Friday, December 28, 2007

Develop Teams, Not Just Individuals

Fortune recently published an article on how great companies develop future leaders. While the article did not provide any earth-shattering new insights, it did point out some key practices that are often discussed, but not always put into practice. One technique that warrants a great deal of attention has to to with team development. The article suggests that companies should "develop teams, not just individuals." They point out that General Electric now sends entire management teams to Crotonville, and each team goes through a developmental experience in which they apply what they are learning to their business. Given that many leadership development programs seek to address topics such as team dynamics, communication, decision-making, and the like, it makes sense for intact teams to experience these programs together.

Of course, organizations must not allow the intact teams to isolate themselves in these types of leadership development experiences. One key benefit of leadership development programs is that emerging leaders have the time to network with their peers in other parts of the organization. Often, these peers work in far-flung parts of the world, and they don't know one another quite well at all. The leadership development program offers them time to get to know one another, share best practices, and explore collaboration opportunities to advance the business. If intact teams attend these leadership development programs, one has to be careful that managers don't spend all their time with their own team, thus spending far too little time networking, sharing, and learning from their peers in other parts of the business.

Apple Video Rentals

Yesterday, Apple made major headlines with news of a possible deal with Fox to offer video rentals via iTunes. The fundamental question, in my view, is how Apple will leverage a movie rental business into the sale of more hardware. It's hard to imagine a dramatic new surge in iPod sales because of the movie rental launch. Moreover, it's easy to imagine price battles among the major players, such as NetFlix, who compete in the movie rental business . On the other hand, perhaps Apple is poised to build upon its early Apple TV product, or launch an altogether new product designed for consumers to easily view movies downloaded via iTunes. If Apple can couple the on-line movie rentals from iTunes with an easy-to-use piece of hardware, then they can generate substantial profits. Once again, they will have executed a successful blades and razors strategy, i.e. selling inexpensive blades (movie rentals) to generate high profits from hardware sold at a price premium (Apple TV or some other product used to view the movies, transfer them easily from PC to TV, etc.).

Wednesday, December 19, 2007

Moneyball & The Lessons for Business Leaders

Several months ago, I was interviewed by Bret Dougherty, author of The IronDog Chronicles, a very interesting blog about sports, media, and entertainment. Bret co-hosts WXYC’s ‘Sports Rap’ on Sunday nights in Chapel Hill, North Carolina, while also pursuing his MBA at UNC-Chapel Hill. Here is the link to the recorded interview, which focused on my case study about the rise of sabermetrics in baseball, and some of the lessons for business decision-makers.

Tuesday, December 18, 2007

Dsylexics as Entrepreneurs

Business Week had a fascinating article about new research suggesting that dyslexics may tend to become successful entrepreneurs, particularly in the United States. Here is a brief excerpt from the article:

That kind of rejection, along with a penchant for creativity, may help explain why so many dyslexics are inclined to become entrepreneurs. Julie Logan, a professor of entrepreneurship at Cass Business School in London, believes strongly in the connection.

In a study to be published in January, Logan found that 35% of entrepreneurs in the U.S. show signs of dyslexia, compared to 20% in Britain. Logan attributes the gap to a more flexible education system in the U.S., vs. rigid tracking in British schools, and better identification and remediation methods. "Most of the people in our study talked about the role of the mentor and how important that had been," Logan says. "The difference seems to be somebody who believes in you in school."

The broader implication, she says, is that many of the coping skills dyslexics learn in their formative years become best practices for the successful entrepreneur. A child who chronically fails standardized tests must become comfortable with failure. Being a slow reader forces you to extract only vital information, so that you're constantly getting right to the point. Dyslexics are also forced to trust and rely on others to get things done—an essential skill for anyone working to build a business.

The article raises some interesting points regarding dyslexics as entrepreneurs, but I think it also should cause us to consider some more fundamental questions about our entire education system . In the era of self-esteem promotion during the 1990s, our schools often heaped praise on children. They sought to bolster each child's self-image. For me, this article suggests that we should make sure that we also focus on building our children's capabilities with regard to coping with failure. All of us fail many times in life, and entrepreneurs, in particular, must be able to deal with failure. They must be able to experiment, learn from those experiments, and then adjust or adapt their strategies.

Back to the Blog

Sorry to those readers who have been wondering where I have been for the past two months. Well, it's been a busy time in the Roberto household, as we have welcomed a third child into the family. Baby Luke Roberto was born in November, and he's doing very well. I'll be posting again on a regular basis going forward.

Friday, October 05, 2007

Amazon vs. Apple

Amazon made big news lately when they launched a new digital music service to compete with iTunes. Some news reports suggested that Amazon would pose a threat to iTunes' dominance. Perhaps that may prove to be true, but there is one important way in which Amazon may actually HELP Apple. How is that?

iTunes songs and iPods are complementary goods. If consumption of digital music rises, it will fuel more demand for digital music players - and iPod is the dominant player in that market. Where does Apple make their money? They appear to make far more profit from selling iPods than from selling songs on the iTunes stores.

Think of it the way that Harvard Professor David Yoffie explains it in his classic case study about Apple. Yoffie draws on several sources that describe the Apple business model as razors-and-blades in reverse. He quotes Steve Jobs stating that Apple makes very little profit on a song sold through iTunes. Yet, the profit margins on iPods are very healthy. They essentially provide the blades (songs) at a low price as a means of driving demand for the razors (the very profitable iPods).

If this is indeed the business model, then Amazon's latest move in digital music may actually HELP Apple... by fueling further demand for iPods, iPhones, and iPod accessories.

Friday, September 14, 2007

The Ethics of Guerilla Marketing

This article, about a singer named MariƩ Digby, caught my attention. It appeared in the Wall Street Journal last week. One has to wonder about the ethics of such marketing tactics, in which a young woman presents herself on YouTube as a complete amateur, while in fact, she has been working with a large media company for some time. The record company helps create quite a stir on the web about this supposed amateur sensation. Then, the firm announces the signing of this young YouTube phenom, without making it clear that they had been supporting her rise in on-line popularity all along.

Wednesday, August 29, 2007

Selling Home Depot Supply

This article describes critics who think Home Depot should not be selling its Supply unit, which serves contractors. The critics argue that the firm is forsaking the potential growth in that segment simply because it wants to "exorcise Nardelli's ghosts." The critics argue that the private equity firms will make a great deal of money on the Supply unit.

The critics are missing a crucial point. The issue is NOT whether the Supply unit is an attractive and potentially quite profitable business. This issue is whether the Supply unit is BETTER OFF as an independent company vs. within Home Depot. Moreover, the issue is whether Home Depot's retail business is better off on its own or when combined with the Supply unit.

This example demonstrates a larger point. When firms consider diversification, they must not only look at whether a new business unit will provide higher growth and profits... they must also consider whether that new unit will perform optimally as part of the diversified firm, or whether it will be better off on its own or as part of some other corporation. Shareholders benefit most when a business unit is located in an organizational situation in which it can perform best.

Saturday, August 25, 2007

Mike Watkins on The Mistakes New Executives Make

Michael Watkins has a wonderful new post on his blog about the mistakes executives make when they join a new firm. He points out that many executives stumble because they try to recreate the organizations from which they came. There is no question that this is true. I have seen this so many times in my research and consulting.

I can recall one remarkable incident in my class several years ago, when Emerson Electric's former Chairman and CEO, Chuck Knight, visited my class. We discussed Emerson's highly regarded strategic planning process. I told the class that there is no one best way to conduct strategic planning; instead, a firm must match its strategic planning approach to the industry dynamics, firm strategy, organizational culture, and leadership style of the CEO. To bolster this point, I shared a quote from Charlie Peters, one of Knight's top executives at Emerson. Peters once said, "
  • "Many companies come to Emerson wanting to find out what we are doing and why it works. But often, the trip is wasted. Our process works for us because of the type of impact we are trying to have on our businesses and because of our CEO, Chuck Knight – how he likes to operate and his relationship and status with the divisions. Other companies can’t duplicate that."

Interestingly, a student then asked Chuck Knight if he would have tried to replicate the Emerson strategic planning process if he had gone on to another firm, rather than retiring after he stepped down as CEO of Emerson. Knight offered a fascinating answer. He said that it probably would have been the wrong thing to do, in that the new situation most likely would have called for a substantial adaptation of the Emerson process to fit the needs of that particular company. However, he said that he would have been tempted to simply transport what he done at Emerson to the new firm. He said that this is what CEOs do...they rely on what made them successful. It's easy to convince oneself that this approach will work anywhere.

Knight's remarkably thoughtful comments reinforce the point that Mike Watkins makes in his blog. It is incredibly tempting for executives to want to replicate the the methods and techniques that worked for them in other organizations in the past. However, in business, there is often not "one best way" to do things. Success in business is so often about fit or alignment. The methods and practices must be adapted to fit the current situation and context.

Friday, August 24, 2007

China, Outsourcing, and Transaction Costs

Each day seems to bring new headlines regarding tainted products from China. Mattel has been hit especially hard, with the discovery of many toys containing lead paint. For me, the news about tainted Chinese products offers an opportunity to remind students and executives how to think strategically about outsourcing, rather than focusing singlemindedly on manufacturing cost reductions.

Let's go back to the fundamental strategic choice regarding vertical integration. What should drive the decision by a firm to produce its own inputs (or to conduct its own manufacturing in-house) versus outsourcing these activities to external vendors? Firms need to consider more than simply the direct manufacturing costs of performing these activities in-house vs. outsourcing them. They must consider the transaction costs associated with outsourcing production. In other words, how expensive is it to write contracts with external vendors, to monitor vendor behavior, enforce contractual provisions, control quality, etc.? Many firms underestimate these "costs" associated with using the market (i.e. outsourcing to an external vendor) versus keeping certain activities within the firm.

Quality control can be a very important reason why production is kept in-house instead of outsourcing it. We are learning from the tainted Chinese products situation that the transaction costs associated with quality control of outside vendors can be very high. The transaction costs come not only in the form of expenses associated with monitoring external vendors, but also in the form of a damaged brand in the event of a major recall.

Let's take a simple example of how control can be a key reason for keeping certain activities in-house. Why does Apple choose to operate its own retail stores? One reason is that they want to control the customer experience and the quality of the customer service that people receive. Of course, there are other reasons as well, but control is a critical one. Similarly, Disney owns some hotels in and around its theme parks because it wants to control the quality of the customer experience. Consider the risks and costs associated with having external parties in charge of the experience that families have at a Disney resort.

My argument is not that outsourcing should never occur. I simply aim to remind managers that they must consider the nature of transaction costs when making the outsourcing decision. Of course, there are transaction costs associated with keeping production in-house. The key is to compare the transaction costs of using the market (outsourcing) vs. keeping production in-house.

Finally, firms have to remember these strategic decisions are dynamic in nature. It may make sense to keep certain activities in-house at this point in time, but then outsourcing may become more attractive down the road. For instance, Disney used to own its retail store chain. One can see why they might want to control that customer retail experience. However, once they had operated this chain for some 15 years, they made the decision that they now could establish a licensing agreement, and allow an experienced retailer (Children's Place) to run the chain. Think of it this way. In the 1980s, when they launched the retail chain, they might have felt it was quite difficult, costly, and risky to establish a contract with an outside firm to operate Disney stores. However, now that Disney has run the stores for many years, they may feel more comfortable that they can write an enforceable contract that allows them to maintain quality control without running the store themselves.

Wednesday, August 08, 2007

Merck & Sunk Costs

The sunk cost effect refers to the tendency for people to escalate commitment to a course of action in which they have made substantial prior investments of time, money, or other resources. If people behaved rationally, they would make choices based on the marginal costs and benefits of their actions. The amount of any previous unrecoverable investment is a sunk cost and should not affect the current decision. However, research demonstrates that people often do consider past investment decisions when choosing future courses of action. In particular, individuals tend to pursue activities in which they have made prior investments. Often, they become overly committed to certain activities despite consistently poor results. They “throw good money after bad”, and the situation continues to escalate.

Many companies face the problem of the sunk cost effect. In fact, it's particularly problematic for firms involved in extremely expensive and lengthy product development projects. In those situations, the sunk costs can be enormous, and it can be very difficult for managers, scientists, and/or engineers to walk away from a project in which they have not only invested a great deal of money, but also much time, energy, and personal reputation.

A recent Business Week article suggests that Merck has found a way to try to combat this problem. Here's a snippet from the article (for the entire article, click here):

Merck is rewarding scientists for failure. One of the hardest decisions any scientist has to make is when to abandon an experimental drug that's not working. An inability to admit failure leads to inefficiencies. A scientist may spend months and tens of thousands of dollars studying a compound, hoping for a result he or she knows likely won't come, rather than pitching in on a project with a better chance of turning into a viable drug. So Kim (Merck R&D head Peter Kim) is promising stock options to scientists who bail out on losing projects. It's not the loss per se that's being rewarded but the decision to accept failure and move on. "You can't change the truth. You can only delay how long it takes to find it out," Kim says. "If you're a good scientist, you want to spend your time and the company's money on something that's going to lead to success."

Jensen vs. Langone

Business Week has a good wrap-up of an interesting exchange about private equity between Harvard Professor Emeritus Michael Jensen and Home Depot founding investor Ken Langone. These kinds of spirited discussions aren't typical for the Academy of Management meetings. I wish that we could find more ways to infuse the meetings with these kinds of exchanges between practitioners and academics.

Wednesday, August 01, 2007

Private Equity IPOs

Private equity seems to be all over the headlines these days, with a range of issues coming to the fore. I'd like to focus here on the issue of private equity shops going public. To me, the rationale is very weak. One of the fundamental reasons why private equity firms add value is their superior model of governance and control. As I have written previously, private equity firms have expanded rapidly, in part because they solve some of the governance problems posed by the large publicly traded corporation, with its separation of ownership and control. In short, I believe the ownership and governance structure of a private equity firm has the potential to dramatically reduce agency costs relative to a publicly traded firm.

Going public changes things significantly. For years, strategic management scholars and consultants have argued (and shown empirically) that conglomerates (unrelated diversified firms) trade at a discount, that they are worth less than the sum of their parts. You all know the reasons - they have been well-articulated over many years. Well, if a private equity firm goes public, then precisely what is the difference between it and the typical conglomerate? The private equity firm begins to look much more like the usual unrelated diversified firm. A private equity firm no longer can argue that its governance structure poses a substantial advantage over the old style publicly traded conglomerate.

I have heard many of the reasons why private equity firms are going public, beyond the fact that it offers an opportunity for enhancing personal wealth. Access to capital, ability to recruit and retain talent, management successsion... none of these seems like a persuasive argument. These firms have been wildly successful raising capital and attracting talent, while remaining privately held. Even if there were some advantages to going public, they must be weighed against the substantial disadvantage outlined here with respect to agency costs and corporate governance. To me, those disadvantages clearly outweigh the possible benefits of conducting an initial public offering.

Tuesday, July 17, 2007

Why More People Don't Buy Hybrids has a very good article about how and why many hybrid automobiles have not become big sellers. Many people buy the Prius because they have a personal desire to reduce their energy use, and perhaps because they would like to make a social statement about environmental protection. However, hybrid technology comes at quite a cost. For many consumers, a hybrid's price premium proves far too substantial; affordability becomes a major concern. Let's do the math. According to the EPA, a Prius averages 46 miles per gallon. A Toyota Corolla averages 29 miles per gallon. Suppose that the typical person drives 12,000 miles per year, with gas at $3 per gallon. The Prius owner saves $459 per year in gasoline expenses over the course of one year. However, the sticker price for a Prius exceeds that of a Corolla by approximately $7,000. In other words, it would take roughly 15 years for the Prius owner to recoup his or her extra investment ($7000 divided by $459 per year), and that doesn't even take into account the present value of money. In conclusion, I think hybrid technology is very promising, with great potential to help us reduce gasoline consumption and carbon emissions. However, the automakers have quite a way to go before they can make hybrid technology affordable for many consumers.

Friday, July 13, 2007

Nintendo vs. Sony vs. Microsoft

The remarkable success of the Nintendo Wii offers a very important lesson for business leaders. It shows that the most sophisticated technological solution doesn't always win in the marketplace. Recall that, in the prior generation of video game consoles, Sony's Playstation 2 and Microsoft's Xbox outsold Nintendo's GameCube by a wide margin. The GameCube tried to compete with the technology of their rivals, and they failed. In this generation, the Playstation 3 and Xbox 360 became even more technologically advanced. They offer far more speed and graphic capability than the Nintendo Wii. However, the Wii has outsold its rivals and has become a smashing commercial success. The lower-tech Wii does not target the hard-core gamer who favors the technological superiority of the PS3 or Xbox 360. Instead, the Wii offers a unique new approach to gaming with its wireless motion-sensor controller. It has sought to appeal to a much broader audience of consumers who are more casual gamers, or who have never played video games. Even senior citizens have taken to playing the Wii games. With less technological wizardry, but a novel idea, the Wii has gained the upper hand against its rivals. Nintendo shows us that companies can succeed without getting into a technological arms race against rivals with deep pockets. The key is to take an indirect approach to competing against those rivals. Rather than confronting Sony and Microsoft head-on, Nintendo created a different kind of console that appealed to different customers than those typically interested in Sony and Microsoft products.

Tuesday, July 10, 2007

Diversification vs. Focus at Limited Brands

Limited Brands announced yesterday that it had agreed to sell a 75% stake in The Limited chain of apparel stores to a private equity firm. That announcement comes on the heels of the sale of a 75% ownership stake in the Express chain to a private equity firm. The company will focus on the two business units that have delivered far better growth and profits in recent years - Victoria's Secret and Bath and Body Works. With these divestitures, the company looks far different than it did twenty years ago, when it was one of the leading specialty apparel retailers in the nation.

The transformation of Limited Brands mirrors the situation that many diversified firms encounter. As firms operate multiple businesses, the corporate office finds itself trying to manage a complex internal capital market. Senior executives typically allocate resources to the business units that show more promise in terms of revenue and profit growth. After all, higher growth and profitability makes additional capital investments appear much more attractive. Executives understandably want the best return on their investment, and they do not have unlimited funds; they must make tradeoffs. Perhaps just as importantly, senior executives allocate more of their time and attention to the more promising business units as well. That, in turn, can lead to a downward spiral at the less successful businesses in the portfolio - weak results lead to a decrease in capital allocated to the business, as well as a decrease in management attention, which together further diminish the prospects for enhanced revenue and earnings growth. Moreover, slower growth and lower rates of capital investment make the businesses less attractive to talented current and potential employees, causing a drain in the quality of human capital in those businesses. That, in turn, further weakens the financial results in those units.

This scenario, which we see unfold in many diversified firms, points out the dangers associated with trying to manage a portfolio of businesses with differing levels of growth and profitability. Moreover, it demonstrates why focused firms often are able to capitalize on the distractions faced by executive teams who are trying to oversee a wide range of business units.

Limited Brands deserves credit for ultimately recognizing that its apparel chains could be better off under management whose sole focus is on that particular brand. Moreover, Victoria's Secret and Bath and Body Works are likely to benefit too. Now senior management can completely focus on these businesses, which face increasing competition as new entrants chase the high profits in those sectors.

Monday, July 09, 2007

Generational Differences

Carol Hymowitz has a good article in today's Wall Street Journal entitled, "Managers Find Ways To Get Generations To Close Culture Gaps." Hymowitz is correct when she argues that managers must find ways to tailor their approach to meet the needs of different generations of employees. I find the point about learning and development particularly interesting.

As a professor, I can see these generational learning differences very clearly. Young people gather and process information, develop new skills, and discover new things in very different ways than many people from prior generations. My younger students, for instance, love studying for exams by listening to and reviewing my weekly podcasts, which discuss key points from the case studies that we examined. They also tend to embrace active learning, i.e. classroom experiences in which they are engaged participants, as opposed to passive listeners to faculty lectures. Just as orofessors must adapt to this newer generation's distinct learning style inside and outside the classroom, so too must managers find ways to tailor the way that they monitor, motivate, and train employees of various generations.

The challenge, however, becomes one of fairness. While I believe tailoring approaches for different employees makes some sense, I worry that managers may end up creating perceptions of inequity. People often don't like to feel as though their peers are not playing by the same rules. Thus, as managers try to adapt their approaches to meet the needs of a multigenerational staff, they must be particularly careful that employees do not begin to perceive that they are being treated unfairly in comparison to peers of another generation.

Wednesday, July 04, 2007

How much is a reputation worth?

Business Week has a very interesting article on corporate reputation. The authors describe efforts by companies and consulting firms to determine the impact that a positive reputation can have on a firm's stock price, and then to develop programs aimed at juicing a firm's shares. What is especially interesting to me about this article is the reaction by investors. The article points out that, "Many investment pros scoff at suggestions they can be influenced by image manipulation." When it is suggested that reputation-building efforts can have a direct impact on a firm's stock price, one investment analyst responds, "The markets are smarter than that." In general, I believe that U.S. capital markets are reasonably efficient. However, I would not be as quick to dismiss the notion that reputation-enhancing initiatives can have a near-term impact on investor perceptions and share prices. Scholars in the field of behavioral finance have shown that investors can be affected by biases, thus demonstrating that markets aren't perfectly efficient.

Having said that, I think that sustainable long-term changes in stock price require substantive improvements on the part of a firm, not just image-oriented campaigns. Companies, in fact, can find themselves in deeper trouble if they try to build a reputation through advertisements and public relations, while consumers, journalists, and investors later learn that the reputation is not consistent with the underlying realities of the business. Take BP, for instance. It spent a great deal of money on its "green" campaign under former CEO John Browne. When it then encountered several accidents and mishaps at its facilities, the company faced a serious disconnect between what it was saying in its image campaigns and what it was revealed to be doing in its own operations. BP's market value fell by nearly $40 billion from mid-2006 until the announcement of the resignation of Lord Browne in early 2007.

Friday, June 08, 2007

The Power of Integrative Thinking

Roger Martin, Dean of University of Toronto's business school, has a wonderful article in the June issue of Harvard Business Review. He argues that successful leaders are integrative thinkers. By that, he means that they attack problems in the following manner:
  • They examine problems as a whole, with careful consideration of how different parts of a situation fit together, rather than analyzing different elements in isolation.
  • They consider multiple avenues of causation for a problem, as well as possible nonlinear relationships between cause and effect, rather than thinking of terms of simple linear relationships between a single cause and effect.
  • They embrace the tension between opposing ideas, and they use that conflict to generate creative new alternatives, rather than making simple either-or decisions.

In short, Martin argues that successful leaders think holistically and embrace the power of conflict. In my work, I have argued that constructive conflict within a management team leads to better decisions. Martin stresses that successful leaders also have to embrace conflict within their own mind. They must "hold two conflict ideas in constructive, amost dialectic tension." Martin points out that many people find this internal tension uncomfortable, and thus they shy away from it.

While I would agree with Martin in general, I am reminded of the challenges associated with this type of integrative thinking, as described by Karl Weick in a famous 1984 article entitled "Small Wins." Weick argued that large, complex problems can sometimes be cognitively overwhelming. Thus, he argued that decision-makers should break complex problems into parts, and seek a series of "small wins" as a means of generating solutions to complicated issues. Martin explicitly argues against breaking problems into pieces. He says that holistic thinkers view problems as a whole. Here, I disagree slightly with Martin. I think one can approach a problem holistically, yet still follow Weick's advice to seek small wins while working through the organizational decision-making process required to solve the problem. Trying to achieve small wins in attacking a problem does not mean that a leader fails to think about how various elements of a problem fit together.

Wednesday, June 06, 2007

Supermarkets vs. Wal-Mart

Today's Wall Street Journal has an interesting article about how many supermarkets have learned to compete more effectively with Wal-Mart. The answer is straightforward: don't try to imitate Wal-Mart's low cost strategy. Instead, supermarkets have tried to create some differentiation by offering unique upscale products and high quality prepared meals along with the usual staples. They also have redesigned their stores to create an enhanced shopping experience for the consumer. Not all supermarkets took this path. Some tried to imitate Wal-Mart's low costs and low prices, and many of them found their way to bankruptcy.

The competitive dynamics in the supermarket industry remind me of what took place in the mass merchandising sector. Many chains went bankrupt trying to match Wal-Mart's low costs and low prices. Target took a different path. It chose a differentiation strategy, with higher quality products, better service, and a bright, clean store with easy-to-navigate aisles in which consumers love to shop. It didn't go head-to-head with the behemoth. Instead, it chose a form of indirect competition, moving slightly upmarket. In so doing, Target has prospered while many chains became extinct.

Firms in all industries would be well-served to consider the fate of those that have competed with Wal-Mart. Imitating the market leader often does not lead to bountiful profits. Finding a different path proves much more economically rewarding.

Monday, June 04, 2007

Supply Chain Risk

CNN reports today on a study by Deloitte Consulting regarding supply chain risk. The title of the Deloitte report is "Supply chain's last straw: A vicious cycle of risk." The consulting firm studied how many firms have prepared (or not prepared) for major supply chain disruptions. They concluded that, "The search for cheaper labor, cheaper raw materials, and cheaper transportation - the quest for efficiency - has forced the focus of companies to switch from revenue growth to cost reduction...Individually, these forces have changed the world in which we live and conduct business. But when combined, these forces can create a perfect storm of risk not seen before in the history of commerce or humankind."

Charles Perrow's theory of complex systems, I believe, can be applied to think about the enhanced risk that firms are assuming with the leaner, more efficient global supply chains of today. According to Perrow, the risk of catastrophic incidents increases when systems are characterized by what he calls "tight coupling." By tight coupling, he means systems that have the following characteristics: time dependent processes, a fairly rigid sequence of activities, one dominant path to achieving the goal, and very little slack. His classic example is that of a nuclear power plant. Its subsystems are tightly coupled (or highly rigid, if you will). One could argue that the efforts to build leaner, more efficient global supply chains have enhanced the level of tight coupling in those systems, and thereby enhanced the risk of a catastrophic failure of some kind.

Take, for example, the issue of slack. Years ago, supply chains tended to have a fair amount of slack - for instance, many firms maintained a fair amount of buffer inventory between various stages of the value chain. Of course, carrying all that inventory proved quite costly. Today, firms have been driving slack out of their supply chains in order to reduce costs. The unfortunate downside of that slack reduction may be an increase in tight coupling - and thus, in systemic risk. Naturally, the solution to the enhanced risk does not lie in adding back tons of waste to the supply chain. Instead, firms must find ways to reduce the rigidity of the system, so that one small error cannot easily cascade into a series of problems that lead to major catastrophe.

Thursday, May 31, 2007

Does Six Sigma Inhibit Breakthrough Innovation?

Business Week has a thought-provoking article about the tension between innovation and efficiency at 3M. When Jim McNerney came over to 3M from General Electric, he brought with him many GE processes and systems, including Six Sigma. During McNerney's tenure at 3M, profitability soared. Operating margins increased from 17% to 23%, and earnings grew 22% per year on average. However, some people wonder whether the Six Sigma process, as well as the emphasis on improving efficiency, harmed the creative culture at 3M and dampened the likelihood of breakthrough innovation. Drawing on 3M's experiences as well as the work of several academics, the article suggests that Six Sigma may drive a large amount of incremental improvement and innovation, but perhaps makes it difficult for employees to pursue discontinuous/disruptive innnovations. Simply put, one cannot completely systemize the process of innovation.

It will be interesting to watch how new CEO George Buckley's efforts to stimulate creativity play out in the years ahead. Can the company stimulate more breakthrough innovation without compromising its efforts to continuously improve quality and efficiency? The 3M story takes us back to a very interesting issue that academics have been studying for years, namely the tension between exploitation activities and exploration activities. Exploitation refers to the systematic refinement and improvement of existing processes and products, while exploration involves more open-ended experimentation and discovery. Can firms simultaneously perform both sets of activities well? Often, a firm's resource allocation process exhibits a strong bias toward one form of activity or the other. Senior management teams often have skills and capabilities that are well-suited for exploitation, but not exploration, or vice versa. The incentive system also often leans one way or the other. Some managers and academics believe that the best firms can strike a balance between exploration and exploitation, but it has not been easy identifying how to achieve this balancing act. It strikes me that we will learn a great deal about this issue by watching how events unfold at 3M in the years ahead.

Predicting Hit Products

Seth Godin has an interesting new post on his blog entitled "Pundits are (nearly) always wrong." He examines why many so-called experts are wrong in predicting the next big hit in technology, books, music, etc. Godin argues that the experts often "measure the wrong thing." They focus on the presentation more so than the substance of the idea. To some extent, a slick and clever pitch can overcome many flaws of logic.

Moreover, Godin suggests that experts often judge a pitch based on their existing worldview. Their mental model becomes the filter through which they judge whether something will become a hit. Of course, that mental model is largely shaped by past successes and failures. However, as Godin rightly points out, "The problem is that hits change worldviews. Hits change our senses. Hits appeal to people other than the gatekeepers and then the word spreads."

Godin's argument reminds me of the famous quote by legendary screenwriter William Goldman, who once remarked that “nobody knows nothing” in Hollywood, meaning that picking hits remained a formidable challenge even for industry veterans like him.

Friday, May 25, 2007

The Eclipse of the Public Corporation

Nearly two decades ago, Michael Jensen was criticized by many people, including many of his academic colleagues, for his thought-provoking article, The Eclipse of the Public Corporation, published in Harvard Business Review. People dismissed him when the LBO boom of the 1980s faded. They laughed when he wrote, "By the turn of the century, the primacy of public stock ownership in the United States may have all but disappeared." Well, in January 2000, with the dot com bubble raging, Jensen's far-reaching prognostications did seem completely off base. What about today? The dramatic expansion of private equity has validated Jensen's predictions from 18 years ago. Private equity has expanded rapidly, in part because it does solve some of the governance problems posed by the large publicly traded corporation, with its separation of ownership and control.

It's worth revisiting Jensen's arguments for a moment. At the time, Jensen argued that the public corporation's "decline is real, enduring, and highly productive." He explained the benefits of private equity and leveraged buyouts using agency theory, of which he was one of the founding fathers. Jensen wrote, "By solving the central weakness of the public corporation - the conflict between owners and managers over the control and use of corporate resources - these new organizations are making remarkable gains in operating efficiency, employee productivity, and shareholder value."

I can recall being one of Michael Jensen's students back in the early 1990s, long before I became his colleague on the HBS faculty. His class was the most popular elective at HBS back then. Not everyone agreed with him, but he offered thought-provoking theories, and he sparked some wonderful debates. This article, in particular, resonated with me and many of my peers back then, and it sure does seem quite prescient looking back today.

Back to Retail for Dell

Dell announced today that they will be selling several PC models in Wal-Mart stores. It's a very interesting development, not only because Dell is so well-known for its direct business model, but also because Dell did not succeed when it tried to sell PCs in the retail channel back in the early 1990s. What's the challenge for Dell as it tries to sell through retailers? It goes back to why many traditional PC makers had difficulty imitating Dell's direct business model. The two ways of doing business (selling through retail and selling direct) are somewhat incompatible with one another. Selling through retailers means producing and distributing large volumes of standardized products. Selling direct means producing customized PCs on demand. The processes and activities required for each business model are quite different. It's easier for a firm to completely optimize on one business model, rather than trying to operate two models simultaneously in the same corporation. That's one reason why Dell did so well in the 1990s, while IBM, Compaq, and others struggled to launch their direct businesses while still selling through value-added resellers and retailers. Dell was a "pure play" - those often trump firms that find themselves "straddling" between two somewhat incompatible business models. Hewlett-Packard ultimately figured out how to make the two models work together - now Dell must learn the same if they wish to succeed in the retail channel.

Sir James Dyson on Failure

Very interesting to read the current issue of Fast Company, given my recent post regarding managerial attitudes toward failure. Writer Chuck Salter interviews Sir James Dyson, the inventor of the best-selling vacuum cleaner in the U.S. - the famous Dyson bagless vacuum. Dyson points out that he made more than 5,000 prototypes before he discovered the model that became a commercial success. He notes, "There were 5, 126 failures, but I learned from each one. So I don't mind failure. I've always thought htat schoolchildren should be marked by the number of failures they've had. The child who tries strange things and experiences lots of failures to get there is probably more creative. " Of course, that sentence struck me because I had just written about Build-A-Bear CEO Maxine Clark's admiration for her schoolteacher who did precisely what Dyson suggests! Dyson goes on to say: "We're taught to do things the right way. But if you want to discover something that other people haven't, you need to do things the wrong way. Initiate a failure by doing something that's very silly, unthinkable, naughty, dangerous. Watching why that fails can take you on a completely different path."

Monday, May 21, 2007

Tuition Assistance and Employee Retention

Today's Wall Street Journal reports on research by Stanford graduate student Colleen Flaherty and Wharton professor Peter Cappelli indicating that employees are less likely to leave a firm if they have been enrolled in a tuition assistance program. The finding proves quite interesting, because many firms have worried in the past that employees would jump ship after taking advantage of a tuition assistance program. Economists too have questioned whether tuition reimbursement programs increase turnover among talented employees. After all, most MBA programs enhance an employees' general human capital, rather than firm-specific human capital; thus, they become more attractive to outside employers. Investments in firm-specific human capital, in contrast, would increase an employees' prospects within the firm, but not on the outside market. The findings from Flahery and Cappelli suggest that employees may stick around despite the increase in marketable skills. Perhaps employees feel a sense of loyalty to their employers, or they might find that the advanced degree offers numerous opportunities for internal promotion. Of course, the finding may also suggest that the kinds of firms offering generous tuition reimbursement programs also are quite likely to have other attributes that are highly attractive to talented, highly educated employees. Those other attributes may explain, in part, why turnover is lower for those enrolled in tuition reimbursement programs.

Wednesday, May 16, 2007

Attitudes about Failure

Tom Kelley, the co-founder of IDEO - one of the world's leading design firms, has a great saying about how to learn and innovate effectively: "Fail early and often to succeed sooner." At IDEO, a great deal of experimentation and prototyping occurs in the design process. People try lots of new things in search of progress toward a great design. Unfortunately, most organizations have the wrong attitude toward failure. They treat all failures in the same manner -harshly. Managers often create environments where people live in fear of making the smallest of mistakes, and thus, employees become highly risk averse. Yet, without risk-taking, innovation will not take place.

Maxine Clark, founder and CEO of Build-a-Bear Workshop, has a refreshing take on how to encourage risk-taking and use mistakes to drive innovation. She has built an incredibly successful company, growing it to over $350 milllion in sales over the past decade. She has done so by delivering a world-class customer experience in her stores. In her book, Clark tells us the story of her first grade teacher, Mrs. Grace. Like many elementary school teachers, Mrs. Grace graded papers using a red pencil. However, unlike most of her colleagues, Mrs. Grace gave out a rather unorthodox award at the end of each week. She awarded a red pencil prize to the student who had made the most mistakes! Why? Mrs. Grace wanted her students engaged in the class discussion, trying to answer every question - no matter how challenging. As Clark writes, "She didn't want the fear of being wrong to keep us from taking chances. Her only rule was that we couldn't be rewarded for making the same mistake twice." That is the key - making sure that you emphasize the importance of learning from each mistake, so that they do not happen again.

Clark has applied her first grade teacher's approach at Build-a-Bear by creating a Red Pencil Award. She gives this prize to people who have made a mistake, but who have discovered a better way of doing business as a result of reflecting upon and learning from that mistake. Clark has it right when she says that managers should encourage their people to "experiment freely, and view every so-called mistake as one step closer to getting things just right." Of course, her first grade teacher had it right as well when she stressed that people would be held accountable if they made the same mistake repeatedly. Failing to learn is the bad behavior that managers should deem unacceptable.

Monday, May 14, 2007

Chrysler Sold to Cerberus

DaimlerChrysler announced today that they would sell 80% of Chrysler to a private equity firm (Cerberus Capital Management) for $7.4 billion. Of course, Daimler bought Chrysler back in 1998 for $36 billion. Is it any wonder that Newsweek once called the merger, "the worst-executed big takeover since God invented corporations." If you want to learn more about how this merger took place back in the late 1990s, I would highly recommend reading Taken for a Ride: How Daimler Drove Off with Chrysler. Veteran auto industry journalists Bill Vlasic and Brad Stertz wrote this definitive account of how the deal unfolded. I had the pleasure of hosting the two gentlemen at a seminar at Harvard Business School several years ago. They impressed us with the thoroughness of their research, and the incredible access that they had secured with many of the key figures involved in the deal.

Wednesday, May 09, 2007

Breaking up General Electric?

The Wall Street Journal has an article today about the calls by some investors to break up GE. Some shareholders have clamored for a break-up, largely because GE shares have performed poorly since Immelt became CEO in 2001. The article points out that GE shares are down 7% since Immelt took charge, while the DJIA is up 35%. This discussion reminds us of the arguments surrounding the conglomerate discount. For years, studies have shown that unrelated diversifiers trade at a discount to their break-up value. (Note that this is true in the United States, where markets are relatively efficient, and many information intermediaries exist to facilitate the flow of products, capital, and labor. According to research by Harvard Professor Tarun Khanna, unrelated diversifiers tend to perform better in developing economies, where markets are less efficient).

The explanation for the conglomerate discount is that, in the presence of efficient capital markets, investors can diversify more effectively and inexpensively than the executives of the firm. In short, we don't need senior managers at the conglomerate to spread risk by being in a wide range of unrelated businesses; we can achieve risk mitigation much more effectively by buying a portfolio of stocks of more focused firms. Similarly, in the presence of efficient external labor markets, we would question whether a conglomerate could operate its internal labor market more effectively than the external market.

However, GE has been a famous exception to the general tendency regarding the conglomerate discount. It has performed quite well for decades, with its business units outperforming most focused competitors. Could this no longer be true? If the stock price performance continues to lag the overall market, more investors will be taking a look at the age-old question: is the whole worth more than the sum of the parts? Given GE's track record, I would tend to be cautious about breaking up the firm, but it will be interesting to watch what happens if the stock continues to lag the market.

Low Risk Innovation

Business Week has an interesting article about how Pixar's John Lasseter is re-invigorating innovation and creativity at Disney's animation studios. Lasseter has come up with a relatively low risk, low cost strategy for doing so. He's funding the development of a series of five minute shorts, and he's asking young talent at the studio to direct them. The budget for a short represents less 2% of the money required to fund a major animated film. Therefore, he's deploying a relatively small amount of capital, yet providing talented up-and-comers an opportunity to try their hand at directing their first animated film. Interestingly, Walt Disney built his studio back in the 1930s based on a series of popular shorts. Now, it seems that Lasseter is returning Disney animation to its roots in hopes of rekindling the creativity that, once upon a time, made the Disney animators the envy of the entertainment world. Other firms should take notice, and they should look for their own low risk, low cost opportunities to spark innovation and creativity, while simultaneously developing and evaluating young talented employees.

Friday, May 04, 2007

Have Boards of Directors Really Changed?

In the April 2007 issue of the Academy of Management Journal, Jim Westphal and Ithai Stern published a thought-provoking study of the labor market for directors of U.S. corporations. They found that directors are more likely to be appointed to other boards if they provide advice to the CEO frequently. That is the good news. The bad news is that directors are more likely to gain new appointments to other boards if they engage in a low level of monitoring and control activity with regard to strategic decision-making by the CEO and his/her management team. After the corporate scandals of Enron, Worldcom, and others, we saw the implementation of many corporate governance reforms intended to strengthen the monitoring and control activities of boards of directors. Yet, Westphal and Stern discovered that their findings hold even in the post-Enron era. The bad news does not end there. The scholars also find that women and minorities "are punished more for engaging in monitoring and control behavior." Those findings also hold in the post-Enron era. What do I conclude from this finding? We have focused far too much effort on structural reforms at the board level, rather than focusing on board process. Board chairmen and lead directors need to develop processes that stimulate open dialogue and induce constructive debate in the boardroom. We cannot simply expect a vigorous exchange of views because we have appointed a certain percentage of outside directors. Pressures for conformity will arise, even among a highly capable group of directors who are properly nominated and selected.

Chasing the Story

In the New York Times yesterday, Hal Varian wrote about a new study conducted by three finance professors at the University of Richmond (Thomas Arnold, John Earl Jr., and David North). These scholars published a paper entitled, "Are Cover Stories Effective Contrarian Investors?" They examined how a company's stock price changed after the appearance of a cover story published in one of the leading business magazines. Arnold, Earl, and North discovered that journalists tended to write cover stories after a period of unusually good or bad performance on the part of a company - positive stories about high performing firms and negative stories about poor performers. However, after the stories are published, the companies about which positive stories were written do not perform much differently than the firms about which negative stories were published. What's the lesson for investors? Do not try to time the purchase or sale of securities based on what you read in glossy cover stories. Of course, those of us who believe that the American capital markets are relatively efficient should not be surprised by this result. The cover stories often do not constitute breaking news to the investor community. They already know much of what is being written in these pieces, and thus, the stock price has adjusted to that information prior to the publication of the magazine.

Thursday, May 03, 2007

Learning vs. Performance

Harvard Professor Amy Edmondson, with whom I have co-authored several articles and case studies, has an interesting new paper about the tensions between organizational learning and performance. This paper is especially interesting because it synthesizes her outstanding work over the past decade. In this article, she argues that firms must engage in learning if they are to improve performance over time. However, efforts to enhance learning often appear at odds with an organization's performance orientation. For instance, she points out that many of her past studies have shown that learning requires a willingness to surface and discuss problems and mistakes. However, detecting and discussing errors makes organizations appear to be performing poorly. That makes managers and employees uncomfortable. Learning also creates another type of discomfort. When people learn, it typically involves a transition period, during which performance may lag as individuals and teams develop new capabilities. Therefore, Edmondson suggests that managers need to confront and assuage the discomfort that is created by a healthy learning process. If they do not, then the performance orientation of most organizations will stifle opportunities for improvement and innovation. For more on this interesting work, see

Thursday, April 26, 2007

GM vs. Toyota

Big news in the auto industry this week: Toyota surpassed General Motors in global volume. Of course, we have seen this coming for some time. GM has been losing market share for decades. Fortune magazine writer Alex Taylor III has some interesting advice for GM in an article titled "Dead Brands Walking." He argues that GM has far too many brands, and that they should shut down Buick and Pontiac, sell Hummer and Saab, and convert GMC into a commercial truck brand. He advocates maintaining Chevy and Saturn as the mainstream brands and Cadillac as the high-end, premium brand. Taylor suggests that GM should note the success of Toyota and Honda, each of which does not maintain a large stable of brands. He puts forth a persuasive argument. When GM created its family of brands many decades ago, they each stood for something different in the mind of the consumer, and the brands sold cars at different price points. Over time, however, the brands came to overlap a great deal, as GM designed a new model and simply slapped superficial modifications on the basic design so as to sell the same car under several different nameplates. Why did they do this? Cost savings! Efforts to improve efficiency led to the use of common parts, and ultimately, common platforms for multiple brands. While these efforts reduced GM's costs, the consumers no longer could identify the distinct meanings of the brands. The images of each brand blurred together. In short, then, GM needs to re-think its longstanding strategy of maintaining a large brand portfolio. Interestingly, however, GM executives have been focused on two other issues for the past few years: driving down costs and improving quality. These two initiatives are surely worthwhile and necessary, but GM failed to address a much larger question: What should our strategy be? It means little to drive down costs and improve quality if one hasn't thought carefully about how to competitively position one's products in the market. If GM intends to transform itself, it ought to re-think its strategy first, and then figure out how to align the cost structure to support that strategy.

Improving MBA Education

In recent years, several prominent management scholars have penned stinging criticisms of the state of MBA education, yet far too little change has taken place in the halls of academia. Warren Bennis and James O'Toole wrote one of the best articles on this subject in 2005 in Harvard Business Review ("How Business Schools Lost Their Way"). Bennis and O'Toole criticized the fact that the academy has tilted heavily toward those who publish articles based on statistical modeling, analyses of large datasets, and laboratory experiments. While this research can be quite valuable at times, it often does not capture the complex reality of managerial work within real organizations. Far too little clinical research takes place in business schools today. Too often, scholars think of their audience as other scholars, rather than focusing on two other critical audiences for their work - students and practicing managers. I find these criticisms quite valid, and therefore, I was quite pleased to read Michael Porter's recent article in Case Research Journal. In that piece, Porter affirms the value of case research and in-depth clinical, longitudinal studies. Now, if only business schools could begin to reward the type of work that Mike Porter rightly credits with producing important insights that are relevant to the practice of management.

Developing Strategic Thinkers

What types of competencies are most difficult to develop in your employees? Human resource executives often say that they would like to develop the strategic thinking skills of key people in their businesses, but they aren't quite sure how to do so. How does a company address this developmental need? Michael Watkins has some interesting thoughts on this topic in his blog this week.

Wednesday, April 04, 2007

Growing Your Way to a Flawed Strategy

In 2001, Carol Loomis wrote an article for Fortune magazine, which was titled "The 15% Delusion." She described the dangers that companies encounter when their CEOs publicly proclaim aggressive growth targets. In particular, she pointed that many companies set a goal of 15% growth in earnings per share, yet few large firms can sustain this rate of growth over a lengthy period of time. She cited several studies to support this conclusion. Growing earning at 15% per year means that a firm is doubling its earnings every five years. That type of growth becomes very difficult as a company becomes quite large.

Companies continue to set such targets though, and they continue to get themselves in trouble pursuing the ever-elusive 15% growth year after year. Some executives undoubtedly will disappoint Wall Street when they fail to meet these targets. A few might cross the ethical line trying to avoid public acknowledgement of missed earnings goals. The larger problem, however, is that many firms will undermine a once quite effective competitive strategy in search of rapid growth. They often undermine their strategy by expanding their product and service offerings in an undisciplined manner. They begin trying to be all things to all people, instead of focusing intently on a particular segment of consumers. In short, many companies simply grow themselves into a troubled strategy.

In a 1996 Harvard Business Review article, Michael Porter argued that "the essence of strategy is choosing what not to do." In other words, creating a distinctive strategy is all about making good tradeoffs. Southwest Airlines, for instance, does not offer first class seating, nice meals, and assigned seats. By refusing to offer such services to customers, they have created a unique low-cost position in a very tough industry. Southwest isn't for everyone. That's ok. They don't try to cater to all flyers.

As many companies get large, and try to sustain 15%+ growth, they begin violating the tradeoffs that made them unique and great. That leads them into trouble. Porter called this the "growth trap." Do we have some examples recently? One might be The Home Depot. When Bob Nardelli took over, the company generated $45 billion in annual revenue. He spoke boldly of more than doubling revenue in five years, to achieve $100 billion in sales. That translates into roughly 15% growth per year. You see the trouble. 15% growth at a company of that size means adding more than $50 billion in revenue in 5 years - a breathtaking pace. It had taken the company more than 20 years to grow to $45 billion sales. Now, they wanted to generate that same amount of new revenue in less than 1/4 of the time. Five years later, of course, Nardelli was pushed out at The Home Depot, and many investors want new CEO Frank Blake to fundamentally re-think the strategy. Under Nardelli, the company had expanded aggressively into businesses catering to professional contractors. The firm began as a company totally focused on the do-it-yourselfer. By 2006, it had become a firm trying to cater very different kinds of customers, ranging from the buy-it-yourselfer who wanted someone else to do the work to the professional contractor who wanted to buy in bulk. Those very different customers had very different needs. It operated multiple businesses ranging from EXPO Design to Home Depot Supply. Through it all, the original "orange box" could not keep up with the same-store sales growth generated by Lowe's - a much more focused competitor.

Are there other companies today in danger because of the "15% delusion" described by Loomis? One company to watch is Starbucks. In their last Annual Report, they set out goals of achieving 20% sales growth per year and 20-25% earnings growth per year over the next 3-5 years. 25% earnings growth means doubling net income every 3 years! Can they do it? Perhaps. It has been a remarkable company. However, Starbucks is now a Fortune 500 firm. It generated nearly $8 billion in revenue last year. Sustaining such rapid growth, without undermining its distinctive competitive positioning, will be a challenge. Investors recognize this, which is why so much was made of founder Howard Schultz's recent letter to senior managers. In that letter, he warned of the possible "watering down" of the Starbucks brand and experience. He speaks, for instance, of the loss of the coffee aroma in the stores. I notice this now that Starbucks offers breakfast sandwiches... the shops don't smell like coffee any more; they smell like eggs. It's not the same experience. As Starbucks continues to try to grow aggressively, one wonders if they will violate many of the tradeoffs that made them so distinctive. What exactly will Starbucks not do these days? Are they trying to be all things to all people? Will they be more like Southwest Airlines or The Home Depot five years from now?

Friday, March 30, 2007

The Off-Site Retreat

How many of you have attended a management off-site held by your firm? Perhaps you anticipated the opportunity to get away from the daily grind at the office, and you looked forward to getting some important work done with your colleagues. All too often, however, managers come away from these off-site retreats incredibly frustrated. Why do so many off-sites yield few tangible results?

In my experience, there are three types of problematic off-sites. First, we have "Off-Site Lite" - the expensive gathering at a plush resort, filled with golf outings, cocktail parties ... and very little real work. People come away tanned and rested, yet they have done little to address the tough challenges facing the business. Second, we have "The Powerpoint Parade" - an agenda packed with an endless series of presentations by senior managers... with very little time for open-ended dialogue and candid debate. Managers come away with thick binders that will gather dust on their bookshelves, yet few strategic decisions have been made. Finally, we have "Deep Thoughts" - a rambling, unstructured discussion of big ideas and profound insights... with no action items assigned, no decisions made, and no dialouge about what to do next.

How does one avoid these rather expensive fiascoes? First, before planning all the social activities and "networking opportunities," ask yourself a simple question: What would shareholders think if they observed us at this off-site meeting? Would they think we were using their money wisely? Second, be very clear on the goals of the off-site. What types of outcomes do you wish to achieve? What type of tangible action items will emerge from the meetings? Third, keep in mind a simple mantra: Focus on dialogue, not documents. Ask presenters to keep the Powerpoint decks slim and trim. Keep everyone focused on the discussion and the dialogue among the participants, as opposed to reams of slides and spreadsheets. Ensure that managers have ample opportunity to engage vigorous debate about the key challenges and opportunities facing the business. Finally, assign a moderator/facilitator to keep the team on track - to ensure that sufficient debate takes place, but that the conflict remains constructive. Ask that person to help the group establish a set of norms and ground rules for the discussions, and then empower that person to ensure that the group adheres to these guidelines. With these simple principles in mind, I think you come away from your next off-site a bit less tanned and relaxed, but much more ready to tackle the business challenges that lie ahead.


Welcome to Musings about Leadership and Competitive Strategy, a blog in which I will discuss the challenges managers face as they try to lead teams and organizations, make tough decisions, and formulate efffective competitive strategies. The blog will offer thoughts and insights based on my teaching, research, and consulting with many companies in a wide variety of industries. For more than a decade, I have been studying companies, as well as their leaders at all levels of the organizations. My work began as a doctoral student at Harvard Business School and continued as a faculty member there for six years after completion of my dissertation. Today, I teach at Bryant University in Smithfield, Rhode Island - where I continue my research and teaching. As a scholar at HBS, I learned how to conduct research with practical relevance for managers. I became a clinical researcher, meaning that I spent a great deal of time in the field - conducting interviews, administering surveys, and most importantly, observing managers in action. From there, I began drawing on that research, including many case studies, to help companies create and deliver leadership development programs that would have an impact on their top leaders as well as their rising stars. The best part of my job is the learning that I engage in every day. In all the time that I spend with managers as a researcher and consultant, I'm convinced that I learn a great deal from them every day. I've met many accomplished managers - most of whom are not widely recognized or celebrated - and garnered many insights into what makes for effective vs. ineffective leadership. I hope to share what I have learned in this blog, and to generate a lively dialogue with all of you, the readers of this blog. Thank you for your participation.