firms in pursuit of profit. Every day a doctor uses an iPad, a child with cancer watches a Pixar film and laughes, a person talks with their relative in a distant land via an iPhone, we see the transformational positive impact that he has had on the world.   Think about the incredible things that many people are doing to make others' lives better, using the technology that Jobs introduced to us.  

I also reminded students today that innovation, creativity, and entrepreneurship cannot happen without capital.   Steve Jobs persuaded investors to invest in him and his companies.  They believed in his vision.  They provided him the funds to pursue his dreams.  Many of those investors are now lambasted as "fat cats" from Wall Street.  Let's be careful before we paint with such a broad brush.   Access to capital is critical to those bold innovators who wish to change the world.   Business can indeed be a noble profession.

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